MASTER
LEASE AGREEMENT





Between





BV
HOLDING-LTC, INC.,


as
Lessor





and





EMERITUS
CORPORATION,


as
Lessee








Dated:
November 18, 2008











Laurel
Springs Assisted Living Facility, 8100 Westwold Drive, Bakersfield,
California





Summerfield
House, 1111 Ulatis Drive, Vacaville, California








MASTER
LEASE AGREEMENT








THIS
MASTER LEASE AGREEMENT (this “Lease”) is made effective as
of November 18, 2008, by and between BV Holding-LTC, Inc., a Delaware
corporation (“Lessor”),
and Emeritus Corporation, a Washington corporation (“Lessee”), subject to the
terms, conditions and contingencies set forth below.




RECITALS




WHEREAS,
Lessor owns or leases certain real property and improvements (as more
particularly defined below, “Properties”), and desires to
lease them to Lessee pursuant to the terms and conditions of this Lease;
and




WHEREAS,
it is the parties’ intention to set forth their respective covenants and
obligations in a single agreement, not merely as a matter of convenience, but
because the leasing of both Properties as an inseparable unit is a special and
essential inducement to Lessor to enter into this transaction, and but for the
leasing of both Properties together as an inseparable whole, Lessor would not
have entered into this Lease; and




WHEREAS,
the parties agree and acknowledge that the amount set forth as Minimum Rent
(defined below) is calculated on the basis of leasing both Properties together
as a single, inseparable group and is non-allocable among the two Properties,
and that it would be impossible to allocate to either Facility a divisible
portion of the Minimum Rent; and




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




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




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










Leased
Property.Upon
and subject to the terms and conditions hereinafter set forth, Lessor leases to
Lessee, and Lessee rents or hires from Lessor, all of Lessor’s right, title and
interest in the following (the “Leased
Property”):







The
      real property particularly described in Exhibit
      “A” (the “Land”);




The
      buildings, structures, Fixtures (as hereinafter defined) and other
      improvements of every kind including, but not limited to, alleyways and
      connecting tunnels, sidewalks, utility pipes, conduits and lines (on-site
      and offsite), parking areas and roadways appurtenant to such buildings and
      structures presently situated upon the Land, including without limitation
      the Facilities (as defined below) (collectively, the “Leased
      Improvements”);




The
      easements, rights and appurtenances relating to the Land and the Leased
      Improvements;




The
      permanently affixed equipment, machinery, fixtures, and other items of
      real and/or personal property, including all components thereof, now and
      hereafter located in, on or used in connection with, or permanently
      affixed to or incorporated into the Leased Improvements, including,
      without limitation, 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 and apparatus, sprinkler systems and fire and
      theft protection equipment, all of which to the greatest extent permitted
      by law, are hereby deemed by the parties hereto to constitute real estate,
      together with all replacements, modifications, alterations and additions
      thereto, but specifically excluding all items included within the category
      of Lessee's Personal Property as defined in Article
      II below (collectively the “Fixtures”);
      and




All
      furniture, furnishings, equipment, trade fixturesor other personal
      tangible and intangible property including all components thereof, owned
      by Lessor and now and hereafter located in, on or used in connection with
      the Leased Improvements, together with all replacements, modifications,
      alterations and additions thereto, but specifically excluding all items
      included within the category of Lessee's Personal Property as defined in
      Article
      II below.




Except
      with respect to the representations, warranties and covenants of Lessor
      set forth herein, the Leased Property is demised subject to all covenants,
      conditions, restrictions, easements and all other matters affecting title,
      whether or not of record, the conditions and limitations expressly set
      forth herein, and any and all matters created by or known to
      Lessee.




Term.  The
initial term of the Lease (the “Initial Term”) shall be a
period of ten (10) years, commencing on the date (the “Commencement Date”) upon which
Lessee is able to secure operating licenses in its own name for both of the
Facilities.  If the foregoing condition (the “Licensure Condition”)
has not been satisfied by December 1, 2008 or in the event




2


that
Lessor fails to secure the approval of its Lender on or before November 30, 2008
(the “Lessor’s Lender
Condition”) or Lessee fails to secure the approval of its Board of
Directors on or before November 13, 2008 (the “Lessee’s Board Condition” and
together with the Licensure Condition and the Lessor’s Lender Condition, the
“Conditions Precedent”),
this Lease shall terminate and be of no further force or effect and the parties
hereto shall have no further obligations to the other under this
Lease.  The Initial Term, plus all validly exercised options to
extend, if any, shall be referred to herein as the “Term.”










2.           Definitions.For all purposes of this
Lease, except as otherwise expressly provided, (i) the terms defined in this
Article
II have the meanings assigned to them in this Article
II and include the plural as well as the singular, (ii) all accounting
terms not otherwise defined herein have the meanings assigned to them in
accordance with generally accepted accounting principles at the time applicable,
and (iii) 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:




Additional
Charges.  As defined in Article
III.




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




Base Gross
Revenues.  The amount of Twenty Three Million Eight Hundred
Eighty Two Thousand Seven Hundred Eighteen and no/100 Dollars
($23,882,718.00).




Business Day.Each
Monday, Tuesday, Wednesday, Thursday and Friday, which is not a day on which
national banks in the City of Los Angeles, California, are authorized, or
obligated, by law or executive order, to close.




Change of
Control.  As defined in Article
XVIII below.




Code.  The Internal
Revenue Code of 1986, as amended.




Daniel R. Baty’s
Affiliates.When used with respect to Daniel R. Baty, the term
“Affiliate” shall mean any person which, directly or indirectly, controls or is
controlled by or is under common control with Daniel Baty.  For the
purposes of this definition, “control” (including the correlative meanings of
the terms “controlled by” and “under common control with”), as used with respect
to any person, shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such person,
through the ownership of voting securities, partnership interests or other
equity interests. For the purposes of




3


this
definition, “person” shall mean any natural person, trust, partnership,
corporation, joint venture or other legal entity.




Default
Interest.As defined in Section
3.6 below.




Encumbrance.As defined in
Article
XXXIII.




Event of
Default.As defined in Article
XVI.




Extended Term.  As
defined in Section
34.1.




Facilities.Collectively,
the two (2) assisted living facilities located at the following common
addresses: (i) 8100 Westwold Drive, Bakersfield, Kern County, California, and
(ii) 1111 Ulatis Drive, Vacaville, Solano County, California.




Facility.  As the
context requires, any one of the Facilities.




Fiscal Year.The
twelve (12) month period from January 1 through December 31 of the same calendar
year (as prorated for any partial Fiscal Year during the Term).




Fixtures.  Asdefined in Article
1.




Gross
Revenues.  With respect to each Facility, all revenues received
or receivable from or by reason of the operation of such Facility or any other
use of the Leased Property of such Facility, including all revenues received or
receivable for the use of or otherwise attributable to units, rooms, beds and
other facilities provided, meals served, services performed (including ancillary
services), space or facilities subleased or goods sold on or from the Leased
Property; provided, however, that Gross Revenues shall not include:




(i)           bad
debt in accordance with GAAP;




(ii)           non-operating
revenues such as interest income or income from the sale of assets not sold in
the ordinary course of business; and




(iii)           federal,
state or local excise taxes and any tax based upon or measured by such revenues,
where any such federal, state or local excise tax is added to or made a part of
the amount billed to the patient or other recipient of such services or goods,
whether included in the billing or stated separately.




Gross
Revenues shall not include the Gross Revenues generated from the operations
conducted on or from such subleased, licensed or other used or occupied portion
of the Leased Property but shall include the rent received or receivable by
Lessee from or under an agreement with such subtenant or licensee.




Impositions.Collectively,
all taxes (including, without limitation, all ad valorem, sales and use, single
business, gross receipts, transaction privilege, rent or similar taxes as the
same relate to or are imposed upon Lessee or its business conducted upon the
Leased Property), assessments (including, without limitation, all assessments
for public improvements or benefits,




4


whether
or not commenced or completed prior to the date hereof and whether or not to be
completed within the Term), ground rents, water, sewer or other rents and
charges, excises, tax levies, fees (including, without limitation, license,
permit, inspection, authorization and similar fees), and all other governmental
or public charges, in each case whether general or special, ordinary or
extraordinary, or foreseen or unforeseen, of every character in respect of the
Leased Property or the business conducted thereon by Lessee (including all
interest and penalties thereon due to any failure in payment by Lessee), and all
increases in all the above from any cause whatsoever, including reassessment,
which at any time prior to, during or in respect of the Term may be assessed or
imposed on or in respect of or be a lien upon (a) Lessor's interest in the
Leased Property, (b) the Leased Property or any part thereof, or any rent
therefrom or any estate, right, title or interest therein, or (c) any occupancy,
operation, use or possession of, or sales from, or activity conducted on, or in
connection with the Leased Property or the leasing or use of the Leased Property
or any part thereof by Lessee.  Provided, however,
nothing contained in this Lease shall be construed to require Lessee to pay (1)
any tax based on net income (whether denominated as a franchise or capital stock
or other tax) imposed on Lessor, or (2) any transfer, or net revenue tax of
Lessor, or (3) any income or capital gain tax imposed with respect to the sale,
exchange or other disposition by Lessor of any Leased Property or the proceeds
thereof, or (4) any single business, gross receipts, transaction, privilege,
rent or similar taxes as the same relate to or are imposed upon Lessor, whether
or not such taxes are related to the Leased Property.




Incremental Gross
Revenues.  The positive amount, if any, by which the Gross
Revenues for the Facilities, taken as a whole, during the first three Lease
Years exceeds the Base Gross Revenues.




Insurance
Requirements.  All terms of any insurance policy required by
this Lease and all requirements of the issuer of any such policy.




John Hancock Loan
Documents.As defined in Section
36.24 below.




Land.As defined
in Article
I.




Lease.  As defined
in the Preamble.




Lease Rate.  Lease
Rate shall mean eight and one-half percent (8.5%) in the first Lease Year, and
will be increased at the rate of three percent (3%) on each one-year anniversary
of the Commencement Date.




Lease Year.  A
twelve (12) month period commencing each December 1 and ending each November
30.




Leased
Improvements.As defined in Article
I.




Leased
Property.As defined in Article
I.




Legal
Requirements.  All federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting either the Leased Property or the
construction, use or alteration thereof, whether now or hereafter




5


enacted
and in force, including any which may (i) require repairs, modifications or
alterations in or to the Leased Property, or (ii) in any way affect the use and
enjoyment thereof, and all permits, licenses and authorizations and regulations
relating thereto, and all covenants, agreements, restrictions and encumbrances
contained in any instruments (whether or not of record) or otherwise known to
Lessee, at any time in force affecting the Leased Property.




Lessee.  As defined
in the Preamble.




Lessee's Personal Property.Allmachinery, equipment,
furniture, furnishings, movable walls or partitions, computers or trade fixtures
or other personal property, and consumable inventory/and supplies, used in
Lessee's business on the Leased Property, including without limitation, all
items of furniture, furnishings, equipment, supplies and inventory, but
expressly excluding(i) items included
within the definition of Fixtures; and (ii) personal property described in Section 1.1(v),
above; and (iii) all intangible personal property and all intellectual property,
including trademarks and other proprietary marks.




Lessor.As defined
in the Preamble.




Lessor’s Investment.Lessor’s
Investment for each Leased Property shall mean:




(i)           Twelve
Million Six Thousand and no/100 Dollars ($12,006,000.00) as it relates to the
Leased Property located in Bakersfield, plus any Capital Allowance advanced for
any Renovation Project at this Leased Property and any other amount that, in
accordance with any other term or provision of this Lease, is to be added to
Lessor’s Investment.




(ii)           Eleven
Million Six Hundred Fifty Three Thousand and no/100 Dollars ($11,653,000.00) as
it relates to the Leased Property located in Vacaville, plus any Capital
Allowance advanced for any Renovation Project at this Leased Property and any
other amount that, in accordance with any other term or provision of this Lease,
is to be added to Lessor’s Investment.




Minimum Rent.  As
defined in Section
3.1.




Notice.A notice
given pursuant to Article
XXXII




Occupancy
Information.  As defined in Section
25.1.3(b).




Overdue Rate.  On
any date, a rate equal to the Prime Rate (defined below), plus two percent (2%);
provided, however, that it is the intent of Lessor and Lessee that the Overdue
Rate (and all other interest rates provided for hereunder) be in strict
compliance with applicable usury laws of the State of California, and that in
the event the Overdue Rate (or other interest rate provided for hereunder) shall
be deemed to exceed that permitted to be charged by the laws of the State of
California, any and all excess sums collected by Lessor shall be credited
against the Rent payable under this Lease or if there is no Rent due, promptly
refunded to Lessee.




Payment Date.Any
due date for the payment of the installments of Minimum Rent.




Periodic Operating
Statements.  As defined in
Section
25.1.3(a).




6


Primary Intended
Use.As defined in Section
7.2.2.




Prime Rate.  On any
date, a rate equal to the annual rate on such date announced by Citibank, N.A.
to be its prime rate for 90-day unsecured loans to its corporate borrowers of
the highest credit standing or, if not available, such other rate as may be
published by The Wall Street Journal as the prime rate in its listing of “Money
Rates.”




Prior Operator. With respect
to the Facility located in Bakersfield, California shall mean Laurel Springs
Assisted Living, LLC and with respect to the Facility located in Vacaville,
California shall mean Summerfield House Assisted Living, LLC.




Property
Mortgage.As defined in Section
13.1.




Property
Mortgagee.As defined in Section
13.1.




Rent.Any monetary
obligations owing under this Lease, including, without limitation, Minimum Rent
and Additional Charges.




Required Bed/Unit
Count.  As defined in Section
7.2.2.




Security
Deposit.  As defined in Article
XXXV.




Security
Interest.  As defined in Section
3.7.




Term.As defined
in Section
1.2 above.




Unsuitable for its Primary Intended
Use.A state or condition of any Facility such that by reason
of damage or destruction, or a partial taking by Condemnation in the good faith
judgment of Lessor and Lessee, reasonably exercised, such Facility cannot be
operated on a commercially practicable basis for its Primary Intended Use taking
into account, among other relevant factors, the number of usable beds affected
by such damage or destruction or partial Condemnation.




Unavoidable
Delays.Delays due to strikes, lock-outs, inability to procure
materials, power failure, acts of God, governmental restrictions, enemy action,
civil commotion, fire, unavoidable casualty or 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.




The above
does not include all the definitions to be used in this
Lease.  Various definitions are included in the Sections
below.










MinimumRent.  Lessee
will pay to Lessor in lawful money of the United States of America which shall
be legal tender for the payment of public and private debts by wire transfer
only to c/o Harris Trust and Savings Bank, at ABA 071000288, Account Number
317-4554, OBI – LTC Properties, Inc., or at such other place or to such
other person, firms or




7


corporations
as Lessor from time to time may designate in a Notice, Rent, during the Term, as
follows:




(a)           Minimum Rent During the
Initial Term.  The initial
annual “Minimum Rent”
payable hereunder shall be One Million Eight Hundred Thousand and No/100 Dollars
($1,800,000.00), payable in advance in equal monthly installments of One Hundred
Fifty Thousand and no/100 Dollars ($150,000.00), plus all increases in the
Minimum Rent as provided in Section
3.1(b) below, which shall be payable on the first (1st)
calendar day of each calendar month of the Term; provided, however, that if the
first (1st)
calendar day is not a Business Day, Minimum Rent shall be payable on the first
(1st)
Business Day which follows the first (1st)
calendar day of the month.  If necessary, Minimum Rent shall be
prorated for any partial month at the beginning or end of the Term.





(b)           Escalation of Minimum Rent
for Capital Allowance.  There shall be no adjustment to the
Minimum Rent for any advances of the Tranche One Capital Allowance (as defined
in Section
9.1.4).  Any advances of the Tranche Two Capital Allowance
shall result in increases in the Minimum Rent on the first day of each month
immediately following each advance by the amount disbursed multiplied by eight
and one-half percent (8.5%).“”  Lessor and Lessee hereby agree that
the parties will enter into an amendment to this Lease upon the earlier to occur
of (i) the final funding of the Tranche Two Capital Allowance, or (ii) the
Renovation Deadline to affirm the revised Minimum Rent if there are any
disbursement of the Tranche Two Capital Allowance.





(c)           Extended
Terms.  The Minimum Rent during the Extended Terms shall be as
stated in Article
XXXIV.





(d)           Annual Escalation of Minimum
Rent.  Commencing on the one-year anniversary of the
Commencement Date (if the Commencement Date is the first (1st) day of
a calendar month, or, if not, on the first (1st) day of
the first (1st) full
month following the Commencement Date), the Minimum Rent shall increase to an
annual amount of Two Million One Hundred Thousand and No/100 Dollars
($2,100,000.00), payable in advance in equal monthly installments of One Hundred
Seventy Five Thousand and no/100 Dollars ($175,000.00), plus all increases in
the Minimum Rent as provided in Section
3.1(b) above.  Commencing on the two-year anniversary of the
Commencement Date (if the Commencement Date is the first (1st) day of
a calendar month, or, if not, on the first (1st) day of
the first (1st) full
month following the Commencement Date), the Minimum Rent shall increase to an
annual amount of Two Million Five Hundred Thousand and No/100 Dollars
($2,500,000.00), payable in advance in equal monthly installments of Two Hundred
Eight Thousand Three Hundred Thirty Three and 33/100 Dollars ($208,333.33), plus
all increases in the Minimum Rent as provided in Section
3.1(b) above.  A one time payment in an amount equal to five
percent (5%) of the Incremental Gross Revenues shall be due and payable within
forty five (45) days after the end of the third Lease Year.





(e)           Commencing
on the third-year anniversary of the Commencement Date (if the Commencement Date
is the first (1st) day of
a calendar month, or, if not, on the first (1st) day of
the first (1st) full
month following the Commencement Date), and repeating on each subsequent
one-year anniversary thereof during the Term (including any Extended Term)
(each,


8


an “Adjustment Date”), the Minimum
Rent, shall increase by three percent (3%) over the Minimum Rent for the
immediately preceding year (which on the third-year anniversary, shall include
the one time payment identified above in Section
3.1(d)).





(f)           Each
month, payments of Minimum Rent shall be delivered to Lessor by Lessee in a
single payment by wire transfer.





