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[PC7 Portfolio]
[Burr Ridge, IL – Property #1587]
[Prospect Heights, IL – Property #1588]
[Austin, TX – Property #1589]
[San Antonio, TX – Property #1590]

 

 

 

 

 
MASTER LEASE AND SECURITY AGREEMENT
 
AMONG

HCP, INC.
and
TEXAS HCP HOLDING, L.P.,
as their interests may appear, as Lessor
 
AND
 
EMERITUS CORPORATION,
 
as Lessee
 
Dated as of May 14, 2010
 

 

 

 

 
 

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TABLE OF CONTENTS
Page
 

ARTICLE I.
 
1
1.1
Leased Property; Term.
1
ARTICLE II.
 
2
2.1
Definitions
2
ARTICLE III.
 
23
3.1
Rent
23
3.2
Additional Charges
26
3.3
Late Payment of Rent.
26
3.4
Net Lease
27
ARTICLE IV.
 
27
4.1
Impositions
27
4.2
Utilities
29
4.3
Insurance
29
4.4
Impound Account
29
4.5
Tax Service
29
ARTICLE V.
 
30
5.1
No Termination, Abatement, etc
30
5.2
Termination with Respect to Fewer than All of the Facilities
30
5.3
Abatement Procedures
31
ARTICLE VI.
 
31
6.1
Ownership of the Leased Property
31
6.2
Personal Property
31
6.3
Transfer of Personal Property and Capital Additions to Lessor
31
ARTICLE VII.
 
31
7.1
Condition of the Leased Property
31
7.2
Use of the Leased Property
32
7.3
Lessor to Grant Easements, etc
33
7.4
Preservation of Facility Value
33
ARTICLE VIII.
 
34

 
 
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8.1
Compliance with Legal and Insurance Requirements, Instruments, etc.
34
ARTICLE IX.
 
35
9.1
Maintenance and Repair.
35
9.2
Encroachments, Restrictions, Mineral Leases, etc
36
9.3
On-Going Capital Projects
37
9.4
Inspections; Due Diligence Fee
39
9.5
Initial Planned Capital Refurbishment Projects.
39
ARTICLE X.
 
46
10.1
Construction of Capital Additions to the Leased Property
46
ARTICLE XI.
 
46
11.1
Liens
46
ARTICLE XII.
 
47
12.1
Permitted Contests
47
ARTICLE XIII.
 
47
13.1
General Insurance Requirements
47
13.2
Replacement Cost
49
13.3
Additional Insurance
50
13.4
Waiver of Subrogation
50
13.5
Evidence of Insurance
50
13.6
Increase in Limits
51
13.7
Blanket Policies and Policies Covering Multiple Locations
51
13.8
No Separate Insurance
51
13.9
Insurance Requirements Under the Facility Loan Documents
52
ARTICLE XIV.
 
52
14.1
Insurance Proceeds
52
14.2
Insured Casualty.
52
14.3
Uninsured Casualty
53
14.4
No Abatement of Rent
53
14.5
Waiver
53
ARTICLE XV.
 
53
15.1
Condemnation.
53
ARTICLE XVI.
 
54

 
 
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16.1
Events of Default
54
16.2
Certain Remedies
57
16.3
Damages
57
16.4
Receiver
58
16.5
Lessee's Obligation to Purchase
58
16.6
Waiver
59
16.7
Application of Funds
59
16.8
Facility Operating Deficiencies
59
16.9
[Intentionally Omitted].
60
16.1
Lessor's Security Interest; Appointment of Collateral Agent
60
16.11
Leases and Residential Care Agreements
62
ARTICLE XVII.
 
63
17.1
Lessor's Right to Cure Lessee's Default
63
ARTICLE XVIII.
 
63
18.1
Purchase of the Leased Property; Rights of Lessee Prior to Closing.
63
ARTICLE XIX.
 
65
19.1
Extended Term(s)
65
19.2
Lessor's Extension Rights and Early Termination
66
ARTICLE XX.
    66
20.1
Holding Over
66
ARTICLE XXI. [INTENTIONALLY OMITTED]
67
ARTICLE XXII.
 
67
22.1
Risk of Loss
67
ARTICLE XXIII.
 
67
23.1
General Indemnification
67
ARTICLE XXIV.
 
68
24.1
Transfers.
68
ARTICLE XXV.
 
77

 
 
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25.1
Officer's Certificates and Financial Statements.
77
ARTICLE XXVI.
 
79
26.1
Lessor's Right to Inspect and Show the Leased Property
79
ARTICLE XXVII.
 
80
27.1
No Waiver
80
ARTICLE XXVIII.
 
80
28.1
Remedies Cumulative
80
ARTICLE XXIX.
 
80
29.1
Acceptance of Surrender
80
ARTICLE XXX.
 
80
30.1
No Merger
80
ARTICLE XXXI.
 
80
31.1
Conveyance by Lessor
80
31.2
New Lease
81
ARTICLE XXXII.
 
82
32.1
Quiet Enjoyment
82
ARTICLE XXXIII.
 
82
33.1
Notices
82
ARTICLE XXXIV.
 
83
34.1
Appraiser
83
ARTICLE XXXV.
 
83
35.1
Lessee's Option to Purchase the Leased Property.
83
35.2
Defaults.
85
35.3
Escrow Provisions.
86
35.4
Assurances
87
ARTICLE XXXVI.
 
87

 
 
 
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36.1
Lessor May Grant Liens
87
36.2
Attornment
88
36.3
Compliance with Facility Mortgage Documents
88
ARTICLE XXXVII.
 
90
37.1
Hazardous Substances
90
37.2
Notices
90
37.3
Remediation
91
37.4
Indemnity
91
37.5
Environmental Inspection
92
37.6
Pre-Existing Environmental Conditions
93
ARTICLE XXXVIII.
 
93
38.1
Memorandum of Lease
93
ARTICLE XXXIX.
 
93
39.1
Sale of Assets
93
ARTICLE XL.
 
94
40.1
Subdivision
94
ARTICLE XLI.
 
94
41.1
Authority
94
ARTICLE XLII.
 
94
42.1
Attorneys' Fees
94
42.2
Set-Up Costs
95
ARTICLE XLIII.
 
95
43.1
Brokers
95
ARTICLE XLIV.
 
95
44.1
SUBMISSION TO ARBITRATION.
95
ARTICLE XLV.
 
97
45.1
Miscellaneous.
97
ARTICLE XLVI.
 
103

 
 
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46.1
Provisions Relating to Master Lease
103
46.2
Treatment of Lease
103
ARTICLE XLVII.
 
103
47.1
Matters Relating to Purchase of the Leased Property, Operations Transfer
Agreement(s), Pre-Commencement Date Period and Commencement Date
103
ARTICLE XLVIII.
 
104
48.1
Lessor's Conditions to Continued Effectiveness of Lease
104
48.2
Lessee's Conditions to Continued Effectiveness of Lease.
106
48.3
Amendment to Lease
107
ARTICLE XLIX.
 
108
49.1
Certain Additional Representations and Warranties by Lessee
108
ARTICLE L.
 
109
50.1
Matters Relating to Certain Claims against Current Owner and Certain Escrowed
Funds
109

Exhibits:

Exhibit A                                Legal Description of the Land
Exhibit B                                List of Lessor’s Personal Property
Exhibit C                                Description of Facilities and Certain
Material Terms
Exhibit D                                Form of Amendment to Lease

Schedules:

Schedule 7.4.1                                           Excluded Facilities
Schedule 9.5.1A                                Immediate Need Planned Capital
Refurbishment Projects
Schedule 9.5.1B                                Future Need Planned Capital
Refurbishment Projects

 

 
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MASTER LEASE AND SECURITY AGREEMENT
 
THIS MASTER LEASE AND SECURITY AGREEMENT (“Lease”) is dated as of the 14th day
of May, 2010 (the “Effective Date”), and is among HCP, INC., a Maryland
corporation (doing business in the state of Illinois as HC Property Investments,
Inc.) and TEXAS HCP HOLDING, L.P., a Delaware limited partnership as their
interests may appear (“Lessor”) and EMERITUS CORPORATION, a Washington
corporation (“Lessee” or sometimes “Emeritus”).
 
ARTICLE I.
 
1.1           Leased Property; Term.
 
Upon and subject to the terms and conditions hereinafter set forth, Lessor
leases to Lessee and Lessee leases from Lessor all of Lessor’s rights and
interests in and to the following with respect to each Facility (as defined
below) (collectively the “Leased Property”):
 
(a)           subject to the provisions of Section 45.1.9 below, the real
property or properties described in Exhibits A-1 through A-4 attached hereto
(collectively, the “Land”);
 
(b)           all buildings, structures, Fixtures (as hereinafter defined) 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 Lessor has obtained any interest in the
same), parking areas and roadways appurtenant to such buildings and structures
and Capital Additions funded by Lessor of each such Facility (collectively, the
“Leased Improvements”);
 
(c)           all easements, rights and appurtenances relating to the Land and
the Leased Improvements of each Facility (collectively, the “Related Rights”);
 
(d)           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 of each Facility (collectively, the “Fixtures”); and
 
(e)           the machinery, equipment, furniture and other personal property
described on Exhibit B attached hereto, together with all replacements and
substitutes therefor of each Facility (collectively, “Lessor’s Personal
Property”).
 

 
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SUBJECT, HOWEVER, to the easements, encumbrances, covenants, conditions and
restrictions and other matters which affect the Leased Property of each Facility
as of the Commencement Date (as hereinafter defined), or which are created
thereafter as permitted hereunder to have and to hold for (1) the Fixed Term (as
defined below), and (2) the Extended Term(s) (if any) provided for in Article
XIX, unless this Lease is earlier terminated as hereinafter provided.
 
ARTICLE II.
 
2.1           Definitions
 
.  For all purposes of this Lease, except as otherwise expressly provided or
unless the context otherwise requires, (i) the terms defined in this Article
have the meanings assigned to them in this Article and include the plural as
well as the singular; (ii) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with GAAP as at the time
applicable; (iii) all references in this Lease to designated “Articles,”
“Sections” and other subdivisions are to the designated Articles, Sections and
other subdivisions of this Lease; (iv) the word “including” shall have the same
meaning as the phrase “including, without limitation,” and other similar
phrases; and (v) the words “herein,” “hereof” and “hereunder” and other similar
words refer to this Lease as a whole and not to any particular Article, Section
or other subdivision:
 
1031 Exchange:  As defined in Section 18.3.
 
AAA:  As defined in Article XLIV.
 
Accommodator:  As defined in Section 18.1.3.
 
Additional Charges:  As defined in Article III.
 
Additional Rent: The sum of the Allocated Additional Rent for all of the
Facilities.
 
Affiliate:  Any Person which, directly or indirectly (including through one or
more intermediaries), controls or is controlled by or is under common control
with any other Person, including any Subsidiary of a Person.  For purposes of
this definition, the definition of “Controlling Person” below, and Article XXIV
below, the term “control” (including the correlative meanings of the terms
“controlled by” and “under common control with”), as used with respect to any
Person, shall mean the possession, directly or indirectly (including through one
or more intermediaries), of the power to direct or cause the direction of the
management and policies of such Person, through the ownership of voting
securities, partnership interests or other equity interests.  Without limiting
the generality of the foregoing, when used with respect to any corporation, the
term “Affiliate” shall also include (i) any Person which owns, directly or
indirectly (including through one or more intermediaries), Fifty Percent (50%)
or more of any class of voting security or equity interests of such corporation,
(ii) any Subsidiary of such corporation and (iii) any Subsidiary of a Person
described in clause (i).  Notwithstanding anything to the contrary in this
definition, with respect to Lessee and any Guarantor, the term
 

 
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“Affiliate” shall exclude any Person that is an affiliate of Daniel R. Baty and
that but for its relationship with Daniel R. Baty would not otherwise be
considered an Affiliate of Lessee or such Guarantor.
 
Aggregate Costs of the Planned Capital Refurbishment Project:  With respect to
each Planned Capital Refurbishment Project for a Facility, the actual
out-of-pocket costs actually incurred by Lessee pursuant to the provisions of
this Lease in connection with such Planned Capital Refurbishment Project for
such Facility, including all costs of design, construction, installation and
obtaining all governmental approvals and permits with respect to such Planned
Capital Refurbishment Project) for such Facility, the Planned Capital
Refurbishment Project Site Review Fees for such Facility and the Planned Capital
Refurbishment Project Lessor Costs for such Facility.  Notwithstanding anything
to the contrary in this Lease, the Aggregate Costs of the Planned Capital
Refurbishment Project for any Planned Capital Refurbishment Project for any
Facility shall not count towards the Annual Minimum Capital Project Amount with
respect to such Facility, and Lessee’s expenditure or reimbursement of any
portion of such Aggregate Costs of the Planned Capital Refurbishment Project for
any Facility shall be in addition to the Annual Minimum Capital Project Amount
with respect to such Facility.
 
Allocated Additional Rent:  With respect to each Facility, the amount of
Additional Rent allocated to such Facility as determined pursuant to Section
3.1.2; provided, however, that Lessor and Lessee acknowledge and agree that such
allocation is solely for purposes of implementing the provisions of Sections
5.2, 5.3 and 31.2 hereof and the determination of Transfer Consideration for
purposes of Section 24.1.2.2.  Except for such Sections, the Minimum Rent,
Additional Rent and other Rent payable hereunder is payable for all Facilities
as a single, integrated and indivisible economic unit, and that but for such
integration, the Minimum Rent, Additional Rent and other Rent payable under this
Lease would have been computed on a different basis.
 
Allocated Additional Rent Increase Amount:  As defined in Section 3.1.2.
 
Allocated Base Minimum Purchase Price:  With respect to each Facility, on and as
of the Commencement Date, the “Allocated Base Minimum Purchase Price” for such
Facility as specified for and allocated to such Facility as set forth on Exhibit
C attached hereto.  Commencing upon the expiration of the first (1st)  Lease
Year, and upon the expiration of each Lease Year thereafter during the Term, the
then current Allocated Minimum Purchase Price for each Facility shall be equal
to the Allocated Base Minimum Purchase Price in effect as of the expiration of
the immediately prior Lease Year, as increased by a percentage equal to the
greater of (a) Two and One-Half Percent (2.5%) or (b) the lesser of (i) the
applicable CPI Increase or (ii) Five Percent (5%). Notwithstanding anything to
the contrary in this Lease, Lessor and Lessee acknowledge and agree that the
foregoing allocation for each Facility is solely for purposes of implementing
the provisions of Sections 14.2, 15.1.4, 16.5 and 31.2 hereof, and shall not be
deemed or construed to modify the nature of this Lease as a single, integrated
and indivisible economic unit.
 
Allocated Minimum Purchase Price:  With respect to each Facility, at any given
time, the sum of (i) the applicable Allocated Base Minimum Purchase Price for
such Facility,
 

 
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plus (ii) the aggregate of all Capital Addition Costs paid, funded or accrued by
Lessor for such Facility, which such Capital Addition Costs so paid, funded or
accrued by Lessor for such Facility shall be increased as of the expiration of
the Lease Year during which the same were paid, funded or accrued by Lessor, and
upon each Lease Year thereafter during the Term, by a percentage equal to the
greater of (a) Two and One-Half Percent (2.5%) or (b) the lesser of (i) the
applicable CPI Increase or (ii) Five Percent (5%).  Notwithstanding anything to
the contrary in this Lease, Lessor and Lessee acknowledge and agree that the
foregoing allocation for each Facility is solely for purposes of implementing
the provisions of Sections 14.2, 15.1.4, 16.5 and 31.2 hereof, and shall not be
deemed or construed to modify the nature of this Lease as a single, integrated
and indivisible economic unit.
 
Allocated Minimum Rent:  With respect to each Facility, the amount of Minimum
Rent allocated to such Facility as set forth on Exhibit C attached hereto (or
any amendment or supplement thereto) (subject to increase as set forth in
Article III or any other express provision of this Lease or any amendment hereto
providing for an increase in Minimum Rent); provided, however, that Lessor and
Lessee acknowledge and agree that such allocation is solely for purposes of
implementing the provisions of Sections 5.2, 5.3 and 31.2 hereof and the
determination of Transfer Consideration for purposes of Section
24.1.2.2.  Except for such Sections, the Minimum Rent, Additional Rent and other
Rent payable hereunder is payable for all Facilities as a single, integrated and
indivisible economic unit, and that but for such integration, the Minimum Rent,
Additional Rent and other Rent payable under this Lease would have been computed
on a different basis.
 
Allocated Planned Capital Refurbishment Project Additional Funding Amount:  With
respect to each Facility, a total aggregate funding for those Planned Capital
Refurbishment Project(s) at such Facility as identified on Schedule 9.5.1B
attached hereto as “Future Need” items, which are in addition to the “Immediate
Need” items identified on Schedule 9.5.1A to be covered by the Allocated Planned
Capital Refurbishment Project Allowance, and any additional capital
refurbishments/replacements for such Facility as may be proposed by Lessee and
reasonably approved by Lessor, which approval shall not be unreasonably
withheld, equal to the lesser of (i) the actual Aggregate Costs of the Planned
Capital Refurbishment Project(s) for such “Future Need” items (and any
additional capital refurbishments/replacements so proposed by Lessee and
reasonably approved by Lessor) with respect to such Facility or (ii) the amount
specified for and allocated to such Facility as set forth on such Schedule
9.5.1B for such “Future Need” items (and any additional capital
refurbishments/replacements so proposed by Lessee and reasonably approved by
Lessor) with respect to such Facility; provided, however, that Lessor shall not
unreasonably withhold its approval to the reallocation of the amount specified
for and allocated to such Facility for such “Future Need” items (and any
additional capital refurbishments/replacements so proposed by Lessee and
reasonably approved by Lessor) with respect to such Facility so long as the
aggregate of the Allocated Planned Capital Refurbishment Project Funding Amount
for all Facilities does not exceed Two Million Dollars ($2,000,000),
notwithstanding such reallocation or the actual Aggregate Costs of the Planned
Capital Refurbishment Project(s) for such “Future Need” items (and any
additional capital refurbishments/replacements so proposed by Lessee and
reasonably approved by Lessor) for all Facilities.  Notwithstanding anything to
the contrary in this Lease, the portion of the Allocated Planned Capital
Refurbishment Project Additional Funding Amount allocated to each Facility
 

 
4

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shall not count towards the Annual Minimum Capital Project Amount with respect
to such Facility, and Lessee’s expenditure or reimbursement of all or any
portion of the Aggregate Costs of the Planned Capital Refurbishment Project(s)
for any such "Future Need” items (and any additional capital
refurbishments/replacements so proposed by Lessee and reasonably approved by
Lessor) with respect to such Facility for such Facility shall be in addition to
the Annual Minimum Capital Project Amount with respect to such Facility.
 
Allocated Planned Capital Refurbishment Project Allowance:  With respect to each
Facility, a total aggregate allowance for those Planned Capital Refurbishment
Project(s) at such Facility as are identified on Schedule 9.5.1A attached hereto
as “Immediate Need” items equal to the lesser of (i) the actual Aggregate Costs
of the Planned Capital Refurbishment Project(s) for such “Immediate Need” items
with respect to such Facility or (ii) the amount specified for and allocated to
such Facility as set forth on such Schedule 9.5.1A for such “Immediate Need”
items; provided, however, that Lessor shall not unreasonably withhold its
approval to the reallocation of the amount specified for and allocated to such
Facility for such “Immediate Need” items so long as the aggregate of the
Allocated Planned Capital Refurbishment Project Allowance for all Facilities
does not exceed Five Hundred Thousand Dollars ($500,000), notwithstanding such
reallocation or the actual Aggregate Costs of the Planned Capital Refurbishment
Project(s) for such “Immediate Need” items for all Facilities.  Notwithstanding
anything to the contrary in this Lease, the portion of the Allocated Planned
Capital Refurbishment Project Allowance allocated to each Facility shall not
count towards the Annual Minimum Capital Project Amount with respect to such
Facility, and Lessee’s expenditure or reimbursement of all or any portion of the
Aggregate Costs of the Planned Capital Refurbishment Project(s) for any such
“Immediate Need” Planned Capital Refurbishment Project(s) for such Facility
shall be in addition to the Annual Minimum Capital Project Amount with respect
to such Facility.
 
Annual Minimum Capital Project Amount:  During each Lease Year, the following
amounts:
 
(i)           With respect to the first (1st) and second (2nd) Lease Years,
subject to Section 9.5 below, Zero Dollars ($0).
 
(ii)           With respect to the third (3rd) Lease Year for each Facility,
Five Hundred Fifty Dollars ($550.00) per living unit located on the Leased
Property of such Facility.
 
(iii)           With respect to the fourth (4th) Lease Year for each Facility,
Six Hundred Dollars ($600.00) per living unit located on the Leased Property of
such Facility.
 
(iv)           With respect to the fifth (5th) Lease Year for each Facility, Six
Hundred Fifty Dollars ($650.00) per living unit located on the Leased Property
of such Facility.
 
Commencing upon the expiration of the fifth (5th) Lease Year, and upon the
expiration of each Lease Year thereafter during the Term, the then current
Annual Minimum Capital Project Amount shall be equal to the Annual Minimum
Capital Project Amount in effect as of the expiration of the immediately prior
Lease Year, as increased by a percentage equal to the greater

 
5

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of (a) Two and One-Half Percent (2.5%) or (b) the lesser of (i) the applicable
CPI Increase or (ii) Five Percent (5%).

Annual Minimum Capital Project Amount Overage:  Subject to the provisions of
Section 9.3.4, with respect to each Facility for any Lease Year, an amount equal
to (a) the sum of (i) the Capital Project Costs incurred and paid by Lessee in
funding Capital Projects for such Facility in the immediately preceding two (2)
Lease Years and for which Lessor has received paid invoices, receipts or other
commercially reasonable evidence or supporting information as is customary to
evidence such expenditures, verifying the cost and payment of funding such
Capital Projects, and an Officer’s Certificate certifying that the applicable
item(s) of Capital Projects have been completed, less (ii) the amounts disbursed
by Lessor to Lessee from any Replacement Reserve on account of such Capital
Projects to such Facility in accordance with the terms of Section 9.3.1, in
excess of (b) the Annual Minimum Capital Project Amount for such Facility for
such prior two (2) Lease Year period.
 
Applicable Lease Rate:  On and as of the Commencement Date, an annual rate of
Eight and One-Half Percent (8.5%).   Commencing upon the expiration of the first
(1st) Lease Year and upon the expiration of each Lease Year thereafter during
the Term, the then current Applicable Lease Rate shall be increased by the
greater of (i) the applicable CPI Increase or (ii) Two and One-Half Percent
(2.5%).
 
Appraiser:  As defined in Article XXXIV.
 
Architect:   With respect to each Planned Capital Refurbishment Project for a
Facility, the architect and/or engineer selected by Lessee in connection with
the design and construction of such Planned Capital Refurbishment Project for
such Facility and approved by Lessor, which approval shall not be unreasonably
withheld or delayed so long as such architect is licensed in the State in which
such Facility is located and has experience with the type and scope of the
project for which he/she is being retained.
 
Award:  All compensation, sums or anything of value awarded, paid or received on
a total or partial Condemnation.
 
Bankruptcy Code:  The United States Bankruptcy Code (11 U.S.C. § 101 et seq.),
and any successor statute or legislation thereto.
 
Base Period:  The period commencing on that date which is eighteen (18) months
prior to the date any appraisal of any Facility is made pursuant to the
provisions of Article XXXIV and ending on the date which is six (6) months prior
to the date any such appraisal of such Facility is made.
 
BLS:  Bureau of Labor Statistics, U.S. Department of Labor.
 
Business Day:  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.
 

 
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Capital Additions:  With respect to any Facility, one or more new buildings, or
one or more additional structures annexed to any portion of any of the Leased
Improvements of such Facility, or the material expansion of existing
improvements, which are constructed on any parcel or portion of the Land of such
Facility, during the Term, including construction of a new wing or new story, or
the renovation of existing improvements on the Leased Property of such Facility
in order to provide a functionally new facility needed to provide services not
previously offered in such Facility. Notwithstanding anything to the contrary in
this Lease, each Planned Capital Refurbishment Project with respect to a
Facility shall at all times be deemed a Capital Addition to such Facility for
all purposes of this Lease.
 
Capital Addition Costs:  The costs of any Capital Addition made to the Leased
Property whether paid for by Lessee or Lessor, including (i) all permit fees and
other costs imposed by any governmental authority, the cost of site preparation,
the cost of construction including materials and labor, the cost of supervision
and related design, engineering and architectural services, the cost of any
fixtures, and if and to the extent approved by Lessor, the cost of construction
financing; (ii) fees paid to obtain necessary licenses and certificates; (iii)
if and to the extent approved by Lessor in writing and in advance, the cost of
any land contiguous to the Leased Property which is to become a part of the
Leased Property purchased for the purpose of placing thereon the Capital
Addition or any portion thereof or for providing means of access thereto, or
parking facilities therefor, including the cost of surveying the same; (iv) the
cost of insurance, real estate taxes, water and sewage charges and other
carrying charges for such Capital Addition during construction; (v) the cost of
title insurance; (vi) reasonable fees and expenses of legal counsel; (vii)
filing, registration and recording taxes and fees; (viii) documentary stamp and
similar taxes; and (ix) all reasonable costs and expenses of Lessor and any
Person which has committed to finance the Capital Addition, including (a) the
reasonable fees and expenses of their respective legal counsel; (b) printing
expenses; (c) filing, registration and recording taxes and fees; (d) documentary
stamp and similar taxes; (e) title insurance charges and appraisal fees; (f)
rating agency fees; and (g) commitment fees charged by any Person advancing or
offering to advance any portion of the financing for such Capital Addition.
Notwithstanding anything to the contrary in this Lease, all Aggregate Costs of
the Planned Capital Refurbishment Project for any Planned Capital Refurbishment
Project for any Facility paid, funded or accrued by Lessor under this Lease
(other than any portion of the applicable Planned Capital Refurbishment Project
Allowance, but including any portion of the Planned Capital Refurbishment
Project Additional Funding Amount, in either case  paid, funded or accrued by
Lessor on account thereof as provided in this Lease) shall be at all times
deemed Capital Addition Costs paid, funded or accrued by Lessor under this
Lease, including for purposes of determining the Allocated Minimum Purchase
Price.
 
Capital Project:  Repairs and replacements to the Leased Property, or any
portion thereof, which are categorized under GAAP as a capital expense and not
as an operating expense; provided, however, that in no event shall the term
“Capital Project” be deemed to include any Capital Additions.
 
Capital Project Costs:  All out-of-pocket costs reasonably incurred by Lessee in
connection with a Capital Project, excluding, however, any amounts that are
financed by Lessee and secured by a lien on the Personal Property relating
thereto.
 

 
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Close of Escrow:  As defined in Section 35.3.
 
Code:  The Internal Revenue Code of 1986, as amended.
 
Collateral:  As defined in Section 16.10.1.
 
Collateral Agent:  As defined in Section 16.10.2.
 
Commencement Date:  As defined in Section 47.1.
 
Commercial Occupancy Arrangement:  Any commercial (as opposed to resident or
patient) Occupancy Arrangement.
 
Completion Date: With respect to each Planned Capital Refurbishment Project for
a Facility, the date on which the construction/performance of such Planned
Capital Refurbishment Project for such Facility has been “substantially
completed” and that Lessor has received the following:  (i) a certificate of
substantial completion from the Architect in a form reasonably acceptable to
Lessor, (ii) to the extent applicable based upon the nature of such Planned
Capital Refurbishment Project for such Facility, a certificate of occupancy or
its equivalent issued in accordance with all Legal Requirements and by the
appropriate governmental authority having jurisdiction over the Leased Property
of such Facility which permits the occupancy and use of the improvements
constructed as part of such Planned Capital Refurbishment Project for such
Facility and (iii) all other licenses, authorizations and permits, if any,
required by any governmental authority for the use and operation of such Planned
Capital Refurbishment Project for such Facility as part of the Facility for its
Primary Intended Use.  For purposes of this definition, “substantially
completed” shall mean that the improvements being constructed/performed as part
of such Planned Capital Refurbishment Project for such Facility have been
substantially completed in accordance with the Plans and Specifications
therefor, except for Punch List Items that remain to be completed.
 
Condemnation:  The exercise of any governmental power, whether by legal
proceedings or otherwise, by a Condemnor or a voluntary sale or transfer by
Lessor to any Condemnor, either under threat of condemnation or while legal
proceedings for condemnation are pending.
 
Condemnor:  Any public or quasi-public authority, or private corporation or
individual, having the power of Condemnation.
 
Consolidated Financials:  For any fiscal year or other accounting period for any
Person and its consolidated Subsidiaries, statements of earnings and retained
earnings and of changes in financial position for such period and for the period
from the beginning of the respective fiscal year to the end of such period and
the related balance sheet as of the end of such period, together with the notes
thereto, all in reasonable detail and setting forth in comparative form the
corresponding figures for the corresponding period in the preceding fiscal year,
and prepared in accordance with GAAP.
 

 
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Consolidated Net Worth:  At any time, the sum of the following for any Person
and its consolidated Subsidiaries, on a consolidated basis determined in
accordance with GAAP:
 
(i)           Shareholders’ Equity of such Person, minus
 
(ii)           goodwill of such Person.
 
Construction Contracts:  With respect to each Planned Capital Refurbishment
Project for a Facility, the contracts between Lessee and the General Contractor,
Lessee and the Architect and/or Lessee or any other contractor (including
subcontractors) relating to rendering of services or furnishing of materials in
connection with the construction/performance of such Planned Capital
Refurbishment Project for such Facility, contracts between the General
Contractor and any subcontractor and contracts between any of the foregoing and
any other Person relating to rendering of services or furnishing of materials in
connection with construction/performance of such Planned Capital Refurbishment
Project for such Facility.
 
Controlling Person:  Any (i) Person(s) which, directly or indirectly (including
through one or more intermediaries), controls Lessee and would be deemed an
Affiliate of Lessee, including any partners, shareholders, principals, members,
trustees and/or beneficiaries of any such Person(s) to the extent the same
control Lessee and would be deemed an Affiliate of Lessee, and (ii) Person(s)
which controls, directly or indirectly (including through one or more
intermediaries), any other Controlling Person(s) and which would be deemed an
Affiliate of any such Controlling Person(s).
 
Cost of Living Index:  The Consumer Price Index for All Urban Consumers, U.S.
City Average (1982-1984 = 100), published by the BLS, or such other renamed
index.  If the BLS changes the publication frequency of the Cost of Living Index
so that a Cost of Living Index is not available to make a cost-of-living
adjustment as specified herein, the cost-of-living adjustment shall be based on
the percentage difference between the Cost of Living Index for the closest
preceding month for which a Cost of Living Index is available and the Cost of
Living Index for the comparison month as required by this Lease.  If the BLS
changes the base reference period for the Cost of Living Index from 1982-84 =
100, the cost-of-living adjustment shall be determined with the use of such
conversion formula or table as may be published by the BLS.  If the BLS
otherwise substantially revises, or ceases publication of the Cost of Living
Index, then a substitute index for determining cost-of-living adjustments,
issued by the BLS or by a reliable governmental or other nonpartisan
publication, shall be reasonably selected by Lessor.
 
County:  With respect to each Facility, the County or Township in which the
Leased Property of such Facility is located.
 
CPI Increase:  The percentage increase, if any, in (i) the Cost of Living Index
published for the month which is two (2) months prior to the commencement of the
applicable Lease Year, over (ii) the Cost of Living Index published for the
month which is fourteen (14) months prior to the commencement of the applicable
Lease Year.
 
Current Facility Documents: With respect to each Facility, the Current
Management Agreement for such Facility and any other agreement, document or
other
 

 
9

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instrument by, between or among Current Owner or its Affiliates and Current
Manager or its Affiliates that relate to the leasing, use, operation and/or
management of such Facility.
 
Current Facility Documents Termination: With respect to each Facility, the
expiration or earlier termination of the applicable Current Facility Documents
for such Facility by any means, including any early termination thereof by
mutual agreement of the applicable parties thereto or otherwise.
 
Current Manager:  Sunrise Senior Living Services, Inc., a Virginia corporation.
 
Current Management Agreements or Current Management Agreements:  As defined in
Section 47.1.
 
Current Owner:  Prime Care Seven, LLC, an Indiana limited liability company.
 
Date of Taking:  The date the Condemnor has the right to possession of the
property being condemned.
 
Effective Date:  As defined in preamble.
 
Emeritus:  Emeritus Corporation, a Washington corporation.
 
Environmental Costs:  As defined in Article XXXVII.
 
Environmental Laws:  Any and all federal, state, municipal and local laws,
statutes, ordinances, rules, regulations, guidances, policies, orders, decrees,
judgments, whether statutory or common law, as amended from time to time, now or
hereafter in effect, or promulgated, pertaining to the environment, public
health and safety and industrial hygiene, including the use, generation,
manufacture, production, storage, release, discharge, disposal, handling,
treatment, removal, decontamination, clean-up, transportation or regulation of
any Hazardous Substance, including the Clean Air Act, the Clean Water Act, the
Toxic Substances Control Act, the Comprehensive Environmental Response
Compensation and Liability Act, the Resource Conservation and Recovery Act, the
Federal Insecticide, Fungicide, Rodenticide Act, the Safe Drinking Water Act and
the Occupational Safety and Health Act.
 
Escrow:  As defined in Section 35.1.
 
Escrow Holder:  As defined in Section 35.1.
 
Event of Default:  As defined in Article XVI.
 
Excluded Facilities:  As defined in Section 7.4.1.
 
Extended Term(s): As defined in Article XIX.
 

 
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Facility:  Each facility being (and to be) operated or proposed to be operated
on, the Leased Property as more particularly described on Exhibit C attached
hereto, together with any Capital Additions.
 
Facility Mortgage:  Any mortgage, deed of trust or other security agreement
encumbering the Leased Property, or any portion thereof, and securing an
indebtedness of Lessor or any Affiliate of Lessor or any other Lessor’s
Encumbrance.
 
Facility Mortgage Loan Documents:  With respect to each Facility Mortgage, 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 Mortgagee:  The holder or beneficiary of a Facility Mortgage and any
other rights of the lender, credit party or lessor under the Facility Mortgage
Loan Documents.
 
Facility Operating Deficiency:  With respect to any Facility, a deficiency in
the conduct of the operation of such Facility which, in the reasonable
determination of Lessor, if not corrected within a reasonable time, would have
the likely effect of jeopardizing such Facility’s licensure or certification
under government reimbursement programs or third party provider agreements.
 
Fair Market Rental:  With respect to each Facility, the fair market rental value
of the Leased Property of such Facility, or applicable portion thereof
(including any periodic increases therein), determined in accordance with the
appraisal procedures set forth in Article XXXIV.
 
Fair Market Value:  With respect to each Facility, the fair market value of the
Leased Property and all Capital Additions of such Facility, or applicable
portion(s) thereof, determined in accordance with the appraisal procedures set
forth in Article XXXIV and this definition.  Fair Market Value shall be the
higher value obtained by assuming that the Leased Property and all Capital
Additions of such Facility is either unencumbered by this Lease or encumbered by
this Lease.  Further, in determining Fair Market Value the Leased Property of
such Facility and all Capital Additions of such Facility shall be valued at
their highest and best use which shall be presumed to be as a fully-permitted
Facility operated in accordance with the provisions of this Lease.  Fair Market
Value of the Leased Property and all Capital Additions of such Facility shall
not include “going concern” or “business enterprise” value attributable to
factors other than the highest and best use of the Leased Property and all
Capital Additions of such Facility.  In addition, the following specific matters
shall be factored in or out, as appropriate, in determining Fair Market Value:
 
(i)           The negative value of (a) any deferred maintenance or other items
of repair or replacement of the Leased Property or any Capital Additions of such
Facility reasonably required to restore such Lease Property or Capital Additions
to the condition required pursuant to Section 9.1.1 below, (b) any then current
or prior licensure or certification violations and/or admissions holds and (c)
any other breach or failure of
 

 
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Lessee to perform or observe its obligations hereunder shall not be taken into
account; rather, the Leased Property and all Capital Additions of such Facility,
and every part thereof, shall be deemed to be in the condition required by this
Lease (i.e., good order and repair) and Lessee shall at all times be deemed to
have operated such Facility in compliance with and to have performed all
obligations of the Lessee under this Lease.
 
(ii)           The occupancy level of the applicable Facility shall be deemed to
be the greatest of (a) the occupancy level as of the date any appraisal of such
Facility is performed in accordance with the provisions of Article XXXIV or (b)
the average occupancy during the Base Period.
 
(iii)           If the applicable Facility’s Primary Intended Use includes a
mixed use, then whichever of the following produces the highest positive value
shall be taken into account: (a) the resident mix, patient mix, case mix, and/or
diagnostic related group or acuity mix, as applicable, as of the date any
appraisal of such Facility is performed in accordance with the provisions of
Article XXXIV; or (b) the average of such mix during the Base Period.
 
Finally, in determining Fair Market Value in connection with a sale or transfer
of the Leased Property and all Capital Additions of any Facility to Lessee
pursuant to the terms of this Lease, the positive or negative effect on the
value of the Leased Property and all Capital Additions of such Facility
attributable to such factors as the interest rate, amortization schedule,
maturity date, prepayment penalty and other terms and conditions of any
encumbrance placed thereon by Lessor which will not be removed at or prior to
the date of such sale or transfer shall be taken into account.
 
Fixed Term:  The period of time commencing on the Commencement Date and ending
on the Fixed Term Expiration Date.
 
Fixed Term Expiration Date:  With respect to each Facility, the expiration of
the tenth (10th) Lease Year.
 
Fixtures:  With respect to each Facility, the Fixtures (as defined in Article I)
of such Facility.
 
GAAP:  U.S. generally accepted accounting principles.
 
General Contractor:  With respect to each Planned Capital Refurbishment Project
for a Facility, the general contractor selected by Lessee and approved by Lessor
in connection with the construction/performance of such Planned Capital
Refurbishment Project for such Facility, which approval of such general
contractor shall not be unreasonably withheld or delayed so long as such general
contractor has all required State and local licenses and permits, is bondable
and has sufficient experience with the size, type and scope of such Planned
Capital Refurbishment Project for such Facility.
 
Gross Revenues:  With respect to each Facility, all revenues received or
receivable from or by reason of the operation of such Facility or any other use
of the Leased
 

 
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Property of such Facility, Lessee’s Personal Property and all Capital Additions,
including all revenues received or receivable for the use of or otherwise
attributable to units, rooms, beds and other facilities provided, meals served,
services performed (including ancillary services), space or facilities subleased
or goods sold on or from the Leased Property and all Capital Additions of such
Facility; provided, however, that Gross Revenues shall not include:
 
(i)           bad debt in accordance with GAAP;
 
(ii)           non-operating revenues such as interest income or income from the
sale of assets not sold in the ordinary course of business; and
 
(iii)           federal, state or local excise taxes and any tax based upon or
measured by such revenues, where any such federal, state or local excise tax is
added to or made a part of the amount billed to the patient or other recipient
of such services or goods, whether included in the billing or stated separately.
 
Gross Revenues for each Lease Year of such Facility shall reflect all cost
report settlement adjustments, whether positive or negative, received in or
payable during such Lease Year in accordance with GAAP relating to health care
accounting, regardless of the year that such settlement amounts are applicable
to; provided, however, that to the extent settlement amounts are applicable to
years, or portions thereof, prior to the Commencement Date, such settlement
amounts shall not be included in Gross Revenues for the Lease Year of such
Facility in which such settlement amounts are received or paid.  Gross Revenues
shall also include the Gross Revenues of any Occupant under a Commercial
Occupancy Arrangement, i.e., the Gross Revenues generated from the operations
conducted on or from such subleased, licensed or other used or occupied portion
of the Leased Property and all Capital Additions of such Facility shall be
included directly in the Gross Revenues; provided, however, that the rent
received or receivable by Lessee from or under such Commercial Occupancy
Arrangement shall be excluded from Gross Revenues for such purpose.
 
Guarantors:  Any future guarantor of Lessee’s obligations (or any portion
thereof) under this Lease pursuant to a written Guaranty (each, a
“Guarantor”).  Lessor and Lessee acknowledge that, as of the Effective Date,
there is no Guarantor of Lessee’s obligations under this Lease.
 
Guaranties:  Collectively, any future written guaranties of Lessee’s obligations
under this Lease made by any Guarantor.
 
Handling:  As defined in Article XXXVII.
 
Hazardous Substances:  Collectively, any petroleum, petroleum product or
byproduct or any substance, material or waste regulated or listed pursuant to
any Environmental Law.
 
HCP:  HCP, Inc., a Maryland corporation, and its successors and assigns.
 

 
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HSR Act:  The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
 
Impositions:  Collectively, all taxes, including capital stock, franchise and
other state taxes of Lessor (and, if Lessor is not HCP, of HCP as a result of
its investment in Lessor), ad valorem, sales, use, single business, gross
receipts, gross margins, transaction privilege, rent or similar taxes;
assessments including assessments for public improvements or benefits, whether
or not commenced or completed prior to the date hereof and whether or not to be
completed within the Term; water, sewer and other utility levies and charges;
excise tax levies; fees including license, permit, inspection, authorization and
similar fees; and all other governmental charges, in each case whether general
or special, ordinary or extraordinary, or foreseen or unforeseen, of every
character in respect of the Leased Property, any Capital Additions and/or the
Rent and all interest and penalties thereon attributable to any failure or delay
in payment by Lessee (unless such failure or delay in payment is due to the acts
or omissions of Lessor) which at any time prior to, during or in respect of the
Term hereof may be assessed or imposed on or in respect of or be a lien upon (i)
Lessor or Lessor’s interest in the Leased Property or any Capital Additions,
(ii) the Leased Property, any Capital Additions or any parts thereof or any rent
therefrom or any estate, right, title or interest therein, or (iii) any
occupancy, operation, use or possession of, or sales from or activity conducted
on or in connection with the Leased Property, any Capital Additions or the
leasing or use of the Leased Property, any Capital Additions or any parts
thereof; provided, however, that nothing contained in this Lease shall be
construed to require Lessee to pay (a) any tax based on net income (whether
denominated as a franchise or capital stock or other tax) imposed on Lessor or
any other Person, (b) any transfer, or net revenue tax of Lessor or any other
Person except Lessee and its successors, (c) any tax imposed with respect to the
sale, exchange or other disposition by Lessor of any Leased Property, any
Capital Additions or the proceeds thereof, or (d) except as expressly provided
elsewhere in this Lease, any principal or interest on any indebtedness on the
Leased Property for which Lessor is the obligor, except to the extent that any
tax, assessment, tax levy or charge, of the type described in any of clauses
(a), (b), (c) or (d) above is levied, assessed or imposed in lieu of or as or as
a substitute for any tax, assessment, levy or charge which is otherwise included
in this definition of an “Imposition.”
 
Insurance Requirements:  The terms of any insurance policy required by this
Lease and all requirements of the issuer of any such policy and of any insurance
board, association, organization or company necessary for the maintenance of any
such policy.
 
Intangible Property:  With respect to each Facility, all accounts, proceeds of
accounts, rents, profits, income or revenues derived from the use of rooms or
other space within the Leased Property of such Facility or the providing of
services in or from the Leased Property and all Capital Additions of such
Facility; documents, chattel paper, instruments, contract rights, deposit
accounts, general intangibles, causes of action, now owned or hereafter acquired
by Lessee (including any right to any refund of any Impositions) arising from or
in connection with Lessee’s operation or use of the Leased Property and all
Capital Additions of such Facility; all licenses and permits now owned or
hereinafter acquired by Lessee, which are necessary or desirable for Lessee’s
use of the Leased Property and all Capital Additions of such Facility for its
Primary Intended Use, including, if applicable, any certificate of need or
similar certificate; the
 

 
14

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right to use any trade name or other name associated with such Facility
(excluding, however, the names “Summerville,” “Emeritus,” “Loyalton” and
“Village Oaks” and any variation thereof); and any and all third-party provider
agreements (including Medicare and Medicaid).
 
