[Carlsbad,
CA]


[San
Diego, CA]


[San
Dimas, CA]


[San Juan
Capistrano, CA]


[Woodbridge,
CT]


[Baltimore,
MD]


[Danvers,
MA]


[Dedham,
MA]


[Paramus,
NJ]


[Arlington,
VA]


[Richmond,
VA]










MASTER
LEASE AND SECURITY AGREEMENT




AMONG





HCP AUR1
CALIFORNIA A PACK, LLC,




a
Delaware limited liability company,




HCP AUR1
CALIFORNIA B PACK, LLC,


a
Delaware limited liability company,





HCP AUR1
CONNECTICUT, LLC,


a
Delaware limited liability company,





HCP AUR1
MARYLAND, LLC,


a
Delaware limited liability company,





HCP AUR1
MASSACHUSETTS, LLC,


a
Delaware limited liability company,





HCP AUR1
NEW JERSEY, LLC,


a
Delaware limited liability company, and





HCP AUR1
VIRGINIA, LLC,


a
Delaware limited liability company,





as their
interests may appear, as Lessor




AND




EMERITUS
CORPORATION,




a
Washington corporation,




as
Lessee




Dated as
of August 22, 2008















TABLE
OF CONTENTS




PageARTICLE
      I.
              
              
              11.1
              Leased
      Property; Term
              1ARTICLE
      II.
              
              
              22.1
              Definitions
              2ARTICLE
      III.
              
              
              223.1
              Rent
              223.2
              Additional
      Charges
              233.3
              Late
      Payment of Rent.
              233.4
              Net
      Lease
              24ARTICLE
      IV.
              
              
              244.1
              Impositions.
              244.2
              Utilities
              254.3
              Insurance
              264.4
              Impound
      Account
              264.5
              Tax
      Service
              26ARTICLE
      V.
              
              
              265.1
              No
      Termination, Abatement, etc
              265.2
              Termination
      with Respect to Fewer than All of the Facilities
              275.3
              Abatement
      Procedures
              27ARTICLE
      VI.
              
              
              276.1
              Ownership
      of the Leased Property
              276.2
              Personal
      Property
              286.3
              Transfer
      of Personal Property and Capital Additions to Lessor
              28ARTICLE
      VII.
              
              
              287.1
              Condition
      of the Leased Property
              287.2
              Use
      of the Leased Property
              287.3
              Lessor
      to Grant Easements, etc
              307.4
              Preservation
      of Facility Value
              30ARTICLE
      VIII.
              
              
              318.1
              Compliance
      with Legal and Insurance Requirements, Instruments, etc.
              31
  i
   ARTICLE
      IX.
              
              
              319.1
              Maintenance
      and Repair
              319.2
              Encroachments,
      Restrictions, Mineral Leases, etc
              329.3
              On-Going
      Capital Projects
              339.4
              Inspections;
      Due Diligence Fee
              359.5
              Initial
      Planned Capital Refurbishment Projects.
              35ARTICLE
      X.
              
              
              4110.1
              Construction
      of Capital Additions to the Leased Property
              41ARTICLE
      XI.
              
              
              4111.1
              Liens
              41ARTICLE
      XII.
              
              
              4212.1
              Permitted
      Contests
              42ARTICLE
      XIII.
              
              
              4213.1
              General
      Insurance Requirements
              4213.2
              Replacement
      Cost
              4413.3
              Additional
      Insurance
              4413.4
              Waiver
      of Subrogation
              4413.5
              Policy
      Requirements
              4413.6
              Increase
      in Limits
              4513.7
              Blanket
      Policies and Policies Covering Multiple Locations
              4513.8
              No
      Separate Insurance
              4513.9
              Insurance
      Requirements Under the Existing Loan Documents; Replacement Loan
      Documents
              45ARTICLE
      XIV.
              
              
              4514.1
              Insurance
      Proceeds
              4514.2
              Insured
      Casualty.
              4614.3
              Uninsured
      Casualty
              4714.4
              No
      Abatement of Rent
              4714.5
              Waiver
              47ARTICLE
      XV.
              
              
              4715.1
              Condemnation
              47ARTICLE
      XVI.
              
              
              4816.1
              Events
      of Default
              48
  ii
   16.2
              Certain
      Remedies
              5116.3
              Damages
              5116.4
              Receiver
              5216.5
              Lessee's
      Obligation to Purchase
              5216.6
              Waiver
              5316.7
              Application
      of Funds
              5316.8
              Facility
      Operating Deficiencies
              5316.9
              [Intentionally
      omitted].
              5416.1
              Lessor's
      Security Interest
              5416.11
              Leases
      and Residential Care Agreements
              5516.12
              SNF
      Beds and SNF Operator
              56ARTICLE
      XVII.
              
              
              5617.1
              Lessor's
      Right to Cure Lessee's Default
              56ARTICLE
      XVIII.
              
              
              5618.1
              Purchase
      of the Leased Property; Rights of Lessee Prior to Closing.
              56ARTICLE
      XIX.
              
              
              5819.1
              [Intentionally
      Omitted]
              5819.2
              Lessor's
      Extension Rights and Early Termination
              58ARTICLE
      XX.
              
              
              5920.1
              Holding
      Over
              59ARTICLE
      XXI.
              
              
              5921.1
              Letter
      of Credit or Cash Security Deposit
              5921.2
              Requirements
      for Letters of Credit
              5921.3
              Cash
      Security Deposit
              6021.4
              Timing
      for Letters of Credit or Cash Security Deposit
              6021.5
              Uses
      of Letters of Credit or Cash Security Deposit
              60ARTICLE
      XXII.
              
              
              6122.1
              Risk
      of Loss
              61ARTICLE
      XXIII.
              
              
              6123.1
              General
      Indemnification
              62ARTICLE
      XXIV.
              
              
              62
  iii
   24.1
              Transfers.
              62ARTICLE
      XXV.
              
              
              7125.1
              Officer's
      Certificates and Financial Statements
              71ARTICLE
      XXVI.
              
              
              7326.1
              Lessor's
      Right to Inspect and Show the Leased Property
              73ARTICLE
      XXVII.
              
              
              7427.1
              No
      Waiver
              74ARTICLE
      XXVIII.
              
              
              7428.1
              Remedies
      Cumulative
              74ARTICLE
      XXIX.
              
              
              7429.1
              Acceptance
      of Surrender
              74ARTICLE
      XXX.
              
              
              7430.1
              No
      Merger
              74ARTICLE
      XXXI.
              
              
              7431.1
              Conveyance
      by Lessor
              7431.2
              New
      Lease
              75ARTICLE
      XXXII.
              
              
              7632.1
              Quiet
      Enjoyment
              76ARTICLE
      XXXIII.
              
              
              7633.1
              Notices
              76ARTICLE
      XXXIV.
              
              
              7734.1
              Appraiser
              77ARTICLE
      XXXV.
              
              
              7835.1
              Lessee's
      Option to Purchase the Leased Property.
              7835.2
              Defaults.
              7935.3
              Escrow
      Provisions.
              8135.4
              Assurances
              82
  iv
  35.5
              Lessor's
      Election of 1031 Exchange.
              82ARTICLE
      XXXVI.
              
              
              8236.1
              Lessor
      May Grant Liens
              8236.2
              Attornment
              8336.3
              Compliance
      with Facility Mortgage Documents
              84ARTICLE
      XXXVII.
              
              
              8437.1
              Hazardous
      Substances
              8437.2
              Notices
              8537.3
              Remediation
              8537.4
              Indemnity
              8537.5
              Environmental
      Inspection
              8637.6
              Pre-Existing
      Environmental Conditions
              87ARTICLE
      XXXVIII.
              
              
              8738.1
              Memorandum
      of Lease
              87ARTICLE
      XXXIX.
              
              
              8839.1
              Sale
      of Assets
              88ARTICLE
      XL.
              
              
              8840.1
              Subdivision
              88ARTICLE
      XLI.
              
              
              8941.1
              Authority
              89ARTICLE
      XLII.
              
              
              8942.1
              Attorneys'
      Fees
              8942.2
              Set-Up
      Costs
              89ARTICLE
      XLIII.
              
              
              8943.1
              Brokers
              89ARTICLE
      XLIV.
              
              
              8944.1
              SUBMISSION
      TO ARBITRATION.
              89ARTICLE
      XLV.
              
              
              9245.1
              Miscellaneous
              92
  v
  ARTICLE
      XLVI.
              
              
              9746.1
              Provisions
      Relating to Master Lease
              9746.2
              Treatment
      of Lease
              97ARTICLE
      XLVII.
              
              
              9747.1
              Delays
      in Delivery of Possession and Commencement Date
              97ARTICLE
      XLVIII.
              
              
              9848.1
              Lessor's
      Conditions to Continued Effectiveness of Lease
              9848.2
              Lessee's
      Conditions to Continued Effectiveness of Lease.
              10148.3
              Amendment
      to Lease
              102ARTICLE
      XLIX.
              
              
              10349.1
              Certain
      Additional Representations and Warranties by Lessee
              103Exhibits:Exhibit
      A
              
              Legal
      Description of the LandExhibit
      B
              
              List
      of Lessor's Personal PropertyExhibit
      C
              
              Description
      of Facilities and Certain Material TermsExhibit
      D
              
              Form
      of Letter of CreditExhibit
      E
              
              Form
      of Amendment to LeaseSchedules:Schedule
      7.4.1
              
              Excluded
      Facilities
  vi


MASTER
LEASE AND SECURITY AGREEMENT




THIS
MASTER LEASE AND SECURITY AGREEMENT (“Lease”) is dated as of the 22nd day of
August, 2008 (the “Effective Date”), and is among HCP AUR1 CALIFORNIA A PACK,
LLC, a Delaware limited liability company (“HCP California A Pack”), HCP AUR1
CALIFORNIA B PACK, LLC, a Delaware limited liability company (“HCP California B
Pack”), HCP AUR1 CONNECTICUT, LLC, a Delaware limited liability company (“HCP
Connecticut”), HCP AUR1 MARYLAND, LLC, a Delaware limited liability company
(“HCP Maryland”), HCP AUR1 MASSACHUSETTS, LLC, a Delaware limited liability
company (“HCP Massachusetts”), HCP AUR1 NEW JERSEY, LLC, a Delaware limited
liability company (“HCP New Jersey”) and HCP AUR1 VIRGINIA, LLC, a Delaware
limited liability company (“HCP Virginia,” and together with HCP California A
Pack, HCP California B Pack, HCP Connecticut, HCP Maryland, HCP Massachusetts
and HCP New Jersey, as their interests may appear, “Lessor”) and EMERITUS
CORPORATION, a Washington corporation (“Emeritus” or “Lessee”).




ARTICLE
I.




1.1  Leased Property;
Term




Upon and
subject to the terms and conditions hereinafter set forth, Lessor leases to
Lessee and Lessee leases from Lessor all of Lessor’s rights and interests in and
to the following with respect to each Facility (as defined below) (collectively
the “Leased Property”):




(a)  subject
to the provisions of Section 45.1.9 below, the real property or properties
described in Exhibits
A-1 through A-11 attached hereto
(collectively, the “Land”);




(b)  all
buildings, structures, Fixtures (as hereinafter defined) and other improvements
of every kind now or hereafter located on the Land including, alleyways and
connecting tunnels, sidewalks, utility pipes, conduits and lines (on-site and
off-site to the extent Lessor has obtained any interest in the same), parking
areas and roadways appurtenant to such buildings and structures and Capital
Additions funded by Lessor of each such Facility (collectively, the “Leased
Improvements”);




(c)  all
easements, rights and appurtenances relating to the Land and the Leased
Improvements of each Facility (collectively, the “Related Rights”);




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




1


estate,
together with all replacements, modifications, alterations and additions thereto
of each Facility (collectively, the “Fixtures”); and




(e)  the
machinery, equipment, furniture and other personal property described on Exhibit B attached
hereto, together with all replacements and substitutes therefor of each Facility
(collectively, “Lessor’s Personal Property”).




SUBJECT,
HOWEVER, to the easements, encumbrances, covenants, conditions and restrictions
and other matters which affect the Leased Property of each Facility as of the
Commencement Date (as hereinafter defined), or which are created thereafter as
permitted hereunder to have and to hold for a fixed term (the “Term”) commencing
on the Commencement Date and ending at 11:59 p.m. Los Angeles time on the
Expiration Date (as hereinafter defined).




ARTICLE
II.




2.1  Definitions




.  For
all purposes of this Lease, except as otherwise expressly provided or unless the
context otherwise requires, (i) the terms defined in this Article have the
meanings assigned to them in this Article and include the plural as well as the
singular; (ii) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP as at the time applicable;
(iii) all references in this Lease to designated “Articles,” “Sections” and
other subdivisions are to the designated Articles, Sections and other
subdivisions of this Lease; (iv) the word “including” shall have the same
meaning as the phrase “including, without limitation,” and other similar
phrases; and (v) the words “herein,” “hereof” and “hereunder” and other similar
words refer to this Lease as a whole and not to any particular Article, Section
or other subdivision:




1031
Exchange:  As defined in Section 35.5.




AAA:  As
defined in Article XLIV.




Access
Agreement:  The Access and License Agreement dated of even date
with the Effective Date.




Accommodator:  As
defined in Section 35.5.




Additional
Charges:  As defined in Article III.




Affiliate:  Any
Person which, directly or indirectly (including through one or more
intermediaries), controls or is controlled by or is under common control with
any other Person, including any Subsidiary of a Person.  For purposes
of this definition, the definition of “Controlling Person” below, and Article
XXIV below, the term “control” (including the correlative meanings of the terms
“controlled by” and “under common control with”), as used with respect to any
Person, shall mean the possession, directly or indirectly (including through one
or more intermediaries), of the power to direct or cause the direction of the
management and policies of such Person, through the ownership of voting
securities, partnership interests or other equity interests.  Without
limiting the generality of the foregoing, when used with respect to any
corporation, the term “Affiliate” shall also include (i) any Person which owns,
directly or indirectly (including through one or more intermediaries), Fifty
Percent (50%) or more of any




2


class of
voting security or equity interests of such corporation, (ii) any Subsidiary of
such corporation and (iii) any Subsidiary of a Person described in
clause (i).  Notwithstanding anything to the contrary in this
definition, with respect to Lessee and any Guarantor, the term “Affiliate” shall
exclude any Person that is an affiliate of Daniel R. Baty and that but for its
relationship with Daniel R. Baty would not otherwise be considered an Affiliate
of Lessee or such Guarantor.




Aggregate Costs of the
Planned Capital Refurbishment Project:  With respect to each
Planned Capital Refurbishment Project for a Facility, the actual out-of-pocket
costs actually incurred by Lessee pursuant to the provisions of this Lease in
connection with such Planned Capital Refurbishment Project for such Facility,
including all costs of design, construction, installation and obtaining all
governmental approvals and permits with respect to such Planned Capital
Refurbishment Project) for such Facility, the Planned Capital Refurbishment
Project Site Review Fees for such Facility and the Planned Capital Refurbishment
Project Lessor Costs for such Facility.




Allocated Minimum Aggregate
Costs of the Planned Capital Refurbishment Project:  With
respect to each Facility, the “Allocated Minimum Aggregate Costs of the Planned
Capital Refurbishment Project(s)” specified for and allocated to Facility as set
forth on Exhibit
C attached hereto; provided, however, that Lessor shall not unreasonably
withhold its approval to the reallocation of such “Allocated Minimum Aggregate
Costs of the Planned Capital Refurbishment Project” among the Facilities so long
as the aggregate of the Allocated Planned Capital Refurbishment Allowance for
all Facilities does not exceed $3,000,000.00, notwithstanding such reallocation
or the actual Aggregate Costs of the Planned Capital Refurbishment Project(s)
for all Facilities.




Allocated Minimum
Rent:  With respect to each Facility, the amount of Minimum
Rent allocated to such Facility as set forth on Exhibit C attached
hereto (or any amendment or supplement thereto) (subject to increase as set
forth in Article III or any other express provision of this Lease or any
amendment hereto providing for an increase in Minimum Rent); provided, however,
that Lessor and Lessee acknowledge and agree that such allocation is solely for
purposes of implementing the provisions of Sections 5.2, 5.3 and 31.2 hereof and
the determination of Transfer Consideration for purposes of Section
24.1.2.2.  Except for such Sections, the Minimum Rent and other Rent
payable hereunder is payable for all Facilities as a single, integrated and
indivisible economic unit, and that but for such integration, the Minimum Rent
and other Rent payable under this Lease would have been computed on a different
basis.




Allocated Minimum Purchase
Price:  With respect to each Facility, the sum of the
“Allocated Minimum Purchase Price” allocated to such Facility as set forth on
Exhibit C
attached hereto, plus all Capital Additions Costs funded by Lessor for such
Facility; provided, however, that Lessor and Lessee acknowledge and agree that
such allocation is solely for purposes of implementing the provisions of
Sections 5.2, 14.2, 15.1.4, 16.5 and 31.2 hereof.  Except for such
Sections, the Purchase Option Price payable hereunder is payable for all
Facilities as a single, integrated and indivisible economic unit, and that but
for such integration, the Purchase Option Price payable under this Lease would
have been computed on a different basis.




3


Allocated Planned Capital
Refurbishment Project Allowance:  With respect to each
Facility, a total aggregate allowance for all Planned Capital Refurbishment
Project(s) at such Facility equal to the lesser of (i) one-half (1/2) of the sum
of the “Allocated Minimum Aggregate Costs of the Planned Capital Refurbishment
Project(s)” specified for and allocated to such Facility as set forth on Exhibit C attached
hereto (as the same may be reallocated with the approval of Lessor has provided
in the definition of “Allocated Minimum Aggregate Costs of the Planned Capital
Refurbishment Project” above) or (ii) one-half (1/2) of the actual Aggregate
Costs of the Planned Capital Refurbishment Project(s) with respect to such
Facility.  Notwithstanding anything to the contrary in this Lease, the
portion of the Allocated Planned Capital Refurbishment Project Allowance
allocated to each Facility shall not count towards the Annual Minimum Capital
Project Amount with respect to such Facility, and Lessee’s expenditure
and reimbursement of all or any portion of the Aggregate Costs of the
Planned Capital Refurbishment Project(s) for any Planned Capital Refurbishment
Project(s) for such Facility shall be in addition to the Annual Minimum Capital
Project Amount with respect to such Facility.




Annual Minimum Capital
Project Amount:  During each Lease Year, the following
amounts:




(i)           With
respect to the first (1st) and
second (2nd) Lease
Years, subject to Section 9.5 below, Zero Dollars ($0).




(ii)           With
respect to the third (3rd) Lease
Year for each Facility, Five Hundred Fifty Dollars ($550.00) per licensed bed
(in the case of the SNF Beds located within any Facility) or living unit located
on the Leased Property of such Facility.




(iii)           With
respect to the fourth (4th) Lease
Year for each Facility, Six Hundred Dollars ($600.00) per licensed bed (in the
case of the SNF Beds located within any Facility) or living unit located on the
Leased Property of such Facility.




