MASTER
LEASE









between







NATIONAL HEALTH INVESTORS,
INC.,




a
Maryland corporation







“Landlord”







and







EMERITUS
CORPORATION,




a
Washington corporation







“Tenant”










The
Place at Gilbert, Arizona


The
Place at Glendale, Arizona


The
Place at Tanque Verde, Arizona


The
Place at Tucson, Arizona


The
Place at Conway, South Carolina


The
Place at Gallatin, Tennessee


The
Place at Kingsport, Tennessee


The
Place at Tullahoma, Tennessee
















MASTER
LEASE







THIS MASTER LEASE is executed this 13th
day of October, 2009 to become effective with respect to each Facility as of the
date described below, by and between EMERITUS CORPORATION, a Washington
corporation, having its principal office at 3131 Elliott Avenue, Suite 500,
Seattle, Washington 98121-1031, as Tenant, and NATIONAL HEALTH INVESTORS, INC.,
a Maryland corporation, having its principal office at 222 Robert Rose Drive,
Murfreesboro, Tennessee 37129, as Landlord.




R E C I T A L
S




A.           Landlord
is the owner of eight licensed senior living facilities located in the States of
Arizona, South Carolina and Tennessee which have previously been leased to RGL
Development, LLC, a Tennessee limited liability company (herein the “Prior
Operator”) and managed for the Prior Operator by National HealthCare Corporation
(“Prior Manager”).




B.           Landlord
and Tenant have reached agreement upon the terms of a lease under which Tenant
will lease each of the facilities identified herein from Landlord.




NOW, THEREFORE, in consideration of the
foregoing Recitals, the mutual covenants and agreements contained herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Landlord and Tenant agree as follows:




ARTICLE
1. DEFINITIONS




For all
purposes of this Lease, unless otherwise expressly provided in this Lease or
unless the context in which such term is used indicates a contrary intent, (a)
the terms defined in this Article shall have the meanings ascribed to them in
this Article, and the terms defined elsewhere in this Lease shall have the
meanings ascribed to them herein, (b) all accounting terms not otherwise defined
in this Article shall have the meanings ascribed to them in accordance with
generally accepted accounting principles at the time applicable to the accrual
method of accounting, applied on a consistent basis, (c) all references in this
Lease to designated “Articles,” “Sections” and other subdivisions are to the
designated Articles, Sections and other subdivisions of this Lease, and (d) the
words “herein,” “hereof” and “hereunder” and other words of similar import refer
to this Lease as a whole and not to any particular Article, Section or other
subdivision:




“AAA”shall have the meaning
ascribed to such term in Section
25.16(c).




“Accounts” means the Tenant’s
accounts receivable (including healthcare insurance receivables and
Medicare/Medicaid or other governmental healthcare payments) and other rights to
payment arising from any Facility now existing or hereafter arising and whether
for the sale or provision of goods or services to residents or patients,
including, but not limited to occupancy charges of all kinds.




“Additional Charges” shall have
the meaning ascribed to such term in Section
4.3.




“Adjustment Date” shall have
the meaning ascribed to such term in Section
4.1.







“Affiliate” shall mean (a) with
respect to Tenant, any corporation, business trust, association, company,
partnership, joint venture, or other entity which, directly or indirectly,
controls, or is controlled by, or is under common control with, Tenant, and (b)
with respect to Landlord, any corporation, business trust, association, company,
partnership, joint venture, or other entity which, directly or indirectly,
controls, or is controlled by, or is under common control with, Landlord. As
used in this definition, “control”, (including the correlative meanings of the
terms “controlled by” and “under common control with”), as used with respect to
any entity, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such entity,
through the ownership of voting securities, partnership interests or other
equity interests, or through any other means, including the right to act as
managing member. Notwithstanding anything to the contrary in this definition,
with respect to Tenant and Guarantor, the term “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
Guarantor.




“Appraiser” shall have the
meaning ascribed to such term in Section
25.16(b).




“Assignment of Contracts and
Operating Leases” means for each Facility the Assignment and Assumption
of Contracts and Operating Leases in the form of Exhibit A attached
hereto and incorporated herein by this reference pursuant to which (and only if
Tenant does not close its purchase option under Section 25.16 hereof) Tenant
shall assign all of its right, title and interest in the Contracts and Operating
Leases to Landlord (or to Landlord’s successor in title to the Facility)
effective upon the termination of this Lease.




“Assignment of Resident
Agreements” means for each Facility the Assignment and Assumption of
Resident Agreements in the form of Exhibit B attached
hereto and incorporated herein by this reference pursuant to which (and only if
Tenant does not close its purchase option under Section 25.16 hereof) Tenant
shall assign all of its right, title and interest in the Resident Agreements to
Landlord (or to Landlord’s successor in title to the Facility) effective upon
the termination of this Lease.




“Authority” shall mean the
United States, the State, the county, the city or any other political
subdivision in which any portion of the Property is located, and any other
political subdivision, agency, instrumentality, department, commission, board,
court, authority, official, officer, accreditation authority or any other
Person, domestic or foreign, exercising jurisdiction or control over Landlord,
Tenant and/or any portion of the Property.




“Award” shall have the meaning
ascribed to such term in Section
16.1(c).




“Base Rent” shall mean the
monthly installments of Base Rent payable under this Lease in the amounts set
forth in Section
4.1.




“Bill of Sale” means for each
Facility the instrument in the form of Exhibit C
attached hereto and incorporated herein by this reference, pursuant to which
(and only if Tenant does not close its purchase option under Section 25.16
hereof) Tenant will convey to Landlord, (or to Landlord’s successor in title to
the Facility), effective upon the termination of this Lease, all of




2


Tenant’s
right, title and interest in the Personal Property, Tenant’s Property Inventory
and Records.




“Cap Ex Account” shall have the
meaning ascribed to such term in Section
7.2.




“Capital Additions” shall mean
(a) a material expansion of any Facility, (b) the renovation of any portion of
any Facility, or (c) the construction of an addition to or new wing on, or
conversion of, any Facility, in each case, in order to (i) increase the unit,
bed or service capacity, or (ii) improve, add or change any material services,
both medical and non-medical, so as to include services not previously offered
at that Facility, or (iii) subject to the provisions of Section 8.2(b),
change the purpose for which such Facility is utilized.




“Capital Expenditures” shall
have the meaning ascribed to such term in Section
7.1.




“Capital Improvement Reserve
Agreement” shall mean the agreement between Landlord and Tenant as to
each Facility in the form attached as Exhibit F under which
Tenant shall from time to time deposit funds for future use to pay for Capital
Improvements.




“Closing Date” shall have the
meaning ascribed to such term in Section
25.16(a).




“Commencement Date” shall mean
the earlier of (i) the date Tenant receives for such Facility the Licenses
required by the State for Tenant to operate such Facility for its Permitted Use
or (ii) the date on which Tenant is authorized to operate a Facility under the
terms of the Interim Operating Agreements, as further described in Section
3.1.




“Condemnation” shall have the
meaning ascribed to such term in Section
16.1(a).




“Condemnor” shall have the
meaning ascribed to such term in Section
16.1(d).




“Contracts” means collectively
those agreements (other than the Operating Leases and Operating Permits) under
which Tenant conducts the business of each Facility.




“Date of Taking” shall have the
meaning ascribed to such term in Section
16.1(b).




“Encumbrance” shall have the
meaning ascribed to such term in Article
23.




“Event of Default” shall have
the meaning ascribed to such term in Section 17.1 and
elsewhere throughout this Lease.




“Extended Term” shall mean the
First Extended Term and the Second Extended Term.




“Facilities” shall mean the
eight senior living facilities (each a “Facility”) listed on the attached
Schedule I to include all land, improvements (whether now existing or made
during the term of the Lease), FFF&E, other personal property and
intangibles located at and used in the operation of any Facility.




“Facility Commencement Date”
shall mean as to each Facility the earlier of (i) the date Tenant receives for
such  Facility the Licenses required by the State for Tenant to
operate such Facility




3


for its
Permitted Use or (ii) the date on which Tenant is authorized to operate a
Facility under the terms of the Interim Operating Agreements.




“Facility Mortgage” shall have
the meaning ascribed to such term in Section
14.1.




“FFF&E” shall mean all
furniture, furnishings, fixtures, vehicles, equipment (including non-movable
medical equipment), machinery and other items of property, including all
components thereof, now and hereafter located in, on or used or incorporated
into any Facility, including, without limitation, any and 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, equipment and apparatus, sprinkler
systems and fire and theft protection equipment, built-in oxygen and vacuum
systems, wiring, tubing, central clock systems, elevators, dumb waiters,
intercom systems, nurse call systems, affixed cabinetry and counters, pneumatic
tube systems, vacuum cleaning systems, conveyor systems, paging systems, mill
work, x-ray protection, pass-through boxes, exhaust systems, laboratory plumbing
and piping, medical gas systems, nurse station counters, emergency generators
and similar items incorporated into and made a part of any Facility, together
with all replacements, modifications, alterations and additions thereto.
FFF&E shall not be deemed to include Tenant’s Excluded
Property.




“Fair Market Value” shall have
the meaning ascribed to such term in Section
25.16(b).




“First Extended Term” shall
mean a period of five (5) years commencing upon the expiration of the Initial
Term.




“Fiscal Year” shall mean
Tenant’s Fiscal Year, which now ends December 31 in each calendar year, with the
new Fiscal Year beginning on the following January 1. For purposes of this
Lease, the partial Fiscal Year between the Commencement Date and January 1 of
the next Fiscal Year shall constitute a separate Fiscal Year. If Tenant changes
its Fiscal Year at any time during the Term, Tenant shall promptly give Landlord
Notice specifying such change. If any such change is made, all reporting and
accounting procedures set forth in this Lease shall continue to be made in
accordance with generally accepted accounting principles, consistently applied.
Any appropriate adjustments to such procedures as a result of such change shall
be made upon the reasonable mutual consent of Landlord and Tenant. No such
change or adjustment shall alter the Term, and Tenant shall bear any accounting
costs reasonably incurred by Landlord as a result of any such change or
adjustment.




“Guarantor” shall mean, if
applicable, Emeritus Corporation.




“Hazardous Substances” shall
mean any hazardous or toxic substances, materials or wastes listed in the United
States Department of Transportation Table (49 CFR 172.101) or by the
Environmental Protection Agency as hazardous substances (40 CFR Part 302) and
amendments thereto, or such substances, materials and wastes which are or become
regulated under any applicable local, state or federal law, including any
materials, wastes or substances which are (a) hydrocarbons, petroleum and
petroleum products, (b) asbestos, (c) polychlorinated biphenyls, (d)
formaldehyde, (e) radioactive substances, (f) flammables and explosives,
(g) described as a “hazardous substance” pursuant to Section 311 of the
Clean Water Act, 33 U.S.C. Section 1251




4


et seq.,
33 U.S.C. Section 1321 or listed pursuant to Section 307 of the Clean Water Act
(33 U.S.C. Section 1317), (h) defined as a “hazardous waste” pursuant to Section
1004 of the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et
sea. (42 U.S.C. Section 6903), or (i) defined as a “hazardous substance”
pursuant to Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et sea. (42 U.S.C.
Section 9601), as the same may be amended from time to time or toxic mold,
fungi, bacteria or other microorganism or any related etiologic agents or
materials (living or nonliving).




“Impositions” shall mean as to
each Facility all taxes (including, without limitation, (a) all real property
taxes imposed upon the Land, the Facility or any of the FFF&E, (b) all other
real property taxes and personal property taxes imposed upon the Property, and
(c) all ad valorem, sales, use, single business, gross receipts, transaction
privilege, rent or similar taxes relating to or imposed upon Tenant, Tenant’s
Property or its business conducted upon any portion of the Land or the Property
or from within the Facility), assessments (including, without limitation, all
supplemental real property tax assessments or assessments for public
improvements or benefit, whether or not commenced or completed prior to the date
hereof and whether or not to be completed within the Term), any other covenants,
conditions or restrictions of record with respect to the Property, water, sewer
or other rents and charges, excises, tax levies, fees (including, without
limitation, license, permit, franchise, inspection, authorization and similar
fees and any and all connection charges, guaranteed revenues,
contributions-in-aid of construction or other charges under any developer
agreement or other agreement of record) and all other governmental charges, in
each case whether general or special, ordinary or extraordinary, foreseen or
unforeseen, of every character or nature whatsoever imposed with respect to or
connected with the Property or the business thereon or therein by Tenant
(including all interest and penalties thereon due to any failure or delay in
payment thereof) which at any time prior to, during or with respect to the Term
hereof may be assessed or imposed on or with respect to, or may be a lien upon
(i) Landlord’s interest in the Property, (ii) the Property or any part 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 Property or the leasing or use of the
Property or any part thereof by Tenant. For the purposes of this definition, the
term “real property tax” shall mean for each Facility all taxes which are
imposed, levied or assessed upon or with respect to the Property, the Facility,
the Land, or any portion thereof (including increases in real property taxes
which are caused by reason of any new construction in or to the Property).
Impositions shall not include (1) any tax based on net income (whether
denominated as a franchise, capital stock or other tax) imposed upon Landlord or
any other person, (2) any transfer or net revenue tax imposed upon Landlord or
any other person (including any tax imposed as a result of a transfer, either
partial or total, of Landlord’s interest in the Property or which are added to a
tax or charge hereinbefore included within the definition of real property tax
by reason of such transfer or which are imposed by reason of this transaction,
any modifications hereto, or any transfers hereof) or (3) any tax imposed with
respect to the sale, exchange, mortgage or other disposition by Landlord of any
property (including the Property) or the proceeds thereof, nor any tax,
assessment, tax levy or charge described in the first sentence of this paragraph
which is in effect at any time during the Term hereof to the extent (and for the
period of time) such tax, assessment, tax levy or charge is totally or partially
repealed, unless a tax, assessment, tax levy or charge set forth in clause (1)
or (2) is levied, assessed or imposed expressly in lieu thereof, in which case
the substitute tax, assessment, tax levy or charge shall be deemed to be an
Imposition.




5


“Initial Term” shall mean the
period commencing on each Facility Commencement Date and, unless terminated
earlier or extended in accordance with the provisions of this Lease, expiring on
the fifteenth (15th)
anniversary of the last occurring Facility Commencement Date.




“Insurance Requirements” shall
mean all terms and conditions of any insurance policy required by this Lease and
all requirements of the issuer of any such insurance policy.




“Interim Operating Documents”
shall have the meaning ascribed to it in the OTA.




“Inventory” means the
operating supply of consumable supplies, including food, drugs, medicines,
materials and other supplies used in connection with the operation of any
Facility.




“Land” shall mean several
parcels of real property described on the attached Exhibit D, and
any other land acquired or leased and made subject to this Lease in connection
with any Facility, and including all appurtenant rights relating to any such
parcel.




“Lease” shall mean this
document, as the same may be amended from time to time in accordance
herewith.




“Lease Coverage Ratio”
means for the Facilities, taken as a whole, the ratio of the Net Operating
Income of the Facilities, taken as a whole, to the aggregate Base Rent for the
period then ending.




“Lease Term” or “Term” shall have the meaning
ascribed to such term in Article
3.




“Lease Year” shall mean each
twelve (12) consecutive month period throughout the Term beginning on the
Commencement Date and on the anniversary thereof.




“Legal Requirements” shall mean
all federal, state, county, municipal and other governmental statutes, laws,
rules, orders, regulations, ordinances, judgments, common law, decrees and
injunctions affecting the Property or the maintenance, construction, use,
alteration, occupancy or operation thereof (including but not limited to the
Permitted Use), whether now or hereafter enacted and in force (including any of
the foregoing which may require repairs, modifications or alterations in or to
the Property), all Licenses, land use entitlements, zoning and regulations
relating thereto, and all covenants, conditions, agreements, restrictions,
obligations and encumbrances contained in any instruments, either of record or
known to Tenant.




“Licenses” shall mean all
licenses and permits for any Facility to operate as an assisted living facility
issued by the state agencies having jurisdiction over the Facility, as
applicable, and all other permits (including building permits), licenses,
franchises, certificates (including certificates of occupancy), certificates of
need, letters of non-reviewability, provider agreements or other governmental
approvals and similar authorizations and entitlements applicable to such
Facility or otherwise required under any and all Legal Requirements to perform
any and all of Tenant’s obligations under this Lease, and to operate such
Facility for the Permitted Use(s).




“Net Operating Income” means,
for the applicable measuring period, the sum of the revenues and income of
Tenant from the operation of the Facilities, less Tenant’s annual
operating expenses for the Facilities, which shall include, without limitation,
a five percent (5%) assumed


6


management
fee, the Targeted Capital Expenditure Amount, property taxes, and insurance,
but excluding,
Tenant’s Base Rent liability to Landlord under this Lease.





“NHI” means National Health
Investors, Inc., a Maryland corporation.




“Notice” shall mean any notice
required under this Lease, all of which shall be given pursuant to Section
25.8.




“Officer’s Certificate” shall
mean a certificate of Tenant or Landlord, as applicable, signed by the chief
executive officer, chief financial officer, chief accounting officer or other
duly authorized officer of Tenant or Landlord, as applicable.




“Operating Leases” means
collectively those leases of any Personal Property used by Tenant in connection
with the operation of a Facility.




“Option Period” shall have the
meaning ascribed to such term in Section
25.16(a).




“Overage Amount” shall have the
meaning ascribed to such term in Section
7.1.




“Overdue Rate” shall mean a
rate of interest equal, per annum, to the prime rate of interest published in
the Wall Street Journal plus five percent (5%), but in no event greater than the
maximum rate of interest then permitted under applicable law.




“Permitted Encumbrances” shall
mean the matters, if any, for each respective parcel of Land set forth in Exhibit E, attached
hereto and incorporated herein by this reference.




“Permitted Use” shall mean the
use and operation of any Facility and all parts thereof as an assisted living
facility providing health care oriented residential accommodations (specifically
excluding any use as a condominium, cooperative or similar arrangement or
regime), and, in connection therewith, the provision of food services,
recreational services, rehabilitative and/or health care and other ancillary
services, all in full compliance with all applicable Legal
Requirements.




“Personal Property” means all
linens, parts, Inventory and other items of tangible personal property that are
owned by Landlord and used for the operation and/or maintenance of any Facility.
Tenant’s Excluded Property shall be excluded from the definition of “Personal
Property.”




“Property” shall have the
meaning ascribed to such term in Section
2.1.




“Purchase Option” shall have
the meaning ascribed to such term in Section 25.16(a).




“Purchaser” shall have the
meaning ascribed to such term in Section
25.16(a).




“Quarterly Compliance
Certificate” shall have the meaning ascribed to such term in Section 22.2(b).




7


“Records” means files and
records, including correspondence with Residents and suppliers, books of
account, employment records, resident files, records pertaining to supplies,
advertising records, files and literature and other written materials of Tenant
relating to any Facility but specifically excluding any written materials
included in the Tenant’s Excluded Property.




“Rent” shall mean the Base Rent
and Additional Charges.




“Resident Agreements” means
collectively all written and oral leases, occupancy agreements and other
agreements granting any resident of any Facility the right to occupy certain
portions of such Facility.




“Restoration Costs” shall mean
any amount equal to the actual costs which Tenant is required to incur in
connection with: (a) the provisions of Section 10.1 (which
relate to obligations of Tenant to make repairs and modifications necessary to
comply with all licensing, safety and other requirements as more specifically
set forth therein); and (b) the provisions of Sections 15.2 and
15.3 (which
relate to obligations to make repairs and modifications in the event of damage
or destruction of the Property).




“Second Extended Term” shall
mean a period of five (5) years commencing upon the expiration of the First
Extended Term.




“State” shall mean the
respective state in which a specific Facility is located.




“Taking” shall mean for any
Facility a taking or voluntary conveyance during the Term hereof of all or any
part of the Property, or any interest therein, right with respect thereto or use
thereof, as a result of, incidental to, or in settlement of any Condemnation or
other eminent domain proceedings affecting such Property, regardless of whether
such proceedings shall have actually been commenced.




“Targeted Expenditure Amount”
shall have the meaning ascribed to such term in Section
7.1.




“Tenant’s Excluded Property”
shall mean (i) the Tenant’s Personal Property, (ii) Tenant’s proprietary
property, including, but not limited to, printed materials (such as operating
manuals, policies, procedures and training manuals), computer software developed
by or for the use of Tenant and/or its Affiliates, and trade names, logos,
trademarks and service marks of Tenant and/or its Affiliates including, but not
limited to, to the name “Emeritus” and any related trademarks, logos and service
marks and (iii) Tenant’s Accounts.




“Tenant’s Personal Property”
shall mean any items of tangible personal property (including motor vehicles, if
any) which are owned or leased by Tenant and used in connection with the
operation of the Facilities and which were not acquired to replace the FFF&
E or the Personal Property.




“Term” shall mean the Initial
Term and the Extended Term.




“Transfer Date” means with
respect to any Facility the date this Lease expires or is terminated and
Landlord (or Landlord’s successors or assigns) becomes licensed to operate such
Facility.




8


“Transferred Tenant’s Personal
Property” shall have the meaning set forth in Section
8.1(b).




“Unavoidable Delays” shall mean
delays due to strikes, lockouts, inability to procure materials, power failures,
acts of God, governmental restrictions, enemy action, civil commotion,
unavoidable casualty and other causes beyond the control of the party
responsible for performing an obligation hereunder, provided that lack of funds
shall not be deemed a cause beyond the control of either party
hereto.




ARTICLE
2. LEASE OF LAND AND FACILITY




2.1           Letting.Landlord hereby
leases to Tenant, and Tenant hereby leases from Landlord, subject to the terms,
covenants, conditions and provisions hereinafter set forth, all of Landlord’s
right, title and interest in and to all the Land, the Facilities, the FFF&E,
all other Personal Property owned by Landlord and located at any of the
Facilities (collectively, the “Property”)..




In
addition to leasing the Property to Tenant (subject to and in accordance with
the terms, covenants, conditions and provisions set forth in this Lease),
Landlord hereby also grants Tenant a license to use, and an interest in, any and
all state issued Certificates of Need (a “CON”) with respect to
each Facility for the purpose of causing to be issued in the name of Tenant a
license under the laws of the State to operate each Facility as a licensed
senior living facility.




2.2           Warranty by Landlord.Landlord warrants that
except for the Permitted Encumbrances, the Property is free and unencumbered by
any lien or encumbrance arising by, through or under Landlord which lien or
encumbrance would have priority over the leasehold estate granted to Tenant by
this Lease. Tenant accepts the leasehold estate granted by this Lease and agrees
to respect the rights of persons occupying rooms in each Facility under the
Resident Agreements.