Additional
Charges.In addition to
Minimum Rent, (1) Lessee, subject to its rights under Article
XII, will also pay and discharge as and when due and payable all other
amounts, liabilities, obligations and Impositions which Lessee assumes or agrees
to pay under this Lease, including but not limited to those set forth in Articles
IX and XIII,
below, and (2) in the event of any failure on the part of Lessee to pay any of
those items referred to in clause (1) above, Lessee will also promptly pay and
discharge every fine, penalty, interest and cost which may be added for
non-payment or late payment of such items (the items referred to in clauses (1)
and (2) above being referred to herein collectively as the “Additional Charges”), and
Lessor shall have all legal equitable and contractual rights, powers and
remedies provided either in this Lease or by statute or otherwise in the case of
nonpayment of the Additional Charges.  If any elements of Additional
Charges are not paid within seven (7) days after due (after taking into account
applicable time periods during which Lessee may contest the Additional Charges
under Article
XII) and Lessor pays any such amount (which Lessor shall have the right,
but not the obligation to do), then, in addition to Lessor’s other rights and
remedies, Lessee will pay Lessor on demand, as Additional Charges, interest on
such unpaid Additional Charges computed at the Overdue Rate from the due date of
such installment to the date of Lessee’s payment thereof.  To the
extent that Lessee pays any Additional Charges directly to Lessor (as opposed to
the applicable third party payee) pursuant to any requirement of this Lease,
Lessee shall be relieved of its obligation to pay such Additional Charges to the
entity to which they would otherwise be due, and within ten (10) business days
after its receipt, Lessor shall remit such payment(s) to the entity to which
such payment(s) is due.




Net
Lease.Notwithstanding
any provisions in this Lease to the contrary (except with respect to Lessee’s
rights set forth in Article
V), Minimum Rent shall be paid absolutely net to Lessor, so that this
Lease shall yield to Lessor the full amount of the installments of Minimum Rent
throughout the Term, all as more fully set forth in Articles
IV, IX and XIII, and other provisions of this Lease.




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




9


Late
Charge.  LESSEE HEREBY ACKNOWLEDGES THAT LATE PAYMENT BY LESSEE
TO LESSOR OF RENT (INCLUDING WITHOUT LIMITATION MINIMUM RENT) WILL CAUSE LESSOR
TO INCUR COSTS NOT CONTEMPLATED BY THIS LEASE, THE EXACT AMOUNT OF WHICH WILL BE
EXTREMELY DIFFICULT TO ASCERTAIN.  SUCH COSTS INCLUDE, BUT ARE NOT
LIMITED TO, PROCESSING AND ACCOUNTING CHARGES.  ACCORDINGLY, IF ANY
INSTALLMENT OF RENT SHALL NOT BE RECEIVED BY LESSOR WITHIN FIVE (5) DAYS AFTER
SUCH AMOUNT SHALL BE DUE, THEN WITHOUT ANY REQUIREMENT FOR NOTICE TO LESSEE,
LESSEE SHALL PAY TO LESSOR A LATE CHARGE EQUAL TO FIVE PERCENT (5%) OF SUCH
OVERDUE AMOUNT.  THE PARTIES HEREBY AGREE THAT SUCH LATE CHARGE
REPRESENTS A FAIR AND REASONABLE ESTIMATE OF THE COSTS LESSOR WILL INCUR BY
REASON OF LATE PAYMENT BY LESSEE.  ACCEPTANCE OF SUCH LATE CHARGE BY
LESSOR SHALL IN NO EVENT CONSTITUTE A WAIVER OF LESSEE’S DEFAULT OR BREACH WITH
RESPECT TO ANY UNPAID OVERDUE AMOUNTS, NOR PREVENT LESSOR FROM EXERCISING ANY OF
THE OTHER RIGHTS AND REMEDIES GRANTED UNDER THIS LEASE, AT LAW OR IN
EQUITY.  NOTWITHSTANDING THE FOREGOING, HOWEVER, THE ABOVE-REFERENCED
LATE CHARGE SHALL NOT BE IMPOSED ON ADDITIONAL CHARGES SO LONG AS LESSEE IS
CONTESTING SUCH ADDITIONAL CHARGES IN ACCORDANCE WITH ARTICLE
XII BELOW.




INITIAL:                                Lessor                      /s/
CM                                Lessee_/s/
EM__





Default
Interest.Rent not paid on or
before five (5) days after the due date shall bear interest at the Overdue Rate
from the due date until paid, or if this rate is now or becomes at any time
unlawful in the State of California, then the maximum rate permitted by
law.




Security
Interest.  Lessee hereby
grants to Lessor a lien and security interest on all of Lessee’s Personal
Property now or hereafter placed in or upon the Leased Property, together with
all income, rents, revenues, accounts receivable, and other income of every kind
and nature derived from the operation of the Facilities, and all proceeds
thereof, all of which shall be and remain subject to such lien and security
interest of Lessor for payment of all Rent and other sums agreed to be paid by
Lessee herein and the performance of all of Lessee’s obligations
hereunder.  Provided, however, Lessor shall not have a lien which
would be superior to a lien from a lending institution, supplier or leasing
company, if such lending institution, supplier or leasing company has a security
interest in the equipment, furniture or other tangible personal property and
which security interest has its origin in a transaction whereby Lessee
originally acquired such equipment, furniture or other tangible personal
property; provided, however, that said liens secure, in the aggregate,
obligations of Lessee not in excess of One Thousand Five Hundred and No/100
Dollars ($1,500.00) per month.  The provisions of this paragraph
relating to such lien and security interest shall constitute a security
agreement under and subject to the Uniform Commercial Code of the state(s) in
which Lessee’s Personal Property is located.  The foregoing security
interest shall also apply to all accounts receivable and other income, from
whatever source, of or relating to Lessee’s operation of the Leased Property in
accordance with its Primary Intended Use.  Lessee shall, upon request,
execute and deliver to Lessor any additional instruments, documents, agreements,
etc. deemed by Lessor to be necessary or prudent in order to perfect or
otherwise evidence and provide notice of the




10


foregoing
security interest, including, without limitation, a Security Agreement in
Lessor’s standard form, and a UCC-1 Financing Statement.










Payment of
Impositions.




(a)           Subject
to this Section
4.1(a) and Section 4.1(b) and Article XII relating to permitted contests,
Lessee will pay, or cause to be paid, all Impositions which relate to any period
within the Term, before any fine, penalty, interest or cost may be added for
non-payment (or earlier if required by any taxing authority), such payments to
be made directly to the taxing authorities where feasible, and will promptly
furnish to Lessor copies of official receipts or other satisfactory proof
evidencing such payments.  Lessee’s obligation to pay such Impositions
shall be deemed absolutely fixed upon the date such Impositions become a lien
upon the Leased Property or any part thereof.  If any Imposition may,
at the option of the taxpayer, lawfully (without penalty) be paid in
installments (whether or not interest shall accrue on the unpaid balance of such
Imposition), Lessee may exercise the option to pay the same (and any accrued
interest on the unpaid balance of such Imposition) in installments and in such
event, shall pay such installments during the Term hereof (subject to Lessee’s
right of contest pursuant to the provisions of Article
XII) as the same become due and before any fine, penalty, premium,
further interest or cost may be added thereto.  Lessee, at its
expense, shall, to the extent required or permitted by Legal Requirements,
prepare and file all tax returns and reports in respect of any Imposition as may
be required by governmental authorities. Any refund due from any taxing
authority in respect of any Imposition shall be paid over to or retained by
Lessee provided no Event of Default then exists, but if an Event of Default has
occurred and is continuing, such refund shall be paid over to Lessor, and Lessee
hereby authorizes Lessor to accept any such refunds directly, and hereby
authorizes any such taxing authority to pay such amounts directly to Lessor upon
receipt of written instructions to do so together with a statement by Lessor
that an Event of Default has occurred and is continuing. Any such funds retained
by Lessor due to an Event of Default shall be applied as provided in Article
XVI. Lessor and Lessee shall, upon request of the other, provide such
data as is maintained by the party to whom the request is made with respect to
the Leased Property as may be necessary to prepare any required returns and
reports. In the event governmental authorities classify any property covered by
this Lease as personal property, Lessee shall file personal property tax returns
in such jurisdictions where required. Lessor, to the extent it possesses the
same, and Lessee, to the extent it possesses the same, will provide the other
party, upon request, with cost and depreciation records necessary for filing
returns for any property so classified as personal property. Where Lessor is
legally required to file personal property tax returns, Lessee will be provided
with copies of assessment notices indicating a value in excess of the reported
value in sufficient time for Lessee to file a protest. Lessee may, upon notice
to Lessor, at Lessee's option and at Lessee's sole cost and expense, protest,
appeal or institute such other proceedings as Lessee may deem appropriate to
effect a reduction of real estate or personal property assessments and Lessor,
at Lessee's expenses as aforesaid, shall reasonably cooperate with Lessee in
such protest, appeal, or other action, provided that Lessee may not withhold
payments pending such challenges except under the conditions set forth in Article
XII.  Billings for reimbursement by Lessee to Lessor of
personal property taxes shall be accompanied by copies of a bill therefor and
payments thereof which identify the personal property with respect to which such
payments are made.


11








(b)           Notwithstanding
anything to the contrary contained in Section 4.1(a),
above, concurrent with the payment of Minimum Rent, Lessee shall pay to Lessor
monthly deposits, as reasonably determined by Lessor, to cover real property
taxes for each Leased Property as and when they become due.  The
deposits shall be held in escrow in a non-interest-bearing account which may be
commingled with other funds of Lessor and disbursed annually or semi-annually,
as the case may be, in accordance with such instructions as may be set forth in
the tax bills.  Upon receipt of tax bills pertaining to each such
Leased Property, Lessor shall furnish Lessee with a copy of such
bill.  If the total amount paid by Lessee for any taxable period under
this Section
4.1(b) shall be less than the actual amount due from Lessee for such
period, Lessee shall pay to Lessor the difference within ten (10) days following
demand; and if the total amount paid by Lessee for any tax period under this
Section 4.1(b)
shall exceed the actual amount due from Lessee for such period, such excess
shall be credited against the next monthly payment due from Lessee under this
Lease.





Notice
of Impositions.Upon its receipt
of same, Lessor shall give prompt Notice to Lessee for all Impositions payable
by Lessee hereunder of which Lessor obtains actual knowledge, but Lessor's
failure to give any such Notice shall in no way diminish Lessee's obligations
hereunder to pay such Impositions.




Adjustment
of Impositions.Impositions
imposed in respect of the tax-fiscal periods during which the Term commences and
terminates shall be adjusted and prorated between Lessor and Lessee, whether or
not such Imposition is imposed before or after such commencement or termination,
and Lessee's obligation to pay its prorated share thereof after termination
shall survive such termination.




Utility
Charges.Lessee will pay
or cause to be paid all charges for electricity, power, gas, oil, water, sewer
connection and all other utilities used in or for the Leased Property and all
operating expenses of every kind and nature during the Term.




Insurance
Premiums.Lessee will pay
or cause to be paid all premiums for the insurance coverages required to be
maintained pursuant to Article
XIII (or elsewhere in this Lease) during the Term.  During any
portion of the Term of the Lease in which Lessee is not in compliance with the
provisions of Article
XIII, Lessee shall reimburse Lessor for the costs of any premiums of
insurance coverage obtained by Lessor or maintained by Lessor in connection with
the Leased Property within ten (10) days of Lessor’s demand
therefor.  Lessee shall not have the right to receive any proceeds or
other benefits from any such insurance obtained by Lessor on Lessee’s
behalf.




Inspection
Fees.  Lessee shall, in addition to all other sums, pay all
fees for inspection and examination of the Leased Property during the Term
hereof which are charged by any Property Mortgagee or by any public authority
having jurisdiction thereof; provided, however, that Lessee shall not be
required to pay any such fees that exceed One Thousand Five Hundred and no/100
Dollars ($1,500.00) per Fiscal Year.







12








PropertyMortgage
Offset.Should Lessor
default under the terms of any Property Mortgage, and, provided no Event of
Default exists, Lessee shall have the right to perform Lessor’s obligations
under any such Property Mortgage and offset the amounts expended thereunder
against the payment of Minimum Rent. No other offset against the payment of
Minimum Rent (or any other Rent) of any kind is permitted.










Ownership
of the Leased Property.Lessee
acknowledges and agrees that the Leased Property is the property of Lessor or
Lessor has a leasehold interest in the Leased Property such that it is entitled
to enter into this Lease, and that Lessee has only the right to the exclusive
possession and use of the Leased Property upon the terms and conditions of this
Lease.  Lessee acknowledges and agrees that this Lease does not grant
an option or any other type of right to purchase the Leased Property from
Lessor.




Lessee's
Personal Property.Lessee may (and
shall as provided hereinbelow), at its expense, install, affix or assemble or
place on any parcels of the Land or in any of the Leased Improvements, any items
of Lessee's Personal Property, and Lessee may, subject to the conditions set
forth below, remove the same upon the expiration or any prior termination of the
Term.  Lessee shall provide and maintain during the Term all such
Lessee's Personal Property as shall be necessary in order to operate each
Facility in compliance with all Legal Requirements and Insurance
Requirements.  All of Lessee's Personal Property not removed by Lessee
within thirty (30) days following the expiration or earlier termination of this
Lease shall be considered abandoned by Lessee and may be used, appropriated,
sold, destroyed or otherwise disposed of by Lessor without first giving notice
thereof to Lessee and without any payment to Lessee and without any obligation
to account therefor.  Lessee shall, at its expense, restore the Leased
Property to the condition required by Section
9.1, including repair of all damage to the Leased Property caused by the
removal of Lessee's Personal Property, whether effected by Lessee or
Lessor.










Condition
of Leased Property.LESSEE
REPRESENTS THAT IT IS A KNOWLEDGEABLE, EXPERIENCED AND SOPHISTICATED LESSEE
AND/OR PURCHASER OF REAL ESTATE, AND THAT LESSEE HAS RELIED AND SHALL RELY
SOLELY ON (I) ITS OWN EXPERTISE AND THAT OF LESSEE’S CONSULTANTS IN LEASING THE
LEASED PROPERTY, AND (II) LESSEE’S OWN KNOWLEDGE OF THE LEASED PROPERTY BASED ON
ITS INVESTIGATIONS AND INSPECTIONS OF THE LEASED PROPERTY.  LESSEE HAS
CONDUCTED SUCH INSPECTIONS AND INVESTIGATIONS OF THE LEASED PROPERTY AS LESSEE
DEEMED OR SHALL DEEM NECESSARY, INCLUDING, BUT NOT LIMITED TO, THE PHYSICAL
ENVIRONMENTAL AND FINANCIAL CONDITIONS THEREOF, AND SHALL RELY UPON
SAME.  LESSEE SHALL ASSUME THE RISK THAT ADVERSE MATTERS, INCLUDING,
BUT NOT LIMITED TO, ADVERSE PHYSICAL AND/OR FINANCIAL CONDITIONS, MAY NOT HAVE
BEEN REVEALED BY LESSEE’S INSPECTIONS AND




13


INVESTIGATION;
PROVIDED, HOWEVER, THAT LESSEE ASSUMES NO LIABILITY FOR RELEASES OF HAZARDOUS
MATERIALS THAT OCCURRED PRIOR TO THE COMMENCEMENT DATE OR FOR OTHER HAZARDOUS
ENVIRONMENTAL CONDITIONS EXISTING AT THE LEASED PROPERTY ON THE COMMENCEMENT
DATE.  LESSEE ACKNOWLEDGES AND AGREES THAT UPON EXECUTION OF THIS
LEASE, LESSOR SHALL LEASE AND CONVEY TO LESSEE AND LESSEE SHALL ACCEPT THE
LEASED PROPERTY “AS IS, WHERE IS,” WITH ALL FAULTS AND DEFECTS (LATENT AND
APPARENT).  LESSEE FURTHER ACKNOWLEDGES AND AGREES THAT THERE ARE NO
ORAL AGREEMENTS, PURCHASE CONTRACTS, WARRANTIES OR REPRESENTATIONS, COLLATERAL
TO OR AFFECTING THE LEASED PROPERTY MADE BY LESSOR, ANY AGENT, REPRESENTATIVE,
EMPLOYEE, BROKER, OR CONTRACTOR OF LESSOR OR ANY THIRD PARTY.  THE
TERMS AND CONDITIONS OF THIS SECTION OF THIS LEASE SHALL EXPRESSLY SURVIVE THE
EXECUTION OF THIS LEASE, AND SHALL NOT MERGE WITH THE PROVISIONS OF ANY
LEASE.  LESSOR IS NOT LIABLE OR BOUND IN ANY MANNER BY ANY ORAL OR
WRITTEN STATEMENTS, REPRESENTATIONS, OR INFORMATION PERTAINING TO THE LEASED
PROPERTY FURNISHED BY LESSOR, ANY REAL ESTATE BROKER, CONTRACTOR, MEMBER, AGENT,
EMPLOYEE OR OTHER PERSON.  LESSEE COVENANTS AND ACKNOWLEDGES THAT THE
LEASE AND THE RENT PAYABLE HEREUNDER REFLECTS THE “AS IS” NATURE OF THIS
TRANSACTION AND ANY FAULTS, LIABILITIES, DEFECTS OR OTHER ADVERSE MATTERS THAT
MAY BE ASSOCIATED WITH THE LEASED PROPERTY.  LESSEE HAS FULLY REVIEWED
THE DISCLAIMERS AND WAIVERS SET FORTH IN THIS LEASE WITH ITS COUNSEL AND
UNDERSTANDS THE SIGNIFICANCE AND EFFECT THEREOF.




To the
extent permitted by law, Lessor hereby assigns to Lessee, all of Lessor's rights
to proceed against any predecessor in title (but not against Lessor) for
breaches of warranties or representations, or for latent defects in the Leased
Property. Lessor shall reasonably cooperate with Lessee in the prosecution of
any such claim, in Lessor's or Lessee's name, all at Lessee's sole cost and
expense; provided, however, that all compensatory damages shall be used by
Lessee for repair or replacement of the items for which compensation was
granted.




Use of
the Leased Property.