Interim Licensure Arrangements: With respect to any Facility for which Lessee
has not obtained all Required Governmental Approvals relating to such Facility
on or prior to the Commencement Date, such customary interim management and/or
interim sublease agreements as may be entered into between or among Lessee and
Current Owner and/or Current Manager such that Lessee is permitted to operate
such Facility for its Primary Intended Use and to use Current Owner’s or Current
Manager’s license or provider numbers for a reasonable period of time following
the Commencement Date in compliance with all applicable Laws; provided, however,
that any such Interim Licensure Arrangements shall be subject to Lessor’s prior
written consent, which consent shall not be unreasonably withheld so long as the
same are in compliance with all applicable Laws and permit Lessee to lease the
Leased Property of such Facility from Lessor upon and following the Commencement
Date pursuant to this Lease and to use and operate such Facility for its Primary
Intended Use during such interim period to and until Lessee obtains all Required
Governmental Approvals; provided further, however, that Lessor may further
condition its approval of any such Interim Licensure Arrangements upon Lessee,
Current Lessee and Current Manager, as applicable, executing and delivering to
Lessor a consent agreement relating thereto under this Lease in Lessor’s
customary form for such arrangements.
 
Land:  With respect to each Facility, the Land (as defined in Article I)
relating to such Facility.
 
Lease:  As defined in the preamble.
 
Lease Year:  With respect to such Facility, the first Lease Year for each
Facility shall be the period of twelve (12) full calendar months from and after
the Commencement Date, unless the Commencement Date is a day other than the
first (1st) day of a calendar month, in which case the first Lease Year for such
Facility shall be the period commencing on the Commencement Date and ending on
the last day of the eleventh (11th) month following the month in which the
Commencement Date occurs and each subsequent Lease Year for such Facility shall
be each period of twelve (12) full calendar months after the last day of the
prior Lease Year; provided, however, that the last Lease Year for such Facility
during the Term may be a period of less than twelve (12) full calendar months
and shall end on the last day of the Term for such Facility.
 
Leased Improvements:  With respect to each Facility, the Leased Improvements (as
defined in Article I) of such Facility.
 
Leased Property:  With respect to each Facility, the Leased Property (as defined
in Article I) of such Facility.
 
Leasehold FMV:  With respect to each Facility, the fair market value of Lessee’s
leasehold interest relating to such Facility if exposed on the open market
taking into account, among other relevant factors, the income generated from the
Leased Property and any Capital
 

 
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Additions for such Facility, determined by appraisal in accordance with the
appraisal procedures set forth in Article XXXIV.
 
Legal Requirements:  (i) All federal, state, county, municipal and other
governmental statutes, laws (including common law and Environmental Laws),
rules, policies, guidance, codes, orders, regulations, ordinances, permits,
licenses, covenants, conditions, restrictions, judgments, decrees and
injunctions, including those affecting any of the Leased Property, Lessee’s
Personal Property and all Capital Additions or the construction, use or
alteration thereof, whether now or hereafter enacted and in force, including any
which may (A) require repairs, modifications or alterations in or to any of the
Leased Property, Lessee’s Personal Property and all Capital Additions, (B) in
any way adversely affect the use and enjoyment thereof, or (C) regulate the
transport, handling, use, storage or disposal or require the cleanup or other
treatment of any Hazardous Substance, and (ii) all covenants, agreements,
restrictions and encumbrances either now or hereafter of record or known to
Lessee (other than encumbrances created by Lessor without the consent of Lessee
except as otherwise expressly permitted hereunder) affecting any of the Leased
Property or any Capital Additions.
 
Lessee:  As defined in the preamble.
 
Lessee’s Affidavit:  With respect to each Planned Capital Refurbishment Project
for a Facility, a sworn affidavit of Lessee, in form and substance satisfactory
to Lessor, stating that to the best of Lessee’s knowledge, all labor and
material bills of every kind and character incurred by Lessee to the date of
such affidavit in connection with such Planned Capital Refurbishment Project for
such Facility have been paid in accordance with the payment provisions of the
applicable Construction Contracts except for the unpaid bills to be paid from
the proceeds of the current Request for Advance, and that the builder’s risk
insurance described in Section 9.5.4(e) contains sufficient coverage for the
construction/performance of such Planned Capital Refurbishment Project for such
Facility, including the value of materials stored off the Leased Property of
such Facility.
 
Lessee’s Personal Property:  With respect to each Facility, the Personal
Property other than Lessor’s Personal Property allocable or relating to such
Facility.
 
Lessee’s Set-Up Costs:  Collectively, (a) all fees and expenses of and
disbursements made by Lessee in connection with (i) the negotiation, execution
and delivery of this Lease, the Exhibits hereto and the other agreements
contemplated hereby, (ii) obtaining any third party reports, (iii) the review of
diligence materials, documents and other information relating to the Leased
Property and (iv) the consummation of the transactions contemplated hereby and
thereby, including any legal or other professional fees and costs of Lessee; (b)
any and all state, municipal or other documentary, transfer, stamp, sales, use
or similar taxes payable in connection with the delivery of any instrument or
document provided in or contemplated by this Lease or the Exhibits hereto or the
transactions contemplated herein; and (c) all expenses of or related to the
issuance of any leasehold title insurance commitment or policy requested by
Lessee (including the costs of any survey required by Lessee or any title
insurer of Lessee)
 
Lessor:  As defined in the preamble.
 

 
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Lessor’s Personal Property:  With respect to each Facility, Lessor’s Personal
Property (as defined in Article I) allocable or relating to such Facility.
 
Lessor’s Set-Up Costs:  All fees and expenses of and disbursements made by
Lessor in connection with acquisition of the Leased Property of the Facilities,
the negotiation, execution and delivery of this Lease, the Exhibits hereto and
the other agreements contemplated hereby, the review of diligence materials,
documents and other information relating to Lessee and the consummation of the
transactions contemplated hereby and thereby through the Effective Date,
including any legal or other professional fees and costs of Lessor.
 
Lists:  As defined in Section 49.1.
 
Master Sublease:  With respect to any Facility, any Commercial Occupancy
Arrangement with respect to more than Ten Percent (10%) of the square footage
within such Facility in the aggregate to any Person and/or its Affiliates,
directly or indirectly, or through one or more step transactions or tiered
transactions (including subleases or sub-subleases).
 
Minimum Purchase Price:  The sum of the Allocated Minimum Purchase Price for all
of the Facilities then subject to this Lease and of any Facility(ies) subject to
any New Lease.
 
Minimum Rent:  The sum of Allocated Minimum Rent for all of the Facilities.
 
New Lease:  As defined in Section 31.2.1.
 
New Lease Effective Date:  As defined in Section 31.2.1.
 
Non-Capital Need Facility: As defined in Section 9.3.4.
 
Occupancy Arrangement:  Any sublease, license or other arrangement with a Person
for the right to use, occupy or possess any portion of the Leased Property
and/or any Capital Additions.
 
Occupant:  Any Person under an Occupancy Arrangement.
 
OFAC:  As defined in Section 49.1.
 
Officer’s Certificate:  A certificate of Lessee signed by an officer authorized
to so sign by its board of directors, by-laws or equivalent governing documents
or managers.
 
Opening Deposit:  As defined in Section 35.1.
 
Operations Transfer Agreement(s):  With respect to each Facility, a so-called
“Operations Transfer Agreement” among Current Owner, Current Manager and Lessee
Operator, providing for a transfer and transition of the OTA Property relating
to such Facility and full operational responsibility for such Facility from
Current Owner and Current Manager to Lessee concurrently with Lessor’s
acquisition of the Leased Property of the Facilities and the Commencement Date
hereof, in form and substance acceptable to Current Owner, Current Manager and
Lessee, and approved by Lessor as herein provided.
 

 
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Option Exercise Notice:  As defined in Section 35.1.
 
Order:  As defined in Section 49.1.
 
OTA Property: With respect to each Facility, and to the extent assignable or
transferable, all right, title and interest of Current Owner and/or Current
Manager in and to the following: (i) all Occupancy Arrangements, including
Commercial Occupancy Arrangements and all lease commitments, admission and
payment documents, reservation agreements and concessions with any resident or
patient of such Facility, all deposits made thereunder, and any and all resident
trust accounts, in each case with respect to such Facility, (ii) all consumable
goods and supplies, including inventories of food, beverages, pharmaceuticals,
medical supplies, linens, clothing or similar items utilized in connection with
the operation and/or maintenance of such Facility, (iii) all trade names
relating to such Facility, (iv) all general corporate trademarks, service marks,
logos and insignia, goodwill, accounts receivable, and books or records of
Current Owner and/or Current Manager, (v) any Required Governmental Approvals,
(vi) any third-party provider agreements (including Medicare and Medicaid)
relating to such Facility, (vii) any service, operating or vendor contracts for
such Facility to the extent not required to be terminated by Current and/or
Current Manager under the applicable Operations Transfer Agreement, and (ix) any
and all vehicles.
 
Outside Closing Date:  As defined in Section 35.1.
 
Outside Planned Capital Refurbishment Project Completion Date:  With respect to
each Planned Capital Refurbishment Project for a Facility, as defined in Section
9.5.4.
 
Overdue Rate:  On any date, a rate equal to Two Percent (2%) above the Prime
Rate, but in no event greater than the maximum rate then permitted under
applicable law.
 
Payment Date:  Any due date for the payment of the installments of Minimum Rent,
Additional Rent or any other sums payable under this Lease.
 
Permitted Affiliate Transaction:  As defined in Section 24.1.12.
 
Person:  Any individual, corporation, partnership, joint venture, association,
joint stock company, limited liability company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other form of entity.
 
Personal Property:  With respect to each Facility, all machinery, furniture and
equipment, including phone systems and computers, trade fixtures, inventory,
supplies and other personal property used or useful in the use of the Leased
Property and any Capital Additions of such Facility for its Primary Intended
Use, other than (i) Fixtures and (ii) Lessee’s proprietary materials, such as
policy and procedure manuals, marketing materials containing the “Summerville,”
“Emeritus,” “Loyalton” and/or “Village Oaks” names or logos and Lessee’s
financial statements.
 
Planned Capital Refurbishment Project(s):  With respect to each Facility, as
defined in Section 9.5.1.
 

 
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Planned Capital Refurbishment Project Additional Funding Amount:  The aggregate
of the Allocated Planned Capital Refurbishment Project Additional Funding Amount
for all of the Facilities; provided, however, that in no event shall the total
Planned Capital Refurbishment Project Additional Amount for all Facilities
exceed Two Million Dollars ($2,000,000.00), notwithstanding the actual Aggregate
Costs of the Planned Capital Refurbishment Project(s) for all Future Need” items
(and any additional capital refurbishments/replacements so proposed by Lessee
and reasonably approved by Lessor) for all Facilities.
 
Planned Capital Refurbishment Project Allowance:  The aggregate of the Allocated
Planned Capital Refurbishment Project Allowance for all of the Facilities;
provided, however, that in no event shall the total Planned Capital
Refurbishment Project Allowance for all Facilities exceed Five Hundred Thousand
Dollars ($500,000.00), notwithstanding the actual Aggregate Costs of the Planned
Capital Refurbishment Project(s) for all “Immediate Need” items for all
Facilities.
 
Planned Capital Refurbishment Project Lessor Costs:  With respect to each
Planned Capital Refurbishment Project for a Facility, as defined in Section
9.5.3.
 
Planned Capital Refurbishment Project Site Review Fees:  With respect to each
Planned Capital Refurbishment Project for a Facility, as defined in Section
9.5.3.
 
Plans and Specifications: With respect to each Planned Capital Refurbishment
Project for a Facility, as defined in Section 9.5.3.
 
Pre-Commencement Date Period:  The period from the Effective Date to and until
the earlier of the Commencement Date or the termination of this Lease pursuant
to Article XLVIII hereof.
 
Pre-Existing Environmental Condition:  Any Hazardous Substances in, on or about
the Leased Property in violation of any applicable Environmental Laws as of the
Commencement Date.
 
Primary Intended Use:  With respect to each Facility, the “Primary Intended Use”
as set forth on Exhibit C attached hereto.
 
Prime Rate:  On any date, a rate equal to the annual rate on such date announced
by Bank of America, N.A. to be its prime, base or reference rate for 90-day
unsecured loans to its corporate borrowers of the highest credit standing but in
no event greater than the maximum rate then permitted under applicable law.  If
Bank of America N.A. discontinues its use of such prime, base or reference rate
or ceases to exist, Lessor shall designate the prime, base or reference rate of
another state or federally chartered bank based in Los Angeles or New York to be
used for the purpose of calculating the Prime Rate hereunder.
 
Prohibited Area:  As defined in Section 7.4.1.
 

 
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Project Budget: With respect to each Planned Capital Refurbishment Project for a
Facility, as defined in Section 9.5.3.
 
Punch List Items:  With respect to each Planned Capital Refurbishment Project
for a Facility, minor details of construction, mechanical adjustments or
decorations which remain to be completed with respect to such Planned Capital
Refurbishment Project for such Facility following the applicable Completion Date
therefor and which do not (i) prevent the issuance of a certificate of occupancy
(or the local equivalent thereof) for such Planned Capital Refurbishment Project
for such Facility (if applicable) and/or (ii) materially interfere with Lessee’s
use of such Facility (including such Planned Capital Refurbishment Project) for
its Primary Intended Use.
 
Purchase Agreement:  The written purchase agreement between Current Owner and
Lessor or an Affiliate(s) of Lessor  and pursuant to which Lessor is acquiring
the Leased Property of the Facilities.
 
Purchase Closing:  Lessor’s acquisition of the Leased Property of the Facilities
from Current Owner pursuant to the Purchase Agreement.
 
Purchase Closing Date:  The date the Purchase Closing occurs, if at all.
 
Purchase Option Price:  The greater of (i) the sum of the Fair Market Value for
all of the Facilities then subject to the terms of this Lease and any
Facility(ies) subject to a New Lease hereafter with or in favor of Lessor or any
Affiliate of Lessor or (ii) the sum of the Minimum Purchase Price hereunder and
the aggregate Minimum Purchase Price(s) under any New Lease(s) hereafter with or
in favor of Lessor or any Affiliate of Lessor.
 
Purchase Right/Obligation Exercise:  As defined in Section 18.1.2.
 
Put Event:  With respect to any Facility an Event of Default hereunder pursuant
to any of Sections 16.1(a) (arising out of any material default under any such
other lease or other agreement or instrument), 16.1(c), 16.1(e) (arising out of
(i) a breach or default by Lessee during the Term of any of its obligations or
covenants pursuant to Sections 7.2.1, 7.2.2, 7.2.3, 7.2.5, 7.4, 37.1 or 37.2 or
(ii) any other failure of Lessee to obtain and maintain all material licenses,
permits and other authorizations to use and operate such Facility for its
Primary Intended Use in accordance with all Legal Requirements), 16.1(j)
relating to such Facility, 16.1(k) (arising out of a breach of any material
representation or warranty of Lessee or any Guarantor in any such document
relating to such Facility), 16.1(l) relating to such Facility and/or 16.1(o)
relating to such Facility.  Notwithstanding that Lessor and Lessee have
specifically defined a “Put Event” for the limited purpose of setting forth the
circumstances under which Lessor shall be entitled to the remedy set forth in
Section 16.5, in no event shall this definition derogate the materiality of any
other Event of Default (including any Event of Default which does not constitute
a Put Event) or otherwise limit Lessor’s rights and remedies upon the occurrence
of any such Event of Default, including those rights and remedies set forth in
Sections 16.2, 16.3, 16.4, 16.8 and/or 16.10.
 
Reallocated Annual Minimum Capital Project Amount: As defined in Section 9.3.4.
 

 
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Rent:  Collectively, the Minimum Rent, Additional Rent and Additional Charges.
 
Replacement Reserve:  As defined in Section 9.3.
 
Request for Advance:  With respect to each Planned Capital Refurbishment Project
for a Facility, certificates of Lessee and, to the extent applicable, the
Architect, in each case on the appropriate AIA form, including form G702
together with attached AIA form G703 (or equivalent, which AIA form G703 or
equivalent shall be modified to include columns for the original estimate of
scheduled values for each line item, changes to the scheduled values for each
line item and a revised scheduled value for each line item after any such
change) and/or such other form(s) as Lessor may hereafter reasonably request
which shall:  (i) set forth the Persons to whom money is owed and the amount
owed each; (ii) certify among other things that such amounts represent payments
due for services actually rendered or materials actually acquired or furnished
in connection with the construction/performance of such Planned Capital
Refurbishment Project; (iii) state that the sum requested is a Planned Capital
Refurbishment Project Cost within the applicable Project Budget for such item
and that, in the opinion of the Architect (if any) and Lessee, the remaining
amounts which Lessor has agreed to fund on account thereof are sufficient to pay
the cost to complete such Planned Capital Refurbishment Project pursuant to the
Plans and Specifications therefore and to pay for all labor, material and other
expenses in connection therewith; (iv) be accompanied by copies of billing
statements, fee schedules, documentation supporting all costs to date, copies of
all subcontracts not previously submitted and vouchers or invoices from the
Persons named therein, in form reasonably satisfactory to Lessor; (v) refer to
an attached schedule, to be verified by the Architect (if any) or other reliable
Person reasonably acceptable to Lessor prior to the advance being requested,
identifying in a manner reasonably satisfactory to Lessor all materials not yet
affixed or incorporated into such Planned Capital Refurbishment Project but
which have been covered by certificates submitted to date, including the current
certificate; (vi) contain a statement, to be verified by the Architect (if any)
or other reliable Person reasonably acceptable to Lessor prior to the advance
being requested, that all such materials not yet affixed or incorporated into
such Planned Capital Refurbishment Project have been stored at the Leased
Property of such Facility or at one or more other bonded locations approved by
Lessor identified therein (specifying the materials located at each location)
under adequate safeguards to minimize the possibility of loss, damage or
commingling with other materials or projects, and that builder’s risk insurance
coverage for such materials stored off the Leased Property of such Facility is
not less than the full replacement cost (as defined below in Section 13.2) of
such materials then being stored off the Leased Property of such Facility; and
(vii) be accompanied by appropriate waivers of lien rights (to the extent not
previously received and approved by Lessor) with respect to work and materials
for which funds have already been advanced by either Lessee or Lessor pursuant
to Section 9.5 of this Lease executed by the General Contractor (if any) and all
contractors, subcontractors, mechanics and materialmen no more than one month in
arrears and who have furnished labor or material to date and whose charges are
or will be greater than Five Thousand Dollars ($5,000.00) and, unless Lessee has
provided a statutory payment bond in accordance with applicable Legal
Requirements, by all other contractors, subcontractors, mechanics and
materialmen.  Notwithstanding anything set forth herein to the contrary, the
Request for Advance for the first advance of funds by Lessor hereunder for any
Planned Capital Refurbishment Project for a Facility and for each advance that
is for an item on the applicable Project Budget therefore
 

 
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that is not a hard cost shall mean such certificate with respect thereto as
Lessor may reasonably request.   To the extent that any payment, funding or
accrual of the Aggregate Costs of the Planned Capital Refurbishment Project for
any Planned Capital Refurbishment Project by Lessor hereunder is attributable or
allocable to one or more of the categories comprising such Planned Capital
Refurbishment Project, Lessor shall allocate such Aggregate Costs of the Planned
Capital Refurbishment Project among such categories as Lessor shall reasonably
determine.
 
Required Governmental Approvals:  With respect to each Facility, collectively,
all licenses, permits, accreditations, authorizations and certifications from
all governmental or quasi-governmental authorities, agencies, departments or
otherwise which are material to or required for the operation of such Facility
for its Primary Intended Use, including without limitation any state facility
license, certificate of need and any accreditations or certifications from
Medicare and/or Medicaid.
 
SEC:  Securities and Exchange Commission.
 
Separated Property:  As defined in Section 31.2.
 
Separation Event:
 
(i)           The sale, conveyance or other transfer by Lessor of all or any
portion of its interest in the Leased Property of one (1) or more Facilities;
 
(ii)           The sale, conveyance or other transfer of all or any portion of
the stock, partnership, membership or other equity interests in Lessor;
 
(iii)           Any financing by Lessor or any Affiliate of Lessor of all or any
portion of its interests in the Leased Property of one (1) or more Facilities,
including through a Facility Mortgage, the pledge of the stock, partnership,
membership or other equity interests in Lessor or other means; or
 
(iv)           The succession by any lender to Lessor or any Affiliate, whether
directly or indirectly, to the interests of Lessor under this Lease, including
through foreclosure or deed or other conveyance in lieu of foreclosure or in
satisfaction of debt.
 
Shareholders’ Equity:  With respect to any Person, the shareholders’, members’
or partners,’ beneficiaries’ or other equity of such Person, determined on a
consolidated basis in accordance with GAAP.
 
State:  With respect to each Facility, the State or Commonwealth in which the
Leased Property for such Facility is located.
 
Subsidiaries:  Corporations, partnerships, limited liability companies, business
trusts or other legal entities with respect to which a Person owns, directly or
indirectly (including through one or more intermediaries), more than fifty
percent (50%) of the voting stock or partnership, membership or other equity
interest, respectively.
 

 
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Target Property:  As defined in Section 35.5.1(a).
 
Term:  The Fixed Term (i.e.,  the period commencing upon the Commencement Date
and ending with respect to each Facility at 11:59 p.m., local time at such
Facility, on the Fixed Term Expiration Date) and any Extended Terms (i.e., the
period commencing on the first day of any such Extended Term and ending with
respect to each Facility at 11:59 p.m., local time at such Facility, on the last
day of such Extended Term), unless earlier terminated pursuant to the provisions
hereof.
 
Transfer:  As defined in Article XXIV.
 
Transfer Consideration:  With respect to any Transfer constituting a Master
Sublease of a Facility, “Transfer Consideration” shall mean Fifty Percent (50%)
of the positive difference, if any, between the Fair Market Rental and the sum
of the Allocated Minimum Rent and Allocated Additional Rent payable by Lessee
under this Lease determined on a monthly basis with respect to such Facility,
prorating such Allocated Minimum Rent and Allocated Additional Rent as
appropriate, if less than all of the applicable Facility is Master
Subleased.  Fifty Percent (50%) of such positive difference shall be paid by
Lessee to Lessor monthly when the Allocated Minimum Rent and Allocated
Additional Rent are due for such Facility; provided, however, that in no event
shall the total Transfer Consideration to which Lessor is entitled in connection
with any such Master Sublease exceed the Total Consideration (as hereinafter
defined) payable directly or indirectly to Lessee, to any Controlling Person(s)
or to any other Person in exchange for, in connection with, related to or
arising out of the transaction(s) as to which such Master Sublease is a
part.  With respect to any other Transfer relating to any Facility or all
Facilities (i.e., a Transfer other than pursuant to a Master Sublease) “Transfer
Consideration” shall mean Fifty Percent (50%) of the positive Leasehold FMV of
such Facility(ies); provided, however, that in no event shall the total Transfer
Consideration to which Lessor is entitled in connection with any such other
Transfer exceed the Total Consideration payable directly or indirectly to
Lessee, to any Controlling Person(s) or to any other Person in exchange for, in
connection with, related to or arising out of the transaction(s) as to which
such other Transfer is a part.  As used herein, the term “Total Consideration”
shall mean and include money and the fair market value of any services, property
and other things of value, including payment of costs, cancellation or
forgiveness of indebtedness, discounts, rebates, barter and the like.  For
purposes of Section 24.1.2.2 and the payment of Transfer Consideration to Lessor
as provided in this Lease, if any Transfer Consideration otherwise payable is
due from and based on Total Consideration payable to Lessee, any Controlling
Person(s) or to any other Person in exchange for, in connection with, related to
or arising out of such Transfer as provided above, (a) where such Total
Consideration is payable on a deferred basis (the “Deferred Total
Consideration”), then the amount of the Transfer Consideration due from and
based on any such Deferred Total Consideration shall be payable to Lessor as and
when paid to Lessee, to any Controlling Person(s) or to any such other Person or
(b) where such Total Consideration is payable in a form other than immediately
available cash, then the amount of Transfer Consideration due from and based on
the fair market value of such non-cash Total Consideration shall be payable to
Lessor in the form of immediately available cash promptly following receipt by
or credit to Lessee, any Controlling Person(s) or any such other Person of such
non-cash Total Consideration.  Lessee acknowledges and agrees that the terms
under which Lessor is entitled to
 

 
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the payment of Transfer Consideration pursuant to this Lease and the amount
thereof has been freely negotiated and represents a fair and equitable division
with Lessor of the consideration payable in connection with a Transfer taking
into account, among other things, Lessor’s investment in the Leased Property,
the terms of this Lease and the inherent risks of owning and leasing real
property.
 
Unsuitable for Its Primary Intended Use:  With respect to each Facility, a state
or condition of such Facility such that by reason of damage or destruction or
Condemnation, in the good faith judgment of Lessor, such Facility cannot be
operated on a commercially practicable basis for its Primary Intended Use.
 
ARTICLE III.
 
3.1           Rent
 
.  From and after the Commencement Date, Lessee shall pay to Lessor in lawful
money of the United States of America which shall be legal tender for the
payment of public and private debts, without offset or deduction, the amounts
set forth hereinafter as Minimum Rent and Additional Rent during the
Term.  Payments of Minimum Rent and Additional Rent shall be made by wire
transfer of funds initiated by Lessee to Lessor’s account or to such other
Person as Lessor from time to time may designate in writing, in advance on or
before the first day of each calendar month.
 
3.1.1           Minimum Rent.
 
(a)           For the period from the Commencement Date through the expiration
of the fifth (5th) Lease Year, Lessee shall pay to Lessor as monthly “Allocated
Minimum Rent” for each Facility one-twelfth (1/12) of the amounts allocated to
and set forth opposite such Facility on Exhibit C attached hereto.  The first
monthly payment of Allocated Minimum Rent for each Facility shall be payable on
the Commencement Date (prorated as to any partial calendar month at the
beginning of the Term).
 
(b)           Monthly Minimum Rent (and applicable Allocated Minimum Rent for
each Facility) for the sixth (6th) Lease Year of the Fixed Term shall be equal
to the sum of (i) the monthly Minimum Rent (and applicable Allocated Minimum
Rent for each Facility) in effect as of the expiration of the fifth (5th) Lease
Year, plus (B) the monthly Additional Rent (and applicable Allocated Additional
Rent for each Facility) in effect as of the expiration of the fifth (5th) Lease
Year, in each case as increased for such sixth (6th) Lease Year by a percentage
equal to the greater of (i) Two and One-Half Percent (2.5%) or (ii) the lesser
of (A) the applicable CPI Increase or (B) Five Percent (5%).
 
(c)           Commencing upon the expiration of the sixth (6th) Lease Year and
upon the expiration of each Lease Year thereafter during the Term (including any
Extended Term), the then current monthly Allocated Minimum Rent for each
Facility for such Lease Year shall be increased by the greater of (i) Two and
One-Half Percent (2.5%) or (ii) the lesser of (A) the applicable CPI Increase or
(B) Five Percent (5%).
 

 
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(d)           If any increase in Allocated Minimum Rent for any Facility as
provided in Sections 3.1.1(b) or (c) above shall not have been made at the
commencement of the Lease Year for which applicable, Lessee shall continue to
pay monthly Allocated Minimum Rent for such Facility at the last rate applicable
until Lessee receives Lessor’s written notice as to such increase.  Within ten
(10) days after Lessee’s receipt of Lessor’s notice, Lessee shall pay to Lessor
an amount equal to the new monthly Allocated Minimum Rent for such Facility
times the number of months from the commencement of the then current Lease Year,
as applicable, to the date of receipt of Lessor’s notice, less the aggregate
amount paid by Lessee on account of monthly Allocated Minimum Rent for such
Facility for the same period.  Thereafter, Lessee shall pay monthly Allocated
Minimum Rent for such Facility for the applicable period at the new rate set
forth in Lessor’s notice. Following any increase in the Allocated Minimum Rent
with respect to any Facility pursuant to Sections 3.1.1(b) or (c) above, at the
request of either Lessor or Lessee, the parties shall execute a written
confirmation setting forth the same, in form and substance reasonably acceptable
to Lessor.  Notwithstanding the foregoing, the failure of either Lessor or
Lessee to request and/or the failure of either party to execute and deliver any
such written confirmation shall not affect Lessor’s good faith determination of
the Allocated Minimum Rent payable with respect the applicable Facility under
this Lease.
 
3.1.2           Additional Rent for the First Five Lease Years of the Fixed Term
 
.  For the period from the Commencement Date through the expiration of the fifth
(5th) Lease Year of the Fixed Term, Lessee shall pay as monthly “Allocated
Additional Rent” with respect to each Facility the amount determined pursuant to
this Section 3.1.2.
 
(a)           As of the Commencement Date for each Facility, such monthly
Allocated Additional Rent for such Facility shall initially be zero dollars
($0.00).
 
(b)           The monthly Additional Rent (and the Allocated Additional Rent
with respect to each applicable Facility) then in effect shall be increased from
time to time on the date of any payment, funding or accrual by Lessor of any
Aggregate Costs of the Planned Capital Refurbishment Project for any Planned
Capital Refurbishment Project for such Facility (other than any portion of the
Planned Capital Refurbishment Project Allowance, but including any portion of
the Planned Capital Refurbishment Project Additional Funding Amount, in either
case paid, funded or accrued by Lessor on account thereof as provided in this
Lease), by an amount equal to one-twelfth (1/12) of the product of (i) the
amount of payment, funding or accrual by Lessor of any such Aggregate Costs of
the Planned Capital Refurbishment Project for any Planned Capital Refurbishment
Project for such Facility (other than on account of the Planned Capital
Refurbishment Project Allowance), times (ii) the Applicable Lease Rate in effect
as of the date of such payment, funding or accrual by Lessor. The amount of each
increase in such monthly Allocated Additional Rent with respect to each Facility
pursuant to this Section 3.1.2 shall be referred to herein as the “Allocated
Additional Rent Increase Amount.”  The Allocated Additional Rent with respect to
any Facility as so increased by the applicable Allocated Additional Rent
Increase Amount shall remain in effect until any
 

 
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subsequent increase as provided in this Section 3.1.2. If the effective date of
any Allocated Additional Rent Increase Amount for any Facility does not occur on
the first (1st) day of a calendar month, then the applicable Allocated
Additional Rent Increase Amount for such Facility shall be prorated based upon
the number of days in such calendar month in which the effective date of such
Allocated Additional Rent Increase Amount for such Facility occurs.
 
(c)           In addition to any increases in monthly Additional Rent (and the
Allocated Additional Rent with respect to each applicable Facility) that may
occur during any applicable Lease Year pursuant to Section 3.1.2(b) above, upon
the expiration of the first (1st) Lease Year of the Fixed Term and upon the
expiration of each Lease Year thereafter through the expiration of the fourth
(4th) Lease Year during the Fixed Term, the then current monthly Additional Rent
(and applicable Allocated Additional Rent for each Facility) in effect as of the
expiration of such Lease Year shall be increased for the immediately following
Lease Year by a percentage equal to the greater of (i) Two and One-Half Percent
(2.5%) or (ii) the lesser of (A) the applicable CPI Increase or (B) Five Percent
(5%).
 
(d)           If any increase in monthly Additional Rent (and applicable
Allocated Additional Rent) (i) as provided for in Section 3.1.2(c) above shall
not have been made at the commencement of the Lease Year for which applicable,
or (ii) as provided for in Section 3.1.2(b) above shall not have been made on
the effective date of any Allocated Additional Rent Increase Amount, Lessee
shall continue to pay monthly Additional Rent (and applicable Allocated
Additional Rent for each Facility) at the last rate applicable until Lessee
receives Lessor’s written notice as to such increase.  Within ten (10) days
after Lessee’s receipt of Lessor’s notice, Lessee shall pay to Lessor an amount
equal to the new monthly Additional Rent times the number of months (or prorated
for any partial month in the case of any increase as provided in Section
3.1.2(b) above) from the commencement of the then current Lease Year or the
effective date of any Allocated Additional Rent Increase Amount to the date of
receipt of Lessor’s notice, less the aggregate amount paid by Lessee on account
of monthly Additional Rent for the same period.  Thereafter, Lessee shall pay
monthly Additional Rent (and applicable Allocated Additional Rent for each
Facility) for the applicable period at the new rate set forth in Lessor’s
notice. Following any increase in the Additional Rent (and applicable Allocated
Additional Rent for each Facility) pursuant to either of Sections 3.1.2(b) or
(c), at the request of either Lessor or Lessee, the parties shall execute a
written confirmation setting forth the same, in form and substance reasonably
acceptable to Lessor.  Notwithstanding the foregoing, the failure of either
Lessor or Lessee to request and/or the failure of either party to execute and
deliver any such written confirmation shall not affect Lessor’s good faith
determination of the Additional Rent (and applicable Allocated Additional Rent
for each Facility) payable under this Lease.
 
(e)           For avoidance of doubt, Lessor and Lessee acknowledge and agree
that commencing with the sixth (6th) Lease Year of the Fixed Term, and
thereafter, there shall be no further Additional Rent (or applicable Allocated
Additional Rent for any Facility) accruing and payable under this Lease, it
being further acknowledged that
 

 
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commencing with the sixth (6th) Lease Year of the Fixed Term, all monthly
Additional Rent (and applicable Allocated Additional Rent for each Facility)
payable for the last month of the fifth (5th) Lease Year shall be taken into
account for purposes of determining the monthly Minimum Rent (and applicable
Allocated Minimum Rent for each Facility) for such sixth (6th) Lease Year of the
Fixed Term and thereafter (to the extent applicable) as provided in Section
3.1.1.
 
3.2           Additional Charges
 
.  In addition to the Minimum Rent and Additional Rent, (i) Lessee shall also
pay and discharge as and when due and payable all other amounts, liabilities,
obligations and Impositions which Lessee assumes or agrees to pay under this
Lease; and (ii) in the event of any failure on the part of Lessee to pay any of
those items referred to in clause (i) above, Lessee shall also promptly pay and
discharge every fine, penalty, interest and cost which may be added for
nonpayment or late payment of such items (the items referred to in clauses (i)
and (ii) above being referred to herein collectively as the “Additional
Charges”), except where such failure is due to the acts or omissions of Lessor,
in which case Lessee shall not be responsible for any such fine, penalty,
interest or cost.
 
3.3           Late Payment of Rent.
 
(a)           LESSEE HEREBY ACKNOWLEDGES THAT LATE PAYMENT BY LESSEE TO LESSOR
OF RENT WILL CAUSE LESSOR TO INCUR COSTS NOT CONTEMPLATED HEREUNDER, THE EXACT
AMOUNT OF WHICH IS PRESENTLY ANTICIPATED TO BE EXTREMELY DIFFICULT TO
ASCERTAIN.  SUCH COSTS MAY INCLUDE PROCESSING AND ACCOUNTING CHARGES AND LATE
CHARGES WHICH MAY BE IMPOSED ON LESSOR BY THE TERMS OF ANY LOAN AGREEMENT AND
OTHER EXPENSES OF A SIMILAR OR DISSIMILAR NATURE.  ACCORDINGLY, IF ANY
INSTALLMENT OF RENT OTHER THAN ADDITIONAL CHARGES PAYABLE TO A PERSON OTHER THAN
LESSOR SHALL NOT BE PAID WITHIN THREE (3) BUSINESS DAYS AFTER ITS DUE DATE,
LESSEE WILL PAY LESSOR ON DEMAND A LATE CHARGE EQUAL TO THE LESSER OF (I) FIVE
PERCENT (5%) OF THE AMOUNT OF SUCH INSTALLMENT OR (II) THE MAXIMUM AMOUNT
PERMITTED BY LAW.  THE PARTIES AGREE THAT THIS LATE CHARGE REPRESENTS A FAIR AND
REASONABLE ESTIMATE OF THE COSTS THAT LESSOR WILL INCUR BY REASON OF LATE
PAYMENT BY LESSEE.  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 LESSOR AND LESSEE.  IN ADDITION, THE
AMOUNT UNPAID, INCLUDING ANY LATE CHARGES, SHALL BEAR INTEREST AT THE OVERDUE
RATE COMPOUNDED MONTHLY FROM THE DUE DATE OF SUCH INSTALLMENT TO THE DATE OF
PAYMENT THEREOF, AND LESSEE SHALL PAY SUCH INTEREST TO LESSOR ON DEMAND.  THE
PAYMENT OF SUCH LATE CHARGE OR SUCH INTEREST SHALL NOT CONSTITUTE WAIVER OF, NOR
EXCUSE OR CURE, ANY
 

 
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DEFAULT UNDER THIS LEASE, NOR PREVENT LESSOR FROM EXERCISING ANY OTHER RIGHTS
AND REMEDIES AVAILABLE TO LESSOR.
 
Lessor’s Initials:                                ______
 
Lessee’s Initials:                                ______
 
(b)           If Lessee shall, during any six (6) month period, be more than
five (5) Business Days delinquent in the payment of any Rent due and payable by
Lessee hereunder on three (3) or more occasions then, notwithstanding anything
herein to the contrary, Lessor may, by written notice to Lessee, elect to
require Lessee to pay all Minimum Rent and Additional Rent payable hereunder
quarterly in advance.  Such right of Lessor shall be in addition to and not in
lieu of any other right of remedy available to Lessor hereunder or at law on
account of an Event of Default by Lessee hereunder.  For purposes of this
Section 3.3(b), the following terms and conditions shall apply:
 
(i)           If at any given time Lessee shall be more than five (5) Business
Days delinquent in the payment of any Rent due and payable hereunder with
respect to more than one (1) Facility, such delinquency shall only constitute a
single occasion of delinquency, despite the fact that such delinquency has
occurred with respect to the payment of Rent for more than one (1) Facility.
 
(ii)           If the date upon which any Rent is due and payable hereunder is
not a Business Day, such date shall be deemed to be the next Business Day
following such date.
 
3.4           Net Lease
 
.  This Lease is and is intended to be what is commonly referred to as a “net,
net, net” or “triple net” lease.  The Rent shall be paid absolutely net to
Lessor, so that this Lease shall yield to Lessor the full amount of the
installments of Minimum Rent, Additional Rent and Additional Charges throughout
the Term.
 
ARTICLE IV.
 
4.1           Impositions
 
.
 
4.1.1           Subject to Article XII relating to permitted contests, Lessee
shall pay, or cause to be paid, all Impositions before any fine, penalty,
interest or cost may be added for non-payment.  Lessee shall make such payments
directly to the taxing authorities where feasible, and promptly furnish to
Lessor copies of official receipts or other satisfactory proof evidencing such
payments.  Lessee’s obligation to pay Impositions shall be absolutely fixed upon
the date such Impositions become a lien upon the Leased Property, any Capital
Additions or any part(s) thereof.  If any Imposition may, at the option of the
taxpayer, lawfully be paid in installments, whether or not interest shall accrue
on the unpaid balance of
 

 
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such Imposition, Lessee may pay the same, and any accrued interest on the unpaid
balance of such Imposition, in installments as the same respectively become due
and before any fine, penalty, premium, further interest or cost may be added
thereto.
 
4.1.2           Lessor shall prepare and file all tax returns and reports as may
be required by Legal Requirements with respect to Lessor’s net income, gross
receipts, franchise taxes and taxes on its capital stock, and Lessee shall
prepare and file all other tax returns and reports as may be required by Legal
Requirements.
 
4.1.3           Any refund due from any taxing authority in respect of any
Imposition paid by Lessee shall be paid over to or retained by Lessee if no
Event of Default shall have occurred hereunder and be continuing.  Any other
refund shall be paid over to or retained by Lessor.
 
4.1.4           Lessor and Lessee shall, upon request of the other, provide such
data as is maintained by the party to whom the request is made with respect to
the Leased Property and all Capital Additions as may be necessary to prepare any
required returns and reports.  If any property covered by this Lease is
classified as personal property for tax purposes, Lessee shall file all personal
property tax returns in such jurisdictions where it must legally so
file.  Lessor, to the extent it possesses the same, and Lessee, to the extent it
possesses the same, shall provide the other party, upon request, with cost and
depreciation records necessary for filing returns for any property so classified
as personal property.  Where Lessor is legally required to file personal
property tax returns and to the extent practicable, Lessee shall be provided
with copies of assessment notices indicating a value in excess of the reported
value in sufficient time for Lessee to file a protest.
 
4.1.5           Lessee may, upon notice to Lessor, at Lessee’s option and at
Lessee’s sole cost and expense, protest, appeal, or institute such other
proceedings as Lessee may deem appropriate to effect a reduction of real estate
or personal property assessments and Lessor, at Lessee’s expense as aforesaid,
shall reasonably cooperate with Lessee in such protest, appeal, or other action
but at no cost or expense to Lessor.  Billings for reimbursement by Lessee to
Lessor of personal property or real property taxes shall be accompanied by
copies of a bill therefor and payments thereof which identify the personal
property or real property with respect to which such payments are made.
 
4.1.6           Lessor shall give prompt notice to Lessee of all Impositions
payable by Lessee hereunder of which Lessor has knowledge, but Lessor’s failure
to give any such notice shall in no way diminish Lessee’s obligations hereunder
to pay such Impositions.
 
4.1.7           Impositions imposed or assessed in respect of the tax-fiscal
period during which the Term terminates with respect to any Facility shall be
adjusted and prorated between Lessor and Lessee with respect to such Facility,
whether or not such Imposition is imposed before or after such commencement or
termination and Lessee’s obligation to pay its prorated share thereof shall
survive such termination with respect to such Facility.  Lessor acknowledge and
agree that Impositions imposed or assessed in respect of the tax-fiscal period
during which the Term commences or for any prior periods are or will be prorated
and
 

 
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adjusted between Current Owner and Lessee pursuant to the applicable Operations
Transfer Agreement(s) and, accordingly, Lessee shall be responsible for paying
the same from and after the Commencement Date, whether or not such Impositions
relate to any periods prior to the Commencement Date.
 
4.2           Utilities
 
4.2.1           .  Lessee shall pay or cause to be paid all charges for
electricity, power, gas, oil, water and other utilities used in the Leased
Property and all Capital Additions.  Lessee shall also pay or reimburse Lessor
for all costs and expenses of any kind whatsoever which at any time may be
imposed against Lessor by reason of any of the covenants, conditions and/or
restrictions affecting the Leased Property of any such Facility, any Capital
Additions of any such Facility and/or any part(s) thereof, or with respect to
easements, licenses or other rights over, across or with respect to any adjacent
or other property which benefits the Leased Property and/or any Capital
Additions of any such Facility, including any and all costs and expenses
associated with any utility, drainage and parking easements.  Lessor and Lessee
acknowledge and agree that, to the extent any of the foregoing charges and
expenses relate to any period prior to the Commencement Date, the same are or
will be prorated and adjusted between Current Owner and Lessee pursuant to the
applicable Operations Transfer Agreement(s) and, accordingly, Lessee shall be
responsible for paying the same from and after the Commencement Date, whether or
not the same relate to any periods prior to the Commencement Date.
 
4.3           Insurance
 
.  During the Term, Lessee shall pay or cause to be paid all premiums for the
insurance coverage required to be maintained by Lessee hereunder.
 