2.3           AS IS/WHERE IS. Tenant is
familiar with each and every aspect of each Facility, including the condition of
the Land and all improvements thereon, and hereby accepts same on an AS IS/WHERE
IS BASIS WITH ALL FAULTS and without reliance upon any representations or
warranties of Landlord of any kind or nature whatsoever except as set out in
Section 2.2
above, whether express or implied, and subject to all matters of every kind and
description including, without limitation, (a) the existing state of title,
including all covenants, conditions, restrictions, ground leases, easements,
Legal Requirements, mortgages, fixture filings, security agreements, financing
statements and other financing instruments and any and all other matters,
including matters known to Tenant, all matters of record and other matters, and
(b) matters which would be disclosed by an inspection of the Property or by an
accurate survey of each parcel of the Land and (c) all other matters which
should reasonably have been known to Tenant (but excluding any matters created
or caused by any acts of Landlord). Except for matters arising by, through or
under Landlord, Tenant waives any and all claims, demands and cause or causes of
action heretofore or hereafter arising against Landlord with respect to the
condition of the Property or the ability of Tenant to conduct any business from
any Facility. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING,


9


LANDLORD
MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO THE
PROPERTY AT ANY FACILITY OR ANY PART THEREOF, EITHER AS TO ITS DESIGN,
CONDITION, HABITABILITY, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR USE OR
PURPOSE (INCLUDING, WITHOUT LIMITATION, THE PERMITTED USES) OR AS TO THE QUALITY
THEREOF OR THE PRESENCE OR ABSENCE OF DEFECTS IN THE MATERIAL OR WORKMANSHIP
THEREIN, LATENT OR PATENT. TENANT ACKNOWLEDGES AND AGREES THAT, AS OF THE
COMMENCEMENT DATE FOR EACH FACILITY, THE PROPERTY AT SUCH FACILITY SHALL BE
CONCLUSIVELY DEEMED TO HAVE BEEN INSPECTED BY TENANT AND SHALL BE CONCLUSIVELY
DEEMED TO BE SATISFACTORY TO IT IN ALL RESPECTS.




2.4           Transfer of Business Operations of
the Facility.Landlord makes no warranty or representation to
Tenant, express or implied, and shall be subject to no liability with respect to
the past operation or management of any Facility, or any part thereof,
including, but not limited to, any matter relating to any of the
following:




(i)           the
availability to Tenant of any licenses or permits needed to operate such
Facility or any part thereof;




(ii)           the
enforceability of any Resident Agreement with any resident of such
Facility;




(iii)           the
status of any account of any resident of such Facility including, but not
limited to, the status of any security deposits, trust accounts, or prepayments
for services;




(iv)           the
availability of service from or the status of any existing account with other
persons, including utility providers, which provide services necessary or useful
to the operation of such Facility as an assisted living facility;




(v)           the
status of any health care regulatory issues relating to such
Facility;




(vi)           the
status of any reports, cost reports or reimbursement issues relating to such
Facility;




(vii)           the
status of any deficiency reports or certifications relating to the operation of
such Facility; or




(viii)           any
matter relating to any past or present employee or independent contractor who
worked at such Facility including but not limited to issues concerning wages,
employer contributions and withholdings, employment benefits, accrued benefits,
workmen’s compensation claims or unemployment insurance contributions or
premiums.




The
validity of this Lease shall not be affected by any claim, demand or cause of
action regarding the past or future operation of any Facility as an assisted
living facility.


10


Prior to
the Commencement Date, Tenant shall have entered into an Operations Transfer
Agreement (the “OTA”) by and among Tenant, Landlord, Prior Operator and Prior
Manager with respect to the transfer of the Facilities to Tenant and with
respect to liabilities arising with respect to the operations of any Facility
prior to the Commencement Date. Tenant agrees that its sole remedies with
respect to matters governed by provisions of the OTA shall be as provided in the
OTA and shall not entitle the Tenant to terminate this Lease, or to offset any
Rent or portion thereof which shall become due under this Lease.




ARTICLE
3. TERM OF LEASE




3.1           Initial Term of
Lease.The Facilities shall be leased by Landlord to Tenant
for the Initial Term.




3.2           Option to Renew
Term.So long as Tenant is not in default under the terms of
this Lease, both at the time of the exercise of this option to renew and at the
expiration of the Initial Term of Lease, Tenant shall have an option to extend
the Term of this Lease for the First Extended Term.  So long as Tenant
is not in default under the terms of this Lease, both at the time of the
exercise of this option to renew and at the expiration of the First Extended
Term of this Lease, Tenant shall have an option to extend the Term of this Lease
for the Second Extended Term. The Extended Term shall be on and subject to the
same terms, covenants and conditions as herein contained.  The option
for the First Extended Term shall be exercised only by written notice from
Tenant to Landlord and given no less than nine (9) months prior to the
expiration of the Initial Term.  The option for the Second Extended
Term shall be exercised only by written notice from Tenant to Landlord and given
no less than nine (9) months prior to the expiration of the First Extended
Term.




ARTICLE
4. RENT




During
the Term, Tenant shall pay the Rent, including the Base Rent and all Additional
Charges due hereunder, together with any applicable State sales tax thereon, to
NHI on behalf of Landlord, in lawful money of the United States of America, in
immediately available funds, without right of offset, by wire transfer in
accordance with the following instructions:




Pinnacle
      National Bank


Nashville,
      Tennessee


ABA
      #064008637


to
      credit National Heath Investors,
Inc.


Account
      #5003254





or to
such other account, address, place, or person or entity, or by such other method
of payment, as Landlord may designate from time to time in a Notice. The Base
Rent and Additional Charges shall be paid in accordance with this
Article.





4.1           Base Rent. The amounts shown
on Schedule II are referred to for each respective Facility as that Facility’s
“Initial Facility Base Rent.” Commencing on the Commencement Date for a given
Facility, Tenant shall pay the Initial Facility Base Rent for that Facility to
Landlord in twelve equal monthly installments on the 1st day of
each


11


month.
Base Rent for each Facility shall increase on each anniversary of such
Facility’s Commencement Date to an amount equal to one hundred three percent
(103%) of the Base Rent for that Facility for the prior year. Base Rent shall be
prorated for any period shorter than the number of days in a whole
month.




4.2           Base Rent for Extended Term.
Base Rent for the Extended Term shall continue to increase by three percent (3%)
per year on the commencement of the Extended Term and each year thereafter
during the Extended Term. Base Rent as so increased shall be paid in twelve
equal monthly installments to Landlord.




4.3           Additional Charges/Late
Payments. Except for property taxes for which funds may be escrowed and
paid out as described in Section 5.4 hereof,
Tenant shall pay and discharge prior to delinquency all Impositions directly to
the persons to whom such Impositions are owed. Except as otherwise provided in
Section 5.2, if Tenant fails or refuses to pay any Impositions, Tenant shall
promptly pay and discharge every fine, penalty, interest and cost which may
arise or accrue for the non-payment or late payment of such items. The
aforementioned amounts, liabilities, obligations, Impositions, fines, penalties,
interest and costs and any and all other amounts which Tenant may owe to
Landlord or any other party pursuant to the terms of this Lease are referred to
herein as “Additional
Charges.” The Additional Charges shall constitute rent hereunder. Tenant
hereby acknowledges that late payment by Tenant to Landlord of any Rent due
under this Lease will cause Landlord to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. Such
costs include, but are not limited to, processing and accounting charges, and
late charges which may be imposed on Landlord by the terms of any Encumbrance
covering the Property. Accordingly, if any Rent (but as to Additional Charges,
only those which are payable directly to Landlord) shall not be paid on or
before its due date, Tenant shall pay Landlord on demand, as an Additional
Charge, a late charge (to the extent permitted by law) equal to five percent
(5%) of the amount of such Overdue Rent and, in such event, the parties hereby
agree that such late charge will represent a fair and reasonable estimate of the
costs Landlord will incur by reason of the late payment by Tenant. Tenant
acknowledges and agrees that there is a five (5) calendar day grace period for
payment of Base Rent and that if payments are not made on or before the fifth
(5th) day
of the month, then the late charge shall be imposed.  Acceptance of
such late charge by Landlord shall in no event constitute a waiver of Tenant’s
default with respect to such overdue amount, nor prevent Landlord from
exercising any other rights and remedies to which it may be entitled hereunder.
If Tenant fails to pay any Rent by the date or within any applicable grace
period, the same shall become due, such Rent shall thereafter bear interest at
the Overdue Rate until paid. Any payment by Tenant of Additional Charges to
Landlord pursuant to any requirement of this Lease shall relieve Tenant of its
obligation to pay such Additional Charges to the entity to which such payment
would otherwise be paid.




4.4           Triple Net Lease; No Set-off;
Bankruptcy. It is the purpose and intent of Landlord and Tenant that the
Rent shall be absolutely net to Landlord so that Tenant shall pay or discharge,
as additional charges hereunder, any and all Impositions, charges, costs,
interest, reimbursements, liabilities, expenses and obligations of any nature
whatsoever in connection with the ownership, operation and maintenance of the
Property, excepting


12


only (a)
any payments for principal, interest, and premiums under any mortgage, security
agreement, deed of trust or other Encumbrance Landlord may place upon all or any
portion of the Property, and (b) any costs actually incurred by Landlord for its
own benefit with respect to the Property, such as costs for consultants or
advisers retained by Landlord, provided that such costs (i) are not otherwise
payable by Tenant hereunder, and (ii) do not, directly or indirectly, arise
or grow out of or in connection with Tenant’s non-performance and/or
non-compliance with any obligation, covenant, term or provision of this Lease
and (c) those items specifically excluded from the Impositions for which Tenant
is responsible.




(a)           No set-off of Rent. Landlord
shall receive all Rent (but as to Additional Charges, only those which are
payable directly to Landlord) due hereunder and Rent shall be due and payable by
Tenant in all events, without notice or demand and without any set-off (except
as otherwise specifically provided in this Lease), counterclaim, abatement,
suspension, deduction or defense whatsoever. In addition to the Rent reserved by
this Article, Tenant shall pay to the parties respectively entitled thereto all
Impositions, insurance premiums (as provided in Article 14),
operating charges, maintenance charges, construction costs and any other
charges, costs, interest (except as set forth in the foregoing paragraph),
reimbursements, liabilities (except as set forth in the foregoing paragraph),
expenses and obligations which arise with respect to the Property or which
otherwise may be contemplated under any provisions of this Lease during the Term
hereof. All of such charges, costs, interest, reimbursements, liabilities,
expenses and obligations shall constitute Additional Charges, and upon the
failure of Tenant to pay any such costs, charges, interest, reimbursements,
liabilities, expenses or obligations and if such failure is not cured within the
applicable cure period described in Section 17.1
hereof, Landlord shall have the rights and remedies provided in this Lease for
the failure of Tenant to pay Rent. It is the intention of the parties hereto
that, except as herein expressly provided, this Lease shall not be terminable
for any reason by Tenant. Any present or future law to the contrary shall not
alter this agreement of the parties.




(b)           Bankruptcy. Except for
exercising Tenant’s rights and prerogatives under Section 365(h) of the
Bankruptcy Code (as defined below) or other applicable law, Tenant covenants and
agrees that it will remain obligated under this Lease in accordance with its
terms, and that Tenant will not take any action to terminate, rescind, or avoid
this Lease, notwithstanding the bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding-up or other
proceeding affecting Landlord or any assignee of Landlord in any such proceeding
and notwithstanding any action with respect to this Lease which may be taken by
any trustee or receiver of Landlord or any such assignee in any such proceeding
or by any court in any such proceeding.




(1)      In
the event that Tenant shall file a petition, or an order for relief is entered
against the Tenant, under Chapter 7, 9, 11 or 13 of the Bankruptcy Code 11
U.S.C. § 101 et seq. (the “Bankruptcy Code”),
and Tenant or the  trustee of Tenant shall elect to assume this Lease
whether or not for the


13


purpose
of assigning the same, and subject to the applicable provisions of Section 365
of the Bankruptcy Code such assumption and assignment may only be made if all of
the terms and conditions of subsections (2) and (3) hereof are
satisfied.




(2)      No
election to assume this Lease shall be effective unless in writing and addressed
to Landlord and unless all of the following conditions have been
satisfied.




(A)           The
trustee or the debtor-in-possession has cured or has provided Landlord “adequate
assurance” (as defined hereunder) that:




(i)           within
ten (10) days from the date of such assumption, the trustee (or
debtor-in-possession) will cure all monetary defaults under this Lease;
and




(ii)           within
thirty (30) days from the date of such assumption, the trustee (or debtor-in
possession) will cure all non-monetary defaults under this Lease (to the extent
curable within said thirty (30) day period).




(B)           The
trustee or the debtor-in-possession has compensated, or has provided to Landlord
adequate assurance that within ten (10) days from the date of assumption
Landlord will be compensated, for any actual pecuniary loss incurred by Landlord
arising from the default of the Tenant, the trustee, or the debtor-in
possession, as recited in Landlord’s written statement of pecuniary loss sent to
the trustee or debtor-in-possession.




(C)           The
trustee or the debtor-in-possession has provided Landlord with “adequate
assurance” of the future performance of each of Tenant’s obligations under the
Lease with respect to each Facility; provided, however, that:




(i)           the
trustee or debtor-in-­possession shall also deposit with Landlord, as
security for the timely payment of Rent, an amount equal to three (3) months of
the then current Base Rent; and




(ii)           the
obligations imposed upon the trustee or debtor-in-possession shall continue with
respect to Tenant after the completion of bankruptcy Proceedings.




(D)           Landlord
has determined that the assumption of the Lease will not:




(i)           breach
any provision in any agreement by which Landlord is bound relating to the
Property or Landlord has


14


obtained
any consents or waivers required to ensure that no such breach occurs;
or




(ii)           disrupt,
in Landlord’s reasonablejudgment, the reputation
and profitability of the Property.




(3)      For
purposes of this subsection 4.4(b)(2), “adequate assurance”
shall mean:




(i)           Landlord
shall determine that the trustee or the debtor-in-possession has and will
continue to have sufficient unencumbered assets (other than by liens in favor of
Landlord) after the payment of all secured obligations and administrative
expenses to assure Landlord that the trustee or debtor-in possession will have
sufficient funds to fulfill the obligations of Tenant under this Lease;
and




(ii)           an
order shall have been entered segregating sufficient cash payable to Landlord
and/or there shall have been granted a valid and perfected first lien and
security interest in property of the Tenant, trustee or debtor-in-possession,
acceptable as to value and kind to Landlord, to secure to Landlord the
obligation of the Trustee or debtor-in-possession to cure the monetary and/or
non-monetary defaults under this Lease within the time periods set forth
above.




(3)      If
the trustee or debtor-in-possession has assumed the Lease pursuant to the terms
and provisions of subsections (1) and (2) herein, for the purpose of assigning
(or election to assign) the Tenant’s interest under this Lease or the estate
created thereby, to any other person, such interest or estate may be so assigned
only if Landlord shall acknowledge in writing that the intended assignee has
provided “adequate
assurance” (which for purposes of this Section 4.4(b)(3) shall have the
meaning set forth in this Section 4.4(b)(3)) of future performance of all of the
terms, covenants and conditions of this Lease to be performed by Tenant. For
purposes of this subsection 4.4(b)(3), adequate assurance of future performance
shall mean that Landlord shall have ascertained that each of the following
conditions has been satisfied:




(A)           The
assignee has submitted a current financial statement audited by independent
certified public accountants of recognized standing in the state of Washington
or any State selected by Tenant and reasonably acceptable to Landlord which
shows a net worth and working capital in amounts determined to be sufficient by
Landlord to assure the future performance by such assignee of the Tenant’s
obligations under this Lease;




15


(B)           Landlord
has obtained all consents or waivers from any third parties required under any
lease, mortgage, financing arrangement or other agreement by which Landlord is
bound to enable Landlord to permit such assignment;




(C)           The
assignee has deposited six months of Base Rent as an adequate security deposit
with Landlord; and




(D)           The
assignee has demonstrated to the reasonable satisfaction of Landlord that its
intended use of the Property is consistent with the terms of this Lease and will
not diminish the reputation of the Facility.




(4)      When,
pursuant to the Bankruptcy Code, the trustee or debtor-in-possession shall be
obligated to pay reasonable use and occupancy charges for the use of the
Property or any portion thereof, such charges shall not be less than the then
current Base Rent and any Additional Charges which may become due and other
monetary obligations of Tenant.




(5)      Neither
Tenant’s interest in the Lease, nor any lesser interest of Tenant herein, nor
any estate of Tenant hereby created, shall pass to any trustee, receiver,
assignee for the benefit of creditors, or any other person or entity, or
otherwise by operation of law under the laws of any state having jurisdiction of
the person or property of the Tenant (“state law”) unless Landlord shall consent
to such transfer in writing. No acceptance by Landlord of Rent or any other
payments from any such trustee, receiver, assignee, person or other entity shall
be deemed to have waived, nor shall it waive the need to obtain Landlord’s
consent or Landlord’s right to terminate this Lease for any transfer of Tenant’s
interest under this Lease without such consent.




(6)      Any
person or entity to which this Lease is assigned pursuant to the provisions of
the Bankruptcy Code shall be deemed without further act or deed to have assumed
all of the obligations arising under this Lease relating to the Facility on or
after the date of such assignment. Any such assignee shall, upon demand, execute
and deliver to Landlord an instrument confirming such assumption.




ARTICLE
5 – IMPOSITIONS




5.1           Payment of Impositions.
Subject to Tenant’s rights of contest pursuant to the provisions of Article 13, Tenant
shall pay, or cause to be paid, all Impositions due or becoming due from and
after the Commencement Date as and when such Impositions become due and payable
and directly to the parties to whom such Impositions are payable prior to the
date on which any fine, penalty, interest or cost may be added for non-payment;
provided, however, Tenant shall not be in breach of its obligations under this
Section 5.1 in the event of a breach by Landlord of its obligations under
Section 5.2. Upon request by Landlord, Tenant shall furnish to Landlord prior to
the date on which




16


any such
fine, penalty, interest or cost may be added for non-payment, copies of receipts
or other reasonably satisfactory evidence of such payments. Such payments shall
be made directly to the authorities levying or to the other persons entitled to
such Impositions, if possible. Tenant’s obligation to pay Impositions shall be
deemed absolutely fixed upon the date such Impositions become due to the
authority or person entitled thereto. If any such Imposition may, at the option
of the payor, lawfully be paid in installments (whether or not interest shall
accrue on the unpaid balance of such Imposition), Tenant may pay the same (and
shall pay any accrued interest on the unpaid balance of such Imposition) in
installments, and in such event shall pay such installments (subject to Tenant’s
right of contest pursuant to the provisions of Article 13) as the
same become due and before any fine, penalty, premium, further interest or cost
is added thereto. Impositions for which escrowed funds are held by Landlord or
its lender under Section 5.4 hereof shall be paid as provided in Section 5.4 and
the timely payment by Tenant of any amount to be paid to Landlord under Section
5.4 shall be deemed to satisfy the Tenant’s obligation to pay the Imposition for
which funds are escrowed.  Landlord shall, at its expense and to the
extent required or permitted by applicable laws and regulations, prepare and
file all returns with respect to Landlord’s net income, gross receipts, sales,
use, single business, transaction privilege, rent, ad valorem and franchise
taxes, and with respect to taxes on Landlord’s capital stock. Tenant shall, at
its expense, and to the extent required or permitted by applicable laws and
regulations, prepare and file all other tax returns and reports with respect to
any Imposition as may be required by governmental agencies, authorities or other
persons entitled to the receipt of the Impositions. If any refund shall be due
from any taxing authority or other persons entitled to the receipt of the
Impositions with respect to any Imposition paid by Tenant, the same shall be
paid over to and retained by Tenant unless an Event of Default shall have
occurred hereunder and be continuing, in which case such refund shall be paid
over to and retained by Landlord. Any such funds retained by Landlord due to an
Event of Default shall be applied as provided in Article 17. Landlord
and Tenant shall, each upon a request by the other, provide such information as
is maintained by the party to whom the request is made with respect to the
Property as may be reasonably necessary to prepare any required returns or
reports. If any governmental agency or authority classifies any property covered
by this Lease as personal property, Tenant shall file all personal property tax
returns in such jurisdictions where it may legally so file. Landlord, to the
extent it possesses the same, and Tenant, to the extent it possesses the same,
will provide to the other party, promptly upon request, cost and depreciation
records reasonably necessary for filing returns for any property so classified
as personal property. If Landlord is legally required to file any personal
property tax returns, Landlord shall provide Tenant with copies of any
assessment notices with respect thereto in sufficient time for Tenant to file a
protest with respect thereto if it so elects pursuant to Article
13.




5.2           Notice of Impositions.
Landlord shall give prompt Notice to Tenant of all Impositions payable by Tenant
hereunder of which Landlord at any time has knowledge. Notwithstanding the
foregoing, however, Landlord’s failure to give any such Notice shall in no way
diminish Tenant’s obligations hereunder to pay such Impositions, but Landlord
shall be responsible for any fine, penalty or interest resulting from its
failure to give such Notice and any default by Tenant hereunder shall be
obviated for a reasonable time after Tenant receives Notice of any Imposition
which it is obligated to pay.


17


5.3           Adjustment of Impositions.
Impositions imposed with respect to the tax period during which the Term
commences or expires or terminates shall be adjusted and prorated between
Landlord and Tenant, whether or not such Imposition is imposed before or after
such commencement date or expiration or termination, so that Tenant is only
obligated to pay that portion of such Imposition(s) pertaining to the tax period
within the Term. The obligation of Tenant to pay its prorated share of
Impositions shall survive expiration or earlier termination of this Lease.
Likewise any refund of any Imposition paid with respect to any tax period within
the Term which refund is received by Landlord during or after the expiration or
termination of this Lease shall be prorated and shared with Tenant.




5.4           Escrow for Property Taxes.
Upon the written demand of Landlord with respect to all or any of the Facilities
if required by a lender holding a first mortgage lien on any Facility or from
and after a breach by Tenant of its obligations with respect to the payment of
property taxes, which breach is not cured within ten (10) days after receipt of
written notice from Landlord, Tenant shall make monthly payments to Landlord or
Landlord’s lender, if so directed by Landlord, in escrow on the same day Base
Rent is due in the amount of one twelfth of the annual ad valorem
tax.  The monthly tax escrow payment shall be adjusted from time to
time to reflect changes in the Property, changes in the tax rate or changes in
the assessed value of the Land and Facility.  Landlord or Landlord’s
lender, as applicable, shall hold the escrowed tax payments in a separate
account with interest.  Interest earned on the tax escrow shall be
reported as income to Tenant and shall be paid to Tenant annually upon request,
provided that there is no monetary Event of Default then outstanding hereunder.
To the extent that sufficient funds exists in the tax escrow account, Landlord
shall release funds from the tax escrow account to pay to the tax authorities
the installments of tax due on the Property or any part thereof.  If
there are not sufficient funds in the tax escrow account to meet an installment
when due, upon receipt of a written request from Landlord setting forth in
reasonable detail the shortfall amount, the Tenant shall pay to Landlord the
shortfall in order for the full payment then due to be paid.  In the
event that Tenant pays any tax payment to the taxing authority for which funds
are held in the tax escrow account, Landlord shall reimburse Tenant for such
payment upon Landlord’s receipt of proof of full payment to the tax
authority.




5.5           Utility Charges. Tenant shall
pay or cause to be paid all charges (including any connection charges and
deposits) for all utilities, including, but not limited to, electricity, power,
gas, oil and water, used at or for the Property during the Term.




5.6           Insurance Premiums. Upon the
written demand of Landlord with respect to all or any of the Facilities from and
after a breach by Tenant of its obligations with respect to the maintenance of
the insurance required by the terms of this Lease, which breach is not cured
within ten (10) days after receipt of written notice from Landlord, Tenant shall
pay or cause to be paid all premiums for insurance coverage required to be
maintained pursuant to Article 14. Upon the
written request of Landlord, if required by a lender holding a first mortgage on
any Facility, Tenant shall make monthly payments in escrow to Landlord or, if
directed by Landlord, to Landlord’s lender, on the same day Base Rent is due in
an amount equal to 1/12 of the annual premiums as to all or any of the
Facilities.