(iv)           With
respect to the fifth (5th) Lease
Year for each Facility, Six Hundred Fifty Dollars ($650.00) per licensed bed (in
the case of the SNF Beds located within any Facility) or living unit located on
the Leased Property of such Facility.




Commencing
upon the expiration of the fifth (5th) Lease
Year, and upon the expiration of each Lease Year thereafter during the Term, the
then current Annual Minimum Capital Project Amount shall be equal to the Annual
Minimum Capital Project Amount in effect as of the expiration of the immediately
prior Lease Year, as increased by a percentage equal to the greater of Three
Percent (3.0%) or the applicable CPI Increase.





Annual Minimum Capital
Project Amount Overage:  With respect to each Facility for any
Lease Year, an amount equal to (a) the sum of (i) the Capital Project Costs
incurred and paid by Lessee in funding Capital Projects for each Facilityin
the immediately preceding two (2) Lease Years and for which Lessor has received
paid invoices, receipts or other commercially reasonable evidence or supporting
information as is customary to evidence such expenditures, verifying the cost
and payment of funding such Capital Projects, and an Officer’s Certificate
certifying that the applicable item(s) of Capital Projects have been completed,
less (ii) the




4


amounts
disbursed by Lessor to Lessee from any Replacement Reserve on account of such
Capital Projects to such Facility in accordance with the terms of Section 9.3.1,
in excess of (b) the Annual Minimum Capital Project Amount for such Facility for
such prior two (2) Lease Year period.




Appraiser:  As
defined in Article XXXIV.




Architect:   With
respect to each Planned Capital Refurbishment Project for a Facility, the
architect and/or engineer selected by Lessee in connection with the design and
construction of such Planned Capital Refurbishment Project for such Facility and
approved by Lessor, which approval shall not be unreasonably withheld or delayed
so long as such architect is licensed in the State in which such Facility is
located and has experience with the type and scope of the project for which
he/she is being retained.




Award:  All
compensation, sums or anything of value awarded, paid or received on a total or
partial Condemnation.




Bankruptcy
Code:  The United Stated Bankruptcy Code (11 U.S.C. § 101
et seq.), and any
successor statute or legislation thereto.




Base
Period:  The period commencing on that date which is eighteen
(18) months prior to the date any appraisal of any Facility is made pursuant to
the provisions of Article XXXIV and ending on the date which is six (6)
months prior to the date any such appraisal of such Facility is
made.




BLS:  Bureau
of Labor Statistics, U.S. Department of Labor.




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




Capital
Additions:  With respect to any Facility, one or more new
buildings, or one or more additional structures annexed to any portion of any of
the Leased Improvements of such Facility, or the material expansion of existing
improvements, which are constructed on any parcel or portion of the Land of such
Facility, during the Term, including construction of a new wing or new story, or
the renovation of existing improvements on the Leased Property of such Facility
in order to provide a functionally new facility needed to provide services not
previously offered in such Facility.




Capital Addition
Costs:  The costs of any Capital Addition made to the Leased
Property whether paid for by Lessee or Lessor, including (i) all permit fees and
other costs imposed by any governmental authority, the cost of site preparation,
the cost of construction including materials and labor, the cost of supervision
and related design, engineering and architectural services, the cost of any
fixtures, and if and to the extent approved by Lessor, the cost of construction
financing; (ii) fees paid to obtain necessary licenses and certificates; (iii)
if and to the extent approved by Lessor in writing and in advance, the cost of
any land contiguous to the Leased Property which is to become a part of the
Leased Property purchased for the purpose of placing thereon the Capital
Addition or any portion thereof or for providing means of




5


access
thereto, or parking facilities therefor, including the cost of surveying the
same; (iv) the cost of insurance, real estate taxes, water and sewage charges
and other carrying charges for such Capital Addition during construction; (v)
the cost of title insurance; (vi) reasonable fees and expenses of legal counsel;
(vii) filing, registration and recording taxes and fees; (viii) documentary
stamp and similar taxes; and (ix) all reasonable costs and expenses of Lessor
and any Person which has committed to finance the Capital Addition, including
(a) the reasonable fees and expenses of their respective legal counsel;
(b) printing expenses; (c) filing, registration and recording taxes and
fees; (d) documentary stamp and similar taxes; (e) title insurance charges and
appraisal fees; (f) rating agency fees; and (g) commitment fees charged by any
Person advancing or offering to advance any portion of the financing for such
Capital Addition.




Capital
Project:  Repairs and replacements to the Leased Property, or
any portion thereof, which are categorized under GAAP as a capital expense and
not as an operating expense; provided, however, that in no event shall the term
“Capital Project” be deemed to include any Capital Additions.




Capital Project
Costs:  All out-of-pocket costs reasonably incurred by Lessee
in connection with a Capital Project, excluding, however, any amounts that are
financed by Lessee and secured by a lien on the Personal Property relating
thereto.




Close of
Escrow:  As defined in Article XXXV.




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




Collateral:  As
defined in Section 16.10.1.




Commencement
Date:  As defined in Section 47.1.




Commercial Occupancy
Arrangement:  Any commercial (as opposed to resident or
patient) Occupancy Arrangement.




Completion Date: With
respect to each Planned Capital Refurbishment Project for a Facility, the date
on which the construction/performance of such Planned Capital Refurbishment
Project for such Facility has been “substantially completed” and that Lessor has
received the following:  (i) a certificate of substantial
completion from the Architect in a form reasonably acceptable to Lessor,
(ii) to the extent applicable based upon the nature of such Planned Capital
Refurbishment Project for such Facility, a certificate of occupancy or its
equivalent issued in accordance with all Legal Requirements and by the
appropriate governmental authority having jurisdiction over the Leased Property
of such Facility which permits the occupancy and use of the improvements
constructed as part of such Planned Capital Refurbishment Project for such
Facility and (iii) all other licenses, authorizations and permits, if any,
required by any governmental authority for the use and operation of such Planned
Capital Refurbishment Project for such Facility as part of the Facility for its
Primary Intended Use.  For purposes of this definition, “substantially
completed” shall mean that the improvements being constructed/performed as part
of such Planned Capital Refurbishment Project for such Facility




6


have been
substantially completed in accordance with the Plans and Specifications
therefor, except for Punch List Items that remain to be completed.




Condemnation:  The
exercise of any governmental power, whether by legal proceedings or otherwise,
by a Condemnor or a voluntary sale or transfer by Lessor to any Condemnor,
either under threat of condemnation or while legal proceedings for condemnation
are pending.




Condemnor:  Any
public or quasi-public authority, or private corporation or individual, having
the power of Condemnation.




Consolidated
Financials:  For any fiscal year or other accounting period for
any Person and its consolidated Subsidiaries, statements of earnings and
retained earnings and of changes in financial position for such period and for
the period from the beginning of the respective fiscal year to the end of such
period and the related balance sheet as of the end of such period, together with
the notes thereto, all in reasonable detail and setting forth in comparative
form the corresponding figures for the corresponding period in the preceding
fiscal year, and prepared in accordance with GAAP.




Consolidated Net
Worth:  At any time, the sum of the following for any Person
and its consolidated Subsidiaries, on a consolidated basis determined in
accordance with GAAP:




(i)           Shareholders’
Equity of such Person, minus




(ii)           goodwill
of such Person.




Construction
Contracts:  With respect to each Planned Capital Refurbishment
Project for a Facility, the contracts between Lessee and the General Contractor,
Lessee and the Architect and/or Lessee or any other contractor (including
subcontractors) relating to rendering of services or furnishing of materials in
connection with the construction/performance of such Planned Capital
Refurbishment Project for such Facility, contracts between the General
Contractor and any subcontractor and contracts between any of the foregoing and
any other Person relating to rendering of services or furnishing of materials in
connection with construction/performance of such Planned Capital Refurbishment
Project for such Facility.




Controlling
Person:  Any (i) Person(s) which, directly or indirectly
(including through one or more intermediaries), controls Lessee and would be
deemed an Affiliate of Lessee, including any partners, shareholders, principals,
members, trustees and/or beneficiaries of any such Person(s) to the extent the
same control Lessee and would be deemed an Affiliate of Lessee, and (ii)
Person(s) which controls, directly or indirectly (including through one or more
intermediaries), any other Controlling Person(s) and which would be deemed an
Affiliate of any such Controlling Person(s).




Cost of Living
Index:  The Consumer Price Index for All Urban Consumers, U.S.
City Average (1982-1984 = 100), published by the BLS, or such other renamed
index.  If the BLS changes the publication frequency of the Cost of
Living Index so that a Cost of Living Index is not available to make a
cost-of-living adjustment as specified herein, the cost-of-living adjustment
shall be based on the percentage difference between the Cost of Living Index for
the




7


closest
preceding month for which a Cost of Living Index is available and the Cost of
Living Index for the comparison month as required by this Lease.  If
the BLS changes the base reference period for the Cost of Living Index from
1982-84 = 100, the cost-of-living adjustment shall be determined with the use of
such conversion formula or table as may be published by the BLS.  If
the BLS otherwise substantially revises, or ceases publication of the Cost of
Living Index, then a substitute index for determining cost-of-living
adjustments, issued by the BLS or by a reliable governmental or other
nonpartisan publication, shall be reasonably selected by Lessor.




County:  With
respect to each Facility, the County or Township in which the Leased Property of
such Facility is located.




CPI
Increase:  The percentage increase, if any, in (i) the Cost of
Living Index published for the month which is two (2) months prior to the
commencement of the applicable Lease Year, over (ii) the Cost of Living Index
published for the month which is fourteen (14) months prior to the commencement
of the applicable Lease Year.




Current
Lease:  As defined in Section 47.1.




Current
Lessees:  As defined in Section 47.1.




Current
Manager:  As defined in Section 47.1.




Current Management
Agreement:  As defined in Section 47.1.




Date of
Taking:  The date the Condemnor has the right to possession of
the property being condemned.




EBITDAR:  With
respect to each Facility for any applicable period, the earnings from such
Facility, determined on the basis of GAAP applied on a consistent basis, before
interest, taxes, depreciation, amortization and rents (including Rents under
this Lease) for the corresponding period, as determined on the basis of GAAP
applied on a consistent basis, less an imputed management fee for such Facility
in the amount of five percent (5%) of all Gross Revenues for such Facility
during the corresponding period.




EBITDARM:  With
respect to each Facility for any applicable period, EBITDAR for such Facility,
plus an imputed management fee for such Facility in the amount of Five Percent
(5%) of all Gross Revenues for such Facility during the corresponding period, as
determined on the basis of GAAP applied on a consistent basis.




EBITDARM
Coverage:  With respect to each Facility, for any applicable
period, calculated as of the last day of such period, the ratio of EBITDARM for
such Facility attributable to such period to the total Allocated Minimum Rent
payable for such Facility for such period under this Lease.




Effective
Date:  As defined in preamble.




Emeritus:  As
defined in the preamble.




8


Environmental
Costs:  As defined in Article XXXVII.




Environmental
Laws:  Any and all federal, state, municipal and local laws,
statutes, ordinances, rules, regulations, guidances, policies, orders, decrees,
judgments, whether statutory or common law, as amended from time to time, now or
hereafter in effect, or promulgated, pertaining to the environment, public
health and safety and industrial hygiene, including the use, generation,
manufacture, production, storage, release, discharge, disposal, handling,
treatment, removal, decontamination, clean-up, transportation or regulation of
any Hazardous Substance, including the Clean Air Act, the Clean Water Act, the
Toxic Substances Control Act, the Comprehensive Environmental Response
Compensation and Liability Act, the Resource Conservation and Recovery Act, the
Federal Insecticide, Fungicide, Rodenticide Act, the Safe Drinking Water Act and
the Occupational Safety and Health Act.




Escrow:  As
defined in Article XXXV.




Escrow
Holder:  As defined in Article XXXV.




Event of
Default:  As defined in Article XVI.




Excess
Value:  The positive amount, if any, by which the aggregate
Fair Market Value of the Leased Property of all of Facilities then subject to
the terms of this Lease and any New Lease(s) hereafter with or in favor of
Lessor or any Affiliate of Lessor exceeds the sum of (i) the Minimum Purchase
Price hereunder and the aggregate Minimum Purchase Price(s) under any New
Lease(s) hereafter with or in favor of Lessor or any Affiliate of Lessor, plus
(ii) the positive amount, if any, by which the purchase price paid by Lessee for
any Facility acquired by Lessee pursuant to any of Articles XIV or XV or Section
16.5 exceeds the Allocated Minimum Purchase Price for such
Facility.




Excluded
Facilities:  As defined in Section 7.4.1.




Existing Facility Mortgagee
Consent:  As defined in Section 48.1.1(d).




Existing Facility
Mortgages:  The Facility Mortgages relating to the Existing
Loan and the other Existing Facility Mortgage Loan Documents, which shall
continue to encumber the Leased Property of one or more of the Facilities and be
superior to this Lease and the leasehold estate created hereby following the
Effective Date and Commencement Date, unless paid in full at anytime after the
Effective Date or Commencement Date by Lessor in its sole and absolute
discretion.




Existing Facility Mortgage
Loan Documents:  The Facility Mortgage Loan Documents relating
to the Existing Loan, including the Existing Facility Mortgages, as the same may
be amended, modified or supplemented in connection with any Existing Facility
Mortgagee Consent.




Existing
Loan:  The certain loan in the original principal amount of
$100,000,000, made by HSH Nordbank AG, as lender, to each Person comprising
“Lessor” under this Lease, collectively, as borrower.




9


Expiration
Date:  With respect to each Facility, the expiration of the
tenth (10th) Lease
Year.




Facility:  Each
facility being (and to be) operated or proposed to be operated on, the Leased
Property as more particularly described on Exhibit C attached
hereto, together with any Capital Additions.




Facility
Mortgage:  As defined in Article XIII.




Facility Mortgage Loan
Documents:  With respect to each Facility Mortgage, the
applicable Facility Mortgage, loan or credit agreement, lease, note, collateral
assignment instruments, guarantees, indemnity agreements and other documents or
instruments evidencing, securing or otherwise relating to the loan made, credit
extended, lease or other financing vehicle pursuant thereto.




Facility
Mortgagee:  As defined in Article XIII.




Facility Operating
Deficiency:  With respect to any Facility, a deficiency in the
conduct of the operation of such Facility which, in the reasonable determination
of Lessor, if not corrected within a reasonable time, would have the likely
effect of jeopardizing such Facility’s licensure or certification under
government reimbursement programs or third party provider
agreements.




Fair Market
Rental:  With respect to each Facility, the fair market rental
value of the Leased Property of such Facility, or applicable portion thereof
(including any periodic increases therein), determined in accordance with the
appraisal procedures set forth in Article XXXIV.




Fair Market
Value:  With respect to each Facility, the fair market value of
the Leased Property and all Capital Additions of such Facility, or applicable
portion(s) thereof, determined in accordance with the appraisal procedures set
forth in Article XXXIV and this definition.  Fair Market Value
shall be the higher value obtained by assuming that the Leased Property and all
Capital Additions of such Facility is either unencumbered by this Lease or
encumbered by this Lease.  Further, in determining Fair Market Value
the Leased Property of such Facility and all Capital Additions of such Facility
shall be valued at their highest and best use which shall be presumed to be as a
fully-permitted Facility operated in accordance with the provisions of this
Lease.  Fair Market Value of the Leased Property and all Capital
Additions of such Facility shall not include “going concern” or “business
enterprise” value attributable to factors other than the highest and best use of
the Leased Property and all Capital Additions of such Facility.  In
addition, the following specific matters shall be factored in or out, as
appropriate, in determining Fair Market Value:




(i)           The
negative value of (a) any deferred maintenance or other items of repair or
replacement of the Leased Property or any Capital Additions of such Facility
reasonably required to restore such Lease Property or Capital Additions to the
condition required pursuant to Section 9.1.1 below, (b) any then current or
prior licensure or certification violations and/or admissions holds and (c) any
other breach or failure of Lessee to perform or observe its




10


obligations
hereunder shall not be taken into
account; rather, the Leased Property and all Capital Additions of such Facility,
and every part thereof, shall be deemed to be in the condition required by this
Lease (i.e., good order and repair) and Lessee shall at all times be deemed to
have operated such Facility in compliance with and to have performed all
obligations of the Lessee under this Lease.




(ii)           The
occupancy level of the applicable Facility shall be deemed to be the greatest of
(a) the occupancy level as of the date any appraisal of such Facility is
performed in accordance with the provisions of Article XXXIV or (b) the average
occupancy during the Base Period.




(iii)           If
the applicable Facility’s Primary Intended Use includes a mixed use, then
whichever of the following produces the highest positive value shall be taken
into account: (a) the resident mix, patient mix, case mix, and/or diagnostic
related group or acuity mix, as applicable, as of the date any appraisal of such
Facility is performed in accordance with the provisions of Article XXXIV; or (b)
the average of such mix during the Base Period.




Finally,
in determining Fair Market Value in connection with a sale or transfer of the
Leased Property and all Capital Additions of any Facility to Lessee pursuant to
the terms of this Lease, the positive or negative effect on the value of the
Leased Property and all Capital Additions of such Facility attributable to such
factors as the interest rate, amortization schedule, maturity date, prepayment
penalty and other terms and conditions of any encumbrance placed thereon by
Lessor which will not be removed at or prior to the date of such sale or
transfer shall be taken into account.




Fixtures:  With
respect to each Facility, the Fixtures (as defined in Article I) of such
Facility.




GAAP:  U.S.
generally accepted accounting principles.




General
Contractor:  With respect to each Planned Capital Refurbishment
Project for a Facility, the general contractor selected by Lessee and approved
by Lessor in connection with the construction/performance of such Planned
Capital Refurbishment Project for such Facility, which approval of such general
contractor shall not be unreasonably withheld or delayed so long as such general
contractor has all required State and local licenses and permits, is bondable
and has sufficient experience with the size, type and scope of such Planned
Capital Refurbishment Project for such Facility.




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




(i)           bad
debt in accordance with GAAP;




11


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




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




Gross
Revenues for each Lease Year of such Facility shall reflect all cost report
settlement adjustments, whether positive or negative, received in or payable
during such Lease Year in accordance with GAAP relating to health care
accounting, regardless of the year that such settlement amounts are applicable
to; provided, however, that to the extent settlement amounts are applicable to
years, or portions thereof, prior to the Commencement Date, such settlement
amounts shall not be included in Gross Revenues for the Lease Year of such
Facility in which such settlement amounts are received or paid.  Gross
Revenues shall also include the Gross Revenues of any Occupant under a
Commercial Occupancy Arrangement, i.e., the Gross
Revenues generated from the operations conducted on or from such subleased,
licensed or other used or occupied portion of the Leased Property and all
Capital Additions of such Facility shall be included directly in the Gross
Revenues; provided, however, that the rent received or receivable by Lessee from
or under such Commercial Occupancy Arrangement shall be excluded from Gross
Revenues for such purpose.