Lessee
covenants that it will proceed with due diligence to maintain all permits,
licenses and approvals needed to use and operate the Leased Property and each
Facility in accordance with Legal Requirements.




During
the Term, Lessee shall use or cause to be used the Leased Property as assisted
living or residential care facilities with not less than the applicable number
of licensed beds and units shown on Schedule “7.2.2”
attached hereto and incorporated with respect to each Leased Property (the
“Required Bed/Unit
Count”), and for such other uses as may be necessary or incidental to
such use (the particular such use to which the Leased Property is put is herein
referred to as the “Primary
Intended Use”).  Lessee shall not use the Leased Property or
any portion thereof for any use other than the Primary Intended Use without the
prior written consent of Lessor, which consent may be withheld in Lessor’s sole
and absolute




14


discretion.
No use shall be made of the Leased Property, and no acts shall be done, which
will cause the cancellation of any insurance policy covering the Leased Property
or any part thereof, nor shall Lessee sell or otherwise provide to residents or
patients therein, or permit to be kept, used or sold in or about the Leased
Property any article which may be prohibited by Insurance Requirements or Legal
Requirements. Lessee shall, at its sole cost, comply with all Insurance
Requirements and Legal Requirements.




Lessee
covenants and agrees that during the Term it will operate continuously the
Leased Property in accordance with its Primary Intended Use and will maintain
its licensure, with the Required Bed/Unit Count, and
certifications.




Lessee
shall comply in all material respects with all licensing and other laws and all
covenants, conditions and restrictions affecting the Leased Property (sometimes
hereinafter referred to as “CC&R’s”) and other use or maintenance
requirements applicable to the Primary Intended Use provided the terms and
conditions of such CC&Rs are consistent with the requirements imposed on
Lessee under this Lease, including, but not limited to the requirement to use
the Leased Property for its Primary Intended Use.  Further, Lessee
shall not commit any act or omission that would in any way violate any
certificate of occupancy affecting any Facility, result in closure of any
Facility or result in the sale or transfer of all or any portion of any related
certificate of need, bed rights or other similar certificate or
license.  During the Term, all inspection fees, costs and charges
associated with a change of such licensure or certification (“Change of Licensure Costs”)
shall be borne solely by Lessee.  Notwithstanding the foregoing,
Lessee shall not be responsible
for any Change of Licensure Costs that would be ordinarily incurred by a new
operator of a facility under usual custom and practice in the applicable
business (e.g., application fees for licensure, costs of training personnel,
legal costs in connection with the same) and Lessee shall not be required to
effect any repairs to or modification or alterations of the Facility as maybe
necessary for a prospective new operator to obtain such licenses as may be
required to operate the Facilities.  In all events, Lessee shall
cooperate in good faith, at no out-of-pocket expense to itself, with the efforts
of any prospective new operator of any Facility to obtain
licensure.




Lessee
shall not commit or suffer to be committed any waste on the Leased Property, or
in any Facility, nor shall Lessee cause or permit any nuisance thereon. Lessor
acknowledges that Lessee’s operation of the Facilities in accordance with the
Primary Intended Use will not constitute waste or nuisance.




Lessee
shall neither suffer nor permit the Leased Property or any portion thereof,
including Lessee's Personal Property, to be used in such a manner as it might
reasonably tend to impair Lessor's (or Lessee's, as the case may be) title
thereto or to any portion thereof, or may reasonably make possible a claim or
claims of adverse usage or adverse possession by the public, as such, or of
implied dedication of the Leased Property or any portion thereof.




Transfer
of Residents.  Lessee acknowledges that a fair return to Lessor
on and protection of its investment in the Leased Property is dependent, in
part, on Lessee’s dedication to the business and the concentration on the Leased
Property during the Term of the business of Lessee and its Affiliates in the
geographical area of such Facility.  Lessee further




15


acknowledges
that the diversion of residents or patient care activities from any Facility to
other facilities owned or operated, directly or indirectly, by Lessee or its
Affiliates, or any other party, except as may be medically necessary, at any
time during the Term will have a material adverse affect on the value and
utility of such Facility.  Therefore, Lessee covenants that during the
Term, and for a period of one (1) year thereafter, Lessee shall not recommend or
solicit the removal or transfer of any resident or patient from either Facility
to any other facility or institute; except as may be required for medically
appropriate reasons.




Bed
Rights.  Lessee acknowledges and agrees that the rights to
operate the beds located at the Leased Property for its Primary Intended Use
under the laws of the State of California (i) affect the value of the Leased
Property, and (ii) the grant of this Lease is conditioned upon the existence of
such rights.  Lessee shall not relocate any licensed bed to any other
location and shall not transfer any bed operating rights to any other
party.




Lessor
to Grant Easements, etc.Lessor will,
from time to time so long as no Event of Default exists, at the request of
Lessee and at Lessee's sole cost and expense (but subject to Lessor’s approval),
(i) grant easements and other rights in the nature of easements with respect to
the Leased Property to third parties, (ii) release existing easements or other
rights in the nature of easements which are for the benefit of the Leased
Property, (iii) dedicate or transfer unimproved portions of the Leased Property
for road, highway or other public purposes, (iv) execute petitions to have
the Leased Property annexed to any municipal corporation or utility district,
(v) execute amendments to any covenants and restrictions affecting the Leased
Property and (vi) execute and deliver to any person any instrument appropriate
to confirm or effect such grants, releases, dedications, transfers, petitions
and amendments (to the extent of its interests in the Leased Property), but only
upon delivery to Lessor of a signed affidavit by an executive officer or
equivalent person of authority at Lessee stating that such grant, release,
dedication, transfer, petition or amendment is (a) reasonably required for the
continued operation of the Leased Property in accordance with the Primary
Intended Use, (b) not detrimental to the proper conduct of the business of
Lessee on the Leased Property and (c) does not reduce the value of the Leased
Property.  Lessor shall not take any of the foregoing actions without
Lessee’s approval.










Compliance
with Legal and Insurance Requirements, Instruments, etc.Subject to Article
XII relating to permitted contests, Lessee, at its expense, will, during
the Term, (a) comply with all Legal Requirements and Insurance Requirements
in respect of the use, operation, maintenance, repair and restoration of the
Leased Property, whether or not compliance therewith requires structural changes
in any of the Leased Improvements or interferes with the use and enjoyment of
the Leased Property and (b) procure, maintain and comply with all licenses,
certificates of need, provider agreements and other authorizations required for
any use of the Leased Property and/or Lessee's Personal Property then being
made, and for the proper erection, installation, operation and maintenance of
the Leased Property or any part thereof.




Legal
Requirements Covenants.Lessee shall acquire and maintain all licenses, certificates, permits,
provider agreements and other authorizations and approvals needed to operate the
Leased Property in its customary manner for the Primary Intended Use. Lessee
further covenants and agrees to perform all maintenance and alterations
necessary to operate the




16


Leased
Property in accordance with all Legal Requirements and Insurance Requirements.
Lessee, may, however, upon prior written notice to Lessor, contest the legality
or applicability of any such law, ordinance, rule or regulation, or any
licensure or certification decision if Lessee maintains such action in good
faith, with due diligence, without prejudice to Lessee’s rights hereunder, and
at Lessee's sole cost and expense. If by the terms of any such law, ordinance,
rule or regulation, compliance therewith pending the prosecution of any such
proceeding may legally be delayed without the occurrence of any fine, charge or
liability of any kind against the Leased Property or Lessee's leasehold interest
therein and without subjecting Lessee or Lessor to any liability, civil or
criminal, for failure to comply therewith, Lessee may delay compliance therewith
until the final determination of such proceeding.  If any lien, charge
or civil or criminal liability would be incurred by reason of any such delay,
Lessee, on the prior written consent of Lessor, may nonetheless contest as
aforesaid and delay as aforesaid provided that such delay would not subject
Lessor to criminal liability and Lessee both (a) furnishes to Lessor security
satisfactory to Lessor (in its sole and absolute discretion) against any loss or
injury by reason of such contest or delay, and (b) prosecutes the contest with
due diligence and in good faith.










Maintenance
and Repair.




Lessee,
at its sole expense, will, during the Term, keep the Leased Property and all
private roadways, sidewalks and curbs appurtenant thereto and which are under
Lessee's control (and Lessee's Personal Property) in good order and repair
(whether or not the need for such repairs occurs as a result of Lessee's use,
any prior use, the elements or the age of the Leased Property, or any portion
thereof), and, except as provided in Article
XIV, with reasonable promptness, make all necessary and appropriate
repairs thereto of every kind and nature, whether interior or exterior,
structural or non-structural, ordinary or extraordinary, foreseen or unforeseen
or arising by reason of a condition existing prior to or during the Term,
provided, however, that Lessee shall be permitted to prosecute claims against
Lessee's predecessors (but not Lessor) in title for (i) breach of any
representation or warranty, or (ii) any latent defects in the Leased Property.
All repairs shall be at least equivalent in quality to the original
work.  Lessee will not take or omit to take any action the taking or
omission of which would reasonably be expected to materially or adversely impair
the value or the usefulness of the Leased Property or any part thereof for its
Primary Intended Use.  Any repair work performed by Lessee shall be
paid for so that no lien (i.e., mechanics’, materialmen’s or other liens) shall
attach to the Leased Property, subject to the provisions of Article
XI.  Notwithstanding anything to the contrary contained in this
Section
9.1.1, commencing on the third (3rd)
anniversary of the Commencement Date, Lessee shall at a minimum spend not less
than an average of $400.00 per unit per year over a trailing twenty-four (24)
month period at each Leased Property for such repairs and
maintenance.  Lessee will furnish to Lessor a written certificate from
a duly authorized officer of Lessee within forty-five (45) days after the close
of each Fiscal Year of the Lessee certifying that Lessee is in compliance with
this Section
9.1.1.  Each such Officer’s Certificate shall be accompanied by
an itemized statement of the repairs and maintenance performed in the prior
Fiscal Year at the Leased Property in compliance with this Section
9.1.1.




Lessor
shall not under any circumstances be required to build or rebuild any
improvements on the Leased Property, or to make any repairs,
replacements,




17


alterations,
restorations or renewals of any nature or description to the Leased Property,
whether ordinary or extraordinary, structural or non-structural,
foreseen/unforeseen, in connection with this Lease, or to maintain the Leased
Property in any way. Lessee hereby waives, to the extent permitted by law, the
right to make repairs at the expense of Lessor pursuant to any law in effect at
the time of the execution of this Lease or hereafter enacted. Lessor shall have
the right to give, record and post, as appropriate, notices of
non-responsibility (or similar notices) under any mechanics' lien laws now or
hereafter existing.




Lessee
shall not make any modifications, alterations or improvements to the Leased
Improvements or any portion thereof, whether by addition or deletion, without
Lessor’s prior written consent, which consent may be given or withheld in
Lessor’s reasonable discretion; provided, however, that Lessor’s consent shall
not be required in connection with any non-structural modifications, alterations
or improvements that do not constitute capital improvements and that are
otherwise made in compliance with this Lease, so long as the total cost thereof,
with respect to any single Leased Property, does not exceed $50,000.00 and the
total cost with respect to any single Leased Property in any twelve (12) month
period does not exceed $100,000.00.  Nothing contained in this Lease
and no action or inaction by Lessor shall be construed as constituting the
consent or request of Lessor, expressed or implied, to any contractor,
subcontractor, laborer, materialman or vendor to or for the performance of any
labor or services or the furnishing of any materials or other property for the
construction, alteration, addition, repair or demolition of or to the Leased
Property or any part thereof, or (ii) giving Lessee any right, power or
permission to contract for or permit the performance of any labor or services or
the furnishing of any materials or other property in such fashion as would
permit the making of any claim against Lessor in respect thereof or to make any
agreement that may create, or in any way be the basis for any right, title,
interest, lien, claim or other encumbrance upon the estate of Lessor in the
Leased Property, or any portion thereof. Lessor shall have the right to give,
record and post, as appropriate, notices of nonresponsibility (or similar
notices) under any mechanics' lien laws now or hereafter existing.




Lessee
will, upon the expiration or prior termination of the Term, vacate and surrender
the Leased Property to Lessor in the condition in which the Leased Property was
originally received from Lessor, except as repaired, rebuilt, restored, altered
or added to as permitted or required by the provisions of this Lease, and except
for ordinary wear and tear (subject to the obligation of Lessee to maintain the
Leased Property in good order and repair during the
Term).  Notwithstanding the foregoing, in the event Lessee is
specifically required by Lessor in writing to expend more than One Hundred Sixty
Thousand and no/100 Dollars ($160,000) on capital expenditures to the Leased
Property during the last two Lease Years (which written requirement from Lessor
shall, for purposes of this Section 9.1.4, include the amounts which Lessee is
required to expend under Section
9.1.1), then the unamortized portion of such capital expenditures
(calculated using a ten (10) year amortization period) shall be reimbursed to
Lessee at the expiration of the Term.




Expenditures
to Comply with Law.Without limiting Lessee's obligations as set forth elsewhere in this
Lease, during the Term, Lessee will, at its sole cost and expense, make whatever
expenditures (including but not limited to capital and non-capital expenditures)
that are required to conform the Leased Property to such standards as may from
time to time be required by Legal Requirements, or capital improvements required
by any governmental agency




18


having
jurisdiction over the Leased Property as a condition of the continued operation
of the Leased Property for its Primary Intended Use, pursuant to present or
future Legal Requirements.




Encroachments,
Restrictions.If any of the
Leased Improvements shall, at any time during the Term, encroach upon any
property, street or right-of-way adjacent to the Leased Property, or shall
violate the agreements or conditions contained in any lawful restrictive
covenant or other agreement affecting the Leased Property, or any part thereof,
or shall impair the rights of others under any easement or right-of-way to which
the Leased Property is subject, then promptly upon the request of Lessor or at
the behest of any person affected by any such encroachment, violation or
impairment, Lessee shall, at its sole cost and expense, (and after Lessor’s
prior approval), subject to Lessee’s right to sue Lessor’s predecessor in title
(but not Lessor) with respect thereto, contest the existence of any such
encroachment, violation or impairment; provided, however, that Lessee shall
assume no liability for any encroachments that exist at the Leased Property on
the Commencement Date.  In the event of an adverse final
determination, either (i) obtain valid and effective waivers or settlements of
all claims, liabilities and damages resulting from each such encroachment,
violation or impairment, whether the same shall affect Lessor or the Leased
Property or (ii) make such changes in the Leased Improvements, and take such
other actions, as Lessee in the good faith exercise of its judgment deems
reasonably practicable and necessary, to remove such encroachment, and to end
such violation or impairment, including, if necessary, the alteration of any of
the Leased Improvements, and in any event take all such actions as may be
necessary in order to be able to continue the operation of the Leased
Improvements for the Primary Intended Use substantially in the manner and to the
extent the Leased Improvements were operated prior to the assertion of such
violation, impairment or encroachment.  Any such alteration shall be
made in conformity with the applicable requirements of Article
IX.  Lessee's obligations under this Section
9.3 shall be in addition to and shall in no way discharge or diminish any
obligation of any insurer under any policy of title or other
insurance.




Capital
Improvements.




Renovation.  Lessor
has agreed to provide Lessee with a capital improvement allowance in an amount
not to exceed One Million Five Hundred Thousand and No/100 Dollars
($1,500,000.00) (the “Capital
Allowance”) which may be allocated by Lessee between the Facilities to
renovate the existing Leased Improvements (the “Renovation Project”) and which
shall be allocated into two tranches of Seven Hundred Fifty Thousand and no/ 100
Dollars ($750,000) the first of which tranche shall hereinafter be referred to
as the “Tranche One Capital
Allowance” and the second of which tranche shall hereinafter be referred
to as the “Tranche Two Capital
Allowance.”  Any proposed use by Lessee of the Capital
Allowance shall be subject to the review and prior written approval of Lessor,
which approval shall not be unreasonably withheld after receipt of the
Consultant’s Approval (defined below) (“Lessor’s Approval”); provided,
however, that such use of the Capital Allowance must meet the capitalization
requirements according to U.S. generally accepted accounting principals (“GAAP”) and accordingly Lessor
will notify Lessee in the Lessor’s Approval of its determination whether the
proposed Renovation Project completed in compliance with the Consultant’s
Approval can be capitalized in accordance with GAAP. In the event Lessor
determines that it will be unable to capitalize any proposed Renovation Project
it shall so advise Lessee by written notice setting forth in reasonable detail
the facts upon which its determination




19


is based
and it shall give Lessee a reasonable opportunity to modify the proposed
Renovation Project in order to address the accounting issues identified by
Lessor.  Any amount of the Capital Allowance advanced for any
Renovation Project at a Leased Property will increase Lessor’s Investment in the
respective Leased Property.  Lessee shall have twenty-four (24) months
from the Commencement Date (the “Renovation Deadline”) to
complete the Renovation Project.  The Capital Allowance will be
available to Lessee until the Renovation Deadline, at which time Lessor’s
obligation to fund any unused portion of the Capital Allowance will
expire.




Lessor’s
Consultant.  Lessee shall provide Dennis Mitchell of Mitchell
& Associates, or such other consultant as may be identified by Lessor from
time to time, (“Lessor’s
Consultant”) with a copy of any plans and specifications for the
Renovation Project for review and approval prior to the commencement of work,
which approval shall not be unreasonably withheld or delayed. If Lessor’s
Consultant objects, in whole or in part, to the proposed plans and
specifications, he shall so advise Lessee and Lessor in writing, setting forth
in reasonable detail the basis of his objections, and Lessee shall be given a
reasonable opportunity to work with Lessor’s Consultant to address any
objections to the proposed plans and specifications raised by Lessor’s
Consultant with the goal of the parties being to secure the approval of Lessor’s
Consultant of plans and specifications which are acceptable to Lessee, Lessor
and to Lessor’s Consultant. Once Lessor’s Consultant is satisfied with the plans
and bids for improvements, Lessor’s Consultant shall provide written approval
(not to be unreasonably withheld or delayed) to Lessor of the plans and
specifications and Lessee shall be authorized to commence work (the “Consultant’s
Approval”).  Lessee shall be solely responsible for the costs
of Lessor’s Consultant, which costs shall be funded by Lessor from, and as part
of, the Capital Allowance.  In addition, Lessor’s Consultant shall be
granted full access to the Leased Property for the sole purpose of periodically
inspecting and monitoring the work comprising the Renovation
Projects.  The reasonable costs of such inspections and monitoring are
to be borne by Lessee, and shall be funded by Lessor from, and as part of, the
Capital Allowance. The fees and expenses of Lessor’s Consultant shall not exceed
Twenty Thousand and no/100 Dollars ($20,000); provided, however, the foregoing
limit shall not apply to any Renovation Project which is not completed
materially in accordance with the Consultant’s Approval.