18


ARTICLE
      6 – TERMINATION OR ABATEMENT OF
LEASE




6.1           No Termination or
Abatement.  Tenant, to the fullest extent permitted by law and
unless specifically provided herein, shall remain bound by this Lease in
accordance with its terms in all events. Tenant shall not take any action
without the prior written consent of Landlord to modify, surrender or terminate
this Lease. The obligations of Landlord and Tenant hereunder shall be separate
and independent covenants and agreements, and Rent and all other sums shall
continue to be payable by Tenant hereunder in any event unless (i) the
obligation of Tenant to pay the same abates or terminates pursuant to the
express provisions of this Lease (other than by reason of an Event of Default by
Tenant) or (ii) Rent and such other sums abate as provided in Section 6.2. Without
limiting the generality of the immediately preceding sentence Tenant shall not
seek or be entitled to any abatement (other than as provided in Section 6.2 or as
otherwise specifically provided by this Lease), deduction, deferment or
reduction of Rent, or set-off against Rent, nor shall the respective obligations
of Landlord and Tenant be otherwise affected by reason of (a) any damage to, or
destruction of, all or any portion of the Property from whatever cause or any
Taking of all or any portion of the Property; (b) the lawful or unlawful
prohibition of, or restriction upon, Tenant’s use of all or any portion of the
Property or the interference with such use or with Tenant’s quiet enjoyment of
the Property by any person or entity; (c) the eviction of Tenant from the
Property or any portion thereof by any person whose rights or interest arise
other than by, through or under Landlord, whether by paramount title or
otherwise; (d) any claim which Tenant has or may have against Landlord by reason
of any default or breach of any warranty by Landlord under this Lease or any
other agreement between Landlord and Tenant or to which Landlord and Tenant are
parties; (e) any bankruptcy, insolvency, reorganization, composition,
readjustment, liquidation, dissolution, winding up or other proceeding affecting
Landlord or any assignee or transferee of Landlord; or (f) any other cause,
whether similar or dissimilar to any of the foregoing. Tenant hereby
specifically waives all rights, arising from any occurrence whatsoever, which
(i) may now or hereafter be conferred upon it by law or otherwise to modify,
surrender or terminate this Lease or quit or surrender all or any portion of the
Property or (ii) entitle Tenant to any abatement, reduction, suspension or
deferment of Rent or other sums payable by Tenant hereunder except to the extent
expressly provided in Section 6.2 or as
otherwise specifically provided by this Lease.




6.2           Limited Abatement. In the
event of any damage or destruction or Condemnation of any Facility as
contemplated in Article 15 and Article 16,
respectively, the Base Rent for that Facility shall be abated solely to the
extent that Landlord actually receives proceeds of insurance under the insurance
policy described in Section 14.1(d) or an
Award and the amount so abated shall be lesser of the amount of such proceeds or
Award and the Base Rent for that Facility otherwise due under this Lease. In no
other event shall the Rent hereunder abate in any manner whatsoever prior to the
termination of this Lease in accordance with its terms, except as otherwise
specifically provided by this Lease.




ARTICLE
7 – FFF&E AND OTHER CAPITAL IMPROVEMENTS




7.1           Minimum Capital
Expenditures.


19


(a)           Tenant
agrees that during each calendar year commencing as of January 1, 2010 and
continuing throughout the remainder of the Term, it will incur expenditures at
the Facilities, taken as a whole, which are accounted for as capitalized
expenditures under generally accepted accounting principles (“Capital
Expenditures”) in an amount equal to the sum of (i) the amount shown
below (the “Targeted
Expenditure Amount”) less (ii) the Aggregate Overage Amount (as
hereinafter defined):




First five years of Initial
Term:                                                                $350.00/unit/year




Second five years of Initial
Term:                                                                           $450.00/unit/year




Last five years of Initial Term
and


Each year of each Extended
Term:                                                                           $550.00/unit/year





For
purposes hereof, the “Aggregate Overage
Amount” means any amounts expended by Tenant on the Capital Expenditures
at the Facilities in the two (2) immediately preceding Lease Years in excess of
the Targeted Expenditure Amount for the corresponding Lease Years. With respect
to the final Lease Year or the Lease Year during which this Lease expires or is
terminated (other than as a result of the purchase of the Facilities by Tenant
pursuant to the Purchase Option in Section 15.16 hereof), Tenant shall pay to
Landlord any shortage in required Capital Expenditures (taking into account any
then unapplied Overage Amount).




(b)           Tenant
also agrees that during each rolling twenty four (24) month period commencing as
of January 1, 2010 and continuing throughout the remainder of the Term, it will
incur at each Facility expenditures which are accounted for as capitalized
expenditures under generally accepted accounting principles (“Capital
Expenditures”) in an amount equal to (i) the Targeted Expenditure Amount less
(ii) the Facility Overage Amount, if any (as defined below).




For
purposes of this Section 7.1(b), the “Facility Overage Amount” means any amounts
expended by Tenant on Capital Expenditures at the Facility in question in the
two (2) immediately preceding Lease Years in excess of the Targeted Expenditure
Amount for that Facility for the corresponding Lease Years.




This
Article 7 shall survive the termination of this Lease.




7.2           Capital Improvement Reserve.
If the report furnished to Landlord under Section 22.2(d) shows
that Tenant failed during the applicable period to make the required Capital
Expenditures with respect to the Facilities taken as a whole (after taking into
account any Aggregate Overage Amount) or any one or more Facilities (after
taking into account any Facility Overage Amount with respect to the (those) same
Facility(ies,), Tenant shall at such time fund an account therefor with Landlord
under the control of Landlord (the “Cap Ex Account”) in
the amount of such shortfall. Provided that no uncured monetary Event of Default
exists, Tenant shall have the right during the Term to request withdrawals from
the Cap Ex Account from time to time solely for the purpose of




20


seeking
reimbursement for the cost of Tenant’s replacing, restoring and repairing the
Property at that Facility or, if the cost of such item exceeds $25,000, making
payment directly to the contractor or material supplier. The mere use of the
funds in the Cap Ex Account shall not be evidence of Tenant’s compliance with
its obligations under Section
7.1.  To the extent not otherwise specifically provided for in
this Section
7.2, the Cap Ex Account shall be governed by the Capital Improvement
Reserve Agreement.




7.3           FFF&E Withdrawals. Upon
expiration or termination of the Lease or termination of Tenant’s right to
possession of the Facilities (unless Tenant closes its purchase of the
Facilities pursuant to the Purchase Option in Section 25.16 hereof), the funds
in the Cap Ex Account shall automatically and immediately become the property of
Landlord, and Tenant shall not thereafter be permitted to make any further
withdrawals from the Cap Ex Account.




7.4           Alterations.  Tenant
may not make any material structural alteration to any of the Facilities,
including any Capital Additions, without the prior written consent of Landlord,
which consent shall not be unreasonably withheld if the cost thereof is intended
to be included in the Capital Expenditures required under Section 7.1. For the
avoidance of doubt, routine landscaping, painting, floor and wallcovering
replacements shall not be deemed to be alterations within the meaning of
this.




ARTICLE
8 – OWNERSHIP AND USE OF PROPERTY




8.1           Ownership of the Property. The
Property is, and throughout the Term shall continue to be, the property of
Landlord. Tenant has only the right to the exclusive possession and use of the
Property, upon the terms and subject to the conditions set forth in this Lease.
Unless Tenant purchases the Land and each Facility pursuant to the Purchase
Option set forth in Section 25.16 of this Lease, at the expiration or
termination of this Lease, the following provisions shall apply:




(a)           Tenant
shall, for no additional consideration, sell, transfer and convey to Landlord or
Landlord’s designee, the Inventory owned by Tenant as of the termination date
and located at each respective Facility.




(b)           Tenant
shall, for no additional consideration, sell, transfer and convey to Landlord or
Landlord’s designee, any Tenant’s Personal Property located on or about each
respective Facility. Notwithstanding the foregoing, in the event that any items
of Tenant’s Personal Property have a net book value on Tenant’s records in
excess of Five Thousand Dollars ($5,000.00), individually, or Fifteen Thousand
Dollars ($15,000.00) in the aggregate with respect to the Tenant’s Personal
Property at any Facility, regardless of the net book value of each individual
item of such Tenant’s Personal Property, Landlord shall be required to
compensate Tenant for  any of such Tenant’s Personal Property which
Landlord elects to acquire at the then net book value thereof.Any of the Tenant’s Personal
Property conveyed to Landlord or Landlord’s designee pursuant to this Section
8.1(b) shall be referred to as the “Transferred Tenant’s Personal
Property.”




21


(c)           Tenant
shall transfer and convey the Records to Landlord or Landlord’s
designee.




(d)           Tenant
shall execute a Bill of Sale in favor of Landlord in the form of Exhibit C with
respect to the assets being conveyed to Landlord or Landlord’s designee pursuant
to this Section 8.1.




(e)           Except
as otherwise specifically set forth in this Section 8.1, Landlord shall not
succeed to the ownership of Tenant’s Excluded Property at the end of the term of
the Lease.




8.2           Use of the Facilities and
Land.




(a)           Tenant
will be responsible for acquiring at Tenant’s cost and expense any and all
Licenses necessary for its use and operation of the Property in full force and
effect during the Term, and will keep and maintain such Licenses as are, from
time to time, required for the uses conducted by Tenant on the Property, in
accordance with all Legal Requirements.




(b)           Throughout
the entire Term and subject to Tenant’s due contest right as set forth in Article 13, Tenant
shall use each Facility solely in accordance with its Permitted Use(s) in full
compliance with all applicable Legal Requirements and all other terms,
covenants, provisions and conditions of this Lease. Tenant shall not permit or
consent to the cancellation, lapse or amendment of any license or permit
required to operate any Facility for its Permitted Use other than amendments
arising from changes in applicable law affecting all similarly situated
facilities or amendments arising from new or additional uses of the Property as
long as such uses are consistent with the Permitted Use and, if required by the
terms of this Lease, have otherwise been approved by Landlord.  Tenant
may not use any Facility to provide services beyond the Permitted Use without
the prior written consent of Landlord.




(c)           Tenant
shall not commit or suffer to be committed any waste nor shall Tenant cause or
permit any nuisance on the Property.




(d)           Tenant
shall neither suffer nor permit all or any portion of the Property, including
any Capital Addition, whether or not financed or paid for by Landlord, to be
used in such a manner as (i) may impair the Landlord’s title to the Property or
to any portion thereof or (ii) may make possible a claim or claims of adverse
use, adverse possession or implied dedication of all or any portion of the
Property to the public.




8.3           Continuous
Operations.  Tenant shall maintain continuous operations at
each Facility in accordance with the provisions of this Lease and shall not
cease such operations other than a temporary cessation during any period of
repair or reconstruction required as a result of damage to or destruction or
Condemnation of any of the Property.  Tenant shall not voluntarily
reduce the number of units, beds or residents for which any Facility has
licenses to operate and, Tenant shall not close any units or beds in
any


22


Facility,
without the prior written consent of Landlord.  Notwithstanding the
foregoing, Tenant shall have the right, without the consent of Landlord, to
combine units at any of the Facilities at the request of a resident or to
provide for their use by multiple residents as long as doing so does not reduce
the licensed capacity of the affected Facility.




8.4           Hazardous
Substances.




(a)           Tenant
will keep all Facilities free and clear of all Hazardous Substances other than
those Hazardous Substances which are required for the operation of any Facility
(which Hazardous Substances shall be handled, used and disposed of in strict
compliance with the Legal Requirements and Insurance Requirements) and Tenant
shall pay all costs required to properly use, handle and dispose of all
Hazardous Substances introduced by Tenant or its Agents (as defined below) or
otherwise first arising on the Property after the Commencement Date as and when
due and Tenant will keep the Property free and clear of any lien relating to
Hazardous Substances first arising on the Property after the Commencement Date
which may be imposed pursuant to the Legal Requirements and imposed as a result
of the presence of such Hazardous Substance at any Facility. For the purposes of
this Article, the term “Property” shall also
include, in addition to the items specified in Section 2.1, all air,
soil, groundwater, surface water or soils vapor at, on, about, under or within
any portion of the Land. All operations or activities upon, or any use or
occupancy of the Property, or any portion thereof, by Tenant, or any agent,
contractor or employee, or subtenant of Tenant (any of the foregoing being
defined herein as Tenant’s “Agent”) shall at all times during the Term be in all
respects in strict compliance with any and all Legal Requirements relating to
Hazardous Substances, including, but not limited to, the discharge and removal
of Hazardous Substances. Tenant will not, nor will Tenant permit, any agent,
contractor or employee of subtenant of Tenant, to allow the manufacture,
storage, voluntary transmission or presence of any Hazardous Substances over or
upon the Property or any portion thereof (except in strict compliance with the
Legal Requirements). Landlord shall have the right at any time to conduct, at
its cost, an environmental audit of the Property or any portion thereof and
Tenant shall cooperate in the conduct of such environmental audit. Furthermore,
neither Tenant will, nor will Tenant permit any Agent to, install or permit to
be installed (except in strict compliance with applicable Legal Requirements),
in or on the Property or any portion thereof friable asbestos or any substance
containing asbestos or similarly deemed hazardous by governmental authorities or
the Legal Requirements respecting such materials. Tenant shall promptly notify
Landlord in writing of any order, receipt of any notice of violation or
noncompliance with any applicable law, rule, regulation, standard or order, any
threatened or pending action by any regulatory agency or other governmental
authority, or any claims made by any third party, in each
case  relating to Hazardous Substances on, emanations of Hazardous
Substances on or from, releases of Hazardous Substances on or from, or threats
of releases on or from any of the Property; and shall promptly furnish the
Landlord with copies of any correspondence, notices, or legal pleadings in
connection therewith. Landlord shall have the right, but shall not be obligated,
to notify any governmental


23


authority
of any state of facts which may come to its attention with respect to Hazardous
Substances on, released from or emanating from any part of the Property which
Landlord reasonably believes may cause harm to any persons or
property.




(b)           Without
limiting Section
20.1, Tenant agrees to indemnify, protect, defend (with counsel
reasonably approved by Landlord) and hold Landlord, and the directors, officers,
shareholders, employees and agents of Landlord, harmless from any claims
(including, without limitation, third party claims for personal injury or real
or personal property damage, or natural resources damage), actions,
administrative proceedings (including informal proceedings), judgments, damages,
punitive damages, penalties, fines, costs, liabilities (including sums paid in
settlements of claims), interest or losses, including reasonable attorneys’ and
paralegals, fees and expenses (including any such fees and expenses incurred in
enforcing the covenants and obligations of Tenant under this Lease or collecting
any sums due hereunder), consultant fees, and expert fees, together with all
other costs and expenses of any kind or nature that arise directly or indirectly
from or in connection with the presence, suspected presence, release or
threatened release of any Hazardous Substance in or into or at, on, about, under
or within the Property, or any portion thereof, as a result of the acts or
omissions of Tenant or its Agents during the Term of this Lease (collectively,
the “Costs”).
The indemnification provided in this subsection (b) shall specifically apply to
and include claims or actions brought by or on behalf of employees of Tenant, or
contractors, or employees of contractors of Tenant and Tenant hereby expressly
waives any immunity to which Tenant may otherwise be entitled under any
industrial or worker’s compensation laws. In the event Landlord shall suffer or
incur any such Costs, Tenant shall pay to Landlord the total of all such Costs
suffered or incurred by Landlord upon demand therefor by Landlord. Without
limiting the generality of the foregoing, the indemnification provided by this
subsection (b) shall specifically cover Costs, including capital, operating and
maintenance costs, incurred in connection with any investigation or monitoring
of site conditions, any clean-up, containment, remedial, removal or restoration
work required or performed by any Federal, state or local governmental agency or
political subdivision or performed by any non-governmental entity or person
because of the presence, suspected presence, release or suspected release of any
Hazardous Substance in or into the air, soil, groundwater, surface water or soil
vapor at, on, about, under or within the Property (or any portion thereof), and
any claims of third parties for loss or damage due to such Hazardous Substance.
In addition, the indemnification provided by this subsection (b) shall include,
without limitation, all loss or damage sustained by Landlord or any third party
due to any Hazardous Substance that migrates, flows, percolates, diffuses or in
any way moves onto, into or under the air, soil, groundwater, surface water or
soil vapor at, on, about, under or within the Property (or any portion thereof);
provided, however, that the indemnification obligation above shall apply solely
to the extent that such loss or damage is attributable to the acts or omissions
of Tenant or its Agents during the Term of this Lease and shall not apply to the
extent such loss or damage is attributable to the gross negligence or willful
misconduct of Landlord.


24


(c)           In
the event any investigation or monitoring of site conditions or any clean-up,
containment, restoration, removal or other remedial work is required under any
applicable Legal Requirement, any judicial order, or any order of any
governmental entity, or in order to comply with any agreements affecting all or
any portion of the Property because of, or in connection with, any occurrence or
event described in subsection (b) above (collectively, the “Remedial Work”),
Tenant shall perform or cause to be performed the Remedial Work in compliance
with such law, regulation, order or agreement and subject to the final review
and approval of Landlord for compliance with Legal Requirements; provided, that
Tenant may withhold such compliance pursuant to a good faith dispute regarding
the application, interpretation or validity of the law, regulation, order, or
agreement, subject to the requirements of subsection (d) below; provided,
however, that Landlord shall reasonably cooperate with Tenant to the extent
necessary to deliver such authorization as may be required in order for Tenant
to perform its obligations under this subsection (c). All Remedial Work shall be
performed by one or more contractors, selected by Tenant and approved in advance
in writing by Landlord in its reasonable discretion, and under the supervision
of a consulting engineer, selected by Tenant and approved in advance in writing
by Landlord in its reasonable discretion. All reasonable costs and expenses of
such Remedial Work shall be paid by Tenant, including, without limitation, the
reasonable charges of such contractor(s) and/or the consulting engineer and
reasonable costs incurred by Landlord “in house”, (such as photocopying charges
and travel costs for Landlord’s employees) in connection with monitoring or
review of such Remedial Work. In the event Tenant shall fail timely to commence,
or cause to be commenced, or fail diligently to prosecute, or cause to be
prosecuted, to completion, or fail to complete, or cause to be completed, to
Landlord’s reasonable satisfaction, such Remedial Work in compliance with Legal
Requirements, Landlord may, but shall not be required, to cause such Remedial
Work to be performed, and all costs and expenses thereof, or incurred in
connection therewith, shall be Costs within the meaning of subsection (b) above.
All such Costs shall be due and payable upon demand therefor by Landlord. If
Tenant fails to perform its obligations hereunder, Landlord shall be subrogated
to any rights Tenant may have under any indemnifications from any present,
future or former owners, tenants or other occupants or users of the Property (or
any portion thereof), relating to the matters covered by this Section
8.4.




(d)           Notwithstanding
any provision of this Section 8.4 to the
contrary, but without limiting the provisions of Article 13 or
Tenant’s obligations of protection, defense and indemnification under Section 8.4(b),
Tenant will be permitted to contest or cause to be contested, subject to
compliance with the requirements of this subsection (d) and Article 13, by
appropriate action any Remedial Work requirement, and Landlord shall not perform
such requirement on its behalf, so long as Tenant has given Landlord Notice that
Tenant is contesting or shall contest or cause to be contested the same, and
Tenant actually contests or causes to be contested the application,
interpretation or validity of the governmental law, regulation, order or
agreement pertaining to the Remedial Work by appropriate


25


proceedings
conducted in good faith with due diligence; provided, such contest shall not
subject Landlord to civil liability and does not jeopardize Landlord’s interest
in the Property or affect in any way the payment of any sums to be paid under
this Lease. Tenant shall give such security or assurances as may be reasonably
required by Landlord to insure compliance with the legal requirements pertaining
to the Remedial Work (and payment of all costs, expenses, interest and penalties
in connection therewith) and to prevent any sale, forfeiture or loss by reason
of such nonpayment or noncompliance.




(e)           The
obligations of Tenant under this Section 8.4 shall
survive expiration or earlier termination of this Lease. Any costs and other
payments required to be paid by Tenant to Landlord under this Section 8.4 which are
not paid within ten (10) days after a written demand therefor, shall thereupon
be considered delinquent. Tenant shall pay to Landlord immediately upon demand
therefor interest on such overdue amounts, from the date when due until paid, at
the Overdue Rate.




ARTICLE
9 – LEGAL REQUIREMENTS AND INSURANCE REQUIREMENTS




9.1           Compliance with Legal Requirements,
Insurance Requirements and Instruments. Subject to the rights of Tenant
as provided in Article
13 relating to permitted contests, Tenant, at its sole cost and expense,
shall promptly (a) comply with all applicable Legal Requirements and Insurance
Requirements with respect to the use, operation, maintenance, repair and
restoration of each Facility, whether or not compliance therewith shall require
the construction of any additional parking spaces or the structural change in
such Facility or interfere with the use and enjoyment of such Facility, and (b)
procure, maintain and comply with all appropriate Licenses necessary for any use
of each Facility for the Permitted Use(s), and any other use conducted on such
Facility by Tenant and permitted by Landlord hereunder, and for the proper
erection, installation, operation and maintenance of such Facility or any part
thereof, including, without limitation, any Capital Additions. Tenant shall
notify Landlord immediately upon obtaining knowledge of facts which are
reasonably likely to result in an action by any federal, state or local agency
(or the staff thereof) to revoke, withdraw or suspend any License, or an action
of any other type, which would have a materially adverse effect on Tenant’s
operations at any Facility.




9.2           Covenants
Regarding Legal Requirements. The parties understand and agree that certain
deficiencies or situations of non-compliance with various Legal Requirements are
likely to occur from time to time in the normal course of business. Such
occurrences will not constitute a breach or default by Tenant under this Lease,
provided that (a) they are not materially beyond the general experience of
comparable assisted living operations in the State in terms of scope,
seriousness or frequency, (b) no material, sustained (i.e., more than three
months) decrease in Gross Revenues from any Facility results from any such
occurrence(s), and (c) Tenant diligently takes all reasonable actions in a
timely manner to cure such deficiencies or situations of non-compliance and
effectuates such cure to the extent same can be practicably accomplished.




26


9.3           Landlord’s Cooperation.
Landlord shall cooperate, as reasonably necessary or required, with Tenant in
applying for and maintaining all appropriate Licenses necessary to operate each
Facility for the Permitted Use(s) in accordance with the provisions of this
Lease and to otherwise comply with applicable Legal Requirements, provided that
such cooperation is in conformance with all Legal Requirements. Tenant shall
promptly advance to Landlord such amounts as are reasonably necessary to pay for
all costs and expenses incident to such cooperation. Tenant agrees to indemnify,
defend, protect, save and hold Landlord harmless from and against any and all
costs, expenses, losses, demands, claims, obligations and liabilities against or
incurred by Landlord in connection with such cooperation, except in any cases of
fraud, misrepresentation or intentional non-compliance with Legal Requirements
on the part of Landlord. Such indemnity shall survive the expiration or
termination of this Lease.




ARTICLE
10 – CONDITION OF THE PROPERTY




10.1           Maintenance and
Repair.




(a)           Tenant,
at its sole cost and expense, shall keep all portions of the Property and the
FFF&E and all private roadways, parking surfaces, sidewalks and curbs
appurtenant thereto in good order, condition and repair.  Except as
may otherwise be expressly provided to the contrary in Article 14, 15, or 16, Tenant shall with
reasonable promptness, at Tenant’s sole cost and expense, make all necessary and
appropriate repairs and replacements thereto of every kind and nature, whether
interior or exterior, structural or nonstructural, ordinary or extraordinary,
patent or latent, foreseen or unforeseen, and regardless of the cause
necessitating repair. Tenant’s duty to maintain the Property and the FFF&E
shall include such actions as are needed in the reasonable judgment of Tenant to
be consistent with standards and practices in the industry to prevent the
deterioration of the Property. Tenant shall also be obligated at its expense to
make all repairs, modifications and renovations necessary to comply with all
licensing, safety and health and building codes and regulations applicable to
any Facility so that such Facility can be legally operated for its Permitted
Use(s). Tenant shall be obligated to repair at Tenant’s sole cost and expense
any damage to any portion of the Land, the improvements thereon and any Facility
caused by cave ins, collapse of sub surface support, subsidence of the surface
of the land, the extraction of minerals from the Land (whether through the
surface of the Land or by mining).  All repairs by Tenant shall be
made in a good and workmanlike manner using materials of good quality. Tenant
shall not take or omit to take any action, the taking or omission of which would
materially impair the value or the usefulness of all or any portion of the
Property and the FFF&E for the Permitted Use(s).