4.4           Impound Account
 
.  Lessor may, at its option to be exercised by thirty (30) days’ written notice
to Lessee, require Lessee to deposit, at the time of any payment of Minimum Rent
and Additional Rent, an amount equal to one-twelfth (1/12th) of Lessee’s
estimated annual taxes, of every kind and nature, required pursuant to Section
4.1 plus, if Lessee fails to pay any insurance premium in a timely manner as
required by this Lease, one-twelfth (1/12th)of Lessee’s estimated annual
insurance premiums required pursuant to Section 4.3 into an impound account as
directed by Lessor.  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 Lessor shall determine, on or before the respective dates on which
the same or any of them would become delinquent.  The cost of administering such
impound account shall be paid by Lessee.  Nothing in this Section 4.4 shall be
deemed to affect any right or remedy of Lessor hereunder.
 
4.5           Tax Service
 
.  If requested by Lessor, Lessee shall, at its sole cost and expense, cause to
be furnished to Lessor a tax reporting service, to be designated by Lessor,
covering the Leased Property and all Capital Additions.
 

 
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ARTICLE V.
 
5.1           No Termination, Abatement, etc
 
.  Except as otherwise specifically provided in this Lease, Lessee shall remain
bound by this Lease in accordance with its terms and shall not seek or be
entitled to any abatement, deduction, deferment or reduction of Rent, or set-off
against the Rent.  Except as otherwise specifically provided in this Lease, the
respective obligations of Lessor and Lessee shall not be affected by reason of
(i) any damage to or destruction of the Leased Property, any Capital Additions
and/or any part(s) thereof from whatever cause and/or any Condemnation of the
Leased Property, any Capital Additions and/or any part(s) thereof; (ii) the
lawful or unlawful prohibition of, or restriction upon, Lessee’s use of the
Leased Property, any Capital Additions and/or any part(s) thereof, or the
interference with such use by any Person other than by reason of (A) any such
Person claiming by or through Lessor, or (B) a condition existing on or prior to
the Commencement Date; (iii) any claim that Lessee has or might have against
Lessor by reason of any default or breach of any warranty by Lessor hereunder or
under any other agreement between Lessor and Lessee or to which Lessor and
Lessee are parties; (iv) any bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding up or other
proceedings affecting Lessor or any assignee or transferee of Lessor; or (v) for
any other cause, whether similar or dissimilar to any of the foregoing, other
than a discharge of Lessee from any such obligations as a matter of law.  Lessee
hereby specifically waives all rights arising from any occurrence whatsoever
which may now or hereafter be conferred upon it by law (a) to modify, surrender
or terminate this Lease or quit or surrender the Leased Property, any Capital
Additions and/or any part(s) thereof; or (b) which may entitle Lessee to any
abatement, reduction, suspension or deferment of the Rent or other sums payable
by Lessee hereunder, except as otherwise specifically provided in this
Lease.  The obligations of Lessor and Lessee hereunder shall be separate and
independent covenants and agreements and the Rent and all other sums payable by
Lessee hereunder shall continue to be payable in all events unless the
obligations to pay the same shall be terminated pursuant to the express
provisions of this Lease or by termination of this Lease other than by reason of
an Event of Default.
 
5.2           Termination with Respect to Fewer than All of the Facilities
 
.  Wherever in this Lease the action of terminating the Lease with respect to a
Facility (or action of similar import) is discussed, such action shall mean the
termination of Lessee’s rights in and to the Leased Property relating to such
Facility.  Notwithstanding anything in this Lease to the contrary, if this Lease
shall be terminated by Lessor or Lessee pursuant to rights granted hereunder
with respect to any Facility, such termination shall not affect the applicable
Term of this Lease with respect to the balance of the Facilities not so
terminated, and this Lease shall continue in full force and effect with respect
to each other such Facility, except that the total Minimum Rent and Additional
Rent payable hereunder shall be reduced by the amount of Allocated Minimum Rent
and Allocated Additional Rent with respect to such Facility as to which this
Lease has so terminated.  Nothing contained in this Section 5.2 shall serve in
any way to limit Lessor’s ability (a) pursuant to Section 16.2 below, to
terminate this Lease with respect to any or all of the Facilities if an Event of
Default shall have occurred under this Lease, regardless of whether such Event
of Default emanated primarily from a single Facility, or (b) in
 

 
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the event of a termination because of an Event of Default, to recover damages or
otherwise exercise its remedies with respect to such Facility(ies) as provided
in Article XVI.
 
5.3           Abatement Procedures
 
.  In the event of a partial taking by Condemnation of any Facility as described
in Section 15.1.2, which taking by Condemnation does not render the Leased
Property of such Facility Unsuitable for its Primary Intended Use, this Lease
shall not terminate with respect to the Leased Property of such Facility, but
the monthly Allocated Minimum Rent and Additional Rent for such Facility shall
be abated in the manner and to the extent that is fair, just and equitable to
both Lessee and Lessor, primarily taking into consideration, along with other
relevant factors, the number of usable beds affected by such partial taking by
Condemnation.  If Lessor and Lessee are unable to agree upon the amount of such
abatement within sixty (60) days after such partial taking by Condemnation,
either party may submit the matter to arbitration as provided in Article XLIV
below.
 
ARTICLE VI.
 
6.1           Ownership of the Leased Property
 
.  Lessee acknowledges that the Leased Property is the property of Lessor and
that Lessee has only the right to the exclusive possession and use of the Leased
Property upon the terms and conditions of this Lease.  Upon the expiration or
earlier termination of this Lease with respect to any Facility Lessee shall, at
its expense, repair and restore the Leased Property relating to such Facility to
the condition required by Section 9.1.4.
 
6.2           Personal Property
 
.  During the Term, Lessee shall, as necessary and at its expense, install,
affix or assemble or place on any parcels of the Land or in any of the Leased
Improvements, any items of Lessee’s Personal Property and replacements thereof
which shall be the property of and owned by Lessee.  Except as provided in
Sections 6.3 and 16.10, Lessor shall have no rights to Lessee’s Personal
Property.  With respect to each Facility, Lessee shall provide and maintain
during the entire Term applicable to such Facility all Personal Property
necessary in order to operate such Facility in compliance with all licensure and
certification requirements, all Legal Requirements and all Insurance
Requirements and otherwise in accordance with customary practice in the industry
for its Primary Intended Use.
 
6.3           Transfer of Personal Property and Capital Additions to Lessor
 
.  Upon the expiration or earlier termination of this Lease with respect to a
Facility, all Capital Additions not owned by Lessor and Lessee’s Personal
Property relating to such Facility shall become the property of Lessor, free of
any encumbrance and Lessee shall execute all documents and take any actions
reasonably necessary to evidence such ownership and discharge any encumbrance.
 
ARTICLE VII.
 

 
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7.1           CONDITION OF THE LEASED PROPERTY
 
.  On and as of the Commencement Date, Lessee acknowledges receipt and delivery
of possession of the Leased Property and Lessee hereby confirms that Lessee has
had the opportunity to examine and inspect the Leased Property and otherwise has
knowledge of the condition of the Leased Property prior to the Commencement Date
and has found the same to be in good order and repair, free from Hazardous
Substances not in compliance with Legal Requirements, and satisfactory for its
purposes hereunder.  Regardless, however, of any examination or inspection made
by Lessee and whether or not any patent or latent defect or condition was
revealed or discovered thereby, Lessee is leasing the Leased Property “AS IS” in
its present condition.  Lessee waives any claim or action against Lessor in
respect of the condition of the Leased Property of each Facility including any
defects or adverse conditions not discovered or otherwise known by Lessee either
as of the Effective Date or as of the Commencement Date.  LESSOR MAKES NO
WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED
PROPERTY OR ANY PART THEREOF, 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 SUBSTANCE, IT BEING AGREED THAT ALL SUCH RISKS, LATENT OR PATENT, ARE
TO BE BORNE SOLELY BY LESSEE INCLUDING ALL RESPONSIBILITY AND LIABILITY FOR ANY
ENVIRONMENTAL REMEDIATION AND COMPLIANCE WITH ALL ENVIRONMENTAL
LAWS.  Notwithstanding the foregoing, Lessor hereby acknowledges its obligation
to fund a portion of the Planned Capital Refurbishment Project(s) in accordance
with, and subject to, the provisions of Section 9.5 below.
 
7.2           Use of the Leased Property
 
.
 
7.2.1           Lessee covenants that it will obtain and maintain all
authorization and approvals needed to use and operate the Leased Property, all
Capital Additions and each Facility for such Facility’s respective Primary
Intended Use and any other use conducted on the Leased Property and any Capital
Additions as may be permitted from time to time hereunder in accordance with
Legal Requirements including applicable licenses, provider agreements, permits,
and Medicare and/or Medicaid certification.
 
7.2.2           Lessee shall use or cause to be used the Leased Property, all
Capital Additions and the improvements thereon of each Facility for its Primary
Intended Use.  Lessee shall not use the Leased Property, any Capital Additions
or any part(s) thereof for any other use without the prior written consent of
Lessor, which consent Lessor may withhold in its sole discretion.
 
7.2.3           Lessee shall operate continuously the entire Leased Property and
all Capital Additions of each Facility in accordance with its Primary Intended
Use; provided, however, that Lessee shall be relieved of such obligation to
continuously operate the Leased Property and all Capital Additions of each
Facility to the extent reasonably necessary (a) to
 

 
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complete any repair or restoration of the Leased Property and Capital Additions
of any Facility pursuant to the terms of Sections 14.2, 14.3 and 15.1.3, as
applicable, (b) to complete any Capital Additions to the Leased Property or any
Facility that are consented to by Lessor in accordance with the terms of Section
10.1 below, and (c) as a result of any cause described in Section 45.1.16
below.  Lessee shall devote the entirety of each Facility and all Capital
Additions thereto to the Primary Intended Use, except for areas reasonably
required for office or storage space uses incidental to the Primary Intended
Use.  Lessee shall not modify the services offered or take any other action
(e.g., removing patients or residents from any Facility or directing patients or
residents, or prospective patients or residents, to another Facility) which
would materially reduce Gross Revenues or the Fair Market Value of any such
Facility.  Lessee shall at all times maintain an adequate staff for the service
of its residents and/or patients, in each case assuming an occupancy and/or use
level for each Facility which is not less than the average occupancy and/or use
level for similar facilities in the State.  Lessee shall employ its best
judgment, efforts and abilities to operate the entirety of each Facility in such
a manner so as to maximize Gross Revenues and to enhance the reputation and
attractiveness of each Facility.
 
7.2.4           Lessee shall conduct its business at each Facility in conformity
with the highest standards of patient or resident care practice provided in
similar facilities in the State.
 
7.2.5           Lessee shall not commit or suffer to be committed any waste on
the Leased Property and/or on or to any Capital Additions or cause or permit any
nuisance to exist thereon or with respect thereto.
 
7.2.6           Lessee shall neither suffer nor permit the Leased Property, any
Capital Additions, or any part(s) thereof, or Lessee’s Personal Property, to be
used in such a manner as (i) might reasonably tend to impair Lessor’s title
thereto or to any portion thereof or (ii) may make possible a claim of adverse
use or possession, or an implied dedication of the Leased Property, any Capital
Additions or any part(s) thereof.
 
7.3           Lessor to Grant Easements, etc
 
.  Lessor shall, from time to time so long as no Event of Default has occurred
and is continuing, at the request of Lessee and at Lessee’s cost and expense,
but subject to the approval of Lessor, which approval shall not be unreasonably
withheld or delayed (i) grant easements and other rights in the nature of
easements; (ii) release existing easements or other rights in the nature of
easements which are for the benefit of the Leased Property; (iii) dedicate or
transfer unimproved portions of the Leased Property for road, highway or other
public purposes; (iv) execute petitions to have the Leased Property annexed to
any municipal corporation or utility district; (v) execute amendments to any
covenants, conditions and restrictions affecting the Leased Property; and (vi)
execute and deliver to any Person any instrument appropriate to confirm or
effect such grants, releases, dedications and transfers to the extent of its
interest in the Leased Property, but only upon delivery to Lessor of an
Officer’s Certificate stating that such grant release, dedication, transfer,
petition or amendment is not
 

 
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detrimental to the proper conduct of the business of Lessee on the Leased
Property and does not materially reduce the value of the Leased Property.
 
7.4           Preservation of Facility Value
 
.  Lessee acknowledges that a fair return to Lessor on its investment in the
Leased Property of each Facility and all Capital Additions thereto is dependent,
in part, on the concentration on the Leased Property of each Facility during the
Term of the assisted living and skilled nursing business of Lessee and its
Affiliates in operating such Facility for its Primary Intended Use in the
geographical area of the Leased Property of such Facility.  Lessee further
acknowledges that diversion of residents and/or patients, as applicable, from
any Facility to other facilities or institutions owned, operated or managed,
whether directly or indirectly, by Lessee or its Affiliates will have a material
adverse impact on the value and utility of the Leased Property and all Capital
Additions.  Accordingly, Lessor and Lessee agree as follows:
 
7.4.1           During the Term with respect to each Facility and for a period
of two (2) years thereafter, neither Lessee nor any of its Affiliates, directly
or indirectly, shall operate, own, manage or have any interest in or otherwise
participate in or receive revenues from any other facility or institution
providing services or similar goods to those provided in connection with any
Facility and the Primary Intended Use within a five (5) mile radius outward from
the outside boundary of the Leased Property of such Facility (the “Prohibited
Area”).  All distances shall be measured on a straight line rather than on a
driving distance basis.  In the event that any portion of such other facility or
institution is located within such Prohibited Area the entire facility or
institution shall be deemed located within such Prohibited Area.
 Notwithstanding the foregoing, the provisions of this Section 7.4.1 shall not
apply to (collectively, the “Excluded Facilities”): (a) those facilities set
forth on Schedule 7.4.1 attached hereto and (b) any other facilities which after
the Commencement Date become part of the assets of Lessee or any of its
Affiliates or which either Lessee or any of its Affiliates otherwise operates,
owns, leases or manages, as a result of the acquisition (whether direct or
indirect) of a portfolio of senior housing facilities consisting of three (3) or
more facilities in a single transaction or series of related transactions;
provided, however, that if more than fifty percent (50%) of the facilities
acquired in such portfolio transaction are located within the Prohibited Area
or, if as of the date of the closing of such portfolio transaction, the
applicable Facility affected by such portfolio transaction has an occupancy rate
of less than the lesser of (i) ninety percent (90%) or (ii) the occupancy rate
of such Facility as of the Commencement Date, then the foregoing exception
described in clause (b) above shall not apply, and such competing facilities
shall not be deemed “Excluded Facilities” for purposes of this Section 7.4.1.
 
7.4.2           Except as is necessary (a) to provide residents or patients with
an alternative level of care not available at a Facility, (b) as a result of the
failure of the applicable resident or patient to pay Lessee for its stay at the
Facility, or (c) to ensure the health and welfare of other residents of a
Facility, prior to and after the expiration or earlier termination of this
Lease, Lessee shall not recommend or solicit the removal or transfer of any
resident or patient from any Facility to any other facility or institution
owned, operated or managed, whether directly or indirectly, by Lessee or its
Affiliates.
 

 
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ARTICLE VIII.
 
8.1           Compliance with Legal and Insurance Requirements, Instruments,
etc.
 
  Subject to Article XII regarding permitted contests, Lessee, at its expense,
shall promptly (i) comply with all Legal Requirements and Insurance Requirements
regarding the use, operation, maintenance, repair and restoration of the Leased
Property, Lessee’s Personal Property and all Capital Additions whether or not
compliance therewith may require structural changes in any of the Leased
Improvements or any Capital Additions thereto or interfere with the use and
enjoyment of the Leased Property and (ii) procure, maintain and comply with all
licenses, certificates of need, provider agreements and other authorizations
required for the use of the Leased Property, Lessee’s Personal Property and all
Capital Additions for the applicable Primary Intended Use and any other use of
the Leased Property, Lessee’s Personal Property and all Capital Additions then
being made, and for the proper erection, installation, operation and maintenance
of the Leased Property, Lessee’s Personal Property and all Capital
Additions.  If Lessee shall fail to comply with any such Legal Requirements or
Insurance Requirements or shall fail to procure, maintain and/or comply with any
such licenses, certificates of need, provider agreements or other
authorizations, then, upon ten (10) days’ prior written notice (except (a) in
the event of an emergency, in which case no prior notice shall be required or
(b) in the case of any other express provision of this Lease that permits Lessor
to self-help rights or remedies on less than ten (10) day’s prior written notice
or upon no notice, in which case such shorter or no notice shall be required in
connection therewith, as applicable), Lessor, without waving or releasing any
obligation or default of Lessee as a result thereof, may, but shall not be
obligated to, enter upon the Leased Property and all Capital Additions thereto
and take such actions and incur such reasonable costs and expenses to effect
such compliance, procurement or maintenance as it deems necessary or advisable
to protect its interest in the Leased Property and all Capital Additions
thereto, and Lessee shall reimburse Lessor for all such reasonable costs and
expenses incurred by Lessor in connection with such actions.  Lessee covenants
and agrees that the Leased Property, Lessee’s Personal Property and all Capital
Additions shall not be used by Lessee or any Person claiming by, through or
under Lessee for any unlawful purpose.
 
ARTICLE IX.
 
9.1           Maintenance and Repair.
 
9.1.1           Lessee, at its expense, shall maintain the Leased Property, and
every portion thereof, Lessee’s Personal Property and all Capital Additions, and
all private roadways, sidewalks and curbs appurtenant to the Leased Property,
and which are under Lessee’s control in good order and repair whether or not the
need for such repairs occurs as a result of Lessee’s use, any prior use, the
elements or the age of the Leased Property, Lessee’s Personal Property and all
Capital Additions, and, with reasonable promptness, make all necessary and
appropriate repairs thereto of every kind and nature, including those necessary
to comply with changes in any Legal Requirements, whether interior or exterior,
structural or nonstructural, ordinary or extraordinary, foreseen or unforeseen
or arising by reason of a condition existing prior to the Commencement
Date.  All repairs shall be at least equivalent in quality to the original
work.  Lessee will not take or omit to take any action the taking or
 

 
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omission of which might materially impair the value or the usefulness of the
Leased Property of any Facility or any part thereof or any Capital Addition
thereto for its Primary Intended Use.
 
9.1.2           Lessor shall not under any circumstances be required to (i)
build or rebuild any improvements on the Leased Property or any Capital
Additions; (ii) make any repairs, replacements, alterations, restorations or
renewals of any nature to the Leased Property, whether ordinary or
extraordinary, structural or nonstructural, foreseen or unforeseen, or to make
any expenditure whatsoever with respect thereto; or (iii) maintain the Leased
Property or any Capital Additions in any way.  Lessee hereby waives, to the
extent permitted by law, the right to make repairs at the expense of Lessor
pursuant to any law in effect at the time of the execution of this Lease or
hereafter enacted.
 
9.1.3           Nothing contained in this Lease and no action or inaction by
Lessor shall be construed as (i) constituting the consent or request of Lessor,
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 the Leased Property or any part thereof or any
Capital Addition thereto; or (ii) giving Lessee any right, power or permission
to contract for or permit the performance of any labor or services or the
furnishing of any materials or other property in such fashion as would permit
the making of any claim against Lessor in respect thereof or to make any
agreement that may create, or in any way be the basis for, any right, title,
interest, lien, claim or other encumbrance upon the estate of Lessor in the
Leased Property, or any portion thereof or any Capital Addition thereto.
 
9.1.4           Unless Lessor shall convey any of the Leased Property to Lessee
pursuant to the provisions of this Lease, Lessee shall, upon the expiration or
earlier termination of the Term with respect to a Facility, vacate and surrender
the Leased Property, Lessee’s Personal Property and all Capital Additions, in
each case with respect to such Facility, to Lessor in the condition in which
such Leased Property was originally received from Lessor and such Lessee’s
Personal Property and Capital Additions were originally introduced to such
Facility, except as repaired, rebuilt, restored, altered or added to as
permitted or required by the provisions of this Lease and except for ordinary
wear and tear.
 
9.2           Encroachments, Restrictions, Mineral Leases, etc
 
.  If any of the Leased Improvements or Capital Additions shall, at any time,
encroach upon any property, street or right-of-way, or shall violate any
restrictive covenant or other agreement affecting the Leased Property, or any
part thereof or any Capital Addition thereto, or shall impair the rights of
others under any easement or right-of-way to which the Leased Property is
subject, or the use of the Leased Property or any Capital Addition thereto is
impaired, limited or interfered with by reason of the exercise of the right of
surface entry or any other provision of a lease or reservation of any oil, gas,
water or other minerals, then promptly upon the request of Lessor or any Person
affected by any such encroachment, violation or impairment, Lessee, at its sole
cost and expense, but subject to its right to contest the existence of
 

 
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any such encroachment, violation or impairment, shall protect, indemnify, save
harmless and defend Lessor from and against all losses, liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including reasonable attorneys’, consultants’ and experts’ fees and expenses)
based on or arising by reason of any such encroachment, violation or
impairment.  In the event of an adverse final determination with respect to any
such encroachment, violation or impairment, Lessee shall either (i) obtain valid
and effective waivers or settlements of all claims, liabilities and damages
resulting from each such encroachment, violation or impairment, whether the same
shall affect Lessor or Lessee; or (ii) make such changes in the Leased
Improvements and any Capital Addition thereto, and take such other actions, as
Lessee in the good faith exercise of its judgment deems reasonably practicable,
to remove such encroachment or to end such violation or impairment, including,
if necessary, the alteration of any of the Leased Improvements or any Capital
Addition thereto, and in any event take all such actions as may be necessary in
order to be able to continue the operation of the Leased Improvements and any
Capital Addition thereto for the Primary Intended Use substantially in the
manner and to the extent the Leased Improvements and Capital Additions were
operated prior to the assertion of such encroachment, violation or
impairment.  Lessee’s obligations under this Section 9.2 shall be in addition to
and shall in no way discharge or diminish any obligation of any insurer under
any policy of title or other insurance and, to the extent the recovery thereof
is not necessary to compensate Lessor for any damages incurred by any such
encroachment, violation or impairment, Lessee shall be entitled to a credit for
any sums recovered by Lessor under any such policy of title or other insurance.
 
9.3           On-Going Capital Projects
 
.
 
9.3.1           Without in any way limiting Lessee’s obligations under this
Article IX (including Section 9.5 hereof), subject to the provisions of Section
9.3.4 hereof, Lessee shall expend during each Lease Year for each Facility, no
less than the Annual Minimum Capital Project Amount for such Facility for
Capital Projects to such Facility.  Such Capital Projects shall be performed and
completed in compliance with the applicable provisions of this Lease.  Promptly
following the expiration of each Lease Year for each Facility, Lessee shall
furnish to Lessor reasonable documentary evidence as to the completion of all
Capital Projects for such Lease Year required pursuant to this Section 9.3,
together with the costs thereof.  Subject to the provisions of Section 9.3.4
below, if Lessee fails to expend during any Lease Year the applicable Annual
Minimum Capital Project Amount for Capital Projects for any Facility, then
Lessee shall promptly deposit with Lessor as a repair and replacement reserve
with respect to such Facility (a “Replacement Reserve”) for Capital Projects to
such Facility, an amount equal to (a) the Annual Minimum Capital Project Amount
for such Facility less (b) the sum of (i) the amounts expended by Lessee during
such Lease Year on account of Capital Projects to such Facility and (ii) the
Annual Minimum Capital Project Amount Overage for such Facility, and, so long as
Lessee otherwise maintains such Facility in the condition required by this
Lease, once such deposit has been made Lessee shall not be deemed to be in
default of its obligations under this Section 9.3 for Lessee’s failure to expend
during such Lease Year the applicable Annual Minimum Capital Project Amount for
Capital Projects for such Facility.  So long as no Event of Default or event or
circumstance which
 

 
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with notice or passage of time, or both, would constitute an Event of Default
hereunder has occurred, if (i) a Replacement Reserve has been established for
any Facility and (ii) Lessee expends in any Lease Year an amount in excess of
the applicable Annual Minimum Capital Project Amount for Capital Projects for
such Facility, Lessor shall, to the extent funds are available for such purpose
in such Replacement Reserve, disburse to Lessee the Capital Project Costs
incurred and paid by Lessee during such Lease Year in performing such Capital
Projects to such Facility in excess of the applicable Annual Minimum Capital
Project Amount for such Facility for such Lease Year.  Any such disbursement
from any Replacement Reserve shall be paid by Lessor to Lessee within fifteen
(15) days following: (a) receipt by Lessor of a written request from Lessee for
disbursement from the Replacement Reserve for such Facility and a certification
by Lessee in form and substance reasonably satisfactory to Lessor that the
applicable item of Capital Project for such Facility has been completed; (b)
delivery to Lessor of paid invoices, receipts or other evidence reasonably
satisfactory to Lessor, verifying (1) the Capital Project Costs for such Capital
Project and (2) that, subject to the provisions of Section 9.3.4 hereof, Lessee
has expended in the applicable Lease Year an amount in excess of the applicable
Annual Minimum Capital Project Amount for Capital Projects for such Facility;
and (c) delivery to Lessor of affidavits, lien waivers or other evidence
satisfactory to Lessor showing that all materialmen, laborers, subcontractors
and any other parties who might or could claim statutory or common law liens and
are furnishing or have furnished material or labor to the Leased Property of
such Facility have been paid all amounts due for labor and materials furnished
to the Leased Property of such Facility.  Lessor shall not be required to make
advances from any Replacement Reserve more frequently than once in any thirty
(30) day period.  Except as provided in Section 9.3.4 hereof, amounts held in
the Replacement Reserve for any Facility may not be used to pay for or reimburse
Lessee for Capital Project Costs for any other Facility.
 
9.3.2           No Replacement Reserve shall be or be deemed to be escrow or
trust funds, but, at Lessor’s option and in Lessor’s discretion, may either be
held in a separate account or be commingled by Lessor with the general funds of
Lessor.  Lessee shall not be entitled to any interest on any funds contained in
any Replacement Reserve.  The Replacement Reserves are solely for the protection
of Lessor and the Leased Property of the Facilities and entail no responsibility
on Lessor’s part beyond the payment of the respective items for which they are
held following receipt of bills, invoices or statements therefor in accordance
with the terms of this Section 9.3 and beyond the allowing of due credit for the
sums actually received.  Upon assignment of this Lease by Lessor, any funds in
any Replacement Reserve shall be turned over to the assignee and any
responsibility of Lessor, as assignor, with respect thereto shall terminate.
 
9.3.3           If any funds remain in any Replacement Reserve upon the
expiration or earlier termination of this Lease (other than as a result of the
purchase of the Leased Property of the applicable Facility by Lessee, in which
case all of such funds in the applicable Replacement Reserve shall be remitted
by Lessor to Lessee upon the closing of such purchase or offset against the
purchase price payable by Lessee for the Leased Property of such Facility) and
Lessor determines in its reasonable discretion that Lessee has failed to
maintain any Facility in accordance with the requirements of this Lease, then
the funds held
 

 
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in such Replacement Reserve shall be paid over to Lessor as an Additional Charge
and Rent under this Lease for purposes of making necessary repairs to the
Facilities and shall be in addition to Minimum Rent, Additional Rent and all
other Additional Charges payable hereunder.
 
9.3.4           Notwithstanding anything to the contrary in this Section 9.3,
if, for any Lease Year, Lessee reasonably determines that the expenditure by
Lessee of all or a portion of the Annual Minimum Capital Project Amount for
Capital Projects for a Facility pursuant to this Section 9.3 is not required or
necessary in order to maintain such Facility in the condition required by this
Lease (herein, an “Non-Capital Need Facility”), and Lessee desires to expend
more than the applicable Annual Minimum Capital Project Amount for any other
Facility(ies) for Capital Projects for such Lease Year, then Lessee may, in
advance and in writing, request Lessor’s consent to the reallocation and
expenditure of all or such portion of such Annual Minimum Capital Project Amount
for such Non-Capital Need Facility for Capital Projects to such other
Facility(ies) during such Lease Year.  Lessor hereby agrees not to unreasonably
withhold its consent to any such reallocation and expenditure of all or such
portion of the Annual Minimum Capital Project Amount for any such Non-Capital
Need Facility for Capital Projects to such other Facility(ies) for an applicable
Lease Year so long as (a) no Event of Default has occurred and is continuing
hereunder, (b) Lessee is otherwise maintaining such Non-Capital Need Facility in
the condition required by this Lease and reasonably demonstrates to Lessor that
all or such portion of the Annual Minimum Capital Project Amount for such
Non-Capital Need Facility requested by Lessee to be so reallocated (herein, the
“Reallocated Annual Minimum Capital Project Amount”) is not needed or required
for such Non-Capital Need Facility for such Lease Year and will instead be
expended by Lessee, in addition to the applicable Annual Minimum Capital Project
Amount for such other Facility(ies) , for Capital Projects to such other
Facility(ies) during such Lease Year, and (c) such reallocation and expenditure
has been approved by any Facility Mortgagee, to the extent required under the
terms of any Facility Mortgage Loan Documents.   If Lessor consents to such
reallocation and expenditure for any Lease Year of the Reallocated Annual
Minimum Capital Project Amount for a Non-Capital Need Facility to any such other
Facility(ies), then the following shall apply:
 
(a)           The Annual Capital Project Amount for such Non-Capital Need
Facility for such Lease Year shall be reduced for such Lease Year by the
Reallocated Annual Minimum Capital Project Amount, but not below zero (-0-);
 
(b)           Lessee shall expend during such Lease Year for each such other
Facility(ies) the Allocated Minimum Capital Project Amount for Capital Projects
for such Facility(ies), together with the amount of the Reallocated Annual
Minimum Capital Project Amount that has been reallocated to such Facility(ies)
with the approval of Lessor as provided above (with respect to each such
Facility the amount so reallocated, the “Increased Annual Minimum Capital
Project Amount”);
 
(c)           Any portion of the Increased Annual Minimum Capital Project Amount
expended by Lessee for Capital Projects for any such Facility for any Lease Year
 

 
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shall not be counted towards the Annual Minimum Capital Project Amount Overage
for such Facility for any subsequent Lease Years; and
 
(d)           If Lessee fails to expend during such Lease Year for any other
Facility(ies) the amount required pursuant to clause (b) above, then any portion
of such Increased Annual Minimum Capital Project Amount for such Facility(ies)
not so expended shall be reallocated back to the Non-Capital Need Facility for
such Lease Year, and if not expended for Capital Projects for such Non-Capital
Need Facility for such Lease Year, then Lessee shall promptly deposit with
Lessor into the Replacement Reserve for such Non-Capital Need Facility the
amount that has not been so expended on such other Facility(ies).
 
9.4           Inspections; Due Diligence Fee
 
.  Without limiting Lessor’s rights pursuant to Section 26.1 hereof, from time
to time during the Term, Lessor and its agents shall have the right to inspect
the Leased Property and any portion thereof and all systems contained therein at
any reasonable time to determine Lessee’s compliance with its obligations under
this Lease.  Lessor shall provide Lessee with at least two (2) Business Days’
prior written notice prior to any inspections of the Leased Property pursuant to
the terms of this Section 9.4, except in the event of an emergency, in which
case no prior notice shall be required.  Lessee shall reimburse Lessor for all
costs and expenses incurred by Lessor in connection with the inspections
provided for in this Section 9.4 promptly following its receipt of Lessor’s
invoice therefore, which costs shall not exceed One Thousand Dollars ($1,000.00)
annually.
 
9.5           Initial Planned Capital Refurbishment Projects.
 
9.5.1           Nature of Planned Capital Refurbishment Projects.  Lessor and
Lessee acknowledge and agree that the Facilities are currently in need of
certain capital refurbishments/replacements as generally described on Schedule
9.5.1A as the “Immediate Need” items and on Schedule 9.5.1B as the “Future Need”
items, as well as certain other potential additional capital
refurbishments/replacements items as may be proposed by Lessee and reasonably
approved by Lessor, in order to bring the same into good order and repair and to
improve their overall competitive position in the respective marketplaces in
which they are located.  Promptly following the Effective Date, Lessor and
Lessee shall reasonably and in good faith agree in writing upon any such
additional capital refurbishments/replacements to each Facility (i.e., in
addition to those items generally described on Schedules 9.5.1A and 9.5.1B) as
are necessary to bring each such Facility into good order and repair and to
improve its overall competitive position in the respective marketplaces in which
they are located, including the general scope of any such additional capital
refurbishments/replacements and estimated cost budget(s) therefor (with respect
to each Facility, the applicable items described on Schedules 9.5.1A and 9.5.1B
and any such additional refurbishments/replacements so proposed by Lessee and
reasonably approved by Lessor, the “Planned Capital Refurbishment Project”).   
 

 
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9.5.2           Funding of Planned Capital Refurbishment Project(s)
Generally.  In connection with each applicable Planned Capital Refurbishment
Project for a Facility as described on Schedule 9.5.1A, Lessor shall provide to
Lessee the Allocated Planned Capital Refurbishment Project Allowance as provided
for herein in accordance with and subject to the provisions of this Section
9.5.  In connection with each applicable Planned Capital Refurbishment Project
for a Facility as described on Schedule 9.5.1B, as well as any other additional
capital refurbishments/replacements item as may be proposed by Lessee and
reasonably approved by Lessor, Lessor shall provide to Lessee the Allocated
Planned Capital Refurbishment Additional Funding Amount as provided for herein
in accordance with and subject to the provisions of this Section 9.5.  Lessee
shall be solely responsible to perform all Planned Capital Refurbishment
Project(s) and to pay or fund the Aggregate Costs of the Planned Capital
Refurbishment Project(s) therefor in excess of: (a) with respect to the Planned
Capital Refurbishment Projects described on Schedule 9.5.1A, (i) the Planned
Capital Refurbishment Project Allowance for all Facilities and (ii) the
Allocated Planned Capital Refurbishment Project Allowance for any one Facility
(subject to reallocation of such allowance in accordance with the definition
of  “Allocated Planned Capital Refurbishment Project Allowance” among the
Facilities); and (b) with respect to the Planned Capital Refurbishment Projects
described on Schedule 9.5.1B, as well as any other additional capital
refurbishments/replacements items as may be proposed by Lessee and reasonably
approved by Lessor, (i) the Planned Capital Refurbishment Project Additional
Funding Amount for all Facilities and (ii) the Allocated Planned Capital
Refurbishment Additional Funding Amount for any one Facility (subject to
reallocation of such additional funding amount in accordance with the definition
of  “Allocated Planned Capital Refurbishment Project Additional Funding Amount”
among the Facilities).
 
9.5.3           Certain Approvals (Plans and Specifications, Project Budget(s),
Etc).  Once approved in concept pursuant to Section 9.5.1 above, and prior to
commencing any work relating to any Planned Capital Refurbishment Project for
any Facility, Lessee shall provide Lessor with the following, each of which
shall be subject to Lessor’s reasonable approval: (a) detailed plans and
specifications for the work to be performed in connection with such Planned
Capital Refurbishment Project for such Facility (with respect to each Facility,
the “Plans and Specifications”); (b) a detailed final budget, which budget shall
also provide a detailed cost breakdown of all construction costs (with respect
to each Facility, the “Project Budget”); (c) any other detailed budget
information as Lessor may reasonably request and approve from Lessee; (d) if
applicable based on the nature of the Planned Capital Refurbishment Project for
such Facility, copies of all building permits and other authorizations from any
applicable governmental authorities with jurisdiction required in connection
with such Planned Capital Refurbishment Project for such Facility; and (e)
evidence that Lessee has filed, recorded or posted a notice of
non-responsibility in favor of Lessor in connection with such Planned Capital
Refurbishment Project for such Facility.  The Project Budget with respect to
each Planned Capital Refurbishment Project for a Facility shall include, and
Lessee shall be responsible for paying to Lessor, (i) an amount equal to
$1,650.00 for each site visit per Facility for the purpose of inspecting such
Planned Capital Refurbishment Project for such Facility, provided that Lessor
shall not be entitled to such amount for more than one (1) visit for each
Facility (except that Lessor shall be entitled to make an additional site visit
to a Facility and receive such amount in connection with each
 

 
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Request for Advance in which the amount requested to be disbursed by Lessor
therefor is $100,000.00 or more) (with respect to each Capital Refurbishment
Project for a Facility, collectively, the “Planned Capital Refurbishment Project
Site Review Fees”) and (ii) all legal fees, expenses and disbursements incurred
by Lessor in connection with the review of diligence materials, documents and
other information relating to such Planned Capital Refurbishment Project for
such Facility, including engineering fees, accountants and other professional
fees (with respect to each Capital Refurbishment Project for a Facility,
collectively, the “Planned Capital Refurbishment Project Lessor Costs”).  The
Planned Capital Refurbishment Project Site Review Fees and the Planned Capital
Refurbishment Project Lessor Costs for each Facility shall be deducted from the
Allocated Planned Capital Refurbishment Project Allowance and Allocated Planned
Capital Refurbishment Additional Funding Amount, as applicable, for such
Facility prior to disbursement of any portion thereof to Lessee as provided in
Section 9.5.5 hereof, but for all purposes of this Lease shall be deemed part of
the Allocated Planned Capital Refurbishment Project Allowance and Allocated
Planned Capital Refurbishment Additional Funding Amount, as applicable, for such
Facility disbursed by Lessor and allocated to such Facility as provided for
herein.
 
9.5.4           Additional Covenants and Obligations of Lessee Relating to
Planned Capital Refurbishment Project(s).  With respect to each Planned Capital
Refurbishment Project for a Facility, Lessee covenants and agrees as follows:
 
(a)           Lessee shall be responsible to arrange, supervise, coordinate and
carry out all services necessary for the construction, performance and
completion of each Planned Capital Refurbishment Project for a Facility in
accordance with the Plans and Specifications therefor and this Lease, and Lessee
undertakes and accepts such responsibility with the understanding that the
Aggregate Costs of the Planned Capital Refurbishment Project in excess of the
amount(s) that Lessor is obligated to fund hereunder are the sole responsibility
of Lessee.
 
(b)           From and after commencement of construction and/or performance of
such Planned Capital Refurbishment Project, Lessee shall diligently prosecute
the same to completion in accordance with the terms of this Lease and the Plans
and Specifications therefor and, in any event cause the Completion Date therefor
to occur on or before that date which is twenty-four (24) months following the
Commencement Date (with respect to each Planned Capital Refurbishment Project
for a Facility, the “Outside Planned Capital Refurbishment Project Completion
Date”), as such date may be extended in the event of the occurrence of any of
the events described in Section 45.1.16.
 
(c)           All Punch List Items, other than those reasonably requiring more
than thirty (30) days to complete due to long scheduling or ordering time or
other reasonable factors, shall be completed within thirty (30) days after the
applicable Completion Date, but in no event later than thirty (30) days after
the Outside Completion Date.  Any Punch List Items reasonably requiring more
than thirty (30) days to complete shall be diligently pursued and completed as
promptly as practicable, but in no event later than sixty (60) days after the
Outside Planned Capital Refurbishment Project Completion Date.
 

 
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(d)           Construction/performance of such Planned Capital Refurbishment
Project shall be prosecuted by Lessee in accordance with the Plans and
Specifications therefor in a good and workmanlike manner and in accordance with
sound building and engineering practices and all applicable Legal Requirements
and all restrictive covenants affecting the Leased Property of such
Facility.  All materials, fixtures or articles used in the
construction/performance of such Planned Capital Refurbishment Project, or to be
used in the operation thereof shall be substantially in accordance with the
Plans and Specifications therefor as approved by Lessor.
 
(e)           To the extent not already maintained or covered by Lessee pursuant
to Article XIII, Lessee shall at all times maintain or cause to be maintained
the following insurance during the construction/performance of such Planned
Capital Refurbishment Project (including through the date of completion of the
Punch List Items): (i) Builder’s risk insurance covering the
construction/performance of such Planned Capital Refurbishment Project, in a
face amount of not less than the full replacement cost (as defined below in
Section 13.2) of such Planned Capital Refurbishment Project and materials
supplied in connection therewith, with appropriate provisions made to include
coverage of materials stored off the Leased Property of such Facility in an
amount not less than the full replacement cost (as defined below in Section
13.2) of such materials stored off the Leased Property of such Facility from
time to time, and (ii) errors and omissions insurance by the Architect in an
amount reasonably acceptable to Lessor, covering the entire period of design and
construction/performance of such Planned Capital Refurbishment Project,
including completion of the Punch List Items.  All such insurance maintained or
caused to be maintained by Lessee pursuant to clauses (i) and (ii) of this
subsection (e) shall name Lessor as an additional insured, all insurance
maintained or caused to be maintained by Lessee pursuant to clause (i) of this
subsection (e) shall name Lessee, Lessor and any General Contractor or other
contractor, jointly, as loss payee and all such insurance to be maintained or
caused to be maintained by Lessee shall otherwise, to the extent applicable,
comply with the provisions of and shall be in addition to the insurance
specified in Article XIII of this Lease.
 
(f)           Lessee shall not at any time during the performance of the work,
make or cause to be made, or permit any General Contractor or any other
contractor to make, any contract for materials or equipment of any kind or
nature whatsoever to be incorporated in or to become a part of the Leased
Property of any Facility, title to which is not good or which is subject to any
lien or title retention arrangement other than inchoate mechanic’s
liens.  Lessee will deliver to Lessor, on demand, true copies of any contracts,
bills of sale, statements, receipted vouchers, or agreements, under which Lessee
claims title to any materials, fixtures, or articles used in the
construction/performance of such Planned Capital Refurbishment Project.
 
(g)           Lessee shall expend all the proceeds of each advance by Lessor
under this Section 9.5 for such Planned Capital Refurbishment Project in the
amounts and for the purposes specified in the Request for Advance and for no
other purpose whatsoever.
 

 
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(h)           From time to time as requested by Lessor and as soon as
practicable following the applicable Completion Date for such Planned Capital
Refurbishment Project, Lessee shall supply or cause to be supplied to Lessor
such reasonable documents and information pertaining to such Planned Capital
Refurbishment Project and the construction, performance and/or completion of the
same as Lessor shall request.
 
(i)           At the reasonable request of Lessor, Lessee shall assign to Lessor
each Construction Contract to which Lessee is a party utilizing an assignment
instrument in form and substance acceptable to Lessor and shall use commercially
reasonable efforts to cause each other party to such Construction Contract to
consent to such assignment, if required by the terms thereof.
 
9.5.5           Disbursement of Planned Capital Refurbishment Project Allowance
and Planned Capital Refurbishment Project Additional Funding Amount.
 
(a)           Subject to the satisfaction by Lessee of the disbursement
conditions set forth in Section 9.5.5(e) below, Lessor shall advance to Lessee
funds with respect to each applicable Planned Capital Refurbishment Project for
a Facility up to the Allocated Planned Capital Refurbishment Project Allowance
and Allocated Planned Capital Refurbishment Project Additional Funding Amount,
as applicable, and in each case less all applicable Planned Capital
Refurbishment Project Site Review Fees and Planned Capital Refurbishment Project
Lessor Costs, for the purpose of paying or reimbursing Lessee for the payment of
the applicable Aggregate Costs of the Planned Capital Refurbishment Project
therefor. For the avoidance of doubt, Lessor and Lessee agree that each Request
for Advance with respect to each Planned Capital Refurbishment Project for a
Facility shall reflect the full amount of Aggregate Costs of the Planned Capital
Refurbishment Project expended by Lessee through the date thereof on the work or
materials which are the subject of the Request for Advance but that Lessor’s
funding obligation shall be limited to the maximum amount that Lessor is
required to advance hereunder.
 