Disbursements
of Capital Allowance.  Provided no
Event of Default has occurred and/or is continuing, and no condition exists
which with the passage of time or the giving of notice (or both) would
constitute an Event of Default, in response to a written disbursement request in
substantially the form attached as Exhibit
“C” (each a “Request for
Advance”), Lessor shall make advances of the Capital Allowance on the
last day of each calendar month prior to the Renovation Deadline, provided that,
if the last day of the month is not a business day, then the advance shall be
disbursed on the next succeeding business day (each a “Disbursement Date”), following
the satisfaction, in Lessor’s sole and absolute discretion, of each of the
following conditions:




(a)  If the
Request for Advance relates to the purchase of furniture, fixtures or equipment,
Lessor shall disburse to Lessee such portions of the Capital Allowance as are
necessary to reimburse Lessee the amount of the paid invoice; and




(b)  If the
Request for Advance relates to an alteration to the Leased
Property:




20


(i)  Lessee
shall submit a completed Request for Advance, no later than the fifteenth
(15th)
calendar day of any calendar month;




(ii)  Lessee
shall have delivered to Lessor all original mechanics' lien waivers, in form and
substance satisfactory to Lessor, reasonably deemed necessary by Lessor for
services and materials provided in connection with the Renovation
Project;




(iii)  All costs
for the Renovation Project are to be certified by Lessee in accordance with the
Request for Advance.  Verification of the monthly progress of the
Renovation Project and the costs incurred may be made by Lessor in its
reasonable judgment;




(iv)  Lessee
shall be deemed to have remade, as of the date of each advance, each and every
representation and warranty made by Lessee in this Lease, and each such
representation and warranty shall be true and correct at the time of each
advance;




(v)  Lessee
shall have provided Lessor with evidence reasonably satisfactory to Lessor that
the construction work complies with all building, zoning and other laws and
governmental codes, rules and regulations, all necessary licenses, permits,
approvals and consents required for the use, occupancy and operation of the
Facility as altered by the Renovation Project, and evidence satisfactory to
Lessor that all construction work completed as of the date of the final Request
for Advance, to the extent required by applicable laws and regulations, has been
inspected and approved by each governmental authority with jurisdiction over the
Renovation Project and by each person or entity that has the right to inspect
and approve the construction work, and each applicable governmental authority
shall have issued the appropriate permit, license or certificate to evidence
such approval;




(vi)  Before
processing the final Request for Advance, Lessor shall have received a
completion certificate, in substantially the form attached hereto as Exhibit
“F”, executed by Lessee and Lessor’s Consultant stating that the
Renovation Project has been completed, together with such other evidence that no
mechanics or materialmen's liens or other encumbrances have been filed and
remain in effect against the Leased Property, or appropriate lien waivers from
any contractor or subcontractor;




(vii)  To the
extent an architect has been engaged, a signed copy of the “AIA Document G702
Application and Certificate for Payment” shall have been submitted to Lessor
with each Request for Advance; and




(viii)  Before
processing the final Request for Advance, Lessee shall have provided Lessor with
the Certificate of Occupancy, if necessary, or such other evidence of
satisfactory completion and approval of the subject renovation work issued by
the appropriate local governmental authority.










Lessee's
Obligations for Hazardous Materials.Lessee shall, at
its sole cost and expense, take all actions as required to cause the Leased
Property including, but not




21


limited
to, the Land and all Leased Improvements, to be free and clear of the presence
of all Hazardous Materials (defined below) during the Term; provided, however,
that Lessee shall be entitled to use and maintain de minimus amounts of
Hazardous Materials on the Leased Property in connection with Lessee's business
and in compliance with all applicable laws. Lessee shall, upon its discovery,
belief or suspicion of the presence of Hazardous Materials on, in or under any
part of the Leased Property, including, but not limited to, the Land and all
Leased Improvements, immediately notify Lessor and, at its sole cost and expense
cause any such Hazardous Materials to be removed immediately, in compliance with
all applicable laws and in a manner causing the least disruption of or
interference with the operation of Lessee's business. Lessee shall fully
indemnify, protect, defend and hold harmless Lessor from any costs, damages,
claims, liability or loss of any kind or nature arising out of or in any way in
connection with the presence, suspected presence, removal or remediation of
Hazardous Materials in, on, or about the Leased Property, or any part thereof,
but only to the extent the Hazardous Materials were released on the Properties
during the Term.  Lessee shall have no liability with respect to
Hazardous Materials that existed on the Leased Property on the Commencement Date
or at any time prior thereto.  Lessor represents to Lessee that it has
no knowledge of any Hazardous Materials that are now or have been in the past
located on the Properties.




Definition
of Hazardous Materials.For purposes of
this Lease, Hazardous Materials shall mean any biologically or chemically active
or other toxic or hazardous wastes, pollutants or substances, including, without
limitation, asbestos, PCBs, petroleum products and by-products, substances
defined or listed as “hazardous substances” or “toxic substances” or similarly
identified in or pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. § 9601 et seq., as amended,
and as hazardous wastes under the Resource Conservation and Recovery Act, 42
U.S.C. § 6010, et
seq., any chemical substance or mixture regulated under the Toxic
Substance Control Act of 1976, as amended, 15 U.S.C.; 2601 et seq., any “toxic
pollutant” under the Clean Water Act, 33 U.S.C. § 466 et seq., as amended,
any hazardous air pollutant under the Clean Air Act, 42 U.S.C. § 7401 et seq., hazardous
materials  identified in or pursuant to the Hazardous Materials
Transportation Act, 49 U.S.C. § 1802, et seq., and any
hazardous or toxic substances or pollutant regulated under any other Legal
Requirements.










11.           Liens.Subject to the
provisions of Article
XIII relating to permitted contests, Lessee will not directly or
indirectly create or allow to remain and will promptly discharge at its expense
any lien, encumbrance, attachment, title retention agreement or claim upon any
part of the Leased Property or any attachment, levy, claim or encumbrance in
respect of the Rent, not including, however, (a) this Lease, (b) restrictions,
liens and other encumbrances which are consented to in writing by Lessor or any
easements granted pursuant to the provisions of Section 7.3
of this Lease, (c) liens for those taxes of Lessor which Lessee is not required
to pay hereunder, (d) subleases permitted by Article
XXII, (e) liens for Impositions or for sums resulting from noncompliance
with any Legal Requirements so long as (1) the same are not yet payable or are
payable without the addition of any fine or penalty or (2) such liens are in the
process of being contested as permitted by Article
XII, or (f) liens of mechanics, laborers, materialmen, suppliers or
vendors for sums either disputed or not yet due, provided that any such liens
are in the process of being contested as permitted by Article
XII.




22








12.           Permitted
Contests.Lessee shall
have the right to contest the amount or validity of any Imposition or any Legal
Requirement or Insurance Requirement or any attachment, levy, encumbrance,
charge or claim (“Claims”) not otherwise
permitted by Article
XI, by appropriate legal proceedings in good faith and with due diligence
(but this shall not be deemed or construed in any way as relieving, modifying or
extending Lessee's covenants to pay or its covenants to cause to be paid any
such charges at the time and in the manner as in this Lease provided), on
condition, however, that such legal proceedings cannot result in the sale of the
Leased Property, or any part thereof, to satisfy the same or cause Lessor or
Lessee to be in default under any mortgage or deed of trust encumbering any
portion of the Leased Property or any interest therein. Upon the reasonable
request of Lessor, Lessee shall provide to Lessor security satisfactory to
Lessor (in Lessor's sole and absolute discretion) to assure the payment of all
Claims which may be assessed against the Leased Property together with interest
and penalties, if any, thereon. Lessor agrees to join in any such proceedings
(at Lessee’s sole cost and expense) if the same be required to legally prosecute
such contest of the validity of such Claims; provided, however, that Lessor
shall not thereby be subjected to any liability for the payment of any costs or
expenses in connection with any proceedings brought by Lessee; and Lessee shall
indemnify and save harmless Lessor from any such costs or expenses, including
reasonable attorneys' fees and costs incurred by Lessor. In the event that
Lessee fails to pay any Claims when due or, upon Lessor's request, to provide
the security therefor as provided in this Article
XII and to diligently prosecute any contest of the same, Lessor may, upon
thirty (30) days advance written Notice to Lessee, pay such charges together
with any interest and penalties and the same shall be repayable to Lessee to
Lessor at the next Payment Date provided for in this Lease. Provided, however,
that should Lessor reasonably determine that the giving of such Notice would
risk loss to the Leased Property or impair the value of the Leased Property or
in any way cause damage to Lessor, then Lessor shall give such written Notice as
is practical under the circumstances. Lessee shall be entitled to any refund of
any Claims and such charges and penalties or interest thereon which have been
paid by Lessee or paid by Lessor and for which Lessor has been fully
reimbursed.










General
Insurance Requirements.Subject to the
provisions of Section 13.8
and Section
33.19(b), during the Term, Lessee shall at all times keep the Leased
Property, and all property located in or on the Leased Property, including
Lessee's Personal Property, insured with the kinds and amounts of insurance
described below and any additional insurance reasonably required by Lessor to
protect its interest in the Leased Property. This insurance shall be written by
companies authorized to do insurance business in the states in which the Leased
Property is located.  The policies must name Lessor as an additional
insured and/or loss payee, as applicable, shall contain a provision that such
insurance may not be cancelled or amended without at least thirty (30) days
notice to Lessor except ten (10) days notice for cancellation for non-payment of
premium, and shall be payable to Lessor or Lessee as provided in Article
XIV.  In addition, upon Lessor's written request, the policies
shall name as loss payee and an additional insured, as applicable, the holder
(“Property Mortgagee”)
of any mortgage, deed of trust or other security agreement (“Property Mortgage”) and any
other Encumbrance placed on the Leased Property in accordance with the
provisions of Article XXXIII
by way of a standard form of mortgagee's loss payable
endorsement.  Any loss




23


adjustment
shall require the written consent of Lessor, Lessee, and each Property
Mortgagee. Evidence of insurance shall be deposited with Lessor and, if
requested, with any Property Mortgagee.  If any provision of any
Property Mortgage requires deposits of premiums for insurance to be made with
such Property Mortgagee, or, pursuant to written direction by Lessor upon the
occurrence of any Event of Default hereunder (and irrespective of whether such
Event of Default is continuing or has been cured), Lessee shall either pay to
Lessor monthly the amounts required and Lessor shall transfer such amounts to
each Property Mortgagee, or, pursuant to written direction by Lessor, Lessee
shall make such deposits directly with such Property Mortgagee. The policies on
the Leased Property, including the Leased Improvements, Fixtures and Lessee's
Personal Property, shall insure against the following risks:




Loss or
damage by fire, vandalism and malicious mischief, extended coverage perils
commonly known as “All Risk,” specifically including wind, rain, earthquake,
sinkhole, mine subsistence, and all physical loss perils normally included in
such all Risk insurance, including but not limited to sprinkler leakage and any
such additional coverage reasonably requested by Lessor, in an amount not less
than one hundred percent (100%) of the then full replacement cost thereof (as
defined below in Section
13.2);




Loss or
damage by explosion of steam boilers, pressure vessels or similar apparatus, now
or hereafter installed in the Facility, in such amounts with respect to any one
accident as may be reasonably requested by Lessor from time to
time;




Loss of
rental under a rental value insurance policy covering risk of loss during the
first twelve (12) months of reconstruction necessitated by the occurrence of any
of the hazards described in Section
13.1.1 or 13.1.2,
or otherwise as specified in this Lease, in an amount sufficient to prevent
Lessor from becoming a co-insurer;




Claims
for personal injury under a policy of comprehensive general public liability
insurance with amounts not less than One Million Dollars ($1,000,000) per
occurrence, and Three Million Dollars ($3,000,000.00) in the
aggregate;




Claims
for malpractice under a policy of comprehensive general public (and
professional) liability insurance with amounts not less than One Million Dollars
($1,000,000) per occurrence, and Three Million Dollars ($3,000,000.00) in the
aggregate.  If such insurance is carried on a claims made basis, then
at the expiration or earlier termination of this Lease, such coverage shall
include tail coverage, for a duration and in form and substance reasonably
acceptable to Lessor, or other evidence reasonably acceptable to Lessor that
incidents which occurred prior to such termination or expiration date will be
covered by the terms of such insurance even if a claim with respect thereto is
not made until after such termination or expiration date;




Flood
(when the Leased Property is located in whole or in part within a designated
flood plain area) and such other hazards and in such amounts as may be customary
for comparable properties in the area and is available from insurance companies
authorized to do business in the respective states in which each Leased Property
is located at rates which are economically practicable in relation to the risks
covered; and




24


Worker’s
Compensation and Employer’s Liability if required by any governmental authority
or Legal Requirement.




Replacement
Cost.The term “full
replacement cost” as used herein, shall mean the actual replacement cost of the
Leased Property requiring replacement from time to time including an increased
cost of construction endorsement, less exclusions provided in the standard form
of fire insurance policy. In the event either party believes that full
replacement cost (the then replacement cost less such exclusions) has increased
or decreased at any time during the Term, it shall have the right to have such
full replacement cost redetermined.




Additional
Insurance.In
addition to the insurance described above, Lessee shall maintain such additional
insurance as may be reasonably required from time to time by Lessor or any
Property Mortgagee.




Waiver
of Subrogation.All insurance policies carried by either party covering any part of the
Leased Property, the Fixtures, the Facilities, or Lessee's Personal Property
including without limitation, contents, fire and casualty insurance, shall
expressly waive any right of subrogation on the part of the insurer against the
other party. The parties hereto agree that their policies will include such
waiver clause or endorsement so long as the same are obtainable without extra
cost, and in the event of such an extra charge the other party, at its election,
may pay the same, but shall not be obligated to do so.




Form
Satisfactory, etc.All of the
policies of insurance referred to in this Article
XIII shall be written in a form reasonably satisfactory to Lessor and by
insurance companies reasonably satisfactory to Lessor (and, as applicable, any
Property Mortgagee).  Subject to the foregoing, Lessor agrees that it
will not unreasonably withhold or delay its approval as to the form of the
policies of insurance or as to the insurance companies selected by Lessee.
Lessee shall pay all of the premiums therefor, and deliver such policies or
certificates thereof to Lessor prior to their effective date (and, with respect
to any renewal policy, prior to the expiration of the existing policy), and in
the event of the failure of Lessee either to effect such insurance as herein
called for or to pay the premiums therefor, or to deliver such policies or
certificates thereof to Lessor at the times required, Lessor shall be entitled,
but shall have no obligation, to effect such insurance and pay the premiums
therefor, which premiums shall be repayable by Lessee to Lessor upon written
demand therefor, and failure to repay the same shall constitute an Event of
Default within the meaning of Section
16.1. Each insurer mentioned in this Article
XIII shall agree, by endorsement on the policy or policies issued by it,
or by independent instrument furnished to Lessor, that it will give to Lessor
(and to any Property Mortgagee, if required by the same) thirty (30) days'
written notice before the policy or policies in questions shall be altered,
allowed to expire or canceled.




Increase
in Limits.In the event
that Lessor or a Property Mortgagee shall at any time reasonably determine the
limits of the personal injury or property damage, or public liability, or
malpractice insurance then carried to be insufficient, Lessee shall thereafter
carry the insurance with increased limits until further changed pursuant to the
provisions of this Section.




Blanket
Policy.Notwithstanding
anything to the contrary contained in this Article
XIII, Lessee's obligations to carry the insurance provided for herein may
be brought




25


within
the coverage of a so-called blanket policy or policies of insurance carried and
maintained by Lessee; provided, however, that the coverage afforded Lessor will
not be reduced or diminished or otherwise be different from that which would
exist under a separate policy meeting all other requirements of this Lease by
reason of the use of such blanket policy of insurance, and provided further that
the requirements of this Article
XIII shall be met in any such blanket policy.




No
Separate Insurance.Lessee shall not
on Lessee's own initiative or pursuant to the request or requirement of any
third party take out separate insurance concurrent in form or contributing in
the event of loss with that required in this Article, to be furnished or which
may reasonably be required to be furnished, by Lessee or increase the amount of
any then existing insurance by securing any additional policy or additional
policies, unless all parties having an insurable interest in the subject matter
of the insurance, including in all cases Lessor and all Property Mortgagees are
included therein as additional insureds, and the loss is payable under said
insurance in the same manner as losses are payable under the Lease. Lessee shall
immediately notify Lessor of the taking out of any such separate insurance or of
the increasing of any of the amount of the then existing insurance.




Continuous
Coverage.Lessee shall
assure that there is no gap in the insurance coverage provided in connection
with any Leased Property after the Commencement Date and the insurance provided
by Lessee shall be continuous, with the types and amounts of coverage, described
herein to be applicable on the Commencement Date.  To the extent there
is not full, complete and continuous coverage for all issues, no matter when
arising, claimed or occurring, Lessee shall, at its sole cost, obtain such
insurance.




Determination
of Commercial Reasonableness.  In the event
that Lessor and Lessee are unable to agree on any matter in this Article
XIII requiring a determination of whether the insurance required by
Lessor or its lender is reasonable or customary or available on terms which are
commercially reasonable, such determination shall be made by a reputable
insurance company, consultant or expert (an “Insurance Arbitrator”) with
experience in the skilled nursing insurance industry as identified by Lessor in
the exercise of its reasonable judgment.  As a condition to a
determination of reasonableness or commercial reasonableness, as applicable,
with respect to any particular matter, the Insurance Arbitrator shall be capable
of providing, procuring or identifying particular policies or coverages that
would be available to the Lessee and would satisfy the insurance requirement at
issue.  The determination made by the Insurance Arbitrator shall be
binding upon Lessor and Lessee for the purposes of the requirements under this
Article
XIII, and the costs, fees and expenses of the same shall be borne by the
Lessee.