(b)           Landlord
shall not under any circumstances be required to build or rebuild any Facility,
or to make any repairs, replacements, alterations, restorations or renewals of
any nature or description to the Property, whether interior or exterior,
structural or nonstructural, ordinary or extraordinary, patent or latent,
foreseen or unforeseen, or to make any expenditure whatsoever with respect
thereto, in connection with this Lease, nor shall Landlord under any
circumstances be


27


required
to maintain the Property or any portion thereof in any way or manner whatsoever.
Tenant hereby waives, to the fullest extent permitted by law, the right to make
repairs at the expense of Landlord pursuant to any law or equitable principle in
effect at the time of the execution of this Lease or hereafter enacted. Landlord
shall have the right to give, record and post, at any Facility and otherwise, as
appropriate, notices of non-responsibility under any construction or mechanic’s
lien laws now or hereafter existing, and any other notices of a similar nature
that Landlord may reasonably elect to give, record or post from time to time
during the Term.  Use of casualty insurance proceeds held by Landlord
shall be handled as provided in Article 15.




(c)           Nothing
contained in this Lease, and no action or inaction by Landlord, shall be deemed
or construed in any manner as (i) constituting the consent or request of
Landlord, expressed or implied, to any contractor, subcontractor, laborer,
materialman or vendor to or for the performance of any labor or services or the
furnishing of any materials or other property for the construction, alteration,
addition, repair or demolition of or to all or any portion of the Property or
the FFF&E or (ii) giving Tenant any right, power or permission to contract
for or permit the performance of any labor or services or the furnishing of any
materials or other property in such a manner as would permit the making of any
claim against Landlord or Landlord’s interest in any portion of the Property or
the FFF&E with respect thereto, or to make any agreement that may create, or
in any way may be the basis for the assertion of any right, title, interest,
lien, claim or other encumbrance upon the estate of Landlord in all or any
portion of the Property or the FFF&E.




(d)           Upon
Landlord’s written request at the expiration of the Term or earlier termination
of this Lease Tenant shall provide to Landlord a list or schedule by Facility
listing the FFF&E which exist at each Facility.




(e)           Unless
Tenant shall have closed its purchase of the Land and Facility pursuant to the
Purchase Option in Section 25.16 of this Lease, Tenant shall, upon the
expiration or earlier termination of this Lease, vacate and surrender each
Facility and all FFF&E to Landlord in the condition in which such Facility
was originally received from Landlord, except as repaired, rebuilt, restored,
altered or added to as permitted or required by the provisions of this Lease,
and except for casualty, condemnation or ordinary wear and tear (but subject to
the obligation of Tenant under this Section to maintain the Property in good
order, condition and repair during the entire Term of this Lease) and subject to
the provisions of this Lease with respect to casualties, insurance proceeds and
condemnation and containing such Inventory to operate the Facility in the
ordinary course of business for a period of no less than seven (7) days after
the expiration or earlier termination of this Lease.




(f)           The
maintenance and repair obligations of Tenant under this Section 10.1 shall
survive the expiration or earlier termination of this Lease as regards any
condition requiring repair which existed as of the date of such expiration
or


28


termination
notwithstanding that such condition is not discovered by Landlord until after
the date of such expiration or termination.




10.2           Encroachments. If any portion
of any Facility at any time during the Term shall impair the rights of others
under any easement or right-of-way burdening the Land, provided that such
restriction or easement does not exist prior to the Commencement Date and has
been created by Tenant without the consent of Landlord, then promptly upon the
request of Landlord, or at the behest of any person affected by violation or
impairment and in such case, in the event of an adverse final determination,
Tenant shall, at Tenant’s sole cost and expense, but in conjunction with
Landlord, 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 Landlord or Tenant, subject to
Landlord’s consent to all such settlements or waivers. In any event Tenant
shall, subject to Landlord’s consent, take all such actions as may be necessary
in order to be able to continue the operation of such Facility for the then
existing use substantially in the manner and to the extent the Facility was
operated prior to the assertion of such violation or impairment. Notwithstanding
the provisions of this Section 10.2 to the
contrary, Tenant shall not be responsible for any claims to the extent such
claims are covered by Landlord’s or Tenant’s title insurance policy, if any, and
Landlord agrees that any proceeds recovered under any such title insurance
policy, if any, shall be made available to remedy the claimed violation or
restriction.




ARTICLE
11 – SECURITY FOR PERFORMANCE OF OBLIGATIONS




11.1           Security Agreement. Tenant
shall execute in favor of Landlord a security agreement in the form attached as
Exhibit G
hereto, granting to Landlord a first priority security interest in all Tenant’s
Personal Property, Accounts, general intangibles, contract rights and healthcare
insurance receivables arising from the operations of each Facility and other
interests of Tenant which security interest shall secure the payment of all Rent
and the performance of all other obligations of the Tenant under this Lease.
Tenant shall cooperate in filing all financing statements needed to perfect such
security interest.




11.2           Compliance with Lease Coverage
Ratio.  The Tenant will operate the Facilities and its business
during the term of this Lease in order to meet the following minimum financial
standards.  From and after the quarter ending March 31, 2010, the
Facilities, taken as a whole, shall have a Lease Coverage Ratio of not less than
the ratio shown below:




Period
            
            Minimum
      Required Ratio1/1/2010
      thru 12/31/2010
            
            1.0:1.01/1/2011
      thru 12/31/2014
            
            1.15:1.01/1/2015
      and thereafter
            
            1.25:1.0





Compliance
with the Lease Coverage Ratio shall be measured quarterly based upon the
trailing twelve (12) month period of operation then ending (or, in
the


29


event the
Lease has not been in effect for a twelve (12) month period, then the numbers
available for such shorter period shall be used and shall be annualized).
Notwithstanding the foregoing, Tenant shall not be deemed in violation of the
terms of this Section 11.2 if the Lease Coverage Ratio as at the end of any
quarter on a trailing twelve month basis is less than the amounts set forth
above and Tenant provides to Landlord, within thirty (30) days after the end of
such quarter, additional cash collateral in an amount equal to the Shortfall
Amount for such period.  Thereafter, Tenant and Landlord shall adjust
the amount of such cash collateral so that it equals the Shortfall Amount as at
the end of the then most recently ended fiscal quarter. Landlord shall promptly
release such Shortfall Amount back to Tenant upon receipt of an Officer’s
Certificate which reflects compliance with the covenant set forth above. The
Shortfall Amount is the amount of cash required to cause Tenant to be in
compliance with the Lease Coverage Ratio set forth above. Tenant shall provide
Landlord evidence of compliance with this Section 11.2 and such backup
documentation as required by Landlord within forty-five (45) days of the end of
each calendar quarter of each Fiscal Year of Tenant.




11.3           Lease Guaranty. If Emeritus
Corporation should assign this Lease to any Affiliate, the performance of
Tenant’s obligations under this Lease shall be guaranteed by the Guarantor
pursuant to a Lease Guaranty in form and substance acceptable to
Landlord.




ARTICLE
12 – LIENS




12.1           No Liens on Property. Subject
to the provisions of Article 13 relating
to permitted contests, Tenant shall not directly or indirectly create or allow
to remain and shall promptly discharge at its expense any lien, encumbrance,
attachment, title retention agreement or claim upon any portion of the Property
caused by Tenant or its Agents or on Tenant’s Accounts or any attachment, levy,
claim or encumbrance in respect of Rent, not including, however, (a) this Lease,
(b) Permitted Encumbrances, if any, (c) liens for those taxes of Landlord which
Tenant is not then currently required to pay hereunder, (d) subleases, if any,
permitted by Article
21, (e) liens for Impositions or for sums resulting from noncompliance
with Legal Requirements so long as the same are not yet payable or are payable
without the addition of any fine or penalty or are in the process of being
contested as permitted by Article 13, (f) liens
in favor of Landlord, (g) liens of mechanics, laborers, materialmen, suppliers
or vendors for sums either disputed or not yet due, provided that,
notwithstanding the provisions of Article 13, at
Landlord’s request, Tenant shall remove any such lien from record title to any
interest in the Property (including, without limitation, Tenant’s interest under
this Lease), at Tenant’s sole cost and expense, by depositing with the
appropriate public authority a sum of money, or filing in such forum a bond
executed as surety by a surety insurer licensed to do business in the State, in
the amount and in the manner required by applicable law of the State and
otherwise in a manner sufficient to effectively remove such lien from record
title to the Property; provided, further (i) the payment of such sums shall not
be postponed for more than seven days after the completion of the action giving
rise to such lien (but in no event in excess of any period of redemption) and
such reserve or other appropriate provisions


30


as shall
be required by law or generally accepted accounting principles shall have been
made therefor and/or (ii) any such liens are in the process of being contested
as permitted by Article 13, and (h)
any Encumbrances which are the responsibility of Landlord pursuant to the
provisions of Article
23 or which arise from the acts or omissions of Landlord and/or its
officers, agents or employees.




12.2           No Liens on Landlord’s
Interest. In no event shall the interest of Landlord be subject to liens
for improvements made by Tenant, whether under Article 10 or this
Article
12.  Tenant shall notify any and all contractors making any
improvements, repairs or additions to any portion of the Property that any lien
to which such contractor may be entitled pursuant to the laws of the State shall
not extend to the interest of Landlord in the Property.




ARTICLE
13 – CONTESTS




Tenant,
on its own or on Landlord’s behalf (or in Landlord’s name), but at Tenant’s sole
cost and expense, may contest, by appropriate legal proceedings conducted in
good faith and with due diligence, the amount, validity or application, in whole
or in part, of any Imposition, Legal Requirement, Insurance Requirement, lien,
attachment, levy, encumbrance, charge or claim not otherwise permitted by Article 12, provided
that (a) in the case of an unpaid Imposition, lien, attachment, levy,
encumbrance, charge or claim, the commencement and continuation of such
proceedings shall suspend the collection thereof from Landlord or Tenant and
from the portion of the Property subject to such contest, (b) neither such
Property nor any Rent therefrom nor any part thereof nor interest therein would
be subject to any risk of being sold, forfeited, attached, foreclosed, or lost
as a result of such non-payment or non-compliance, (c) in the case of a Legal
Requirement, Landlord would not be in any danger of civil or criminal liability
for failure to comply therewith pending the outcome of such proceedings, (d) in
the event that any such contest shall involve a sum of money or potential loss
in excess of $100,000 then, in any such event, Tenant shall deliver to Landlord
an Officer’s Certificate and opinion of counsel to the effect set forth in
clauses (a), (b) and (c), to the extent applicable, (e) in the case of a Legal
Requirement or an Imposition, lien, encumbrance or charge, Tenant shall give
such reasonable security as may be demanded by Landlord to insure ultimate
payment of the same and to prevent any sale or forfeiture of the affected
portion of the Property or the Rent by reason of such non-payment or
non­compliance, including, without limitation, a guaranty in form and
substance acceptable to Landlord and executed by a guarantor acceptable to
Landlord, (f) in the case of an Insurance Requirement, the coverage required by
Article 14 shall be maintained, and (g) if such contest be finally resolved
against Landlord or Tenant, Tenant shall, as Additional Charges due hereunder,
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. Notwithstanding any express or implied provision of this
Article to the contrary, the provisions of this Article shall not be construed
to permit Tenant to contest the payment of Rent (except as to contests
concerning the method of computation or the basis of levy of an Imposition) or
any other sums payable by Tenant to Landlord hereunder. Landlord, at Tenant’s
expense, shall execute and deliver to Tenant such authorizations and other
documents as may reasonably be required in any such contest and, if reasonably
requested by Tenant or if Landlord so desires, Landlord shall join as a party
therein. Tenant shall indemnify, defend and save Landlord


31


harmless
against any liability, cost or expense of any kind that may be imposed upon
Landlord in connection with any such contest and any loss resulting
therefrom.




ARTICLE
14 –
INSURANCE




14.1           General Insurance
Requirements. During the Term, Tenant shall at all times keep the
Facility, and all property located in or on any Facility, including all Capital
Additions, the FFF&E 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 each Facility and the Personal
Property and operations thereon. This insurance shall be written by companies
authorized to do insurance business in the State in which each such Facility is
located. All liability type policies (except professional liability and workers
compensation) must name Landlord as an “additional insured.” All property, loss
of rental and business interruption type policies shall name Landlord as “loss
payee.” Losses shall be payable to Landlord and/or Tenant as provided in Article
15. In addition, the policies, as appropriate, shall name as an “additional
insured” or “loss payee” the holder of any mortgage, deed of trust or other
security agreement (“Facility Mortgagee”) securing any indebtedness or any other
Encumbrance placed on any Facility in accordance with the provisions of Article
23 (“Facility Mortgage”) by way of a standard form of mortgagee’s loss payable
endorsement; provided that Landlord delivers the name and address and insurance
requirements of any such Facility Mortgagee to Tenant. Any loss adjustment in
excess of One Hundred Fifty Thousand Dollars ($150,000.00) shall require the
written consent of Landlord, Tenant and, if required by the terms of the
applicable Facility Mortgage, each Facility Mortgagee. Evidence of insurance
shall be deposited with Landlord and, if requested, with any Facility
Mortgagee(s). The policies shall insure against the following risks with respect
to each Facility:




14.1.1           Loss
or damage by fire, vandalism and malicious mischief, extended coverage and other
perils commonly known as “all risk or special perils”, earthquake (including
earth movement), sinkhole and windstorm in an amount not less than the insurable
value on a replacement cost basis (as defined below in Section l4.2) and
including a building ordinance or law coverage endorsement;




14.1.2           Loss
or damage by mechanical breakdown, electrical injury and explosion of steam
boilers, pressure vessels or similar apparatus, now or hereafter installed in
each Facility, in such limits with respect to any one accident as may be
reasonably requested by Landlord from time to time;




14.1.3           Flood
(when the improvements comprising a Facility are located in whole or in part
within a designated 100-year flood plain area) and such other hazards and in
such amounts as may be customary for comparable properties in the
area;




14.1.4           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 including payroll and Rent payable
hereunder with an endorsement extending the period of indemnity by
at


32


least
ninety (90) days.  The Increased Period of Restoration shall include
any increase due to the operation of building ordinances or laws to the extent
arising from a covered loss; and




14.1.5           Bodily
injury or property damage under a policy of commercial general liability
insurance (including broad form property damage and broad form contractual
liability) and (b) medical professional liability, with amounts not less than
Five Million and No/100 Dollars ($5,000,000) per occurrence and Five Million and
No/100 Dollars ($5,000,000) in the annual aggregate (or such lesser amounts as
Landlord may from time to time approve in writing, such approval not to be
unreasonably withheld, delayed or conditioned).  Any combination of
primary or umbrella/excess insurance may be utilized to provide the total
required general liability insurance limits.




14.2           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 Tenant has made improvements to the Facility, Landlord may at
Tenant’s expense have the replacement cost redetermined at any time after such
improvements are made, regardless of when the replacement cost was last
determined.




14.3           Additional
Insurance.  In addition to the insurance described above,
Tenant shall maintain the statutory workers’ compensation coverage as required
by the Legal Requirements for all Persons employed by Tenant or any sublessee in
the Facility, or, in the alternative, to the extent permitted by Legal
Requirements.




14.4           Waiver of Subrogation.All
insurance policies carried by either party covering the Facility and Tenant’s
Personal Property including contents, fire and casualty insurance, and including
all third party liability and workers compensation insurance to the extent not
prohibited by law shall expressly permit waiver of rights of subrogation against
the other party, its officers, directors, members, agents and employees. Each
party hereby waives any claims it has against the other party, its officers,
directors, members, agents and employees, to the extent such claim is covered or
should be covered by the required insurance, including amounts under deductibles
or self-insured retentions, even if the loss is caused by the sole negligence of
such other party, its officers, directors, and members, agents or
employees.




14.5           Policy Requirements.All of
the policies of insurance referred to in this Article shall be written in form
satisfactory to Landlord and by insurance companies with a policyholder rating
of “A” and a financial rating of “X” 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. If Tenant obtains and maintains the medical professional
liability insurance described in Section 14.1.5 above on a “claims-made” basis,
Tenant shall provide continuous liability coverage for claims arising during the
Term either by obtaining an endorsement providing for an extended reporting
period reasonably acceptable to Landlord in the event such policy is canceled or
not renewed for any reason whatsoever,


33


or by
obtaining either (a) “tail” insurance coverage converting the policies to
“occurrence” basis policies providing coverage for a period of at least two (2)
years beyond the expiration of the Term, or (b) retroactive coverage back to the
commencement date (which date shall be at least three (3) years prior to the
expiration of the Term) for the policy in effect prior to the expiration of the
Term and maintaining such coverage for a period of at least three (3) years
beyond the expiration of the Term. All policies of insurance required herein
shall be endorsed to be primary to all insurance available to Landlord, with
Landlord’s insurance (if any) being excess, secondary and non-contributing.
Tenant shall pay all of the premiums therefor, and deliver certificates thereof
to Landlord prior to their effective date (and with respect to any renewal
policy, shall deliver to Landlord’s reasonable satisfaction, evidence of renewal
at least five (5) days prior to the expiration of the existing policy), and in
the event of the failure of Tenant either to effect such insurance in the names
herein called for or to pay the premiums therefor, or to deliver certificates
thereof to Landlord, at the times required and if Tenant fails to cure such
default within ten (10) days after receipt of written notice from Landlord,
Landlord shall be entitled, but shall have no obligation, 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
Landlord upon demand therefor. Each insurer shall agree, by endorsement on the
policy or policies issued by it, or by independent instrument furnished to
Landlord, that it will give to Landlord thirty (30) days’ written notice before
the policy or policies in question shall be materially altered, allowed to
expire or canceled or non-renewed. Each policy shall have a deductible or
deductibles, if any, which are no greater than those normally maintained for
similar facilities in the State of similar size, financial condition, resident
mix and number. Each party shall be responsible for funding deductibles or
retentions under its own insurance policies.  Tenant shall be
responsible for funding all claims within self-inured retention, including
claims applying to Landlord as an additional insured




14.6.           Blanket
Policy.  Notwithstanding anything to the contrary contained in
this Article 14, Tenant’s obligations to carry the insurance provided for herein
may be brought within the coverage of a so-called blanket policy or policies of
insurance carried and maintained by Tenant; provided, however, that the coverage
afforded Landlord will not be reduced or diminished or otherwise be materially
different from that which would exist under a separate policy meeting all other
requirements hereof by reason of the use of the blanket policy, and provided
further that the requirements of this Article 14 (including satisfaction of the
Facility Mortgagee’s requirements and the approval of the Facility Mortgagee, if
applicable) are otherwise satisfied, and provided further that Tenant maintains
specific allocations acceptable to Landlord




14.7.           Self
Insurance.  Landlord agrees that Tenant shall have the right to
provide any or all of the insurance contemplated by this Article 14 through a
captive insurance program maintained by Tenant.  Tenant shall provide
to Landlord when available from time to time and not less frequently than
annually  a copy of the annual financial report of the Tenant’s
captive insurer.  Landlord agrees that all such financial information
is confidential and agrees not to disclose any such information to any third
parties without first obtaining Tenant’s written approval.




34


ARTICLE
15 – INSURANCE PROCEEDS




15.1           Handling of Insurance
Proceeds. Except as otherwise provided herein, all proceeds from any
policy of property damage insurance required by Article 14 of this
Lease shall be paid to and held in trust by Landlord; provided, however, that if
the originally named Landlord is not then the Landlord hereunder, such payments
shall be paid to and held by a reputable insurance trustee having substantial
experience operating in such capacity, which trustee shall be mutually
acceptable to Landlord and Tenant and shall hold and disburse such funds in
accordance with written instructions mutually acceptable to Landlord and Tenant;
and provided, further, that in the event the amount of such proceeds is less
than One Hundred Fifty Thousand and no/100 Dollars ($150,000) and there is no
monetary Event of Default then outstanding under this Lease, such proceeds shall
be released by Landlord to Tenant to be applied in the manner set forth in this
Article 15. Provided that no Event of Default then exists, any such payments
received by Landlord shall be made available by Landlord, or the trustee for
reconstruction or repair, as the case may be, of any damage to or destruction of
all or any portion of the Property to which such proceeds relate, and shall be
paid out by Landlord, (or such insurance trustee) from time to time in
accordance with and subject to the provisions hereof for the cost of such
reconstruction or repair, subject to reasonable and customary controls to ensure
funds disbursed by Landlord (or such insurance trustee) are in fact used for
such purpose. Tenant acknowledges that such insurance proceeds may not be used
towards satisfaction of the minimum Capital Expenditures required pursuant to
Section 7.2 of
this Lease. Any unused portion shall be retained by Landlord upon completion of
such repair and restoration to be held in reserve by Landlord and disbursed by
Landlord to Tenant for further maintenance or repair of the Property as
requested by Tenant and reasonably approved by Landlord. Provided, however, any
such unused insurance proceeds which remain at the time this Lease expires or is
terminated (including in the event of the purchase of the Facilities by Tenant
pursuant to the Purchase Option provided for in Section 25.16) shall be refunded
to Tenant upon Tenant’s concurrent payment to Landlord of all amounts, if any,
then due to Landlord from Tenant under other provisions of this Lease. All
salvage resulting from any risk covered by insurance shall belong to
Landlord.




15.2           Reconstruction in the Event of Damage
or Destruction Covered by Insurance.




(a)           Subject
to subsection (c) below, if during the Term any Facility is totally or
substantially destroyed by a risk covered by the insurance described in Article 14 so that
such Facility thereby is rendered unsuitable for its Permitted Use(s) (taking
into account all relevant factors, including, but not limited to, the number of
useable units and beds and the amount of square footage reasonably available for
use by Tenant and the type and amount of revenue lost), Tenant shall use
insurance proceeds hereunder to restore the Facility to substantially the same
condition as existed immediately before the damage or destruction, and this
Lease shall continue in full force and effect. The insurance proceeds shall be
paid to Tenant or its designee in accordance with Section 15.1 from
time to time as necessary to pay for the costs of such
restoration.


35


(b)           If
the cost of any such repair or restoration exceeds the amount of proceeds
received by Landlord (or the insurance trustee described in Section 15.1) and
paid over to Tenant from the insurance required under Article 14, Tenant
shall contribute any and all excess amounts necessary to repair or restore the
Facility.




(c)           Notwithstanding
the foregoing, in the event that either (i) more than seventy five percent (75%)
of any Facility (by area or value) is substantially destroyed during the final
twelve (12) months of the then current Initial Term or Extended Term of this
Lease as a result of a fully insured (subject to the deductible provision of the
insurance coverage) casualty (including but not limited to, the business
interruption coverage described in Section 14.1.4 or
(ii) regardless of the extent of such damage or destruction, the repair or
reconstruction of the affected Facility is prohibited under applicable law,
including, but not limited to, licensure law, zoning law and/or building code
law, Tenant may elect, by giving written notice to Landlord within thirty (30)
days of the date of such casualty, to terminate this Lease as to that Facility
effective as of the date such notice of termination is given.  If the
Lease is so terminated, all insurance proceeds including the business
interruption coverage required in Section 14.1.4 above,
shall be paid to Landlord.  In addition, Tenant shall pay to Landlord
an amount equal to any deductible feature of the casualty insurance
coverage.  In such event, Base Rent shall be equitably adjusted and
this Lease shall remain in effect as to the undamaged Facilities.