(b)           Notwithstanding anything to the contrary in this Section 9.5,
Lessor shall not be obligated to advance to Lessee any sums on account of any
Planned Capital Refurbishment Project for any Facility in excess of: (a) with
respect to the Planned Capital Refurbishment Projects described on Schedule
9.5.1A, (i) the Planned Capital Refurbishment Project Allowance for all
Facilities and (ii) the Allocated Planned Capital Refurbishment Project
Allowance for any one Facility (subject to reallocation of such allowance in
accordance with the definition of  “Allocated Planned Capital Refurbishment
Project Allowance” among the Facilities); and (b) with respect to the Planned
Capital Refurbishment Projects described on Schedule 9.5.1B, as well as any
other additional capital refurbishments/replacements items as may be proposed by
Lessee and reasonably approved by Lessor, (i) the Planned Capital Refurbishment
Project Additional Funding Amount for all Facilities and (ii) the Allocated
Planned Capital Refurbishment Additional Funding Amount for any one Facility
(subject to reallocation of such additional funding amount in accordance with
the definition of  “Allocated
 

 
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Planned Capital Refurbishment Project Additional Funding Amount” among the
Facilities).  In addition, and notwithstanding anything to the contrary in this
Section 9.5, Lessor shall not be obligated to advance to Lessee any sums on
account of any Planned Capital Refurbishment Project for any Facility (1) when
the total amount funded by Lessor pursuant to this Section 9.5 for all
Facilities equals Two Million Five Hundred Thousand Dollars ($2,500,000), (2)
for which a Request for Advance is received more than sixty (60) days after the
Outside Planned Capital Refurbishment Project Completion Date, or (3) when any
of the disbursement conditions set forth in Section 9.5.5(e) below have not been
met or fulfilled.
 
(c)           With respect to each Planned Capital Refurbishment Project for a
Facility, draw requests will be reviewed monthly and will be based on the pro
rata share completion to date of each construction line item listed in the
applicable Project Budget; provided, however, that no draw request for any
Planned Capital Refurbishment Project for a Facility shall be less than
$100,000, or the balance of the amount Lessor is required to fund on account
thereof.  All advances of funds under this Section 9.5 shall be made by Lessor
in accordance with a Request for Advance.  Each Request for Advance shall be
honored within ten (10) Business Days of receipt of the same delivered in
accordance with the notice provisions of this Lease together with the
information required therein, subject, however, to the limitations herein.  In
no event shall Lessor be required to make any advance for a particular line item
with respect to any Planned Capital Refurbishment Project for a Facility which,
when aggregated with prior advances, is in excess of the applicable Project
Budget for such line item except to the extent amounts from contingency line
items are unused and/or to the extent savings, in Lessor’s reasonable good faith
discretion, in other budget line items remain unused.  Lessor shall issue checks
payable to, or otherwise advance funds to, Lessee, the payees designated in a
Request for Advance or jointly to Lessee and such payees, as Lessor shall
reasonably determine.  Advances of funds to such payees or jointly to Lessee and
any such payee shall constitute an advance hereunder as though advanced directly
to Lessee.
 
(d)           With respect to each Planned Capital Refurbishment Project for a
Facility, any advances for costs and expenses of labor and materials connected
with the construction/performance for such Planned Capital Refurbishment Project
shall be limited to Ninety Percent (90%) of the portion of such costs and
expenses for which Lessor is responsible under the terms of this Lease and shall
be made in accordance with the payment schedule of the Construction Contract
with any General Contractor or other contractor.  With respect to each Planned
Capital Refurbishment Project for a Facility, the final advance of proceeds
representing the Ten Percent (10%) retainage of the portion of such costs and
expenses for which Lessor is responsible under this Lease for any particular
item will not be made until the last to occur of (i) the applicable Completion
Date, (ii) completion of all Punch List Items and (iii) the date Lessor
receives, as applicable, (1) all final and unconditional lien releases and
waivers provided for herein, (2) an “As-Built” set of Plans and Specifications
(if reasonably requested by Lessor based upon the nature of such Capital
Renovation Project), (3) an ALTA “As-Built” survey (if reasonably requested by
Lessor based upon the nature of such Planned Capital Refurbishment Project), and
(4) such other documents as Lessor may reasonably request.
 

 
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In no event shall any portion of such retainage for any such Planned Capital
Refurbishment Project be paid if any mechanics’ and/or materialmen’s liens or
other encumbrances have been filed and remain on the Leased Property (except for
permitted contests pursuant to Article XII of this Lease).
 
(e)           With respect to any Planned Capital Refurbishment Project for a
Facility, Lessor shall not be obligated to make any advance of funds under this
Section 9.5, including the first advance, unless and until the following
conditions shall have been satisfied (with proof thereof in form and sufficiency
as may be reasonably requested by Lessor):
 
(i)           To the extent not theretofore received and approved by Lessor,
Lessor shall have received and approved (A) the applicable Plans and
Specifications (and any material changes thereto); (B) the applicable Project
Budget; (C) if applicable based on the nature of such Planned Capital
Refurbishment Project, all Construction Contracts with any General Contractor,
any Architect and any other contractor or material supplier that may be
requested by Lessor; and (D) if applicable based on the nature of such  Planned
Capital Refurbishment Project, all authorizations and permits required by any
governmental authority with jurisdiction for the construction/performance of
such Planned Capital Refurbishment Project, including building permits and such
other authorizations and permits as are required for the use and operation of
such Facility for its Primary Intended Use, which are then presently procurable.
 
(ii)           To the extent applicable to such Planned Capital Refurbishment
Project as reasonably determined by Lessor, Lessor shall have received evidence
satisfactory to Lessor that, following completion of such Planned Capital
Refurbishment Project, (A) all existing public utilities, including telephone,
water, sewage, electricity and gas are adequate for such Facility; and (B) all
existing means of ingress and egress, parking, access to public streets and
drainage facilities are adequate for such Facility.
 
(iii)           To the extent applicable to such Planned Capital Refurbishment
Project as reasonably determined by Lessor, Lessor shall have received and
approved test borings, engineering reports and such other site analysis as
Lessor may require, all of which must indicate that the soil is adequate for the
proposed construction/performance of such Planned Capital Refurbishment Project
in accordance with the applicable Plans and Specifications.
 
(iv)           Lessor shall have received and approved the insurance required to
be maintained by Lessee as provided in Section 9.5.4(e) above.
 
(v)           No Event of Default shall have occurred and be continuing under
this Lease and no event or condition shall exist which, with notice and/or lapse
of time, or both, would constitute such an Event of Default under this Lease.
 

 
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(vi)           No Condemnation shall be pending or threatened and no casualty
shall have occurred, in either case with respect to the Leased Property of such
Facility or any portion thereof.
 
(vii)           Lessor shall have received and approved (A) a Request for
Advance accompanied by all necessary documents and certificates as set forth in
the definition thereof; (B) to the extent applicable to such Planned Capital
Refurbishment Project as reasonably determined by Lessor, a Lessee’s Affidavit;
and (C) to the extent applicable, a certificate from the Architect, or if no
Architect, from an officer of Lessee or any other reliable Person acceptable to
Lessor, to the effect that in such Person’s opinion (1) the
construction/performance of such Planned Capital Refurbishment Project
theretofore performed is in accordance with the applicable Plans and
Specifications and (2) the amount requested is appropriate in light of the
percentage of construction completed and amount of stored material.
 
(viii)           To the extent applicable to the Planned Capital Refurbishment
Project as reasonably determined by Lessor, Lessor shall have received from each
of the Architect, General Contractor, and major subcontractors a letter, in form
and substance satisfactory to Lessor, which, among other things, (A) states
that, in the event of a default by Lessee under the contract with the
undersigned, the undersigned agrees to perform for Lessor at Lessor’s request
under the terms of the applicable Construction Contract, (B) to the best
knowledge of the undersigned certifies to Lessor that the applicable Plans and
Specifications comply with all Legal Requirements, and that the work performed
by the undersigned has been completed in accordance with the applicable Plans
and Specifications, and (C) confirms such other matters consistent with the
terms and provisions of this Section 9.5.5 (e).
 
ARTICLE X.
 
10.1           Construction of Capital Additions to the Leased Property
 
.  Without the prior written consent of Lessor which consent may be withheld or
granted by Lessor in its sole and absolute discretion, Lessee shall make no
Capital Additions on or structural alterations to the Leased Property and shall
not enlarge or reduce the size of any Facility.
 
ARTICLE XI.
 
11.1           Liens
 
.  Subject to the provisions of Article XII relating to permitted contests,
Lessee will not directly or indirectly create or allow to remain and will
promptly discharge at its expense any lien, encumbrance, attachment, title
retention agreement or claim upon the Leased Property of any Facility or any
Capital Addition thereto or any attachment, levy, claim or encumbrance in
respect of the Rent, excluding, however, (i) this Lease; (ii) the matters that
existed as of the
 

 
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Commencement Date; (iii) restrictions, liens and other encumbrances which are
consented to in writing by Lessor, or any easements granted pursuant to the
provisions of Section 7.3; (iv) liens for Impositions which Lessee is not
required to pay hereunder; (v) subleases permitted by Article XXIV; (vi) liens
for Impositions not yet delinquent; (vii) liens of mechanics, laborers,
materialmen, suppliers or vendors for amounts not yet due; and (viii) any liens
which are the responsibility of Lessor pursuant to the provisions of Article
XXXVI.
 
ARTICLE XII.
 
12.1           Permitted Contests
 
.  Lessee, upon prior written notice to Lessor, on its own or in Lessor’s name,
at Lessee’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; subject, however, to the further requirement that (i) in the case of
an unpaid Imposition, lien, attachment, levy, encumbrance, charge or claim, the
commencement and continuation of such proceedings shall suspend the collection
thereof from Lessor and from the Leased Property or any Capital Addition
thereto; (ii) neither the Leased Property or any Capital Addition thereto, the
Rent therefrom nor any part or interest in either thereof would be in any danger
of being sold, forfeited, attached or lost pending the outcome of such
proceedings; (iii) in the case of a Legal Requirement, neither Lessor nor Lessee
would be in any danger of civil or criminal liability for failure to comply
therewith pending the outcome of such proceedings; (iv) if any such contest
shall involve a sum of money or potential loss in excess of Fifty Thousand
Dollars ($50,000), Lessee shall deliver to Lessor and its counsel an opinion of
legal counsel reasonably acceptable to Lessor to the effect set forth in clauses
(i), (ii) and (iii) above, to the extent applicable; (v) in the case of a Legal
Requirement, Imposition, lien, encumbrance or charge, Lessee shall give such
reasonable security as may be required by Lessor to insure ultimate payment of
the same and to prevent any sale or forfeiture of the Leased Property or any
Capital Addition thereto or the Rent by reason of such nonpayment or
noncompliance; and (vi) in the case of an Insurance Requirement, the coverage
required by Article XIII shall be maintained.  If any such contest is finally
resolved against Lessor or Lessee, Lessee shall promptly pay the amount required
to be paid, together with all interest and penalties accrued thereon, or comply
with the applicable Legal Requirement or Insurance Requirement.  Lessor, at
Lessee’s expense, shall execute and deliver to Lessee such authorizations and
other documents as may reasonably be required in any such contest, and, if
reasonably requested by Lessee or if Lessor so desires, Lessor shall join as a
party therein.  The provisions of this Article XII shall not be construed to
permit Lessee to contest the payment of Rent or any other amount payable by
Lessee to Lessor hereunder.  Lessee shall indemnify, defend, protect and save
Lessor harmless from and against any liability, cost or expense of any kind that
may be imposed upon Lessor in connection with any such contest and any loss
resulting therefrom.
 
ARTICLE XIII.
 
13.1           General Insurance Requirements
 

 
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During the Term, Lessee shall at all times keep the Leased Property, and all
property located in or on the Leased Property, including all Capital Additions,
the Fixtures and the Personal Property, insured with the kinds and amounts of
insurance described below.  Each element of the insurance described in this
Article shall be maintained with respect to the Leased Property of each
Facility, including all Capital Additions, the Fixtures and the Personal
Property and operations thereon. This insurance shall be written by companies
authorized to do insurance business in the State in which the Leased Property is
located.  All of the policies of insurance referred to in this Article shall be
written in form satisfactory to Lessor and by insurance companies with a
policyholder rating of  A-IX in the most recent version of Best’s Key Rating
Guide.  Additionally, except as otherwise provided in this Lease, all of the
insurance referred to in this Article shall be on an occurrence (rather than a
claims-made) basis, with the exception of the medical professional liability
insurance referred to in Section 13.1.5.  Each policy may have a deductible or
deductibles, if any, which are no greater than $100,000 per occurrence except
for (a) coverage for the perils of earthquake, windstorm and flood where the
maximum deductible shall be 5% of the replacement cost (as defined below in
Section 13.2) of such Leased Property, (b) commercial general liability coverage
required pursuant to Section 13.1.4 below, which shall have a maximum deductible
no greater than $500,000, (c) medical professional liability coverage required
pursuant to Section 13.1.5 below, which shall have a maximum deductible no
greater than $500,000, and (d) workers compensation insurance required pursuant
to Section 13.1.7 below, which shall have a maximum deductible no greater than
$500,000. All liability type policies must name Lessor (and its directors,
officers, employees and agents) and Facility Mortgagee, if any, as an
“additional insured” and shall be considered primary insurance without recourse
to any insurance maintained by Lessor.  All property, flood, boiler & machinery,
loss of rental and business interruption type policies shall name Lessor as an
“additional insured and loss payee.”  Any loss adjustment shall require the
written consent of Lessor and any Facility Mortgagee.  All insurance maintained
be Lessee shall be primary and non-contributory to any insurance maintained by
Lessor. The policies shall insure against the following risks with respect to
each Facility:

 
13.1.1           All Risk property insurance including coverage for loss or
damage by fire, vandalism and malicious mischief, including earthquake
(including earth movement), flood and windstorm in an amount not less than the
replacement cost (as defined below in Section 13.2) therefor and including
demolition, law & ordinance, increased cost of construction and coverage
endorsement with limits not less than $5 million;
 
13.1.2           Loss or damage by explosion of steam boilers, pressure vessels
or similar apparatus, including what is normally covered by a standard boiler
and machinery policy, including HVAC, refrigeration systems and electrical
systems, now or hereafter installed in each Facility, in such limits with
respect to any one accident as may be reasonably requested by Lessor from time
to time;
 

 
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13.1.3           Business Interruption or Loss of rental value in an amount not
less than twelve (12) months’ Rent payable hereunder or business interruption in
an amount not less than twelve (12) months of income and normal operating
expenses and Rent payable hereunder and at least ninety (90) days ordinary
payroll expense with an endorsement extending the period of indemnity by at
least (x) one hundred eighty (180) days for any Facilities located within a Tier
One windstorm zone or 100 year flood plain zone and for any Facilities located
in California or in any other high hazard earthquake zone, and (y) ninety (90)
days for any Facilities located outside of any of the zones described in clause
(x), (Building Ordinance - Increased Period of Restoration Endorsement)
necessitated by the occurrence of any of the hazards described in Sections
13.1.1, 13.1.2 or 13.1.3;
 
13.1.4           Claims on an occurrence basis for bodily injury or property
damage under a policy of commercial general liability insurance (including broad
form property damage and broad form contractual liability) with amounts not less
than One Million and No/100 Dollars ($1,000,000.00) per occurrence and combined
single limit and Three Million No/100 Dollars ($3,000,000.00) in the annual
aggregate;
 
13.1.5           Medical professional liability with amounts not less than One
Million Dollars ($1,000,000) per claim or wrongful act combined single limit and
Three Million Dollars ($3,000,000) in the annual aggregate.  If the policy has a
claims-made coverage trigger, the retroactive date shall always be no later than
the inception date of the Lease.  In addition, if claims-made coverage is
maintained, Lessee shall either such claims-made coverage for two years after
the end of the Lease period or purchase a two year extended reporting period
under the policy in force at the expiration or earlier termination of  Term;
 
13.1.6           Vehicle insurance covering the liability arising out of any
owned, hired or non-owned vehicle used at any Facility with a combined single
limit of not less than One Million dollars ($1,000,000) per accident for bodily
injury or property damage; and
 
13.1.7           Workers compensation insurance having the limits required by
statute in the domicile where any Facility is located covering all persons
employed by Lessee in the conduct of its operations at such Facility (including
an all states endorsement if applicable) and Employers Liability coverage in an
amount not less than One Million dollars ($1,000,000), each accident and  One
Million dollars ($1,000,000) for bodily injury by disease.  Such policy shall
include a waiver of subrogation in favor of Lessor (and its directors, officers,
employees and agents) and Facility Mortgagee, if any.
 
13.1.8           Excess Liability insurance providing excess coverage for
general liability with a limit not less than Five Million Dollars ($5,000,000)
in the aggregate.
 
13.2           Replacement Cost
 
.  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.  If either party believes that the replacement cost has
increased or decreased at any time during the Term, it shall have the right to
have such replacement cost redetermined by an impartial
 

 
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appraisal company reasonably acceptable to both parties (the “impartial
appraiser”).  The party desiring to have the replacement cost so redetermined
shall forthwith, on receipt of such determination by the impartial appraiser,
give written notice thereof to the other party hereto.  The determination of the
impartial appraiser shall be final and binding on the parties hereto, and Lessee
shall forthwith increase or decrease the amount of the insurance carried
pursuant to this Article 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 Lessee has made improvements to the Leased Property of
any Facility, including any Capital Additions thereto, Lessor may at Lessee’s
expense have the replacement cost of the Leased Property of such Facility
redetermined at any time after such improvements are made, regardless of when
the replacement cost was last determined.
 
13.3           Additional Insurance
 
.  In addition to the insurance described above, Lessee shall maintain such
additional insurance as may be reasonably required from time to time by any
Facility Mortgagee and shall further at all times maintain adequate workers’
compensation coverage and any other coverage required by Legal Requirements for
all Persons employed by Lessee on the Leased Property of any Facility and any
Capital Additions thereto in accordance with Legal Requirements.
 
13.4           Waiver of Subrogation
 
.  All insurance policies carried by either party covering the Leased Property
of any Facility and any Capital Additions thereto and Lessee’s Personal Property
including contents, employees and liability insurance, shall expressly waive any
right of subrogation on the part of the insurer against the other party.  Each
party waives any claims it has against the other party to the extent such claim
is covered by insurance, except for such matters as are subject to any
indemnifications or hold harmless provision in favor of such other party
pursuant to the provisions of this Lease.
 
13.5           Evidence of Insurance
 
.  Evidence of insurance shall be deposited with Lessor on or prior to the
Commencement Date of this Lease and prior to the renewal of any required
coverages.  Evidence of property insurance  required in Sections 13.1.1, 13.1.2
and 13.1.3 shall be provided on a certificate form no less broad than ACCORD 27.
Lessee shall also supply any Facility Mortgagee(s) with any evidence of
insurance as such  Facility Mortgagee(s) may require.  Lessee shall also provide
complete copies of any insurance policies as Lessor or any Facility Mortgagee(s)
may request.  If any provision of any Facility Mortgage requires deposits of
insurance to be made with such Facility Mortgagee, Lessee shall either pay to
Lessor monthly the amounts required and Lessor shall transfer such amounts to
each such Facility Mortgagee, or, pursuant to written direction by Lessor,
Lessee shall make such deposits directly with such Facility Mortgagee.   If
Lessee fails to provide evidence of insurance as required by this Lease, then,
upon ten (10) days’ prior written notice (except with respect to Lessee’s
failure to provide evidence of the insurance required pursuant to any of
Sections 13.1.1, 13.1.3 and/or 13.1.3, in
 

 
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which case no prior notice shall be required), Lessor, without waving or
releasing any obligation or default of Lessee as a result thereof, may, but
shall not be obligated, to effect such insurance and pay the premiums therefor,
in which event the cost thereof, together with interest thereon at the Overdue
Rate, shall be repayable to Lessor upon demand therefor.  No cancellation or
material alteration to the required insurance shall take effect prior to Lessor
and any Facility Mortgagee(s) receiving thirty (30) days’ written notice except
for cancellation due to non-payment in which such cancellation shall not take
place until ten (10) days written notice has been provided to Lessor.  All
evidence of insurance shall note the cancellation/material alteration
requirements for the benefit of Lessor and any Facility Mortgagee(s).  If Lessee
fails to maintain any insurance required in this Lease, Lessee shall be liable
for all losses and costs suffered or incurred by Lessor (including litigation
costs and attorneys’ fees and expenses) resulting from such failure.  Failure of
Lessor to demand such certificates, endorsements or other evidence of full
compliance with the insurance requirements of this Lease, or failure of Lessor
to identify a deficiency from evidence provided will not be construed as a
waiver of the Lessee’s obligation to maintain such insurance.  The acceptance of
delivery by Lessor of any certificates, endorsements or other evidence of
insurance does not constitute approval or agreement by Lessor that the insurance
requirements have been met, that the insurance policies evidenced are in
compliance with the requirements of this Lease or of any Facility Mortgagee(s),
or that the insurance requirements are sufficient to fully protect Lessor from
liability.
 
13.6           Increase in Limits
 
.  If Lessor shall at any time believe that the limits of the insurance required
hereunder are insufficient, Lessor shall have the right to notify Lessee in
writing of the same and the parties shall thereafter endeavor to agree in
writing on the proper and reasonable limits for such insurance to be
carried.  If the parties shall be unable to agree thereon, the proper and
reasonable limits for such insurance to be carried shall be determined by an
impartial third party reasonably selected by Lessor, and approved by Lessee,
which approval shall not be unreasonably withheld, conditioned or delayed, and
the determination of such impartial third party shall be binding; provided,
however, that in no event shall the limits for earthquake and windstorm be less
than the expected insured loss associated with the 250 return period for all
locations insured under the applicable policy using the latest version of the
applicable catastrophe risk model issued by Risk Management Solutions, Inc. (or
its successor organization).  Upon agreement by the parties or determination by
such third party, the new increased limits as so agreed upon or determined, as
the case may be, shall be in effect and carried by Lessee until further change
pursuant to the provisions of this Section.  Nothing herein shall permit the
amount of insurance to be reduced below the amount or amounts required by any of
the Facility Mortgagees or the amounts required to be maintained under this
Lease prior to the date, if at all, that Lessor notifies Lessee that Lessor
believes the limits of the insurance required under this Lease are insufficient.
 
13.7           Blanket Policies and Policies Covering Multiple Locations
 
.  Notwithstanding anything to the contrary contained in this Article, Lessee’s
obligations to carry the casualty insurance provided for herein may be brought
within the coverage of a blanket policy or policies of insurance carried and
maintained by Lessee; provided,
 

 
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however, that the coverage afforded Lessor for a loss related to a Facility will
not be reduced or diminished or otherwise be different from that which would
exist under a separate policy for such Facility meeting all other requirements
of this Lease by reason of the use of such blanket policy of insurance, and
provided further that the requirements of this Article XIII (except those that
would prohibit or restrict blanket policy coverage) are otherwise
satisfied.  For any liability policies covering one or more Facilities or any
other facilities in addition to the Facilities, Lessor may require excess limits
as Lessor reasonably determines.
 
13.8           No Separate Insurance
 
.  Lessee shall not, on Lessee’s own initiative or pursuant to the request or
requirement of any third party, (i) take out separate insurance concurrent in
form or contributing in the event of loss with that required in this Article to
be furnished by, or which may reasonably be required to be furnished by, Lessee
or (ii) 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 Lessor
and all Facility Mortgagees, are included therein as additional insured and the
loss is payable under such insurance in the same manner as losses are payable
under this Lease.  Lessee shall immediately notify Lessor of the taking out of
any such separate insurance or of the increasing of any of the amounts of the
then existing insurance by securing an additional policy or additional policies.
 
13.9           Insurance Requirements Under the Facility Loan Documents
 
.  Nothing contained in this Article XIII shall serve to in any manner limit or
restrict Lessee’s obligations pursuant to the terms of Section 36.3 below to
procure and maintain all insurance coverages required under any Facility
Mortgage Loan Documents.
 
ARTICLE XIV.
 
14.1           Insurance Proceeds
 
.  All proceeds payable by reason of any loss or damage to the Leased Property,
any Capital Additions or any part(s) or portion(s) thereof, under any policy of
insurance required to be carried hereunder shall be paid to Lessor and made
available by Lessor to Lessee from time to time for the reasonable costs of
reconstruction or repair, as the case may be, of any damage to or destruction of
the Leased Property, any Capital Additions or any part(s) or portion(s)
thereof.  Any excess proceeds of insurance remaining after the completion of the
restoration or reconstruction of the Leased Property and any Capital Additions
(or in the event neither Lessor nor Lessee is required or elects to repair and
restore, all such insurance proceeds) shall be retained by Lessor except as
otherwise specifically provided below in this Article XIV.  All salvage
resulting from any risk covered by insurance shall belong to Lessor.
 
14.2           Insured Casualty.
 
14.2.1           If the Leased Property and/or any Capital Additions of a
Facility are damaged or destroyed from a risk covered by insurance carried by
Lessee such that such Facility thereby is rendered Unsuitable for its Primary
Intended Use, Lessee shall either (i)
 

 
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restore such Leased Property and such Capital Additions to substantially the
same condition as existed immediately before such damage or destruction and
Lessor shall, pursuant to the terms of Section 14.1 above, make available to
Lessee from time to time the insurance proceeds received by Lessor on account of
such damage or destruction to the extent necessary for the reasonable costs of
such restoration, or (ii) offer to acquire the Leased Property of such Facility
from Lessor for a purchase price equal to the greater of (a) the Fair Market
Value for such Facility immediately prior to such damage or destruction, or (b)
the Allocated Minimum Purchase Price for such Facility.  If Lessor does not
accept Lessee’s offer to so purchase the Leased Property of such Facility,
Lessee may either withdraw such offer and proceed to restore the Leased Property
of such Facility to substantially the same condition as existed immediately
before such damage or destruction or terminate this Lease in which event Lessor
shall be entitled to retain the insurance proceeds.
 
14.2.2           If the Leased Property and/or any Capital Additions of a
Facility are damaged from a risk covered by insurance carried by Lessee, but
such Facility is not thereby rendered Unsuitable for its Primary Intended Use,
Lessee shall restore such Leased Property and such Capital Additions to
substantially the same condition as existed immediately before such damage and
Lessor shall, pursuant to the terms of Section 14.1 above, make available to
Lessee from time to time the insurance proceeds received by Lessor on account of
such damage or destruction to the extent necessary for the reasonable costs of
such restoration.  Such damage shall not terminate this Lease; provided,
however, that if Lessee cannot within a reasonable time after diligent efforts
obtain the necessary government approvals needed to restore and operate such
Facility for its Primary Intended Use, Lessee may offer to purchase the Leased
Property of such Facility for a purchase price equal to the greater of (a) the
Fair Market Value for such Facility immediately prior to such damage or
destruction or (b) the Allocated Minimum Purchase Price for such Facility.  If
Lessee shall make such offer and Lessor does not accept the same, Lessee may
either (i) withdraw such offer and proceed to restore the Leased Property of
such Facility to substantially the same condition as existed immediately before
such damage or destruction and in such event Lessor shall, pursuant to the terms
of Section 14.1 above, make available to Lessee from time to time the insurance
proceeds received by Lessor on account of such damage or destruction to the
extent necessary for the reasonable costs of such restoration, or (ii) terminate
the Lease with respect to such Facility, in which event Lessor shall be entitled
to retain the insurance proceeds.
 
14.2.3           If the cost of the repair or restoration of a Facility exceeds
the amount of proceeds received by Lessor from the insurance required to be
carried hereunder, Lessee shall contribute any excess amounts, as well as any
deductibles or retentions, needed to restore such Facility.  Such difference
shall be paid by Lessee to Lessor together with any other insurance proceeds,
for application to the cost of repair and restoration.
 
14.2.4           If Lessor accepts Lessee’s offer to purchase the Leased
Property of a Facility, this Lease shall terminate as to such Facility upon
payment of the purchase price and Lessor shall remit to Lessee all insurance
proceeds pertaining to the Leased Property of such Facility then held by Lessor.
 

 
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14.3           Uninsured Casualty
 
.  If the Leased Property and/or any Capital Additions of a Facility is damaged
or destroyed from a risk not covered by insurance carried by Lessee, whether or
not such damage or destruction renders such Facility Unsuitable for its Primary
Intended Use, Lessee at its expense shall restore the Leased Property of such
Facility to substantially the same condition it was in immediately before such
damage or destruction and such damage or destruction shall not terminate this
Lease.
 
14.4           No Abatement of Rent
 
.  This Lease shall remain in full force and effect and Lessee’s obligation to
pay the Rent and all other charges required by this Lease shall remain unabated
during the period required for adjusting insurance, satisfying Legal
Requirements, repair and restoration.
 
14.5           Waiver
 
.  Lessee waives any statutory rights of termination which may arise by reason
of any damage or destruction of the Leased Property and/or any Capital
Additions.
 
ARTICLE XV.
 
15.1           Condemnation.
 
15.1.1           Total Taking.  If the Leased Property and any Capital Additions
of a Facility is totally and permanently taken by Condemnation, this Lease shall
terminate with respect to such Facility as of the day before the Date of Taking
for such Facility.
 
15.1.2           Partial Taking.  If a portion of the Leased Property and any
Capital Additions of a Facility is taken by Condemnation, this Lease shall
remain in effect if the affected Facility is not thereby rendered Unsuitable for
Its Primary Intended Use, but if such Facility is thereby rendered Unsuitable
for its Primary Intended Use, this Lease shall terminate with respect to such
Facility as of the day before the Date of Taking for such Facility.
 
15.1.3           Restoration.  If there is a partial taking of the Leased
Property and any Capital Additions of a Facility and this Lease remains in full
force and effect pursuant to Section 15.1.2, Lessor shall make available to
Lessee the portion of the Award necessary and specifically identified for
restoration of such Leased Property and any such Capital Additions and Lessee
shall accomplish all necessary restoration whether or not the amount provided by
the Condemnor for restoration is sufficient.
 
15.1.4           Award-Distribution.  The entire Award for any total
Condemnation or partial Condemnation described in Section 15.1.2 above that
renders the affected Facility Unsuitable for Its Primary Intended Use shall
belong to and be paid to Lessor, except that, subject to the rights of the
Facility Mortgagees, Lessee shall be entitled to receive from the Award, if and
to the extent such Award specifically includes such item, lost profits value and
 

 
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moving expenses, provided, that in any event Lessor shall receive from the
Award, subject to the rights of the Facility Mortgagees no less than the greater
of (a) the Fair Market Value for such Facility immediately prior to institution
of the Condemnation or (b) the Allocated Minimum Purchase Price for such
Facility.  The entire Award for any partial Condemnation described in Section
15.1.2 above that does  not render the affected Facility Unsuitable for Its
Primary Intended Use shall belong to and be paid to Lessor, subject to Lessor’s
obligations pursuant to Section 15.1.3 above.
 
15.1.5           Temporary Taking.  The taking of the Leased Property, any
Capital Additions and/or any part(s) thereof, shall constitute a taking by
Condemnation only when the use and occupancy by the taking authority has
continued for longer than 180 consecutive days.  During any shorter period,
which shall be a temporary taking, all the provisions of this Lease shall remain
in full force and effect and the Award allocable to the Term shall be paid to
Lessee.
 
15.1.6           Sale Under Threat of Condemnation.  A sale by Lessor to any
Condemnor, either under threat of Condemnation or while Condemnation proceedings
are pending, shall be deemed a Condemnation for purposes of this Lease.  Lessor
may, without any obligation to Lessee, agree to sell and/or convey to any
Condemnor all or any portion of the Leased Property free from this Lease and the
rights of Lessee hereunder without first requiring that any action or proceeding
be instituted or pursued to judgment; provided, however, that Lessor shall
provide Lessee with at least sixty (60) days’ prior written notice of such sale
or conveyance, subject to the requirements of any such Condemnor.
 
ARTICLE XVI.
 
16.1           Events of Default
 
.  Any one or more of the following shall constitute an “Event of Default”:
 
(a)           a default shall occur under any other lease or other agreement or
instrument, now or hereafter with or in favor of Lessor or any Affiliate of
Lessor and made by or with Lessee or any Affiliate of Lessee where the default
is not cured within any applicable grace period set forth therein;
 
(b)           A default shall occur under any New Lease hereafter with or in
favor of Lessor or any Affiliate of Lessor and made by or with Lessee or any
Affiliate of Lessee where the default is not cured within any applicable grace
period set forth therein;
 
(c)           Lessee shall fail to pay any installment of Rent when the same
becomes due and payable and such failure is not cured by Lessee within a period
of five (5) days after notice thereof from Lessor; provided, however, that such
notice shall be in lieu of and not in addition to any notice required under
applicable law with respect to such non-payment of Rent;
 
(d)           [Intentionally omitted];
 

 
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(e)           except as otherwise specifically provided for in this Section
16.1, if Lessee shall fail to observe or perform any other term, covenant or
condition of this Lease and such failure is not cured by Lessee within thirty
(30) days after notice thereof from Lessor, unless such failure cannot with due
diligence be cured within a period of thirty (30) days, in which case such
failure shall not be deemed to be an Event of Default if Lessee 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;
 
(f)           Lessee or any Guarantor shall:
 
(i)           admit in writing its inability to pay its debts generally as they
become due,
 
(ii)           file a petition in bankruptcy or a petition to take advantage of
any insolvency act,
 
(iii)           make an assignment for the benefit of its creditors,
 
(iv)           consent to the appointment of a receiver of itself or of the
whole or any substantial part of its property, or
 
(v)           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;
 
(g)           Lessee or any Guarantor shall be adjudicated as bankrupt or a
court of competent jurisdiction shall enter an order or decree appointing,
without the consent of Lessee, a receiver of Lessee or of the whole or
substantially all of its property, or approving a petition filed against it
seeking reorganization or arrangement of Lessee under the Federal bankruptcy
laws or any other applicable law or statute of the United States of America or
any state thereof, and such judgment, order or decree shall not be vacated or
set aside or stayed within sixty (60) days from the date of the entry thereof;
 
(h)           Lessee or any Guarantor shall be liquidated or dissolved, or shall
begin proceedings toward such liquidation or dissolution, or shall, in any
manner, permit the sale or divestiture of substantially all its assets;
 
(i)           the estate or interest of Lessee in the Leased Property, any
Capital Additions or any part(s) 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
Lessee of notice thereof from Lessor; provided, however, that such notice shall
be in lieu of and not in addition to any notice required under applicable law;
 
(j)           any Transfer occurs without Lessor’s consent, if such consent is
required under Article XXIV;
 

 
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(k)           any of the representations or warranties made by Lessee hereunder
or any Guarantor in the applicable Guaranty proves to be untrue when made in any
material respect which materially and adversely affects Lessor;
 
(l)           any applicable license or third-party provider reimbursement
agreements material to a Facility’s operation for its Primary Intended Use are
at any time terminated or revoked or suspended for more than twenty (20) days;
 
(m)           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;
 
(n)           Lessee fails to give notice to Lessor not later than ten (10)
Business Days after Lessee’s receipt thereof of any Class A or equivalent fine
notice from any governmental authority or officer acting on behalf thereof
relating to any Facility;
 
(o)           Lessee fails to cure or abate any Class A or equivalent violation
occurring during the Term that is claimed by any governmental authority, or any
officer acting on behalf thereof, of any law, order, ordinance, rule or
regulation pertaining to the operation of any Facility, and within the time
permitted by such authority for such cure or abatement;
 
(p)           Lessee fails to notify Lessor within three (3) Business Days after
receipt of any written notice from any governmental agency terminating or
suspending or threatening termination or suspension, of any material license or
certification relating to any Facility;
 
(q)           Lessee fails to give notice to Lessor not later than ten (10)
Business Days after any written notice, claim or demand from any governmental
authority or any officer acting on behalf thereof, of any violation of any law,
order, ordinance, rule or regulation with respect to the operation of any
Facility;
 
(r)           any proceedings are instituted against Lessee by any governmental
authority which are reasonably likely to result in (i) the revocation of any
license granted to Lessee for the operation of any Facility, (ii) the
decertification of any Facility from participation in the Medicare or Medicaid
reimbursement program, or (iii) the issuance of a stop placement order against
Lessee with respect to any Facility which is not remedied by Lessee or rescinded
by the issuing authority within 180 days after issuance;
 
(s)           any default and acceleration of any indebtedness of Lessee or any
Affiliate of Lessee or Guarantor in an amount in excess of $1,000,000 has
occurred; and
 
(t)           any material default shall occur under any guaranty of Lessee’s
obligations hereunder (including any Guaranty).
 
16.2           Certain Remedies
 

 
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.  If an Event of Default shall have occurred, Lessor may terminate this Lease
with respect to the Facility from which such Event of Default emanated, if any,
and any one or more (including all, if so elected by Lessor) of the Facilities,
regardless of whether such Event of Default emanated primarily from a single
Facility, by giving Lessee notice of such termination and the Term shall
terminate and all rights of Lessee under this Lease shall cease with respect to
all such Facilities as to which Lessor has elected to so terminate this
Lease.  Lessor shall have all rights at law and in equity available to Lessor as
a result of any Event of Default.  Lessee shall pay as Additional Charges all
costs and expenses incurred by or on behalf of Lessor, including reasonable
attorneys’ fees and expenses, as a result of any Event of Default hereunder.  If
an Event of Default shall have occurred and be continuing, whether or not this
Lease has been terminated with respect to any one or more (including all, if so
elected by Lessor) of the Facilities pursuant to this Section 16.2, Lessee
shall, to the extent permitted by law, if required by Lessor so to do,
immediately surrender to Lessor possession of the Leased Property and any
Capital Additions of the Facilities as to which Lessor has so elected to
terminate this Lease and quit the same and Lessor may enter upon and repossess
such Leased Property and such Capital Additions thereto by reasonable force,
summary proceedings, ejectment or otherwise, and may remove Lessee and all other
Persons and any of Lessee’s Personal Property from such Leased Property and such
Capital Additions thereto.
 
16.3           Damages
 
.  (i)  The repossession of the Leased Property and any Capital Additions of any
Facility; (ii) the failure of Lessor, notwithstanding reasonable good faith
efforts, to relet the Leased Property or any portion thereof; (iii) the
reletting of all or any portion of the Leased Property; or (iv) the failure or
inability of Lessor to collect or receive any rentals due upon any such
reletting, shall not relieve Lessee of its liabilities and obligations
hereunder, all of which shall survive any such repossession or reletting.  In
addition, the termination of this Lease with respect to any one or more of the
Facilities shall not relieve Lessee of its liabilities and obligations hereunder
with respect to such terminated Facility(ies) that are intended to survive the
termination of this Lease, including, without limitation, the obligations set
forth in this Section 16.3, and Sections 16.5, 23.1, 37.4 and 45.1.6.  If any
such termination occurs, Lessee shall forthwith pay to Lessor all Rent due and
payable with respect to the Facility terminated to and including the date of
such termination.  Thereafter following any such termination, Lessee shall
forthwith pay to Lessor, at Lessor’s option, as and for liquidated and agreed
current damages for an Event of Default by Lessee, the sum of:
 
(a)           the worth at the time of award of the unpaid Rent which had been
earned at the time of termination with respect to the terminated Facility(ies),
 
(b)           the worth at the time of award of the amount by which the unpaid
Rent which would have been earned after termination with respect to the
terminated Facility(ies) until the time of award exceeds the amount of such
rental loss that Lessee proves could have been reasonably avoided,
 

 
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(c)           the worth at the time of award of the amount by which the unpaid
Rent for the balance of the Term for the terminated Facility(ies) after the time
of award exceeds the amount of such rental loss that Lessee proves could be
reasonably avoided, plus
 
(d)           any other amount necessary to compensate Lessor for all the
detriment proximately caused by Lessee’s failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom.
 
As used in clauses (a) and (b) above, the “worth at the time of award” shall be
computed by allowing interest at the Overdue Rate.  As used in clause (c) above,
the “worth at the time of award” 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%).
 
Alternatively, if Lessor does not elect to terminate this Lease, then without
termination of Lessee’s right to possession of the Leased Property, Lessee shall
pay to Lessor, at Lessor’s option, as and for agreed damages for such Event of
Default, each installment of said Rent and other sums payable by Lessee to
Lessor under the Lease as the same becomes due and payable, together with
interest at the Overdue Rate from the date when due until paid, and Lessor may
enforce, by action or otherwise, any other term or covenant of this Lease.
 
16.4           Receiver
 
.  Upon the occurrence of an Event of Default, and upon commencement of
proceedings to enforce the rights of Lessor hereunder, Lessor shall be entitled,
as a matter of right, to the appointment of a receiver or receivers acceptable
to Lessor of the Leased Property and any Capital Addition thereto of the
revenues, earnings, income, products and profits thereof, pending the outcome of
such proceedings, with such powers as the court making such appointment shall
confer.
 
16.5           Lessee’s Obligation to Purchase
 
.  Upon the occurrence of a Put Event with respect to any Facility, Lessor shall
be entitled to require Lessee to purchase the Leased Property of such Facility
on the first Minimum Rent Payment Date occurring not less than thirty (30) days
after the date specified in a notice from Lessor requiring such purchase for an
amount equal to the greater of (a) the Fair Market Value for such Facility or
(b) the Allocated Minimum Purchase Price for such Facility, plus, in either
event, all Rent then due and payable (excluding the installment of Minimum Rent
and Additional Rent due on the purchase date) with respect to such Facility.  If
Lessor exercises such right, Lessor shall convey the Leased Property of such
Facility to Lessee on the date fixed therefor in accordance with the provisions
of Article XVIII upon receipt of the purchase price therefor and this Lease
shall thereupon terminate with respect to such Facility.  Any purchase by Lessee
of the Leased Property of a Facility pursuant to this Section shall be in lieu
of the damages specified in Section 16.3 with respect to such Facility.
 
16.6           Waiver
 

 
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.  If Lessor initiates judicial proceedings or if this Lease is terminated by
Lessor pursuant to this Article with respect to a Facility, Lessee waives, to
the extent permitted by applicable law, (i) any right of redemption, re-entry or
repossession; and (ii) the benefit of any laws now or hereafter in force
exempting property from liability for rent or for debt.
 
16.7           Application of Funds
 
.  Any payments received by Lessor under any of the provisions of this Lease
during the existence or continuance of any Event of Default which are made to
Lessor rather than Lessee due to the existence of an Event of Default shall be
applied to Lessee’s obligations in the order which Lessor may determine or as
may be prescribed by the laws of the State.
 
16.8           Facility Operating Deficiencies
 
.  On notice or request therefor by Lessor to Lessee, upon the occurrence of a
Facility Operating Deficiency specified with particularity in Lessor’s notice,
and for a period equal to the greater of six (6) months or the time necessary
fully to remedy the Facility Operating Deficiency, Lessee shall engage the
services of a management company, unaffiliated with Lessee and approved by
Lessor, to assume responsibility for management of the applicable Facility for
the purpose of taking all steps reasonably necessary to remedy the Facility
Operating Deficiency(ies).  Pursuant to a written agreement among the management
company, Lessee and Lessor, the management company will have complete
responsibility for operation of the applicable Facility, subject to Lessee’s
retaining only such power and authority as shall be required by the State as the
minimum level of power and authority to be possessed by the licensed operator of
a facility of the type of such Facility in the State.  The management company
shall provide the following services:
 
(a)           furnish an on-site, full-time licensed administrator and
controller (or financial officer) approved by Lessor who shall be an employee of
the management company;
 
(b)           take all steps reasonably necessary to keep such Facility fully
licensed by the State, certified as a provider under applicable government
reimbursement programs and duly accredited by applicable agencies and bodies;
 
(c)           perform all of Lessee’s obligations hereunder with respect to
maintenance and repair of such Facility;
 
(d)           conduct at the onset of the management company’s engagement, and
monthly thereafter, reviews and/or audits of Facility operations in at least the
following departments and services:  patient and resident care, activities and
therapy, dietary, medical records, drugs and medicines, supplies, housekeeping
and maintenance, and report the results of such reviews and/or audits in writing
to Lessor no later than five (5) days after the end of each calendar month;
 

 
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(e)           immediately upon receipt thereof, deliver to Lessor by overnight
courier copies of all communications received from any regulatory agency with
respect to such Facility; and
 
(f)           with respect to the Facility Operating Deficiency(ies) which gave
rise to the request to Lessee to engage the management company, prepare and
deliver to Lessor within five (5) days after the commencement of the management
company’s responsibilities at such Facility a comprehensive written report of
the nature and extent of the Facility Operating Deficiency(ies) and advise
Lessor orally by telephone no later than noon local time on each Friday
thereafter as to steps being taken by the management company to remedy the same
and the status of any threatened or actual governmental administrative action
with respect thereto.
 