Guarantors:  Any
future guarantor of Lessee’s obligations under this Lease pursuant to a written
Guaranty which shall be required to be delivered to Lessor in the event the
Lessee at anytime ceases to be Emeritus (each, a “Guarantor”).




Guaranties:  Collectively,
any future written guaranties of Lessee’s obligations under this Lease made by
any Guarantor.




Handling:  As
defined in Article XXXVII.




Hazardous
Substances:  Collectively, any petroleum, petroleum product or
byproduct or any substance, material or waste regulated or listed pursuant to
any Environmental Law.




HCP:  HCP,
Inc., a Maryland corporation, and its successors and assigns.




HCP California A
Pack:  As defined in the preamble.




HCP California B
Pack:  As defined in the preamble.




HCP
Connecticut:  As defined in the preamble.




HCP
Maryland:  As defined in the preamble.




HCP
Massachusetts:  As defined in the preamble.




HCP New
Jersey:  As defined in the preamble.




12


HCP
Virginia:  As defined in the preamble.




HSR
Act:  The Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.




Impositions:  Collectively,
all taxes, including capital stock, franchise and other state taxes of Lessor
(and, if Lessor is not HCP, of HCP as a result of its investment in Lessor), ad
valorem, sales, use, single business, gross receipts, transaction privilege,
rent or similar taxes; assessments including assessments for public improvements
or benefits, whether or not commenced or completed prior to the date hereof and
whether or not to be completed within the Term; ground rents; water, sewer and
other utility levies and charges; excise tax levies; fees including license,
permit, inspection, authorization and similar fees; and all other governmental
charges, in each case whether general or special, ordinary or extraordinary, or
foreseen or unforeseen, of every character in respect of the Leased Property,
any Capital Additions and/or the Rent and all interest and penalties thereon
attributable to any failure or delay in payment by Lessee (unless such failure
or delay in payment is due to the acts or omissions of Lessor) which at any time
prior to, during or in respect of the Term hereof may be assessed or imposed on
or in respect of or be a lien upon (i) Lessor or Lessor’s interest in the Leased
Property or any Capital Additions, (ii) the Leased Property, any Capital
Additions or any parts thereof or any rent therefrom or any estate, right, title
or interest therein, or (iii) any occupancy, operation, use or possession of, or
sales from or activity conducted on or in connection with the Leased Property,
any Capital Additions or the leasing or use of the Leased Property, any Capital
Additions or any parts thereof; provided, however, that nothing contained in
this Lease shall be construed to require Lessee to pay (a) any tax based on net
income (whether denominated as a franchise or capital stock or other tax)
imposed on Lessor or any other Person, (b) any transfer, or net revenue tax of
Lessor or any other Person except Lessee and its successors, (c) any tax imposed
with respect to the sale, exchange or other disposition by Lessor of any Leased
Property, any Capital Additions or the proceeds thereof, or (d) except as
expressly provided elsewhere in this Lease, any principal or interest on any
indebtedness on the Leased Property for which Lessor is the obligor, except to
the extent that any tax, assessment, tax levy or charge, of the type described
in any of clauses (a), (b), (c) or (d) above is levied, assessed or imposed in
lieu of or as or as a substitute for any tax, assessment, levy or charge which
is otherwise included in this definition of an “Imposition.”




Insurance
Requirements:  The terms of any insurance policy required by
this Lease and all requirements of the issuer of any such policy and of any
insurance board, association, organization or company necessary for the
maintenance of any such policy.




Intangible
Property:  With respect to each Facility, all accounts,
proceeds of accounts, rents, profits, income or revenues derived from the use of
rooms or other space within the Leased Property of such Facility or the
providing of services in or from the Leased Property and all Capital Additions
of such Facility; documents, chattel paper, instruments, contract rights,
deposit accounts, general intangibles, causes of action, now owned or hereafter
acquired by Lessee (including any right to any refund of any Impositions)
arising from or in connection with Lessee’s operation or use of the Leased
Property and all Capital Additions of such Facility; all licenses and permits
now owned or hereinafter acquired by Lessee, which are necessary or desirable
for Lessee’s use of the Leased Property and all Capital Additions of such
Facility for its




13


Primary
Intended Use, including, if applicable, any certificate of need or similar
certificate; the right to use any trade name or other name associated with such
Facility (excluding, however, the names “Summerville,” “Emeritus,” “Loyalton”
and “Village Oaks” and any variation thereof); and any and all third-party
provider agreements (including Medicare and Medicaid).




Land:  With
respect to each Facility, the Land (as defined in Article I) relating to such
Facility.




Lease:  As
defined in the preamble.




Lease Termination
Agreement(s):  As defined in Section 48.1.1(c).




Lease
Year:  With respect to such Facility, the first Lease Year for
each Facility shall be the period of twelve (12) full calendar months from
and after the Commencement Date, unless the Commencement Date is a day other
than the first (1st) day of a calendar month, in which case the first Lease Year
for such Facility shall be the period commencing on the Commencement Date and
ending on the last day of the eleventh (11th) month following the month in which
the Commencement Date occurs and each subsequent Lease Year for such Facility
shall be each period of twelve (12) full calendar months after the last day of
the prior Lease Year; provided, however, that the last Lease Year for such
Facility during the Term may be a period of less than twelve (12) full calendar
months and shall end on the last day of the Term for such Facility.




Leased
Improvements:  With respect to each Facility, the Leased
Improvements (as defined in Article I) of such Facility.




Leased
Property:  With respect to each Facility, the Leased Property
(as defined in Article I) of such Facility.




Leasehold
FMV:  With respect to each Facility, the fair market value of
Lessee’s leasehold interest relating to such Facility if exposed on the open
market taking into account, among other relevant factors, the income generated
from the Leased Property and any Capital Additions for such Facility, determined
by appraisal in accordance with the appraisal procedures set forth in Article
XXXIV.




Legal
Requirements:  (i) All federal, state, county, municipal and
other governmental statutes, laws (including common law and Environmental Laws),
rules, policies, guidance, codes, orders, regulations, ordinances, permits,
licenses, covenants, conditions, restrictions, judgments, decrees and
injunctions, including those affecting any of the Leased Property, Lessee’s
Personal Property and all Capital Additions or the construction, use or
alteration thereof, whether now or hereafter enacted and in force, including any
which may (A) require repairs, modifications or alterations in or to any of the
Leased Property, Lessee’s Personal Property and all Capital Additions, (B) in
any way adversely affect the use and enjoyment thereof, or (C) regulate the
transport, handling, use, storage or disposal or require the cleanup or other
treatment of any Hazardous Substance, and (ii) all covenants, agreements,
restrictions and encumbrances either now or hereafter of record or known to
Lessee (other than




14


encumbrances
created by Lessor without the consent of Lessee except as otherwise expressly
permitted hereunder) affecting any of the Leased Property or any Capital
Additions.




Lessee:  As
defined in the preamble.




Lessee’s
Affidavit:  With respect to each Planned Capital Refurbishment
Project for a Facility, a sworn affidavit of Lessee, in form and substance
satisfactory to Lessor, stating that to the best of Lessee’s knowledge, all
labor and material bills of every kind and character incurred by Lessee to the
date of such affidavit in connection with such Planned Capital Refurbishment
Project for such Facility have been paid in accordance with the payment
provisions of the applicable Construction Contracts except for the unpaid bills
to be paid from the proceeds of the current Request for Advance, and that the
builder’s risk insurance described in Section 9.5.4(e) contains sufficient
coverage for the construction/performance of such Planned Capital Refurbishment
Project for such Facility, including the value of materials stored off the
Leased Property of such Facility.




Lessee’s Personal
Property:  With respect to each Facility, the Personal Property
other than Lessor’s Personal Property, allocable or relating to such
Facility.




Lessee’s Set-Up
Costs:  Collectively, (a) all fees and expenses of and
disbursements made by Lessee in connection with the negotiation, execution and
delivery of this Lease, the Exhibits hereto and the other agreements
contemplated hereby, the review of diligence materials, documents and other
information relating to the Leased Property and the consummation of the
transactions contemplated hereby and thereby, including any legal or other
professional fees and costs of Lessee; (b) any and all state, municipal or other
documentary, transfer, stamp, sales, use or similar taxes payable in connection
with the delivery of any instrument or document provided in or contemplated by
this Lease or the Exhibits hereto or the transactions contemplated herein; and
(c) all expenses of or related to the issuance of any title insurance commitment
or policy requested by Lessee (including the costs of any survey required by
Lessee or any title insurer of Lessee).




Lessee’s Shared Appreciation
Amount:  An amount equal to the sum of:




(i)           Twenty-Five
Percent (25%) of all Excess Value, if any, up to Fifty Million Dollars
($50,000,000) of the Excess Value, if any, plus




(ii)           Thirty-Five
Percent (35%) of all Excess Value, if any, above the first Fifty Million Dollars
($50,000,000) of the Excess Value, if any, up to One Hundred Million Dollars
($100,000,000) of the Excess Value, if any, plus




(iii)           Forty
Percent (40%) of all the Excess Value, if any, above the first One Hundred
Million Dollars ($100,000,000) of the Excess Value, if any.




Lessor:  As
defined in the preamble.




Lessor’s Personal
Property:  With respect to each Facility, Lessor’s Personal
Property (as defined in Article I) allocable or relating to such
Facility.




15


Lessor’s Set-Up
Costs:  All fees and expenses of and disbursements made by
Lessor in connection with the negotiation, execution and delivery of this Lease,
the Exhibits hereto and the other agreements contemplated hereby, the review of
diligence materials, documents and other information relating to Lessee and the
consummation of the transactions contemplated hereby and thereby through the
Effective Date, including any legal or other professional fees and costs of
Lessor.




Letter of Credit
Date:  As defined in Section 21.4.




Lists:  As
defined in Section 49.1.




Master
Sublease:  With respect to any Facility, any Commercial
Occupancy Arrangement with respect to more than Ten Percent (10%) of the square
footage within such Facility in the aggregate to any Person and/or its
Affiliates, directly or indirectly, or through one or more step transactions or
tiered transactions.




Minimum Purchase
Price:  The sum of the Allocated Minimum Purchase Price for all
of the Facilities then subject to this Lease and of any Facility(ies) subject to
any New Lease.  As of the Commencement Date, the Minimum Purchase
Price for all of the Facilities is Three Hundred Million and no/100 Dollars
($300,000,000).




Minimum
Rent:  The sum of Allocated Minimum Rent for all of the
Facilities.




New
Lease:  As defined in Section 31.2.1.




New Lease Effective
Date:  As defined in Section 31.2.1.




Non-Monetary SNF Bed
Default:  As defined in Section 16.12.




Occupancy
Arrangement:  Any sublease, license or other arrangement with a
Person for the right to use, occupy or possess any portion of the Leased
Property and/or any Capital Additions.




Occupant:  Any
Person under an Occupancy Arrangement.




OFAC:  As
defined in Section 49.1.




Officer’s
Certificate:  A certificate of Lessee signed by an officer
authorized to so sign by its board of directors, by-laws or equivalent governing
documents or managers.




Opening
Deposit:  As defined in Article XXXV.




Operations Transfer
Agreement(s):  As defined in Section 48.1.1(b).




Option Exercise
Notice:  As defined in Section 35.1.




Option
Period:  As defined in Section 35.1.




Order:  As
defined in Section 49.1.




16


Outside Closing
Date:  As defined in Article XXXV.




Outside Planned Capital
Refurbishment Project Completion Date:  With respect to each
Planned Capital Refurbishment Project for a Facility, as defined in Section
9.5.4.




Overdue
Rate:  On any date, a rate equal to Two Percent (2%) above the
Prime Rate, but in no event greater than the maximum rate then permitted under
applicable law.




Payment
Date:  Any due date for the payment of the installments of
Minimum Rent or any other sums payable under this Lease.




Person:  Any
individual, corporation, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other form of
entity.




Personal
Property:  With respect to each Facility, all machinery,
furniture and equipment, including phone systems and computers, trade fixtures,
inventory, supplies and other personal property used or useful in the use of the
Leased Property and any Capital Additions of such Facility for its Primary
Intended Use, other than (i) Fixtures and (ii) Lessee’s proprietary materials,
such as policy and procedure manuals, marketing materials containing the
“Emeritus,” “Summerville,” “Loyalton” and/or “Village Oaks” names or logos and
Lessee’s financial statements.




Planned Capital
Refurbishment Project(s):  With respect to each Facility, as
defined in Section 9.5.1.




Planned Capital
Refurbishment Project Allowance:  The aggregate of the
Allocated Planned Capital Refurbishment Project Allowance for all of the
Facilities; provided, however, that in no event shall the total Planned Capital
Refurbishment Project Allowance for all Facilities exceed $3,000,000.00,
notwithstanding the actual Aggregate Costs of the Planned Capital Refurbishment
Project(s) for all Facilities.




Planned Capital
Refurbishment Project Lessor Costs:  With respect to each
Planned Capital Refurbishment Project for a Facility, as defined in Section
9.5.3.




Planned Capital
Refurbishment
Project Site Review Fees:  With respect to each Planned Capital
Refurbishment Project for a Facility, as defined in Section 9.5.3.




Plans and
Specifications: With respect to each Planned Capital Refurbishment
Project for a Facility, as defined in Section 9.5.3.




Pre-Commencement Date
Period:  The period from the Effective Date to and until the
earlier of the Commencement Date or the termination of this Lease pursuant to
Article XLVIII hereof.




Pre-Existing Environmental
Condition:  Any Hazardous Substances in, on or about the Leased
Property in violation of any applicable Environmental Laws as of the
Commencement Date.




17


Primary Intended
Use:  With respect to each Facility, the “Primary Intended Use”
as set forth on Exhibit C
attached hereto.




Prime
Rate:  On any date, a rate equal to the annual rate on such
date announced by Bank of America, N.A. to be its prime, base or reference rate
for 90-day unsecured loans to its corporate borrowers of the highest credit
standing but in no event greater than the maximum rate then permitted under
applicable law.  If Bank of America N.A. discontinues its use of such
prime, base or reference rate or ceases to exist, Lessor shall designate the
prime, base or reference rate of another state or federally chartered bank based
in Los Angeles or New York to be used for the purpose of calculating the Prime
Rate hereunder.




Prohibited
Area:  As defined in Section 7.4.1.




Project Budget: With
respect to each Planned Capital Refurbishment Project for a Facility, as defined
in Section 9.5.3.




Punch List
Items:  With respect to each Planned Capital Refurbishment
Project for a Facility, minor details of construction, mechanical adjustments or
decorations which remain to be completed with respect to such Planned Capital
Refurbishment Project for such Facility following the applicable Completion Date
therefore and which do not (i) prevent the issuance of a certificate of
occupancy (or the local equivalent thereof) for such Planned Capital
Refurbishment Project for such Facility (if applicable) and/or (ii) materially
interfere with Lessee’s use of such Facility (including such Planned Capital
Refurbishment Project) for its Primary Intended Use.




Purchase Option Closing
Date:  As defined in Section 35.1.




Purchase Option
Price:  The greater of (i) the sum of the Fair Market
Value for all of the Facilities then subject to the terms of this Lease and any
Facility(ies) subject to a New Lease hereafter with or in favor of Lessor or any
Affiliate of Lessor, less Lessee’s Shared Appreciation Amount or (ii) the sum of
the Minimum Purchase Price hereunder and the aggregate Minimum Purchase Price(s)
under any New Lease(s) hereafter with or in favor of Lessor or any Affiliate of
Lessor.




Purchase Right/Obligation
Exercise:  As defined in Section 18.1.2.




Put
Event:  With respect to any Facility an Event of Default
hereunder pursuant to any of Sections 16.1(a) (arising out of any material
default under any such other lease or other agreement or instrument), 16.1(c),
16.1(e) (arising out of (i) a breach or default by Lessee during the Term of any
of its obligations or covenants pursuant to Sections 7.2.1, 7.2.2, 7.2.3, 7.2.5,
7.4, 37.1 or 37.2 or (ii) any other failure of Lessee to obtain and
maintain all material licenses, permits and other authorizations to use and
operate such Facility for its Primary Intended Use in accordance with all Legal
Requirements), 16.1(j) relating to such Facility, 16.1(k) (arising out of a
breach of any material representation or warranty of Lessee or any Guarantor in
any such document relating to such Facility), 16.1(l) relating to such Facility
and/or 16.1(o) relating to such Facility.  Notwithstanding that Lessor
and Lessee have specifically defined a “Put Event” for the limited purpose of
setting forth the circumstances under which Lessor shall be entitled
to




18


the
remedy set forth in Section 16.5, in no event shall this definition derogate the
materiality of any other Event of Default (including any Event of Default which
does not constitute a Put Event) or otherwise limit Lessor’s rights and remedies
upon the occurrence of any such Event of Default, including those rights and
remedies set forth in Sections 16.2, 16.3, 16.4, 16.8 and/or 16.10.




Rent:  Collectively,
the Minimum Rent and Additional Charges.




Replacement
Reserve:  As defined in Section 9.3.




Request for
Advance:  With respect to each Planned Capital Refurbishment
Project for a Facility, certificates of Lessee and, to the extent applicable,
the Architect, in each case on the appropriate AIA form, including form G702
together with attached AIA form G703 (or equivalent, which AIA form G703 or
equivalent shall be modified to include columns for the original estimate of
scheduled values for each line item, changes to the scheduled values for each
line item and a revised scheduled value for each line item after any such
change) and/or such other form(s) as Lessor may hereafter reasonably request
which shall:  (i) set forth the Persons to whom money is owed and
the amount owed each; (ii) certify among other things that such amounts
represent payments due for services actually rendered or materials actually
acquired or furnished in connection with the construction/performance of such
Planned Capital Refurbishment Project; (iii) state that the sum requested is a
Planned Capital Refurbishment Project Cost within the applicable Project Budget
for such item and that, in the opinion of the Architect (if any) and Lessee, the
remaining amounts which Lessor has agreed to fund on account thereof are
sufficient to pay for Fifty Percent (50%) of the cost to complete such Planned
Capital Refurbishment Project pursuant to the Plans and Specifications therefore
and to pay for Fifty Percent (50%) of all labor, material and other expenses in
connection therewith; (iv) be accompanied by copies of billing statements, fee
schedules, documentation supporting all costs to date, copies of all
subcontracts not previously submitted and vouchers or invoices from the Persons
named therein, in form reasonably satisfactory to Lessor; (v) refer to an
attached schedule, to be verified by the Architect (if any) or other reliable
Person reasonably acceptable to Lessor prior to the advance being requested,
identifying in a manner reasonably satisfactory to Lessor all materials not yet
affixed or incorporated into such Planned Capital Refurbishment Project but
which have been covered by certificates submitted to date, including the current
certificate; (vi) contain a statement, to be verified by the Architect (if any)
or other reliable Person reasonably acceptable to Lessor prior to the advance
being requested, that all such materials not yet affixed or incorporated into
such Planned Capital Refurbishment Project have been stored at the Leased
Property of such Facility or at one or more other bonded locations approved by
Lessor identified therein (specifying the materials located at each location)
under adequate safeguards to minimize the possibility of loss, damage or
commingling with other materials or projects, and that builder’s risk insurance
coverage for such materials stored off the Leased Property of such Facility is
not less than the full insurable value of such materials then being stored off
the Leased Property of such Facility; and (vii) be accompanied by appropriate
waivers of lien rights (to the extent not previously received and approved by
Lessor) with respect to work and materials for which funds have already been
advanced pursuant to Section 9.5 of this Lease executed by the General
Contractor (if any) and all contractors, subcontractors, mechanics and
materialmen no more than one month in arrears and who have furnished labor or
material to date and whose charges are or will be greater than Five Thousand
Dollars ($5,000.00)




19


and,
unless Lessee has provided a statutory payment bond in accordance with
applicable Legal Requirements, by all other contractors, subcontractors,
mechanics and materialmen.  Notwithstanding anything set forth herein
to the contrary, the Request for Advance for the first advance of funds by
Lessor hereunder for any Planned Capital Refurbishment Project for a Facility
and for each advance that is for an item on the applicable Project Budget
therefore that is not a hard cost shall mean such certificate with respect
thereto as Lessor may reasonably request.   To the extent that
any payment, funding or accrual of the Aggregate Costs of the Planned Capital
Refurbishment Project for any Planned Capital Refurbishment Project by Lessor
hereunder is attributable or allocable to one or more of the categories
comprising such Planned Capital Refurbishment Project, Lessor shall allocate
such Aggregate Costs of the Planned Capital Refurbishment Project among such
categories as Lessor shall reasonably determine.