13.11                      Captive
Insurance Program.  At any time on or after the earlier to
occur of (i) the third anniversary of the Commencement Date or (ii) the maturity
date of the loans evidenced by the John Hancock Loan Documents, Lessor agrees
that Lessee may substitute the insurance coverage required in Subsection 13.1.5
of this Article with its Captive Insurance Program only if the following
requirements are met: (a) Lessor determines that the Captive Insurance Program
in effect at that time is substantially similar to the Captive Insurance Program
that Lessee has in place as of the Commencement Date (a description of which is
attached hereto as Exhibit
“B”), (b) Lessee’s captive insurer’s state of domicile has not issued a
Certificate of


26


Non
Compliance for Lessee’s captive insurer, and (c) the financial condition of
Lessee’s captive insurer is certified by Price Waterhouse Coopers or another
similar accounting firm to meet the requirements set forth on a recent annual
actuarial report dated not more than twelve (12) months prior to the date of
substitution of such captive insurer prepared by Price Waterhouse Coopers or
another similar accounting firm.  If Lessee has substituted its
Captive Insurance Program in lieu of the insurance requirements in Subsection
13.1.5 of this Article, then on each anniversary of the Commencement Date
subsequent to such substitution Lessee shall provide Lessor with an up to date
annual actuarial report dated not more than twelve (12) months prior to such
anniversary of its captive insurer prepared by Price Waterhouse Coopers or
another similar accounting firm and if the financial condition of Lessee’s
captive insurer as certified by Price Waterhouse Coopers or another similar
accounting firm does not meet the requirements set forth in such annual
actuarial report, then Lessee shall promptly purchase insurance from third party
carriers in compliance with all of the provisions of Article
XIII above and maintain such coverage in effect in accordance with the
requirements of this Article
XIII.  If Lessee’s captive insurer’s state of domicile issues a
Certificate of Non Compliance for Lessee’s captive insurer, then Lessor shall
have the right, at any time thereafter, to require Lessee to promptly purchase
insurance from third party carriers in compliance with all of the provisions of
Article
XIII above and Lessee shall thereafter maintain such coverage in effect
in accordance with the requirements of this Article XIII.











Insurance
Proceeds.  Subject to the rights of any Property Mortgagee, all
proceeds payable by reason of any loss of or damage to the Leased Property, or
any portion thereof, which is insured under any policy of insurance required by
Article
XIII of the Lease, where the total proceeds paid by the insurer are less
than $150,000.00, shall be paid to Lessee and applied to the reconstruction or
repair, as the case may be, of any damage to or destruction of the Leased
Property, or any portion thereof.  All proceeds payable by reason of
any loss of or damage to the Leased Property, or any portion thereof, which is
insured under any policy of insurance required by Article
XIII of this Lease where the total proceeds paid by the insurer are equal
to or in excess of $150,000.00 shall be paid to Lessor and held by Lessor in
trust and shall be made available for reconstruction or repair, as the case may
be, of any damage to or destruction of the Leased Property, or any portion
thereof, and shall be paid out by Lessor from time-to-time for the reasonable
costs of such reconstruction or repair.  Any excess proceeds of
insurance remaining after the completion of the restoration or reconstruction of
the Leased Property shall go to Lessee, provided the Lease is in force and there
exists no uncured Event of Default; otherwise such excess shall be paid to
Lessor for application as set forth in Article
XVI hereof.  All insurance proceeds that are awarded and not
applied to the restoration or repair of the Leased Property shall be retained by
Lessor.  All salvage resulting from any risk covered by insurance
shall belong to Lessor except that any salvage relating to Lessee’s Personal
Property shall belong to Lessee.




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




If during
the Term, the Leased Property is totally or partially destroyed by a risk
covered by the insurance described in Article
XIII and whether or not any




27


Facility
thereby is rendered Unsuitable for its Primary Intended Use, Lessee shall
restore the Leased Property to substantially the same condition as existed
immediately before the damage or destruction. Lessee shall be entitled to the
insurance proceeds for the purpose of such repair and restoration.




If the
cost of the repair or restoration exceeds the amount of proceeds received by
Lessee or Lessor from the insurance required under Article XIII
as provided in Section
14.1, above, Lessee shall be obligated, prior to commencing the repair
and restoration, to contribute any excess amount needed to restore the Leased
Property or to provide Lessor with satisfactory evidence that such funds are,
and throughout the entire period of reconstruction will be,
available.  If Lessee contributes such excess in cash, such excess
shall be paid by Lessee to Lessor to be held in trust, together with any
insurance proceeds, for application to the cost of repair and restoration.




Reconstruction
in the Event of Damage or Destruction Not Covered by Insurance.If during the
Term, the Leased Property is damaged or destroyed irrespective of the extent of
the damage from a risk not covered by the insurance described in Article
XIII, whether or not such damage renders any portion of the Leased
Property Unsuitable for Its Primary Intended Use, Lessee shall restore the
damaged Leased Property to substantially the same condition it was in
immediately before such damage or destruction and such damage or destruction
shall not terminate this Lease nor result in any reduction in Rent (including
without limitation Minimum Rent).




14.2.4.                      Reconstruction
Not Permitted by Law. Notwithstanding the foregoing, in the event Lessee
is prohibited as a matter of law from reconstructing a Facility after damage or
destruction thereto, then Lessee shall pay to Lessor the greater of (i) the
insurance proceeds related to the affected Leased Property, or (ii) an amount
equal to Lessor’s Investment in such Leased Property, less any insurance
proceeds received by Lessor related to the affected Leased
Property.  Upon receipt of such payment this Lease shall cease and
terminate with respect to the affected Leased Property and the then current
Minimum Rent under this Lease shall be reduced by the amount paid to Lessor for
the affected Facility multiplied by the Lease Rate.





Lessee's
Property.All insurance
proceeds payable by reason of any loss of or damage to any of Lessee's Personal
Property shall be paid to Lessee, and Lessee shall hold such insurance proceeds
in trust to pay the cost of repairing or replacing damaged Lessee's Personal
Property.




Restoration
of Lessee's Property.Without limiting
Lessee's obligation to restore the Leased Property as provided in Sections
14.2 and 14.3,
Lessee shall also restore all alterations and improvements made by Lessee,
including Lessee's Personal Property but only to the extent that Lessee's
Personal Property is necessary to the operation of the Leased Property for its
Primary Intended Use in accordance with applicable Legal
Requirements.




No
Abatement of Rent.This Lease shall
remain in full force and effect and Lessee's obligation to make rental payments
and to pay all other charges required by this Lease shall not be abated during
the pendency of repair or restoration.




28








15.           Condemnation.




Definitions.




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




“Date of Taking” means the date
the Condemnor has the right to possession of the property being
condemned.




“Award” means all compensation,
sums or anything of value awarded, paid or received on a total or partial
Condemnation.




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




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




Total
Condemnation.If
title to the fee of the whole of the Leased Property shall be taken or condemned
by any Condemnor, this Lease shall cease and terminate as of the Date of
Condemnation by said Condemnor.  Upon the termination of the Lease
following a total Condemnation, all Rent (including, without limitation, Minimum
Rent, Additional Rent and Additional Charges) paid or payable by Lessee
hereunder shall be apportioned as of the date of termination.  Any
Award made with respect to all or any portion of the Leased Property or for loss
of rent, or for loss of business, whether or not beyond the Term of this Lease,
or for the loss of value of the leasehold shall be solely the property of and
payable to Lessor.




Allocation
of Portion of Award.Any Award made
with respect to all or any portion of the Leased Property or for loss of rent,
or for loss of business, whether or not beyond the Term of this Lease, or for
the loss of value of the leasehold shall be solely the property of and payable
to Lessor.  Lessee shall be entitled to make a separate claim for the
taking of Lessee's Personal Property (as long as such claim will not diminish
Lessor's Award), for the removal or relocation expenses of Lessee (as long as
such claim will not diminish Lessor's Award), or for any other loss that can be
awarded to Lessee separately from Lessor's claim and which will not in any
respect whatsoever diminish or threaten to diminish the total amounts to be
awarded to Lessor as set forth above or otherwise for Lessee's Leasehold
interest in the Leased Property.  In any Condemnation proceedings,
each of the Lessor and Lessee shall each seek its own claim in conformity
herewith, at its own expense. Lessor's obligation to contribute part of its
Award for restoration is set forth in Section 15.6,
below.




Partial Taking.




29


If title
to the fee of less than the whole of the Leased Property shall be so taken or
condemned, this Lease shall continue in full force and effect, there shall be no
reduction in Rent (including, without limitation, Minimum Rent and Additional
Charges).  Provided however, if title to the fee of the whole of one
Leased Property shall be taken or condemned, this Lease shall cease and
terminate with respect to such Leased Property and the Minimum Rent under this
Lease shall be reduced by an amount equal to the Award multiplied by the Lease
Rate.




If title
to the fee of less than the whole of one Leased Property shall be so taken or
condemned, and such Leased Property is rendered unsuitable for Lessee’s
continued use of the Leased Property as an assisted living or residential care
facility due to such Condemnation, in Lessor’s reasonable discretion, Lessor
will allow this Lease to terminate with respect to such Leased Property and the
Minimum Rent under this Lease shall be reduced by an amount equal to the amount
of the Award multiplied by the Lease Rate.




Temporary
Taking.Lessee agrees
that if, at any time after the date hereof, the whole or any part of the Leased
Property or of Lessee's interest under this Lease, shall be Condemned by any
Condemnor for its temporary use or occupancy, this Lease shall not terminate by
reason thereof, and Lessee shall continue to pay, in the manner and at the times
herein specified, the full amounts of Rent (including Minimum Rent, Additional
Charges and Additional Rent). Except only to the extent that Lessee may be
prevented from doing so pursuant to the terms of the order of the Condemnor,
Lessee shall also continue to perform and observe all of the other terms,
covenants, conditions and obligations hereof, on the part of the Lessee to be
performed and observed, as though such Condemnation had not occurred. In the
event of any such Condemnation as in this Section
15.6 described, the entire amount of any such Award made for such
temporary use, whether paid by way of damages, rent or otherwise, shall be paid
to Lessee, Lessee covenants that upon the termination of any such period of
temporary use of occupancy as set forth in this Section
15.6, it will, at its sole cost and expense, restore the Leased Property
as nearly as may be reasonably possible, to the condition in which the same was
immediately prior to the Condemnation.










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




if Lessee
fails to make payment of the Minimum Rent payable by Lessee under this Lease
when the same becomes due and payable and such failure is not cured by Lessee
within a period of five (5) days after the date such payment is due;
or







if Lessee
fails to make payment of any Rent (other than Minimum Rent) within five (5)
Business days after receipt of notice from Lessor that such Rent is
due;







if Lessee
fails to observe or perform any other term, covenant or condition of this Lease
and such failure is not cured by Lessee within a period of thirty (30)
days




30


after
Notice thereof from Lessor, unless such failure cannot with due diligence be
cured within a period of thirty (30) days, in which case such failure shall not
be deemed an Event of Default if Lessee proceeds promptly and with due diligence
to cure the failure; or




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




if
Lessee, on a petition in bankruptcy filed against it, is adjudicated as bankrupt
or an order for relief thereunder is entered against it or a court of competent
jurisdiction shall enter an order or decree appointing, without the consent of
Lessee, a receiver for Lessee or of the whole or substantially all of its
property, or approving a petition filed against Lessee seeking reorganization or
arrangement of Lessee under the federal bankruptcy laws or any other applicable
law or statute of the United States of America or any state thereof and Lessee
is not diligently pursuing efforts to have such judgment, order or decree
vacated or set aside or stayed, or a final non-appealable judgment, order or
decree is entered by a court of competent jurisdiction; or




if Lessee
shall be liquidated or dissolved, or shall begin proceedings toward such
liquidation or dissolution, or shall, in any manner, permit the sale or
divestiture of substantially all of its assets; or




if the
estate or interest of Lessee in the Leased Property or any part thereof be
levied upon or attached in a proceeding and the same shall not be vacated or
discharged within the later of ninety (90) days after commencement thereof or
thirty (30) days after Notice thereof from Lessor, (unless Lessee shall be
contesting such lien or attachment in good faith in accordance with Article
XII hereof); or




if Lessee
voluntarily ceases operations at any one of the Leased Property for a period in
excess of twenty-four (24) hours, except in the event of a natural disaster;
or




if any of
Lessee's representations or warranties set forth in this Lease proves to be
untrue when made in any material respect which materially and adversely affects
Lessor; or




if Lessee
attempts to assign or sublease, in violation of the provisions of this Lease;
or




the
closure of any portion of the Leased Property for more than twenty-four (24)
hours other than in connection with repairs or restoration approved by Lessor;
or




31


the sale
or transfer of all or any portion of any certificate of need, bed rights or
other similar certificate or license relating to the Leased Property;
or




any
material suspension, termination or restriction placed upon Lessee’s license to
operate the Facility, or the ability to admit residents or patients if such
suspension, termination or restriction continues for more than sixty (60) days
after imposition thereof, provided, however, if Lessee is diligently challenging
or appealing such suspension, termination or restriction, then such suspension,
termination or restriction shall not constitute an Event of Default unless the
suspension, termination or restriction remains in place after Lessee has
exhausted all appeals; or




subject
to the provisions of Article
XII hereof, if Lessee ceases to maintain in effect any license, permit,
certificate or approval necessary or otherwise required to operate any Facility
in accordance with its Primary Intended Use; or




if Lessee
fails to observe or perform (within applicable time and cure periods) any
obligations of Lessor under (i) the John Hancock Loan Documents (other than
those waived in writing by the lender thereunder for the benefit of Lessee), or
(ii) the lease agreements pursuant to which Lessor holds its leasehold
interests in the Leased Property (the “Senior
Leases”).  Notwithstanding anything contained in this Lease to
the contrary, this Lease shall not provide to Lessee any additional notice or
cure periods over and above such periods as may exist in the John Hancock Loan
Documents or the Senior Leases.  Accordingly, an “Event of Default”
herein shall occur upon the occurrence of an “Event of Default” under the John
Hancock Loan Documents or the Senior Leases, or its equivalent term as defined
therein.




Upon the
occurrence of an Event of Default, in addition to all of Lessor's other rights
and remedies, Lessor may terminate this Lease by giving Lessee not less than
five (5) Business Days’ Notice of such termination and upon the expiration of
the time fixed in such Notice, the Term shall terminate and all rights of Lessee
under this Lease shall cease.




In the
event litigation is commenced with respect to any alleged default under this
Lease, the prevailing party in such litigation shall receive, in addition to its
damages incurred, such sum as the court shall determine as its reasonable
attorneys' fees, and all costs and expenses incurred in connection therewith.
Lessor's fees, costs and expenses, including those related to any insolvency
proceedings filed by Lessee, shall constitute Additional Charges
hereunder.




The time
within which Lessee shall be obligated to perform any of its obligations under
this Lease or exercise any of its rights, including its right to cure any
covenant, shall be subject to extension of time due to the occurrence of any
Unavoidable Delay.




Lessee
further agrees that if any of the events described in Sections
16(d) and (e) should occur at any time during the Term, Lessee shall
affirm this Lease and all of its obligations as set forth
hereunder.




Certain
Remedies.In addition to
all of its rights under this Lease, Lessor shall have all remedies and rights
provided in law and equity as a result of an Event of Default or Lessee's other
breach under this Lease. Without limiting the foregoing, if an Event of Default
occurs (and the event giving rise to such Event of Default has not been cured
within the curative




32


period
relating thereto as set forth in Section
16.1 above) whether or not this Lease has been terminated pursuant to
Section
16.1, Lessee shall, to the extent permitted by law, if required by Lessor
so to do, immediately surrender to Lessor the Leased Property pursuant to the
provisions of Section
16.1 and quit the same and Lessor may enter upon and repossess the Leased
Property by reasonable force, summary proceedings, ejectment or otherwise, and
may remove Lessee and all other persons and any and all personal property from
the Leased Property subject to rights of any residents or patients and to Legal
Requirements.




Lessor
may reenter and resume possession of the Leased Property, and remove Lessee and
Lessee's personal property therefrom, and declare all of the Minimum Rent due
for the remaining Term of the Lease to be immediately due and payable and at its
option either terminate this Lease or, without terminating it, lease the
Facilities for the account of Lessee for the remainder of the Term, or for such
term or terms as Landlord shall see fit and recover from Lessee all damages
incurred by reason of such Event of Default, including the cost of repairs and
alterations required as a result of Lessee’s default, future lost rents, the
cost of recovering the Premises and Landlord’s reasonable attorneys
fees.  Should default be made by Lessee, as aforesaid, Lessor may, on
the other hand, should it so desire, without reentering or resuming possession
of the Leased Property and without terminating this Lease, enforce, by all
proper and legal suits and other means, its rights hereunder, including the
collection of Rent.  Should it be necessary for Lessor to take any
legal action hereunder, Lessee shall pay to Lessor all reasonable attorneys'
fees and all other costs and expenses incurred by Lessor in connection with such
action.  Lessor may, in its sole and absolute discretion, elect to
have a receiver appointed to effect any of the remedies set forth in this Section
16.2.  If a receiver is appointed, Lessee shall pay, without
limitation, all the associated direct and indirect costs of such appointment and
such receiver.




Nothing
in this Lease will be construed as imposing any duty upon Lessor to relet the
Premises.  Lessee hereby waives any duty that Lessor might otherwise
have under applicable law to mitigate the damages for which Lessee is liable,
and agrees that Lessor shall have no obligation to relet the Facilities so as to
mitigate the amount of damages for which Lessee is liable
hereunder.  Lessor agrees, however, that in any instance in which
Lessor has a duty under applicable law to mitigate damages and the foregoing
waiver by Lessee of Lessor’s duty to mitigate is not enforceable under
applicable law, Lessor’s obligation to mitigate shall not include an obligation
to (a) lease the Facilities to a prospective tenant for a rental less than the
current fair market rental then prevailing for facilities comparable to the
Leased Property, (b) enter into a new lease upon terms and conditions that are
unacceptable to Lessor under Lessor’s then current leasing policies, (c) lease
the Facilities for any use other than its Primary Intended Use, (d) enter into a
lease with any prospective tenant which does not have, in Lessor’s reasonable
opinion, sufficient financial resources or operating experience to operate the
Facilities in a first class manner, or (e) expend monies for the installation of
leasehold improvements to the Facilities.