The management company shall have complete access to such Facility, its records,
offices and facilities, in order that it may carry out its duties.  If Lessee
shall fail to designate a management company acceptable to Lessor within five
(5) days after receipt of the notice of request therefor, Lessor may designate
such management company by further notice to Lessee.  Lessee shall be
responsible for payment of all fees and expenses reasonably charged and incurred
by the management company in carrying out its duties, provided that the
management fee chargeable by a management company designated by Lessor, as
hereinabove provided, shall not exceed Seven Percent (7%) of Gross Revenues.
 
16.9           [Intentionally Omitted].
 
16.10           Lessor’s Security Interest; Appointment of Collateral Agent
 
.
 
16.10.1                       Lessor’s Security Interest. The parties intend
that if an Event of Default occurs under this Lease, Lessor will control
Lessee’s Personal Property and the Intangible Property so that Lessor or its
designee or nominee can operate or re-let each Facility intact for its Primary
Intended Use.  Accordingly, to implement such intention, and for the purpose of
securing the payment and performance obligations of Lessee hereunder, Lessor and
Lessee agree as follows:
 
(a)           Lessee, as debtor, hereby grants to Collateral Agent, for the
benefit of Collateral Agent and the other Persons, if any, comprising “Lessor”
hereunder, a security interest and an express contractual lien upon all of
Lessee’s right, title and interest in and to Lessee’s Personal Property and in
and to the Intangible Property and any and all products, rents, leases
(including all rights under any leases or residential care agreements, including
Lessee’s right, power and authority to modify the terms of any such lease or
residential care agreement or extend or terminate such lease or residential care
agreement) with respect to all or any portions of the Facilities), issues,
proceeds and profits thereof in which Lessee now owns or hereafter acquires an
interest or right, including any leased Lessee’s Personal Property
(collectively, the “Collateral”).  This Lease constitutes a security agreement
covering all such Collateral.  The security interest granted to Collateral Agent
with respect to Lessee’s Personal Property in this
 

 
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Section 16.10 is intended by Collateral Agent and Lessee to be subordinate to
any security interest granted in connection with the financing or leasing of all
or any portion of the Lessee’s Personal Property so long as the lessor or
financier of such Lessee’s Personal Property agrees to give Collateral Agent
written notice of any default by Lessee under the terms of such lease or
financing arrangement, to give Collateral Agent a reasonable time following such
notice to cure any such default and consents to Collateral Agent’s written
assumption of such lease or financing arrangement upon Collateral Agent’s curing
of any such defaults.  This security agreement and the security interest created
herein shall survive the expiration or earlier termination of this Lease with
respect to any or all of the Facilities.
 
(b)           Lessee hereby authorizes Collateral Agent to file such financing
statements, continuation statements and other documents as may be necessary or
desirable to perfect or continue the perfection of Collateral Agent’s security
interest in the Collateral.  In addition, if required by Collateral Agent at any
time during the Term, Lessee shall execute and deliver to Collateral Agent in
form reasonably satisfactory to Collateral Agent additional security agreements,
financing statements, fixture filings and such other documents as Collateral
Agent may reasonably require to perfect or continue the perfection of Collateral
Agent’s security interest in the Collateral.  In the event Lessee fails to
execute any financing statement or other documents for the perfection or
continuation of Collateral Agent’s security interest, Lessee hereby appoints
Collateral Agent as its true and lawful attorney-in-fact to execute any such
documents on its behalf, which power of attorney shall be irrevocable and is
deemed to be coupled with an interest.
 
(c)           Lessee will give Collateral Agent at least thirty (30) days’ prior
written notice of any change in Lessee’s name, identity, jurisdiction of
organization or corporate structure.  With respect to any such change, Lessee
will promptly execute and deliver such instruments, documents and notices and
take such actions, as Collateral Agent deems necessary or desirable to create,
perfect and protect the security interests of Collateral Agent in the
Collateral.
 
(d)           Upon the occurrence of an Event of Default, Collateral Agent shall
be entitled to exercise any and all rights or remedies available to a secured
party under the Uniform Commercial Code, or available to a lessor under the laws
of the State, with respect to Lessee’s Personal Property and the Intangible
Property, including the right to sell the same at public or private sale.
 
16.10.2                        Appointment of Collateral Agent.
 
(a)           Each Person comprising “Lessor” hereunder hereby irrevocably
appoints HCP (the “Collateral Agent”) as the collateral agent hereunder and
under all other documents related hereto and authorizes Collateral Agent in such
capacity, to take such actions on its behalf and to exercise such powers as are
delegated to Collateral Agent in such capacity by the terms hereof or thereof,
together with such actions and powers as are reasonably incidental thereto.  In
performing its functions and duties
 

 
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hereunder, Collateral Agent shall act for itself and as agent for each other
Person, if any, comprising “Lessor” hereunder and does not assume and shall not
be deemed to have assumed any obligation towards or relationship of agency or
trust with or for Lessee.  The provisions of this Section 16.10.2 are solely for
the benefit of Collateral Agent and each Person comprising “Lessor” hereunder,
and Lessee shall no rights as a third party beneficiary(ies) of any of such
provisions.
 
(b)           The Collateral Agent may perform any and all of its duties and
exercise its rights and powers hereunder by or through any one or more
sub-agents appointed by the Collateral Agent.
 
(c)           The Collateral Agent may at any time give notice of its
resignation to the Person(s) comprising “Lessor” hereunder and Lessee.  Upon
receipt of any such notice of resignation, the Person(s) comprising “Lessor”
hereunder shall have the right to appoint a successor Collateral Agent.  If no
such successor shall have been so appointed by the Person(s) comprising “Lessor”
hereunder and shall have accepted such appointment within ten (10) days after
the retiring Collateral Agent gives notice of its resignation, then the retiring
Collateral Agent may, on behalf of each Person comprising “Lessor” hereunder the
Landlords, appoint a successor Collateral Agent; provided; however, that if the
Collateral Agent shall notify Lessee and each Person comprising “Lessor”
hereunder that no such successor is willing to accept such appointment, then
such resignation shall nonetheless become effective in accordance with such
notice and (i) the retiring Collateral Agent shall be discharged from its duties
and obligations hereunder (except that in the case of any Collateral held by the
Collateral Agent on behalf of each Person comprising “Lessor” hereunder, the
Collateral Agent may continue to hold such Collateral until such time as a
successor Collateral Agent is appointed and such Collateral is assigned to such
successor Collateral Agent) and (ii) all payments, communications and
determinations provided to be made by, to or through the Collateral Agent shall
instead be made by or to each Person comprising “Lessor” hereunder directly,
until such time as the Person(s) comprising “Lessor” hereunder appoint a
successor Collateral Agent.
 
(d)           Upon the acceptance of a successor’s or replacement’s appointment
as Collateral Agent, such successor or replacement shall succeed to and become
vested with all of the rights, powers, privileges and duties of the retiring
Collateral Agent and the retiring Collateral Agent shall be discharged from all
of its duties and obligations hereunder.  After the retiring Collateral Agent’s
resignation hereunder, the provisions of this Section 16.10.2 shall continue in
effect for the benefit of such retiring Collateral Agent and its sub-agents in
respect of any actions taken or omitted to be taken by any of them while the
retiring Collateral Agent was acting in such capacity.
 
16.11           Leases and Residential Care Agreements
 
.  Lessee shall comply with and observe in all material respects Lessee's
obligations under all leases and residential care agreements, including Lessee's
obligations
 

 
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pertaining to the maintenance and disposition of resident or tenant security
deposits (if any).  Upon delivery of notice by Lessor or Collateral Agent to
Lessee of Lessor’s or Collateral Agent’s exercise of its respective rights under
this Article, at any time after the occurrence of an Event of Default, and
without the necessity of Lessor or Collateral Agent entering upon and taking and
maintaining control of any Facility directly, by a receiver, or by any other
manner or proceeding permitted by applicable Legal Requirements, Lessor  and/or
Collateral Agent immediately shall have, to the extent permitted by applicable
Legal Requirements, all rights, powers and authority granted to Lessee under any
lease or residential care agreement relating to such Facility, including the
right, power and authority to modify the terms of any such lease or residential
care agreement for such Facility, or extend or terminate any such lease or
residential care agreement for such Facility.  Following an Event of Default,
unless Lessor and/or Collateral Agent elects in its sole discretion to assume
the obligations of Lessee under any lease or residential care agreement for any
Facility, neither Lessor nor Collateral Agent shall (i) be obligated to perform
any of the terms, covenants or conditions contained in such lease or residential
care agreement relating to such Facility (or otherwise have any obligation with
respect to such lease or residential care agreement relating to such Facility)
or (ii) be obligated to appear in or defend any action or proceeding relating to
such lease or residential care agreement relating to such
Facility.  Notwithstanding anything to the contrary in this Section 16.11, but
subject to the other terms and conditions contained in this Lease, prior to the
occurrence of an Event of Default, Lessee shall be entitled to exercise any and
all rights under any Occupancy Arrangements relating to any Facility, including
Lessee’s right, power and authority to modify the terms of any such Occupancy
Arrangements or extend or terminate such Occupancy Arrangements.
 
ARTICLE XVII.
 
17.1           Lessor’s Right to Cure Lessee’s Default
 
.  If Lessee shall fail to make any payment or to perform any act required to be
made or performed hereunder, upon at least thirty (30) days’ prior written
notice (except (a) in the event of an emergency, in which case no prior notice
shall be required or (b) in the case of any other express provision of this
Lease that permits Lessor to self-help rights or remedies on less than thirty
(30) day’s prior written notice or upon no notice, in which case such shorter or
no notice shall be required in connection therewith, as applicable) Lessor,
without waiving or releasing any obligation or default, may, but shall be under
no obligation to, make such payment or perform such act for the account and at
the expense of Lessee, and may, to the extent permitted by law, enter upon the
Leased Property and any Capital Addition thereto for such purpose and take all
such action thereon as, in Lessor’s opinion, may be necessary or appropriate
therefor.  No such entry shall be deemed an eviction of Lessee.  All sums so
paid by Lessor and all reasonable costs and expenses, including reasonable
attorneys’ fees and expenses, so incurred, together with interest thereon at the
Overdue Rate from the date on which such sums or expenses are paid or incurred
by Lessor, shall be paid by Lessee to Lessor on demand.
 
ARTICLE XVIII.
 
18.1           Purchase of the Leased Property; Rights of Lessee Prior to
Closing.
 

 
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18.1.1           Generally.  If Lessee purchases the Leased Property of any
Facility from Lessor pursuant to any provision of this Lease, Lessor shall, upon
receipt from Lessee of the applicable purchase price, together with full payment
of any unpaid Rent due and payable with respect to any period ending on or
before the date of the purchase, deliver to Lessee an appropriate special or
limited warranty deed or other appropriate conveyance instrument conveying the
entire interest of Lessor in and to such Leased Property to Lessee free and
clear of all encumbrances other than (i) those that Lessee has agreed hereunder
to pay or discharge; (ii) those mortgage liens, if any, which Lessee has agreed
in writing to accept and to take title subject to; (iii) those liens and
encumbrances which were in effect on the date of conveyance of such Leased
Property to Lessor (excluding any liens securing Facility Mortgages which Lessee
has not agreed in writing to accept); and (iv) any other encumbrances permitted
hereunder to be imposed on such Leased Property which are assumable at no cost
to Lessee or to which Lessee may take subject without cost to Lessee.  The
difference between the applicable purchase price and the total of the
encumbrances assumed or taken subject to shall be paid to Lessor or as Lessor
may direct in immediately available funds.  All expenses of such conveyance,
including the cost of title insurance, attorneys’ fees incurred by Lessor in
connection with such conveyance and release, transfer taxes and recording and
escrow fees, shall be paid by Lessee.
 
18.1.2           Rights of Lessee Prior to Closing
 
.  Notwithstanding anything to the contrary in this Lease, or at law or in
equity, if Lessee exercises any right or option of Lessee to purchase or acquire
the Leased Property of any Facility pursuant to any of the provisions of this
Lease, or Lessor shall exercise its right to require Lessee to purchase the
Lease Property of any Facility pursuant to Section 16.5 hereof (herein, a
“Purchase Right/Obligation Exercise”), the following shall pertain:
 
(a)           Such Purchase Right/Obligation Exercise (and any purchase or other
separate contract formed upon such Purchase Right/Obligation Exercise) shall not
under any circumstances cause a termination of this Lease, and this Lease shall
remain in full force and effect to and until the consummation of the closing in
accordance with the terms thereof;
 
(b)           Lessee hereby acknowledges and agrees that Lessee shall not under
any circumstances be entitled to possession of the Leased Property of any
Facility under the terms of any purchase or other separate contract formed upon
such Purchase Right/Obligation Exercise until the closing thereof, and that
Lessee’s possession of the Leased Property of such Facility shall be solely by
way of this Lease;
 
(c)           In no event shall Lessee be deemed a vendee in possession;
 
(d)           In the event that an Event of Default shall occur at anytime
during the period from such Purchase Right/Obligation Exercise to and until
closing, Lessor
 

 
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shall be entitled to exercise any and all rights or remedies available to a
landlord against a defaulting tenant, whether at law or equity, including those
set forth in Article XVI hereof, and specifically including the right to recover
possession of the Leased Property of such Facility through summary proceedings
(such as unlawful detainer or other similar action permitted by law), and in no
event shall Lessor be required to bring an action for ejectment or any other
similar non-expedited proceeding; and
 
(e)           It shall be a condition to the closing of the purchase of the
Leased Property of such Facility, for the benefit of both Lessor and Lessee,
that either (a) Lessor and Lessee shall have mutually determined based upon the
advise of their respective legal counsel that the purchase of the Leased
Property of such Facility by Lessee from Lessor is exempt from filing under the
HSR Act or (b) the waiting period under the HSR Act applicable to the purchase
of the Leased Property of such Facility by Lessee from Lessor shall have expired
or been earlier terminated.  Lessor and Lessee shall each promptly cooperate in
good faith and cause their respective legal counsel to cooperate in good faith
to review the HSR Act and the provisions of this Lease relating to the purchase
of the Leased Property of such Facility by Lessee from Lessor, and take such
other commercially reasonable steps as such party and its legal counsel deem
reasonably appropriate to determine whether an exemption from filing under the
HSR Act is available, and, if Lessor and Lessee cannot mutually agree in good
faith based upon advice from their respective counsel that such an exemption is
available, then Lessor and Lessee shall each (i) promptly make their respective
filings and thereafter make any other required submissions under the HSR Act
with respect to the purchase of the Leased Property of such Facility by Lessee
from Lessor, and (ii) cooperate in good faith with the other party and use
commercially reasonable efforts with respect to the same.
 
18.1.3           Lessor’s Election of 1031 Exchange
 
.  If Lessee purchases the Leased Property of any Facility from Lessor pursuant
to any provision of this Lease, Lessor may elect to sell the Leased Property to
Lessee in the form of a tax-deferred exchange pursuant to Section 1031 of the
Internal Revenue Code of 1986, as amended (“1031 Exchange”).  In the event that
Lessor shall so elect, Lessor shall give written notice to Lessee and any escrow
holder of such election and the following shall apply:
 
(a)           Lessor may attempt to identify before the closing other property
which qualifies as “like-kind” property for a 1031 Exchange (the “Target
Property”) by giving written notice to Lessee and any escrow holder and
identifying to such escrow holder the Target Property prior to the closing.
 
(b)           If Lessor has not so identified the Target Property before the
closing, then Lessor shall proceed with the closing unless Lessor at its option
enters into an exchange agreement with an accommodation party (“Accommodator”)
in order to facilitate a non-simultaneous exchange.
 

 
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(c)           Lessee shall fully cooperate with any such 1031 Exchange,
including but not limited to executing and delivering additional documents
requested or approved by Lessor; provided, that Lessee shall not be required to
incur any additional costs or liabilities or financial obligation as a
consequence of any of the foregoing exchange transactions.
 
ARTICLE XIX.
 
19.1           Extended Term(s)
 
.  Provided that no Event of Default, or event which, with notice or lapse of
time or both, would constitute an Event of Default, has occurred and is
continuing, either at the date of exercise or upon the commencement of an
Extended Term (as hereunder defined), then Lessee shall have the right to renew
this Lease with respect to all (but not less than all) of the Facilities then
covered by this Lease for two (2) consecutive ten (10) year renewal terms (each
an “Extended Term”), upon (i) giving written notice to Lessor of such renewal
not less than twelve (12) months prior to the expiration of the then current
Term, (ii) delivering to Lessor concurrent with such notice a reaffirmation of
the Guaranty(ies) executed by Guarantor(s) stating, in substance, that
Guarantor’s(s’) obligations under the Guaranty(ies) shall extend to this Lease,
as extended by the Extended Term and (iii) with respect to any Facility(ies)
subject to a New Lease hereafter with or in favor of Lessor or any Affiliate of
Lessor, the concurrent exercise by the “Lessee” thereunder of the renewal of
each such New Lease for the corresponding and co-terminus “Extended Term”
thereof.  During each Extended Term, all of the terms and conditions of this
Lease shall continue in full force and effect.  Notwithstanding anything to the
contrary in this Section 19.1, Lessor, in its sole discretion, may waive the
condition to Lessee’s right to renew this Lease that no Event of Default, or
event which, with notice or lapse of time or both, would constitute an Event of
Default, have occurred or be continuing, and the same may not be used by Lessee
as a means to negate the effectiveness of Lessee’s exercise of its renewal right
for such Extended Term.
 
19.2           Lessor’s Extension Rights and Early Termination
 
.  In order to facilitate the transfer of the operations of each Facility to a
third party and/or to locate a replacement lessee, Lessor shall have the one
time right to either (i) terminate this Lease with respect to any such Facility
up to four (4) months early or (ii) extend the Term of this Lease with respect
to any such Facility for up to one (1) year.  Such right of early termination
shall be exercised by Lessor, if at all, by written notice from Lessor to Lessee
given not less than sixty (60) days prior to the date Lessor desires to
terminate this Lease with respect to any such Facility and stating the date of
such termination (which date shall not be earlier than four (4) months prior to
the expiration of the Term).  In the event that Lessor shall exercise such right
of early termination within the time and in the manner herein provided, this
Lease shall terminate with respect to the applicable Facility on the date of
termination specified in Lessor’s notice.  Such right of extension shall be
exercised by Lessor, if at all, by written notice from Lessor to Lessee given
not less than four (4) months prior to the expiration of the Term with respect
to such Facility and stating the date through which Lessor is extending the Term
of this Lease with respect to such Facility (which date shall not be later than
one (1) year
 

 
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after the originally scheduled expiration date).  In the event that Lessor shall
exercise such right of extension, all of the terms and conditions of this Lease
shall continue in full force and effect with respect to such Facility and Lessee
shall continue to pay Rent for and during such extension period at the same
Minimum Rent rates as were in effect upon the expiration of the originally
scheduled Term for such Facility; provided, however, that Lessor shall have the
right to terminate this Lease with respect to any such Facility during any such
extension period upon not less than sixty (60) days prior written notice to
Lessee.  In such event, this Lease, as previously extended, shall terminate with
respect to such Facility upon the date specified in Lessor’s notice of
termination.
 
ARTICLE XX.
 
20.1           Holding Over
 
.  Except as provided in Section 19.2, if Lessee shall for any reason remain in
possession of the Leased Property and/or any Capital Additions of a Facility
after the expiration or earlier termination of the Term, such possession shall
be as a month-to-month tenant during which time Lessee shall pay as Minimum Rent
and Additional Rent each month twice the sum of (i) monthly Minimum Rent and
Additional Rent applicable to the prior Lease Year for such Facility, plus
(ii) all Additional Charges and all other sums payable by Lessee pursuant to
this Lease.  During such period of month-to-month tenancy, Lessee shall be
obligated to perform and observe all of the terms, covenants and conditions of
this Lease, but shall have no rights hereunder other than the right, to the
extent given by law to month-to-month tenancies, to continue its occupancy and
use of the Leased Property and/or any Capital Additions of such
Facility.  Nothing contained herein shall constitute the consent, express or
implied, of Lessor to the holding over of Lessee after the expiration or earlier
termination of this Lease.
 
ARTICLE XXI.
 

 
[INTENTIONALLY OMITTED]
 
ARTICLE XXII.
 
22.1           Risk of Loss
 
.  The risk of loss or of decrease in the enjoyment and beneficial use of the
Leased Property and any Capital Additions as a consequence of the damage or
destruction thereof by fire, the elements, casualties, thefts, riots, wars or
otherwise, or in consequence of foreclosures, attachments, levies or executions
(other than by Lessor and Persons claiming from, through or under Lessor) is
assumed by Lessee, and, except as otherwise provided herein, no such event shall
entitle Lessee to any abatement of Rent.
 
ARTICLE XXIII.
 
23.1           General Indemnification
 

 
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.  In addition to the other indemnities contained herein, and notwithstanding
the existence of any insurance carried by or for the benefit of Lessor or
Lessee, and without regard to the policy limits of any such insurance, Lessee
shall protect, indemnify, save harmless and defend Lessor from and against all
liabilities, obligations, claims, damages, penalties, causes of action, costs
and expenses, including reasonable attorneys’, consultants’ and experts’ fees
and expenses, imposed upon or incurred by or asserted against Lessor by reason
of:  (i) any accident, injury to or death of Persons or loss of or damage to
property occurring on or about the Leased Property or adjoining sidewalks; (ii)
any use, misuse, non-use, condition, maintenance or repair by Lessee of the
Leased Property; (iii) any failure on the part of Lessee to perform or comply
with any of the terms of this Lease; (iv) the non-performance of any of the
terms and provisions of any and all existing and future subleases of the Leased
Property to be performed by any party thereunder; (v) any claim for malpractice,
negligence or misconduct committed by any Person on or working from the Leased
Property; and (vi) the violation of any Legal Requirement.  Any amounts which
become payable by Lessee under this Article shall be paid within ten (10) days
after liability therefor is finally determined by litigation or otherwise, and
if not timely paid shall bear interest at the Overdue Rate from the date of such
determination to the date of payment.  Lessee, at its sole cost and expense,
shall contest, resist and defend any such claim, action or proceeding asserted
or instituted against Lessor or may compromise or otherwise dispose of the same
as Lessee sees fit; provided, however, that any legal counsel selected by Lessee
to defend Lessor shall be reasonably satisfactory to Lessor.  All
indemnification covenants are intended to apply to losses, damages, injuries,
claims, etc. incurred directly by the indemnified parties and their property, as
well as by the indemnifying party or any third party, and their property.  For
purposes of this Article XXIII, any acts or omissions of Lessee, or by
employees, agents, assignees, contractors, subcontractors or others acting for
or on behalf of Lessee (whether or not they are negligent, intentional, willful
or unlawful), shall be strictly attributable to Lessee.  It is understood and
agreed that payment shall not be a condition precedent to enforcement of the
foregoing indemnification obligations.
 
 
ARTICLE XXIV.
 
24.1           Transfers.
 
24.1.1           Prohibition.  Subject to the provisions of Sections 24.1.10,
24.1.11 and 24.1.12 below, Lessee shall not, without Lessor’s prior written
consent, which consent may not be unreasonably withheld or delayed (except as
provided in the last sentence hereof), either directly or indirectly or through
one or more step transactions or tiered transactions, voluntarily or by
operation of law, (i) assign, convey, sell, pledge, mortgage, hypothecate or
otherwise encumber, transfer or dispose of all or any part of this Lease or
Lessee’s leasehold estate hereunder, (ii) Master Sublease all or any part of the
Leased Property and/or any Capital Additions of any Facility, (iii) engage the
services of any Person that is not an Affiliate of Lessee for the management or
operation of more than Ten Percent
 

 
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(10%) of the Leased Property and/or any Capital Additions of any Facility, (iv)
convey, sell, assign, transfer or dispose of any stock or partnership,
membership or other interests (whether equity or otherwise) in Lessee (which
shall include any conveyance, sale, assignment, transfer or disposition of any
stock or partnership, membership or other interests (whether equity or
otherwise) in any Controlling Person(s)), if such conveyance, sale, assignment,
transfer or disposition results in a change in control of Lessee (or in any
Controlling Person(s)), (v) dissolve, merge or consolidate Lessee (which shall
include any dissolution, merger or consolidation of any Controlling Person) with
any other Person, if such dissolution, merger or consolidation results in a
change in control of Lessee or in any Controlling Person(s), (vi) sell, convey,
assign, or otherwise transfer all or substantially all of the assets of Lessee
(which shall include any sale, conveyance, assignment, or other transfer of all
or substantially all of the assets of any Controlling Person) or (vii)
consummate or permit to be consummated any agreement or arrangement to do any of
the foregoing (each of the aforesaid acts referred to in clauses (i) through
(vii) being referred to herein as a “Transfer”).  Lessor’s consent shall not be
required for any Occupancy Arrangement transaction that does not constitute a
Master Sublease or for the engagement the services of any Person for the
management or operation of Ten Percent (10%) or less of the Leased Property
and/or any Capital Additions of any Facility, and with respect to any such
Occupancy Arrangement or management engagement for which such consent is not
required, Lessee shall, within ten (10) days of entering into any such Occupancy
Arrangement or management engagement, notify Lessor of the existence of such
Occupancy Arrangement or management engagement and the identity of the Occupant
or manager, as the case may be, and supply Lessor with a copy of the agreement
relating to such Occupancy Arrangement or management engagement and any other
related documentation, materials or information reasonably requested by Lessor;
provided, however, that the foregoing shall not apply to any Occupancy
Arrangement for patients or residents of any Facility (i.e., any non-Commercial
Occupancy Arrangements).  Notwithstanding the foregoing or any other provisions
of this Lease to the contrary, Lessee acknowledges that (x) it is Lessor’s
practice not to permit any mortgages, hypothecations, pledges or other
encumbrances of leasehold interests by its lessees, and (y) Lessor shall have
the right to approve or disapprove of any such mortgages hypothecation, pledge
or other encumbrance of the leasehold estate created hereby by Lessee (whether
directly or indirectly) in Lessor’s sole and absolute discretion, and (z) if
Lessor shall approve the same Lessor shall be entitled to impose such conditions
in connection therewith as Lessor deems appropriate in its sole and absolute
discretion.
 
24.1.2           Consent.
 
24.1.2.1                 Subject to the provisions of Sections 24.1.10, 24.1.11
and 24.1.12 below, prior to any Transfer, Lessee shall first notify Lessor of
its desire to do so and shall submit in writing to Lessor, as applicable: (a)
the name of the proposed Occupant, assignee, manager or other transferee; (b)
the terms and provisions of the Transfer, including any agreements in connection
therewith; and (c) such financial information as Lessor may reasonably request
concerning the proposed Occupant, assignee, manager or other transferee.  In
exercising its right of reasonable approval or disapproval to a proposed
Transfer, Lessor shall be entitled to take into account any fact
 

 
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or factor that is commercially reasonable to the making of such decision,
including the following, all of which are agreed to be reasonable factors for
Lessor’s consideration:
 
(i)                 The financial strength of the proposed Occupant, assignee,
manager or other transferee, including the adequacy of its working capital.  In
connection with a Transfer resulting from a merger or consolidation to which
Lessee (including Emeritus, if Emeritus is the Lessee) or any Controlling Party
is a party, Lessor shall be entitled to compare the Consolidated Net Worth and
debt to equity ratio of the surviving party following the effectiveness of such
event as compared to the Consolidated Net Worth and debt to equity ratio of
Lessee (including Emeritus, if Emeritus is the Lessee) or any Controlling Party
is a party  prior to such event.
 
(ii)                 The operating experience of the proposed Occupant,
assignee, manager or other transferee with respect to businesses of the nature,
type and size of the applicable Facility.
 
(iii)                 The quality and reputation of the proposed Occupant,
assignee, manager or other transferee.
 
(iv)                 Whether such Transfer will cause a breach or violation of
any material agreements to which Lessee or any Controlling Person is a party.
 
(v)                 Whether there then exists any uncured Event of Default by
Lessee pursuant to this Lease; provided, however, that if (A) Lessee is
proposing to enter into a Master Sublease with respect to one or more
Facilities, (B) there is no uncured monetary Event of Default under this Lease,
(C) a non-monetary Event of Default has occurred at another Facility (i.e., a
Facility that Lessee is not proposing to Master Sublease), Lessor has not yet
exercised any of its rights or remedies on account thereof pursuant to Article
XVI hereof, and Lessee is diligently and in good faith proceeding to cure such
non-monetary Event of Default at such other Facility, then Lessor shall not take
the same into account as the sole basis for withholding its consent to any such
proposed Master Sublease of such other Facility(ies).
 
Moreover, Lessor shall be entitled to be reasonably satisfied that each and
every covenant, condition or obligation imposed upon Lessee by this Lease and
each and every right, remedy or benefit afforded Lessor by this Lease is not
materially impaired or diminished by such Transfer.  Lessee acknowledges,
however, that any proposed partial assignment, conveyance, sale, transfer or
other disposition of this Lease or Lessee’s leasehold estate hereunder with
respect to less than all of the Facilities would materially impair the
covenants, conditions and obligations imposed upon Lessee by this Lease and the
rights, remedies and benefits afforded Lessor by this Lease as single,
integrated and indivisible agreement and economic unit with respect to all
Facilities, and therefore it
 

 
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would be reasonable for Lessor to withhold its consent to any such partial
assignment, conveyance, sale, transfer or other disposition of this Lease or
Lessee’s leasehold estate hereunder with respect to less than all the Facilities
on such basis.  No withholding of consent by Lessor for any commercially
reasonable reason shall give rise to any claim by Lessee or any other Person or
entitle Lessee to terminate this Lease or to any abatement of Rent.
 
24.1.2.2                 Subject to the provisions of Sections 24.1.10, 24.1.11
and 24.1.12 below, in connection with any Transfer, Lessor shall be entitled to
receive the applicable Transfer Consideration, if any.
 
24.1.2.3                 In connection with any Transfer, Lessor shall be
entitled to require as a condition to any such Transfer that the obligations of
any Occupant, assignee, manager or other transferee which is an Affiliate of
another Person be guaranteed by its ultimate parent or other ultimate
Controlling Person pursuant to a written guaranty in form and substance
reasonably acceptable to Lessor and that, subject to Section 24.1.3 below, any
existing Guaranty of this Lease be reaffirmed by the applicable Guarantor
notwithstanding such Transfer.
 
24.1.2.4                 The consent by Lessor to any Transfer shall not
constitute Lessor’s consent to any subsequent Transfer or to any subsequent or
successive Transfer.  Any purported or attempted Transfer contrary to the
provisions of this Article shall be void and, at the option of Lessor, shall
terminate this Lease.
 
24.1.3           Release of Existing Lessee and Guarantors Upon Certain
Transfers.  Upon the consummation of any Transfer by Lessee that (a) constitutes
an assignment of Lessee’s entire interest in this Lease, (b) requires Lessor’s
prior written consent pursuant to the terms of this Article XXIV, and (c)
receives such prior written consent by Lessor, Lessor shall release Lessee and
any current Guarantor from all obligations arising under this Lease and any
current Guaranty, as applicable, following the effective date of such Transfer,
so long as each of the following conditions is met:
 
(i)           The Consolidated Net Worth of the assignee, immediately following
the effectiveness of such Transfer shall be equal to or greater than an amount
equal to the Consolidated Net Worth of Emeritus as of the Commencement Date as
reasonably determined by Lessor.
 
(ii)           The debt to equity ratio of the assignee following the
effectiveness of such Transfer shall be equal to or less than an amount equal to
the debt to equity ratio of Emeritus as of the Commencement Date as reasonably
determined by Lessor.  For purposes of this clause (ii), “debt” shall include
the capitalized value of any leases required to be capitalized in accordance
with GAAP to which Emeritus and/or such assignee (and/or their consolidated
Subsidiaries) are parties and the same shall be demonstrated by financial
statements prepared in accordance with GAAP and reasonably satisfactory to
Lessor.
 

 
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(iii)           The assignee shall have adequate experience and skill in (i)
operating facilities comparable to the applicable Facility(ies) and (ii) a
business of the nature, type and size of the business of Emeritus immediately
prior to the effectiveness of such Transfer, as determined by Lessor in its
reasonable discretion.
 
24.1.4           Attornment and Related Matters.  Any Commercial Occupancy
Arrangement (including any Master Sublease) or management engagement shall be
expressly subject and subordinate to all applicable terms and conditions of this
Lease.  With respect to any Commercial Occupancy Arrangement or management
agreement, Lessor, at its option and without any obligation to do so, may
require any Occupant under any such Commercial Occupant Arrangement or manager
to attorn to Lessor, in which event Lessor shall undertake the obligations of
Lessee, as sublessor, licensor or otherwise under such Commercial Occupancy
Arrangement or management engagement from the time of the exercise of such
option to the termination of such Commercial Occupancy Arrangement or management
engagement and in such case Lessor shall not be liable for any prepaid rents,
fees or other charges or for any prepaid security deposits paid by such Occupant
under any such Commercial Occupant Arrangement to Lessee or for any other prior
defaults of Lessee under such Commercial Occupancy Arrangement or management
engagement.  In the event that Lessor shall not require such attornment with
respect to any such Commercial Occupancy Arrangement or management engagement,
then such Commercial Occupancy Arrangement or management engagement shall
automatically terminate upon the expiration or earlier termination of this
Lease, including any early termination by mutual agreement of Lessor and
Lessee.  Furthermore, any such Commercial Occupancy Arrangement, management
engagement or other agreement regarding a Transfer shall expressly provide that
the Occupant, assignee, manager or other transferee shall furnish Lessor with
such financial, operational or other information about the physical condition of
the applicable Facility, including the information required by Section 25.1.2
herein, as Lessor may request from time to time.
 
24.1.5           Assignment of Lessee’s Rights Against Occupant Under a Master
Sublease.  If Lessor shall consent to a Master Sublease, then the written
instrument of consent, executed and acknowledged by Lessor, Lessee and the
Occupant under such Master Sublease, as the case may be, shall contain a
provision substantially similar to the following:
 
(a)           Lessee and such Occupant hereby agree that, if such Occupant shall
be in default of any of its obligations under the Master Sublease, which default
also constitutes an Event of Default by Lessee under this Lease (subject to the
express provisions of Section 16.11 hereof), then Lessor shall be permitted to
avail itself of all of the rights and remedies available to Lessee against such
Occupant in connection therewith.
 
(b)           Without limiting the generality of the foregoing, Lessor shall be
permitted (by assignment of a cause of action or otherwise) to institute an
action or proceeding against such Occupant in the name of Lessee in order to
enforce Lessee’s rights under the Master Sublease, and also shall be permitted
to take all ancillary actions
 

 
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(e.g., serve default notices and demands) in the name of Lessee as Lessor
reasonably shall determine to be necessary.
 
(c)           Lessee agrees to cooperate with Lessor, and to execute such
documents as shall be reasonably necessary, in connection with the
implementation of the foregoing rights of Lessor.
 
(d)           Lessee expressly acknowledges and agrees that the exercise by
Lessor of any of the foregoing rights and remedies shall not constitute an
election of remedies, and shall not in any way impair Lessor’s entitlement to
pursue other rights and remedies directly against Lessee.
 
24.1.6           Costs.  Lessee shall reimburse Lessor for Lessor’s reasonable
costs and expenses incurred in conjunction with the processing and documentation
of any request for consent as required under this Article XXIV, including
reasonable attorneys’, architects’, engineers’ or other consultants’ fees
whether or not the transaction for which consent is requested is actually
consummated.
 
24.1.7           No Release of Lessee’s Obligations.  Except as expressly set
forth in Section 24.1.3 above, no Transfer shall relieve Lessee of its
obligation to pay the Rent and to perform all of the other obligations to be
performed by Lessee hereunder.  Except as expressly set forth in Section 24.1.3
above, the liability of Lessee named herein and any immediate and remote
successor in interest of Lessee (i.e., by means of any Transfer), and the due
performance of the obligations of this Lease on Lessee’s part to be performed or
observed, shall not in any way be discharged, released or impaired by any (i)
agreement which modifies any of the rights or obligations of the parties under
this Lease, (ii) stipulation which extends the time within which an obligation
under this Lease is to be performed, (iii) waiver of the performance of an
obligation required under this Lease, or (iv) failure to enforce any of the
obligations set forth in this Lease.  Except as expressly set forth in Section
24.1.3 above, if any such Occupant, assignee, manager or other transferee
defaults in any performance due hereunder, Lessor may proceed directly against
the Lessee named herein and/or any immediate and remote successor in interest of
Lessee without exhausting its remedies against such Occupant, assignee, manager
or other transferee.
 
24.1.8           REIT Protection.  Anything contained in this Lease to the
contrary notwithstanding, no Transfer shall be consummated on any basis such
that, based on the reasonable advice of Lessor’s outside counsel, the status of
Lessor as a real estate investment trust could be jeopardized because (i) the
rental or other amounts to be paid by the Occupant, assignee, manager or other
transferee thereunder would be based, in whole or in part, on the income or
profits derived by the business activities of the Occupant, assignee, manager or
other transferee; (ii) the Transfer is with any Person in which Lessee or Lessor
owns an interest, directly or indirectly (by applying constructive ownership
rules set forth in Section 856(d)(5) of the Code); or (iii) the Transfer is to
be consummated with a Person or in a manner which could cause any portion of the
amounts received by Lessor pursuant to this Lease or any Occupancy Arrangement
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
 

 
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which could cause any other income of Lessor to fail to qualify as income
described in Section 856(c)(2) of the Code.  Lessee shall provide such
information as Lessor’s outside counsel may reasonably request to provide its
advice regarding the foregoing, and in rendering such advice, Lessor’s counsel
shall be entitled to rely on factual representations from Lessee and Lessor;
provided, however, that Lessee shall have no liability therefor if Lessee has
provided such information and representations in good faith and after a
reasonably diligent review and inquiry of the subject matter thereof.
 
24.1.9           Transfers In Bankruptcy.  It is the intent of the parties
hereto that in the event of a Transfer pursuant to the provisions of the
Bankruptcy Code, all consideration payable or otherwise to be delivered in
connection with such Transfer shall be paid or delivered to Lessor, shall be and
remain the exclusive property of Lessor and shall not constitute property of
Lessee or of the estate of Lessee within the meaning of the Bankruptcy
Code.  Any consideration constituting Lessor’s property pursuant to the
immediately preceding sentence and not paid or delivered to Lessor shall be held
in trust for the benefit of Lessor and be promptly paid or delivered to
Lessor.  For purposes of this Section 24.1.9, the term “consideration” shall
mean and include money, services, property and any other thing of value such as
payment of costs, cancellation or forgiveness of indebtedness, discounts,
rebates, barter and the like.  If any such consideration is in a form other than
cash (such as in kind, equity interests, indebtedness earn-outs, or other
deferred payments, consulting or management fees, etc.) Lessor shall be entitled
to receive in cash the then present fair market value of such
consideration.  Notwithstanding any provision of this Lease to the contrary,
including this Section 24.1.9, it is expressly understood and agreed that it is
the intention of the parties hereto that, notwithstanding any provision of the
Bankruptcy Code, including Section 365(f) thereof, Lessee is precluded from
effecting any Transfer of a Facility except as may otherwise be expressly
provided in this Lease.
 
24.1.10                 Public Offering/Public Trading.  Notwithstanding
anything to the contrary in this Article XXIV, (i) Lessor’s consent shall not be
required in connection with, and the other provisions of this Article XXIV shall
not apply to any transfer of any stock of Lessee as a result of a public
offering of Lessee’s stock (which transfers shall be deemed not to be
“Transfers” hereunder) which (a) constitutes a bona fide public distribution of
such stock pursuant to a firm commitment underwriting or a plan of distribution
registered under the Securities Act of 1933 and (b) results in such stock being
listed for trading on the American Stock Exchange or the New York Stock Exchange
or authorized for quotation on the NASDAQ National Market immediately upon the
completion of such public offering, (ii) for so long as the stock of Lessee or
any Controlling Person(s) is listed for trading on the American Stock Exchange
or the New York Stock Exchange or authorized for quotation on the NASDAQ
National Market, the transfer or exchange of such stock over such exchange or
market (which transfers or exchanges shall be deemed not to be “Transfers”
hereunder).
 
24.1.11                 Certain Other Transfers.  Notwithstanding anything to
the contrary in this Article XXIV, but subject to the provisions of Section
24.1.8 above, so long as Emeritus has other material assets other than its
interest (whether direct or indirect) in this Lease, the Facilities and any
other leases of facilities between Lessor or an Affiliate of Lessor and
Emeritus or an Affiliate of Emeritus, Lessor shall consent to any Transfer
resulting from
 

 
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(a) a sale or transfer of all or substantially all of the outstanding capital
stock of Emeritus or a sale or transfer of all or substantially all of the
assets of Emeritus, in each case to a single purchaser or transferee in a single
transaction or (b) a merger, consolidation or stock exchange to which Emeritus
is a party, and the provisions of Section 24.1.2.2 shall not apply  (i.e., there
shall not be any Transfer Consideration payable) in connection with or related
to such Transfer, so long as each of the following conditions is met:
 
(i)           The Consolidated Net Worth of the purchaser or transferee
resulting from a Transfer pursuant to clause (a) above or the surviving party
resulting from a Transfer pursuant to clause (b) above, as the case may be,
following the effectiveness of such event shall be equal to or greater than the
average Consolidated Net Worth of Emeritus for the twelve (12) month period
immediately prior to the effectiveness of such event, as reasonably determined
by Lessor;
 
(ii)           The debt to equity ratio of the purchaser or transferee resulting
from a Transfer pursuant to clause (a) above or the surviving party resulting
from a Transfer pursuant to clause (b) above, as the case may be, following the
effectiveness of such event shall be equal to or less than the average debt to
equity ratio of Emeritus for the twelve (12) month period immediately prior to
the effectiveness of such event, as reasonably determined by Lessor.  For
purposes of this clause (ii), “debt” shall include the capitalized value of any
leases required to be capitalized in accordance with GAAP to which Emeritus
and/or such transferee or surviving entity (and/or their consolidated
Subsidiaries) are parties and the same shall be demonstrated by financial
statements prepared in accordance with GAAP and reasonably satisfactory to
Lessor;
 
(iii)           The purchaser or transferee resulting from a Transfer pursuant
to clause (a) above or the other party(s) to the Transfer pursuant to clause (b)
above, as the case may be, shall have sufficient operating experience and
history with respect to a business of the nature, type and size of the business
of Emeritus as the same exists prior to the effectiveness of such event, as
reasonably determined by Lessor.  Such purchaser or transferee or other party to
such Transfer, as the case may be, shall be deemed to have “sufficient operating
experience and history” if, (A) the core management team of such purchaser,
transferee or other party, as the case may be, has an average of not less than
three (3) years’ operating experience with respect to the operation and
management of facilities of the type and nature operated and/or managed by
Emeritus and its Subsidiary(ies), or (B) such transferee or purchaser or other
party, as the case may be, shall immediately following the effectiveness of such
Transfer, and for a period of not less than one (1) year thereafter, retain
and/or hire in a full-time management or consulting capacity a majority of the
principal officers of Emeritus who were in the employment of Emeritus prior to
the effectiveness of such Transfer;
 

 
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(iv)           Except in the case of a Transfer as to which such transferee or
purchaser or surviving party, as the case may be, assumes the obligations of
Lessee hereunder and any Guarantor under the applicable Guaranty as a matter of
law, such transferee or purchaser or surviving party shall execute a written
assumption of this Lease and with respect to each Guaranty, either (A) a written
assumption of such Guaranty in form and substance reasonably acceptable to
Lessor or (B) a new guaranty of this Lease consistent in form and substance with
each such Guaranty.  In addition, if any such transferee, purchaser or surviving
party is an Affiliate of another Person, its ultimate parent or other ultimate
Controlling Person shall execute a written guaranty of Lessee’s obligations
under this Lease pursuant to a written guaranty in form and substance reasonably
acceptable to Lessor;
 
(v)           No Event of Default shall have occurred and be continuing
hereunder;
 
(vi)           [Intentionally Omitted]; and
 
(vii)           Lessor shall receive the applicable information required by
Section 24.1.2.1(i) with respect to each such proposed Transfer and the proposed
purchaser or transferee resulting therefrom.
 