Required Governmental
Approvals:  As defined in Section 48.1.1(a).




SEC:  Securities
and Exchange Commission.




Security
Amount:  For each Lease Year, an amount equal to 6.53% of the
aggregate annual Minimum Rent payable by Lessee under this Lease for all
Facilities for such Lease Year (reasonably estimated by Lessor if the Minimum
Rent shall increase at any point during such period) pursuant to the terms
hereof.




Separated
Property:  As defined in Section 31.2.




Separation
Event:




(i)           The
sale, conveyance or other transfer by Lessor of all or any portion of its
interest in the Leased Property of one (1) or more Facilities;




(ii)           The
sale, conveyance or other transfer of all or any portion of the stock,
partnership, membership or other equity interests in Lessor;




(iii)           Any
financing by Lessor or any Affiliate of Lessor of all or any portion of its
interests in the Leased Property of one (1) or more Facilities, including
through a Facility Mortgage, the pledge of the stock, partnership, membership or
other equity interests in Lessor or other means; or




(iv)           The
succession by any lender to Lessor or any Affiliate, whether directly or
indirectly, to the interests of Lessor under this Lease, including through
foreclosure or deed or other conveyance in lieu of foreclosure or in
satisfaction of debt.




Shareholders’
Equity:  With respect to any Person, the shareholders’,
members’ or partners,’ beneficiaries’ or other equity of such Person, determined
on a consolidated basis in accordance with GAAP.




SNF Beds: The
licensed nursing home beds located within the Facilities located in the State of
California as more fully described in Exhibit
C.




20


SNF Operator: The
Person, approved by Lessor pursuant and subject to Article XXIV hereof, to which
Lessee subleases the SNF Beds or which is engaged by Lessee to manage the SNF
Beds operations.




State:  With
respect to each Facility, the State or Commonwealth in which the Leased Property
for such Facility is located.




Subsidiaries:  Corporations,
partnerships, limited liability companies, business trusts or other legal
entities with respect to which a Person owns, directly or indirectly (including
through one or more intermediaries), more than fifty percent (50%) of the voting
stock or partnership, membership or other equity interest,
respectively.




Target
Property:  As defined in Section 35.5.1(a).




Term:  As
defined in Article I.




Transfer:  As
defined in Article XXIV.




Transfer
Consideration:  With respect to any Transfer constituting a
Master Sublease of a Facility, “Transfer Consideration” shall mean Fifty Percent
(50%) of the positive difference, if any, between the Fair Market Rental and the
Allocated Minimum Rent payable by Lessee under this Lease determined on a
monthly basis with respect to such Facility, prorating such Allocated Minimum
Rent, as appropriate, if less than all of the applicable Facility is Master
Subleased.  Fifty Percent (50%) of such positive difference shall be
paid by Lessee to Lessor monthly when the Allocated Minimum Rent is due for such
Facility; provided, however, that in no event shall the total Transfer
Consideration to which Lessor is entitled in connection with any such Master
Sublease exceed the Total Consideration (as hereinafter defined) payable
directly or indirectly to Lessee, to any Controlling Person(s) or to any other
Person in exchange for, in connection with, related to or arising out of the
transaction(s) as to which such Master Sublease is a part.  With
respect to any other Transfer relating to any Facility or all Facilities (i.e.,
a Transfer other than pursuant to a Master Sublease) “Transfer Consideration”
shall mean Fifty Percent (50%) of the positive Leasehold FMV of such
Facility(ies); provided, however, that in no event shall the total Transfer
Consideration to which Lessor is entitled in connection with any such other
Transfer exceed the Total Consideration payable directly or indirectly to
Lessee, to any Controlling Person(s) or to any other Person in exchange for, in
connection with, related to or arising out of the transaction(s) as to which
such other Transfer is a part.  As used herein, the term “Total
Consideration” shall mean and include money and the fair market value of any
services, property and other things of value, including payment of costs,
cancellation or forgiveness of indebtedness, discounts, rebates, barter and the
like.  For purposes of Section 24.1.2.2 and the payment of Transfer
Consideration to Lessor as provided in this Lease, if any Transfer Consideration
otherwise payable is due from and based on Total Consideration payable to
Lessee, any Controlling Person(s) or to any other Person in exchange for, in
connection with, related to or arising out of such Transfer as provided above,
(a) where such Total Consideration is payable on a deferred basis (the “Deferred
Total Consideration”), then the amount of the Transfer Consideration due from
and based on any such Deferred Total Consideration shall be payable to Lessor as
and when paid to Lessee, to any Controlling Person(s) or to any such other
Person or (b) where such Total Consideration is payable in a form other than
immediately




21


available
cash, then the amount of Transfer Consideration due from and based on the fair
market value of such non-cash Total Consideration shall be payable to Lessor in
the form of immediately available cash promptly following receipt by or credit
to Lessee, any Controlling Person(s) or any such other Person of such non-cash
Total Consideration.  Lessee acknowledges and agrees that the terms
under which Lessor is entitled to the payment of Transfer Consideration pursuant
to this Lease and the amount thereof has been freely negotiated and represents a
fair and equitable division with Lessor of the consideration payable in
connection with a Transfer taking into account, among other things, Lessor’s
investment in the Leased Property, the terms of this Lease and the inherent
risks of owning and leasing real property.




Unsuitable for Its Primary
Intended Use:  With respect to each Facility, a state or
condition of such Facility such that by reason of damage or destruction or
Condemnation, in the good faith judgment of Lessor, such Facility cannot be
operated on a commercially practicable basis for its Primary Intended
Use.




ARTICLE
III.




3.1  Rent




.  From
and after the Commencement Date, Lessee shall pay to Lessor in lawful money of
the United States of America which shall be legal tender for the payment of
public and private debts, without offset or deduction, the amounts set forth
hereinafter as Minimum Rent during the Term.  Payments of Minimum Rent
shall be made by wire transfer of funds initiated by Lessee to Lessor’s account
or to such other Person as Lessor from time to time may designate in writing, in
advance on or before the first day of each calendar month.




3.1.1  Minimum
Rent.




(a)  Subject
to upward adjustments as provided in subsection (b) below, for the period
from the Commencement Date through the expiration of the fifth (5th) Lease
Year, Lessee shall pay to Lessor as monthly “Allocated Minimum Rent” for each
Facility one-twelfth (1/12) of the amounts allocated to and set forth opposite
such Facility on Exhibit Cattached
hereto.  The first monthly payment of Allocated Minimum Rent for each
Facility shall be payable on the Commencement Date (prorated as to any partial
calendar month at the beginning of the Term).




(b)  Commencing
upon the expiration of the fifth (5th) Lease
Year and upon the expiration of each Lease Year thereafter during the Term, the
then current monthly Allocated Minimum Rent for each Facility for such Lease
Year shall be increased by the applicable CPI Increase; provided, however, that
in no event shall the monthly Allocated Minimum Rent for any Facility after any
such increase be less than One Hundred Three Percent (103%) of the monthly
Allocated Minimum Rent in effect for such Facility immediately prior to such
adjustment, notwithstanding the actual percentage change in the CPI
Increase.




(c)  If any
adjustment for any Facility provided for in subsection (b) shall not have been
made at the commencement of the Lease Year for which applicable, Lessee shall
continue to pay monthly Allocated Minimum Rent for such Facility at
the




22


last rate
applicable until Lessee receives Lessor’s written notice as to such
adjustment.  Within ten (10) days after Lessee’s receipt of Lessor’s
notice, Lessee shall pay to Lessor an amount equal to the new monthly Allocated
Minimum Rent for such Facility times the number of
months from the commencement of the then current Lease Year to the date of
receipt of Lessor’s notice, less the aggregate
amount paid by Lessee on account of monthly Allocated Minimum Rent for such
Facility for the same period.  Thereafter, Lessee shall pay monthly
Allocated Minimum Rent for such Facility for the applicable Lease Year at the
new rate set forth in Lessor’s notice.




3.2  Additional
Charges




.  In
addition to the Minimum Rent, (i) Lessee shall also pay and discharge as and
when due and payable all other amounts, liabilities, obligations and Impositions
which Lessee assumes or agrees to pay under this Lease; and (ii) in the event of
any failure on the part of Lessee to pay any of those items referred to in
clause (i) above, Lessee shall also promptly pay and discharge every fine,
penalty, interest and cost which may be added for nonpayment or late payment of
such items (the items referred to in clauses (i) and (ii) above being referred
to herein collectively as the “Additional Charges”), except where such failure
is due to the acts or omissions of Lessor, in which case Lessee shall not be
responsible for any such fine, penalty, interest or cost.




3.3  Late Payment of
Rent.




(a)  LESSEE
HEREBY ACKNOWLEDGES THAT LATE PAYMENT BY LESSEE TO LESSOR OF RENT WILL CAUSE
LESSOR TO INCUR COSTS NOT CONTEMPLATED HEREUNDER, THE EXACT AMOUNT OF WHICH IS
PRESENTLY ANTICIPATED TO BE EXTREMELY DIFFICULT TO ASCERTAIN.  SUCH
COSTS MAY INCLUDE PROCESSING AND ACCOUNTING CHARGES AND LATE CHARGES WHICH MAY
BE IMPOSED ON LESSOR BY THE TERMS OF ANY LOAN AGREEMENT AND OTHER EXPENSES OF A
SIMILAR OR DISSIMILAR NATURE.  ACCORDINGLY, IF ANY INSTALLMENT OF RENT
OTHER THAN ADDITIONAL CHARGES PAYABLE TO A PERSON OTHER THAN LESSOR SHALL NOT BE
PAID WITHIN THREE (3) BUSINESS DAYS AFTER ITS DUE DATE, LESSEE WILL PAY LESSOR
ON DEMAND A LATE CHARGE EQUAL TO THE LESSER OF (I) FIVE PERCENT (5%) OF THE
AMOUNT OF SUCH INSTALLMENT OR (II) THE MAXIMUM AMOUNT PERMITTED BY
LAW.  THE PARTIES AGREE THAT THIS LATE CHARGE REPRESENTS A FAIR AND
REASONABLE ESTIMATE OF THE COSTS THAT LESSOR WILL INCUR BY REASON OF LATE
PAYMENT BY LESSEE.  THE PARTIES FURTHER AGREE THAT SUCH LATE CHARGE IS
RENT AND NOT INTEREST AND SUCH ASSESSMENT DOES NOT CONSTITUTE A LENDER OR
BORROWER/CREDITOR RELATIONSHIP BETWEEN LESSOR AND LESSEE.  IN
ADDITION, THE AMOUNT UNPAID, INCLUDING ANY LATE CHARGES, SHALL BEAR
INTEREST AT THE OVERDUE RATE COMPOUNDED MONTHLY FROM THE DUE DATE OF SUCH
INSTALLMENT TO THE DATE OF PAYMENT THEREOF, AND LESSEE SHALL PAY SUCH INTEREST
TO LESSOR ON DEMAND.  THE PAYMENT OF SUCH LATE CHARGE OR SUCH INTEREST
SHALL NOT CONSTITUTE WAIVER OF, NOR EXCUSE OR CURE, ANY




23


DEFAULT
UNDER THIS LEASE, NOR PREVENT LESSOR FROM EXERCISING ANY OTHER RIGHTS AND
REMEDIES AVAILABLE TO LESSOR.




Lessor’s
Initials:                                           /s/
BJM                      /s/
BJM                      _/s/
BJM                      _/s/
BJM _









/s/ BJM
_                      /s/
BJM                      _/s/
BJM




Lessee’s
Initials:                                           _/s/
EM_




(b)  If Lessee
shall, during any six (6) month period, be more than five (5) Business Days
delinquent in the payment of any Rent due and payable by Lessee hereunder on
three (3) or more occasions then, notwithstanding anything herein to the
contrary, Lessor may, by written notice to Lessee, elect to require Lessee to
pay all Minimum Rent payable hereunder quarterly in advance.  Such
right of Lessor shall be in addition to and not in lieu of any other
right of remedy available to Lessor hereunder or at law on account of an
Event of Default by Lessee hereunder.




(i)  For
purposes of this Section 3.3(b), the following terms and conditions shall
apply:




(A)
            If
      at any given time Lessee shall be more than five (5) Business Days
      delinquent in the payment of any Rent due and payable hereunder with
      respect to more than one (1) Facility, such delinquency shall only
      constitute a single occasion of delinquency, despite the fact that such
      delinquency has occurred with respect to the payment of Rent for more than
      one (1) Facility.





(B)
            If
      the date upon which any Rent is due and payable hereunder is not a
      Business Day, such date shall be deemed to be the next Business Day
      following such date.




3.4  Net
Lease




.  This
Lease is and is intended to be what is commonly referred to as a “net, net, net”
or “triple net” lease.  The Rent shall be paid absolutely net to
Lessor, so that this Lease shall yield to Lessor the full amount of the
installments of Minimum Rent and Additional Charges throughout the
Term.




ARTICLE
IV.




4.1  Impositions.




4.1.1  Subject
to Article XII relating to permitted contests, Lessee shall pay, or cause to be
paid, all Impositions before any fine, penalty, interest or cost may be added
for non-payment.  Lessee shall make such payments directly to the
taxing authorities where feasible, and promptly furnish to Lessor copies of
official receipts or other satisfactory proof evidencing such
payments.  Lessee’s obligation to pay Impositions shall be absolutely
fixed upon the date such Impositions become a lien upon the Leased Property, any
Capital Additions or any part(s) thereof.  If any Imposition may, at
the option of the taxpayer, lawfully be paid in installments, whether or not
interest shall accrue on the unpaid balance of such Imposition, Lessee may
pay the same, and any accrued interest on the unpaid balance of




24


such
Imposition, in installments as the same respectively become due and before any
fine, penalty, premium, further interest or cost may be added
thereto.




4.1.2  Lessor
shall prepare and file all tax returns and reports as may be required by Legal
Requirements with respect to Lessor’s net income, gross receipts, franchise
taxes and taxes on its capital stock, and Lessee shall prepare and file all
other tax returns and reports as may be required by Legal
Requirements.




4.1.3  Any
refund due from any taxing authority in respect of any Imposition paid by Lessee
shall be paid over to or retained by Lessee if no Event of Default shall have
occurred hereunder and be continuing.  Any other refund shall be paid
over to or retained by Lessor.




4.1.4  Lessor
and Lessee shall, upon request of the other, provide such data as is maintained
by the party to whom the request is made with respect to the Leased Property and
all Capital Additions as may be necessary to prepare any required returns and
reports.  If any property covered by this Lease is classified as
personal property for tax purposes, Lessee shall file all personal property tax
returns in such jurisdictions where it must legally so file.  Lessor,
to the extent it possesses the same, and Lessee, to the extent it possesses the
same, shall provide the other party, upon request, with cost and depreciation
records necessary for filing returns for any property so classified as personal
property.  Where Lessor is legally required to file personal property
tax returns and to the extent practicable, Lessee shall be provided with copies
of assessment notices indicating a value in excess of the reported value in
sufficient time for Lessee to file a protest.




4.1.5  Lessee
may, upon notice to Lessor, at Lessee’s option and at Lessee’s sole cost and
expense, protest, appeal, or institute such other proceedings as Lessee may deem
appropriate to effect a reduction of real estate or personal property
assessments and Lessor, at Lessee’s expense as aforesaid, shall reasonably
cooperate with Lessee in such protest, appeal, or other action but at no cost or
expense to Lessor.  Billings for reimbursement by Lessee to Lessor of
personal property or real property taxes shall be accompanied by copies of a
bill therefor and payments thereof which identify the personal property or real
property with respect to which such payments are made.




4.1.6  Lessor
shall give prompt notice to Lessee of all Impositions payable by Lessee
hereunder of which Lessor has knowledge, but Lessor’s failure to give any such
notice shall in no way diminish Lessee’s obligations hereunder to pay such
Impositions.




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




4.2  Utilities




.  During
the Term, Lessee shall pay or cause to be paid all charges for electricity,
power, gas, oil, water and other utilities used in the Leased




25


Property
and all Capital Additions.  Lessee shall also pay or reimburse Lessor
for all costs and expenses of any kind whatsoever which at any time with respect
to the Term hereof with respect to any Facility may be imposed against Lessor by
reason of any of the covenants, conditions and/or restrictions affecting the
Leased Property of any such Facility, any Capital Additions of any such Facility
and/or any part(s) thereof, or with respect to easements, licenses or other
rights over, across or with respect to any adjacent or other property which
benefits the Leased Property and/or any Capital Additions of any such Facility,
including any and all costs and expenses associated with any utility, drainage
and parking easements.




4.3  Insurance




.  During
the Term, Lessee shall pay or cause to be paid all premiums for the insurance
coverage required to be maintained by Lessee hereunder.




4.4  Impound
Account




.  Lessor
may, at its option to be exercised by thirty (30) days’ written notice to
Lessee, require Lessee to deposit, at the time of any payment of Minimum Rent,
an amount equal to one-twelfth (1/12th) of
Lessee’s estimated annual taxes, of every kind and nature, required pursuant to
Section 4.1 plus, if Lessee fails to pay any insurance premium in a timely
manner as required by this Lease, one-twelfth (1/12th)of
Lessee’s estimated annual insurance premiums required pursuant to Section 4.3
into an impound account as directed by Lessor.  Such amounts shall be
applied to the payment of the obligations in respect of which said amounts were
deposited in such order of priority as Lessor shall determine, on or before the
respective dates on which the same or any of them would become
delinquent.  The cost of administering such impound account shall be
paid by Lessee.  Nothing in this Section 4.4 shall be deemed to affect
any right or remedy of Lessor hereunder.