Lessor
may proceed as a secured party under the provisions of the Uniform Commercial
Code against the goods and other personal property, including Lessee’s Personal
Property, in which Lessor has a security interest.




33


Damages.Neither (a) the
termination of this Lease pursuant to Section 16.1,
(b) the repossession of the Leased Property, nor (c) the failure of Lessor,
notwithstanding reasonable good faith efforts, to relet the Leased Property,
shall relieve Lessee of its liability and obligations hereunder, all of which
shall survive any such termination, repossession or reletting.  Lessor
shall not be deemed to have terminated this Lease unless Lessor delivers Notice
to Lessee of such election.  If Lessee voluntarily elects to terminate
this Lease, then in addition to all remedies available to Lessor, Lessor may
continue the Lease in effect after Lessee's breach and abandonment and recover
Rent as it becomes due, provided that, in such event, Lessee has the right to
sublet or assign subject only to reasonable conditions imposed by Lessor.
Accordingly, without termination of Lessee's right to possession of the Leased
Property, Lessor may demand and recover each installment of Rent and other sums
payable by Lessee to Lessor under this Lease as the same becomes due and
payable, which Rent and other sums shall bear interest at the maximum interest
rate permitted in accordance with the laws of the State of California, from the
date when due until paid, and Lessor may enforce, by action or otherwise, any
other term or covenant of this Lease.




Application
of Funds.Any payments
received by Lessor under any of the provisions of this Lease during the
existence or continuance of any Event of Default shall be applied to Lessee's
obligations in the order which Lessor may determine or as may be prescribed by
the laws of the State of California.




Executory
Contract.Should Lessee
file any proceeding under federal bankruptcy or other comparable federal or
state insolvency laws, it shall, in addition to any other requirement under 11
U.S.C., Section 365 or other applicable provisions, be required to cure any and
all obligations hereunder prior to being allowed to assume this
Lease.










Lessor's
Right to Cure Lessee's Default.If Lessee fails
to make any payment or to perform any act required to be made or performed under
this Lease, and to cure the same within the relevant time periods provided in
Section
16.1, Lessor, after thirty (30) days Notice to and demand upon Lessee,
and without waiving or releasing any obligation of Lessee or default, may (but
shall be under no obligation to) at any time thereafter make such payment or
perform such act for the account and at the expense of Lessee, and may, to the
extent permitted by law, enter upon the Leased Property for such purpose and
take all such action thereon as, in Lessor's opinion, may be necessary or
appropriate therefor. Provided, however, that should Lessor reasonably determine
that the giving of such Notice would risk loss to the Leased Property or cause
damage to Lessor, then Lessor shall give such written Notice as is practical
under the circumstances. No such entry shall be deemed an eviction of Lessee. In
exercising any remedy under this Article
XVII, Lessor shall use its commercially reasonable efforts not to violate
any rights of residents of the applicable Facility. All sums so paid by Lessor
and all costs and expenses (including, without limitation, reasonable attorneys'
fees and expenses, in each case) so incurred, together with a late charge
thereon (to the extent permitted by law) at the rate set forth in Section 3.4 from the date
on which such sums or expenses are paid or incurred by Lessor, shall be paid by
Lessee to Lessor on demand. The obligations of Lessee and rights of Lessee
contained in this Article shall survive the expiration or earlier termination of
this Lease.




34








18.1           Change
in Control.If at any time
during the Term there shall be a Change in Control (as defined below) with
respect to Lessee, whether by operation of law or otherwise, then Lessee shall
provide Lessor with prior written notice of any such Change in Control (the
“Change in Control
Notice”), which Change in Control Notice shall describe (a) the manner in
which the Change in Control shall occur, (b) the parties to the transaction(s)
resulting in the Change in Control and (c) the effective date of the Change in
Control; provided, however, in the event of an involuntary Change in Control of
Lessee of which Lessee has no prior knowledge, Lessee shall provide Lessor with
a Change in Control Notice immediately upon obtaining knowledge that such
(involuntary) Change in Control has occurred.  Failure to provide such
Change in Control Notice pursuant to this Article
XVIII, shall be an Event of Default.  For purposes of this
Article
XVIII, a “Change in
Control” shall mean any of the occurrences described in subparagraphs (i)
through (vi) below:




(i)           any
Person is or becomes the Beneficial Owner (defined below), directly or
indirectly, of securities (or other equity interests) of Lessee representing
thirty percent (30%) or more of the combined voting power of the then
outstanding securities (or equity interests) of Lessee (but not in the case of
any such Person who, as of the date of this Lease, holds such thirty percent
(30%) interest [or in the case that the interest of any of (A) Daniel R. Baty
and Daniel R. Baty’s Affiliates, (B) Apollo Real Estate Investment Fund III,
L.P. and Apollo Real Estate Investment Fund IV, L.P. and their respective
affiliates, or (C) Saratoga Partners, IV, L.P., and its affiliates, as the case
may be, increases to thirty percent (30%) or more]); or




(ii)           the
stockholders (or holders of equity interests) of Lessee approve a merger or
consolidation of Lessee with any other corporation (or other entity), other than
(A) a merger or consolidation effected solely for the purpose of changing the
jurisdiction of incorporation of Lessee and (B) a merger or consolidation as a
result of which the holders(s) of the outstanding voting power of Lessee
immediately prior to the consummation of such transaction own voting securities
of the surviving or successor entity (or its direct or indirect parent)
representing at least a majority of the outstanding voting power of such entity
(or its direct or indirect parent); or




(iii)           the
stockholders (or holders of voting equity interests) of Lessee approve a plan of
complete liquidation of Lessee or an agreement for the sale or disposition by
Lessee of all or substantially all of the assets of Lessee; or




(iv)           the
issuance of new stock (or other voting equity interests), other than stock or
stock option grants to employees, officers and directors of Lessee, in one
transaction or a series of related transactions by which an aggregate of more
than fifty percent (50%) of the stock (or other voting equity interests) of
Lessee and/or any Controlling Entity shall be vested in a party or parties who
are stockholders (or holders of voting equity interests) of Lessee immediately
prior to such transaction or series of related transactions; or




For
purposes of this Article
XVIII, the term “Person” shall have the meaning
ascribed thereto in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the “Exchange


35


Act”), and the term “Beneficial Owner” shall have
the meaning ascribed thereto in Rule 13d-3 of the Exchange Act.”











Surrender
of Possession.  On the
expiration of the Term or earlier termination or cancellation of this Lease (the
“Termination Date”),
Lessee shall deliver to Lessor or its designee possession of (a) the Leased
Property and associated Lessor Personal Property, if any, in a neat and clean
condition and in as good a condition as existed at the date of Lessee’s
possession and occupancy pursuant to this Lease, ordinary wear and tear
excepted, (b)fully
operational Facilities excluding any alterations necessitated by, or imposed in
connection with, a change of ownership inspection survey for the transfer of
operation of any of the Leased Property to Lessor or its designee, and (c)provided that Lessor or
its designee executes an agreement, in form and substance reasonably acceptable
to such party, confirming its obligation to maintain such records for a period
equal to the longer of (i) the applicable statute of limitations, or (ii) the
period required by applicable law, all patient charts and resident records for
residents who reside at either of the Facilities on the Termination Date, along
with appropriate resident consents if necessary and copies of all its books and
records relating to the business and the Leased Property. Accordingly, Lessee
shall not at any time during or after the Term seek to transfer, surrender,
allow to lapse, or grant any security interest or any other interest in and to
its leasehold interest, the licenses, permits or certifications relating to any
portion of the business or any portion of the Leased Property, nor shall Lessee
commit or omit any act that would jeopardize any licensure or certification of
any portion of the Leased Property.   Lessee shall cooperate
fully with Lessor or its designee in transferring or obtaining all necessary
licenses and certifications for Lessor or its designee, and Lessee shall comply
with all requests for an orderly transfer of the operation, Facility licenses,
and possession at the time of its surrender of the Leased Property to Lessor or
its designee.  Subject to all applicable laws and to the applicable
limitations set forth in Section 18.2,
Lessee hereby assigns, effective upon the Termination Date, all rights to
operate the Facilities to Lessor or its designee including all required licenses
and permits and all rights to apply for or otherwise obtain them, and all other
nonproprietary Lessee Intangible Property relating to any portion of the Leased
Property.







ARTICLE
I





1.1  Holding
Over.If Lessee shall
for any reason remain in possession of the Leased Property after the expiration
of the Term or earlier termination of the Term hereof, unless Lessor gives
written permission, such possession shall be as a month-to-month tenant during
which time Lessee shall pay as rental each month, the aggregate of (i) 150%
multiplied by the Minimum Rent payable with respect to the last month of the
Term, (ii) all Additional Charges accruing during such month and (iii) all other
sums payable by Lessee pursuant to the provisions of this
Lease.  During such period of month-to-month tenancy, Lessee shall be
obligated to perform and observe all of the terms, covenants and conditions of
this Lease, but shall have no rights hereunder other than the right, to the
extent given by law to month-to-month tenancies, to continue its occupancy and
use of the Leased Property. Nothing contained herein shall constitute the
consent, express or implied, of Lessor to the holding over of Lessee after the
expiration or earlier termination of this Lease.




36


ARTICLE
II





2.1  Risk of
Loss.Subject to the
limitations in Article
XIV (including Lessee’s right to terminate as provided therein), during
the Term of this Lease, the risk of loss or of decrease in the enjoyment and
beneficial use of the Leased Property in consequence of the damage or
destruction thereof by fire, the elements, casualties, thefts, riots, wars or
otherwise, or in consequence of foreclosures, attachments, levies or executions
(other than those caused by Lessor) is assumed by Lessee, and, in the absence of
willful misconduct by Lessor, Lessor shall in no event be answerable or
accountable therefor, nor shall any of the events mentioned in this Section
entitle Lessee to any abatement or offset of Rent, or any right to terminate
this Lease.  Without limiting the foregoing, Lessor shall not be
liable for injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee's employees, contractors, invitees, customers, or any
other person in or about the Leased Property, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether the said injury or damage results from conditions arising
upon the Leased Property, or any part thereof, or from other sources or places,
and regardless of whether the cause of such damage or injury or the means of
repairing the same is accessible or not, unless such damage or injury is a
result of the willful misconduct of Lessor. Lessor shall not be liable for any
damages arising from any act or omission of Lessee, or any other party named
above.




ARTICLE
III





3.1  Indemnification.Notwithstanding
the existence of any insurance provided for in Article
XIII, and without regard to the policy limits of any such insurance,
Lessee will protect, indemnify, save harmless and defend Lessor from and against
all liabilities, obligations, claims, damages, awards, penalties, causes of
action, costs and expenses (including, without limitation, reasonable attorneys'
fees and expenses), to the extent permitted by law, imposed upon or incurred by
or asserted against Lessor by reason of:  (a) any accident, injury to
or death of persons or loss of or damage to property occurring on or about the
Leased Property or adjoining sidewalks, including without limitation any claims
of malpractice, (b) any occupancy, use, misuse, non-use, or condition caused by
Lessee’s repair or maintenance of the Facilities, but excluding any liability
for environmental conditions existing at the Facilities prior to the
Commencement Date, (c) any Impositions (which are the obligations of Lessee to
pay pursuant to the applicable provisions of this Lease), (d) any failure on the
part of Lessee to in any way perform or comply with any of the terms of this
Lease, and (e) the non-performance of any of the terms and provisions of any and
all existing and future subleases of the Leased Property (to the extent
permitted) to be performed by the Lessee thereunder. Any amounts which become
payable by Lessee under this Section shall be paid within ten (10) Business Days
of receipt by Lessee of Lessor’s written demand for such sums, and if not timely
paid, shall bear a late charge (to the extent permitted by law), at the rate set
forth in Section
3.5 above, from the date of such determination to the date of payment.
Lessee, at its sole cost and expense, shall contest, resist and defend any such
claim, action or proceeding asserted or instituted against Lessor, or may
compromise or otherwise dispose of the same as Lessee sees fit, all at Lessee's
sole cost and expense. Nothing herein shall be construed as indemnifying Lessor
against its own grossly negligent, reckless or willful misconduct or against the
acts or omissions of any subsequent




37


lessee of
the Leased Property in the event of the termination by Lessor of Lessee's right
to possession of the Leased Property without termination of the Lease. Lessee's
liability for a breach of the provisions of this Article arising during the Term
hereof shall survive any termination of this Lease.




3.2  Landlord
Defense Obligation.  Solely to the extent that the Prior
Operator or Lessee’s insurer does not agree to defend a “Covered Claim” (as
hereinafter defined) within ten (10) days after the same is tendered to them in
accordance with the provisions of this Section
22.2, Lessor shall defend Lessee, with counsel selected by Lessor and
approved by Lessee (such approval not to be unreasonably withheld, delayed, or
conditioned) against a Covered Claim brought against Lessee on or before the two
(2) year anniversary of the Commencement Date.  Lessee shall timely
tender all professional negligence claims, including but not limited to Covered
Claims, to its carriers in accordance with all applicable policy
requirements.  As used herein, a “Covered Claim” shall mean any tort
action brought or being threatened to be brought by or on behalf of a resident
of either Facility and arising out of care provided to such resident during the
period prior to the Commencement Date; provided, however, to the extent such
action alleges claims arising from care provided prior to and after the
Commencement Date, Lessor’s liability under this Section 22.2 shall be limited
to the claims related to the period prior to the Commencement Date and any
defense of the claims related to the period from and after the Commencement Date
shall be the sole responsibility of Lessee. Notwithstanding anything in this
Lease to the contrary, Lessor’s aggregate maximum liability for the obligations
set forth in this Section
22.2 shall not exceed One Hundred Thousand and no/100 Dollars ($100,000)
and once Lessor has expended One Hundred Thousand and no/100 Dollars ($100,000)
or more in connection with such obligations, it may send notice to Lessee
stating that it has expended at least One Hundred Thousand and no/100 Dollars
($100,000) in connection with its obligations under Section
22.2.  Upon delivery of such notice, Lessor shall be relieved
of its obligations under this Section
22.2 and Lessor may, at any time thereafter which is more than twenty
(20) days after delivery of such notice, terminate the engagement of any
attorney it has employed to defend Lessee under this Section
22.2 and, in such event, Lessor shall, upon request of Lessee, but at no
cost to Lessor, execute any and all documents as may be necessary to allow
Lessee to engage such attorney.  The obligations of Lessor under this
Section
22.2 shall be limited to defense obligations and Lessor has not
undertaken any indemnity or hold harmless obligations with respect to the
Covered Claims or any other matters. For purposes of this Section
22.2, Lessor shall be deemed to have satisfied its defense obligations if
its counsel takes action to have Lessee dismissed with prejudice from a Covered
Claim.




ARTICLE
IV





4.1  Subletting
and Assignment.




(a)           Lessee
may not assign the Lease or the leasehold or other interest in the Leased
Property without Lessor’s prior written consent, which consent may be granted or
withheld in Lessor’s sole and absolute discretion.




(b)           Lessee
may not sublease or sublet, encumber, appropriate, pledge or otherwise transfer,
the Lease or the leasehold or other interest in the Leased Property without
Lessor's prior written consent, which consent shall not be unreasonably
withheld, conditioned or




38


delayed;
provided, however, that in granting or withholding such consent, Lessor may
consider such factors as the proposed sublessee’s creditworthiness, experience,
regulatory history and approvals and satisfaction of licensing
requirements.  Upon Lessor's written consent, if any (a) in the case
of a subletting, the sublessee shall comply with the provisions of Section 23.2,
(b) in the case of an assignment (if consented to pursuant to Section
23.1(a) above), the assignee shall assume in writing and agree to keep
and perform all of the terms of this Lease on the part of Lessee to be kept and
performed and shall be, and become, jointly and severally liable with Lessee for
the performance thereof, (c) an original counterpart of each such sublease and
assignment and assumption, duly executed by Lessee and such sublessee or
assignee, as the case may be, in a form and substance satisfactory to Lessor,
shall be delivered promptly to Lessor, and (d) in case of a subletting, Lessee
shall remain primarily liable, as principal rather than as surety, for the
prompt payment of the Rent and for the performance and observance of all of the
covenants and conditions to be performed by Lessee hereunder.  Nothing
hereunder shall preclude Lessor from selling the Leased Property or assigning or
transferring its interest hereunder, provided the new owner or assignee
expressly assumes Lessor’s obligations under this Lease.  Lessor’s
obligation to consent to a subletting is subject any reasonable approval rights
of any Property Mortgagee.  Lessor acknowledges that it has approved
the form of sublease attached hereto as Exhibit
“D” which is the form of sublease to be used should Lessee seek Lessor’s
consent to a subleasing of the Leased Property as provided in this Section
23.1(b).  Notwithstanding the foregoing, Lessor’s consent shall
not be required for a subletting of any portion of the Leased Property not
exceeding 1000 sq. ft. so long as any proposed sublessee and its use is for
purposes of providing services related to the care of residents and is within
the normal scope of services within the assisted living industry, provided,
however, that each sublessee is (i) appropriately licensed, if applicable; (ii)
adheres to and is in full compliance with all state and federal regulations
governing the proposed use if and to the extent such use is regulated under
state and/or federal law; and (iii) provides insurance in full compliance with
California state law and regulations.




23.2           Attornment.Lessee shall
insert in a sublease permitted under Section
21.1 provisions to the effect that (a) such sublease is subject and
subordinate to all of the terms and provisions of this Lease and to the rights
of Lessor hereunder, (b) in the event this Lease shall terminate before the
expiration of such sublease, the sublessee thereunder at Lessor’s option, attorn
to Lessor and waive any right the sublessee may have to terminate the sublease
or to surrender possession thereunder, as a result of the termination of this
Lease, and (c) in the event the sublessee receives a written Notice from Lessor
or Lessor’s assignees, if any, stating that Lessee is in default under this
Lease, the sublessee shall thereafter be obligated to pay all rentals accruing
under said sublease directly to the party giving such Notice, or as such party
may direct.  All rents received from the sublessee by Lessor or
Lessor’s assignees, if any, as the case may be, shall be credited against the
amounts owing by Lessee under this Lease.