15.3           Reconstruction in the Event of Damage
or Destruction Not Covered by Insurance. If during the Term any Facility
is totally destroyed or materially damaged (i) from a risk not covered by
insurance described in Article 14 or
(ii) from a risk for which insurance coverage is voided due to any act or
omission by Tenant, whether or not the Facility is thereby rendered unsuitable
for its Permitted Use(s), Tenant shall restore the Facility to substantially the
same condition as existed immediately prior to such damage or destruction, this
Lease shall continue in full force and effect, and Tenant shall continue to pay
Rent, in the manner and at the times herein specified, including the full
amounts of Base Rent and Additional Charges. Notwithstanding the foregoing, in
the event that either (i) more than seventy five percent (75%) of any Facility
(by area or value) is substantially destroyed during the final twelve (12)
months of the then current Initial Term or Extended Term of this Lease as a
result of a fully insured (subject to the deductible provision of the insurance
coverage) casualty (including but not limited to, the business interruption
coverage described in Section 14.1.4 or (ii) regardless of the extent of such
damage or destruction, the repair or reconstruction of the affected Facility is
prohibited under applicable law, including, but not limited to, licensure law,
zoning law and/or building code law, Tenant may elect, by giving written notice
to Landlord within thirty (30) days of the date of such casualty, to terminate
this Lease as to that Facility effective as of the date such notice of
termination is given and payment is made by Tenant to Landlord in an amount
equal to the Fair Market Value of the affected Facility.




15.4           Restoration of Capital Additions Paid
by Tenant. All insurance proceeds payable solely by reason of any loss of
or damage to any Capital Additions fully paid for


36


by Tenant
in their entirety shall be paid to Tenant and Tenant shall hold such insurance
in trust to pay the cost of repairing or replacing damaged Capital Additions
fully paid for by Tenant in their entirety; provided, however, that if the
damaged Capital Additions fully paid for by Tenant in their entirety are deemed
by Tenant to no longer be useful to Tenant’s operations, Tenant shall not be
obligated to repair or replace them.




15.5           No Abatement of Rent. Except
as expressly otherwise provided in Section 6.2 and Section 15.2 and
Section 15.3,
in the event of any damage or destruction of the Property, this Lease shall
remain in full force and effect and Tenant’s obligation to make rental payments
and to pay all other charges required by this Lease shall not be abated by
reason of any damage or destruction to the Property or the subsequent loss of
Landlord’s entitlement to the Property.




15.6           Waiver. Tenant hereby waives
any rights at law or in equity and any statutory rights of termination which may
arise by reason of any damage or destruction of the Property which Landlord is
obligated to restore or may restore under any of the provisions of this
Lease.




ARTICLE
16 – CONDEMNATION




16.1           Definitions.




(a)           “Condemnation” means
(a) the exercise of any governmental power, whether by legal proceedings or
otherwise, by a Condemnor, the purpose and intent of which is to effect a
Taking, or (b) a voluntary sale or transfer by Landlord with Tenant’s consent
(provided that such consent shall be required only if no Event of Default has
occurred and is continuing at such time) to any Condemnor, either under threat
of condemnation or while legal proceedings for condemnation are
pending.




(b)           “Date of Taking” means
the first date the Condemnor has the right to immediate possession of the
property being condemned.




(c)           “Award” means all
compensation, sums and any other value awarded, paid or received on a total or
partial condemnation of any portion of the Property and shall specifically
exclude any separate award made to Tenant as allowed in Section 16.4
below.




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




16.2           Parties’ Rights and
Obligations. If during the Term there is any Taking of all or any part of
the Property or of any interest in this Lease by Condemnation, the rights and
obligations of the parties shall be determined by this Article.




16.3           Total Taking. If title to the
fee of the whole of any Facility shall be the subject of any Condemnation by any
Condemnor, this Lease shall cease and terminate as of the Date of Taking. If
title to the fee of less than the whole of the Facility shall be so taken
or


37


condemned,
which nevertheless renders the Facility unsuitable for its Permitted Use(s)
(taking into account all relevant factors, including, but not limited to, the
number of useable units and beds, the amount of square footage reasonably
available for use by Tenant, and the type and amount of revenue lost), Tenant
and Landlord each shall have the option by Notice to the other, to terminate
this Lease with respect to such Facility as of the Date of Taking. In either of
such events, all Rent paid or payable by Tenant hereunder shall be apportioned
as of the date the Lease shall have been so terminated with respect to such
Facility.




16.4           Allocation of Award. In the
event of a Taking as described in Section 16.3,
Landlord and Tenant shall cooperate with each other in order to maximize the
amount of the Award. Tenant shall have the right to seek damages or a separate
condemnation award for Tenant’s loss of any Capital Additions paid for by
Tenant, loss of business and relocation expenses and any such award that be the
sole property of Tenant. Subject to the rights of any Facility Mortgagee, the
Award shall be allocated entirely to Landlord.




16.5           Partial Taking. If title to
the fee of less than the whole of any Facility shall be the subject of a Taking
or Condemnation, and the Facility is still suitable for its then existing use,
or if Tenant or Landlord shall be entitled, but shall not elect, to terminate
this Lease with respect to that Facility as provided in Section 16.3 hereof,
Tenant at its own cost and expense shall with all reasonable diligence restore
the untaken portion of the Facility so that such Facility shall constitute a
complete architectural unit of the same general character and condition (as
nearly as may be possible under the circumstances) as existing immediately prior
to such Condemnation or Taking. Landlord and Tenant shall cooperate with each
other to maximize the amount of any Award. Landlord shall  contribute
the entire amount of the Award to the cost of restoration. The proceeds of any
Award shall be held and distributed in the same manner as provided by Section 15.1 for
insurance proceeds. Any remaining balance of such proceeds after such
restoration is completed shall be retained by or paid to Landlord.




16.6           Temporary Taking. If the whole
or any part of any portion of the Property or of Tenant’s interest under this
Lease shall be the subject of a Taking or Condemnation by any Condemnor for its
temporary use or occupancy, this Lease shall not terminate, and Tenant shall
continue to pay, in the manner and at the times herein specified, the full
amounts of Rent. Except to the extent Tenant may be prevented from so doing
pursuant to the terms of any order for the benefit of the Condemnor, Tenant
shall continue to perform and observe all of the other terms, covenants,
conditions and obligations hereof on the part of the Tenant to be performed and
observed as though such Taking or Condemnation had not occurred. Upon any such
Taking or Condemnation described in this Section, the entire amount of any such
Award made for such Taking or Condemnation allocable to the Term of this Lease,
whether paid by way of damages, Rent or otherwise, shall be paid to
Tenant.  If any part of such Award is allocable for a period beyond
the term of this Lease, that part shall be paid to Landlord.  Tenant
covenants that upon the termination of any such period of temporary use or
occupancy as set forth in this Section, Tenant will, at its sole cost and
expense (subject to any contribution by Landlord as set forth in Section 16.5),
restore the Property as nearly as may be reasonably possible to the condition in
which the same was immediately prior to


38


such
Taking or Condemnation, unless such period of temporary use or occupancy shall
extend beyond the expiration of the Term, in which case Tenant shall not be
required to make such restoration but shall pay to Landlord from the Award
received by Tenant and not applied by Tenant to satisfy its Rent obligations
during the period of such Taking, to the costs of such restoration
work.




ARTICLE
17 – DEFAULTS AND REMEDIES




17.1           Events of Default. Any one or
more of the following events shall be deemed an “Event of Default”
hereunder:




(a)           Tenant
shall fail to pay Rent payable by Tenant under this Lease as and when the same
becomes due and payable or within ten (10) days thereafter;




(b)           Tenant
shall fail to observe or perform any other material term, covenant or condition
of this Lease and such failure is not cured by Tenant within a period of thirty
(30) days after Notice thereof from Landlord, 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 continue if Tenant proceeds promptly and with due
diligence to cure the failure and diligently completes the curing
thereof;




(c)           Any
representation or warranty made by the Tenant in connection with this Lease, or
in any report, certificate, financial statement or other instrument furnished in
connection herewith or therewith, from time to time, whether under Article 22 of this
Lease or otherwise, shall prove to be false or misleading in any material
respect and the same is not corrected within thirty (30) days after notice
thereof from Landlord;




(e)           Tenant
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 law, (iii) make a general 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;




(f)           Tenant
shall, on a petition in bankruptcy filed against it, be adjudicated bankrupt or
have an order for relief thereunder entered against it or a court of competent
jurisdiction shall enter an order or decree appointing, without the consent of
Tenant, a receiver of Tenant or of the whole or substantially all of its
property, or approving a petition filed against Tenant seeking reorganization or
arrangement of Tenant 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
ninety (90) days from the date of the entry thereof;




(g)           Tenant
shall be liquidated or dissolved (except for an involuntary dissolution due to a
failure to file an annual report with the Secretary of State or


39


other
applicable officer or department of the State so long as such failure is cured
within 30 days of any notice thereof to Tenant, whether from the State or
otherwise), or shall begin proceedings toward such liquidation or dissolution,
or shall, in any manner, permit the sale or divestiture of substantially all of
its assets other than in connection with a merger or consolidation of Tenant
into, or a sale of substantially all of Tenant’s assets to, another
corporation;




(h)           the
estate or interest of Tenant in the Property or any part thereof shall be levied
upon or attached in any proceeding and the same shall not be vacated or
discharged within the later of sixty (60) days after commencement thereof or
thirty (30) days after Notice thereof from Landlord (unless Tenant shall be
contesting such lien or attachment in good faith in accordance with Article 13
hereof);




(i)           except
as a result of damage, destruction or a partial, temporary or complete
Condemnation and except as otherwise permitted by Section 8.3, Tenant
voluntarily ceases operations on the Property;




(j)           Tenant,
an Affiliate of Tenant, or any Lease Guarantor shall fail to make any payment
due to Landlord on any indebtedness, guaranty, endorsement, indemnity agreement,
lease or other obligation now or hereafter entered into, whether contingent or
otherwise, (each, a “debt”) or on any
security (as “security” is defined
for purposes of the federal securities laws), or any event shall occur or any
condition shall exist with respect to any debt or security of Tenant in favor of
Landlord, the effect of which is to cause any or all of such debt or security to
become due prior to its stated maturity or its regularly scheduled dates of
payment.




No Event
of Default (other than a failure to make a payment of money) shall be deemed to
exist under clause (b) above during, any time the curing thereof is prevented by
an Unavoidable Delay, provided that upon the cessation of such Unavoidable
Delay, Tenant immediately shall remedy such default.




17.2           Damages.




(a)           Upon
the occurrence and during the continuance of any Event of Default, Landlord
shall have the right (i) to terminate this Lease and Tenant’s right to
possession of each Facility by any lawful means, upon ten (10) days’ Notice of
such termination (during which time Tenant shall have the opportunity to cure
any such Event of Default) in which case, if Tenant shall fail to cure all
Events of Default within the foregoing ten (10) day period, this Lease shall
terminate and all of Tenant’s rights hereunder shall cease and Tenant shall
immediately surrender possession of the Property to Landlord and, in such event,
Landlord shall be entitled to recover from Tenant all damages incurred by reason
of such Event of Default determined in the manner set forth in this Section 17.2, (ii) to
terminate Tenant’s right to possession of each Facility without thereby
terminating this Lease and/or relet the same for Tenant’s account, and (iii) to
enforce all of


40


Landlord’s
rights and remedies under this Lease, including the right to recover the damages
provided for in this Section 17.2. Neither
the termination of this Lease or of Tenant’s right to possession of any Facility
pursuant to this Section 17.2, the
repossession of the Facilities, the failure of Landlord, notwithstanding
reasonable good faith efforts, to relet the same, nor the reletting of all or
any portion of the Property, shall relieve Tenant of its liability and
obligations hereunder, all of which shall survive any such termination,
repossession or reletting until Landlord has collected from Tenant the damages
due hereunder.




(b)           Upon
any such termination of this Lease or of Tenant’s right of possession of the
Property, Tenant shall, forthwith pay to Landlord the full amount of Landlord’s
damages suffered by reason of such Event of Default in an amount equal to the
sum of:




(i)           the
worth at the time of the award of the unpaid Rent due and payable to and
including the date of such termination, repossession or reletting;




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




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




(iv)           any
other amount reasonably necessary to compensate Landlord for the reasonable
costs incurred in regaining possession and reletting the Property, including,
but not limited to, brokerage fees and commissions, construction costs, rent
concessions, and all legal costs and expenses.




(c)           The
“worth at the time of the award” of the amounts referred to in subparagraphs
(b)(i) and (b)(ii) above shall be computed by allowing interest at the Overdue
Rate. The “worth at the time of award” of the amount referred to in subparagraph
(b)(iii) above shall be computed by discounting such amount at the discount rate
of Federal Reserve Bank of San Francisco at the time of award plus
1%.




17.3           Intentionally
Deleted.




17.4           Application of Funds. Any
payments normally made to Tenant hereunder which are made to and received by
Landlord under any of the provisions of this Lease during the continuance of any
Event of Default shall be applied to Tenant’s obligations in the order which
Landlord may determine or as may be prescribed by applicable laws.




41


17.5           Landlord’s Right to Cure Tenant’s
Default. If an Event of Default occurs under this Lease and is not cured
within the time provided under this Lease with respect to such Event of Default,
Landlord, without waiving or releasing any obligation of Tenant, and without
waiving any such Event of Default, may (but shall be under no obligation to) at
any time thereafter cure such Event of Default for the account and at the
expense of Tenant, and may, to the extent permitted by law, enter upon any
portion of the Property for such purpose and take all such action thereon as, in
Landlord’s sole judgment, may be necessary or appropriate with respect thereto.
No such entry by Landlord on any portion of the Property shall be deemed an
eviction of Tenant. All sums so paid by Landlord and all costs and expenses
(including, without limitation, reasonable attorneys’ fees and expenses, in each
case to the extent permitted by law) so incurred, together with a late charge
thereon (to the extent permitted by law) at the Overdue Rate from the date on
which such sums or expenses are paid or incurred by Landlord until paid, shall
be paid by Tenant to Landlord on demand. The obligations of Tenant and rights of
Landlord contained in this Article shall survive the expiration or earlier
termination of this Lease.




17.6           Waiver. If this Lease is
terminated pursuant to the provisions of this Article, Tenant waives, to the
extent permitted by applicable law, (a) any right of redemption, re-entry or
repossession, (b) any right to trial by jury in the event of summary proceedings
to enforce the remedies set forth in this Article, and (c) the benefit of any
laws now or hereafter in force exempting Tenant’s property from liability for
rent or for debt.




ARTICLE
18 – CURE BY TENANT OF LANDLORD DEFAULTS




18.1           Landlord Default. Landlord
shall be in default of its obligations under this Lease if Landlord shall fail
to observe or perform any term, covenant or condition of this Lease on its part
to be performed, and such failure shall continue for a period of thirty (30)
days after Notice thereof from Tenant (or such shorter time as may be necessary
in order to cure or correct any condition, the presence of which substantially
or materially interferes with Tenant’s conduct of its usual business for the
Permitted Use(s) or to protect the health or welfare of any patient or other
resident of the Property or to ensure the ongoing compliance of the Property
with applicable law), unless such failure cannot be cured with due diligence
within a period of thirty (30) days (or the above-described shorter time
period), in which case such failure shall not be deemed to continue if Landlord,
within such thirty (30) days (or the above-described shorter time period),
promptly commences its attempt to cure the failure and diligently attempts to
complete the curing thereof. The time within which Landlord shall be obligated
to cure any such failure shall also be subject to extension of time due to the
occurrence of any Unavoidable Delay. If Landlord fails to commence such cure as
provided herein, Tenant may cure such default, and so long as Tenant continues
to pay Rent, Tenant shall have the right (subject to Section 6.1), as
Tenant’s sole remedy (except as otherwise provided in this Section 18.1), by
separate and independent action to pursue any claim it may have against Landlord
for monetary damages caused by Landlord’s failure to cure such
default.




18.2           Mortgagee Cure. Should
Landlord fail to observe or perform any of the covenants or conditions contained
in this Lease, before taking any action, Tenant shall


42


comply
with the requirements of any Subordination Agreement to which it may then be a
party with respect to the granting of notice and an opportunity to cure to any
such Landlord default. All payments made, and all acts performed by such lenders
in order to cure shall be effective to prevent a forfeiture of the rights of
Landlord under this Lease and a termination of this Lease as if the payments and
acts were performed by Landlord instead of by the lenders.




ARTICLE
19 – HOLDING OVER




If Tenant
for any reason remains in possession of any portion of the Property after the
expiration of the Term or earlier termination of the Term, such possession shall
be a tenancy at sufferance during which time Tenant shall pay to Landlord as
rental each month one hundred fifty percent (150%) of the aggregate of (i)
one-twelfth of the aggregate Base Rent for the Facility payable with respect to
the last 12 calendar months of the Term just expired, (ii) all Additional
Charges accruing during the month with respect to which such payment relates,
and (iii) all other sums, if any, payable by Tenant pursuant to the provisions
of this Lease with respect to the Facility. During such period of month-to-month
tenancy at sufferance, Tenant 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 mandated by law applicable to
tenancies at sufferance, to continue its occupancy and use of the Facility.
Nothing contained herein shall constitute the consent, express or implied, of
Landlord to the holding over of Tenant after the expiration or earlier
termination of this Lease.




ARTICLE
20 – LIABILITY OF PARTIES




20.1           Indemnification by Tenant.
Notwithstanding the existence of any insurance provided for in Article 14, and
notwithstanding the policy limits of any such insurance, but subject to the
waiver of the right of subrogation set forth in Section 14.4 hereof,
Tenant shall indemnify, defend, protect, save and hold Landlord and any
successor person who is the owner of any Facility or who holds the licenses to
operate any Facility harmless from and against any and all liabilities, losses,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including, without limitation, reasonable attorneys’ fees and expenses) imposed
upon, incurred by or asserted against Landlord arising out of, connected with or
incidental to the following and arising from events occurring during the
Term:




(a)           any
Hazardous Substance located in, on or under the Land or the
Facility;




(b)           any
accident, injury to or death of persons, or loss of or damage to property,
occurring on or about the Facility including, without limitation, any claims of
malpractice, except for any such accident, injury, death, loss or damage
proximately caused by Landlord’s gross negligence or willful misconduct and not
resulting from Tenant’s failure to perform and comply with the terms, covenants,
conditions and provisions of this Lease;




(c)           any
past, present or future use, misuse, non-use, condition, management, maintenance
or repair by Tenant or its agents of the Property, and any
litigation,




43


proceeding
or claim by governmental entities or other third parties relating thereto to
which Landlord is made a party;




(d)           any
Impositions which are the obligations of Tenant to pay pursuant to the
applicable provisions of this Lease if the same are not paid when due or within
any cure period provided for herein;




(e)           any
failure on the part of Tenant to perform or comply with any of the terms of this
Lease when due or within any cure period provided for in this
Lease;




(f)           the
non-performance of any of the terms and provisions of any and all existing and
future subleases of any Facility to be performed by Tenant thereunder;
and




(g)           any
claims by state or federal governmental agencies for repayment of claims for
reimbursement of costs incurred by Tenant in providing care or services to
residents under government supported healthcare or government supported
residential programs.




Any
amounts payable by Tenant under this Section shall be paid within ten (10) days
after Tenant’s liability therefor is determined by litigation or otherwise. If
such amounts are not timely paid, they shall bear a late charge at the Overdue
Rate from the date of such determination to the date paid. Tenant, at its
expense, shall contest, resist and defend any such claim, action or proceeding
asserted or instituted against Landlord, or may, with Landlord’s prior written
consent, compromise or otherwise dispose of the same as Tenant sees fit. Nothing
herein shall be construed as indemnifying Landlord against its own gross
negligence or willful misconduct.




20.2           Indemnification by Landlord.
Landlord shall indemnify, defend, save and hold Tenant harmless from and against
any and all liabilities, obligations, claims, damages, penalties, causes of
action, costs and expenses (including, without limitation, reason­able
attorneys, fees and expenses) imposed upon, incurred by or asserted against
Tenant arising out of, connected with or incidental to the gross negligence or
willful misconduct of Landlord; provided, however, that Tenant’s right to
indemnification as provided herein shall be subject to the limitation set forth
in Article
24.




20.3           Continuing Liability. Tenant’s
and Landlord’s liability for a breach of the provisions of this Article arising
during the Term hereof shall survive any termination of this Lease or of
Tenant’s right to possession of the Property.




ARTICLE
21 – ASSIGNMENT AND SUBLETTING; MANAGEMENT




21.1           Assignment. Landlord’s prior
written consent shall be required for an assignment of any of Tenant’s right,
title and interest in and to this Lease to any Person whether or not such
proposed assignment relates to all of the Facilities or to one or more, but
fewer than all, of the Facilities. Tenant shall not, without Landlord’s prior
written consent in each instance, allow, cause, permit or suffer, whether by
operation of law or otherwise, any assignment, conveyance or transfer of, or any
lien, mortgage, pledge, charge, security interest or other encumbrance
(including conditional sales or other title retention


44


agreements)
upon: (x) all or any portion of the Property; or (y) any right, title,
interest or estate of Tenant in this Lease. Except as specifically set forth
below, Landlord may, in Landlord’s sole and absolute discretion, grant, withhold
or place conditions upon such consent. If Tenant desires at any time to assign
any interest in this Lease, it shall first notify Landlord of its desire to do
so and shall submit in writing to Landlord: (i) the name of the proposed
assignee; (ii) the terms and provisions of the proposed assignment; and (iii)
such financial information as Landlord reasonably may request concerning
assignee.




If the
proposed assignee has a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of Tenant at the time of the proposed assignment of this
Lease or if such assignee shall in writing affirmatively assume all obligations
of the Tenant under this Lease and such assignee’s assumed obligations are
guaranteed by an entity having a Consolidated Net Worth equal to or greater than
the Consolidated Net Worth of Tenant at the time of the proposed assignment of
this Lease, Landlord shall not unreasonably withhold its consent to the proposed
assignment.  Tenant shall remain liable to Landlord for the payment of
all Rent and the performance of all other Tenant obligations under this Lease
regardless of Landlord’s consent to any proposed assignment unless Landlord in
the exercise of its sole and absolute discretion agrees to release Tenant form
such ongoing liability at the time of such assignment or at any time
thereafter.




If Tenant
so allows, causes, permits or suffers any such assignment, conveyance, transfer,
lien, mortgage, pledge, charge, security interest or other encumbrance without
Landlord’s prior written consent, same shall constitute an Event of Default by
Tenant under this Lease.