4.5  Tax
Service




.  If
requested by Lessor, Lessee shall, at its sole cost and expense, cause to be
furnished to Lessor a tax reporting service, to be designated by Lessor,
covering the Leased Property and all Capital Additions.




ARTICLE
V.




5.1  No Termination, Abatement,
etc




.  Except
as otherwise specifically provided in this Lease, Lessee shall remain bound by
this Lease in accordance with its terms and shall not seek or be entitled to any
abatement, deduction, deferment or reduction of Rent, or set-off against the
Rent.  Except as otherwise specifically provided in this Lease, the
respective obligations of Lessor and Lessee shall not be affected by reason of
(i) any damage to or destruction of the Leased Property, any Capital Additions
and/or any part(s) thereof from whatever cause and/or any Condemnation of the
Leased Property, any Capital Additions and/or any part(s) thereof; (ii) the
lawful or unlawful prohibition of, or restriction upon, Lessee’s use of the
Leased Property, any Capital Additions and/or any part(s) thereof, or the
interference with such use by any Person other than by reason of (A) any such
Person claiming by or through Lessor, or (B) a condition existing on or prior to
the Commencement Date; (iii) any claim that Lessee has or might have against
Lessor by reason of any default or breach of any warranty by Lessor hereunder or
under any other agreement between Lessor and Lessee or to which Lessor and
Lessee are parties; (iv) any bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding up or other
proceedings affecting Lessor or any assignee or transferee of Lessor; or (v) for
any other cause, whether similar or dissimilar to any




26


of the
foregoing, other than a discharge of Lessee from any such obligations as a
matter of law.  Lessee hereby specifically waives all rights arising
from any occurrence whatsoever which may now or hereafter be conferred upon it
by law (a) to modify, surrender or terminate this Lease or quit or surrender the
Leased Property, any Capital Additions and/or any part(s) thereof; or (b) which
may entitle Lessee to any abatement, reduction, suspension or deferment of the
Rent or other sums payable by Lessee hereunder, except as otherwise specifically
provided in this Lease.  The obligations of Lessor and Lessee
hereunder shall be separate and independent covenants and agreements and the
Rent and all other sums payable by Lessee hereunder shall continue to be payable
in all events unless the obligations to pay the same shall be terminated
pursuant to the express provisions of this Lease or by termination of this Lease
other than by reason of an Event of Default.




5.2  Termination with Respect to
Fewer than All of the Facilities




.  Wherever
in this Lease the action of terminating the Lease with respect to a Facility (or
action of similar import) is discussed, such action shall mean the termination
of Lessee’s rights in and to the Leased Property relating to such
Facility.  Notwithstanding anything in this Lease to the contrary, if
this Lease shall be terminated by Lessor or Lessee pursuant to rights granted
hereunder with respect to any Facility, such termination shall not affect the
applicable Term of this Lease with respect to the balance of the Facilities not
so terminated, and this Lease shall continue in full force and effect with
respect to each other such Facility, except that the total Minimum Rent payable
hereunder shall be reduced by the amount of Allocated Minimum Rent with respect
to such Facility as to which this Lease has so terminated.  Nothing
contained in this Section 5.2 shall serve in any way to limit Lessor’s ability
(a) pursuant to Section 16.2 below, to terminate this Lease with respect to any
or all of the Facilities if an Event of Default shall have occurred under this
Lease, regardless of whether such Event of Default emanated primarily from a
single Facility, or (b) in the event of a termination because of an Event of
Default, to recover damages or otherwise exercise its remedies with respect to
such Facility(ies) as provided in Article XVI.




5.3  Abatement
Procedures




.  In
the event of a partial taking by Condemnation of any Facility as described in
Section 15.1.2, which taking by Condemnation does not render the Leased Property
of such Facility Unsuitable for its Primary Intended Use, this Lease shall not
terminate with respect to the Leased Property of such Facility, but the monthly
Allocated Minimum Rent for such Facility shall be abated in the manner and to
the extent that is fair, just and equitable to both Lessee and Lessor, primarily
taking into consideration, along with other relevant factors, the number of
usable beds affected by such partial taking by Condemnation.  If
Lessor and Lessee are unable to agree upon the amount of such abatement within
sixty (60) days after such partial taking by Condemnation, either party may
submit the matter to arbitration as provided in Article XLIV below.




ARTICLE
VI.




6.1  Ownership of the Leased
Property




.  Lessee
acknowledges that the Leased Property is the property of Lessor and that Lessee
has only the right to the exclusive possession and use of the Leased Property
upon the terms and conditions of this Lease.  Upon the expiration or
earlier termination of this Lease with respect to any Facility




27


Lessee
shall, at its expense, repair and restore the Leased Property relating to such
Facility to the condition required by Section 9.1.4.




6.2  Personal
Property




.  During
the Term, Lessee shall, as necessary and at its expense, install, affix or
assemble or place on any parcels of the Land or in any of the Leased
Improvements, any items of Lessee’s Personal Property and replacements thereof
which shall be the property of and owned by Lessee.  Except as
provided in Sections 6.3 and 16.10, Lessor shall have no rights to Lessee’s
Personal Property.  With respect to each Facility, Lessee shall
provide and maintain during the entire Term applicable to such Facility all
Personal Property necessary in order to operate such Facility in compliance with
all licensure and certification requirements, all Legal Requirements and all
Insurance Requirements and otherwise in accordance with customary practice in
the industry for its Primary Intended Use.




6.3  Transfer of Personal
Property and Capital Additions to Lessor




.  Upon
the expiration or earlier termination of this Lease with respect to a Facility,
all Capital Additions not owned by Lessor and Lessee’s Personal Property
relating to such Facility shall become the property of Lessor, free of any
encumbrance and Lessee shall execute all documents and take any actions
reasonably necessary to evidence such ownership and discharge any
encumbrance.




ARTICLE
VII.




7.1  Condition of the Leased
Property




.  On
and as of the Commencement Date, Lessee acknowledges receipt and delivery of
possession of the Leased Property and Lessee hereby confirms that, pursuant to
Article XLVIII hereof, Lessee has had the opportunity to examine and inspect the
Leased Property and otherwise has knowledge of the condition of the Leased
Property prior to the Commencement Date and has found the same to be in good
order and repair, free from Hazardous Substances not in compliance with Legal
Requirements, and satisfactory for its purposes
hereunder.  Regardless, however, of any examination or inspection made
by Lessee and whether or not any patent or latent defect or condition was
revealed or discovered thereby, Lessee is leasing the Leased Property “AS IS” in
its present condition.  Lessee waives any claim or action against
Lessor in respect of the condition of the Leased Property of each Facility
including any defects or adverse conditions not discovered or otherwise known by
Lessee either as of the Effective Date or as of the Commencement
Date.  LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED,
IN RESPECT OF THE LEASED PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS
FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, OR
AS TO THE NATURE OR QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, OR THE
EXISTENCE OF ANY HAZARDOUS SUBSTANCE, IT BEING AGREED THAT ALL SUCH RISKS,
LATENT OR PATENT, ARE TO BE BORNE SOLELY BY LESSEE INCLUDING ALL RESPONSIBILITY
AND LIABILITY FOR ANY ENVIRONMENTAL REMEDIATION AND COMPLIANCE WITH ALL
ENVIRONMENTAL LAWS.  Notwithstanding the foregoing, Lessor hereby
acknowledges its obligation to fund a portion of the Planned Capital
Refurbishment Project(s) in accordance with the provisions of Section 9.5
below.




7.2  Use of the Leased
Property




28


7.2.1  Lessee
covenants that it will obtain and maintain all authorization and approvals
needed to use and operate the Leased Property, all Capital Additions and each
Facility for such Facility’s respective Primary Intended Use and any other use
conducted on the Leased Property and any Capital Additions as may be permitted
from time to time hereunder in accordance with Legal Requirements including
applicable licenses, provider agreements, permits, and Medicare and/or Medicaid
certification.




7.2.2  Lessee
shall use or cause to be used the Leased Property, all Capital Additions and the
improvements thereon of each Facility for its Primary Intended
Use.  Lessee shall not use the Leased Property, any Capital Additions
or any part(s) thereof for any other use without the prior written consent of
Lessor, which consent Lessor may withhold in its sole discretion.




7.2.3  Lessee
shall operate continuously the entire Leased Property and all Capital Additions
of each Facility in accordance with its Primary Intended Use; provided, however,
that Lessee shall be relieved of such obligation to continuously operate the
Leased Property and all Capital Additions of each Facility to the extent
reasonably necessary (a) to complete any repair or restoration of the Leased
Property and Capital Additions of any Facility pursuant to the terms of Sections
14.2, 14.3 and 15.1.3, as applicable, (b) to complete any Capital Additions to
the Leased Property or any Facility that are consented to by Lessor in
accordance with the terms of Section 10.1 below, and (c) as a result of any
cause described in Section 45.1.16 below.  Lessee shall devote the
entirety of each Facility and all Capital Additions thereto to the Primary
Intended Use, except for areas reasonably required for office or storage space
uses incidental to the Primary Intended Use.  Lessee shall not modify
the services offered or take any other action (e.g., removing patients or
residents from any Facility or directing patients or residents, or prospective
patients or residents, to another Facility) which would materially reduce Gross
Revenues or the Fair Market Value of any such Facility.  Lessee shall
at all times maintain an adequate staff for the service of its residents and/or
patients, in each case assuming an occupancy and/or use level for each Facility
which is not less than the average occupancy and/or use level for similar
facilities in the State.  Lessee shall employ its best judgment,
efforts and abilities to operate the entirety of each Facility in such a manner
so as to maximize Gross Revenues and to enhance the reputation and
attractiveness of each Facility.




7.2.4  Lessee
shall conduct its business at each Facility in conformity with the highest
standards of patient or resident care practice provided in similar facilities in
the State.




7.2.5  Lessee
shall not commit or suffer to be committed any waste on the Leased Property
and/or on or to any Capital Additions or cause or permit any nuisance to exist
thereon or with respect thereto.




7.2.6  Lessee
shall neither suffer nor permit the Leased Property, any Capital Additions, or
any part(s) thereof, or Lessee’s Personal Property, to be used in such a manner
as (i) might reasonably tend to impair Lessor’s title thereto or to any portion
thereof or (ii) may make possible a claim of adverse use or possession, or an
implied dedication of the Leased Property, any Capital Additions or any part(s)
thereof.




29


7.3  Lessor to Grant
Easements,
etc




.  Lessor
shall, from time to time so long as no Event of Default has occurred and is
continuing, at the request of Lessee and at Lessee’s cost and expense, but
subject to the approval of Lessor, which approval shall not be unreasonably
withheld or delayed (i) grant easements and other rights in the nature of
easements; (ii) release existing easements or other rights in the nature of
easements which are for the benefit of the Leased Property; (iii) dedicate or
transfer unimproved portions of the Leased Property for road, highway or other
public purposes; (iv) execute petitions to have the Leased Property annexed to
any municipal corporation or utility district; (v) execute amendments to any
covenants, conditions and restrictions affecting the Leased Property; and (vi)
execute and deliver to any Person any instrument appropriate to confirm or
effect such grants, releases, dedications and transfers to the extent of its
interest in the Leased Property, but only upon delivery to Lessor of an
Officer’s Certificate stating that such grant release, dedication, transfer,
petition or amendment is not detrimental to the proper conduct of the business
of Lessee on the Leased Property and does not materially reduce the value of the
Leased Property.




7.4  Preservation of Facility
Value




.  Lessee
acknowledges that a fair return to Lessor on its investment in the Leased
Property of each Facility and all Capital Additions thereto is dependent, in
part, on the concentration on the Leased Property of each Facility during the
Term of the assisted living and skilled nursing business of Lessee and its
Affiliates in operating such Facility for its Primary Intended Use in the
geographical area of the Leased Property of such Facility.  Lessee
further acknowledges that diversion of residents and/or patients, as applicable,
from any Facility to other facilities or institutions owned, operated or
managed, whether directly or indirectly, by Lessee or its Affiliates will have a
material adverse impact on the value and utility of the Leased Property and all
Capital Additions.  Accordingly, Lessor and Lessee agree as
follows:




7.4.1  During
the Term with respect to each Facility and for a period of two (2) years
thereafter, neither Lessee nor any of its Affiliates, directly or indirectly,
shall operate, own, manage or have any interest in or otherwise participate in
or receive revenues from any other facility or institution providing services or
similar goods to those provided in connection with any Facility and the Primary
Intended Use within a ten (10) mile radius outward from the outside boundary of
the Leased Property of such Facility (the “Prohibited Area”).  All
distances shall be measured on a straight line rather than on a driving distance
basis.  In the event that any portion of such other facility or
institution is located within such Prohibited Area the entire facility or
institution shall be deemed located within such Prohibited Area. Notwithstanding the
foregoing, the provisions of this Section 7.4.1 shall not apply to
(collectively, the “Excluded Facilities”): (a) those facilities set forth on
Schedule 7.4.1
attached hereto and (b) any other facilities which after the Commencement Date
become part of the assets of Lessee or any of its Affiliates or which either
Lessee or any of its Affiliates otherwise operates, owns, leases or manages, as
a result of the acquisition (whether direct or indirect) of a portfolio of
senior housing facilities consisting of three (3) or more facilities in a single
transaction or series of related transactions; provided, however, that if more
than fifty percent (50%) of the facilities acquired in such portfolio
transaction are located within the Prohibited Area or, if as of the date of the
closing of such portfolio transaction, the applicable Facility affected by such
portfolio transaction has an occupancy rate of less than the lesser of (i)
ninety percent (90%) or (ii) the occupancy rate of such Facility as of the
Commencement Date, then the foregoing exception described in clause
(b)




30


above
shall not apply, and such competing facilities shall not be deemed “Excluded
Facilities” for purposes of this Section 7.4.1.




7.4.2  Except as
is necessary (a) to provide residents or patients with an alternative level of
care not available at a Facility, (b) as a result of the failure of the
applicable resident or patient to pay Lessee for its stay at the Facility, or
(c) to ensure the health and welfare of other residents of a Facility, prior to
and after the expiration or earlier termination of this Lease, Lessee shall not
recommend or solicit the removal or transfer of any resident or patient from any
Facility to any other facility or institution owned, operated or managed,
whether directly or indirectly, by Lessee or its Affiliates.




7.4.3  To the
extent the SNF Bed are subleased to or managed by a SNF Operator pursuant and
subject to the terms of Article XXIV hereof, Lessee shall cause provisions
similar to those contained in this Section 7.4 as they relate to the operation
of the SNF Beds to be included in any sublease or management agreement with the
SNF Operator.




ARTICLE
VIII.




8.1  Compliance with Legal and
Insurance Requirements, Instruments, etc.




Subject
to Article XII regarding permitted contests, Lessee, at its expense, shall
promptly (i) comply with all Legal Requirements and Insurance Requirements
regarding the use, operation, maintenance, repair and restoration of the Leased
Property, Lessee’s Personal Property and all Capital Additions whether or not
compliance therewith may require structural changes in any of the Leased
Improvements or any Capital Additions thereto or interfere with the use and
enjoyment of the Leased Property and (ii) procure, maintain and comply with all
licenses, certificates of need, provider agreements and other authorizations
required for the use of the Leased Property, Lessee’s Personal Property and all
Capital Additions for the applicable Primary Intended Use and any other use of
the Leased Property, Lessee’s Personal Property and all Capital Additions then
being made, and for the proper erection, installation, operation and maintenance
of the Leased Property, Lessee’s Personal Property and all Capital
Additions.  Lessor may, but shall not be obligated to, enter upon the
Leased Property and all Capital Additions thereto and take such actions and
incur such costs and expenses to effect such compliance as it deems advisable to
protect its interest in the Leased Property and all Capital Additions thereto,
and Lessee shall reimburse Lessor for all costs and expenses incurred by Lessor
in connection with such actions.  Lessee covenants and agrees that the
Leased Property, Lessee’s Personal Property and all Capital Additions shall not
be used for any unlawful purpose.




ARTICLE
IX.




9.1  Maintenance and
Repair




9.1.1  Lessee,
at its expense, shall maintain the Leased Property, and every portion thereof,
Lessee’s Personal Property and all Capital Additions, and all private roadways,
sidewalks and curbs appurtenant to the Leased Property, and which are under
Lessee’s control in good order and repair whether or not the need for such
repairs occurs as a result of Lessee’s use, any prior use, the elements or the
age of the Leased Property, Lessee’s




31


Personal
Property and all Capital Additions, and, with reasonable promptness, make all
necessary and appropriate repairs thereto of every kind and nature, including
those necessary to comply with changes in any Legal Requirements, whether
interior or exterior, structural or nonstructural, ordinary or extraordinary,
foreseen or unforeseen or arising by reason of a condition existing prior to the
Commencement Date.  All repairs shall be at least equivalent in quality to
the original work.  Lessee will not take or omit to take any action
the taking or omission of which might materially impair the value or the
usefulness of the Leased Property of any Facility or any part thereof or any
Capital Addition thereto for its Primary Intended Use.




9.1.2  Lessor
shall not under any circumstances be required to (i) build or rebuild any
improvements on the Leased Property or any Capital Additions; (ii) make any
repairs, replacements, alterations, restorations or renewals of any nature to
the Leased Property, whether ordinary or extraordinary, structural or
nonstructural, foreseen or unforeseen, or to make any expenditure whatsoever
with respect thereto; or (iii) maintain the Leased Property or any Capital
Additions in any way.  Lessee hereby waives, to the extent permitted
by law, the right to make repairs at the expense of Lessor pursuant to any law
in effect at the time of the execution of this Lease or hereafter
enacted.




9.1.3  Nothing
contained in this Lease and no action or inaction by Lessor shall be construed
as (i) constituting the consent or request of Lessor, expressed or implied, to
any contractor, subcontractor, laborer, materialman or vendor to or for the
performance of any labor or services or the furnishing of any materials or other
property for the construction, alteration, addition, repair or demolition of or
to the Leased Property or any part thereof or any Capital Addition thereto; or
(ii) giving Lessee any right, power or permission to contract for or permit the
performance of any labor or services or the furnishing of any materials or other
property in such fashion as would permit the making of any claim against Lessor
in respect thereof or to make any agreement that may create, or in any way be
the basis for, any right, title, interest, lien, claim or other encumbrance upon
the estate of Lessor in the Leased Property, or any portion thereof or any
Capital Addition thereto.




9.1.4  Unless
Lessor shall convey any of the Leased Property to Lessee pursuant to the
provisions of this Lease, Lessee shall, upon the expiration or earlier
termination of the Term with respect to a Facility, vacate and surrender the
Leased Property, Lessee’s Personal Property and all Capital Additions, in each
case with respect to such Facility, to Lessor in the condition in which
such Leased Property was originally received from Lessor and such Lessee’s
Personal Property and Capital Additions were originally introduced to such
Facility, except as repaired, rebuilt, restored, altered or added to as
permitted or required by the provisions of this Lease and except for ordinary
wear and tear.