As used in this Section 24.1.11, “other material assets” shall mean that
Emeritus has other net assets as determined in accordance with GAAP, whether
direct or indirect, other than its interests (whether direct or indirect) in
this Lease, the Facilities and the facilities covered thereby and any other
facilities leased by Emeritus or an Affiliate of Emeritus from Lessor or an
Affiliate of Lessor, which in the aggregate total not less than $100,000,000 or
represent at least Forty Percent (40%) of the total net assets as determined in
accordance with GAAP of Emeritus, including its interests (whether direct or
indirect) in the Facilities and any other facilities leased by Emeritus or any
Affiliate of Emeritus from Lessor or an Affiliate of Lessor.
 
24.1.12                 Affiliate Transactions.  Notwithstanding anything to the
contrary contained in this Article XXIV but subject to the provisions of Section
24.1.8 above, Lessor’s consent shall not be required in connection with, and the
provisions of Section 24.1.2.2 shall not apply (i.e., there shall not be any
Transfer Consideration payable) in connection with or related to, any assignment
of Lessee’s interest in this Lease to one or more Affiliate(s) of Lessee (if
more than one, jointly and severally as “Lessee” hereunder) or  a Master
Sublease of all or any portion of the Leased Property to an Affiliate of Lessee
(each, a “Permitted Affiliate Transaction”), so long as in connection therewith,
each of the following conditions is met:
 
(a)           In connection with such Permitted Affiliate Transaction, there is
no change in the use of the Leased Property of any Facility from its Primary
Intended Use;
 

 
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(b)           No Event of Default shall have occurred and be continuing
hereunder;
 
(c)           In the case of such an assignment, (i) the assignee(s) shall
assume (jointly and severally) all of the obligations of Lessee hereunder
accruing subsequent to the effective date of such assignment by an instrument in
writing in form and substance reasonably satisfactory to Lessor, and a copy
thereof shall be delivered to Lessor along with the notice specified in clause
(g) below, (ii) the original Lessee shall not be released from any of the
obligations of the Lessee hereunder, whether occurring prior to or after the
effective date of such transaction, and if requested by Lessor, shall execute a
written guaranty of the “Lessee’s” obligations under this Lease in a form
satisfactory to Lessor, and (iii) a copy of such executed assumption shall be
delivered to Lessor along with the notice;
 
(d)           In the case of any Master Sublease, (i) such Master Sublease shall
be subject to the provisions of Section 24.1.4 above and such Master Sublease
shall comply with all of the applicable provisions of this Article XXIV (except
for the Lessor consent requirement), and a copy of such Master Sublease shall be
delivered to Lessor along with the notice specified in clause (g) below, and
(ii) Lessee shall not be released from any of the obligations of Lessee
hereunder, whether occurring prior to or after the effective date of such
transaction;
 
(e)           In connection with any Permitted Affiliate Transaction, no
Guarantor shall be released of any of its obligations under a Guaranty, and
shall execute a written reaffirmation of its obligations under such Guaranty in
form and substance reasonably satisfactory to Lessor and deliver the same to
Lessor along with the notice specified in clause (g) below;
 
(f)           Concurrently with the effective date of any such Permitted
Affiliate Transaction, Lessee shall cause its Affiliate to grant to Lessor a
security interest in form and substance reasonably satisfactory to Lessor with
respect to such Affiliate’s personal property (whether tangible or intangible)
consistent with (and subject to the same limitations and exclusions (if any)
from such grant as) the security interest granted to Lessor pursuant to Section
16.10 hereof by Lessee, in each case, as additional security for Lessee’s
obligations under this Lease and the obligations of any such Affiliate under
this Lease and/or other such Master Sublease, as applicable, and such agreement
granting such security interest shall be delivered to Lessor along with the
notice specified in clause (g) below; and
 
(g)           Not less than ten (10) days prior to the effectiveness of any
Permitted Affiliate Transaction, Lessee shall notify Lessor in writing of
Lessee’s intention to enter into such Permitted Affiliate Transaction, the
effective date thereof, the facts placing the same within the provisions of this
Section 24.2.2 and any other change in the address for billings and notices to
the Lessee pursuant to this Lease, accompanied by a copy of any documents and/or
instruments required
 

 
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under the provisions of this Section 24.2.2, and Lessee shall deliver to Lessor
executed copies of such documents and/or instruments on or prior to the
effective date thereof.
 
24.1.13                 Emericare Subleases.  Concurrently with the execution
and delivery of this Lease, Lessor, Lessee and Lessee’s Affiliate, Emericare
Inc., a Delaware corporation (“Emericare”), are executing and delivering that
certain Agreement Regarding Subleases of even date herewith relating to certain
Subleases between Lessee and Emericare with respect to the Facilities.
 
ARTICLE XXV.
 
25.1           Officer’s Certificates and Financial Statements.
 
25.1.1           Officer’s Certificate.  At any time and from time to time upon
Lessee’s receipt of not less than ten (10) days’ prior written request by
Lessor, Lessee shall furnish to Lessor an Officer’s Certificate certifying (i)
that this Lease is unmodified and in full force and effect, or that this Lease
is in full force and effect as modified and setting forth the modifications;
(ii) the dates to which the Rent has been paid; (iii) whether or not, to the
best knowledge of Lessee, Lessor is in default in the performance of any
covenant, agreement or condition contained in this Lease and, if so, specifying
each such default of which Lessee may have knowledge; and (iv) responses to such
other questions or statements of fact as Lessor, any ground or underlying
lessor, any purchaser or any current or prospective Facility Mortgagee shall
reasonably request.  Lessee’s failure to deliver such statement within such time
shall constitute an acknowledgement by Lessee that (x) this Lease is unmodified
and in full force and effect except as may be represented to the contrary by
Lessor; (y) Lessor is not in default in the performance of any covenant,
agreement or condition contained in this Lease; and (z) the other matters set
forth in such request, if any, are true and correct.  Any such certificate
furnished pursuant to this Article may be relied upon by Lessor and any current
or prospective Facility Mortgagee, ground or underlying lessor or purchaser of
the Leased Property.
 
25.1.2           Statements.  Lessee shall furnish the following statements to
Lessor:
 
(a)           within 120 days after the end of each of Lessee’s and each
Guarantor’s (if any) fiscal years, a copy of the audited consolidated balance
sheets of Lessee, its consolidated Subsidiaries and each Guarantor (if any) as
of the end of such fiscal year, and related audited consolidated statements of
income, changes in common stock and other stockholders’ equity and changes in
the financial position of Lessee, its consolidated Subsidiaries and each
Guarantor (if any) for such fiscal year, prepared in accordance with GAAP
applied on a basis consistently maintained throughout the period involved, such
consolidated financial statements to be certified by nationally recognized
certified public accountants;
 

 
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(b)           within 120 days after the end of each of Lessee’s and each
Guarantor’s (if any) fiscal years, and together with the annual audit report
furnished in accordance with clause (a) above, an Officer’s Certificate stating
that to the best of the signer’s knowledge and belief after making due inquiry,
Lessee is not in default in the performance or observance of any of the terms of
this Lease, or if Lessee shall be in default, specifying all such defaults, the
nature thereof, and the steps being taken to remedy the same;
 
(c)           within thirty (30) days after the end of each calendar month, all
monthly financial reports Lessee produces for reporting purposes and detailed
statements of income and detailed operational statistics regarding occupancy
rates, patient and resident mix and patient and resident rates by type for each
Facility for each such calendar month;
 
(d)           within 120 days after the end of each of Lessee’s fiscal years, a
copy of each cost report filed with the appropriate governmental agency for each
Facility;
 
(e)           within forty-five (45) days after the end of each fiscal quarter
(other than the last fiscal quarter during any fiscal year of the applicable
Person), Lessee shall furnish to Lessor (i) a copy of the unaudited consolidated
balance sheets of Lessee, each Guarantor (if any) and their respective
consolidated Subsidiaries as of the end of such fiscal quarter, and related
unaudited consolidated statements, changes in common stock and other
stockholders’ equity and changes in the financial position of Lessee, each
Guarantor (if any) and their respective consolidated Subsidiaries for such
fiscal quarter, and (ii) a statement of income of Lessee, each Guarantor (if
any) and their respective consolidated Subsidiaries that sets forth the results
for both such fiscal quarter and year-to-date, in all cases prepared in
accordance with GAAP applied on a basis consistently maintained throughout the
applicable period;
 
(f)           not later than fifteen (15) days before the end of each calendar
year during the Term, a capital expenditure and operations budget for the next
calendar year for each Facility, setting forth an estimate, on a monthly basis,
of Gross Revenues, together with an explanation of anticipated changes to
resident charges, payroll rates and positions, non-wage cost increases, and all
other factors differing from the current calendar year;
 
(g)           within thirty (30) days after they are required to be filed with
the SEC, copies of any annual reports and of information, documents and other
reports, or copies of such portions of any of the foregoing as the SEC may
prescribe, which Lessee is required to file with the SEC pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934;
 
(h)           immediately upon Lessee’s receipt thereof, copies of all written
communications received by Lessee from any regulatory agency relating to
 

 
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(i) surveys of any Facility for purposes of licensure, Medicare and Medicaid
certification and accreditation and (ii) any proceeding, formal or informal,
with respect to cited deficiencies with respect to services and activities
provided and performed at any Facility, including patient and resident care,
patient and resident activities, patient and resident therapy, dietary, medical
records, drugs and medicines, supplies, housekeeping and maintenance, or the
condition of such Facility, and involving an actual or threatened warning,
imposition of a fine or a penalty, or suspension, termination or revocation of
such Facility’s license to be operated in accordance with its Primary Intended
Use;
 
(i)           [Intentionally Omitted];
 
(j)           immediately upon Lessee’s receipt thereof, copies of all claims,
reports, complaints, notices, warnings or asserted violations relating in any
way to the Leased Property or any Capital Additions or Lessee’s use thereof; and
 
(k)           with reasonable promptness, such other information respecting (i)
the financial and operational condition and affairs of Lessee, any Guarantor and
each Facility, (ii) the physical condition of the Leased Property and any
Capital Addition thereto and (iii) any suspected Transfer, in each case as
Lessor or any Facility Mortgagee may reasonably request, in the form of a
questionnaire or otherwise, from time to time.
 
25.1.3           Charges.  Lessee acknowledges that the failure to furnish
Lessor with any of the certificates or statements required by this Article XXV
will cause Lessor to incur costs and expenses not contemplated hereunder, the
exact amount of which is presently anticipated to be extremely difficult to
ascertain.  Accordingly, if Lessee fails to furnish Lessor with any of the
certificates or statements required by this Article XXV, Lessee shall pay to
Lessor upon demand $1,000 for each such failure as Additional Charges.  The
parties agree that this charge represents a fair and reasonable estimate of the
costs that Lessor will incur by reason of Lessee’s failure to furnish Lessor
with such certificates and statements.
 
25.1.4           Lessee’s Submission of Certificates/Statements.  Lessee shall
be obligated to furnish Lessor with all certificates and statements required
under this Article XXV by (i) delivery of printed copies of the same to Lessor
at its address set forth in Article XXXIII below or any other address that
Lessor may from time to time designate in writing and (ii) electronic delivery
of the same to Lessor in Microsoft® Office Excel format (or such other format as
Lessor may from time to time reasonably require) at any electronic mail address
that Lessor may from time to time designate in writing.
 
ARTICLE XXVI.
 
26.1           Lessor’s Right to Inspect and Show the Leased Property
 
.  Lessee shall permit Lessor and its authorized representatives upon two (2)
Business Days’ prior notice to (i) inspect the Leased Property of any Facility
and any Capital Addition thereto and (ii) exhibit the same to prospective
purchasers and lenders, and during the
 

 
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last twelve (12) months of the Term, to prospective lessees or managers, in each
instance during usual business hours and subject to any reasonable security,
health, safety or confidentiality requirements of Lessee or any Legal
Requirement or Insurance Requirement.  Lessee shall cooperate with Lessor in
exhibiting the Leased Property of any Facility and any Capital Additions thereto
to prospective purchasers, lenders, lessees and managers.
 
ARTICLE XXVII.
 
27.1           No Waiver
 
.  No failure by Lessor to insist upon the strict performance of any term hereof
or to exercise any right, power or remedy hereunder and no acceptance of full or
partial payment of Rent during the continuance of any default or 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.
 
ARTICLE XXVIII.
 
28.1           Remedies Cumulative
 
.  Each legal, equitable or contractual right, power and remedy of Lessor now or
hereafter provided either in this Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power
and remedy and the exercise or beginning of the exercise by Lessor of any one or
more of such rights, powers and remedies shall not preclude the simultaneous or
subsequent exercise by Lessor of any or all of such other rights, powers and
remedies.
 
ARTICLE XXIX.
 
29.1           Acceptance of Surrender
 
.  No surrender to Lessor of this Lease or of the Leased Property or any Capital
Additions or any part(s) thereof or of any interest therein, shall be valid or
effective unless agreed to and accepted in writing by Lessor and no act by
Lessor or any representative or agent of Lessor, other than such a written
acceptance by Lessor, shall constitute an acceptance of any such surrender.
 

 
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ARTICLE XXX.
 
30.1           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, (i) this Lease or the leasehold estate created hereby or
any interest in this Lease or such leasehold estate and (ii) the fee estate in
the Leased Property or any part(s) thereof.
 
ARTICLE XXXI.
 
31.1           Conveyance by Lessor
 
.  If Lessor or any successor owner of the Leased Property shall convey the
Leased Property other than as security for a debt, Lessor or such successor
owner, as the case may be, shall thereupon be released from all future
liabilities and obligations of the Lessor under this Lease arising or accruing
from and after the date of such conveyance or other transfer and all such future
liabilities and obligations shall thereupon be binding upon the new owner.
 
31.2           New Lease
 
.  Lessor shall have the right, in connection with any Separation Event during
the Term for any purpose, by written notice to Lessee, to require Lessee to
execute an amendment to this Lease whereby the Leased Property of one or more
Facilities affected by such Separation Event (individually, a “Separated
Property” or collectively, the “Separated Properties”) is separated and removed
from this Lease, and to simultaneously execute a substitute lease with respect
to such Separated Property(ies), in which case:
 
31.2.1           Lessor and Lessee shall execute a new lease (the “New Lease”)
for such Separated Property(ies), effective as of the date specified in Section
31.2.3. below (the “New Lease Effective Date”), in the same form and substance
as this Lease, but with such changes thereto as necessary to reflect the
separation of the Separated Property(ies) from the balance of the Leased
Property, including specifically the following:
 
(a)           The total monthly Minimum Rent and Additional Rent payable under
such New Lease shall be the total applicable monthly Allocated Minimum Rent and
Allocated Additional Rent with respect to such Separated Property(ies);
 
(b)           All Minimum Rent and Additional Rent rental escalations under such
New Lease shall be at the times and in the amounts set forth in this Lease for
Minimum Rent and Additional Rent increases for the applicable Separated
Property(ies);
 
(c)           The Minimum Purchase Price payable under such New Lease shall be
the aggregate of the Allocated Minimum Purchase Price for such Separated
Property(ies); and
 

 
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(d)           Such New Lease shall provide that the lessee thereunder shall be
responsible for the payment, performance and satisfaction of all duties,
obligations and liabilities arising under this Lease, insofar as they relate to
the Separated Property(ies), that were not paid, performed and satisfied in full
prior to the effective date of such New Lease (and Lessee under this Lease shall
also be responsible for the payment, performance and satisfaction of the
aforesaid duties, obligations and liabilities not paid, performed and satisfied
in full prior to the effective date of such New Lease).
 
31.2.2           Lessor and Lessee shall also execute an amendment to this Lease
effective as of such New Lease Effective Date reflecting the separation of the
Separated Property(ies) from the balance of the Leased Property and making such
modifications to this Lease as are necessitated thereby.
 
31.2.3           In the case of any New Lease that is entered into in accordance
with this Section 31.2 such New Lease shall be effective on the date which is
the earlier of (i) the date such New Lease is fully executed and delivered by
the parties thereto and (ii) the date specified in the written notice from
Lessor to Lessee requiring such New Lease as described above, which date shall
be no sooner than ten (10) days after the date such notice is issued.
 
31.2.4           Lessee and Lessor shall take such actions and execute and
deliver such documents, including without limitation such New Lease and an
amendment to this Lease, as are reasonably necessary and appropriate to
effectuate the provisions and intent of this Section 31.2.
 
31.2.5           Each party shall bear its own costs and expenses in connection
with any such New Lease entered into in accordance with this Section 31.2.
 
ARTICLE XXXII.
 
32.1           Quiet Enjoyment
 
.  So long as Lessee 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, Lessee shall peaceably and quietly have, hold and enjoy the Leased
Property of each Facility for the Term, free of any claim or other action by
Lessor or anyone claiming by, through or under Lessor, but subject to all liens
and encumbrances of record as of the Commencement Date or created thereafter as
permitted hereunder or thereafter consented to by Lessee.  No failure by Lessor
to comply with the foregoing covenant shall give Lessee any right to cancel or
terminate this Lease or abate, reduce or make a deduction from or offset against
the Rent or any other sum payable under this Lease, or to fail to perform any
other obligation of Lessee hereunder.  Notwithstanding the foregoing, Lessee
shall have the right, by separate and independent action to pursue any claim it
may have against Lessor as a result of a breach by Lessor of the covenant of
quiet enjoyment contained in this Article.
 
ARTICLE XXXIII.
 

 
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33.1           NOTICES
 
.  Any notice, consent, approval, demand or other communication required or
permitted to be given hereunder (a “notice”) must be in writing and may be
served personally or by U.S. Mail.  If served by U.S. Mail, it shall be
addressed as follows:
 
 
If to Lessor

 
or Collateral Agent:
c/o HCP, Inc.

 
 
3760 Kilroy Airport Way, Suite 300

 
 
Long Beach, California 90806

 
 
Attn:  Legal Department

 
 
Fax:  (562) 733-5200

 
 
with a copy to:
Latham & Watkins LLP

 
 
650 Town Center Drive, 20th Floor

 
 
Costa Mesa, California 92626

 
 
Attn:  David C. Meckler, Esq.

 
 
Fax:  (714) 755-8290

 
 
If to Lessee:
Emeritus Corporation

 
 
3131 Elliott Avenue, Suite 500

 
 
Seattle, Washington 98121

 
 
Attn:  Eric Mendelsohn

 
 
Fax:  (206) 357-7388

 
 
with a copy to:
Riddell Williams P.S.

 
 
1001 Fourth Avenue, Suite 4500

 
 
Seattle, Washington 98154

 
 
Attn:  David D. Buck, Esq.

 
 
Fax:  (206) 389-1708

 
Any notice which is personally served shall be effective upon the date of
service; any notice given by U.S. Mail shall be deemed effectively given, if
deposited in the United States Mail, registered or certified with return receipt
requested, postage prepaid and addressed as provided above, on the date of
receipt, refusal or non-delivery indicated on the return receipt.  In lieu of
notice by U.S. Mail, either party may send notices by facsimile or by a
nationally recognized overnight courier service which provides written proof of
delivery (such as U.P.S. or Federal Express).  Any notice sent by facsimile
shall be effective upon confirmation of receipt in legible form, and any notice
sent by a nationally recognized overnight courier shall be effective on the date
of delivery to the party at its address specified above as set forth in the
courier’s delivery receipt.  Either party may, by notice to the other from time
to time in the manner herein provided, specify a different address for notice
purposes.
 

 
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ARTICLE XXXIV.
 
34.1           Appraiser
 
.  If it becomes necessary to determine the Fair Market Value, Fair Market
Rental or Leasehold FMV of any Facility for any purpose of this Lease, the same
shall be determined by an independent appraisal firm, in which one or more of
the members, officers or principals of such firm are Members of the Appraisal
Institute (or any successor organization thereto), as may be reasonably selected
by Lessor (the “Appraiser”).  Lessor shall cause such Appraiser to determine the
Fair Market Value, Fair Market Rental or Leasehold FMV of such Facility as of
the relevant date (giving effect to the impact, if any, of inflation from the
date of the Appraiser’s decision to the relevant date) and the determination of
such Appraiser shall be final and binding upon the parties.  A written report of
such Appraiser shall be delivered and addressed to each of Lessor and
Lessee.  To the extent consistent with sound appraisal practice as then existing
at the time of any such appraisal, an appraisal of Fair Market Value for
purposes of this Lease shall take into account and shall give appropriate
consideration to all three customary methods of appraisal (i.e., the cost
approach, the sales comparison approach and the income approach), and no one
method or approach shall be deemed conclusive simply by reason of the nature of
Lessor’s business or because such approach may have been used for purposes of
determining the fair market value of such Facility at the time of acquisition
thereof by Lessor.  This provision for determination by appraisal shall be
specifically enforceable to the extent such remedy is available under applicable
law, and any determination hereunder shall be final and binding upon the parties
except as otherwise provided by applicable law.  Lessor and Lessee shall each
pay one-half (1/2) of the fees and expenses of the Appraiser and one-half (1/2)
of all other costs and expenses incurred in connection with such appraisal.
 
ARTICLE XXXV.
 
35.1           Lessee’s Option to Purchase the Leased Property.
 
  Provided (a) no Event of Default, or event which, with notice or lapse of time
or both, would constitute an Event of Default, has occurred and is continuing
hereunder, and (b) Lessee shall be entitled to and shall have extended the Term
of this Lease for the first (1st) Extended Term pursuant to Article XIX hereof,
then Lessee shall have the option to purchase the Leased Property of all (but
not less than all) of the Facilities then subject to the terms of this Lease and
any Facility(ies) subject to a New Lease hereafter with or in favor of Lessor or
any Affiliate of Lessor upon the expiration of the first (1st) Extended Term for
the Purchase Option Price.  Lessee may exercise such option to purchase the
Leased Property of all (but not less than all) of the Facilities then subject to
the terms of this Lease and any Facility(ies) subject to a New Lease hereafter
with or in favor of Lessor or any Affiliate of Lessor by (i) opening an escrow
(the “Escrow”) by depositing either (1) cash or (2) a letter of credit from a
financial institution and in form in each case acceptable to Lessor, the
sum  (the “Opening Deposit”) of Two and One-Half Percent (2½%) of the Minimum
Purchase Price (determined on the date of the Opening Deposit) and a copy of
this Lease and each New Lease with a national title company reasonably
acceptable to Lessor (“Escrow Holder”), (ii) and giving written notice (the
“Option Exercise Notice”) to Lessor of such deposit with Escrow Holder no
earlier than eighteen (18) months and

 
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not less than fifteen (15) months prior to the expiration of the first (1st)
Extended Term, and (iii) if applicable, delivering to Lessor concurrent with the
Option Exercise Notice a reaffirmation of each Guaranty executed by the
applicable Guarantor stating, in substance, that such Guarantors’ obligations
under such Guaranty shall extend to the purchase contract formed by Lessor and
Lessee upon proper and timely exercise of such option.  If Lessee shall not be
entitled to exercise such option (e.g., by reason of an Event of Default) or
shall be entitled to exercise the same but shall fail to do so within the time
and in the manner herein provided, such option shall lapse and thereafter not be
exercisable by Lessee.  Such option shall also lapse if Lessee either is not
entitled to or is entitled to and fails to timely exercise Lessee option to
renew the Term of this Lease for the first (1st) Extended Term pursuant to
Article XIX hereof. No failure by Lessor to notify Lessee of any defect in any
attempted exercise of the foregoing option shall be deemed a waiver by Lessor of
the right to insist upon Lessee’s exercise of such option in strict accordance
with the provisions hereof.  In the event that Lessee shall properly and timely
exercise such option, then such transaction shall be consummated on or within
ten (10) days after the expiration of the first (1st) Extended Term (the
“Outside Closing Date”).

Notwithstanding anything to the contrary herein, if Lessee shall be entitled to
and shall exercise its option to purchase the Leased Property of all (but not
less than all) of the Facilities then subject to this Lease and any
Facility(ies) subject to a New Lease pursuant to this Section 35.1, Lessee shall
have a one-time right to cancel and rescind in writing to Lessor Lessee’s
exercise of the same within ten (10) Business Days after the Purchase Option
Price is “finally determined.  For purposes of the foregoing, the Purchase
Option Price shall be “finally determined” upon the earlier of (x) the date the
parties agree in writing upon the Purchase Option Price or (y) the date the
Purchase Option Price is determined pursuant to the procedures set forth in
Article XXXIV hereof and Lessee receives notice thereof.  If Lessee is entitled
to and does not elect to cancel and rescind such purchase option within the time
and manner herein provided, then Lessee shall proceed to purchase the Leased
Property of all (but not less than all) of the Facilities then subject to this
Lease and any Facility(ies) subject to a New Lease at the Purchase Option Price,
and otherwise in accordance with the provisions of Article XVIII and Sections
35.2 and 35.3 hereof.  If Lessee is entitled to and shall elect to cancel and
rescind such purchase option within the time and manner herein provided, then
the following shall occur:  (1) the purchase contract formed by Lessee’s
exercise of such purchase option shall be cancelled and terminated; (2) the
Escrow opened upon such exercise shall be cancelled and Lessee shall pay all
title, Escrow and other cancellation charges incurred or imposed in connection
therewith; (3) the Opening Deposit and all interest accrued thereon shall be
returned to Lessee, notwithstanding anything in Section 35.2(a) to the contrary;
(4) Lessee shall pay all fees and expenses of the Appraiser appointed pursuant
to Article XXXIV hereof, notwithstanding anything in such Article XXXIV to the
contrary, (5) this Lease shall continue in full force and effect in accordance
with the terms hereof; and (6) Lessee shall not thereafter have any right to
purchase the Leased Property pursuant to this Section 35.1.
 
35.2           Defaults.
 
(a)           Liquidated Damages.  IF, FOLLOWING A VALID AND PROPER EXERCISE OF
THE FOREGOING OPTION, LESSEE FAILS TO COMPLETE THE PURCHASE OF THE LEASED
PROPERTY AND SUCH FAILURE
 

 
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CONSTITUTES A BREACH HEREOF, THEN LESSOR, AT ITS OPTION, MAY TERMINATE THE
PURCHASE CONTRACT FORMED BY LESSEE’S EXERCISE OF SUCH OPTION AND THE ESCROW BY
GIVING WRITTEN NOTICE TO LESSEE AND ESCROW HOLDER AND, THEREUPON, THE ESCROW
SHALL BE CANCELLED, ALL DOCUMENTS SHALL BE RETURNED TO THE RESPECTIVE PARTIES
WHO DEPOSITED THE SAME, AND LESSEE SHALL PAY ALL TITLE AND ESCROW CANCELLATION
CHARGES AND ALL OF LESSOR’S REASONABLE LEGAL FEES AND COSTS.  IN ADDITION,
LESSOR AND LESSEE AGREE THAT, BASED ON THE CIRCUMSTANCES NOW EXISTING, KNOWN OR
UNKNOWN, IT WOULD BE EXCESSIVELY COSTLY AND IMPRACTICABLE TO ESTABLISH LESSOR’S
DAMAGES BY REASON OF LESSEE’S DEFAULT RESULTING IN A FAILURE OF THE ESCROW TO
CLOSE, AND, THEREFORE, LESSOR AND LESSEE AGREE THAT IT WOULD BE REASONABLE TO
AWARD LESSOR LIQUIDATED DAMAGES IN THE AMOUNT OF THE OPENING DEPOSIT PLUS ANY
ACCRUED INTEREST ON THE OPENING DEPOSIT.  BY THEIR RESPECTIVE INITIALS SET FORTH
BELOW, LESSOR AND LESSEE ACKNOWLEDGE AND AGREE THAT THE OPENING DEPOSIT, PLUS
ANY INTEREST ACCRUED ON THE OPENING DEPOSIT, TOGETHER WITH PAYMENT OF LESSOR’S
LEGAL FEES AND COSTS, IS REASONABLE AS LIQUIDATED DAMAGES FOR A DEFAULT OF
LESSEE UNDER THE PURCHASE CONTRACT FORMED BY LESSEE’S EXERCISE OF SUCH
OPTION  THAT RESULTS IN A FAILURE OF THE ESCROW TO CLOSE AND SHALL BE IN LIEU OF
ANY OTHER RELIEF, RIGHT OR REMEDY, AT LAW OR IN EQUITY, TO WHICH LESSOR MIGHT
OTHERWISE BE ENTITLED BY REASON OF A LESSEE’S DEFAULT THAT RESULTS IN A FAILURE
OF THE ESCROW TO CLOSE, BUT NOTHING CONTAINED HEREIN SHALL LIMIT LESSOR’S RIGHTS
AND REMEDIES FOR LESSEE’S DEFAULT OCCURRING AFTER THE CLOSE OF ESCROW OR FOR
LESSEE’S DEFAULT UNDER THIS LEASE.  ESCROW HOLDER IS HEREBY AUTHORIZED AND
INSTRUCTED TO RELEASE THE OPENING DEPOSIT PLUS ACCRUED INTEREST THEREON TO
LESSOR UPON THE DELIVERY OF UNILATERAL WRITTEN INSTRUCTIONS THEREOF TO ESCROW
HOLDER BY LESSOR AND ABSENT ANY OBJECTION ON THE PART OF LESSEE THERETO, AND
ESCROW HOLDER IS HEREBY RELIEVED OF ALL LIABILITY THEREFOR.  IF LESSEE ATTEMPTS
TO INTERFERE WITH THE RELEASE OF ANY SUCH SUMS BY ESCROW HOLDER TO LESSOR, OR
COMMENCES ANY ACTION AGAINST LESSOR OR THE LEASED PROPERTY ARISING OUT OF THIS
ARTICLE, THEN LESSOR SHALL NOT BE LIMITED IN THE AMOUNT OF DAMAGES IT
MAY RECOVER FROM LESSEE.
 
Lessor’s Initials:                                /s/ DS__________
 
Lessee’s Initials:                                /s/ EM__________
 
(b)           Other Defaults by Lessee or its Affiliates
 

 
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.  A default under any other lease or other agreement or instrument, including
any purchase contract formed upon exercise of any other option, with or in favor
of Lessor or any Affiliate of Lessor and made by or with Lessee or any Affiliate
of Lessee where such default is not cured within the applicable time period, if
any, shall be deemed a default under this Article XXXV and the purchase contract
formed upon proper exercise by Lessee of the option herein provided, entitling
Lessor, as seller, at its option, to terminate such purchase contract and the
Escrow and upon any such termination the Opening Deposit plus all accrued
interest thereon shall be paid over to Lessor as provided in Section 35.2(a)
above.
 
(c)           Defaults by Lessor
 
.  Subject to the provisions of Article XXXIX, if following a valid and proper
exercise of the foregoing option to purchase the Leased Property of the
Facilities, Lessor fails to complete the sale of the Leased Property of the
Facilities at the time required herein, Lessee shall have the right to seek
specific performance of the provisions of this Article XXXV.
 
35.3           Escrow Provisions.
 
(a)           Opening of Escrow.  Escrow shall be deemed open when the Opening
Deposit and a copy of this Lease are delivered to Escrow Holder.
 
(b)           General and Supplemental Instructions.  Lessee and Lessor each
shall execute, deliver and be bound by such further escrow instructions or other
instruments as may be reasonably requested by the other party or by Escrow
Holder from time to time, so long as the same are consistent with the provisions
of this Lease.
 
(c)           Disposition of Opening Deposits.  Escrow Holder shall hold the
Opening Deposit in interest-bearing accounts.  All interest earned on the
Opening Deposit shall accrue to Lessee’s benefit unless Lessor is entitled
thereto under Section 35.2(a).  With full knowledge that Escrow shall not have
closed, Lessee nevertheless agrees to relieve Escrow Holder of all liabilities
in making such payment and for any failure to recover said sum in the event that
Escrow does not close at anytime thereafter; provided, however, that the
foregoing release shall not extend to any willful misconduct by Escrow Holder or
any negligent acts by Escrow Holder or other acts by Escrow Holder that are
inconsistent with the terms of this Article XXXV.  The Opening Deposit plus
interest thereon shall be (i) applied against the Purchase Option Price if
Escrow closes, (ii) returned to Lessee in full if Escrow does not close for any
reason other than Lessee’s default, or (iii) be paid to Lessor as nonrefundable
liquidated damages under Section 35.2(a), if Escrow fails to close under the
provisions hereof as a result of Lessee’s default.
 
(d)           Closing Funds.  Prior to the Close of Escrow (as hereinafter
defined), Escrow Holder shall calculate and Lessee shall wire cash into Escrow
(using wiring instructions reasonably satisfactory to Escrow Holder) in an
amount which, when added to the Opening Deposit and all accrued interest shall
equal the Purchase Option
 

 
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Price for the Leased Property plus any other sums payable by Lessee pursuant to
the provisions hereof.
 
(e)           Close of Escrow.  Escrow shall close on the Outside Closing
Date.  The term “Close of Escrow” as used in this Article shall mean the time
and date that an appropriate deed or other conveyance document conveying
Lessor’s entire interest in the Leased Property, subject to the permitted liens
and encumbrances described in Article XVIII hereof, is recorded in appropriate
records of the county in which the Leased Property of each Facility is located
(or, if deeds and conveyance documents are not customarily recorded on the day
of closing in the county in which the Leased Property of such Facility is
located, then the date and time that such deed or other conveyance document is
delivered or deemed delivered to Lessee).  The Outside Closing Date shall not be
extended for any reason.
 
(f)           Closing Costs.  The closing costs of consummating the purchase of
the Leased Property shall be paid by Lessee as provided in Article XVIII.
 
35.4           Assurances
 
.  At any time within one hundred twenty (120) days of the anticipated date of
Close of Escrow, Lessor may request Lessee to provide reasonable assurances that
it will be able to consummate the purchase of the Leased Property, has
sufficient liquidity to pay any balance of the purchase price owing by Lessee on
the date of the Close of Escrow; provided, however, that in no event shall
Lessee be entitled to exercise such option conditioned upon Lessee obtaining any
such financing.
 
ARTICLE XXXVI.
 
36.1           Lessor May Grant Liens
 
.  Without the consent of Lessee, Lessor may, from time to time, directly or
indirectly, create or otherwise cause to exist any ground lease, mortgage, trust
deed, lien, encumbrance or title retention agreement (collectively, an
“encumbrance”) upon the Leased Property and any Capital Additions or any part(s)
or portion(s) thereof or interests therein.  This Lease is and at all times
shall be subject and subordinate to any such encumbrance which may now or
hereafter affect the Leased Property and/or any such Capital Additions or any
part(s) or portion(s) thereof and to all renewals, modifications,
consolidations, replacements and extensions thereof.  This clause shall be
self-operative and no further instrument of subordination shall be required;
provided, however, that in confirmation of such subordination, Lessee shall
execute promptly any certificate or document that Lessor or any ground or
underlying lessor, mortgagee or beneficiary may request for such purposes;
provided further, however, that any such subjection and subordination of this
Lease or Lessee’s leasehold interest hereunder to any such encumbrance imposed
after the Effective Date shall be conditioned upon the execution by the holder
of such encumbrance and delivery to Lessee of a non-disturbance and attornment
agreement in form reasonably satisfactory to Lessor, Lessee and such holder of
such encumbrance and which provides, in substance, that so long as no Event of
Default has occurred, the holder of such encumbrance shall not disturb either
Lessee’s leasehold interest or possession
 

 
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of the Leased Property in accordance with the terms hereof.  Lessee shall also
promptly execute and deliver to Lessor and such holder of such encumbrance such
non-disturbance and attornment agreement if requested by Lessor and/or such
holder.  If, in connection with obtaining new financing or in connection with
any refinance of an existing encumbrance, a Facility Mortgagee or prospective
Facility Mortgagee shall request reasonable modifications to this Lease as a
condition to such financing or refinancing, Lessee shall not withhold or delay
its consent thereto; provided, however, Lessee shall not be required to consent
to any modifications which increase the Minimum Rent, Additional Rent or
Additional Charges due hereunder, reduce the Term or which otherwise, in the
reasonable, good faith judgment of Lessee, would reasonably be expected to
materially and adversely affect the other rights or obligations of Lessee
hereunder.  Further, Lessee shall cooperate with Lessor in connection with
Lessor’s efforts to encumber any Facility with a Facility Mortgage and with
Lessor’s negotiations with any such Facility Mortgagee.
 
36.2           Attornment
 
.  If Lessor’s interest in the Leased Property and/or any Capital Additions or
any part(s) or portion(s) thereof is sold or conveyed upon the exercise of any
remedy provided for in any Facility Mortgage, or otherwise by operation of
law:  (i) at the new owner’s option, Lessee shall attorn to and recognize the
new owner as Lessee’s Lessor under this Lease or enter into a new lease
substantially in the form of this Lease with the new owner, and Lessee shall
take such actions to confirm the foregoing within ten (10) days after request;
and (ii) the new owner shall not be (a) liable for any act or omission of Lessor
under this Lease occurring prior to such sale or conveyance, (b) subject to any
offset, abatement or reduction of rent because of any default of Lessor under
this Lease occurring prior to such sale or conveyance, (c) 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
successor lessor, or (d) liable for any security deposit or other collateral
deposited or delivered to Lessor pursuant to this Lease unless such security
deposit or other collateral has actually been delivered to such successor
lessor.
 
36.3           Compliance with Facility Mortgage Documents
 
.
 
36.3.1           With respect to any new financing or refinancing of the Leased
Property of any Facility with one or more new Facility Mortgage(s), prior to the
execution and delivery of any Facility Mortgage Loan Documents relating thereto,
Lessor shall provide copies of the same to Lessee for Lessee’s review and, in
the event that the applicable Facility Mortgagee requests modifications to this
Lease, Lessor shall obtain Lessee’s consent thereto in accordance with Section
36.1 above.
 
36.3.2           Lessee acknowledges that any new Facility Mortgage Loan
Documents executed by Lessor will impose certain obligations on the “Borrower”
thereunder to comply with or cause the operator and/or lessee of the Facilities
to comply with all
 

 
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representations, covenants and warranties contained therein relating to such
Facilities and the operator and/or lessee of such Facilities, including,
covenants relating to (a) the maintenance and repair of the Facilities, (b)
maintenance and submission of financial records and accounts of the operation of
each Facility and related financial and other information regarding the operator
and/or lessee of such Facilities and the Facilities themselves, (c) the
procurement of insurance policies with respect to the Facilities and (d) without
limiting the foregoing, compliance with all Legal Requirements relating to the
Facilities and the operation thereof for their Primary Intended Use.  For so
long as any Facility Mortgages encumber the Leased Property, or any portion
thereof, Lessee covenants and agrees, at its sole cost and expense and for the
express benefit of Lessor, to operate the Facilities in strict compliance with
the terms and conditions of the Facility Mortgage Loan Documents (other than
payment of any indebtedness evidenced or secured thereby) and to timely perform
all of the duties, covenants and obligations of Lessor and the operator and/or
lessee of such Facilities relating thereto, or to the extent that any of such
duties, covenants and/or obligations may not properly be performed by Lessee,
Lessee shall cooperate with and assist Lessor in the timely performance thereof
(other than payment of any indebtedness evidenced or secured thereby); provided,
however, that in connection with any new financing, Lessor shall use good faith
efforts to ensure that the duties, covenants and obligations imposed upon Lessee
by any such new Facility Mortgage Loan Documents and this Section 36.3 are not
materially more burdensome to Lessee than Lessee’s obligations under this Lease,
except to the extent consistent with those duties, covenants and obligations
imposed upon Lessee by this Section 36.3.
 
36.3.3            Without limiting Lessee’s obligations pursuant to any other
provision of this Section 36.3, during the Term of this Lease, Lessee
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 each Facility which are required by
any Facility Mortgage Loan Documents (subject to the proviso in the last
sentence of Section 36.3.2 above), and Lessee shall be solely responsible and
hereby covenants to fund and maintain any and all impound, escrow or other
reserve or similar accounts required under any Facility Mortgage Loan Documents
(subject to the proviso in the last sentence of Section 36.3.2 above) as
security for or otherwise relating to any operating expenses of the Facilities,
including any capital repair or replacement reserves and/or impounds or escrow
accounts for Impositions or insurance premiums (each a “Facility Mortgage
Reserve Account”);  provided, however, that Lessor shall request in good faith
that any Facility Mortgage not require the funding or maintenance of any
Facility Mortgage Reserve Account in connection therewith.  During the Term of
this Lease and provided that no Event of Default shall have occurred and be
continuing hereunder, Lessee 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 of Lessor 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
Lessor agrees to reasonably cooperate with Lessee in connection therewith.
 

 
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36.3.4           Notwithstanding any conflicting provision of this Lease, if any
new Facility Mortgage Loan Documents entered into by Lessor following the
Effective Date in connection with any new financing or any refinancing of any
existing Facility Mortgage for the Leased Property of any Facility and/or any
Capital Additions thereto, imposes additional obligations or requirements upon
Lessee that were not already obligations or requirements of Lessee under this
Lease, and Lessee’s compliance with such additional obligations or requirements
results in any additional out-of-pocket costs or expenses to Lessee, then Lessor
shall reimburse Lessee for all additional and reasonable out-of-pocket costs or
expenses incurred by Lessee in order to comply with such additional obligations
or requirements under any such new Facility Mortgage Loan Documents for any
Facility in excess of $15,000.00 per Facility per Lease Year; provided, however,
that prior to incurring any such additional out-of-pocket costs and expenses for
any Facility, Lessee shall provide to Lessee a written notice specifying in
reasonable detail the nature of the additional obligations or requirements
imposed upon Lessee by any such new Facility Mortgage Loan Documents for such
Facility and an estimate of the out-of-pocket costs or expenses that Lessee
anticipates it will incur connection therewith. Upon receipt of such notice,
Lessor shall have the right (but not the obligation), at its sole cost and
expense, to seek a written waiver from any Facility Mortgagee of Lessee’s
compliance with any such additional obligation(s) or requirement(s), and, if
Lessor elects to seek and thereafter obtains the same, Lessor shall provide a
copy of any such waiver received by Lessor to Lessee and Lessee shall, during
the term of any such waiver, be relieved from complying with any such additional
obligation(s) or requirement(s) with respect to such Facility as are so waived
by such Facility  Mortgagee.  If Lessor elects not to seek any such waiver, or
is unable to obtain the same, then Lessee shall timely observe and comply with
such additional obligation(s) or requirement(s) imposed by any such new Facility
Mortgage Loan Documents with respect to each applicable Facility, and Lessor
shall reimburse to Lessee any amount owing by Lessor under this Section 36.3.4
within ten (10) days after Lessee’s delivery to Lessor of reasonable documentary
evidence as to any such additional out-of-pocket costs or expenses incurred by
Lessee in excess of $15,000.00 per Facility per Lease Year.
 
ARTICLE XXXVII.
 