21.2           Mergers, Business Combinations,
etc. Tenant shall be permitted to merge with, or enter into, a business
combination or reorganization with any other entity and the consent of Landlord
shall be not required unless either (i) Tenant is not the surviving entity in
any such proposed merger, business combination or reorganization and the
Consolidated Net Worth of the surviving entity is anticipated to be less the
Consolidated Net Worth of Tenant immediately prior to the consummation of the
proposed merger, business combination or reorganization or (ii) Tenant is the
surviving entity but (A) a change in the control of Tenant occurs as a result of
such merger or business combination and (B) the Consolidated Net Worth of Tenant
immediately after such merger or business combination is anticipated to be less
than the Consolidated Net Worth of Tenant immediately prior to the proposed
merger, business combination or reorganization. In the event of a proposed
merger, business combination or reorganization which requires the consent of
Landlord, such consent may be withheld in the sole and absolute discretion of
Landlord and, in the event Landlord is unwilling to grant such consent, Landlord
shall have the option, but shall not be required, upon thirty (30) days Notice
to Tenant to terminate this Lease effective as of the date of the closing of
such merger or business combination. In the event of any merger, business
combination or reorganization, any Lease Guarantor’s obligations and covenants
under the Lease Guaranty shall in no way be affected or
impaired.  Notwithstanding anything to the contrary in this Section
21.2, Landlord’s consent shall be not be required in connection with, and the
provisions of this Section 21.2 shall not apply to, any transfer of Tenant’s
stock as a result of a public offering of Tenant’s stock which (a) constitutes a
bona fide public distribution of such


45


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 on
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.  In addition, so long as the
Tenant’s stock is listed for trading on any such exchange or authorized for
quotation on such market, the transfer or exchange of the Tenant’s stock over
such exchange or market shall not be deemed to require the consent of Landlord
even if the same results in a change in the control of Tenant but only if such
change of control results from a tender or similar offer to acquire the
outstanding and issued securities of Tenant.




21.3           Subletting. Tenant shall not,
without Landlord’s prior written consent in each instance, allow, cause, permit
or suffer all or any portion of the Property to be leased, subleased or licensed
to, or used or occupied by, any other party or parties, other than (a) residents
of any Facility, and (b) persons permitted to temporarily enter upon the
Property from time to time for the sole purpose of rendering services or
providing products (e.g., barber or beautician services or therapists) to such
residents. Landlord may, in Landlord’s sole and absolute discretion, grant,
withhold or place conditions upon such consent. If Tenant so allows, causes,
permits or suffers any such lease, sublease or occupancy without Landlord’s
prior written consent, same shall constitute an Event of Default by Tenant under
this Lease.




21.4           Attornment. Tenant shall
insert in any sublease to which Landlord may consent (without obligation for
Landlord to do so) provisions satisfactory to Landlord which provide for the
benefit of Landlord that (a) such sublease is subject and subordinate to all of
the terms and provisions of this Lease (b) in the event this Lease shall
terminate before the expiration of such sublease, the sublessee thereunder will
attorn to Landlord and waive any right the sublessee may have to terminate the
sublease or surrender possession under such sublease, and (c) in the event the
sublessee receives a Notice from Landlord or Landlord’s assignees, if any,
stating that Tenant is in default under this Lease, the sublessee shall
thereafter be obligated to pay all rentals accruing under such sublease directly
to the party giving such Notice, or as such party may otherwise direct. All
rentals received from the sublessee by Landlord or Landlord’s assignees, if any,
as the case may be, shall be credited against the amounts owed to Landlord under
this Lease.




21.5           Management by Third
Persons.  Tenant agrees that it will not enter into any
management agreement (or similar arrangement) under which the right to manage
the operations of any Facility is granted to a third party. Tenant may enter
into a management agreement with an Affiliate of Tenant if Landlord gives its
written approval thereto and provided that:




(i)           the
management agreement is in writing and a complete copy thereof is delivered to
Landlord prior to its effective date;




(ii)           the
management agreement provides for total compensation to the manager not to
exceed 5% of the gross revenues of any Facility; and




46


(iii)           the
Manager shall have entered into an agreement with Landlord acknowledging that
the management agreement and such manager’s rights to payment of fees thereunder
is subordinate to this Lease and to the rights and interests of Landlord in the
Facility under management.




ARTICLE
22 – INFORMATION FROM TENANT




22.1           Estoppel
Certificates.




(a)           Tenant Certificates. At any
time and from time to time, upon not less than twenty (20) days Notice by
Landlord which notice shall make specific reference to this Section 22.1, Tenant
shall furnish to Landlord or to Landlord’s lenders and to any persons intending
to purchase any Facility or to lease any Facility at the termination or
expiration of this Lease an estoppel certificate (which shall be an Officer’s
Certificate) certifying 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); the date to which the Rent has been paid; whether, to
Tenant’s actual knowledge and belief, there exists any Event of Default or any
situation which, with the giving of notice, passage of time, or both, would
constitute an Event of Default hereunder, whether Tenant contends that Landlord
is in default hereunder, and if Tenant so contends, the basis for such
contention, the date upon which the Term terminates; and such other information
(which can be provided within twenty (20) days) as Landlord reasonably may
request including, but not limited to, matters relating to operations of any
such Facility. The failure by Tenant to deliver such estoppel certificate to
Landlord within twenty (20) days of Landlord’s request therefor shall be
conclusively deemed to be Tenant’s certification (i) that this Lease is in full
force and effect, without modification except as represented by Landlord; (ii)
that there are no uncured defaults in Landlord’s performance hereunder, (iii)
that not more than one month’s Rent has been paid in advance; and (iv) that all
reports previously given to Landlord are true and correct. Any such certificate
furnished pursuant to this Section 22.1 shall be
addressed to Landlord and to any prospective purchaser of the Property, the
Facility Mortgagee and/or Landlord Lender as Landlord may request, and may be
relied upon by the parties to whom such certificate is addressed.




(b)           Landlord Certificates. At any
time and from time to time, upon not less than twenty (20) days Notice by
Tenant, Landlord shall furnish to Tenant an estoppel certificate (which shall be
an Officer’s Certificate) certifying 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), the date to which the Base Rent has been paid,
and whether to Landlord’s actual knowledge and belief there exists any Event of
Default or any situation which with the giving of notice, passage of time, or
both, would constitute an Event of Default hereunder, and if Landlord so
contends, the basis for such contention, the date upon which the Term
terminates; and such other information (which can be provided within twenty (20)
days) as Tenant reasonably may request. In the event Landlord
should


47


fail to
provide an estoppel certificate within the time allowed after the Tenant’s
request therefore duly made, such failure to respond shall be deemed to
constitute Landlord’s certification that (i) this Lease is in full force and
effect, without modification except as represented by Tenant in its request to
Landlord, (ii) that there are no uncured defaults in Tenant’s performance and
(iii) that not more than one month’s rent has been paid in
advance.  Any such certificate furnished pursuant to this Section 22.1(b) may
be relied upon by Tenant and any assignee (so long as such assignee is approved
and consented to by Landlord in accordance with Article 21) or lender
of Tenant to whom such certificate is addressed.




22.2           Financial Information. Tenant
shall furnish within the time periods specified with respect thereto, the
following statements to Landlord:




(a)           Annual
Financials/Tenant. As soon as available and in any event within one
hundred five (105) days after the end of each Fiscal Year of Tenant, a copy of
the annual audit report for such Fiscal Year of Tenant, including therein the
balance sheets of Tenant as of the end of such Fiscal Year and statements of
earnings and statements of cash flow of Tenant for such Fiscal Year, in each
case certified in a manner acceptable to Lender by independent certified public
accountants of recognized standing in the state of Washington or any State
selected by Tenant and reasonably acceptable to Lender;




(b)           Quarterly
Financials/Tenant. As soon as available and in any event within
forty-five (45) days of the end of each of the first three calendar quarters of
each Fiscal Year of Tenant and within one hundred five (105) days of the end of
the last quarter of each Fiscal Year, balance sheets of Tenant as of the end of
such quarter and statements of earnings and statements of cash flow of Tenant
for such quarter and for the Fiscal Year to date setting forth in comparative
form and details the figures for the corresponding period of the previous Fiscal
Year, certified by an officer of Tenant, and a Certificate of Compliance in the
form attached hereto as Exhibit J and
incorporated herein by this referenced signed by an officer of Tenant (the
“Quarterly Compliance
Certificate”);




(c)           Monthly Facility
Information. As soon as available after the end of each month but in any
event no later than thirty (30) days after the end of the preceding month, (i)
an itemized operating statement for each Facility by month and year to date
showing all revenues and operating costs of such Facility, (ii) a schedule for
such Facility, in form reasonably satisfactory to the Lender but excluding such
information as Tenant reasonably determines is required to be deleted in order
for Tenant and Landlord to comply with their obligations under Section 22.4 of
this Lease, setting forth by unit number the name, charges and source of payment
of or for each resident and showing whether any amounts are past due from the
resident and (iii) a monthly occupancy summary showing percentage occupancy and
payor source;




(d)           Capital Expenditure
Compliance Certificate. Tenant shall provide to Landlord quarterly,
commencing for the quarter ending March 31, 2010, an


48


itemized
list of the Capital Expenditures made by Tenant for the quarter for which the
report is provided and year to date, identifying which Facility the specific
Capital Expenditure was incurred for.  Within one hundred five (105)
days after the end of each Lease Year, a certificate of compliance certified by
an officer of Tenant stating with respect to the Facilities (i) the amount
of Capital Expenditures made at the Facilities during the prior year, (ii)
whether the Targeted Expenditure Amount has been met for the prior year (taking
into account any unused  Aggregate Overage Amount), (iii) the amount
of Capital Expenditures made at each specific Facility during the twenty four
(24) month period ending with the last month of the year in question, (iv)
whether the Targeted Expenditure Amount has been met during said twenty four
(24) month period (taking into account any unused Facility Overage Amount); and
(v) if the Targeted Expenditure Amount has not been met (after taking into
account any unused Overage Amount), stating the amount to be deposited into the
Cap Ex Account. Within thirty (30) days after a request from Landlord, Tenant
shall provide to Landlord copies of invoices or other supporting documentation
for the Capital Expenditures reflected in each such annual certificate of
compliance;




(e)           Event of Default
Notices. Promptly after any Tenant obtains actual knowledge thereof,
notice of the occurrence of any Event of Default, or event which, after notice
or lapse of time (or both), would constitute an Event of Default, together with
a statement of an officer of Tenant setting forth details of such Event of
Default or event and the action that Tenant has taken and proposes to take with
respect thereto;




(f)           Notice to
Authorities. Concurrently with any material notice from Tenant to any
Authority, copies of such notice;




(g)           Notice of Violation.
Promptly upon Tenant’s receipt of any material notice from, or the taking of any
other action by, any Authority with respect to a claimed violation of a
Requirement, a reasonably detailed statement by Tenant specifying the notice
given or other action taken by such Authority, the nature of the claimed
violation and what action Tenant is taking or proposes to take with respect
thereto;




(h)           Malpractice Matters.
Promptly upon Tenant’s receipt, written notice of the filing of any medical
malpractice action against Tenant with respect to any of the Facilities seeking
damages in excess of $200,000.00;




(i)           Guarantors’
Reports.  A current Financial Statement of Guarantor as
required by any Guaranty Agreement.




(j)           Insurance
Certificate.  During any period when the insurance required by
Article XIV is being provided by Tenant through a captive insurance company as
permitted by Section 14.7, Tenant shall provide to Landlord concurrently with
the delivery of the financial report required by Section 14.7, the certificate
attached hereto as Exhibit
K.


49


(k)           Other Information.
Such other information about Tenant and its operations at the Facilities or any
Facility as Landlord or any successor owner of the Facilities may reasonably
request from time to time.




22.3           Licensing Information. Tenant
shall promptly furnish to Landlord for each Facility upon request complete
copies of all Tenant’s cost reports, if any, and all surveys, examinations,
inspections, compliance certificates and similar reports of any kind issued to
Tenant by any governmental agencies or authorities having jurisdiction over the
licensing of the operation of such Facility which are material to that Facility
or its ownership or operation.




22.4           Confidentiality of Protected Health
Information.  For purposes of this Section of this Lease,
“protected health information”, or PHI, shall have the meaning defined by the
Standards for Privacy of Individually Identifiable Health Information, 45 C.F.R.
Part 160 and Subparts A and E of Part 164 (the “Privacy Standards”),
as promulgated by the Department of Health and Human Services (“HHS”) pursuant to the
Administrative Simplification provisions of the Health Insurance Portability
and Accountability Act of 1996 (“HIPAA”).  Tenant
agrees to reasonably safeguard PHI from any intentional or unintentional
disclosure in violation of the Privacy Standards by implementing appropriate
administrative, technical and physical safeguards to protect the privacy of
PHI.  Tenant further agrees to implement appropriate administrative,
technical and physical safeguards to limit incidental disclosures of PHI,
including disclosures to Landlord, its subcontractors and agents.  The
parties agree that neither the Landlord nor its contractors, subcontractors or
agents shall need access to, nor shall they use or disclose, any PHI of
Tenant.  However, in the event PHI is disclosed by Tenant or its
agents to Landlord, its contractors, subcontractors or agents, regardless as to
whether the disclosure is inadvertent or otherwise, Landlord agrees to take
reasonable steps to maintain, and to require its contractors, subcontractors and
agents to maintain, the privacy and confidentiality of such PHI.  The
parties agree that the foregoing does not create, and is not intended to create,
a “business associate” relationship between the parties as that term is defined
by the Privacy Standards.




ARTICLE
23 – FACILITY MORTGAGES




Without
the consent of Tenant, Landlord may, subject to the terms and conditions set
forth below in this Article, from time to time, directly or indirectly, create
or otherwise cause to exist any lien, encumbrance or title retention agreement
(“Encumbrance”)
upon the Property, or any portion thereof or interest therein, whether to secure
any borrowing or other means of financing or refinancing. Any such Encumbrance
(i) shall contain the right to prepay (whether or not subject to a prepayment
penalty), (ii) shall provide that it is subject to the rights of Tenant under
this Lease (including Tenant’s rights to insurance proceeds, condemnation
awards, and the option to purchase the Property as provided in this Lease) and
(iii) shall not increase the obligations imposed on, or reduce the rights
granted to, Tenant under this Lease; provided, however, that Tenant agrees that
its interest under this Lease is subordinate to any mortgage or deed of trust
that may hereafter from time to time be recorded on the Property, and to any and
all advances made or to be made thereunder, and to renewals, replacements and
extensions thereof. Any such subordination, however, shall be subject to the
condition precedent that the mortgagee


50


under
such mortgage or the beneficiary under such deed of trust enter into a written
non-disturbance and attornment agreement with Tenant, in form and content
reasonably satisfactory to such lender, whereunder it is agreed that in the
event of a sale or foreclosure under such mortgage or deed of trust, the
purchaser of that Facility (including the mortgagee or beneficiary under such
mortgage or deed of trust), shall acquire or hold that Facility subject to this
Lease and Tenant’s rights hereunder (including, but not limited to, its Purchase
Option as set forth in Section 25.16) so long as no Event of Default exists.
Tenant hereby agrees to recognize such purchaser as the landlord under this
Lease and agrees to attorn to such purchaser and, if instructed to do so by such
purchaser, to make rental payments directly to it. Such subordination agreement
may also include an acknowledgment by Tenant that any purported cancellation of
this Lease, reduction in its effective rate of rent, shortening of its term or
extension of its term at a reduced effective rate of rent, shall not be binding
upon any encumbrancer or any other person, firm or corporation acquiring the
Property at any sale or other proceedings, or pursuant to the exercise of any
rights, powers or remedies under any Encumbrance, without such encumbrancer’s
prior written consent.




ARTICLE
24 – LIMITATION OF LANDLORD’S LIABILITY




24.1           Landlord’s Liability. Tenant
specifically agrees that neither Landlord, nor any officer, shareholder,
employee or agent of Landlord, shall be held to any personal liability, jointly
or severally, for any obligation of, or claims against Landlord. Notwithstanding
any other provisions of this Lease which may be to the contrary, Tenant agrees
to look solely to Landlord’s equity interest in the Property for recovery of any
judgment under this Lease.  The provisions of this Section shall not
limit any right that Tenant might otherwise have under this Lease for specific
performance or other injunctive relief against Landlord. In no event shall
Landlord (original or successor) or any Affiliate of Landlord be required to
respond in monetary damages from Landlord’s assets other than Landlord’s equity
interest in any portion of the Property. Furthermore, except as otherwise
expressly provided herein, in no event shall Landlord or any Affiliate of
Landlord (original or successor) ever be liable to Tenant for any indirect or
consequential damages suffered by Tenant from whatever cause.




ARTICLE
25 – MISCELLANEOUS.




25.1           Landlord’s Right to Inspect.
Landlord and its authorized representatives may, at any time and from time to
time, upon reasonable notice to Tenant, inspect all or any Facility during usual
business hours subject to any security, health, safety or patient business
confidentiality requirements of Tenant or any governmental agency, or created by
any Insurance Requirement or Legal Requirement relating to that
Facility.




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


51


25.3           Remedies Cumulative. To the
extent permitted by law, each legal, equitable or contractual right, power and
remedy of Landlord or Tenant 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. The exercise or beginning of
the exercise by Landlord or Tenant of any one or more of such rights, powers and
remedies shall not preclude the simultaneous or subsequent exercise by Landlord
or Tenant of any or all of such other rights, powers and remedies. The
provisions of this Section are subject in all respects to the provisions of
Article
24.




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




25.5           No Merger of Title. There
shall be no merger of this Lease or of the leasehold estate created hereby if
the same person, firm, corporation or other entity acquires, owns or holds,
directly or indirectly, this Lease or the leasehold estate created hereby or any
interest in this Lease or such leasehold estate, and the fee estate in the
Property.




25.6           Conveyance by Landlord. If
Landlord or any successor owner of the Property conveys the Property in
accordance with the terms hereof (other than as security for a debt), and the
grantee or transferee of the Property expressly assumes all obligations of
Landlord hereunder arising or accruing from and after the date of such
conveyance or transfer, Landlord or such successor owner, as the case may be,
thereupon shall be released from all liabilities and obligations of Landlord
under this Lease arising after such conveyance or transfer.




25.7           Quiet Enjoyment. So long as
Tenant pays all Rent as the same becomes due and fully complies with all of the
terms of this Lease and fully performs its obligations hereunder when due or
within any cure period provided for herein, Tenant shall peaceably and quietly
have, hold and enjoy the Property for the Term hereof, free of any claim or
other action by Landlord or anyone claiming by, through or under Landlord, but
subject to the Permitted Encumbrances and/or any liens and encumbrances of
record hereafter consented to by Tenant. Except as otherwise provided in this
Lease, no failure by Landlord to comply with the foregoing covenant shall give
Tenant 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 or refuse to perform any other obligation of Tenant hereunder.
Notwithstanding the foregoing, Tenant shall have the right, by separate and
independent action, to pursue any claim it may have against Landlord as a result
of a breach by Landlord of the covenant of quiet enjoyment contained in this
Section.




25.8           Notices. All notices, demands,
requests, consents, approvals and other communications (“Notice” or “Notices”)
hereunder shall be in writing and shall be deemed to have been duly given when
delivered in person or received by telegraphic or other electronic means
(including telecopy and telex) or, if mailed, five days after
being


52


deposited
in the United States mail, certified or registered mail, postage prepaid, or if
sent via Federal Express or similar courier service via overnight delivery, the
next business day following receipt, addressed to the respective parties as
follows (or to such other address as a party may hereafter
designate):




If to
Tenant:                                Emeritus
Corporation


3131 Elliott Avenue


Suite 500


Seattle, WA 98121-1031


Attn: Eric Mendelsohn, Senior Vice
President Corporate Development


Telecopy No.:
206-357-7388





and
      a copy to:
            The
      Nathanson Group PLLC


One
      Union Square


600
      University Street, Suite 2000


Seattle,
      WA 98101


Attn:
      Randi S. Nathanson


Telecopy
      No.: 206-299-9335





If
      to Landlord:
            National
      Health Investors, Inc.


222
      Robert Rose Drive


Murfreesboro,
      TN 37129


Attention:
      Kristin S. Gaines


Telecopy No.:
615-225-3030





and
      a copy to:
            Stites
      & Harbison PLLC


401
      Commerce Street


Suite 800


Nashville,
      TN 37219


Attention:
      Robert N. Buchanan III


Telecopy No.:
615/782-2371





25.9           Survival of Terms; Applicable
Law. Anything contained in this Lease to the contrary notwithstanding,
all claims against, and liabilities of, Tenant or Landlord arising prior to any
date of termination of this Lease shall survive such termination. If any term or
provision of this Lease or any application thereof shall be invalid or
unenforceable for any reason whatsoever, the remainder of this Lease and any
other application of such term or provisions shall not be affected thereby. If
any late charge or any interest rate provided for in any provision of this Lease
based upon a rate in excess of the maximum rate permitted by applicable law,
such charges shall be fixed at the maximum permissible rate. Subject to any
limitations on assignment contained in this Lease, all the terms and provisions
of this Lease shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. The headings in this Lease
are for convenience of reference only and shall not limit or otherwise affect
the meaning hereof. The Recitals to this Lease are incorporated herein by this
reference. This Lease as to each Facility shall be governed by and construed in
accordance with the laws of the State of Tennessee or the applicable State, but
not including its conflicts of laws rules.


53


25.10           Exculpation of Officers and
Agents. This Lease is made on behalf of Landlord and Tenant by an officer
of each, not individually, but solely in his capacity in such office as
authorized by the directors of each, pursuant to their respective bylaws. The
obligations of this Lease are not binding upon, nor shall resort be had to the
private property of, any of the directors, shareholders, officers, members,
employees or agents of Landlord or Tenant.




25.11           Licenses Following Termination; Tenant’s
Cooperation.




(a)           If
Tenant does not close its purchase of the Land and Facilities under the Purchase
Option provided in Section 25.16 hereof, to the extent not then prohibited by
applicable Legal Requirements, unless otherwise directed by Landlord, upon the
expiration or termination of the Term, Tenant shall use reasonable good faith
efforts to (i) transfer to Landlord or Landlord’s nominee (or to cooperate with
Landlord or Landlord’s nominee in connection with the processing by Landlord or
Landlord’s nominee of any applications for) all Licenses then in effect which
relate to the operation of any Facility and/or cooperate with Landlord or its
nominee in their efforts to secure licenses for which Landlord or its nominee
wishes to apply and which may be required by Landlord or Landlord’s nominee
relating to the ownership and operation of any Facility (provided, however, that
the costs and expenses of any such transfer or the processing of any such
application shall be paid by Landlord or Landlord’s nominee), and (ii) file all
final cost reports, if any, relating to Tenant’s operation of the
Facility.




(b)           Tenant
acknowledges and agrees that to the extent and only to the extent permitted by
law, title to (i) any zoning or building approvals, or other governmental
approvals (the “Approvals”) which, by
their nature, pertain to a Facility, its ownership and its use and occupancy and
(ii) all licenses and permits which, by their nature, pertain specifically to
such Facility, its ownership and its use and occupancy shall, in every respect,
be and remain with such Facility or Landlord, as the case may be, and are not
and shall not be the property of Tenant. Tenant shall take no action and shall
have no right, power or authority to encumber same except in favor of Landlord
and then only to the extent permitted by applicable law or to sell, assign or
transfer same to any third person other than Landlord or its nominee in
accordance with the provisions of Section 25.11(a),
either during the Term or upon any termination of this Lease, or to use, in any
manner which would impair or adversely affect the use of such Approvals with
respect to the Facility, such Approvals at any other location.