9.2  Encroachments, Restrictions,
Mineral Leases, etc




.  If
any of the Leased Improvements or Capital Additions shall, at any time, encroach
upon any property, street or right-of-way, or shall violate any restrictive
covenant or other agreement affecting the Leased Property, or any part thereof
or any Capital Addition thereto, or shall impair the rights of others under any
easement or right-of-way to which the Leased Property is subject, or the use of
the Leased Property or any Capital Addition thereto is impaired, limited
or




32


interfered
with by reason of the exercise of the right of surface entry or any other
provision of a lease or reservation of any oil, gas, water or other minerals,
then promptly upon the request of Lessor or any Person affected by any such
encroachment, violation or impairment, Lessee, at its sole cost and expense, but
subject to its right to contest the existence of any such encroachment,
violation or impairment, shall protect, indemnify, save harmless and defend
Lessor from and against all losses, liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including reasonable
attorneys’, consultants’ and experts’ fees and expenses) based on or arising by
reason of any such encroachment, violation or impairment.  In the
event of an adverse final determination with respect to any such encroachment,
violation or impairment, Lessee shall either (i) obtain valid and effective
waivers or settlements of all claims, liabilities and damages resulting from
each such encroachment, violation or impairment, whether the same shall affect
Lessor or Lessee; or (ii) make such changes in the Leased Improvements and any
Capital Addition thereto, and take such other actions, as Lessee in the good
faith exercise of its judgment deems reasonably practicable, to remove such
encroachment or to end such violation or impairment, including, if necessary,
the alteration of any of the Leased Improvements or any Capital Addition
thereto, and in any event take all such actions as may be necessary in order to
be able to continue the operation of the Leased Improvements and any Capital
Addition thereto for the Primary Intended Use substantially in the manner and to
the extent the Leased Improvements and Capital Additions were operated prior to
the assertion of such encroachment, violation or impairment.  Lessee’s
obligations under this Section 9.2 shall be in addition to and shall in no way
discharge or diminish any obligation of any insurer under any policy of title or
other insurance and, to the extent the recovery thereof is not necessary to
compensate Lessor for any damages incurred by any such encroachment, violation
or impairment, Lessee shall be entitled to a credit for any sums recovered by
Lessor under any such policy of title or other insurance.




9.3  On-Going Capital
Projects




.




9.3.1  Without
in any way limiting Lessee’s obligations under this Article IX (including
Section 9.5 hereof), Lessee shall expend during each Lease Year for each
Facility, no less than the Annual Minimum Capital Project Amount for such
Facility for Capital Projects to such Facility.  Such Capital Projects
shall be performed and completed in compliance with the applicable provisions of
this Lease.  Promptly following the expiration of each Lease Year for
each Facility, Lessee shall furnish to Lessor reasonable documentary evidence as
to the completion of all Capital Projects for such Lease Year required pursuant
to this Section 9.3, together with the costs thereof.  If Lessee fails
to expend during each Lease Year the applicable Annual Minimum Capital Project
Amount for Capital Projects for any Facility, then Lessee shall promptly deposit
with Lessor as a repair and replacement reserve with respect to such
Facility (a “Replacement Reserve”) for Capital Projects to such Facility, an
amount equal to (a) the Annual Minimum Capital Project Amount for such Facility
less (b) the sum of (i) the amounts expended by Lessee during such Lease
Year on account of Capital Projects to such Facility and (ii) the Annual Minimum
Capital Project Amount Overage for such Facility, and, so long as Lessee
otherwise maintains such Facility in the condition required by this Lease, once
such deposit has been made Lessee shall not be deemed to be in default of its
obligations under this Section 9.3 for Lessee’s failure to expend during such
Lease Year the applicable Annual Minimum Capital Project Amount for Capital
Projects for such Facility.  So long as no Event of Default or an
event or circumstance has




33


occurred
which with notice or passage of time, or both, would constitute an Event of
Default hereunder has occurred, if (i) a Replacement Reserve has been
established for any Facility and (ii) Lessee expends in any Lease Year an
amount in excess of the applicable Annual Minimum Capital Project Amount for
Capital Projects for such Facility, Lessor shall, to the extent funds are
available for such purpose in such Replacement Reserve, disburse to Lessee
the Capital Project Costs incurred and paid by Lessee during such Lease Year in
performing such Capital Projects to such Facility in excess of the applicable
Annual Minimum Capital Project Amount for such Facility for such Lease
Year.  Any such disbursement from any Replacement Reserve shall be
paid by Lessor to Lessee within fifteen (15) days following: (a) receipt by
Lessor of a written request from Lessee for disbursement from the Replacement
Reserve for such Facility and a certification by Lessee in form and substance
reasonably satisfactory to Lessor that the applicable item of Capital Project
for such Facility has been completed; (b) delivery to Lessor of paid invoices,
receipts or other evidence reasonably satisfactory to Lessor, verifying (1) the
Capital Project Costs for such Capital Project and (2) that Lessee has expended
in the applicable Lease Year an amount in excess of the applicable Annual
Minimum Capital Project Amount for Capital Projects for such Facility; and (c)
delivery to Lessor of affidavits, lien waivers or other evidence satisfactory to
Lessor showing that all materialmen, laborers, subcontractors and any other
parties who might or could claim statutory or common law liens and are
furnishing or have furnished material or labor to the Leased Property of such
Facility have been paid all amounts due for labor and materials furnished to the
Leased Property of such Facility.  Lessor shall not be required to
make advances from any Replacement Reserve more frequently than once in any
thirty (30) day period.  Amounts held in the Replacement Reserve for
any Facility may not be used to pay for or reimburse Lessee for Capital Project
Costs for any other Facility.




9.3.2  No
Replacement Reserve shall be or be deemed to be escrow or trust funds, but, at
Lessor’s option and in Lessor’s discretion, may either be held in a separate
account or be commingled by Lessor with the general funds of
Lessor.  Lessee shall not be entitled to any interest on any funds
contained in any Replacement Reserve.  The Replacement Reserves are
solely for the protection of Lessor and the Leased Property of the Facilities
and entail no responsibility on Lessor’s part beyond the payment of the
respective items for which they are held following receipt of bills, invoices or
statements therefor in accordance with the terms of this Section 9.3 and beyond
the allowing of due credit for the sums actually received.  Upon
assignment of this Lease by Lessor, any funds in any Replacement Reserve shall
be turned over to the assignee and any responsibility of Lessor, as
assignor, with respect thereto shall terminate.




9.3.3  If any
funds remain in any Replacement Reserve upon the expiration or earlier
termination of this Lease (other than as a result of the purchase of the Leased
Property of the applicable Facility by Lessee, in which case all of such funds
in the applicable Replacement Reserve shall be remitted by Lessor to Lessee upon
the closing of such purchase or offset against the purchase price payable by
Lessee for the Leased Propery of such Facility) and Lessor determines in its
reasonable discretion that Lessee has failed to maintain any Facility in
accordance with the requirements of this Lease, then the funds held in such
Replacement Reserve shall be paid over to Lessor as an Additional Charge and
Rent under this Lease for purposes of making necessary repairs to the Facilities
and shall be in addition to Minimum Rent and all other Additional Charges
payable hereunder.




34


9.4  Inspections; Due Diligence
Fee




.  Without
limiting Lessor’s rights pursuant to Section 26.1 hereof, from time to time
during the Term, Lessor and its agents shall have the right to inspect the
Leased Property and any portion thereof and all systems contained therein at any
reasonable time to determine Lessee’s compliance with its obligations under this
Lease.  Lessor shall provide Lessee with at least two (2) Business
Days’ prior written notice prior to any inspections of the Leased Property
pursuant to the terms of this Section 9.4, except in the event of an emergency,
in which case no prior notice shall be required.  Lessee shall
reimburse Lessor for all costs and expenses incurred by Lessor in connection
with the inspections provided for in this Section 9.4 promptly following its
receipt of Lessor’s invoice therefore, which costs shall not exceed One Thousand
Dollars ($1,000.00) annually.




9.5  Initial Planned Capital
Refurbishment Projects.




9.5.1  Nature of Planned Capital
Refurbishment Projects.  Lessor and Lessee acknowledge and
agree that the Facilities are currently in need of certain Capital Repairs in
order to bring the same into good order and repair and to improve their overall
competitive position in the respective market places in which they are
located.  Accordingly, promptly following the Effective Date, Lessor
and Lessee shall reasonably and in good faith agree in writing upon those
Capital Repairs to each Facility as are necessary to bring each such Facility
into good order and repair and to improve their overall competitive position in
the respective market places in which they are located, including the general
scope of such Capital Repairs and estimated cost budget(s) therefor (with
respect to each Facility, the “Planned Capital Refurbishment
Project”).  Such Planned Capital Refurbishment Project for each
Facility shall be proposed by Lessee in writing and approved in advance by
Lessor, which approval shall not be unreasonably withheld, conditioned or
delayed, so long as the Planned Capital Refurbishment Project for each Facility
includes a general scope of work and estimated budget expense therefor equal to
at least the Allocated Minimum Aggregate Costs of the Planned Capital
Refurbishment Project for such Facility.




9.5.2  Funding of Planned Capital
Refurbishment Project(s) Generally.  In connection with the
approved Planned Capital Refurbishment Project(s) for the Facilities, Lessor
shall provide to Lessee the Planned Capital Refurbishment Project Allowance as
provided for herein in accordance with and subject to the provisions of this
Section 9.5.  Lessee shall be solely responsible to perform all
Planned Capital Refurbishment Project(s) and to pay or fund the Aggregate Costs
of the Planned Capital Refurbishment Project(s) therefor in excess of (a) the
Planned Capital Refurbishment Project Allowance for all Facilities and (b) the
Allocated Planned Capital Refurbishment Project Allowance for any one Facility
(subject to reallocation of such allowance in accordance with the definition
of




“Allocated
Planned Capital Refurbishment Project Allowance” among the
Facilities).




9.5.3  Certain Approvals (Plans and
Specifications, Project Budget(s), Etc).  Once approved in
concept pursuant to Section 9.5.1 above, and prior to commencing any work
relating to any Planned Capital Refurbishment Project for any Facility, Lessee
shall provide Lessor with the following, each of which shall be subject to
Lessor’s reasonable approval: (a) detailed plans and specifications for the
work to be performed in connection with such Planned Capital Refurbishment
Project for such Facility(with
respect to each Facility, the “Plans and Specifications”); (b) a detailed final
budget, which budget shall also




35


provide a
detailed cost breakdown of all construction costs (with respect to each
Facility, the “Project Budget”); (c) any other detailed budget information as
Lessor may reasonably request and approve from Lessee; (d) if applicable based
on the nature of the Planned Capital Refurbishment Project for such Facility,
copies of all building permits and other authorizations from any applicable
governmental authorities with jurisdiction required in connection with such
Planned Capital Refurbishment Project for such Facility; and (e) evidence that
Lessee has filed, recorded or posted a notice of non-responsibility in favor of
Lessor in connection with such Planned Capital Refurbishment Project for such
Facility.  The Project Budget with respect to each Planned Capital
Refurbishment Project for a Facility shall include, and Lessee shall be
responsible for paying to Lessor, (i) an amount equal to $1,650.00 for each site
visit per Facility for the purpose of inspecting such Planned Capital
Refurbishment Project for such Facility, provided that Lessor shall not be
entitled to such amount for more than one (1) visit for each Facility (except
that Lessor shall be entitled to make an additional site visit to a Facility and
receive such amount in connection with each Request for Advance in which the
amount requested to be disbursed by Lessor therefor is $100,000.00 or more)
(with respect to each Capital Refurbishment Project for a Facility,
collectively, the “Planned Capital Refurbishment Project Site Review Fees”) and
(ii) all legal fees, expenses and disbursements incurred by Lessor in connection
with the review of diligence materials, documents and other information relating
to such Planned Capital Refurbishment Project for such Facility, including
engineering fees, accountants and other professional fees (with respect to each
Capital Refurbishment Project for a Facility, collectively, the “Planned Capital
Refurbishment Project Lessor Costs”).  The Planned Capital
Refurbishment Project Site Review Fees and the Planned Capital Refurbishment
Project Lessor Costs for each Facility shall be deducted from the Allocated
Planned Capital Refurbishment Project Allowance for such Facility prior to
disbursement of any portion thereof to Lessee as provided in Section 9.5.5
hereof, but for all purposes of this Lease shall be deemed part of the Allocated
Planned Capital Refurbishment Project Allowance for such Facility disbursed by
Lessor and allocated to such Facility as provided for herein.




9.5.4  Additional Covenants and
Obligations of Lessee Relating toPlanned Capital
Refurbishment Project(s).  With respect to each Planned Capital
Refurbishment Project for a Facility, Lessee covenants and agrees as
follows:




(a)  Lessee
shall be responsible to arrange, supervise, coordinate and carry out all
services necessary for the construction, performance and completion of each
Planned Capital Refurbishment Project for a Facility in accordance with the
Plans and Specifications therefor and this Lease, and Lessee undertakes and
accepts such responsibility with the understanding that the Aggregate Costs of
the Planned Capital Refurbishment Project in excess of the amount(s) that Lessor
is obligated to fund hereunder are the sole responsibility of
Lessee.




(b)  From and
after commencement of construction and/or performance of such Planned Capital
Refurbishment Project, Lessee shall diligently prosecute the same to completion
in accordance with the terms of this Lease and the Plans and Specifications
therefor and, in any event cause the Completion Date therefor to occur on or
before that date which is eighteen (18) months following the Commencement Date
(with respect to each Planned Capital Refurbishment Project for a Facility, the
“Outside




36


Planned
Capital Refurbishment Project Completion Date”), as such date may be extended in
the event of the occurrence of any of the events described in Section
45.1.16.




(c)  All Punch
List Items, other than those reasonably requiring more than thirty (30) days to
complete due to long scheduling or ordering time or other reasonable factors,
shall be completed within thirty (30) days after the applicable Completion Date,
but in no event later than thirty (30) days after the Outside
Completion Date.  Any Punch List Items reasonably requiring more
than thirty (30) days to complete shall be diligently pursued and completed as
promptly as practicable, but in no event later than sixty (60) days after the
Outside Planned Capital Refurbishment Project Completion Date.




(d)  Construction/performance
of such Planned Capital Refurbishment Project shall be prosecuted by Lessee in
accordance with the Plans and Specifications therefor in a good and workmanlike
manner and in accordance with sound building and engineering practices and all
applicable Legal Requirements and all restrictive covenants affecting the Leased
Property of such Facility.  All materials, fixtures or articles used
in the construction/performance of such Planned Capital Refurbishment Project,
or to be used in the operation thereof shall be substantially in accordance with
the Plans and Specifications therefor as approved by Lessor.




(e)  To the
extent not already maintained or covered by Lessee pursuant to Article XIII,
Lessee shall at all times maintain or cause to be maintained the following
insurance during the construction/performance of such Planned Capital
Refurbishment Project (including through the date of completion of the Punch
List Items): (i) Builder’s risk insurance covering the construction/performance
of such Planned Capital Refurbishment Project, in a face amount of not less than
the full insurable value of such Planned Capital Refurbishment Project and
materials supplied in connection therewith, with appropriate provisions made to
include coverage of materials stored off the Leased Property of such Facility in
an amount not less than the full insurable value of such materials stored off
the Leased Property of such Facility from time to time, and (ii) errors and
omissions insurance by the Architect in an amount reasonably acceptable to
Lessor, covering the entire period of design and construction/performance of
such Planned Capital Refurbishment Project, including completion of the Punch
List Items.  All such insurance maintained or caused to be
maintained by Lessee pursuant to clauses (i) and (ii) of this subsection (e)
shall name Lessor as an additional insured, all insurance maintained or caused
to be maintained by Lessee pursuant to clause (i) of this subsection (e) shall
name Lessee, Lessor and any General Contractor or other contractor, jointly, as
loss payee and all such insurance to be maintained or caused to be maintained by
Lessee shall otherwise, to the extent applicable, comply with the provisions of
and shall be in addition to the insurance specified in Article XIII of the
Lease.




(f)  Lessee
shall not at any time during the performance of the work, make or cause to be
made, or permit any General Contractor or any other contractor to make, any
contract for materials or equipment of any kind or nature whatsoever to be
incorporated in or to become a part of the Leased Property of any Facility,
title to which




37


is not
good or which is subject to any lien or title retention arrangement other than
inchoate mechanic’s liens.  Lessee will deliver to Lessor, on demand,
true copies of any contracts, bills of sale, statements, receipted vouchers, or
agreements, under which Lessee claims title to any materials, fixtures, or
articles used in the construction/performance of such Planned Capital
Refurbishment Project.




(g)  Lessee
shall expend all the proceeds of each advance by Lessor under this Section 9.5
for such Planned Capital Refurbishment Project in the amounts and for the
purposes specified in the Request for Advance and for no other purpose
whatsoever.




(h)  From time
to time as requested by Lessor and as soon as practicable following the
applicable Completion Date for such Planned Capital Refurbishment Project,
Lessee shall supply or cause to be supplied to Lessor such reasonable documents
and information pertaining to such Planned Capital Refurbishment Project and the
construction, performance and/or completion of the same as Lessor shall
request.




(i)  At the
reasonable request of Lessor, Lessee shall assign to Lessor each Construction
Contract to which Lessee is a party utilizing an assignment instrument in form
and substance acceptable to Lessor and shall use commercially reasonable efforts
to cause each other party to such Construction Contract to consent to such
assignment, if required by the terms thereof.




9.5.5  Disbursement of Planned
Capital Refurbishment Project Allowance.




(a)  Subject
to the satisfaction by Lessee of the disbursement conditions set forth in
Section 9.5.5(e) below, Lessor shall advance to Lessee funds with respect to
each Planned Capital Refurbishment Project for a Facility up to the Allocated
Planned Capital Refurbishment Project Allowance (less all applicable Planned
Capital Refurbishment Project Site Review Fees and Planned Capital Refurbishment
Project Lessor Costs) for the purpose of paying or reimbursing Lessee for the
payment of the Allocated Planned Capital Refurbishment Project Allowance
therefor. For the avoidance of doubt, Lessor and Lessee agree that each Request
for Advance with respect to each Planned Capital Refurbishment Project for a
Facility shall reflect the full amount of Aggregate Costs of the Planned Capital
Refurbishment Project expended by Lessee through the date thereof on the work or
materials which are the subject of the Request for Advance but that Lessor’s
funding obligation shall be limited to the lesser of (i) Fifty Percent (50%) of
Aggregate Costs of the Planned Capital Refurbishment Project expended by Lessee
through the date thereof or (ii) the maximum amount that Lessor is otherwise
required to advance hereunder.