23.3           Sublease
Limitation.Anything
contained in this Lease to the contrary notwithstanding, Lessee shall not sublet
the Leased Property on any basis, such that the rental to be paid by the
sublessee thereunder would be based, in whole or in part, on either (i) the
income or profits derived by the business activities of the sublessee, or (ii)
any other formula such that any portion of the sublease rental received by
Lessor would fail to qualify as “rents from real property” within the meaning of
Section 856(d) of the Code, or any similar or successor provision
thereto.  Nothing in this Lease shall prohibit Lessee from entering
into agreements with




39


residents
of the Leased Property in the ordinary course of business, which agreements
shall not be subject to consent of the Lessor.  No such agreement,
however, shall run with the Land and all such agreements shall remain
subordinated to this Lease.










4.1  Compliance
with Mortgage.Lessee shall, at
its cost, comply with all applicable provisions of any Property Mortgage and
related loan documents (including, without limitation, the John Hancock Loan
Documents), and shall comply with any reasonable request for information
(including, without limitation, any financial information that may not be
expressly required in this Lease) from any Property Mortgagee.  Lessee
shall not be required to comply with any obligations more onerous than the
obligations in the John Hancock Loan Documents, but will use good faith efforts
to cooperate with any reasonable Property Mortgagee
requests.  Further, Lessor shall reimburse Lessee for any reasonable
costs and expenses (including, but not limited to, attorneys fees) incurred by
Lessee in complying with any request for information from any lender
contemplating entering into any such Property Mortgage or related loan documents
after the Commencement Date, except to the extent that such requested
information or act is in compliance with existing obligations of Lessee under
this Lease, or in negotiating any amendments to the Lease required by, or any
loan documents to which Lessee would be a party with, any such proposed
lender.










4.1  Lessor's Right to Inspect;
Officer’s Certificates; Books and Records; Financial
Covenants.




Lessor’s
Right to Inspect.  Lessee shall permit Lessor and its
authorized representatives to inspect the Leased Property as well as Lessee’s
books and records on reasonable notice (twenty-four (24) hours prior notice
shall be deemed reasonable) during usual business hours subject to any security,
health, safety or confidentiality requirements of Lessee or any Legal
Requirements or Insurance Requirements.




Officer’s
Certificates.  From time-to-time upon not less than ten (10)
days Notice by Lessor and not more frequently than once per calendar quarter,
Lessee will furnish to Lessor a certified written certificate from a duly
authorized officer of Lessee 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 Rent has been
paid and such other information concerning this Lease as may be reasonably
requested by Lessor and/or any Property Mortgagee.  Any such
certificate furnished, whether pursuant to this Section
24.2 or some other provision in this Lease, may be relied upon by Lessor,
any prospective purchaser of the Leased Property and Property
Mortgagee.




Books
and Records.In addition to
all other obligations to provide financial information contained elsewhere in
this Lease including, without limitation, Section 33.19,
Lessee will furnish the following to Lessor:




40


(a)           Lessee
shall keep adequate books and records of account with respect to the Leased
Property and each Facility in accordance with generally accepted accounting
principles (“GAAP”), or
in accordance with other methods elected by Lessee from time to time and
reasonably acceptable to Lessor (such as GAAP or the tax basis method of
accounting, consistently applied) and Lessee shall furnish to Lessor: (i)
quarterly operating statements of each Facility (the “Periodic Operating
Statements”) detailing the revenues received, the expenses incurred and
the net operating income for that quarter and containing appropriate year to
date information, the Periodic Operating Statements to be provided within
forty-five (45) days after the end of each of the first three fiscal quarters of
each Fiscal Year and within ninety (90) days after the end of the fourth fiscal
quarter of each Fiscal Year; and (ii) an annual operating statement of each
Facility (the “Annual Operating
Statement”) detailing the total revenues received, total expenses
incurred, and total net operating income, the Annual Operating Statement to be
provided within ninety (90) days after the close of each Fiscal Year of the
Lessee.




(b)           In
addition to the financial reports specified in the preceding paragraph, Lessee
also shall deliver occupancy reports listing the number of units, the percentage
of occupancy, and the gross revenue from residents (the “Occupancy Information”),
prepared and certified by Lessee to Lessor (and upon request any Property
Mortgagee) as true and correct, such Occupancy Information to be provided on a
quarterly basis, within forty-five (45) days after the end of each of the first
three fiscal quarters of each Fiscal Year and within ninety (90) days after the
end of the fourth fiscal quarter of each Fiscal Year.




(c)           Notwithstanding
the foregoing. Lessor shall have the option, which may be exercised by written
notice to Lessee, to require Lessee to furnish the Periodic Operating Statements
and the Occupancy Information on a monthly basis (within thirty (30) days after
the end of each calendar month) for a period of twelve successive calendar
months, commencing with the first full calendar month following the date of such
notice.




(d)           To
the extent that Lessee, or any Controlling Entity of Lessee, is required by any
regulatory agency to file financial statements or reports, within ten (10) days
of such filing, Lessee shall deliver to Lessor a copy of any such filing(s) and
report(s).  To the extent prepared, Lessee shall also provide to
Lessor on an annual basis, copies of such financial statements and/or reports
and/or filings (whether audited or unaudited, depending on the practice of such
entities) prepared by any Controlling Entity.




(e)           Lessee
shall provide to Lessor (i) quarterly operating statements (unaudited) of
Lessee, detailing the revenues received, the expenses incurred and the net
operating income for that quarter and containing appropriate year to date
information, to be provided within forty-five (45) days after the end of each of
the first three fiscal quarters of each Fiscal Year and within ninety (90) days
after the end of the fourth fiscal quarter of each Fiscal Year; and (ii) an
annual operating statement (audited) of Lessee, detailing the total revenues
received, total expenses incurred, and total net operating income, to be
provided within ninety (90) days after the close of each Fiscal Year of the
Lessee.




Whether
or not expressly stated elsewhere above in this Section
24.3, all information, reports, filings, etc. provided by Lessee to
Lessor under this Section
24.3 shall be (i) prepared in




41


accordance
with GAAP, and (ii) accompanied with a written certificate from a duly
authorized officer of Lessee certifying that to the best knowledge of the
officer executing such certificate, all accompanying information is true and
complete.  In addition to all of the items expressly identified and
required elsewhere in this Section
24.3 (or elsewhere in this Lease), Lessee shall promptly comply with any
request by Lessor or any Property Mortgagee for the production of additional
financial information (whether relating to Lessee, or a Controlling Entity of
Lessee) as may deemed relevant or prudent by Lessor and/or any Property
Mortgagee.




Financial
Covenants.  Commencing on January 1, 2012, Lessee shall
maintain a rent coverage ratio, of (a) annualized EBITDARM (Earnings Before
Interest, Taxes, Depreciation, Amortization, Rent and Management Fee) based on
the immediately preceding six (6) months, minus (i) an assumed
management fee equal to five percent (5%) of the annualized gross revenue based
on the revenue generated during the same six (6) month period and (ii) the $400 per
unit capital reserve allowance to (b) twice the Minimum Rent for the
immediately preceding six (6) months, which shall be greater or equal to
1.15:1.0.  If during the Term the rent coverage ratio identified above
falls below 1.15:1.0 for two consecutive quarters, then Lessee shall be required
to provide a Security Deposit to Lessor as described in Article XXXV.  By
providing the Security Deposit to Lessor, Lessee shall be deemed to have cured
any default arising out of Lessee’s failure to maintain the rent coverage ratio
and Lessor shall have no other rights or remedies against Lessee related to such
rent coverage ratio.  The Security Deposit shall be released to Lessee
whenever the rent coverage ratio is 1:15:1:0 or higher for four (4) consecutive
quarters.




Starting
with the quarter ending March 31, 2012, Lessee will furnish to Lessor a written
certificate from a duly authorized officer of Lessee within forty-five (45) days
after the end of each of the first three fiscal quarters of each Fiscal Year and
within ninety (90) days after the end of the fourth fiscal quarter of each
Fiscal Year certifying that Lessee is in compliance with this Section
25.1.4.













4.1  NoWaiver.The waiver by
Lessor or Lessee of any term, covenant or condition in this Lease shall not be
deemed to be a waiver of any other term, covenant or condition or any subsequent
waiver of the same or any other term, covenant or condition contained in this
Lease.  The subsequent acceptance of Rent hereunder by Lessor or any
payment by Lessee shall not be deemed to be a waiver of any preceding default of
any term, covenant or condition of this Lease, other than the failure to pay the
particular amount so received and accepted, regardless of the knowledge of any
preceding default at the time of the receipt or acceptance.










4.1  Remedies
Cumulative.To the extent
permitted by law, each legal, equitable or contractual right, power and remedy
of Lessor now or hereafter provided either in this Lease or by statute or
otherwise shall be cumulative and concurrent and shall be in addition to every
other right, power and remedy and the exercise or beginning of the exercise by
Lessor of




42


any one
or more of such rights, powers and remedies shall not preclude the simultaneous
or subsequent exercise by Lessor of any or all of such other rights, powers and
remedies.










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










No
Merger of Title.Thereshall be no merger of
this Lease or of the leasehold estate created hereby by reason of the fact that
the same person, firm, corporation or other entity may acquire, own or hold,
directly or indirectly, (a) this Lease or the leasehold estate created hereby or
pay interest in this Lease or such leasehold estate and (b) the fee estate in
the Leased Property.










Conveyance
by Lessor.If Lessor or any
successor Lessor of the Leased Property shall convey the Leased Property or
assign its interest herein in accordance with the terms hereof other than as
security for a debt, Lessor or such successor Lessor, as the case may be, shall
thereupon be released from all future liabilities and obligations of Lessor
under this Lease arising or accruing from and after the date of such conveyance
or other transfer as to the Leased Property and all such future liabilities and
obligations shall thereupon be binding upon the new Lessor, provided the new
Lessor has agreed in writing for the benefit of Lessee to be bound by all of the
terms and conditions hereof.










Quiet
Enjoyment.So long as
Lessee shall pay all Rent as the same becomes due and shall comply with all of
the terms of this Lease and perform its obligations hereunder, Lessee shall
peaceably and quietly have, hold and enjoy the Leased Property for the Term
hereof, free of any claim or other action by Lessor or anyone claiming by,
through or under Lessor, but subject to all covenants, conditions, restrictions,
easements and all other matters affecting title, whether or not of record, the
conditions and limitations expressly set forth herein, and any and all matters
created by or known to Lessee, and further subject to any Property Mortgage (and
related loan documents), including, without limitation, the John Hancock Loan
Documents.










Notices.All notices,
demands, requests, consents, approvals and other communications (“Notice” or “Notices”) hereunder shall be
in writing and served upon the party being served either by (i) personal
delivery, (ii) registered or certified mail, return receipt




43


requested
and postage prepaid, (iii) overnight delivery service, or (iv) facsimile
transmission addressed to the respective parties, as follows:




If to
Lessor:                                BV
Holding-LTC, Inc.


31365 Oak Crest Drive, Suite
200


Westlake Village,
California  91361


Attn:  Chief Executive
Officer


Telephone:                                805-981-8660


Facsimile:                                805-981-8663





If to
Lessee:                                   Emeritus
Corporation


3131 Elliott Avenue #500


Seattle,
Washington  98121


Attn:  Eric
Mendelsohn


Senior VP Corporate
Development


Telephone:                                206-301-4493


Facsimile:                                206-357-7388





with a
copy
to:                                The
Nathanson Group PLLC


One Union
Square


600
University Street, Suite 2000


Seattle,
Washington  98101-1195


Attn:  Randi
S. Nathanson


Telephone:                                206-623-6239


Facsimile:                                206-623-1738





or to
such other address or person as either party may hereafter designate by a Notice
pursuant to this Section. In all instances, Notice shall be deemed effective
upon proof of receipt (in the case of Notice via facsimile, proof of receipt
shall be established by electronic confirmation of a successful
transmission).











Lessor
May Grant Liens.Lessor may,
subject to the terms and conditions set forth above in Section
24.1 and in this Section
33.1 below, from time to time, directly or indirectly, create or
otherwise cause to exist any lien or encumbrance (including a Property Mortgage)
or any other change of title (“Encumbrance”) upon the Leased
Property, or any portion thereof or interest therein, whether to secure any
borrowing or other means of financing or refinancing.  Upon the
reasonable request of Lessor, Lessee shall subordinate this Lease to the lien of
a new mortgage on the Leased Property, on the condition that the proposed
mortgagee executes a non-disturbance agreement recognizing this Lease and
agreeing, on customary and commercially reasonable terms and conditions, for
itself and its successors and assigns, to comply with the provisions of this
Article
XXXII. Lessee shall subordinate its interest to any such Encumbrance,
provided, however, that such future Encumbrance shall provide that it is subject
to the rights of Lessee under this Lease and that it will enter into a
nondisturbance agreement or customary and commercially reasonable terms and
conditions upon a foreclosure sale or transfer in lieu thereof; provided,
however, that any such purchaser or transferee shall take




44


title
subject to Lessee's rights hereunder, and provided further that any holder of an
Encumbrance shall (a) give Lessee the same notice, if any, given to Lessor of
any default or acceleration of any obligation underlying any such mortgage or
any sale in foreclosure under such mortgage, (b) permit Lessee to cure any
such default on Lessor's behalf within any applicable cure period, and Lessee
shall be reimbursed by Lessor or shall be entitled to offset against Rent
payments next accruing or coming due for any and all costs incurred in effecting
such cure, including without limitation out-of-pocket costs incurred to effect
any such cure (including reasonable attorneys' fees), and (c) permit Lessee to
appear and to bid at any sale in foreclosure made with respect to any such
mortgage.




Attornment.  If Lessor’s
interest in the Leased Property is sold or conveyed upon the exercise of any
remedy provided for in any Encumbrance, or otherwise by operation of law: (i) at
the new owner’s option, Lessee shall attorn to and recognize the new owner as
Lessee’s lessor under this Lease, in which case this Lease shall automatically
become a new lease between Lessee and the new owner upon all of the terms and
conditions hereof, or enter into a new lease in the exact form and substance of
this Lease with the new owner, and Lessee shall take such actions to confirm the
foregoing within ten (10) days after request; and (ii) the new owner (other
than any new owner or other entity which is an Affiliate of Lessor) shall not be
(a) liable for any act or omission of Lessor under this Lease occurring prior to
such sale or conveyance, or (b) subject to any offset, abatement or reduction of
rent because of any default of Lessor under this Lease occurring prior to such
sale or conveyance (other than for any security deposit or other rent payments
paid by impounds to the extent such new owner actually receives the foregoing
sums).




Lessee’s
Right to Cure.  Subject to the
provisions of Section
33.4, if Lessor breaches any covenant to be performed by it under this
Lease, Lessee, after Notice to and demand upon Lessor, without waiving or
releasing any obligation hereunder, and in addition to any other remedies
available to Lessee, may (but shall be under no obligation at any time
thereafter to) make such payment or perform such act for the account and at the
expense of Lessor.  All sums so paid by Lessee and all costs and
expenses (including, without limitation, reasonable attorneys’ fees) so
incurred, together with interest thereon from the date on which such sums or
expenses are paid or incurred by Lessee, shall be paid by Lessor to Lessee on
demand, but may not be offset by Lessee against payments of Rent
hereunder.




Breach
by Lessor.It shall be a
breach of this Lease if Lessor fails 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 written Notice thereof from
Lessee, 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 Lessor, within said thirty (30) day period, proceeds promptly and with due
diligence to cure the failure and diligently completes the curing thereof. The
time within which Lessor shall be obligated to cure any such failure shall also
be subject to extension of time due to the occurrence of any Unavoidable
Delay.










Options
to Extend.  Provided there
exists no uncured defaults under this Lease at the time Lessee exercises any
option to extend (in accordance with this




45


Article XXXIV),
Lessee will have the right to extend this Lease for two (2) periods of five (5)
years each (each such additional term shall be referred to herein as an “Extended Term”), commencing
immediately following the end of the Initial Term or the immediately preceding
Extended Term, as the case may be.  The Lease during any Extended Term
shall be on the same terms and conditions as during the Initial Term, except
that the Minimum Rent shall be determined as set forth in Section
34.2 and Section 34.3 below.  In the event Lessee desires to
exercise any option to extend granted in this Article
XXXIV, Lessee shall give Lessor a non-rescindable written notice (“Notice to Extend”) not more
than three hundred sixty (360) days prior and not less than two hundred seventy
(270) days prior to the expiration of the Initial Term or the immediately
preceding Extended Term, as the case may be.  If Lessee fails to give
Lessor any such notice, then such option to extend and all future options to
extend granted in this Article XXXIV
shall be null and void and of no further force or effect.




Minimum
Rent During First Extended Term.  The Minimum Rent
at the commencement of the first year of the first Extended Term shall increase
by three percent (3%) over the final Minimum Rent due in the last year of the
Initial Term.  Minimum Rent shall thereafter escalate annually as
provided in Section
3.1(c).




Minimum
Rent During Second Extended Term.  The Minimum Rent
at the commencement of the first year of the second Extended Term shall be
increased by three percent (3%) over the final Minimum Rent due during the last
year of the first Extended Term.  Minimum Rent shall thereafter
escalate annually as provided in Section
3.1(c).












Security
Deposit.  If required
pursuant to Section
25.1.4 and upon Lessor’s demand therefor, Lessee shall pay to Lessor a
security in the Required Amount (defined below) (the “Security Deposit”), in cash
(“Cash Security
Deposit”) or Letter of Credit (as defined below) at Lessor’s
option.




Cash
Security Deposit.Once any Cash
Security Deposit is funded as provided in Section
35.1 above, if Lessee fails to pay Minimum Rent, Additional Rent, or
other charges due hereunder or otherwise defaults with respect to any provision
of this Lease, Lessor may use, apply or retain all or any portion of the Cash
Security Deposit for the payment of any Rent or other charge in default or for
the payment of any other sum to which Lessor may become obligated by reason of
Lessee’s default, or to compensate Lessor for any loss or damage which Lessor
may suffer thereby.  If Lessor so uses or applies all or any portion
of the Cash Security Deposit, Lessee shall, within five (5) days after written
demand therefor, deposit cash with Lessor in an amount sufficient to restore the
Cash Security Deposit to the then full amount of the Cash Security
Deposit.  Lessor shall not be required to keep the Cash Security
Deposit separate from its general accounts.  If not previously
returned to Lessee as provided in Section
35.8below, within sixty (60) days of the expiration of the Term or
earlier termination of the Term hereof, Lessor shall return to Lessee the full
amount of the Cash Security Deposit.  No trust relationship is created
herein between Lessor and Lessee with respect to the Security
Deposit.