(c)           Upon
the expiration or earlier termination of the Term (other than as a result of the
purchase of the Facilities by Tenant pursuant to the Purchase Option set forth
in Section 25.16), Tenant shall execute in favor of the Landlord as to each
Facility the Assignment of Resident Agreements, to the extent and only to the
extent permitted by law, and the Assignment of Contracts and Operating Leases.
In addition, Tenant shall cooperate with Landlord in order to ensure a smooth
transfer without interruption of the operation of each Facility from
Tenant


54


to
Landlord or Landlord’s nominee. Such cooperation shall include, without
limitation, turning over (i) all Records and other information with respect to
residents and patients of the Facility which are in the possession of Tenant or
any Affiliate of Tenant (subject to applicable Legal Requirements governing
confidentiality of patient records, Tenant agreeing, however, that Tenant’s
cooperation under this subparagraph (c) shall include cooperation in
facilitating requests to the residents and patients of the Facility to consent
to the transfer of such patient records), and (ii) a cash amount equal to all
prepaid income, rents, and revenues of any kind with respect to the Facility,
including, but not limited to, security deposits, rents and other sums paid by
residents covering any period from and after the date of such expiration or
termination, but reduced to the extent and amount any such prepaid items must
be, and are, refunded to the payor(s) by Tenant.




(d)           Upon
the expiration or earlier termination of the Term (other than as a result of the
purchase of the Facilities by Tenant pursuant to the Purchase Option set forth
in Section 25.16) Landlord or its nominee shall, upon request, enter into an
Operations Transfer Agreement with Tenant in form and substance substantially
the same at the OTA executed by the parties at the commencement of the Term of
the Lease.




25.12  Memorandum of Lease. Landlord
and Tenant shall, concurrently with the execution of this Lease, enter into a
short form memorandum of this Lease for each Facility in form suitable for
recording under the laws of the State. Landlord and Tenant shall equally share
all costs and expenses of recording such memorandum of this
Lease.  The Memorandum shall include a reference to Tenant’s Purchase
Option under Section 25.16 hereof.




25.13
Entire Agreement;
Modifications. This Lease contains the entire agreement between Landlord
and Tenant regarding the subject matter hereof and supersedes any and all other
prior oral or written agreements, communications, covenants, representations or
warranties between the parties regarding the subject matter hereof. No provision
of this Lease may be waived, amended, supplemented or otherwise modified except
by an agreement in writing signed by the parties hereto or their respective
successors in interest.




25.14  Attorneys’ Fees. During the
Term each party shall pay all reasonable legal fees and other out-of-pocket
costs of the other incurred in connection with any event which would after due
notice and the passage of time would constitute an Event of Default if not
cured; and in the event either party brings an action to enforce any of the
terms hereof or in connection herewith, the prevailing party in such action
shall be entitled to and the losing party agrees to pay the reasonable
attorneys’ fees and expenses, including attorneys’ fees and expenses of
appellate proceedings, of the prevailing party.  Tenant shall be
responsible for Landlord’s reasonable attorneys’ fees and expenses in connection
with the administration and enforcement of this Lease, including without
limitation, any renewals or extensions of this Lease, the exercise of the
Purchase Option, and the review of any documents related to Landlord consents.
Tenant shall be responsible for Landlord’s reasonable attorneys’ fees and
expenses in the event Tenant requests that


55


Landlord
amend the Lease, grant an easement over the Property or execute and deliver an
estoppel certificate.




25.15           Time is of the Essence. Time
is hereby expressly made of the essence with respect to each and every term and
provision of this Lease, including, but in no way limiting the generality of the
foregoing, with respect to each and every time constraint and deadline imposed
by the terms of this Lease. The parties intend that they be strictly bound by
the provisions concerning the timing performance of their respective obligations
contained in this Lease. Further, if any attempt is made by either party to
perform an obligation required by it to be performed or comply with a provision
of this Lease required by it to be complied with, in any manner, other than in
strict compliance with the time constraints applicable thereto, even if such
purported attempt is but one day late, then such purported attempt at
performance or compliance shall be deemed (i) violative of this “Time is of the
Essence” clause, (ii) in contravention of the intent of the parties thereto and
(iii) null and void and of no force and effect.




25.16           Purchase Option.




(a)           Landlord
hereby grants to Tenant the right and option to purchase all of the Facilities
(but not fewer than all of the Facilities then subject to the terms of this
Lease) (the “Purchase
Option”) at any time during the period commencing on the first day of the
eleventh (11th)
year of the Initial Term and expiring on the last day of the Term (the “Option Period”).
Provided that no Event of Default then exists, Tenant may exercise the option by
delivering to Landlord written notice thereof at any time before or during the
Option Period, and the closing of the sale and purchase shall occur no later
than one hundred twenty (120) days after the delivery of such written notice of
exercise; unless such day is a Saturday, Sunday or legal holiday, in which event
the closing shall be on the next business day thereafter (“Closing
Date”).  Tenant shall have the right to assign this purchase
option upon the assignment of this Lease permitted by the terms hereof without
Landlord’s consent or consummated with the consent of Landlord if and as
required by the terms of this Lease, to any Affiliate of Tenant or to an entity
providing, or formed for the purpose of obtaining, financing for the Purchase
Option transaction (the party purchasing pursuant to this purchase option shall
hereinafter be referred to as the “Purchaser”).  This
Purchase Option may not otherwise be assigned by Tenant without Landlord’s prior
written consent.  In the event Tenant gives notice of its election to
purchase the Property but fails to close the purchase of the Property within the
time allowed herein, the Lease shall remain in full force and effect and Tenant
shall be liable for all of Landlord’s costs and expenses relating to the
Tenant’s election to exercise the purchase option, including, but not limited
to, the fees and expenses of the Landlord’s appraiser and reasonable attorneys
fees.





(b)           The
Purchase Price for the exercise of the Purchase Option shall be the sum of (x)
the principal amount of Thirty Six Million Six Hundred Sixty Six Thousand Six
Hundred Sixty Seven and no/100 Dollars ($36,666,667.00) (less any amount
previously paid to Landlord pursuant to Articles 15 or Article 16 as a result of
damage to or destruction or Condemnation of any of the Facilities) (the “Base Purchase Price”)
plus (y) fifty percent (50%) of the amount, if any, by which the fair market
value of the


56


Facilities
subject to this Lease at the time the Purchase Option is exercised determined in
the manner set forth below (herein the “Fair Market Value”)
exceeds the Base Purchase Price.





(c)           The
Fair Market Value of the Facilities subject to this Lease at the time the
Purchase Option is exercised shall be such amount as may be agreed upon by
Landlord and Tenant; provided, however, in the event Landlord and Tenant are
unable to agree after negotiating in good faith for a  period of sixty
(60) days upon the Fair Market Value of the Facilities subject to the terms of
this Lease at the time the Purchase Option is exercised, then the Fair Market
Value of the Facilities 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 selected by Landlord (the “Appraiser”). Landlord shall give Tenant notice
of the identity of such Appraiser. Landlord shall cause such Appraiser to
determine the Fair Market Value 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, absent Tenant’s selection of a second appraiser within the
time permitted and otherwise pursuant to the provisions of this Section, 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
Landlord and Tenant. 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 the sales comparison approach and the income
approach (the cost approach shall not be considered), and neither method or
approach shall be deemed conclusive. 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.
Landlord and Tenant 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. If Tenant does not accept the choice of the
Appraiser selected by Landlord as provided above, then the following shall
apply:





(i)           Within
fifteen (15) days after Tenant’s receipt of Landlord’s selected Appraiser,
Tenant shall by notice to Landlord appoint a second Appraiser meeting the
requirements set forth above to act on its behalf. In such event, the Appraisers
thus appointed shall, within sixty (60) days after the date of Landlord’s notice
of its originally selected Appraiser, proceed to determine the Fair Market Value
as of the relevant date (giving effect to the impact, if any, of inflation from
the date of their decision to the relevant date); provided, however, that if
Tenant fails to appoint its Appraiser within the time permitted, or if two
Appraisers shall have been so appointed but only one such Appraiser shall have
made such determination within such sixty (60) day period, then the
determination of such sole Appraiser shall be final and binding upon the
parties.





(ii)           If
the two Appraisers shall have been appointed and shall have made their
determinations within the respective requisite periods set forth
above


57


and if
the difference between the amounts so determined shall not exceed ten percent
(10%) of the lesser of such amounts, then the Fair Market Value of such Facility
shall be an amount equal to average of the two appraisals. If the difference
between the amounts so determined shall exceed ten percent (10%) of the lesser
of such amounts, then such two Appraisers shall have twenty (20) days to appoint
a third Appraiser meeting the above requirements, but if such Appraisers fail to
do so, then either party may request the American Arbitration Association (the
“AAA”) or any
successor organization thereto to appoint an Appraiser meeting the above
requirements within twenty (20) days of such request, and both parties shall be
bound by any appointment so made within such twenty (20) day period. If no such
Appraiser shall have been appointed within such twenty (20) days or within one
hundred five (105) days of the original request for a determination of Fair
Market Value, whichever is earlier, either Landlord or Tenant may apply to any
court having jurisdiction to have such appointment made by such court. Any
Appraiser appointed by the original Appraisers, by the AAA or by such court
shall be instructed to determine the Fair Market Value of such Facilities within
thirty (30) days after appointment of such Appraiser in accordance with the
methodologies and approaches set forth herein.





(iii)           Following
the determination by the third Appraiser described above (if applicable), the
determination of the Appraiser which differs most in terms of dollar amount from
the determinations of the other two Appraisers shall be excluded, and the
average of the remaining two determinations shall be final and binding upon
Landlord and Tenant as the Fair Market Value of the Facilities. 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.





(iv)           If
the foregoing two (2) or three (3) Appraiser system is utilized, then Landlord
and Tenant shall each pay the fees and expenses of the Appraiser appointed by it
and each shall pay one-half (1/2) of the fees and expenses of any third
Appraiser.





(d)           The
purchase price shall be paid in full at the closing, although Purchaser may, at
its option, use all or any portion of the purchase price as may be necessary to
discharge any mortgages or other liens or encumbrances affecting Landlord’s
interest in the Property.  In the event that the aggregate amount
required to pay and discharge all such mortgages, liens and encumbrances exceeds
the purchase price, Landlord shall pay or reimburse Purchaser all such
additional sums and obtain full release and discharge of such deeds of trust,
mortgages, liens and encumbrances.  At the closing, Landlord shall
convey to Purchaser by special warranty deeds, bills of sale and assignments,
all of Landlord’s right, title and interest to the Property, but free and clear
of all mortgages, deeds of trust, liens and other encumbrances whatsoever,
excepting real estate taxes not yet due and payable, easements, restrictive
covenants and other matters encumbering the Land on the Commencement Date or
otherwise approved by Tenant. Upon such


58


conveyance
this Lease shall terminate and neither party shall have any further rights or
obligations hereunder except those expressly stated to survive
termination.  Unless otherwise agreed by Tenant and any sublessee,
such termination shall not result in the termination of any sublease. The
closing costs and expenses in connection with the transfer of the Facilities to
Tenant, including, but not limited to,  real property conveyance or
transfer fees or deed stamps, title search fees, title insurance commitment
fees, and title insurance premiums, survey fees, environmental assessment fees,
recording fees and the fees of any escrow agent shall be paid by Tenant. Tenant
shall be solely responsible for Tenant’s and Landlord’s respective legal fees
incurred in connection with the transfer of the Facilities to
Tenant.  Notwithstanding the foregoing provision relating to legal
fees, Landlord shall be solely responsible for Landlord’s legal fees incurred in
cleaning any encumbrances or exceptions to title to any portion of the Land or
Property which title matter Landlord is required to have cleared or removed
pursuant to this Section
25.16(d).





(e)           Tenant
shall be entitled to specific enforcement of the rights and obligations
contained in this Section 25.16.





25.17           Submission to Jurisdiction.
Landlord and Tenant each hereby irrevocably:




(i)           submits,
in any legal proceeding related to this Lease, to the non-exclusive in personam
jurisdiction of Arizona, South Carolina, Tennessee or any United States court of
competent jurisdiction sitting in any State and agree to suit being brought in
any such court;




(ii)           waives
any objection that it may now or hereafter have to the venue of such proceeding
in any such court located in any county in which the Facility involved in such
litigation is located, or Davidson County, Tennessee or Rutherford County,
Tennessee or that such proceeding was brought in any inconvenient court;
and




(iii)           agrees
that nothing herein shall affect the right of either party to bring any legal
proceedings (including a proceeding for enforcement of a judgment entered by any
of the aforementioned courts) against the other party in any other court or
jurisdiction in accordance with applicable law.




25.18           Waiver of Jury Trial. EACH OF
LANDLORD AND TENANT HEREBY SEVERALLY, VOLUNTARILY, KNOWINGLY AND INTELLIGENTLY
WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED
UPON, ARISING OUT OF OR IN CONNECTION WITH, OR IN ANY WAY RELATED TO, DIRECTLY
OR INDIRECTLY, THIS LEASE, ANY OF THE OTHER ALS LEASES, AND/OR ANY RELATIONSHIP,
COURSE OF CONDUCT OR DEALINGS OR NEGOTIATIONS PERTAINING TO ANY OF THE
FOREGOING. EACH OF LANDLORD AND TENANT SEVERALLY ACKNOWLEDGES THAT THIS WAIVER
OF JURY TRIAL IS A MATERIAL INDUCEMENT TO LANDLORD TO ENTER INTO THIS LEASE, AND
THAT EACH OF LANDLORD AND TENANT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL
COUNSEL, SELECTED


59


BY SUCH
PARTY’S OWN FREE WILL, AND HAS HAD AN OPPORTUNITY TO CONSULT WITH SUCH
INDEPENDENT LEGAL COUNSEL CONCERNING THE LEGAL EFFECT OF THIS
WAIVER.




25.19  Tax Identification
Number.  Tenant’s federal EIN is 91-1605464.




25.20           Use of
Counterparts.  This Lease may be executed in two or more
counterparts and each counterpart shall be deemed to be an original. Facsimile
signatures shall be sufficient to evidence any party’s agreement to this Lease
and to bind such party hereto.




25.21           Calculation of Time Periods.
Unless otherwise specified, in computing any period of time described herein,
the day of the act or event on which the designated period of time begins to run
shall not be included and the last day of the period so computed shall be
included, unless such last day is a Saturday, Sunday or legal holiday, in which
event the period shall run until the 5:00 PM Pacific Time on the next day which
is not a Saturday, Sunday or a legal holiday.




ARTICLE
26 – NON
COMPETITION PROVISIONS.




Tenant
covenants and agrees that, at all times during the last three years of this
Lease neither Tenant nor any Affiliate of Tenant, will directly or indirectly,
own, management, lease or operate a health care facility within a ten (10) mile
radius of any Facility in Tennessee or South Carolina and within a five (5) mile
radius of any Facility in Arizona, that competes. or would reasonably be
expected to compete with such Facility.  In addition for a period of
one year after expiration of the Term, neither Tenant nor any Affiliate of
Tenant will commence construction of any facility within the respective
protective radii stated above, which newly developed facility would compete or
be reasonably expected to compete with any Facility. The provisions of this
Article 26 shall survive the expiration or termination of this
Lease.  Tenant understands and acknowledges that the violation of this
covenant not to compete by Tenant, or any Affiliate of Tenant, would cause
irreparable harm to Landlord and Landlord would be entitled to seek an
injunction from any court of competent jurisdiction enjoining and restraining
Tenant, or any Affiliate of Tenant, from any act prohibited by this Article
26.  Tenant and Landlord recognize and acknowledge that the area and
time limitations contained in this Article 26 are reasonable.  In
addition, Tenant and Landlord recognize and acknowledge that the area and time
limitations are properly required for the protection of the business interests
of Landlord due to the status and reputation of Tenant in the
industry.  The parties agree that nothing in this Article 26 shall be
construed as prohibiting Landlord from pursuing any other remedies available to
it for any breach or threatened breach of this covenant not to compete,
including the recovery of damages from Tenant or any other person or entity
acting in concert with Tenant.  Tenant agrees that, in the event that
Tenant, or any subsidiary thereof, breaches this covenant not to compete, Tenant
will pay reasonable attorney’s fees and expenses incurred by Landlord in
enforcing this covenant not to compete.




It is
further agreed that if at any time it shall be determined that this covenant not
to compete is unreasonable as to time or area, or both, by any court of
competent jurisdiction, Landlord shall be entitled to enforce this covenant for
such period of time and within such area as such court may determine to be
reasonable


60


Notwithstanding
the foregoing, this Article 26 shall not prohibit Tenant from owning, leasing,
operating or managing any competing healthcare facility which has been acquired
by Tenant or any Affiliate of Tenant, whether by acquisition, lease or
management agreement, as part of a transaction or series of related transactions
including six (6) or more facilities, any of which is located within the areas
protected by this Article 26.




This
Article 26 shall be deemed to be void and of no ongoing effect in the event
Tenant should exercise its option to purchase all of the Facilities pursuant to
Section
25.16.




ARTICLE
27 –
CONDITIONS PRECEDENT.




Notwithstanding
anything to the contrary contained in this Lease, Landlord and
Tenant  acknowledge and agree that the continued effectiveness of this
Lease and Landlord’s and Tenant’s obligations hereunder are expressly
conditioned upon the satisfaction or waiver in writing on or before December 1,
2009 or such later date as may be agreed upon by Landlord  and Tenant
f the following




(a)           It
shall be a condition to Tenant’s obligations hereunder that the Lease and
Management Agreement in effect with respect to each Facility shall have been
terminated and, upon request, Landlord shall have provided Tenant with evidence
thereof.




(b)           It
shall be a condition to Tenant’s obligations hereunder that the Prior Operator
and/or the Prior Manager shall have entered into the OTA or other documentation
deemed by Tenant to be reasonably acceptable with respect to the transfer of
operational and financial responsibility for such Facility from the Prior
Operator and/or Prior Manager to Tenant.




(c)           It
shall be a condition to Tenant’s obligations hereunder that Tenant shall be
satisfied in its sole and absolute discretion with the results of its due
diligence investigation with respect to the physical, financial and operational
condition of each of the Facilities, which due diligence investigations shall
have been completed by November 13, 2009. (October 12, 2009 through November 13,
2009 being referred to herein as the “Due Diligence Period”).




(d)           It
shall be a condition to Tenant’s obligations hereunder that it has secured the
approval of its Board of Directors to the transaction contemplated herein (prior
to the expiration of the Due Diligence Period.




(e)           It
shall be a condition to Tenant’s obligations hereunder with respect to each
Facility that Tenant shall either (i) have received the Licenses required by the
State for Tenant to operate such Facility for its Permitted Use or (ii) Tenant
shall be authorized to operate a Facility under the terms of the Interim
Operating Agreements.




61


In order
to terminate this Lease based upon Tenant’s dissatisfaction with Tenant’s
inspections of the Facilities, Tenant must provide written notice of termination
to Landlord not later than 5:00 p.m. Central Standard Time on November 16,
2009.  If such notice of termination is not timely given, Tenant shall
be deemed to have satisfied conditions (c) and (d) of this Section
27.




[Remainder
of this page is blank]





62


IN
WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the dates shown
below to become effective as of 10/13, 2009.





TENANT:





Date:10/13/2009
            EMERITUS
      CORPORATION, a Washington
corporation







By:/s/ Eric
      Mendelsohn


Eric
      Mendelsohn


Title:
      SVP Corporate
      Development





STATE OF
WASHINGTON                                                                :


: ss


COUNTY
OF                                KING                                :








On this, the 13th day of _October,
2009, before me, the undersigned officer, personally appeared Eric Mendelsohn, who
acknowledged himself to be the SVP Corporate
Development of Emeritus Corporation, a Washington corporation
(“Company”), and being duly sworn according to law deposes and says that he, as
such officer, being authorized to do so, executed the foregoing Instrument for
the purposes therein contained, by signing the name of the Company by himself as
SVP Corporate
Development.





IN WITNESS WHEREOF, I hereunto set my
hand and official seal the day and year first above written.








/s/ Teresa K.
Franklin


Notary Public





My Commission Expires: 02/09/2011








63





LANDLORD:





Date:_10/13/09
            NATIONAL
      HEALTH INVESTORS, INC., a Maryland
corporation








By:
      /s/ Kristin S.
      Gaines


Kristin S.
      Gaines


Title:
      Vice President,
      Operations





STATE OF
_TENNESSEE                                                      )


)


COUNTY OF
_RUTHERFORD                                                      )




Before
me, _Jessica S. Murphy, a Notary Public of said County and State, personally
appeared Kristin S.
Gaines, with whom I am personally acquainted (or proved to me on the
basis of satisfactory evidence), and who, upon oath, acknowledged herself to be
Vice President,
Operations of National Health Investors, Inc., a Maryland corporation,
the within named bargainor, and that she as such officer of the corporation,
executed the foregoing instrument for the purposes therein contained, by signing
the name of the corporation, and on its behalf, by himself as _Vice President,
Operations of the corporation.




Witness
my hand and seal, at Office in Murfreesboro, this _13th day of October,
2009.






/s/
Jessica S. Murphy


Notary
Public


My
Commission Expires:07-21-2013








64


SCHEDULE
I





List
Of Facilities











The
Place at Gilbert, Arizona


The
Place at Glendale, Arizona


The
Place at Tanque Verde, Arizona


The
Place at Tucson, Arizona


The
Place at Conway, South Carolina


The
Place at Gallatin, Tennessee


The
Place at Kingsport, Tennessee


The
Place at Tullahoma, Tennessee





65


SCHEDULE
II





Allocation
of Base Rent











Community
            City,
      State
            First
      Lease Year Annual Base Rent AllocationThe
      Place at Gilbert
            Gilbert,
      AZ
            $  254,619The
      Place at Glendale
            Glendale,
      AZ
            $  444,689The
      Place at Tanque Verde
            Tanque
      Verde, AZ
            $  687,344The
      Place at Tucson
            Tucson,
      Az
            $  902,616The
      Place at Conway
            Conway,
      SC
            $    92,526The
      Place at Gallatin
            Gallatin,
      TN
            $  291,580The
      Place at Kingsport
            Kingsport,
      TN
            $  164,571The
      Place at Tullahoma
            Tullahoma,
      TN
            $  512,055Total
            
            $3,350,000





66


EXHIBIT
A





ASSIGNMENT AND ASSUMPTION OF
CONTRACTS AND OPERATING LEASES




THIS
ASSIGNMENT AND ASSUMPTION OF CONTRACTS AND OPERATING LEASES (this “Assignment”) is made
and entered into as of the ____ day of _____________________ (the “Effective Date”) by
and between the undersigned tenant, a (“Tenant”), and
_________________________________________, a ___________________ (“Landlord”).




R E C I T A L
S:







WHEREAS,
Landlord and Tenant entered into a Lease
dated                                                                                                                                ,
2009 (the “Agreement”) for the
lease of certain improved real property having a legal description as set forth
on Exhibit A
attached hereto and incorporated herein by this reference and known generally as
[Name of Facility],
together with certain personal property located upon and used in connection with
such improved real property, all as more particularly described in the Agreement
(collectively the “Project”);
and,




WHEREAS,
the Agreement requires that upon the termination thereof, Tenant shall deliver
to Landlord of this Assignment pursuant to which Tenant will convey to Landlord
all of Tenant’s right, title and interest in the Contracts and Operating Leases;
and




WHEREAS,
the Agreement has been terminated effective as of the date first above
written.




NOW,
THEREFORE, in consideration of the foregoing premises, for the consideration as
set forth in the Agreement, and for other good and valuable considerations, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto do
covenant and agree as follows:




1.           Defined Terms.
Capitalized terms not otherwise defined in this Assignment, including without
limitation these recitals and the exhibits, shall have the meanings set forth in
the Agreement.




2.           Contracts and Operating
Leases. Tenant hereby grants, bargains, sells, assigns, transfers and
conveys unto Landlord to the extent assignable all of Tenant’s right, title and
interest in and to all of the Contracts and Operating Leases set forth on Exhibit B attached
hereto and incorporated herein by reference (herein the “Assigned
Rights”).