(b)  Notwithstanding
anything to the contrary in this Section 9.5, Lessor shall not be obligated to
advance to Lessee any sums on account of any Planned Capital Refurbishment
Project for any Facility (i) in excess of the Allocated Planned Capital
Refurbishment Project Allowance therefor, (ii) when the total amount funded
by




38


Lessor
pursuant to this Section 9.5 for all Facilities equals the Planned Capital
Refurbishment Project Allowance, (iii) for which a Request for Advance is
received more than sixty (60) days after the Outside Planned Capital
Refurbishment Project Completion Date, or (iv) when any of the disbursement
conditions set forth in Section 9.5.5(e) below have not been met or
fulfilled.




(c)  With
respect to each Planned Capital Refurbishment Project for a Facility, draw
requests will be reviewed monthly and will be based on the pro rata share
completion to date of each construction line item listed in the applicable
Project Budget; provided, however, that no draw request for any Planned Capital
Refurbishment Project for a Facility shall be less than $100,000, or the balance
of the amount Lessor is required to fund on account thereof.  All
advances of funds under this Section 9.5 shall be made by Lessor in accordance
with a Request for Advance.  Each Request for Advance shall be honored
within ten (10) Business Days of receipt of the same delivered in accordance
with the notice provisions of this Lease together with the information required
therein, subject, however, to the limitations herein.  In no event
shall Lessor be required to make any advance for a particular line item with
respect to any Planned Capital Refurbishment Project for a Facility which, when
aggregated with prior advances, is in excess of Fifty Percent (50%) of the
applicable Project Budget for such line item except to the extent amounts from
contingency line items are unused and/or to the extent savings, in Lessor’s
reasonable good faith discretion, in other budget line items remain
unused.  Lessor shall issue checks payable to, or otherwise advance
funds to, Lessee, the payees designated in a Request for Advance or jointly to
Lessee and such payees, as Lessor shall reasonably
determine.  Advances of funds to such payees or jointly to Lessee and
any such payee shall constitute an advance hereunder as though advanced directly
to Lessee.




(d)  With
respect to each Planned Capital Refurbishment Project for a Facility, any
advances for costs and expenses of labor and materials connected with the
construction/performance for such Planned Capital Refurbishment Project shall be
limited to Ninety Percent (90%) of the portion of such costs and expenses for
which Lessor is responsible under the terms of this Lease and shall be made in
accordance with the payment schedule of the Construction Contract with any
General Contractor or other contractor.  With respect to each Planned
Capital Refurbishment Project for a Facility, the final advance of proceeds
representing the Ten Percent (10%) retainage of the portion of such costs and
expenses for which Lessor is responsible under this Lease for any particular
item will not be made until the last to occur of (i) the applicable Completion
Date, (ii) completion of all Punch List Items and (iii) the date Lessor
receives, as applicable, (1) all final and unconditional lien releases and
waivers provided for herein, (2) an “As-Built” set of Plans and Specifications
(if reasonably requested by Lessor based upon the nature of such Capital
Renovation Project), (3) an ALTA “As-Built” survey (if reasonably requested by
Lessor based upon the nature of such Planned Capital Refurbishment Project), and
(4) such other documents as Lessor may reasonably request.  In no
event shall any portion of such retainage for any such Planned Capital
Refurbishment Project be paid if any mechanics’ and/or materialmen’s liens
or other encumbrances have been filed and remain on the Leased Property (except
for permitted contests pursuant to Article XII of this Lease).




39


(e)  With
respect to any Planned Capital Refurbishment Project for a Facility, Lessor
shall not be obligated to make any advance of funds under this Section 9.5,
including the first advance, unless and until the following conditions shall
have been satisfied (with proof thereof in form and sufficiency as may be
reasonably requested by Lessor):




(i)  To the
extent not theretofore received and approved by Lessor, Lessor shall have
received and approved (A) the applicable Plans and Specifications (and any
material changes thereto); (B) the applicable Project Budget; (C) if applicable
based on the nature of such Planned Capital Refurbishment Project, all
Construction Contracts with any General Contractor, any Architect and any other
contractor or material supplier that may be requested by Lessor; and (D) if
applicable based on the nature of such  Planned Capital Refurbishment
Project, all authorizations and permits required by any governmental authority
with jurisdiction for the construction/performance of such Planned Capital
Refurbishment Project, including building permits and such other authorizations
and permits as are required for the use and operation of such Facility for its
Primary Intended Use, which are then presently procurable.




(ii)  To the
extent applicable to such Planned Capital Refurbishment Project as reasonably
determined by Lessor, Lessor shall have received evidence satisfactory to Lessor
that, following completion of such Planned Capital Refurbishment Project, (A)
all existing public utilities, including telephone, water, sewage, electricity
and gas are adequate for such Facility; and (B) all existing means of ingress
and egress, parking, access to public streets and drainage facilities are
adequate for such Facility.




(iii)  To the
extent applicable to such Planned Capital Refurbishment Project as reasonably
determined by Lessor, Lessor shall have received and approved test borings,
engineering reports and such other site analysis as Lessor may require, all of
which must indicate that the soil is adequate for the proposed
construction/performance of such Planned Capital Refurbishment Project in
accordance with the applicable Plans and Specifications.




(iv)  Lessor
shall have received and approved the insurance required to be maintained by
Lessee as provided in Section 9.5.4(e) above.




(v)  No Event
of Default shall have occurred and be continuing under this Lease and no event
or condition shall exist which, with notice and/or lapse of time, or both, would
constitute such an Event of Default under this Lease.




(vi)  No
Condemnation shall be pending or threatened and no casualty shall have occurred,
in either case with respect to the Leased Property of such Facility or any
portion thereof.




(vii)  Lessor
shall have received and approved (A) a Request for Advance accompanied by all
necessary documents and certificates as set forth in the




40


definition
thereof; (B) to the extent applicable to such Planned Capital Refurbishment
Project as reasonably determined by Lessor, a Lessee’s Affidavit; and (C) to the
extent applicable, a certificate from the Architect, or if no Architect, from an
officer of Lessee or any other reliable Person acceptable to Lessor, to the
effect that in such Person’s opinion (1) the construction/performance of such
Planned Capital Refurbishment Project theretofore performed is in accordance
with the applicable Plans and Specifications and (2) the amount requested is
appropriate in light of the percentage of construction completed and amount of
stored material.




(viii)  To the
extent applicable to the Planned Capital Refurbishment Project as reasonably
determined by Lessor, Lessor shall have received from each of the Architect,
General Contractor, and major subcontractors a letter, in form and substance
satisfactory to Lessor, which, among other things, (A) states that, in the event
of a default by Lessee under the contract with the undersigned, the undersigned
agrees to perform for Lessor at Lessor’s request under the terms of the
applicable Construction Contract, (B) to the best knowledge of the undersigned
certifies to Lessor that the applicable Plans and Specifications comply with all
Legal Requirements, and that the work performed by the undersigned has been
completed in accordance with the applicable Plans and Specifications, and (C)
confirms such other matters consistent with the terms and provisions of this
Section 9.5.5 (e).




ARTICLE
X.




10.1  Construction of Capital
Additions to theLeased
Property




.  Without
the prior written consent of Lessor which consent may be withheld or granted by
Lessor in its sole and absolute discretion, Lessee shall make no Capital
Additions on or structural alterations to the Leased Property and shall not
enlarge or reduce the size of any Facility.




ARTICLE
XI.




11.1  Liens




.  Subject
to the provisions of Article XII relating to permitted contests, Lessee will not
directly or indirectly create or allow to remain and will promptly discharge at
its expense any lien, encumbrance, attachment, title retention agreement or
claim upon the Leased Property of any Facility or any Capital Addition thereto
or any attachment, levy, claim or encumbrance in respect of the Rent, excluding,
however, (i) this Lease; (ii) the matters that existed as of the Commencement
Date; (iii) restrictions, liens and other encumbrances which are consented to in
writing by Lessor, or any easements granted pursuant to the provisions of
Section 7.3; (iv) liens for Impositions which Lessee is not required to pay
hereunder; (v) subleases permitted by Article XXIV; (vi) liens for
Impositions not yet delinquent; (vii) liens of mechanics, laborers, materialmen,
suppliers or vendors for amounts not yet due; and (viii) any liens which
are the responsibility of Lessor pursuant to the provisions of Article
XXXVI.




41


ARTICLE
XII.




12.1  Permitted
Contests




.  Lessee,
upon prior written notice to Lessor, on its own or in Lessor’s name, at Lessee’s
expense, may contest, by appropriate legal proceedings conducted in good faith
and with due diligence, the amount, validity or application, in whole or in
part, of any licensure or certification decision, Imposition, Legal Requirement,
Insurance Requirement, lien, attachment, levy, encumbrance, charge or claim;
subject, however, to the further requirement that (i) in the case of an unpaid
Imposition, lien, attachment, levy, encumbrance, charge or claim, the
commencement and continuation of such proceedings shall suspend the collection
thereof from Lessor and from the Leased Property or any Capital Addition
thereto; (ii) neither the Leased Property or any Capital Addition thereto, the
Rent therefrom nor any part or interest in either thereof would be in any danger
of being sold, forfeited, attached or lost pending the outcome of such
proceedings; (iii) in the case of a Legal Requirement, neither Lessor nor Lessee
would be in any danger of civil or criminal liability for failure to comply
therewith pending the outcome of such proceedings; (iv) if any such contest
shall involve a sum of money or potential loss in excess of Fifty Thousand
Dollars ($50,000), Lessee shall deliver to Lessor and its counsel an opinion of
legal counsel reasonably acceptable to Lessor to the effect set forth in clauses
(i), (ii) and (iii) above, to the extent applicable; (v) in the case of a Legal
Requirement, Imposition, lien, encumbrance or charge, Lessee shall give such
reasonable security as may be required by Lessor to insure ultimate payment of
the same and to prevent any sale or forfeiture of the Leased Property or any
Capital Addition thereto or the Rent by reason of such nonpayment or
noncompliance; and (vi) in the case of an Insurance Requirement, the coverage
required by Article XIII shall be maintained.  If any such contest is
finally resolved against Lessor or Lessee, Lessee shall promptly pay the amount
required to be paid, together with all interest and penalties accrued thereon,
or comply with the applicable Legal Requirement or Insurance
Requirement.  Lessor, at Lessee’s expense, shall execute and deliver
to Lessee such authorizations and other documents as may reasonably be required
in any such contest, and, if reasonably requested by Lessee or if Lessor so
desires, Lessor shall join as a party therein.  The provisions of this
Article XII shall not be construed to permit Lessee to contest the payment of
Rent or any other amount payable by Lessee to Lessor
hereunder.  Lessee shall indemnify, defend, protect and save Lessor
harmless from and against any liability, cost or expense of any kind that may be
imposed upon Lessor in connection with any such contest and any loss resulting
therefrom.




ARTICLE
XIII.




13.1  General Insurance
Requirements




.  During
the Term, Lessee shall at all times keep the Leased Property, and all property
located in or on the Leased Property, including Capital Additions, the Fixtures
and the Personal Property, insured with the kinds and amounts of insurance
described below.  Each element of insurance described in this Article
shall be maintained with respect to the Leased Property of each Facility,
including the Capital Additions, Fixtures, Personal Property and operations
thereon.  This insurance shall be written by companies authorized to
do insurance business in the State in which the Leased Property is
located.  All liability type policies must name Lessor as an
“additional insured.”  All property policies shall name Lessor as
“loss payee.”  All business interruption policies shall name Lessor as
a “loss payee” with respect to Rent only. Losses shall be payable to Lessor
and/or Lessee as provided in Article XIV.  In addition, the policies,
as appropriate, shall name as




42


an
“additional insured” or “loss payee” the holder of any mortgage, deed of trust
or other security agreement (“Facility Mortgagee”) securing any indebtedness or
any other Encumbrance placed on the Leased Property in accordance with the
provisions of Article XXXVI (“Facility Mortgage”) by way of a standard form of
mortgagee’s loss payable endorsement.  Any loss adjustment with
respect to the insurance maintained pursuant to Sections 13.1.1, 13.1.2 and/or
13.1.3 below shall require the written consent of Lessor, Lessee, and each
Facility Mortgagee unless the amount of the loss is less than $50,000 in which
event no consent shall be required.  Evidence of insurance shall be
deposited with Lessor and, if requested, with any Facility
Mortgagee(s).  If any provision of any Facility Mortgage requires
deposits of insurance to be made with such Facility Mortgagee, Lessee shall
either pay to Lessor monthly the amounts required and Lessor shall transfer such
amounts to each Facility Mortgagee, or, pursuant to written direction by Lessor,
Lessee shall make such deposits directly with such Facility
Mortgagee.  The policies shall maintain the following types of
insurance with respect to each Facility:




13.1.1  All risk
property insurance including but not limited to loss or damage by fire,
vandalism and malicious mischief, extended coverage perils commonly known as
special form perils, earthquake (including earth movement), sinkhole and
windstorm in an amount not less than the insurable value on a replacement cost
basis (as defined below in Section 13.2) and including coverage for debris
removal, increased cost of construction and a law and ordinance coverage
endorsement and without a coinsurance provision;




13.1.2  Boiler
and machinery insurance in such limits not less than the replacement cost of the
Facility;




13.1.3  Flood
(when the Leased Property of a Facility is located in whole or in part within a
designated 100-year flood plain area) and such other hazards and in such amounts
as may be customary for comparable properties in the area;




13.1.4  Loss of
rental value in an amount not less than twelve (12) months’ Rent payable
hereunder or business interruption in an amount not less than twelve (12) months
of income and normal operating expenses including payroll and Rent payable
hereunder with an endorsement extending the period of indemnity by at least
ninety (90) days (Building Ordinance - Increased Period of Restoration
Endorsement) necessitated by the occurrence of any of the hazards described in
Sections 13.1.1, 13.1.2 or 13.1.3;




13.1.5  Claims
for personal injury or property damage under a policy of comprehensive general
public liability insurance with amounts not less than One Million and No/100
Dollars ($1,000,000.00) combined single limit and Three Million No/100 Dollars
($3,000,000.00) in the annual aggregate; and




13.1.6  Medical
professional liability with amounts not less than One Million Dollars
($1,000,000) combined single limit and Three Million Dollars ($3,000,000) in the
annual aggregate.




43


13.2  Replacement Cost




.  The
term “replacement cost” shall mean the actual replacement cost of the insured
property from time to time with new materials and workmanship of like kind and
quality.  If either party believes that the replacement cost has
increased or decreased at any time during the Term, it shall have the right to
have such replacement cost redetermined by an impartial national appraisal
company reasonably acceptable to both parties (the “impartial
appraiser”).  The party desiring to have the replacement cost so
redetermined shall forthwith, on receipt of such determination by the impartial
appraiser, give written notice thereof to the other party hereto.  The
determination of the impartial appraiser shall be final and binding on the
parties hereto, and Lessee shall forthwith increase or decrease the amount of
the insurance carried pursuant to this Article to the amount so determined by
the impartial appraiser.  Each party shall pay one-half (1/2) of the
fee, if any, of the impartial appraiser.  If Lessee has made
improvements to the Leased Property of any Facility including any Capital
Additions thereto, Lessor may at Lessee’s expense have the replacement cost of
the Leased Property of such Facility redetermined at any time after such
improvements are made, regardless of when the replacement cost was last
determined.




13.3  Additional
Insurance




.  In
addition to the insurance described above, Lessee shall maintain such additional
insurance upon notice from Lessor as may be reasonably required from time to
time by any Facility Mortgagee and shall further at all times maintain adequate
workers’ compensation coverage with a waiver of subrogation in favor of Lessor
and any other coverage required by Legal Requirements for all Persons employed
by Lessee on the Leased Property of any Facility and any Capital Addition
thereto in accordance with Legal Requirements.




13.4  Waiver of
Subrogation




.  All
insurance policies carried by either party covering the Leased Property of any
Facility and any Capital Addition thereto and Lessee’s Personal Property
including contents, fire and casualty insurance, shall expressly waive any right
of subrogation on the part of the insurer against the other
party.  Each party waives any claims it has against the other party to
the extent such claim is covered by insurance.




13.5  Policy
Requirements




.  All
of the policies of insurance referred to in this Article shall be written in
form satisfactory to Lessor and by insurance companies with a policyholder
rating of “A-” and a financial rating of “X” in the most recent version of
Best’s Key Rating Guide.  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, at least
twenty-five (25) days prior to the expiration of the existing policy), and in
the event of the failure of Lessee either to effect such insurance in the names
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, in which event the cost thereof, together with interest
thereon at the Overdue Rate, shall be repayable to Lessor upon demand
therefor.  Each insurer 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 ten (10) days’ prior written notice before the policy or
policies in question shall be allowed to expire, non-renewed or
cancelled.  Each property policy shall have a deductible or
deductibles, if any, which are no greater than Fifty Thousand Dollars ($50,000),
unless such requirement is specifically waived by Lessor.  Each
earthquake policy shall have a maximum deductible of Ten Percent (10%) of real
property, personal property and




44


rental
value limit at the subject location, unless such requirement is specifically
waived by Lessor.




13.6  Increase in
Limits




.  If
either party shall at any time believe the limits of the insurance required
hereunder to be either excessive or insufficient, the parties shall endeavor to
agree in writing on the proper and reasonable limits for such insurance to be
carried and such insurance shall thereafter be carried with the limits thus
agreed on until further change pursuant to the provisions of this
Section.  If the parties shall be unable to agree thereon, the proper
and reasonable limits for such insurance to be carried shall be determined by an
impartial third party reasonably selected by the parties.  Nothing
herein shall permit the amount of insurance to be reduced below the amount or
amounts required by any Facility Mortgagees.




13.7  Blanket Policies and
Policies Covering Multiple Locations




.  Notwithstanding
anything to the contrary contained in this Article, Lessee’s obligations to
carry the insurance provided for herein may be brought within the coverage of a
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 for each Facility meeting all other requirements of this Lease
by reason of the use of such blanket policy of insurance, and provided further
that the requirements of this Article XIII are otherwise
satisfied.  For any liability policies covering one or more of the
Facilities or any other facilities in addition to the Facilities, Lessor may
require excess limits as Lessor reasonably determines.




13.8  No Separate
Insurance




.  Lessee
shall not, on Lessee’s own initiative or pursuant to the request or requirement
of any third party, (i) take out separate insurance concurrent in form or
contributing in the event of loss with that required in this Article to be
furnished by, or which may reasonably be required to be furnished by, Lessee or
(ii) increase the amounts of any then existing insurance by securing an
additional policy or additional policies, unless all parties having an insurable
interest in the subject matter of the insurance, including in all cases Lessor
and all Facility Mortgagees, are included therein as additional insureds and the
loss is payable under such insurance in the same manner as losses are payable
under this Lease.  Lessee shall immediately notify Lessor of the
taking out of any such separate insurance or of the increasing of any of the
amounts of the then existing insurance by securing an additional policy or
additional policies.




13.9  Insurance Requirements Under
the Existing Loan Documents; Replacement
Loan Documents




.  Nothing
contained in this Article XIII shall serve to in any manner limit or restrict
Lessee’s obligations pursuant to the terms of Section 36.3 below to procure and
maintain all insurance coverages required under any Facility
Mortgages.