37.1           Hazardous Substances
 
.  Lessee shall not allow any Hazardous Substance to be located in, on, under or
about the Leased Property or incorporated in any Facility; provided, however,
that Hazardous Substances may be brought, kept, used or disposed of in, on or
about the Leased Property or any Capital Additions of any 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 the Primary Intended Use
of such Facility or in connection with the construction of facilities similar to
such Facility and which are brought, kept, used and disposed of in strict
compliance with Legal Requirements.  Lessee shall not allow the Leased Property
or any Capital Additions to be used as a waste disposal site or, except as
permitted in the immediately preceding sentence, for the manufacturing,
handling, storage, distribution or disposal of any Hazardous Substance.
 
37.2           Notices
 

 
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.  Lessee shall provide to Lessor promptly, and in any event immediately upon
Lessee’s receipt thereof, a copy of any notice, or notification with respect to,
(i) any violation of a Legal Requirement relating to Hazardous Substances
located in, on, or under the Leased Property or any Capital Additions or any
adjacent property thereto; (ii) any enforcement, cleanup, removal, or other
governmental or regulatory action instituted, completed or threatened with
respect to the Leased Property or any Capital Additions; (iii) any claim made or
threatened by any Person against Lessee or the Leased Property or any Capital
Additions relating to damage, contribution, cost recovery, compensation, loss,
or injury resulting from or claimed to result from any Hazardous Substance; and
(iv) any reports made to any federal, state or local environmental agency
arising out of or in connection with any Hazardous Substance in, on, under or
removed from the Leased Property or any Capital Additions, including any
complaints, notices, warnings or asserted violations in connection therewith.
 
37.3           Remediation
 
.  Subject to the provisions of Section 37.6 hereof, if Lessee becomes aware of
a violation of any Legal Requirement relating to any Hazardous Substance in, on,
under or about the Leased Property or any Capital Additions or any adjacent
property thereto, or if Lessee, Lessor or the Leased Property or any Capital
Additions becomes subject to any order of any federal, state or local agency to
repair, close, detoxify, decontaminate or otherwise remediate the Leased
Property and any Capital Additions, Lessee shall immediately notify Lessor of
such event and, at its sole cost and expense, cure such violation or effect such
repair, closure, detoxification, decontamination or other remediation.  Subject
to the provisions of Section 37.6 hereof, if Lessee fails to implement and
diligently pursue any such cure, repair, closure, detoxification,
decontamination or other remediation, Lessor shall have the right, but not the
obligation, to carry out such action and to recover from Lessee all of Lessor’s
costs and expenses incurred in connection therewith.
 
37.4           Indemnity
 
.  Subject to the provisions of Section 37.6 hereof, Lessee shall indemnify,
defend, protect, save, hold harmless, and reimburse Lessor for, from and against
any and all costs, losses (including, losses of use or economic benefit or
diminution in value), liabilities, damages, assessments, lawsuits, deficiencies,
demands, claims and expenses (collectively, “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 Lessor) incurred in
connection with, arising out of, resulting from or incident to, directly or
indirectly, before or during the Term (i) the production, use, generation,
storage, treatment, transporting, disposal, discharge, release or other handling
or disposition of any Hazardous Substances from, in, on or about the Leased
Property or any Capital Additions or any part(s) or portion(s) thereof
(collectively, “Handling”), including the effects of such Handling of any
Hazardous Substances on any Person or property within or outside the boundaries
of the Leased Property or any Capital Additions, (ii) the presence of any
Hazardous Substances in, on, under or about the Leased Property or any Capital
Additions or any part(s) or portion(s) thereof and (iii) the violation of any
Legal Requirements
 

 
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(including Environmental Laws).  “Environmental Costs” include interest, costs
of response, removal, remedial action, containment, cleanup, investigation,
design, engineering and construction, damages (including actual, consequential
and punitive 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.
 
Without limiting the scope or generality of the foregoing, but subject to the
provisions of Section 37.6 hereof, Lessee expressly agrees to reimburse Lessor
for any and all costs and expenses incurred by Lessor:
 
(a)           In investigating any and all matters relating to the Handling of
any Hazardous Substances, in, on, from, under or about the Leased Property or
any Capital Additions or any part(s) or portion(s) thereof;
 
(b)           In bringing the Leased Property or any Capital Additions into
compliance with all Legal Requirements; and
 
(c)           Removing, treating, storing, transporting, cleaning-up and/or
disposing of any Hazardous Substances used, stored, generated, released or
disposed of in, on, from, under or about the Leased Property or any Capital
Additions or any part(s) or portion(s) thereof or offsite.
 
If any claim is made hereunder, Lessee agrees to pay such claim promptly, and in
any event to pay such claim within thirty (30) calendar days after receipt by
Lessee of notice thereof.  If any such claim is not so paid and Lessor is
ultimately found or agrees to be responsible therefore, Lessee agrees also to
pay interest on the amount paid from the date of the first notice of such claim,
at the Overdue Rate.
 
37.5           Environmental Inspection
 
.  Lessor shall have the right, from time to time, and upon not less than five
(5) days’ written notice to Lessee, except in the case of an emergency in which
event no notice shall be required, to conduct an inspection of the Leased
Property and all Capital Additions or any part(s) or portion(s) thereof at any
reasonable time to determine the existence or presence of Hazardous Substances
on or about such Leased Property or any such Capital Additions, if Lessor has
reasonable belief to suspect that Lessee has not fully complied with the terms
of this Article XXXVII.  Lessor shall have the right to enter and inspect the
Leased Property and all Capital Additions, conduct any testing, sampling and
analyses it deems necessary and shall have the right to inspect materials
brought into the Leased Property or any such Capital Additions; provided,
however, that Lessor shall (i) conduct its activities on the Leased Property or
any such Capital Additions pursuant to the terms of this Section 37.5 in a
commercially reasonable manner designed to minimize the impact of such
activities on Lessee’s operation of the applicable Facility, (ii) restore the
Leased Property and any such Capital Additions to substantially the same
condition as existed immediately prior to Lessor’s inspection thereof and (iii)
indemnify, defend, protect, save, hold harmless, and reimburse Lessee for, from
and against
 

 
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any and all loss, cost or expense, including costs and reasonable legal fees,
arising out of any damage to persons or property occurring in or about the
Leased Property and any such Capital Additions, or any liens filed against the
Leased Property or any such Capital Additions, in either case resulting directly
from Lessor’s inspection of the Leased Property and any such Capital Additions
pursuant to the terms of this Section 37.5.  Lessor may, in its discretion,
retain such experts to conduct the inspection, perform the tests referred to
herein, and to prepare a written report in connection therewith.  All costs and
expenses incurred by Lessor under this Section shall be paid on demand as
Additional Charges by Lessee to Lessor.  Failure to conduct an environmental
inspection or to detect unfavorable conditions if such inspection is conducted
shall in no fashion be intended as a release of any liability for environmental
conditions subsequently determined to be associated with or to have occurred
during Lessee’s tenancy.  Lessee shall remain liable for any environmental
condition related to or having occurred during its tenancy regardless of when
such conditions are discovered and regardless of whether or not Lessor conducts
an environmental inspection at the termination of the Lease.  The obligations
set forth in this Article shall survive the expiration or earlier termination of
the Lease.
 
37.6           Pre-Existing Environmental Conditions
 
.  Notwithstanding anything to the contrary in this Lease, including this
Article XXXVII, Lessee shall have no responsibility (whether as to performance
or payment of costs) or any other liability (a) to cure, repair, remove, close,
detoxify, decontaminate or otherwise to commence or complete any other
remediation with respect to any Pre-Existing Environmental Condition, or (b) to
indemnify, defend, protect, save, hold harmless or reimburse Lessor for, from or
against any Environmental Costs or other liabilities arising out of, resulting
from or incident to, any Pre-Existing Environmental Condition, unless the need
for such cure, repair, removal, closure, detoxification, decontamination or
other remediation with respect to any Pre-Existing Environmental Condition or
any such Environmental Costs associated therewith result directly from or arise
directly out of any actions of Lessee, its Affiliates, Occupants, employees,
agents or contractors that exacerbate any Pre-Existing Environmental Condition,
in which case the provisions of this Article XXXVII shall apply to the extent of
any such exacerbation.  In no event, however, shall the foregoing exculpation of
Lessee from any such responsibility or liability for any Pre-Existing
Environmental Conditions be deemed or construed to be an agreement by Lessor to
assume or otherwise be responsible for the same or to otherwise indemnify,
defend, protect, save, hold harmless or reimburse Lessee for, from or against
any Environmental Costs or other liabilities associated therewith.  If, however,
a claim or action is brought by a third party or governmental entity against
either Lessor or Lessee for any Pre-Existing Environmental Condition, Lessor
hereby agrees to pursue in good faith any and all rights and claims (including
any right or claim to indemnification or defense) that Lessor may have (or, at
the option of Lessor, to assign such rights to Lessee to the extent the same are
assignable) against any third party responsible for any such Pre-Existing
Environmental Condition, including any such rights or claims that Lessor may
have against Current Owner or Current Manager under the Purchase Agreement or
the Current Management Agreements or otherwise.
 
ARTICLE XXXVIII.
 

 
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38.1           MEMORANDUM OF LEASE
 
.  Lessor and Lessee shall, promptly upon the request of either, enter into one
or more short form memoranda of this Lease, in form suitable for recording under
the laws of the applicable State.  Lessee shall pay all costs and expenses of
recording any such memoranda.  Lessee covenants and agrees, both on its own
behalf and on behalf of its successors and assigns to execute a quitclaim deed
or other recordable instrument sufficient to remove any such memoranda from
record title to the Land upon the expiration of sooner termination of this Lease
and appoints and constitutes Lessor its attorney-in-fact, which power shall be
coupled with an interest and shall not be recoverable or terminable, to execute
and deliver and to record such quitclaim deed or other instrument in the name of
Lessee upon the expiration or termination of the Term.
 
ARTICLE XXXIX.
 
39.1           Sale of Assets
 
.  Notwithstanding any other provision of this Lease, Lessor shall not be
required to (i) sell or transfer the Leased Property, or any portion thereof,
which is a real estate asset as defined in Section 856(c)(5)(B), or functionally
equivalent successor provision, of the Code, to Lessee if Lessor’s counsel
advises Lessor that such sale or transfer may not be a sale of property
described in Section 857(b)(6)(C), or functionally equivalent successor
provision, of the Code or (ii) sell or transfer the Leased Property, or any
portion thereof, to Lessee if Lessor’s counsel advises Lessor that such sale or
transfer could result in an unacceptable amount of gross income for purposes of
the Ninety-Five percent (95%) gross income test contained in Section 856(c)(2),
or functionally equivalent successor provision, of the Code.  If Lessee has the
right or obligation to purchase the Leased Property or any portion thereof
pursuant to the terms herein, and if Lessor determines not to sell such Leased
Property pursuant to the above sentence, then Lessee shall purchase such Leased
Property, upon and subject to all applicable terms and conditions set forth in
this Lease, including the provisions of Article XXXV, at such time as the
transaction, upon the advice of Lessor’s counsel, would be a sale of property
(to the extent the Leased Property is a real estate asset) described in Section
857(b)(6)(C), or functionally equivalent successor provision, of the Code, and
would not result in an unacceptable amount of gross income for purposes of the
Ninety-Five Percent (95%) gross income test contained in Section 856(c)(2), or
functionally equivalent successor provision of the Code and until such time
Lessee shall lease the Leased Property and all Capital Additions from Lessor at
the Fair Market Rental.
 
ARTICLE XL.
 
40.1           Subdivision
 
.  If the Land is in excess of that which is required to operate any Facility in
accordance with its Primary Intended Use, Lessor may, with Lessee’s prior
consent, which consent shall not be unreasonably withheld, conditioned or
delayed, subdivide the Land and amend this Lease and the legal description
attached hereto as Exhibit A such that the Land contains only so much of the
Land as is necessary to operate such Facility in accordance with its Primary
Intended Use.  If Lessor subdivides the Land relating to any Facility there
shall be no
 

 
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change in the Rent payable hereunder.  After any such subdivision, Lessee shall
have no rights to any land which is no longer part of the Leased Property and
Lessor may sell, lease or develop any land which is no longer part of the Leased
Property; provided, however, that Lessor will not develop or allow such land to
be used for any purpose that would materially adversely affect Lessee’s use of
such Facility, including, without limitation, as a facility or institution
providing services or similar goods to those provided in connection with such
Facility and its Primary Intended Use.  If Lessor elects to subdivide the Land
Lessee shall cooperate with Lessor and take all actions reasonably requested by
Lessor to effect such subdivision.
 
ARTICLE XLI.
 
41.1           Authority
 
.  If Lessee is a corporation, limited liability company, trust, or partnership,
Lessee, and each individual executing this Lease on behalf of Lessee, represent
and warrant that each is duly authorized to execute and deliver this Lease on
behalf of Lessee and shall concurrently with the execution and delivery of this
Lease to Lessor deliver to Lessor evidence of such authority satisfactory to
Lessor.
 
ARTICLE XLII.
 
42.1           Attorneys’ Fees
 
.  If Lessor or Lessee brings an action or other proceeding (including an
arbitration pursuant to Article XLIV) 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 attorneys’ fees incurred therein.  In
addition to the foregoing and other provisions of this Lease that specifically
require Lessee to reimburse, pay or indemnify against Lessor’s attorneys’ fees,
Lessee shall pay, as Additional Charges, all of Lessor’s reasonable attorneys’
fees incurred in connection with the administration or enforcement of this
Lease, including attorneys’ fees incurred in connection with Lessee’s exercise
of its option to purchase the Leased Property, the review of any letters of
credit, the review, negotiation or documentation of any subletting, assignment,
or management arrangement or any consent requested in connection therewith, and
the collection of past due Rent.
 
42.2           Set-Up Costs
 
.  Lessor shall be responsible for and shall pay all Lessor’s Set-Up Costs and
Lessee shall be responsible for and shall pay all Lessee’s Set-Up Costs;
provided, however, that if (i) Lessee shall obtain any third party diligence or
other similar reports or studies regarding the Leased Property of the
Facilities, (ii) Lessor shall request that Lessee name Lessor as a beneficiary
thereof or obtain reliance or similar assurances from the providers thereof to
the effect that Lessor may rely on the same, and (iii) Lessee incurs any
additional expenses to name Lessor as beneficiary thereof or to obtain any such
reliance or similar assurances for the benefit of Lessor, then Lessor shall
reimburse Lessee for any such additional expenses promptly upon Lessee’s written
request therefor, which written request for such reimbursement shall be
 

 
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accompanied by reasonable documentary evidence of such additional expenses do
incurred by Lessee in connection therewith.
 
ARTICLE XLIII.
 
43.1           Brokers
 
.  Lessee warrants that it has not had any contact or dealings with any Person
or real estate broker which would give rise to the payment of any fee or
brokerage commission in connection with this Lease, and Lessee shall indemnify,
protect, hold harmless and defend Lessor from and against any liability with
respect to any fee or brokerage commission arising out of any act or omission of
Lessee.  Lessor warrants that it has not had any contact or dealings with any
Person or real estate broker which would give rise to the payment of any fee or
brokerage commission in connection with this Lease, and Lessor shall indemnify,
protect, hold harmless and defend Lessee from and against any liability with
respect to any fee or brokerage commission arising out of any act or omission of
Lessor.
 
ARTICLE XLIV.
 
44.1           SUBMISSION TO ARBITRATION.
 
44.1.1           EXCEPT AS PROVIDED IN SECTION 44.1.2 BELOW, ANY CONTROVERSY,
DISPUTE OR CLAIM OF WHATSOEVER NATURE ARISING OUT OF, IN CONNECTION WITH, OR IN
RELATION TO THE INTERPRETATION, PERFORMANCE OR BREACH OF THIS LEASE, INCLUDING
ANY CLAIM BASED ON CONTRACT, TORT OR STATUTE, SHALL BE DETERMINED BY FINAL AND
BINDING, CONFIDENTIAL ARBITRATION ADMINISTERED BY THE AMERICAN ARBITRATION
ASSOCIATION (“AAA”) IN ACCORDANCE WITH ITS THEN-EXISTING COMMERCIAL ARBITRATION
RULES BY A SOLE ARBITRATOR SELECTED IN ACCORDANCE WITH SUCH AAA RULES.  ANY
ARBITRATION HEREUNDER SHALL BE GOVERNED BY THE UNITED STATES ARBITRATION ACT, 9
U.S.C. 1-16 (OR ANY SUCCESSOR LEGISLATION THERETO), AND JUDGMENT UPON THE AWARD
RENDERED BY THE ARBITRATOR MAY BE ENTERED BY ANY STATE OR FEDERAL COURT HAVING
JURISDICTION THEREOF.  NEITHER LESSOR, LESSEE NOR THE ARBITRATOR SHALL DISCLOSE
THE EXISTENCE, CONTENT OR RESULTS OF ANY ARBITRATION HEREUNDER WITHOUT THE PRIOR
WRITTEN CONSENT OF ALL PARTIES; PROVIDED, HOWEVER, THAT EITHER PARTY MAY
DISCLOSE THE EXISTENCE, CONTENT OR RESULTS OF ANY SUCH ARBITRATION TO ITS
PARTNERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS AND ACCOUNTANTS AND
TO ANY OTHER PERSON TO WHOM DISCLOSURE IS REQUIRED BY APPLICABLE LEGAL
REQUIREMENTS, INCLUDING PURSUANT TO AN ORDER OF A COURT OF COMPETENT
JURISDICTION.  UNLESS OTHERWISE AGREED BY THE PARTIES, ANY ARBITRATION HEREUNDER
SHALL BE HELD AT A NEUTRAL LOCATION SELECTED BY THE ARBITRATOR IN LOS ANGELES,
CALIFORNIA.  THE COST OF THE ARBITRATOR AND THE EXPENSES RELATING TO THE
ARBITRATION
 

 
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(EXCLUSIVE OF LEGAL FEES) SHALL BE BORNE EQUALLY BY LESSOR AND LESSEE UNLESS
OTHERWISE SPECIFIED IN THE AWARD OF THE ARBITRATOR.  SUCH FEES AND COSTS PAID OR
PAYABLE TO THE ARBITRATOR SHALL BE INCLUDED IN “COSTS AND REASONABLE ATTORNEYS’
FEES” FOR PURPOSES OF ARTICLE XLII AND THE ARBITRATOR SHALL SPECIFICALLY HAVE
THE POWER TO AWARD TO THE PREVAILING PARTY PURSUANT TO SUCH ARTICLE XLII SUCH
PARTY’S COSTS AND EXPENSES INCURRED IN SUCH ARBITRATION, INCLUDING FEES AND
COSTS PAID TO THE ARBITRATOR.
 
44.1.2           THE PROVISIONS OF THIS ARTICLE XLIV SHALL NOT APPLY TO:
 
(a)      ANY UNLAWFUL DETAINER OR OTHER SIMILAR SUMMARY OR EXPEDITED PROCEEDING
FOR EJECTMENT OR RECOVERY OF POSSESSION OF THE LEASED PROPERTY AND CAPITAL
ADDITIONS OR ANY PORTION(S) THEREOF INSTITUTED BY LESSOR IN ACCORDANCE WITH
APPLICABLE LEGAL REQUIREMENTS AS THE RESULT OF AN EVENT OF DEFAULT OR ALLEGED
EVENT OF DEFAULT BY LESSEE PURSUANT TO THIS LEASE.  IN ADDITION, IF PERMITTED BY
APPLICABLE LEGAL REQUIREMENTS, LESSOR SHALL BE ENTITLED IN CONNECTION WITH ANY
SUCH PROCEEDING TO SEEK ANY DAMAGES TO WHICH IT IS ENTITLED AT LAW, INCLUDING
THOSE SET FORTH IN ARTICLE XVI.
 
(b)      ANY SPECIFIC CONTROVERSY, DISPUTE, QUESTION OR ISSUE AS TO WHICH THIS
LEASE SPECIFICALLY PROVIDES ANOTHER METHOD OF DETERMINING SUCH CONTROVERSY,
DISPUTE, QUESTION OR ISSUE AND PROVIDES THAT A DETERMINATION PURSUANT TO SUCH
METHOD IS FINAL AND BINDING, UNLESS BOTH LESSOR AND LESSEE AGREE IN WRITING TO
WAIVE SUCH PROCEDURE AND PROCEED INSTEAD PURSUANT TO THIS ARTICLE XLIV.
 
(c)      ANY REQUEST OR APPLICATION FOR AN ORDER OR DECREE GRANTING ANY
PROVISIONAL OR ANCILLARY REMEDY (SUCH AS A TEMPORARY RESTRAINING ORDER OR
INJUNCTION) WITH RESPECT TO ANY RIGHT OR OBLIGATION OF EITHER PARTY TO THIS
LEASE, AND ANY PRELIMINARY DETERMINATION OF THE UNDERLYING CONTROVERSY, DISPUTE,
QUESTION OR ISSUE AS IS REQUIRED TO DETERMINE WHETHER OR NOT TO GRANT SUCH
RELIEF.  A FINAL AND BINDING DETERMINATION OF SUCH UNDERLYING CONTROVERSY,
DISPUTE, QUESTION OR ISSUE SHALL BE MADE BY AN ARBITRATION CONDUCTED PURSUANT TO
THIS ARTICLE XLIV AFTER AN APPROPRIATE TRANSFER OR REFERENCE TO THE ARBITRATOR
SELECTED PURSUANT TO THIS ARTICLE XLIV UPON MOTION OR APPLICATION OF EITHER
PARTY HERETO.  ANY ANCILLARY OR
 

 
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PROVISIONAL RELIEF WHICH IS GRANTED PURSUANT TO THIS CLAUSE (C) SHALL CONTINUE
IN EFFECT PENDING AN ARBITRATION DETERMINATION AND ENTRY OF JUDGMENT THEREON
PURSUANT TO THIS ARTICLE XLIV.
 
44.1.3           NOTICE:  BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO
HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE “ARBITRATION OF
DISPUTES” PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW
AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED
IN A COURT OR JURY TRIAL.  BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP
YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE
SPECIFICALLY INCLUDED IN THE “ARBITRATION OF DISPUTES” PROVISION.  IF YOU REFUSE
TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED
TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL
PROCEDURE.  YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.
 
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE “ARBITRATION OF DISPUTES” PROVISION TO
NEUTRAL ARBITRATION.
 
Lessor’s Initials:                                ______
 
Lessee’s Initials:                                ______
 
ARTICLE XLV.
 
45.1           Miscellaneous.
 
45.1.1           Survival.  Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities and indemnities of, Lessee
or Lessor arising prior to the expiration or earlier termination of the Term
shall survive such expiration or termination.  In addition, all claims against,
and all liabilities and indemnities hereunder of Lessee shall continue in full
force and effect and in favor of the Lessor named herein and its successors and
assigns, notwithstanding any conveyance of the Leased Property to Lessee.
 
45.1.2           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.
 
45.1.3           Non-Recourse.  Lessee specifically agrees to look solely to the
Leased Property for recovery of any judgment from Lessor.  It is specifically
agreed that no constituent partner in Lessor or officer, director or employee of
Lessor shall ever be personally liable for any such judgment or for the payment
of any monetary obligation to Lessee.  The provision contained in the foregoing
sentence is not intended to, and shall not, limit any right that Lessee might
otherwise have to obtain injunctive relief against Lessor, or
 

 
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any action not involving the personal liability of Lessor.  Furthermore, except
as otherwise expressly provided herein, in no event shall Lessor ever be liable
to Lessee for any indirect or consequential damages suffered by Lessee from
whatever cause.
 
45.1.4           Licenses.  Upon the expiration or earlier termination of the
Term with respect to any Facility, Lessee shall, at Lessor’s request, use
commercially reasonable efforts to transfer to Lessor or Lessor’s nominee a
fully operational Facility and shall cooperate with Lessor or Lessor’s designee
or nominee in connection with the processing by Lessor or Lessor’s designee or
nominee of any applications for all licenses, operating permits and other
governmental authorization, all contracts, including contracts with governmental
or quasi-governmental entities, business records, data, patient and resident
records, and patient and resident trust accounts, which may be necessary or
useful for the operation of such Facility; provided, however, that the costs and
expenses of any such transfer or the processing of any such application shall be
paid by Lessor or Lessor’s designee or nominee; and provided further, however,
that nothing herein shall be construed to require Lessee to allow Lessor or
Lessor’s nominee to operate such Facility under Lessee’s license.  Lessee shall
not commit any act or be remiss in the undertaking of any act that would
jeopardize the licensure or certification of such Facility, and Lessee shall
comply with all requests for an orderly transfer of the same upon the expiration
or early termination of the Term.  In addition, upon request upon the expiration
or earlier termination of the Term with respect to any Facility, Lessee shall
promptly deliver copies of all books and records relating to the Leased Property
of such Facility and all Capital Additions and operations thereon to Lessor or
Lessor’s designee or nominee but Lessee shall not be required to deliver
corporate financial records or proprietary materials.  Lessee shall indemnify,
defend, protect and hold harmless Lessor from and against any loss, damage, cost
or expense incurred by Lessor or Lessor’s designee or nominee in connection with
the correction of any and all deficiencies of a physical nature identified by
any governmental authority responsible for licensing the Leased Property of any
Facility and all Capital Additions thereon in the course of any change of
ownership inspection and audit to the extent that the remediation of such
deficiencies is required solely as a result of retrofit requirements in
connection with the change of ownership of such Facility.  The provisions of
this Section 45.1.4 shall not apply if the expiration or earlier termination of
the Term with respect to a Facility arises from (i) the purchase of such
Facility by Lessee, (ii) the damage to or destruction of or taking of such
Facility or (iii) the execution of a New Lease with respect to such Facility.
 
45.1.5           Successors and Assigns.  This Lease shall be binding upon
Lessor and its successors and assigns and, subject to the provisions of Article
XXIV, upon Lessee and its successors and assigns.
 
45.1.6           Termination Date.  If this Lease is terminated by Lessor or
Lessee under any provision hereof with respect to any one or more (including
all, if applicable) of the Facilities, and upon the expiration of the Term
applicable to a Facility (collectively, the “termination date”), the following
shall pertain:
 
(a)           Lessee shall vacate and surrender the Leased Property, Lessee’s
Personal Property and all Capital Additions relating to the applicable Facility
to
 

 
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Lessor in the condition required by Section 9.1.4.  Prior to such vacation and
surrender, Lessee shall remove any items which Lessee is permitted or required
to remove hereunder.  Lessee shall, at Lessee’s cost, repair any damage to such
Leased Property and any Capital Additions caused by such vacation and/or removal
of any items which Lessee is required or permitted hereunder to remove.  Any
items which Lessee is permitted to remove but fails to remove prior to the
surrender to Lessor of such Leased Property, Lessee’s Personal Property and
Capital Additions shall be deemed abandoned by Lessee, and Lessor may retain or
dispose of the same as Lessor sees fit without claim by Lessee thereto or to any
proceeds thereof.  If Lessor elects to remove and dispose of any such items
abandoned by Lessee, the cost of such removal and disposal shall be an
Additional Charge payable by Lessee to Lessor upon demand.
 
(b)           Without limiting the provisions of Section 45.1.1 above, upon any
such termination or expiration of this Lease with respect to a Facility, the
following shall pertain:
 
(i)           Lessee agrees to defend, protect, indemnify, defend and hold
harmless Lessor from and against any and all claims, costs, losses, expenses,
damages, actions, and causes of action for which Lessee is responsible under
this Lease (including Lessee’s indemnification obligations under Articles XXIII
and XXXVII) and which accrue or have accrued on or before the termination date.
 
(ii)           Lessee shall remain liable for the cost of all utilities used in
or at the Leased Property and any Capital Additions relating to such Facility
through the termination date and accrued and unpaid, whether or not then billed,
as of the termination date until full payment thereof by Lessee.  Lessee shall
obtain directly from the companies providing such services closing statements
for all services rendered through the termination date and shall promptly pay
the same.  If any utility statement with respect to such Leased Property and any
Capital Additions includes charges for a period partially prior to and partially
subsequent to the termination date, such charges shall be prorated as between
Lessor and Lessee, with Lessee responsible for the portion thereof (based upon a
fraction the numerator of which is the number of days of service on such
statement through the termination date and the denominator of which is the total
number of days of service on such statement) through the termination date and
Lessor shall be responsible for the balance.  The party receiving any such
statement which requires proration hereunder shall promptly pay such statement
and the other party shall, within ten (10) days after receipt of a copy of such
statement, remit to the party paying the statement any amount for which such
other party is responsible hereunder.
 

 
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(iii)           Lessee shall remain responsible for any and all Impositions
imposed against the Leased Property, the Personal Property and any Capital
Additions with a lien date prior to the termination date (irrespective of the
date of billing therefor) and for its pro rata share of any Impositions imposed
in respect of the tax-fiscal period during which the Term terminates as provided
in Section 4.1.7, and Lessee shall indemnify and hold Lessor harmless with
respect to any claims for such Impositions or resulting from nonpayment thereof.
 
(iv)           Lessee shall (y) execute all documents and take any actions
reasonably necessary to (1) cause the transfer to Lessor of all of Lessee’s
Personal Property and any Capital Additions not owned by Lessor, as provided in
Section 6.3 in each case free of any encumbrance, as provided in Section 6.3 and
(2) remove this Lease and/or any memorandum hereof as a matter affecting title
to the Leased Property as provided in Article XXXVIII and (z) comply with its
covenants set forth in Section 45.1.4.
 
(v)           Lessee shall continue to observe the covenants of Lessee set forth
in Sections 7.4.1 and 7.4.2 and any other covenant or agreement of Lessee in
this Lease which is intended to survive the expiration or sooner termination of
this Lease.
 
45.1.7           Governing Law.  THIS LEASE WAS NEGOTIATED IN THE STATE OF
CALIFORNIA, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE
PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY.  ACCORDINGLY, IN ALL
RESPECTS THIS LEASE (AND ANY AGREEMENT FORMED PURSUANT TO THE TERMS HEREOF)
SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF CALIFORNIA (WITHOUT REGARD OF PRINCIPLES OR
CONFLICTS OF LAW) AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA,
EXCEPT THAT ALL PROVISIONS HEREOF RELATING TO THE CREATION OF THE LEASEHOLD
ESTATE AND ALL REMEDIES SET FORTH IN ARTICLE XVI RELATING TO RECOVERY OF
POSSESSION OF THE LEASED PROPERTY OF ANY FACILITY (SUCH AS AN ACTION FOR
UNLAWFUL DETAINER OR OTHER SIMILAR ACTION) SHALL BE CONSTRUED AND ENFORCED
ACCORDING TO, AND GOVERNED BY, THE LAWS OF THE STATE IN WHICH THE LEASED
PROPERTY OF SUCH FACILITY IS LOCATED.
 
45.1.8           Waiver of Trial by Jury.  EACH OF LESSOR AND LESSEE
ACKNOWLEDGES THAT IT HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO
ITS RIGHTS TO TRIAL BY JURY UNDER THE CONSTITUTION OF THE UNITED STATES, THE
STATE OF CALIFORNIA AND THE STATES IN WHICH THE LEASED PROPERTY OF ANY OF THE
FACILITIES IS LOCATED.  EACH OF LESSOR AND LESSEE HEREBY EXPRESSLY WAIVES ANY
RIGHT TO
 

 
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TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER
THIS LEASE (OR ANY AGREEMENT FORMED PURSUANT TO THE TERMS HEREOF) OR (ii) IN ANY
MANNER CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF LESSOR AND
LESSEE WITH RESPECT TO THIS LEASE (OR ANY AGREEMENT FORMED PURSUANT TO THE TERMS
HEREOF) OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE
WHETHER NOW EXISTING OR HEREINAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR
TORT OR OTHERWISE; EACH OF LESSOR AND LESSEE HEREBY AGREES AND CONSENTS THAT,
SUBJECT TO THE PROVISIONS OF ARTICLE XLIV ABOVE, ANY SUCH CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY, AND THAT
EITHER PARTY MAY FILE A COPY OF THIS SECTION WITH ANY COURT AS CONCLUSIVE
EVIDENCE OF THE CONSENT OF EACH SUCH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL
BY JURY.
 
Lessor’s Initials:                               /s/ DM ______
 
Lessee’s Initials:                                /s/ EM______
 
45.1.9           Legal Descriptions.  Notwithstanding anything to the contrary
in this Lease, Lessor and Lessee shall cooperate to confirm the exact legal
description for the Land of each Facility prior to the Commencement Date.  In
the event that the exact legal description for the Land of any Facility differs
from the legal description attached hereto for the Land of such Facility, then
Lessor and Lessee shall cooperate to substitute the correct legal description
for the Land of such Facility for the incorrect legal description attached
hereto as Exhibit A.
 
45.1.10                 Entire Agreement.  This Lease, the Exhibits hereto and
such other documents as are contemplated hereunder or thereunder, 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. Lessor and Lessee hereby agree that all prior or contemporaneous
oral understandings, agreements or negotiations relative to the leasing of the
Leased Property are merged into and revoked by this Lease.  Without limiting the
generality of the foregoing, any schedules, abstracts and any other materials
prepared in connection with this Lease are hereby merged into and revoked by
this Lease.
 
45.1.11                 Headings.  All titles and headings to sections,
subsections, paragraphs or other divisions of this Lease are only for the
convenience of the parties and shall not be construed to have any effect or
meaning with respect to the other contents of such sections, subsections,
paragraphs or other divisions, such other content being controlling as to the
agreement among the parties hereto.
 

 
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45.1.12                 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.
 
45.1.13                 Joint and Several.  If more than one Person is the
Lessee under this Lease, the liability of such Persons under this Lease shall be
joint and several.
 
45.1.14                 Interpretation.  Both Lessor and Lessee 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.
 
45.1.15                 Time of Essence.  Time is of the essence of this Lease
and each provision hereof in which time of performance is established.
 
45.1.16                 Force Majeure.  In the event that either Lessor or
Lessee is delayed in performing its respective obligations pursuant to this
Lease by any cause beyond the reasonable control of the party required to
perform such obligation, the time period for performing such obligation shall be
extended by a period of time equal to the period of the delay.  For purposes of
this Lease:
 
(a)           A cause shall be beyond the reasonable control of a party to this
Lease when such cause would affect any person similarly situated (such as power
outage, labor strike, Act of God or trucker’s strike) but shall not be beyond
the reasonable control of such party when peculiar to such party (such as
financial inability or failure to order long lead time material sufficiently in
advance).
 
(b)           This Section shall not apply to any obligation to pay money or
otherwise perform any financial obligation hereunder.
 
(c)           In the event of any occurrence which a party believes constitutes
a cause beyond the reasonable control of such party and which will delay any
performance by such party, such party shall promptly in writing notify the other
party of the occurrence and nature of such cause, the anticipated period of
delay and the steps being taken by such party to mitigate the effects of such
delay.  Failure to give such notice promptly, shall deem such occurrence or
event not to be a cause beyond the reasonable control of such party.
 
45.1.17                 Further Assurances.  The parties agree to promptly sign
all documents reasonably requested to give effect to the provisions of this
Lease.
 
45.1.18                 Public Disclosure.  From and after the Effective Date,
any press release or other written release to the public of information with
respect to this Lease or any matters regarding the transaction contemplated
hereby shall be made only in a form reasonably approved in writing by Lessor and
Lessee; provided, however, that any release of such information or other matters
required by applicable law or deemed prudent (in the disclosing party’s
judgment) under SEC or other federal or state securities’ laws or the rules
 

 
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and regulations of the NYSE, NASDAQ or American Stock Exchange, shall not
require approval from the other party.
 
ARTICLE XLVI.
 
46.1           Provisions Relating to Master Lease
 
.  Lessor and Lessee hereby acknowledge and agree that, except as otherwise
expressly provided herein to the contrary and for the limited purposes so
provided, this Lease is and the parties intend the same for all purposes to be
treated as a single, integrated and indivisible agreement and economic
unit.  Lessee acknowledges that in order to induce Lessor to lease the Leased
Property of each Facility to Lessee pursuant to this Lease and as a condition
thereto, Lessor insisted that the parties execute this Lease, thereby covering
all of the Facilities in a single, integrated and indivisible agreement and
economic unit, and that but for such agreement Lessor would not have leased the
Leased Property of the Facilities to Lessee under the terms and conditions set
forth herein.
 
46.2           Treatment of Lease
 
.  Lessor and Lessee hereby acknowledge and agree that this Lease shall be
treated as an operating lease for all purposes and not as a synthetic lease,
financing lease or loan, and that Lessor shall be entitled to all the benefits
of ownership of the Leased Property, including depreciation for all federal,
state and local tax purposes.
 
ARTICLE XLVII.
 
47.1           Matters Relating to Purchase of the Leased Property, Operations
Transfer Agreement(s), Pre-Commencement Date Period and Commencement Date
 
.
 
47.1.1           Lessee acknowledges that (a) the Leased Property of each
Facility is currently owned by Current Owner, (b) Current Owner has engaged
Current Manager to manage each Facility pursuant to the terms of certain written
management agreements between Current Owner and Current Manager (each, a
“Current Management Agreement, ” and collectively, the “Current Management
Agreements”), and accordingly, the applicable Current Manager is currently in
possession of and operating each Facility pursuant to the terms of the
applicable Current Management Agreement for and on behalf of the applicable
Current Owner, (c) Lessor or one or more Affiliate(s) of Lessor has entered into
a Purchase Agreement with Current Owner for the purchase by Lessor of the Leased
Property of the Facilities upon and subject to the terms and conditions set
forth therein, and (d) the Purchase Closing and the Purchase Closing Date under
such Purchase Agreement is subject to the satisfaction of a number of conditions
precedent in favor of “Buyer,” “Seller” or both thereunder, including (i) the
execution and delivery of this Lease, (ii) the occurrence of a Current Facility
Documents Termination with respect to each Facility on or prior to the the
Purchase Closing Date, and (iii) the execution and delivery of the Operations
Transfer Agreement(s) and the occurrence of the “closing” or “effective date”
thereof.  Accordingly,
 

 
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Lessee further acknowledges that Lessor’s ability to tender or cause the tender
of delivery of possession of and Lessee’s ability to obtain possession of the
Leased Property of each Facility is conditioned upon (i) the occurrence of the
Purchase Closing and Purchase Closing Date under such Purchase Agreement,  (ii)
fulfillment of the conditions precedent to Current Owner’s and Current Manager’s
obligations under such Operations Transfer Agreement(s) with Lessee, and (iii)
Current Owner’s and Current Manager’s surrender of the Leased Property of such
Facility, which fulfillment of the conditions under such Operations Transfer
Agreement(s) and surrender by Current Owner and Current Manager is expected to
occur upon the Purchase Closing Date under the Purchase Agreement.
 
47.1.2           There shall be a Pre-Commencement Date Period and a Term.  The
“Pre-Commencement Date Period” shall commence upon the Effective Date hereof and
shall continue until the earlier of (a) the Commencement Date of this Lease or
(b) any sooner termination of this Lease pursuant to Sections 48.1.2 or 48.2.2
hereof.  The Term of this Lease with respect to each Facility shall commence
upon the Commencement Date.  During the Pre-Commencement Date Period, all of the
provisions of this Lease shall be in full force and effect, other than those
which by their terms or by their context only become effective as of the
Commencement Date or during the Term.  From and after the Commencement Date,
Lessee shall observe, pay and perform, as applicable, all obligations of Lessee
under this Lease.  Notwithstanding anything to the contrary in this Lease, the
Commencement Date must occur simultaneously with respect to all of the
Facilities.
 
47.1.3           Upon the Purchase Closing Date, the Commencement Date of this
Lease shall occur.  Lessee shall, however, be responsible for obtaining
possession and operational control of each Facility directly from the Current
Owner and Current Manager pursuant to the terms of the Operations Transfer
Agreement(s), and Lessor shall not be responsible for tendering possession
thereof to Lessee.  The target Purchase Closing Date and Commencement Date for
each Facility is June 1, 2010; provided, however, that if the Purchase Closing
Date and Commencement Date shall not have occurred on or before the target
Purchase Closing Date and Commencement Date, this Lease shall not be void or
voidable, nor shall Lessor be liable for any loss or damage resulting
therefrom.  Instead, the Pre-Commencement Date Period shall continue to and
until occurrence of the Commencement Date or any sooner termination of this
Lease pursuant to Sections 48.1.2 or 48.2.2 hereof.
 
ARTICLE XLVIII.
 
48.1           Lessor’s Conditions to Continued Effectiveness of Lease
 
.
 
48.1.1           Notwithstanding anything to the contrary contained in this
Lease, Lessor and Lessee acknowledge and agree that the continued effectiveness
of this Lease and Lessor’s obligations hereunder are expressly conditioned upon
the satisfaction of each of the following:
 

 
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(a)           [Intentionally Deleted];
 
(b)           Prior to, or concurrent with, the Purchase Closing Date and
Commencement Date hereof, Lessee shall either (i) have delivered to Lessor
copies or other reasonable evidence that Lessee has obtained all of the Required
Governmental Approvals for each Facility or reasonable assurance that it will
obtain such Required Governmental Approvals shortly after the Purchase Closing
Date and Commencement Date hereof, that such Required Governmental Approvals
will relate back to the Commencement Date and that Lessee may  operate such
Facility for its Primary Intended Use prior to its receipt of such Required
Governmental Approvals or (ii) with the consent of Lessor, the Current Owner,
Current Manager and Lessee shall have entered into Interim Licensure
Arrangements prior to such date with respect to any Facility, in which case on
for before such date, Lessee shall have delivered to Lessor reasonable evidence
that Lessee will be able to obtain all of the Required Governmental Approvals
with respect to each Facility within a reasonable period of time following the
Commencement Date, and in any event prior to the expiration of such Interim
Licensure Arrangements;
 
(c)           Prior to, or concurrent with, the Purchase Closing Date and
Commencement Date hereof, a Current Facility Documents Termination shall have
occurred with respect to each Facility;
 
(d)           Prior to, or concurrent with, the Purchase Closing Date and
Commencement Date hereof , the “closing” or “effective date” of each Operations
Transfer Agreement and any Interim Licensure Arrangements shall have occurred;
and
 
(e)           The Purchase Agreement shall not have been terminated for any
reason prior to the occurrence of the Purchase Closing Date thereunder, and the
Purchase Closing Date thereunder and the Commencement Date hereof shall have
occurred on or before June 1, 2010.
 
(f)           In the event that any of the conditions set forth in Section
48.1.1 above are not satisfied within the time period specified therein or
Lessor determines in good faith at any time during the Pre-Commencement Period
that any such conditions cannot or will not be satisfied, then Lessor shall have
the option to terminate this Lease.  Such option shall be exercised, if at all,
by written notice from Lessor to Lessee given at any time after the date by
which such condition must be satisfied or Lessor determines such that such
condition cannot or will not be satisfied and prior to the date the same is
satisfied.  If Lessor is entitled to terminate this Lease pursuant to this
Section 48.1.2 and timely and properly exercises such option, this Lease shall
terminate on the date of Lessee’s receipt of Lessor’s notice of termination,
Lessor shall bear Lessor’s Set-Up Costs, Lessee shall bear Lessee’s Set-Up
Costs, each party shall bear any of their other costs and fees incurred in the
negotiation and preparation of this Lease and in
 

 
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performing its respective obligations hereunder through the date of such
termination and neither party shall have any further obligation to the other
hereunder except for those obligations which are intended to survive the earlier
termination of this Lease prior to the Commencement Date, if any.  Pending any
such termination by Lessor pursuant to this Section 48.1.2, each party shall
perform its respective obligations pursuant to this Lease.
 