3.           Cancellation and
Indemnification. Tenant agrees to cancel any and all Contracts and
Operating Leases except those listed in Exhibit B hereto (the
“Assumed Contracts and Operating Leases”) and those listed on Exhibit C hereto (the
“Master Contracts and Operating Leases”) and to indemnify and hold Landlord
harmless against any claims and losses under such cancelled Contracts and
Operating Leases, it being the intention of the parties that Landlord will not
assume Tenant’s obligations under any Contract or Operating Lease except those
listed in Exhibit
B, if any. With respect to the Master Contracts and Operating Leases,
Tenant shall be not


67


be
required to terminate the same but shall be required to remove the Project from
any continuing benefits or obligations thereunder from and after the Effective
Date.




4.           Assumption. Landlord
accepts the assignment of all of the Assigned Rights and Landlord does hereby
assume and undertake to abide by the same according to their respective terms
and conditions insofar as they pertain to the Project as such obligations arise
on or after the Effective Date and are not related to causes occurring prior to
the Effective Date. Landlord hereby agrees to indemnify and hold Tenant harmless
from any and all expenses, charges, claims and liabilities, including costs and
attorneys’ fees relating to the Assigned Rights arising as a result of any
action or omission of Landlord from and after the Effective Date not related to
causes occurring prior to the Effective Date. Tenant agrees to indemnify and
hold Landlord harmless from any and all expenses, charges, claims and
liabilities, including costs and attorneys’ fees, associated with the Assigned
Rights or related thereto arising as a result of any action or omission of
Tenant prior to the Effective Date.




5.           Limitation.  To
the extent that any of the assignments or assumptions under this Agreement are
now or are hereafter deemed to be in violation of the terms of any of the
Operating Contracts and Operating Leases, such assignment and assumption shall
be deemed to be retracted and null and void.




6.           Counterparts. This
Assignment may be executed in counterparts, each of which shall be deemed to be
an original, but all of which taken together shall constitute but one and the
same instrument.




7.           Entirety. This
Assignment represents the entire and final agreement of the parties hereto with
respect to the subject matter hereof and supersedes all prior discussions or
writings with respect thereto.




IN
WITNESS WHEREOF, the parties have caused this Assignment to be executed as of
the Effective Date.




TENANT:                                                                [TENANT]








By:





Print
Name:





Title:





68


LANDLORD:                                                                           [LANDLORD]











By:





Print
Name:





Title:





69


EXHIBIT
A





Legal
Description












































EXHIBIT
B





Contracts
and Operating Leases








70


EXHIBIT
B








ASSIGNMENT AND ASSUMPTION OF
RESIDENT AGREEMENTS




THIS
ASSIGNMENT AND ASSUMPTION OF RESIDENT AGREEMENTS (this “Assignment”) is made
and entered into as of the ____ day of _____________________ (the “Effective Date”) by
and between the undersigned tenant, a (“Tenant”), and
_____________________________, a __________________(“Landlord”).




R E C I T A L
S:







WHEREAS,
Tenant and Landlord entered into a Lease dated _________________, 2009 (the
“Agreement”)
for the lease of certain improved real property having a legal description as
set forth on Exhibit
A attached hereto and incorporated herein by this reference and known
generally as [Name
of Facility], together
with certain personal property located upon and used in connection with such
improved real property, all as more particularly described in the Agreement
(collectively the “Project”);
and,




WHEREAS,
the Agreement requires that, upon the termination thereof, Tenant shall deliver
to Landlord this Assignment pursuant to which Tenant will convey to Landlord all
of Tenant’s right, title and interest in the Resident Agreements, including
without limitation all security deposits, trust accounts and tenant applications
held in connection therewith (collectively the “Resident
Agreements”); and




WHEREAS,
the Agreement has been terminated effective as of the date first above
written.




NOW,
THEREFORE, in consideration of the foregoing premises, for the consideration as
set forth in the Agreement, and for other good and valuable considerations, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto do
covenant and agree as follows:




1.           Defined Terms.
Capitalized terms not otherwise defined in this Assignment, including without
limitation these recitals and the exhibits, shall have the meanings set forth in
the Agreement.




2.           Resident Agreements.
Tenant hereby grants, bargains, sells, assigns, transfers and conveys unto
Landlord all of Tenant’s right, title and interest in and to all of the Resident
Agreements to the extent assignable, including without limitation the Resident
Agreements set forth on Exhibit B attached
hereto and incorporated herein by reference. The information set forth on Exhibit C
attached hereto and incorporated herein by this reference regarding each of the
Resident Agreements, including without limitation information regarding security
deposits, custodial and trust accounts, prepaid amounts and delinquent amounts,
is true and correct as of the Effective Date.




71


3.           Payments Under Resident
Agreements. Tenant hereby grants, bargains, sells, assigns, transfers and
conveys unto Landlord all of its right, title and interest in and to (a)
payments under the Resident Agreements, and (b) third party payments received in
lieu of payments required under Resident Agreements, which payments under either
(a) or (b) are for services, goods or rentals accruing from and after the
Effective Date.  Any payments received by Landlord for services, goods
or rentals accruing prior to the Effective Date that are received by Landlord
shall be promptly remitted by Landlord to Tenant.




4.           Assumption. Landlord
accepts the assignment of all of the Resident Agreements set forth in Exhibit B, together
with deposits, and amounts held in custodial and trust accounts as shown on
Exhibit C, and
Landlord does hereby assume and undertake to abide by the same according to
their respective terms and conditions insofar as they pertain to the Project
(the “Assignment and
Assumption”), as such obligations arise on or after the Effective Date
and are not related to causes occurring prior to the Effective Date. Landlord
hereby agrees to indemnify and hold Tenant harmless from any and all expenses,
charges, claims and liabilities, including costs and reasonable attorneys’ fees,
associated with the Assignment and Assumption or related thereto arising as a
result of any action or omission of Landlord from and after the Effective Date
not related to causes occurring prior to the Effective Date. Tenant agrees to
indemnify and hold Landlord harmless from any and all expenses, charges, claims
and liabilities, including costs and reasonable attorneys’ fees, associated with
the Assignment and Assumption or related thereto arising as a result of any
action or omission of Tenant prior to the Effective Date.




5.           Limitation.  To
the extent that any of the assignments or assumptions under this Agreement are
now or are hereafter deemed to be in violation of any applicable law or
regulation, such assignment and assumption shall be deemed to be retracted and
null and void.




6.           Counterparts. This
Assignment may be executed in counterparts, each of which shall be deemed to be
an original, but all of which taken together shall constitute but one and the
same instrument.




7.           Entirety. This
Assignment represents the entire and final agreement of the parties hereto with
respect to the subject matter hereof and supersedes all prior discussions or
writings with respect thereto.









IN
WITNESS WHEREOF, the parties have caused this Assignment to be executed as of
the Effective Date.




TENANT:                                                                [TENANT]








By:





Print
Name:





Title:


72





LANDLORD:                                                                           [LANDLORD]











By:





Print
Name:





Title:





73


EXHIBIT
A




Legal
Description






















EXHIBIT
B




Resident
Agreements

























EXHIBIT
C




Information
Regarding Security Deposits,


Trust
Accounts, Prepaid Amounts and Delinquency Reports








74


EXHIBIT
C




BILL OF
SALE




This BILL
OF SALE (this “Bill of
Sale”) is executed as of the ____ day of ____________________ by the
undersigned tenant, a (“Tenant”), to
_______________________________, a _________________ (“Landlord”).




R E C I T A L
S:







WHEREAS,
Tenant and Landlord entered into a Lease
dated                                                                                                                                ,
2009 (the “Agreement”) for the
lease of certain improved real property having a legal description as set forth
on Exhibit A
attached hereto and incorporated herein by this reference and known generally as
[Name
of Facility], together with
certain personal property located upon and used in connection with such improved
real property, all as more particularly described in the Agreement;
and,




WHEREAS,
the Agreement requires that upon the termination thereof, Tenant shall deliver
to Landlord a Bill of Sale pursuant to which Tenant will convey to Landlord all
of Tenant’s right, title and interest in the Transferred Tenant’s Personal
Property, the Inventory and the Records; and




WHEREAS,
the Agreement has been terminated effective as of the date first above
written.




NOW,
THEREFORE, in consideration of the foregoing premises, the consideration set
forth in the Agreement, and for other good and valuable considerations, the
receipt and sufficiency of which are hereby acknowledged, Tenant hereby agrees
as follows:




1.           Defined Terms.
Capitalized terms not otherwise defined in this Bill of Sale, including without
limitation these recitals and the exhibits, shall have the meanings set forth in
the Agreement.




2.           Conveyance. Tenant
hereby sells, assigns, conveys, transfers and delivers to Landlord the following
described assets and property (the “Property”): (a) the
Transferred Tenant’s Personal Property; (b) the Inventory; and (c) the Records,
all to the extent of Tenant’s interest therein. A non-exhaustive list of the
Property is set forth on Exhibit B attached hereto and incorporated herein by
this reference.  The sale and assignment of the Records shall be
subject to all applicable rules and regulations governing confidentiality of
resident and patient records.




75


IN WITNESS WHEREOF, Tenant has
caused this Bill of Sale to be executed as of the date first above
written.




Tenant:





[TENANT]








By:





Print
      Name:





Title:


76


EXHIBIT
A




REAL PROPERTY
DESCRIPTION







































EXHIBIT
B




PROPERTY
DESCRIPTION













77


EXHIBIT
D





Legal
Description of land parcels:








78


EXHIBIT
E





Permitted
Encumbrances





To be
determined during Due Diligence Period










79


EXHIBIT
F




CAPITAL IMPROVEMENT RESERVE
AGREEMENT




This CAPITAL IMPROVEMENT RESERVE
AGREEMENT (as it may be amended and/or restated from time to time, this “Agreement”) is
executed as of the ____ day of, 2009 by and among
EMERITUS CORPORATION, a Washington corporation (the “Tenant”), and NATIONAL
HEALTH INVESTORS, INC., a Maryland corporation (the “Landlord”).




R E C I T A L S:




A.           Landlord
is or is expected to become the owner of a 70-unit assisted living facility
known as ____________________________________________ in
__________________________ (the “Facility”).




B.           Landlord
and Tenant have entered into a Lease dated __________________, 2009 (the
“Lease”) under which the Tenant shall lease the Facility from
Landlord.




C.           The
Lease requires that the Tenant maintain the Facility during the term of the
Lease and to that end requires that the Tenant make capital improvements to each
Facility in the amount of not less than the Targeted Expenditure
Amount.





D.           As
a condition to the Lease, Landlord further requires that if Tenant fails to meet
the Targeted Expenditure Amount as specified therein, Tenant shall pay to an
escrow account held or controlled by Landlord the difference in the Targeted
Expenditure Amount (after taking into account any unused Overage Amount) for the
period in question and the amount actually spent by Tenant on Capital
Expenditures for the Facility for that period (after taking into account any
unused Overage Amount) (the “Shortage”).




F.           Landlord
shall hold the Shortage in escrow in a separate deposit account identified on
Exhibit A
attached hereto and incorporated herein by this reference, including, without
limitation, all such property or type of property presently existing and
hereafter acquired or arising and all proceeds (including insurance proceeds) or
products attributable to or arising from any of such property and all
replacements thereof and additions thereto, including without limitation any
Permitted Cash Investments (the “Capital Improvement
Reserve”).




G.           For
their mutual convenience, Tenant and Landlord desire to enter into this
Agreement to evidence their agreement that Landlord hold and distribute the
Capital Improvement Reserve as set forth herein.




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




1.  Defined Terms. (a)
Capitalized terms used in this Agreement shall have the following
meanings:




80


“Agreement” means this
Capital Improvement Reserve Agreement.




“Approved Costs” has
the meaning set forth in Section 4(a)
hereof.




“Capital Expenditure
Documentation” has the meaning set forth in Section 4(a)
hereof.




“Capital Improvement
Reserve” has the meaning set forth in the Recitals hereof.




“Facility” has the
meaning set forth in the Recitals hereof.




“Permitted Cash
Investments” means (a) securities issued or fully guaranteed or insured
by the United States Government or any agency thereof and backed by the full
faith and credit of the United States maturing not more than one year from the
date of acquisition; (b) certificates of deposit, time deposits or Eurodollar
time deposits having in each case a remaining term to maturity of not more than
one year, which are either (i) fully insured by the Federal Deposit Insurance
Corporation or (ii) issued by any commercial bank under the laws of any State or
any national banking association that has combined capital and surplus of not
less than $500,000,000 and whose short-term securities are rated at least A-1 by
S&P or P-1 by Moody’s; (c) commercial paper that is rated at least A-1 by
S&P or P-1 by Moody’s, issued by a company that is incorporated under the
laws of the United States or of any State and directly issues its own commercial
paper, and has a remaining term to maturity of not more than one year; (d) a
repurchase agreement with a maturity date of no more than thirty (30) days with
(i) any commercial bank that is organized under the laws of any State or any
national banking association and that has net worth or capital and surplus of at
least $500,000,000, or (ii) any investment bank that is organized under the laws
of any State and that has net worth or capital and surplus of at least
$500,000,000, which agreement is secured by any one or more of the securities
and obligations described in clauses (a), (b) or (c) of this definition of
Permitted Cash Investments, which shall have a market value (exclusive of
accrued interest and valued at least monthly) at least equal to the principal
amount of such investment; and (e) any money market or other investment fund the
investments of which are limited to investments described in clauses (a), (b),
(c) and (d) of this definition of Permitted Cash Investments and which is
managed by (i) a commercial bank that is organized under the laws of any state
or any national banking association and that has net worth or capital and
surplus of at least $500,000,000, or (ii) an investment bank that is organized
under the laws of any state and that has net worth or capital and surplus of at
least $500,000,000.




“Requested Amount” has
the meaning set forth in Section 4(a)
hereof.




“Shortage” has the
meaning set forth in the Recitals hereof.




(b)           Other Capitalized
Words. All other capitalized terms not otherwise defined in this
Agreement, including its preamble, recitals and exhibits, shall have the
meanings set forth in the Lease. All capitalized terms shall be equally
applicable to the singular and plural forms thereof and to any gender form
thereof.




2.  Capital Improvement
Reserve. (a) Upon the creation of the Capital Improvement Reserve in
accordance with the terms of this Agreement, Landlord shall invest the Capital
Improvement Reserve in Permitted Cash Investments mutually acceptable to
Landlord and




81


Tenant.
Tenant hereby grants to Landlord a security interest in the Capital Improvement
Reserve as security for the payment and performance of all obligations Tenant
owes to Landlord under the Lease. The Capital Improvement Reserve shall be
established under the tax identification number of Tenant.




(b)           Absent
the occurrence and continuation of an Event of Default, any earnings on the
Capital Improvement Reserve shall be paid not more frequently than quarterly or
upon request of Tenant as long as no Event of Default exists to Tenant. During
the continuation of an Event of Default, earnings on the Capital Improvement
Reserve shall remain in and become a part of the Capital Improvement Reserve.
Tenant shall be responsible for preparation and filing of all tax returns and
payment of all income and other taxes imposed in connection with earnings on the
Capital Improvement Reserve.




3.  Use of Funds. Subject
to the terms of Section 5 hereof, and
after Tenant meets the Capital Expenditure Target for a given year, Tenant may
draw funds from the Capital Improvement Reserve to pay the costs of additional
Capital Expenditures made that same year to the extent of available funds in the
Capital Improvement Reserve. In the event the Capital Expenditures withdrawn
from the Capital Improvement Reserve are insufficient to pay for the Capital
Expenditures, Tenant shall expend such additional funds as shall be necessary to
pay such costs.




4.  Release of Capital
Improvement Reserve to Tenant. (a) Whenever Tenant desires to request a
withdrawal from the Capital Improvement Reserve permitted by Section 4
hereof, an  officer of Tenant shall deliver to Landlord the following:
(i) a written request that Landlord withdraw from the Capital Improvement
Reserve a stated amount (the “Requested Amount”),
and (ii) invoices dated on or after the date hereof marked “paid in full” for
which Tenant is seeking reimbursement in the amount of the Requested Amount, or
invoices in excess of $25,000.00 for which Tenant is requesting direct payment
from the Capital Improvement Reserve along with such other certifications and
documentation as Landlord shall reasonably require (including, without
limitation, a certificate of completion) to evidence the Capital Expenditures
for which Tenant is seeking reimbursement or direct payment (the “Capital Expenditure
Documentation”). All Capital Expenditure Documentation shall be subject
to Landlord’s review and approval. Landlord shall, within fifteen (15) days,
either (i) approve the Capital Expenditure Documentation as submitted to
Landlord or (ii) deliver to Tenant a written explanation of the basis for
Landlord’s disapproval of the Capital Expenditure Documentation submitted to
Landlord or any part thereof and a statement of the costs set forth in such
Capital Expenditure Documentation that Landlord approves as being reimbursable
or approved for payment from the Capital Improvement Reserve (the “Approved
Costs”).




(b)           Landlord
shall release funds in the amount of the Approved Costs from the Capital
Improvement Reserve upon Landlord’s receipt from time to time of Capital
Expenditure Documentation. In no event shall Landlord release funds from the
Capital Improvement Reserve unless such release is expressly permitted by Section 5
hereof. Tenant may make repeated demands for payment from the Capital
Improvement Reserve in accordance with this Section 5, but not
more frequently than once per calendar month.




82


5.  Termination. This
Agreement shall terminate upon the expiration of the Lease, including any
renewals or extensions thereof.  All amounts, if any, then remaining
in the Capital Improvement Reserve, including all remaining earnings thereon,
shall become the property of Landlord, subject to Section 7.4 and Section 15.1
of the Lease.




6.  Release of Capital
Improvement Reserve to Landlord. (a) Upon the occurrence and continuation
of an Event of Default, the Capital Improvement Reserve may be used by Landlord
at Landlord’s sole election in accordance with the terms of Section 9(b) hereof
to pay for Capital Expenditures at the Facility.




(b)           During
the term of the Lease, should Tenant fail to make any repair or replacement at
any Facility, or otherwise have breached any covenant to maintain the Facility,
Landlord on behalf of Tenant, but at Landlord’s sole discretion and without any
obligation to do so, may elect to withdraw funds from the Capital Improvement
Reserve to pay for Capital Expenditures on the Facility or the Facility incurred
at the direction of Landlord. If Landlord makes such use of funds in the Capital
Improvement Reserve, Landlord will give Tenant concurrent written notice
thereof.




(c)           Landlord
may withdraw from the Capital Improvement Reserve the amount of any past due
obligation of Tenant under the Lease when the following conditions shall have
been satisfied: (i) an Event of Default has occurred and is continuing, (ii)
Landlord has given Tenant notice, if any, required under the Lease, (iii)
certain of the Obligations are due and owing and Tenant has failed to pay same,
and (iv) Landlord has notified Tenant in writing that Landlord intends to make a
withdrawal from the Capital Improvement Reserve. Landlord may make repeated
withdrawals from the Capital Improvement Reserve in accordance with this Section
6(c).




7.  Incomplete Exhibit.
The parties hereto hereby agree that the Capital Improvement Reserve may not be
opened on the Effective Date and that the information set forth on Exhibit C hereto
may not be complete on the Effective Date. Upon the opening of the Capital
Improvement Reserve, the parties hereto agree that the information set forth on
Exhibit C
shall be completed and Tenant and Landlord shall evidence their agreement to
same by initialing Exhibit C hereto
at the appropriate locations.




8.  Exercise of Purchase
Option. Provided that no Event of Default then exists, if Tenant should
purchase the Facilities from Landlord, any funds then in the Capital Improvement
Reserve shall be paid to Tenant at the closing of Tenant’s purchase of the
Facilities.




9.  Notice. The notice
provisions of Section 25.8 of the Lease shall apply to this
Agreement.




10.           Other.  The
provisions of Sections 25.17 and 25.18 of the Lease are incorporated herein by
reference.




11.           Counterparts. This
Agreement may be executed in counterparts, each of which shall be deemed to be
an original, but all of which taken together shall constitute but one and the
same instrument.




83


IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.




TENANT





EMERITUS
      CORPORATION







By:




Name:




Title:











LANDLORD





NATIONAL
      HEALTH INVESTORS, INC.





By:




Name:




Title:





84


EXHIBIT
      G





SECURITY
AGREEMENT








To be
agreed upon during Due Diligence Period


85


EXHIBIT
J





QUARTERLY COMPLIANCE
CERTIFICATE










National
Health Investors, Inc. (herein “NHI”)




222
Robert Rose Drive




Murfreesboro,
TN 37130









Re:
            Lease
      among NHI (the “Landlord”), and
      Emeritus Corporation (the “Tenant”) dated
      as of ______________, 2009 (as it may be amended and/or restated from time
      to time, the “Lease”)









Tenant
hereby certifies that for the __________ months ended
___________________:




1.
            Capitalized
      terms not otherwise defined in this Certificate shall have the meanings
      set forth in the Lease.  All capitalized terms shall be equally
      applicable to the singular and plural forms thereof and to any gender form
      thereof.




2.
            No
      Event of Default under the Lease, or event which, after lapse of time,
      would constitute such an Event of Default, has occurred or exists, except:
      _________________________________________________________________________________________________________.




3.
            The
      Lease Coverage Ratio for the preceding twelve (12) months (or such shorter
      period, annualized, if the Lease has been in effect for less than a period
      of twelve (12) months) through the end of such period
  was:




(a)
            Net
      Income of the
      Facilities                                                                             $_________________


(b)
            Less
      5% of gross
      revenues                                                                           
      ($________________)


(c)
            Plus
      Tenant’s Base Rent
      Obligation                                                             
      $_________________


(d)
            Plus
      Tenant’s depreciation
      expense                                                              $_________________


(e)
            Plus
      Tenant’s amortization
      expense                                                             
      $_________________


(f)
            Less
      Targeted Capital Expenditures


(as described in Section 7.1 of the
Lease)                                  
($                                )


(g)
            Plus
      actual management fees paid or


accrued
      for period
            $_________________







TOTAL NET OPERATING INCOME (sum of (a)
through
(g))                                                                                                           $_________________




TOTAL BASE
RENT                                                                                                $_________________




86


LEASE COVERAGE RATIO:




ActualRequired







4.
            Occupancy
      Information:  Year-to-Date as of
      _______/______/______




Attach current rent roll




5.
            Annual
      Information Requirements:




(a)
            Insurance:
      Date Last Paid (enclosed Certificate of Insurance when renewed)
      ___________________________________________________________




(b)
            Property
      Taxes:  Date Last Paid (enclosed receipt when paid)
      __________________________________________




(c)
            Copy
      of Annual License/Certification
      Survey:




6.
            All
      information provided herein and in the attached financial statement is
      true and correct.




Date:____________________
Certified by:____________________ Title:__________________


87


EXHIBIT
K




COMPLIANCE
CERTIFICATE




As
required by Section 22.2(j) of that Lease Agreement dated October ___, 2009
entered into by and between Emeritus Corporation, as Tenant (“Emeritus”), and
National Health Investors, Inc., as Landlord (the “Lease”), Emeritus does hereby
certify, based on a review of the audited financial statements of National Orion
Insurance, Inc., a Hawaii corporation (the “Captive”) for the fiscal year ended
_____________ and the actuarial report dated ___________ prepared by
_______________ with respect to the Captive, that, as of the date hereof, there
are no claims pending with respect to any or all of the facilities operated by
Emeritus and for which insurance coverage is being provided by the Captive that
would reasonably be expected to reduce the insurance coverage available through
the Captive to the Facilities covered by the Lease below the limits required by
the terms of the Lease.




EMERITUS
CORPORATION






By:







Its:




88