46


Letter
of Credit.If required by
Lessor as provided in Section
35.1 above, Lessee shall deliver to Lessor an unconditional, irrevocable,
transferable letter of credit (the “Letter of Credit”), in an
amount equal to the Required Amount (defined in Section 35.7
below) and satisfying the requirements set forth in Section 35.4
below and Lessor shall return the Cash Security Deposit to
Lessee.  The Letter of Credit shall secure Lessee’s obligations under
this Lease.  Accordingly, upon the occurrence or existence of any Draw
Event (defined in Section 35.5
below), Lessor may draw upon the Letter of Credit and use the proceeds of such
draw (the “Draw
Proceeds”) for the payment of Rent, for the repair of damage to the
Leased Property, for the payment of any other amount which Lessor may spend or
become obliged to spend by reason of Lessee’s default, and/or to compensate
Lessor for any other loss or damage (including, without limitation, damages
under California Civil Code Section 1951.2 or any successor or similar
statute) which Lessor may suffer by reason of Lessee’s Default, to the fullest
extent permitted by law.  Lessee acknowledges and agrees that the
Letter of Credit represents the contractual commitment of the issuer of the
Letter of Credit (the “Issuer”) to answer for
Lessee’s failure to timely and fully discharge or otherwise satisfy Lessee’s
liabilities and obligations under this Lease, and that the Draw Proceeds
represent funds of Issuer paid to Lessor in accordance with such contractual
commitment.  Lessee shall not have any right to mortgage, assign or
encumber any interest in the Letter of Credit without the prior written consent
of Lessor, which may be withheld in Lessor’s sole and absolute
discretion.  Lessor shall have the right to transfer or mortgage its
interest in this Lease to any party and in such event, it shall have the right
to concurrently transfer or assign its interest in the Letter of
Credit.




Issuer;
Terms of Letter of Credit.  The Issuer of
the Letter of Credit shall be a federally chartered banking institution
reasonably acceptable to Lessor, allowing the Letter of Credit to be presented
to and paid by such office pursuant to procedures reasonably acceptable to
Lessor.  The Letter of Credit shall (i) be a stand-by, at-sight,
irrevocable letter of credit; (ii) be payable to Lessor or Lessor’s
assignees (any of the foregoing, the “Beneficiary”);
(iii) require that any draw on the Letter of Credit shall be made upon
receipt by the Issuer of only a letter signed by an authorized representative of
the Beneficiary certifying that the Beneficiary is entitled to draw on the
Letter of Credit and specifying the Draw Event; (iv) allow partial draws;
(v) be issued for a term of no less than one (1) year with an
automatic renewal for at least an additional one (1) year unless the Issuer
gives the Beneficiary written notice of non-renewal at least thirty (30)
calendar days prior to the expiry date of the Letter of Credit;
(vi) provide that the Letter of Credit is governed by the Uniform Customs
and Practice for Documentary Credits as in effect as of the date of the Letter
of Credit; and (vii) be substantially in the form of Exhibit ”E”
hereto.  Lessee shall, at its expense, keep the Letter of Credit in
full force and effect until the thirtieth (30th) day after the Termination Date
or other termination date of this Lease, except that if this Lease is terminated
due to an Event of Default by Lessee, then Lessee shall keep the Letter of
Credit in effect until sixty (60) calendar days after a final, non-appealable
judgment is entered which establishes Lessee’s liability to Lessor for breach of
this Lease.




Draw
Event.  At any time
after a Draw Event occurs, the Beneficiary may present its written demand to
Issuer for payment of a portion of the amount of the Letter of Credit as is
required to compensate Lessor for damages incurred, with subsequent demands at
the Beneficiary’s sole election as Lessor incurs further damages and the Draw
Proceeds so obtained may be applied to the extent required to compensate Lessor
for damages incurred, or to reimburse Lessor as provided herein, in connection
with any such default or other Draw Event,




47


and any
remaining Draw Proceeds shall be retained by the Beneficiary to secure the
performance of Lessee’s obligations under this Lease.  A “Draw Event” shall mean any of
the following:  (i) an Event of Default by Lessee (after the
expiration of any notice and cure period) under this Lease; (ii) Lessee is
the subject of an Insolvency Proceeding (as defined below); (iii) this
Lease is terminated by Lessor due to an Event of Default by Lessee;
(iv) the Letter of Credit is not replaced with another Letter of Credit
meeting the requirements of this Article XXXIII
from an Issuer approved by Lessor at least thirty (30) calendar days prior to
the expiration date of the Letter of Credit then held by Lessor.  As
used herein, an “Insolvency
Proceeding” shall mean the occurrence of any of the following
events:  Lessee (a) makes an assignment for the benefit of
creditors; (b) is adjudicated as insolvent; (c) files a petition (or
files an answer admitting the material allegations of a petition) under any
state or federal bankruptcy or other laws affecting creditors’ rights;
(d) fails, within ninety (90) calendar days after the commencement of
proceedings for relief under any state or federal bankruptcy or other laws
affecting creditors’ rights, to have such proceedings dismissed; (e) has
all or substantially all of its assets subject to judicial seizure or attachment
and such seizure or attachment is not released within ninety (90) calendar days;
(f) consents to or acquiesces in the appointment of a trustee, receiver or
liquidator of all or any substantial part of its assets; or (g) fails
within ninety (90) calendar days after the appointment of such a trustee,
receiver or liquidator to have such appointment vacated.




Replenishment
Following Draw.  If Lessor or the
Beneficiary uses any Draw Proceeds to cure any default by Lessee hereunder
and/or for any other reason permitted or contemplated by this Article XXXIII,
Lessee shall provide a replacement Letter of Credit in the Required Amount, and
otherwise meeting the requirements of this Article XXXIII,
within fifteen (15) calendar days of notice from Lessor or the Beneficiary, and
Lessee’s failure to do so shall be an Event of Default
hereunder.  Upon providing the replacement Letter of Credit in the
Required Amount and otherwise meeting the requirements of this Article XXXIII,
Lessor shall concurrently surrender the original or then current Letter of
Credit to Lessee, and provided there is no other Event of Default by Lessee, any
unused Draw Proceeds.




Required
Amount.  The term “Required Amount” shall mean an
amount equal to three (3) times the monthly Minimum Rent due under this Lease,
as adjusted annually.




Return
of Security Deposit.  The Security Deposit shall be released to
Lessee whenever Lessee satisfies the rent coverage ratios set forth in Section
25.1.4 for four (4) consecutive calendar quarters.













Miscellaneous.




Survival
of Obligations.Anything
contained in this Lease to the contrary notwithstanding, all claims against, and
liabilities of, Lessee or Lessor arising prior to any date of termination of
this Lease shall survive such termination.




Late
Charges; Interest.If any interest rate
provided for in any provision of this Lease is based upon a rate in excess of
the maximum rate permitted by




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applicable
law, the parties agree that such charges shall be fixed at the maximum
permissible rate.




Transfer
of Obligations.Upon the
expiration or earlier termination of the Term, Lessee shall use its best efforts
to transfer to Lessor or Lessor's nominee (or to cooperate with Lessor or
Lessor's nominee in connection with the processing by Lessor or Lessor's nominee
of any applications for) all licenses, operating permits and other governmental
authorizations and all contracts, including contracts with governmental or
quasi-governmental entities which may be necessary for the operation of each
Facility; provided that the costs and expenses of any such transfer or the
processing of any such application shall be paid by Lessor or Lessor's nominee;
and provided further that Lessor agrees within forty-five (45) days after the
expiration or earlier termination of the Lease to change the name of the
Facility so that it will not include the word “Emeritus”, or any variation
thereof.




Addendum,
Amendments and Exhibits.All addenda, amendments
and exhibits attached to this Lease are hereby incorporated in this Lease and
made a part of this Lease.




Headings.The headings and
paragraph titles in this Lease are not a part of this Lease and shall have no
effect upon the construction or interpretation of any part of this
Lease.




Time.Time is of the
essence of this Lease and each and all of its provisions.




Applicable
Law.This Lease shall
be governed by and construed in accordance with the laws of the State of
California, but not including its conflicts of laws rules; thus the law that
will apply is the law applicable to a transaction solely within the State of
California.




Successors
and Assigns.The covenants
and conditions contained in this Lease shall, subject to the provisions
regarding conveyance by Lessor (Article
XXX), apply to and bind the heirs, successor, executor, administrators
and assigns of Lessor and Lessee.




Limits
of Lessor’s Liability.  Lessee specifically agrees to look
solely to Lessor’s interest in the Leased Property for recovery of any judgment
against Lessor relating to this Lease, it being specifically agreed that no
constituent shareholder, officer or director of Lessor shall ever be personally
liable for any such judgment or the payment of any monetary obligation to
Lessee.  The provision contained in the foregoing sentence is not
intended to, and shall not, limit any right that Lessee might otherwise have to
obtain injunctive relief against Lessor or Lessor’s successors in interest, or
any action not involving the personal liability of Lessor (original or
successor).  Additionally, Lessor shall be exonerated from any further
liability under this Lease upon Lessor’s transfer or other divestiture of its
ownership of the Leased Property, provided that the assignee or grantee shall
expressly assume in writing the obligations of Lessor
hereunder.  Furthermore, in no event shall Lessor (original or
successor) ever be liable to Lessee for any indirect or consequential damages
suffered by Lessee from whatever cause.




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Prior
and Future Agreements.This Lease
contains the entire agreement of Lessor and Lessee with respect to the subject
matter covered or mentioned in this Lease, and no prior or contemporaneous
agreements or understanding pertaining to any such matters shall be effective
for any purpose.  No provision of this Lease may be amended or
supplemented except by an agreement in writing signed by both Lessor and Lessee
or their respective successor in interest.  This Lease shall not be
effective or binding on any party until fully executed by both Lessor and
Lessee.




Partial
Invalidity.Any provision of
this Lease which shall be held by a court of competent jurisdiction to be
invalid, void or illegal shall in no way affect, impair or invalidate any other
provision or term of this Lease, and such other provision or terms shall remain
in full force and effect.




Attorneys
Fees.In the event of
any action or proceeding brought by one party against the other under this
Lease, the prevailing party shall be entitled to recover its reasonable
attorneys' fees and costs in such action or proceeding from the other party,
including all attorneys, fees incurred in connection with any appeals, and any
post-judgment attorneys' fees incurred in efforts to collect on any
judgment.




Authority
of Lessor and Lessee.Subject, in the
case of Lessee, to the satisfaction of the Lessee’s Board Condition,and in the case of Lessor,
to the Lessor’s Lender Condition, Lessor and Lessee each hereby represent and
warrant that the individuals signing on its behalf are duly authorized to
execute and deliver this Lease in their respective capacities, and that this
Lease is binding upon the entity for which it has been executed.




Relationship
of the Parties.Nothing
contained in this Lease shall be deemed or construed by Lessor or Lessee, nor by
any third party, as creating the relationship of principal and agent or a
partnership, or a joint venture by Lessor or Lessee, it being understood and
agreed that no provision contained in this Lease nor any acts of Lessor and
Lessee shall be deemed to create any relationship other than the relationship of
landlord and tenant.




Counterparts;
Signatures by Facsimile.This Lease may
be executed in one or more separate counterparts, each of which, once they are
executed, shall be deemed to be an original. Such counterparts shall be and
constitute one and the same instrument.   The parties may accept
and rely upon signatures delivered via facsimile.




Brokers.Lessor and
Lessee each warrants that it has had no dealings with any real estate broker or
agent in connection with the negotiation of this Lease and it knows of no real
estate broker or agent who is entitled to a commission in connection with this
Lease. Lessor and Lessee hereby agree to indemnify the other and to hold the
other harmless from and against any and all costs, expenses, claims, damages,
suits, including attorneys' fees, in any way resulting from claims or demands
for commissions or other compensation from any real estate brokers claiming
through such party with respect to this Lease.




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Memorandum
of Lease.Lessor and
Lessee agree to execute and deliver a Memorandum of Lease which may be recorded
in the Official Records of each of the counties where the Properties are
located.




Tax
Treatment.Lessor and
Lessee each acknowledge that each shall treat this transaction as a true lease
for state law purposes and shall report this transaction as a Lease for Federal
income tax purposes.  For Federal income tax purposes each shall
report this Lease as a true lease with Lessor as the owner of the Leased
Property and Lessee as the lessee of such Leased Property including:
(i) treating Lessor as the owner of the property eligible to claim
depreciation deductions under Section 167 or 168 of the Code with
respect to the Leased Property, (ii) Lessee reporting its Minimum Rent payments
as rent expense under Section 162 of the Code, and (iii) Lessor
reporting the Minimum Rent payments as rental income.  For the
avoidance of doubt, nothing in this Lease shall be deemed to constitute a
guaranty, warranty or representation by either Lessor or Lessee as to the actual
treatment of this transaction for state law purposes and for federal law
purposes.




Lessor’s
Rights.Nothing
in this Lease, including any rights of Lessor to inspect the Leased Property or
gain access to any of the Lessee’s information, shall constitute or be deemed to
constitute any duty or agreement on the part of the Lessor to provide for the
safety and well being of any resident of the Leased Property, which shall be the
sole and exclusive responsibility of the Lessee.  Lessor’s rights of
inspection granted pursuant to this Lease shall be limited to inspecting the
physical condition of the Leased Property and undertaking such other inspections
to ensure compliance by the Lessee with all of the covenants set forth in this
Lease.




Joint
and Several.  If either Lessor
or Lessee is comprised of more than one person or entity, then all such persons
and/or entities comprising Lessor or Lessee, respectively, shall be jointly and
severally liable hereunder.




Condition
on Termination.Upon any
termination of the Lease or any abandonment for whatever reason by Lessee of the
Leased Property, Lessee shall deliver up to Lessor the Leased Property in a neat
and clean condition and in as good a condition as existed at the date of
Lessee’s possession and occupancy pursuant to this Lease, ordinary wear and tear
excepted.




Lessor
Estoppel Certificates; Lessee’s Obligations Independent.Upon reasonable
request (and in connection with Lessee’s efforts to obtain financing), Lessor
shall deliver to Lessee a certificate in form and substance to be determined
solely by Lessor (but containing fundamentally the same information as is
required of Lessee pursuant to Section
23.2 above) which can be relied upon by the party to whom the certificate
is delivered.  Any breach, or alleged breach, by Lessor of the
foregoing covenant (or any other covenant to be performed by Lessor under this
Lease) shall not entitle Lessee to any right of offset or provide an excuse for
non-performance by Lessee of its obligations under this Lease, all of which
shall continue and survive irrespective and independent of any such breach or
alleged breach by Lessor.  To the extent permitted by law, Lessee
hereby waives any and all rights of offset and other “self-help” remedies
available at law or in equity.




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Acknowledgement
Regarding Consulting Legal and Financial Counsel.  LESSEE
ACKNOWLEDGES THAT IT HAS HAD THE OPPORTUNITY TO CONSULT WITH LEGAL AND FINANCIAL
COUNSEL PRIOR TO THE EXECUTION OF THIS DOCUMENT AND, IN THE EVENT IT HAS
OBTAINED SUCH COUNSEL, IS DETERMINED, BASED ON THE INFORMATION OBTAINED, TO
PROCEED WITH THE TRANSACTION.







John
Hancock Loan Documents.




Compliance
with Loan Documents.  Lessor is the
Debtor under certain indebtedness evidenced by certain promissory notes,
mortgages, and related documents and instruments (the “John Hancock Loan Documents”),
some of which are more particularly described on Schedule
36.2.1 attached hereto.  Without limiting any of Lessee’s
obligations set forth in this Lease, Lessee shall comply with any and all
requirements under the John Hancock Loan Documents.  Lessee has
received and reviewed copies of the John Hancock Loan Documents and is familiar
with all of the terms, covenants, conditions, requirements, etc. contained
therein.




Insurance
Requirements.  Without limiting
the foregoing, Lessee shall comply with and carry all insurance required under
the John Hancock Loan Documents.  For convenience only, a copy of the
current insurance requirements set forth in the John Hancock Loan Documentsare attached hereto on
Schedule
36.2.2.




Financial
Reporting Requirements.  Without limiting
the foregoing, Lessee shall comply with any and all financial reporting
requirements set forth in the John Hancock Loan Documents.  For
convenience only, the current financial reporting requirements set forth in the
John Hancock Loan Documentsare attached hereto on
Schedule 36.2.3.




Impound
Account.Without limiting
the foregoing, Lessee shall comply with any and all monetary covenants under the
John Hancock Loan Documents, including without limitation, the obligation to pay
monthly into an impound account for taxes, all as set forth in greater detail in
the John Hancock Loan Documents (“Impound
Account”).  Lessee shall pay to Lessor monthly an amount to be
designated by Lessee which Lessor shall use to satisfy the obligations relating
to the Impound Account.  Within sixty (60) days after the end of each
calendar year, Lessor shall reconcile such amounts received from Lessee with the
amounts actually necessary to satisfy the Impound Account requirements, and, so
long as Lessee is not then in default, return to Lessee any unused portion over
and above the actual amounts required (and, conversely, Lessee shall pay to
Lessor upon demand any shortfall).




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WHEREFORE, each of the parties
has accepted and agreed by affixing their respective authorized signatures below
as of the date first above written.




“LESSOR”
            
            BV
      HOLDING-LTC, INC., a Delaware corporationBy:             /s/
      Clint MalinName:   Clint
      MalinTitle:                                                                     Vice
      President & Chief Investment Officer“LESSEE”
            
            EMERITUS
      CORPORATION,
              a
      Washington corporationBy:             /s/
      Eric MendelsohnName:   Eric
      MendelsohnTitle:                                                                     SVP
      Corporate Developement





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