48.1.2           Promptly upon execution and delivery of this Lease, Lessee
shall use good faith efforts to satisfy the conditions set forth in Sections
48.1.1(b) and (d) and cooperate with Lessor in Lessor’s efforts to satisfy the
conditions in Sections 48.1.1 (a), (c) and (e) above.  Lessor hereby agrees that
it will cooperate with Lessee in connection with Lessee’s efforts to satisfy the
conditions set forth in such Sections 48.1.1(b) and (d)  as reasonably requested
by Lessee (including, executing such documents and instruments as are reasonably
required in connection therewith), but without requirement that Lessor incur any
out-of-pocket costs or assume any obligations (financial or otherwise) in
connection therewith.  Lessee hereby acknowledges and agrees, however, that
there can be no assurances that Current Owner and each Current Manager will
cooperate and/or continue to cooperate, and no such non-cooperation or cessation
of cooperation by the Current Owner or any Current Manager shall relieve Lessee
from its obligation to use commercially reasonable efforts to satisfy the
condition set forth in Sections 48.1.1(b) and (d)  above.  From and after the
Effective Date, Lessee shall keep Lessor reasonably apprised of the status of
Lessee’s efforts to satisfy such conditions for the benefit Lessor including the
status of obtaining any Required Governmental Approvals and/or Interim Licensure
Arrangements, which Interim Licensure Lessor shall have the right to
approve.  Lessee shall promptly deliver to Lessor copies of any Required
Governmental Approvals (if and when obtained).
 
48.2           Lessee’s Conditions to Continued Effectiveness of Lease.
 
48.2.1           Notwithstanding anything to the contrary contained in this
Lease, Lessor and Lessee acknowledge and agree that the continued effectiveness
of this Lease and Lessee’s obligations hereunder are expressly conditioned upon
the satisfaction of each of the following:
 
(a)           [Intentionally Deleted];
 
(b)           Prior to, or concurrent with, the Purchase Closing Date and
Commencement Date hereof, Lessee shall either (i) have obtained all of the
Required Governmental Approvals for each Facility or reasonable assurance that
it will obtain such Required Governmental Approvals shortly after the Purchase
Closing Date and Commencement Date hereof, that such Required Governmental
Approvals will relate back to the Commencement Date and that Lessee may  operate
such Facility for its Primary Intended Use prior to its receipt of such Required
Governmental Approvals, or (ii) with the consent of Lessor, the Current Owner,
Current Manager and Lessee shall have entered into Interim Licensure
Arrangements prior to such date with respect to such Facility;
 

 
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(c)           Prior to, or concurrent with, the Purchase Closing Date and
Commencement Date hereof, a Current Facility Documents Termination shall have
occurred with respect to each Facility;
 
(d)           Prior to, or concurrent with, the Purchase Closing Date and
Commencement Date hereof , the “closing” or “effective date” of each Operations
Transfer Agreement and any Interim Licensure Arrangements shall have occurred;
and
 
(e)           The Purchase Agreement shall not have been terminated for any
reason prior to the occurrence of the Purchase Closing Date thereunder, and the
Purchase Closing Date thereunder and the Commencement Date hereof shall have
occurred on or before June 1, 2010.
 
48.2.2           Subject to Lessee’s obligations pursuant to Sections 48.1.3 in
the event that any condition set forth in Section 48.2.1 is not satisfied within
the time period specified therein or Lessee determines in good faith at any time
during the Pre-Commencement Period that any such conditions cannot or will not
be satisfied, Lessee shall have the option to terminate this Lease. Such option
shall be exercised, if at all, with respect to any such condition by written
notice to Lessor delivered at any time after the date by which such condition
must be satisfied or Lessee determines such that such condition cannot or will
not be satisfied and prior to the date the same is satisfied, and in the case of
the condition set forth in Section 48.2.1(b), specifying in reasonable detail
the particular reasons therefor.  If Lessee is entitled to terminate this Lease
pursuant to this Section 48.2.2 and timely and properly exercises such option,
this Lease shall terminate on the date of Lessor’s receipt of Lessee’s notice of
termination, Lessor shall bear Lessor’s Set-Up Costs, Lessee shall bear Lessee’s
Set-Up Costs, each party shall bear any of their other costs and fees incurred
in the negotiation and preparation of this Lease and in performing its
respective obligations hereunder through the date of such termination and
neither party shall have any further obligation to the other hereunder except
for those obligations which are intended to survive the earlier termination of
this Lease prior to the Commencement Date, if any.  Pending any such termination
by Lessee pursuant to this Section 48.2.2, each party shall perform its
respective obligations pursuant to this Lease.
 
48.3           Amendment to Lease
 
.  Following the Commencement Date, the parties shall execute an amendment to
this Lease in substantially the form of Exhibit D to confirm certain matters,
including the Commencement Date and the Fixed Term Expiration
Date.  Notwithstanding the foregoing, the failure of Lessor to prepare and/or
Lessee to execute and deliver any such amendment shall not affect the matters
which would have been confirmed thereby.
 

 
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ARTICLE XLIX.
 
49.1           Certain Additional Representations and Warranties by Lessee
 
.  Lessee represents and warrants to Lessor as follows:
 
(a)           Lessee is duly organized, validly existing and in good standing
under the laws of its state of organization/formation, is qualified to do
business and in good standing in the State and has full power, authority and
legal right to execute and deliver and to perform and observe the provisions of
this Lease to be observed and/or performed by Lessee.
 
(b)           This Lease has been duly authorized, executed and delivered by
Lessee, and constitutes and will constitute the valid and binding obligations of
Lessee enforceable against Lessee in accordance with its terms, except as such
enforceability may be limited by creditors rights, laws and general principles
of equity.
 
(c)           Lessee is solvent, has timely and accurately filed all tax returns
required to be filed by Lessee, and is not in default in the payment of any
taxes levied or assessed against Lessee or any of its assets, or subject to any
judgment, order, decree, rule or regulation of any governmental authority which
would, in each case or in the aggregate, adversely affect Lessee’s condition,
financial or otherwise, or Lessee’s prospects or the Leased Property.
 
(d)           Except for the Required Governmental Approvals to use and operate
each Facility for its Primary Intended Use, no other consent, approval or other
authorization of, or registration, declaration or filing with, any governmental
authority is required for the due execution and delivery of this Lease, or for
the performance by or the validity or enforceability of this Lease against
Lessee.
 
(e)           Subject to Lessee’s receipt of the Required Governmental
Approvals, the execution and delivery of this Lease and compliance with the
provisions hereof will not result in (i) a breach or violation of (A) any Legal
Requirement applicable to Lessee now in effect; (B) the organizational or
charter documents of such party; (C) any judgment, order or decree of any
governmental authority binding upon Lessee; or (D) any agreement or instrument
to which Lessee is a counterparty or by which it is bound; or (ii) the
acceleration of any obligation of Lessee.
 
(f)           Lessee is in compliance with the requirements of Executive Order
No. 13224, 66 Fed. Reg. 49079 (Sept. 25, 2001) (the “Order”) and other similar
requirements contained in the rules and regulations of the Office of Foreign
Assets Control, Department of Treasury (“OFAC”) and in any enabling legislation
or other Executive Orders or regulations in respect thereof (the Order and such
other rules, regulations, legislation or orders collecting called the
“Orders”).  Neither Lessee nor any of its Affiliates (A) is listed on the
Specially Designated Nationals and Blocked Person List maintained by OFAC
pursuant to the Order and/or on any other list of terrorists or terrorist
organizations maintained pursuant to any of the rules and regulations of OFAC
 

 
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or pursuant to any other applicable Orders (such lists are collectively referred
to as the “Lists”), (B) is a Person (as defined in the Order) who has been
determined by competent authority to be subject to the prohibitions contained in
the Orders; or (C) is owned or controlled by (including without limitation by
virtue of such Person being a director or owning voting shares or interests), or
acts for or on behalf of, any person on the Lists or any other person who has
been determined by competent authority to be subject to the prohibitions
contained in the Orders.
 
ARTICLE L.
 
50.1           Matters Relating to Certain Claims against Current Owner and
Certain Escrowed Funds
 
.
 
(a)           Lessor and Lessee acknowledge that, pursuant to the Purchase
Agreement, contemporaneously with the Purchase Closing Date, Current Owner, as
“Seller,” HCP (or its successors or assigns), as “Buyer,” and Fidelity National
Title Insurance Company, as “Escrow Agent,” will enter into an Indemnification
and Holdback Escrow Agreement (the “Holdback Agreement”) pursuant to which the
parties thereto will establish and provide for the administration of an escrow
and holdback account to hold certain funds otherwise payable to Current Owner
under the Purchase Agreement, upon and subject to the terms and conditions of
the Holdback Agreement, as security for (i) any “Damages” (as defined in the
Purchase Agreement) claims by HCP (or its successors or assigns), as “Buyer”
from and after the Purchase Closing Date resulting from or arising out of any
breach or default by Current Owner, as “Seller,” of any of its express
representations and warranties under the Purchase Agreement or in any closing
certificate delivered by Current Owner, as “Seller,” pursuant to the terms
thereof, in each case subject to the provisions of Article XI of the Purchase
Agreement (collectively, the “Post-Closing Seller Representation Liabilities”),
and (ii) any Damages claims by any “Indemnified Party” (as defined in the
Purchase Agreement) from and after the Purchase Closing Date resulting from or
arising out of the indemnification obligations of Current Owner, as “Seller,”
pursuant to Section 11.2 of the Purchase Agreement, in each case subject to the
other provisions of such Article XI (collectively, the “Post-Closing Seller
Indemnification Liabilities,” and together with the Post-Closing Seller
Representation Liabilities, the “Post-Closing Seller Liabilities” ).  Lessor and
Lessee further acknowledge that the “Indemnified Parties” (as defined in the
Purchase Agreement) consist of, HCP (and its successors or assigns), Lessee and
each of the officers, directors, partners, members, Affiliates and respective
representatives of each of HCP (and its successors or assigns) and Lessee.  As
used herein, the term “Escrowed Funds” shall mean the funds held from time to
time by the “Escrow Agent” under the Holdback Agreement for the protection of
HCP (and its successors or assigns), as “Buyer,” and the Indemnified Parties, in
each case for any Post-Closing Seller Liabilities pursuant to the terms and
conditions of the Holdback Agreement.
 

 
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(b)           In connection with Post-Closing Seller Liabilities and the
Escrowed Funds, Lessor and Lessee hereby agree as follows:
 
(i)           From and after the Commencement Date, if Lessee or its officers,
directors, partners, members, Affiliates or respective representatives
(collectively, the “Lessee Indemnified Parties”) is entitled to indemnification
as an Indemnified Party under and in accordance with the terms and conditions of
the Purchase Agreement, then Lessor shall, and shall cause HCP (or its
successors or assigns), as the case may be, to cooperate with each such Lessee
Indemnified Party, but without any out-of-pocket costs or expenses to Lessor or
HCP, (A) to make any claim or demand for indemnification on behalf of each such
Lessee Indemnified Party against Current Owner as and to the extent provided
under such Purchase Agreement, and (B) to deliver any applicable “Claim Notice”
(as defined in the Holdback Agreement) on account of any Post-Closing Seller
Indemnification Liabilities in connection therewith as and to the extent
provided under the Holdback Agreement.
 
(ii)           From and after the Commencement Date, HCP (or its successors or
assigns), as “Buyer,” shall be entitled, with notice to but without approval by
Lessee, to make any claim or bring any action against Current Owner, as
“Seller,” under the Purchase Agreement as a result of any breach or default by
Current Owner, as “Seller,” of any of its express representations and warranties
under the Purchase Agreement or in any closing certificate delivered by Current
Owner, as “Seller,” under and in accordance with the terms and conditions of the
Purchase Agreement, and deliver any applicable Claim Notice on account of any
Post-Closing Seller Representation Liabilities in connection therewith as and to
the extent provided under the Holdback Agreement.  In addition, if HCP (or its
successors or assigns, including Lessor), or any of its officers, directors,
partners, members, Affiliates or respective representatives (collectively,
“Lessor Indemnified Parties”) is entitled to indemnification as an Indemnified
Party under and in accordance with the terms and conditions of the Purchase
Agreement, then Lessor or HCP, as the case may be, shall be entitled, with
notice to but without approval by Lessee, to make any claim or demand for
indemnification on behalf of any such Lessor Indemnified Party against Current
Owner as and to the extent provided under such Purchase Agreement, and  deliver
any applicable Claim Notice on account of any Post-Closing Seller
Indemnification Liabilities in connection therewith as and to the extent
provided under the Holdback Agreement.
 
(iii)           Subject to the provisions of clause (iv) below: (A) if Lessor,
HCP (or its successors or assigns) or any Lessor Indemnified Party
(collectively, the “Lessor Parties”) receives any amounts from the Escrowed
Funds on account of any Post-Closing Seller Indemnification Liabilities owing to
any Lessee Indemnified Party, then Lessor shall, and shall cause any such other
Lessor Parties receiving the same to, promptly remit such funds to Lessee; (B)
if any Lessor Party receives any amounts from the Escrowed Funds on account of
 

 
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any Post-Closing Seller Liabilities owing to such Lessor Party, then such Lessor
Party shall be entitled retain or distribute such funds as such Lessor Party
shall determine; (C) if any Lessee Indemnified Party receives directly any
amounts from the Escrowed Funds on account of any Post Closing Seller
Liabilities owing to any Lessor Party, then Lessee shall, and shall cause any
such Lessee Indemnified Party receiving the same to, promptly remit such funds
to Lessor; and (D) if any Lessee Indemnified Party receives directly any amounts
from the Escrowed Funds on account of any Post Closing Seller Indemnification
Liabilities owing to such Lessee Indemnified Party, then such Lessee Indemnified
Party shall be entitled to retain or distribute such funds as such Lessee
Indemnified party shall determine.
 
(iv)           Notwithstanding anything in this Article L to the contrary, the
Purchase Agreement or the Holdback Agreement, if (A) the Lessee Indemnified
Parties, on the one hand, or (B) the Lessor Parties, on the other hand, receive
or are otherwise entitled to receive under the Purchase Agreement and the
Holdback Agreement (but for the provisions of this clause (iv)) funds, in the
aggregate, from the Escrowed Funds in excess of the “Applicable Damages Cap” (as
defined below) (all such funds in excess of the Applicable Damage Cap being
referred to herein as, “Excess Funds”), then, to the extent the Lessee
Indemnified Parties, or any of them, on the one hand, or the Lessor Parties, or
any of them, on the other hand, have valid compensable Damages claims under the
Purchase Agreement for any applicable Post-Closing Seller Liabilities that have
not been paid or reimbursed to them from the Escrowed Funds (with respect to
either the Lessee Indemnified Parties or the Lessor Parties, as applicable, a
“Damages Deficiency”), and (1) the Lessee Indemnified Parties have received any
such Excess Funds, Lessee shall pay to Lessor, or the Lessor Parties have
received any such Excess Funds, Lessor shall pay to Lessee, as applicable, an
amount equal to the lesser of (x) all such Excess Funds so received by them or
(y) the amount of such Damages Deficiency, and/or (2) the Lessee Indemnified
Parties would otherwise be entitled to receive any such Excess Funds from the
then remaining Escrowed Funds, the Lessor Parties shall instead be entitled to
receive, or the Lessor Parties would otherwise be entitled to receive any such
Excess Funds from the then remaining Escrowed Funds, the Lessee Indemnified
Parties shall instead be entitled to receive, as applicable, from the remaining
Escrowed Funds an amount equal to the lesser of (x) all such Excess Funds
otherwise receivable by the Lessee Indemnified Parties or the Lessor Parties, as
applicable or (y) the amount of such Damages Deficiency.  If the Lessee
Indemnified Parties receive or are otherwise entitled to receive any Excess
Funds, and the Lessor Parties do not suffer a Damages Deficiency or the amount
of such Damages Deficiency is less than the amount of such Excess Funds received
or receivable from the Escrowed Funds by the Lessee Indemnified Parties, then
the Lessee Indemnified Parties shall be entitled to retain or receive from the
Escrowed Funds, as applicable, all such Excess Funds to the extent not necessary
to eliminate such Lessor Parties’ Damages Deficiency.  Likewise, if the Lessor
Parties receive or are otherwise entitled to receive any Excess Funds, and the
Lessee Indemnified Parties do not
 

 
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suffer a Damages Deficiency or the amount of such Damages Deficiency is less
than the amount of such Excess Funds received or receivable from the Escrowed
Funds by the Lessor Parties, then the Lessor Parties shall be entitled to retain
or receive form the Escrowed Funds, as applicable, all such Excess Funds to the
extent not necessary to eliminate such Lessee Indemnified Parties’ Damages
Deficiency.
 
(c)           As used in this Article L, the “Applicable Damages Cap” shall
mean, with respect to each of the Lessee Indemnified Parties, on the one hand,
and the Lessor Parties, on the other hand: (i) $1,000,000 in the aggregate
during the entire period from the Commencement Date through and including the
“Final Release Date” (as defined in the Holdback Agreement); (ii) $500,000
during the period from the “First Release Date” (as defined in the Holdback
Agreement) through and including the “Second Release Date“ (as defined in the
Holdback Agreement), unless (A) the Lessee Indemnified Parties have received
funds from the Escrowed Funds equal to the Applicable Damages Cap specified in
clause (i) above, in which event the Lessor Parties shall not be subject to any
further Applicable Damages Cap, or (B) the Lessor Parties have received funds
from the Escrowed Funds equal to the Applicable Damages Cap specified in clause
(i) above, in which event the Lessee Indemnified Parties shall not be subject to
any further Applicable Damages Cap; and (iii) $250,000 during the period from
the Second Release Date through and including the Final Release Date, unless (A)
the Lessee Indemnified Parties have received funds from the Escrowed Funds equal
to the Applicable Damages Cap specified in either clause (i) or (ii) above, in
which event the Lessor Parties shall not be subject to any further Applicable
Damages Cap, or (B) the Lessor Parties have received funds from the Escrowed
Funds equal to the Applicable Damages Cap specified in either clause (i) or (ii)
above, in which event the Lessee Indemnified Parties shall not be subject to any
further Applicable Damages Cap.
 

 

 
 [SIGNATURE PAGE FOLLOWS]
 
 
 
 

 
118

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IN WITNESS WHEREOF, the parties have caused this Lease to be executed and
attested by their respective duly authorized representatives.
 
LESSOR:
   
HCP, INC., a Maryland corporation
(doing business in the state of Illinois as HC Property Investments, Inc.)
 
By:  /s/ Darrin Smith           
Name:  Darrin Smith           
Title:     SVP        
 
 
TEXAS HCP HOLDING, L.P., a Delaware limited partnership
 
By:Texas HCP G.P., Inc., a Delaware corporation, its sole General Partner
 
By:  /s/ Darrin Smith           
Name:  Darrin Smith           
Title:     SVP        

 

 
LESSEE:
   
EMERITUS CORPORATION,
a Washington corporation
 
By:  /s/ Eric Mendelsohn           
Name: Eric Mendelsohn            
Title:   SVP Corporate Development          
 

 
S-1

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EXHIBIT A-1
 
Description of Land
 
(Austin, Texas)
 
All that real property located in the City of Austin, County of Travis, State of
Texas, described a follows:
 
Tract 1: Fee Simple

The field note description of a 4.03 acre (175,619 sq. ft.) tract of land, being
all of a called Lot 1, in the name of Prime Care Seven, LLC, recorded in
Document No. 2006145880, Official Records, Travis County, Texas, also being all
of Lot 1 of the Brighton Gardens Subdivision, recorded in Volume 90, Page 83,
Plat Records, Travis County, Texas and is more particularly described by metes
and bounds as follows:

BEGINNING at a 5/8 inch iron rod found southerly northwest corner of said Lot 1,
at an interior corner of a called 31.812 acre tract corner of a tract of land in
the name of CWS Caprock Bridge, LP, recorded under instrument #2000002696,
Official Records, Travis County, Texas, for the southerly northwest corner and
POINT OF BEGINNING of this tract;

THENCE South 60º 30’ 46” East (Record: S 60º 30’ 46” E, 138.60’, Bearing
Reference Line), with a north line of said Lot 1 and a south line of said 31.812
acre tract, 138.77 feet to an iron rod found at an interior corner of said Lot
1, and an exterior corner of said 31.812 acre tract, for an interior corner of
this tract;

THENCE North 49º 52’ 17” East (Record: N 48º 38’ 14” E, 70.92’), with an east
line of said 31.812 acre tract and the northerly northwest line of said Lot 1,
70.92 feet to a 5/8 inch iron rod set in the southwest line of Spicewood Springs
Road (a called 120’ public right-of-way), at the northerly northwest corner of
said Lot 1, the northeast corner of said 31.812 acre tract, for the northerly
northwest corner of this tract;

THENCE South 26º 55’ 46” East (Record: S 26º 55’ 46” E, 165.02’), with the
southwest line of said road and a north line of said Lot 1, 165.02 feet to a 5/8
inch iron rod set in the southwest line of said road, at the beginning of a
curve to the left, and at angle corner of said Lot 1, for an angle corner of
this tract;

THENCE with the southwest line of said road, a north line of said Lot 1, and
said curve to the left, having a radius of 760.00 feet (Record: 760.00’), an arc
length of 23.14 (Record: 20.85’), a central angle of 01º 44’ 40” (Record: 01º
34’ 20”), and a chord that bears South 27º 48’ 06” East, 23.14 feet (Record: S
27º 26’ 01” E, 20.85’) to a 5/8 inch iron rod set at the northeast corner of
said Lot 1, a northwest line of Lot 2 of said subdivision, for the northeast
corner of this tract;

THENCE South 29º 52’ 12” West (Record: S 29º 52’ 12” W, 374.94’), with a west
line of said Lot 2 and the east line of said Lot 1, 374.94 feet to a 5/8 inch
iron rod set at an angle corner of said Lot 2, and an angle corner of said Lot
1, for an angle corner of this tract;

THENCE South 28º 09’ 59” West (Record: S 28º 09’ 59” W, 135.39’), with a west
line of said Lot 2 and the east line of said Lot 1, 135.24 feet to a 5/8 inch
iron rod set at an interior corner of said Lot 2 and the southeast corner of
said Lot 1, for the southeast corner of this tract;

 
A-1

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THENCE North 62º 07’ 50” West (Record: N 62º 07’ 50” W, 306.26’), with a north
line of said Lot 2 and the south line of said Lot 2, 307.75 feet to a 5/8 inch
iron rod set at a northwest corner of said Lot 2, in the east line of said
31.812 acre tract, and at the southwest corner of said Lot 1, for the southwest
corner of this tract;

THENCE North 28º 06’ 26” East (Record: N 28º 06’ 26” E, 556.29’), with the east
line of said 31.812 acre tract and a west line of said Lot 1, 556.29 feet to the
POINT OF BEGINNING and containing 4.03 acres (175,619 sq. ft.) of land, more or
less.

Tract 2: Easement Estate

Easement Estate only as created and described in Declaration of Ingress and
Egress Easement dated January 27, 1995, by and between Bluebonnet Plaza, Ltd.,
and Care Institute, Inc.-Texas, recorded in Volume 12368, Page 440, Real
Property Records, Travis County, Texas, and being over and across that certain
6,852 square feet (0.157-acre) of land out of and a portion of Lot 2, Brighton
Gardens Subdivision, a subdivision in Travis County, Texas.  Said Ingress and
Egress Easement being more particularly described as follows:

FOR A 6,852 SQUARE FOOT (0.157-ACRE) TRACT OF LAND BEING A PART OF LOT 2,
BRIGHTON GARDENS SUBDIVISION ACCORDING TO THE PLAT THEREOF RECORDED IN BOOK 90
PAGE 83 OF THE PLAT RECORDS OF TRAVIS COUNTY, TEXAS, SAID 6,852 SQUARE FOOT
TRACT OF LAND BEING MORE PARTICULARLY DESCRIBED BY METES AND BOUNDS AS FOLLOWS:

BEGINNING on an iron rod found on a point being the most northerly corner of
said Lot 2, same being the most easterly corner of Lot 1 of said Subdivision,
same also being a point in the curving southwesterly right-of-way line of
Spicewood Springs Road (120' right-of-way width), same being the most northerly
corner and POINT OF BEGINNING of the herein described tract;

THENCE with the curving northeasterly boundary line of said Lot 2, same being
the curving southwesterly right-of-way line of Spicewood Springs Road, with the
arc of a curve to the left having a radius of 760.00 feet, a central angle of
03°29'19", an arc length of 46.27 feet, and a chord which bears S29°57'48"E for
a distance of 46.27 feet to a point being the most easterly corner of said Lot
2, same also being the most northerly corner of Lot 1, Safeway Addition No. 2, a
subdivision filed for record in Book 58, Page 24 of the Plat Records of Travis
County, Texas, same also being the most easterly corner of the herein described
tract;

THENCE departing the southwesterly right-of-way line of Spicewood Springs Road,
with the southeasterly boundary line of said Lot 2, same being the northwesterly
boundary line of aforementioned Lot 1, Safeway Addition No. 2, S29°52'12"W for a
distance of 159.94 feet to a point being the most southerly corner of the herein
described tract and from which an iron rod found on an angle point in the
boundary line of said Lot 2, same being the most westerly corner of said Lot 1,
Safeway Addition No. 2 bears S29°52'12"W a distance of 191.16 feet;

THENCE departing the southeasterly boundary line of said Lot 2, same being the
northwesterly boundary line of said Lot 1, Safeway Addition No. 2, through the
interior of said Lot 2, N60°07'48"W for a distance of 40.00 feet to a point in
the northwesterly boundary line of said Lot 2, same being the southeasterly
boundary line of said Lot 1, Brighton Gardens Subdivision, same also being the
most westerly corner of the herein described tract, and from which an iron rod
to be set when existing construction allows on an

 
A-2

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angle point in the southeasterly boundary line of said Lot 1, same being the
northwesterly boundary line of said Lot 2 bears S29°52'12"W, a distance of
191.76 feet and an iron rod found on the most southerly corner of said Lot 1
bears S29°52'12"W a distance of 191.76 feet and S28°09’59”W, a distance of
136.39 feet;

THENCE with the common boundary line of said Lot 1 and said Lot 2, N29°52’12”E,
for a distance of 183.18 feet to the POINT OF BEGINNING and containing
6,852-square-feet (0.157-acre) of land, more or less.

 

 

 

 
A-3

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EXHIBIT A-2
 
Description of Land
 
(Burr Ridge, Illinois)
 
All that real property located in the City of Burr Ridge, County of DuPage,
State of Illinois, described a follows:

 
LOT 3 IN HIGH GROVE BURR RIDGE, BEING A SUBDIVISION IN THE SOUTHWEST QUARTER OF
SECTION 24, TOWNSHIP 38 NORTH, RANGE 11, EAST OF THE THIRD PRINCIPAL MERIDIAN,
ACCORDING TO THE PLAT THEREOF RECORDED FEBRUARY 28, 1992 AS DOCUMENT R92-33895,
IN DUPAGE COUNTY, ILLINOIS.

 

 

 
A-4

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EXHIBIT A-3
 
Description of Land
 
(Prospect Heights, Illinois)
 
All that real property located in the City of Prospect Heights, County of Cook,
State of Illinois, described as follows:

PARCEL 1:

 
THAT PART OF THE WEST 1/2 OF THE NORTHWEST 1/4 (EXCEPT THE NORTHERLY 250.00 FEET
OF THE WESTERLY 250.00 FEET THEREOF) AND THE SOUTHEAST 1/4 OF THE NORTHWEST 1/4
OF SECTION 26; ALSO THE NORTHEAST 1/4 OF THE NORTHWEST l/4 AND THE WEST 1/2 OF
THE NORTHWEST 1/4 OF THE NORTHEAST 1/4 OF SECTION 26; ALSO, THE WESTERLY 2 ACRES
OF THE SOUTHWEST l/4 OF THE NORTHEAST l/4 OF SECTION 26; ALL IN TOWNSHIP 42
NORTH, RANGE 11 EAST OF THE THIRD PRINCIPAL MERIDIAN, IN COOK COUNTY, ILLINOIS,
DESCRIBED AS FOLLOWS:

 
COMMENCING AT THE SOUTHWEST CORNER OF THE NORTHWEST 1/4 OF SAID SECTION 26;
THENCE SOUTH 89 DEGREES 59 MINUTES 20 SECONDS EAST, ALONG THE SOUTH LINE OF THE
NORTHWEST l/4 OF SECTION 26, A DISTANCE OF 23 96.00 FEET TO THE POINT OF
BEGINNING; THENCE NORTH 89 DEGREES 59 MINUTES 20 SECONDS WEST ALONG THE SOUTH
LINE OF THE NORTHWEST l/4 OF SECTION 26, A DISTANCE OF 352.56 FEET; THENCE NORTH
00 DEGREES 00 MINUTES 40 SECONDS EAST, A DISTANCE OF 490.00 FEET; THENCE SOUTH
89 DEGREES 59 MINUTES 20 SECONDS EAST, A DISTANCE OF 124.56 FEET; THENCE SOUTH
31 DEGREES 17 MINUTES 18 SECONDS EAST, A DISTANCE OF 438.88 FEET; THENCE SOUTH
00 DEGREES 00 MINUTES 40 SECONDS WEST, A DISTANCE OF 115.00 FEET TO THE PLACE OF
BEGINNING.

 
PARCEL 2:

 
NON-EXCLUSIVE EASEMENT FOR THE BENEFIT OF PARCEL 1 FOR THE PURPOSE OF STORM
WATER DETENTION AND DRAINAGE, PURSUANT TO EASEMENT, CONSTRUCTION AND MAINTENANCE
AGREEMENT FOR STORM WATER DETENTION AREA, RECORDED SEPTEMBER 30, 1994 AS
DOCUMENT 94848518.

 
PARCEL 3:

 
NON-EXCLUSIVE TEMPORARY EASEMENT FOR THE BENEFIT OF PARCEL 1 FOR THE PURPOSE OF
MAINTAINING THE SANITARY SEWER SYSTEM, THE WATER MAIN SYSTEM AND THE DETENTION
SYSTEM PURSUANT TO PARAGRAPH 2.C. OF THE DECLARATION OF EASEMENTS AND
RESTRICTIONS RECORDED NOVEMBER 26, 1990 AS DOCUMENT 90574563; AS MODIFIED BY
FIRST AMENDMENT TO DECLARATION OF EASEMENTS AND RESTRICTIONS RECORDED JANUARY
23, 1996 AS DOCUMENT 96061105; AND AS FURTHER MODIFIED BY SECOND AMENDMENT TO
DECLARATION OF EASEMENTS AND RESTRICTIONS RECORDED MAY 29, 1996 AS DOCUMENT
96405209.

 
PARCEL 4:

 
A-5

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

 

 
NON-EXCLUSIVE EASEMENT FOR THE BENEFIT OF PARCEL 1 AS DESCRIBED IN TERMS AND
PROVISIONS OF AGREEMENT FOR MAINTENANCE AND USE OF STORM SEWER DETENTION
FACILITIES RECORDED FEBRUARY 14, 1994 AS DOCUMENT 94141692, AND THE TERMS AND
PROVISIONS CONTAINED THEREIN, AND ALSO AS NOTED IN THE DECLARATION OF COVENANTS,
CONDITIONS, RESTRICTIONS AND EASEMENTS RECORDED NOVEMBER 12, 1982 AS DOCUMENT
26409998.

 

 

 

 

 

 
A-6

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EXHIBIT A-4
 
Description of Land
 
(San Antonio, Texas)
 
All that real property located in the City of San Antonio, County of Bexar,
State of Texas, described a follows:
 
The field note description of a 4.62 acre (201,253 sq. ft.) tract of land in the
name of Prime Care Seven, LLC, recorded in Volume 12289, Page 1451, Official
Records, Bexar County, Texas, also being Lot 1, Block 7, New City Block 18207,
Alamo Cement Subdivision Unit 1E, recorded in Volume 9522, Page 177, Plat
Records, Bexar County, Texas and is more particularly described by metes and
bounds as follows:

BEGINNING at an iron rod found with a cap in the north line of Basse Road (a
called 110’ public right-of-way) and at the west cutback corner of said Lot 1,
Block 7, for the west cutback corner and POINT OF BEGINNING of this tract;

THENCE North 71º 25’ 30” West (Record: N 71º 24’ 30” W 450.00’), with the north
line of said Basse Road and the south line of said Lot 1, Block 7, 449.83 feet
to a point at the southerly southeast corner of Lot 2, Block 7 of said
subdivision, at the southwest corner of said Lot 1, Block 7, for the southwest
corner of this tract;

THENCE North 18º 34’ 30” East (Record: N 18º 34’ 30” E 449.50’), with an east
line of said Lot 2, Block 7 and the west line of said Lot 1, Block 7, 449.57
feet to an iron rod found with a cap at an interior corner of said Lot 2, Block
7 and at the northwest corner of said Lot 1, Block 7, for the northwest corner
of this tract;

THENCE South 71º 25’ 30” East (Record: S 71º 25’ 30” E 413.18’, Bearing
Reference Line), with a south line of said Lot 2, Block 7 and the north line of
said Lot 1, Block 7, 413.10 feet to an iron rod found with a cap at the
beginning of a curve to the right, in the west line of Peter Baque Road (a
called 60’ public right-of-way), at the northerly southeast corner of said Lot
2, Block 7, and at the northeast corner of said Lot 1, Block 7, for the
northeast corner of this tract;

THENCE with the west line of said Peter Baque Road, the east line of said Lot 1,
Block 7, and said curve to the right having a radius of 1969.50 feet (Record:
1969.50’), an arc length of 438.38 feet (Record: 438.38’), a central angle of
12º 45’ 11” (Record: 12º 45’ 11”), and a chord that bears South 11º 46’ 45”
West, 437.47 feet (Record: S 11º 45’ 31” W 437.47’) to an iron rod found with a
cap in the west line of said Peter Baque Road, at the east cutback corner of
said Lot 1, Block 7, and at the beginning of another curve to the right, for the
east cutback corner of this tract;

THENCE with said curve to the right, having a radius of 15.00 feet (Record:
15.00’), an arc length of 23.77 feet (Record: 23.68’), a central angle of 90º
46’ 43” (Record: 90º 26’ 23”), and a chord that bears South 63º 19’ 04” West,
21.36 feet (Record: S 63º 21’ 19” W 21.29’) to the POINT OF BEGINNING and
containing 4.62 acres (201,253 sq. ft.) of land, more or less.
 

 

 
A-7

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A-8

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EXHIBIT B
 
List of Lessor’s Personal Property
 
With respect to each Facility, all of Lessor’s right, title and interest in and
to all machinery, equipment, furniture, furnishings, moveable walls or
partitions, computers or trade fixtures or other tangible personal property
located in, on or about the Leased Property of such Facility on and as of the
Commencement Date, excluding items, if any included within the definition of
Fixtures, but specifically including all right, title and interest of Lessor in
and to those items of tangible personal property with respect to such Facility
acquired by Lessor from Current Owner under the Purchase Agreement.
 

 

 
B-1

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EXHIBIT C
Description of Facilities and Certain Material Terms

Facility
Allocated Minimum Rent
Initial Allocated Base Minimum Purchase Price
Primary Intended Use
Brighton Gardens of Burr Ridge
1st Lease Year:  $2,457,000
2nd Lease Year: $2,630,000
3rd Lease Year:  $2,775,000
4th Lease Year:  $2,923,000
5th Lease Year:  $3,078,000
$34,000,000
102-unit assisted living care, 30-unit skilled nursing care and such other uses
necessary or incidental to such use.
Brighton Gardens of Prospect Heights
1st Lease Year:  $1,789,000
2nd Lease Year: $1,910,000
3rd Lease Year:  $2,015,000
4th Lease Year:  $2,147,000
5th Lease Year:  $2,242,000
$18,000,000
104-unit assisted living care, 30-unit skilled nursing care and such other uses
necessary or incidental to such use.
Brighton Gardens of Austin
1st Lease Year:  $2,700,000
2nd Lease Year: $2,900,000
3rd Lease Year:  $3,085,000
4th Lease Year:  $3,280,000
5th Lease Year:  $3,450,000
$31,000,000
97-unit assisted living care, 46-unit skilled nursing care and such other uses
necessary or incidental to such use.
Brighton Gardens of San Antonio
1st Lease Year:  $1,554,000
2nd Lease Year: $1,660,000
3rd Lease Year:  $1,725,000
4th Lease Year:  $1,800,000
5th Lease Year:  $1,880,000
$18,200,000
97-unit assisted living care, 46-unit skilled nursing care and such other uses
necessary or incidental to such use.

 
C-1

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EXHIBIT D
 
Form of Amendment to Lease
 
[_____] AMENDMENT TO MASTER LEASE AND SECURITY AGREEMENT
 
This [_____] Amendment to Master Lease and Security Agreement (“Amendment”) is
dated as of _________________, 2010 by and among [__________], a [____________]
(“Lessor”) and  EMERITUS CORPORATION, a Washington corporation (“Emeritus” or
“Lessee”).
 
RECITALS
 
A.           Lessor and Lessee entered into a Master Lease and Security
Agreement dated as of [___________], 2010 [list any previous amendments] (the
“Lease”) for the lease of four (4) separate assisted-living care and/or skilled
nursing care facilities located in the States of Illinois and Texas, as more
particularly described in the Lease.
 
B.           Lessor and Lessee desire to memorialize their understanding
regarding certain provisions of the Lease.
 
AGREEMENT
 
Capitalized terms not otherwise defined herein shall have the meaning ascribed
to them in the Lease.  Lessor and Lessee hereby agree as follows:
 
1.           The Commencement Date of the Lease is _____________, 2010;
 
2.           The Fixed Term Expiration Date of the Lease is _______________,
2020;
 
3.           The first Lease Year for the Lease commences on ____________, 2010
and ends on ____________, 2011;
 
Except as amended above, the Lease between Lessor and Lessee shall remain in
full force and effect.  This Amendment may be executed in any number of
counterparts, all of which together shall constitute one and the same
instrument.
 
[Signatures appear on the following page]
 

 
D-1

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
as of the day and year first above written.
 
LESSOR:
   
HCP, INC., a Maryland corporation
(dba HC Property Investments, Inc.)
 
By:             
Name:             
Title:             
 
 
TEXAS HCP HOLDING, L.P., a Delaware limited partnership
 
By:           Texas HCP G.P., Inc.,
a Delaware corporation,
Its Sole General Partner
 
By:                                                    
Name:                                                    
Title:                                                    
 

 

 
LESSEE:
   
EMERITUS CORPORATION,
a Washington corporation
 
By:             
Name:             
Title:             
 

 

 
D-2

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SCHEDULE 7.4.1

EXCLUDED FACILITIES

 
·
Emeritus at Oakwell Farms, 3360 Oakwell Court, San Antonio, TX 78218

 
 
·
Emeritus at North Austin, 5310 Duval Road, Austin, TX 78727

 

 
Schedule 7.4.1 

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SCHEDULE 9.5.1A

IMMEDIATE NEED PLANNED CAPITAL REFURBISHMENT PROJECTS

Burr Ridge:
 
 
CapEx Item:
Amount
($)
Replace Roof
$250,000
Total
$250,000

Prospect Heights:
 
 
CapEx Item:
Amount
($)
Replace Roof
$250,000
Total
$250,000

Grand Total – Immediate Need Capital Projects
$500,000

 
Schedule 9.5.1A 

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SCHEDULE 9.5.1B

FUTURE NEED PLANNED CAPITAL REFURBISHMENT PROJECTS

Austin:
 
 
CapEx Item:
Amount
($)
Replace deteriorated caulking at exterior walls & openings
$20,000
Additional roof vents
30,000
Repairs to finishes in leak areas
15,000
Repair damaged perimeter wood fencing
1,000
Repairs of displaced vinyl siding
2,500
Replace seal failure dual-pane windows
5,400
Leak repairs
2,500
Replace deteriorated window film
20,000
Inspect and seal all open fire wall penetrations
5,000
Trim overgrown vegetation
1,500
Landscaping improvement
30,000
New parking spaces
70,000
Nurse call system
140,000
Metal balcony railings
20,000
Replacement of carpet in dwelling rooms
12,600
Replacement of vinyl flooring in dwelling rooms
3,150
Replacement of A/C condensing units & DX units
19,000
Phased replacement of resident room PTAC units
19,066
Kitchen equipment
20,000
125-gallon water heater
600
Mold remediation
33,500
Total
$470,816

 
Schedule 9.5.1B 

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SCHEDULE 9.5.1B

FUTURE NEED PLANNED CAPITAL REFURBISHMENT PROJECTS (CONTINUED)

San Antonio:
 
 
CapEx Item:
Amount
($)
Install additional roof vents
$30,000
Repairs to finishes
17,000
Landscaping
15,000
Retaining wall
3,500
Brick repairs, mechanical area
6,000
Vinyl siding and trim
1,800
Painting caps on roof exhausts
3,000
Window repair
7,500
Caulking windows
20,000
Seal openings between roof tile and trim
500
Leak repairs, roof and wall
7,500
Replace doors to fire pump room
2,000
Domestic water storage tank
800
Open fire wall
5,000
Parking lot areas
10,000
Metal balcony railings
20,000
Replacement of carpet in dwelling rooms
12,600
Replacement of vinyl flooring in dwelling rooms
3,150
Replacement of A/C condensing units & DX units
61,600
Phased replacement of resident room PTAC units
19,066
Kitchen equipment
20,000
Mold remediation
33,500
Total
$299,516

 
Schedule 9.5.1B   

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SCHEDULE 9.5.1B

FUTURE NEED PLANNED CAPITAL REFURBISHMENT PROJECTS (CONTINUED)

Burr Ridge:
 
 
CapEx Item:
Amount
($)
Refurbish all building sealants
$20,000
Electrical
28,000
Refrigerator inspection
35,000
Repairs to concrete sidewalks
2,000
Asphaltic pavements
59,500
Vinyl siding
5,000
Hollow core
2,400
Gypsum sheathing
1,500
Attic
1,500
Finishes with staining
20,000
PTAC units
25,500
Diagnostic inspection and servicing
24,600
Elevator controls fix
5,000
Operational heater for boiler room
5,000
Left gate
5,000
Toilet draining issue
3,000
Air Handling Unit
3,000
Replace 1st floor public area & corridor carpeting
19,500
Replacement of carpet in dwelling rooms
12,000
Replacement of vinyl flooring in dwelling rooms
3,000
Phased replacement of orig. pad mounting condensing units
7,334
Phased replacement of small fan-coil units
9,534
Phased replacement of remaining PTAC units
12,534
Replacement of laundry room iron
20,000
Kitchen equipment
20,000
Replace phone system
80,000
Mold remediation
150,000
Total
$579,902

 
Schedule 9.5.1B   

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SCHEDULE 9.5.1B

FUTURE NEED PLANNED CAPITAL REFURBISHMENT PROJECTS (CONTINUED)

Prospect Heights:
 
 
CapEx Item:
Amount
($)
Overlay and restripe asphalt pavement
$56,675
Refurbish all building sealants
21,000
Replace resident call system
83,000
Trim back trees and shrubs
5,000
Replace electrical closet doors
3,200
Inspect all vinyl siding, and replace missing/damaged
5,000
Wood trim on columns
1,500
Attic
2,500
Finishes with staining
30,000
Crack in east stairwell
20,000
External shutters
1,500
External conduit boxes
1,000
External pole lights electrical work
5,000
Condensate line
1,000
Replace laundry room tile
2,500
Refurbish monument sign
15,000
Replacement of carpet in dwelling rooms
12,300
Replacement of vinyl flooring in dwelling rooms
3,076
Phased replacement of orig. pad mounting condensing units
4,766
Phased replacement of small fan-coil units
4,766
Phased replacement of remaining PTAC units
16,266
Replace water softening tanks
12,000
Replace residential washers and dryers
1,400
Kitchen equipment
24,000
Mold remediation
150,000
Total
$482,449

Grand Total – Future Need Capital Projects
$1,832,683

 

 
Schedule 9.5.1B   

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