ARTICLE
XIV.




14.1  Insurance
Proceeds




.  All
proceeds payable by reason of any loss or damage to the Leased Property, any
Capital Additions or any part(s) or portion(s) thereof, under any policy of
insurance required to be carried hereunder shall be paid to Lessor and made
available by Lessor to Lessee from time to time for the reasonable costs
of




45


reconstruction
or repair, as the case may be, of any damage to or destruction of the Leased
Property, any Capital Additions or any part(s) or portion(s)
thereof.  Any excess proceeds of insurance remaining after the
completion of the restoration or reconstruction of the Leased Property and any
Capital Additions (or in the event neither Lessor nor Lessee is required or
elects to repair and restore, all such insurance proceeds) shall be retained by
Lessor except as otherwise specifically provided below in this Article
XIV.  All salvage resulting from any risk covered by insurance shall
belong to Lessor.




14.2  Insured
Casualty.




14.2.1  If the
Leased Property and/or any Capital Additions of a Facility are damaged or
destroyed from a risk covered by insurance carried by Lessee such that such
Facility thereby is rendered Unsuitable for its Primary Intended Use, Lessee
shall either (i) restore such Leased Property and such Capital Additions to
substantially the same condition as existed immediately before such damage or
destruction and Lessor shall, pursuant to the terms of Section 14.1 above, make
available to Lessee from time to time the insurance proceeds received by Lessor
on account of such damage or destruction to the extent necessary for the
reasonable costs of such restoration, or (ii) offer to acquire the Leased
Property of such Facility from Lessor for a purchase price equal to the greater
of (a) the Fair Market Value for such Facility immediately prior to such damage
or destruction, or (b) the Allocated Minimum Purchase Price for such
Facility.  If Lessor does not accept Lessee’s offer to so purchase the
Leased Property of such Facility, Lessee may either withdraw such offer and
proceed to restore the Leased Property of such Facility to substantially the
same condition as existed immediately before such damage or destruction or
terminate this Lease in which event Lessor shall be entitled to retain the
insurance proceeds.




14.2.2  If the
Leased Property and/or any Capital Additions of a Facility are damaged from a
risk covered by insurance carried by Lessee, but such Facility is not thereby
rendered Unsuitable for its Primary Intended Use, Lessee shall restore such
Leased Property and such Capital Additions to substantially the same condition
as existed immediately before such damage and Lessor shall, pursuant to the
terms of Section 14.1 above, make available to Lessee from time to time the
insurance proceeds received by Lessor on account of such damage or destruction
to the extent necessary for the reasonable costs of such
restoration.  Such damage shall not terminate this Lease; provided,
however, that if Lessee cannot within a reasonable time after diligent efforts
obtain the necessary government approvals needed to restore and operate such
Facility for its Primary Intended Use, Lessee may offer to purchase the Leased
Property of such Facility for a purchase price equal to the greater of (a) the
Fair Market Value for such Facility immediately prior to such damage or
destruction or (b) the Allocated Minimum Purchase Price for such
Facility.  If Lessee shall make such offer and Lessor does not accept
the same, Lessee may either (i) withdraw such offer and proceed to restore the
Leased Property of such Facility to substantially the same condition as existed
immediately before such damage or destruction and in such event Lessor shall,
pursuant to the terms of Section 14.1 above, make available to Lessee from time
to time the insurance proceeds received by Lessor on account of such damage or
destruction to the extent necessary for the reasonable costs of such
restoration, or (ii) terminate the Lease with respect to such Facility, in which
event Lessor shall be entitled to retain the insurance proceeds.




46


14.2.3  If the
cost of the repair or restoration of a Facility exceeds the amount of proceeds
received by Lessor from the insurance required to be carried hereunder, Lessee
shall contribute any excess amounts needed to restore such
Facility.  Such difference shall be paid by Lessee to Lessor together
with any other insurance proceeds, for application to the cost of repair and
restoration.




14.2.4  If Lessor
accepts Lessee’s offer to purchase the Leased Property of a Facility, this Lease
shall terminate as to such Facility upon payment of the purchase price and
Lessor shall remit to Lessee all insurance proceeds pertaining to the Leased
Property of such Facility then held by Lessor.




14.3  Uninsured
Casualty




.  If
the Leased Property and/or any Capital Additions of a Facility is damaged or
destroyed from a risk not covered by insurance carried by Lessee, whether or not
such damage or destruction renders such Facility Unsuitable for its Primary
Intended Use, Lessee at its expense shall restore the Leased Property of such
Facility to substantially the same condition it was in immediately before such
damage or destruction and such damage or destruction shall not terminate this
Lease.




14.4  No Abatement of
Rent




.  This
Lease shall remain in full force and effect and Lessee’s obligation to pay the
Rent and all other charges required by this Lease shall remain unabated during
the period required for adjusting insurance, satisfying Legal Requirements,
repair and restoration.




14.5  Waiver




.  Lessee
waives any statutory rights of termination which may arise by reason of any
damage or destruction of the Leased Property and/or any Capital
Additions.




ARTICLE
XV.




15.1  Condemnation




15.1.1  Total
Taking.  If the Leased Property and any Capital Additions of a
Facility is totally and permanently taken by Condemnation, this Lease shall
terminate with respect to such Facility as of the day before the Date of Taking
for such Facility.




15.1.2  Partial
Taking.  If a portion of the Leased Property and any Capital
Additions of a Facility is taken by Condemnation, this Lease shall remain in
effect if the affected Facility is not thereby rendered Unsuitable for Its
Primary Intended Use, but if such Facility is thereby rendered Unsuitable for
its Primary Intended Use, this Lease shall terminate with respect to such
Facility as of the day before the Date of Taking for such Facility.




15.1.3  Restoration.  If
there is a partial taking of the Leased Property and any Capital Additions of a
Facility and this Lease remains in full force and effect pursuant to Section
15.1.2, Lessor shall make available to Lessee the portion of the Award necessary
and specifically identified for restoration of such Leased Property and any
such




47


Capital
Additions and Lessee shall accomplish all necessary restoration whether or not
the amount provided by the condemnor for restoration is sufficient.




15.1.4  Award-Distribution.  The
entire Award for any total Condemnation or partial Condemnation described in
Section 15.1.2 above that renders the affected Facility Unsuitable for Its
Primary Intended Use shall belong to and be paid to Lessor, except that, subject
to the rights of the Facility Mortgagees, Lessee shall be entitled to receive
from the Award, if and to the extent such Award specifically includes such item,
lost profits value and moving expenses, provided, that in any event Lessor shall
receive from the Award, subject to the rights of the Facility Mortgagees no less
than the greater of (a) the Fair Market Value for such Facility immediately
prior to institution of the Condemnation or (b) the Allocated Minimum Purchase
Price for such Facility.  The entire Award for any partial
Condemnation described in Section 15.1.2 above that does  not render
the affected Facility Unsuitable for Its Primary Intended Use shall belong to
and be paid to Lessor, subject to Lessor’s obligations pursuant to Section
15.1.3 above.




15.1.5  Temporary
Taking.  The taking of the Leased Property, any Capital
Additions and/or any part(s) thereof, shall constitute a taking by Condemnation
only when the use and occupancy by the taking authority has continued for longer
than 180 consecutive days.  During any shorter period, which shall be
a temporary taking, all the provisions of this Lease shall remain in full force
and effect and the Award allocable to the Term shall be paid to
Lessee.




15.1.6  Sale Under Threat of
Condemnation.  A sale by Lessor to any Condemnor, either under
threat of Condemnation or while Condemnation proceedings are pending, shall be
deemed a Condemnation for purposes of this Lease.  Lessor may, without
any obligation to Lessee, agree to sell and/or convey to any Condemnor all or
any portion of the Leased Property free from this Lease and the rights of Lessee
hereunder without first requiring that any action or proceeding be instituted or
pursued to judgment; provided, however, that Lessor shall provide Lessee with at
least sixty (60) days’ prior written notice of such sale or conveyance, subject
to the requirements of any such Condemnor.




ARTICLE
XVI.




16.1  Events of
Default




.  Any
one or more of the following shall constitute an “Event of
Default”:




(a)  a default
shall occur under any other lease or other agreement or instrument, now or
hereafter with or in favor of Lessor or any Affiliate of Lessor and made by or
with Lessee or any Affiliate of Lessee where the default is not cured within any
applicable grace period set forth therein;




(b)  A default
shall occur under any New Lease hereafter with or in favor of Lessor or any
Affiliate of Lessor and made by or with Lessee or any Affiliate of Lessee where
the default is not cured within any applicable grace period set forth
therein;




48


(c)  Lessee
shall fail to pay any installment of Rent when the same becomes due and payable
and such failure is not cured by Lessee within a period of five (5) days after
notice thereof from Lessor; provided, however, that such notice shall be in lieu
of and not in addition to any notice required under applicable law with respect
to such non-payment of Rent;




(d)  Lessee
shall fail to obtain and deliver to Lessor a letter of credit or cash security
deposit as required by Article XXI;




(e)  except as
otherwise specifically provided for in this Section 16.1, if Lessee shall fail
to observe or perform any other term, covenant or condition of this Lease and
such failure is not cured by Lessee within thirty (30) days after notice thereof
from Lessor, unless such failure cannot with due diligence be cured within a
period of thirty (30) days, in which case such failure shall not be deemed to be
an Event of Default if Lessee proceeds promptly and with due diligence to cure
the failure and diligently completes the curing thereof; provided, however,
that such notice shall be in lieu of and not in addition to any notice required
under applicable law;




(f)  Lessee or
any guarantor of Lessee’s obligations hereunder (including Guarantor)
shall:




(i)  admit in
writing its inability to pay its debts generally as they become
due,




(ii)  file a
petition in bankruptcy or a petition to take advantage of any insolvency
act,




(iii)  make an
assignment for the benefit of its creditors,




(iv)  consent
to the appointment of a receiver of itself or of the whole or any substantial
part of its property, or




(v)  file a
petition or answer seeking reorganization or arrangement under the Federal
bankruptcy laws or any other applicable law or statute of the United States of
America or any state thereof;




(g)  Lessee or
any guarantor of Lessee’s obligations hereunder (including Guarantor) shall be
adjudicated as bankrupt or a court of competent jurisdiction shall enter an
order or decree appointing, without the consent of Lessee, a receiver of Lessee
or of the whole or substantially all of its property, or approving a petition
filed against it seeking reorganization or arrangement of Lessee under the
Federal bankruptcy laws or any other applicable law or statute of the United
States of America or any state thereof, and such judgment, order or decree shall
not be vacated or set aside or stayed within sixty (60) days from the date of
the entry thereof;




(h)  Lessee or
any guarantor of Lessee’s obligations hereunder (including Guarantor) shall be
liquidated or dissolved, or shall begin proceedings toward




49


such
liquidation or dissolution, or shall, in any manner, permit the sale or
divestiture of substantially all its assets;




(i)  the
estate or interest of Lessee in the Leased Property, any Capital Additions or
any part(s) thereof shall be levied upon or attached in any proceeding and the
same shall not be vacated or discharged within the later of ninety (90) days
after commencement thereof or thirty (30) days after receipt by Lessee of notice
thereof from Lessor; provided, however, that such notice shall be in lieu of and
not in addition to any notice required under applicable law;




(j)  any
Transfer occurs without Lessor’s consent, if such consent is required under
Article XXIV;




(k)  any of
the representations or warranties made by Lessee hereunder or any Guarantor in
the applicable Guaranty proves to be untrue when made in any material respect
which materially and adversely affects Lessor;




(l)  any
applicable license or third-party provider reimbursement agreements material to
a Facility’s operation for its Primary Intended Use are at any time terminated
or revoked or suspended for more than twenty (20) days;




(m)  any
local, state or federal agency having jurisdiction over the operation of any
Facility removes Ten Percent (10%) or more of the patients or residents located
in such Facility;




(n)  Lessee
fails to give notice to Lessor not later than ten (10) Business Days after
Lessee’s receipt thereof of any Class A or equivalent fine notice from any
governmental authority or officer acting on behalf thereof relating to any
Facility;




(o)  Lessee
fails to cure or abate any Class A or equivalent violation occurring during the
Term that is claimed by any governmental authority, or any officer acting on
behalf thereof, of any law, order, ordinance, rule or regulation pertaining to
the operation of any Facility, and within the time permitted by such authority
for such cure or abatement;




(p)  Lessee
fails to notify Lessor within three (3) Business Days after receipt of any
written notice from any governmental agency terminating or suspending or
threatening termination or suspension, of any material license or certification
relating to any Facility;




(q)  Lessee
fails to give notice to Lessor not later than ten (10) Business Days after any
written notice, claim or demand from any governmental authority or any officer
acting on behalf thereof, of any violation of any law, order, ordinance, rule or
regulation with respect to the operation of any Facility;




(r)  any
proceedings are instituted against Lessee by any governmental authority which
are reasonably likely to result in (i) the revocation of any license
granted




50


to Lessee
for the operation of any Facility, (ii) the decertification of any Facility from
participation in the Medicare or Medicaid reimbursement program, or (iii) the
issuance of a stop placement order against Lessee with respect to any
Facility;




(s)  any
default and acceleration of any indebtedness of Lessee or any Affiliate of
Lessee or Guarantor in an amount in excess of $1,000,000 has occurred;
and




(t)  any
material default shall occur under any guaranty of Lessee’s obligations
hereunder (including any Guaranty).




16.2  Certain
Remedies




.  If
an Event of Default shall have occurred, Lessor may terminate this Lease with
respect to the Facility from which such Event of Default emanated, if any, and
any one or more (including all, if so elected by Lessor) of the Facilities,
regardless of whether such Event of Default emanated primarily from a single
Facility, by giving Lessee notice of such termination and the Term shall
terminate and all rights of Lessee under this Lease shall cease with respect to
all such Facilities as to which Lessor has elected to so terminate this
Lease.  Lessor shall have all rights at law and in equity available to
Lessor as a result of any Event of Default.  Lessee shall pay as
Additional Charges all costs and expenses incurred by or on behalf of Lessor,
including reasonable attorneys’ fees and expenses, as a result of any Event of
Default hereunder.  If an Event of Default shall have occurred and be
continuing, whether or not this Lease has been terminated with respect to any
one or more (including all, if so elected by Lessor) of the Facilities pursuant
to this Section 16.2, Lessee shall, to the extent permitted by law, if required
by Lessor so to do, immediately surrender to Lessor possession of the Leased
Property and any Capital Additions of the Facilities as to which Lessor has so
elected to terminate this Lease and quit the same and Lessor may enter upon and
repossess such Leased Property and such Capital Additions thereto by reasonable
force, summary proceedings, ejectment or otherwise, and may remove Lessee and
all other Persons and any of Lessee’s Personal Property from such Leased
Property and such Capital Additions thereto.




16.3  Damages




.  (i)  The
repossession of the Leased Property and any Capital Additions of any Facility;
(ii) the failure of Lessor, notwithstanding reasonable good faith efforts, to
relet the Leased Property or any portion thereof; (iii) the reletting of all or
any portion of the Leased Property; or (iv) the failure or inability of Lessor
to collect or receive any rentals due upon any such reletting, shall not relieve
Lessee of its liabilities and obligations hereunder, all of which shall survive
any such repossession or reletting.  In addition, the termination of
this Lease with respect to any one or more of the Facilities shall not relieve
Lessee of its liabilities and obligations hereunder with respect to such
terminated Facility(ies) that are intended to survive the termination of this
Lease, including, without limitation, the obligations set forth in this Section
16.3, and Sections 16.5, 23.1, 37.4 and 45.1.6.  If any such
termination occurs, Lessee shall forthwith pay to Lessor all Rent due and
payable with respect to the Facility terminated to and including the date of
such termination.  Thereafter following any such termination, Lessee
shall forthwith pay to Lessor, at Lessor’s option, as and for liquidated and
agreed current damages for an Event of Default by Lessee, the sum
of:




(i)  the worth
at the time of award of the unpaid Rent which had been earned at the time of
termination with respect to the terminated Facility(ies),




51


(ii)  the worth
at the time of award of the amount by which the unpaid Rent which would have
been earned after termination with respect to the terminated Facility(ies) until
the time of award exceeds the amount of such rental loss that Lessee proves
could have been reasonably avoided,




(iii)  the worth
at the time of award of the amount by which the unpaid Rent for the balance of
the Term for the terminated Facility(ies) after the time of award exceeds the
amount of such rental loss that Lessee proves could be reasonably avoided,
plus




(iv)  any other
amount necessary to compensate Lessor for all the detriment proximately caused
by Lessee’s failure to perform its obligations under this Lease or which in the
ordinary course of things would be likely to result therefrom.




As used
in clauses (i) and (ii) above, the “worth at the time of award” shall be
computed by allowing interest at the Overdue Rate.  As used in clause
(iii) above, the “worth at the time of award” shall be computed by discounting
such amount at the discount rate of the Federal Reserve Bank of San Francisco at
the time of award plus One Percent (1%).





Alternatively,
if Lessor does not elect to terminate this Lease, then without termination of
Lessee’s right to possession of the Leased Property, Lessee shall pay to Lessor,
at Lessor’s option, as and for agreed damages for such Event of Default, each
installment of said Rent and other sums payable by Lessee to Lessor under the
Lease as the same becomes due and payable, together with interest at the Overdue
Rate from the date when due until paid, and Lessor may enforce, by action or
otherwise, any other term or covenant of this Lease.




16.4  Receiver




.  Upon
the occurrence of an Event of Default, and upon commencement of proceedings to
enforce the rights of Lessor hereunder, Lessor shall be entitled, as a matter of
right, to the appointment of a receiver or receivers acceptable to Lessor of the
Leased Property and any Capital Addition thereto of the revenues, earnings,
income, products and profits thereof, pending the outcome of such proceedings,
with such powers as the court making such appointment shall confer.




16.5  Lessee’s Obligation to
Purchase




.  Upon
the occurrence of a Put Event with respect to any Facility, Lessor shall be
entitled to require Lessee to purchase the Leased Property of such Facility on
the first Minimum Rent Payment Date occurring not less than thirty (30) days
after the date specified in a notice from Lessor requiring such purchase for an
amount equal to the greater of (a) the Fair Market Value for such Facility or
(b) the Allocated Minimum Purchase Price for such Facility, plus, in either
event, all Rent then due and payable (excluding the installment of Minimum Rent
due on the purchase date) with respect to such Facility.  If Lessor
exercises such right, Lessor shall convey the Leased Property of such Facility
to Lessee on the date fixed therefor in accordance with the provisions of
Article XVIII upon receipt of the purchase price therefor and this Lease shall
thereupon terminate with respect to such Facility.  Any purchase by
Lessee of the Leased Property of a Facility pursuant to this Section shall be in
lieu of the damages specified in Section 16.3 with respect to such
Facility.




52


16.6  Waiver




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




16.7  Application of
Funds




.  Any
payments received by Lessor under any of the provisions of this Lease during the
existence or continuance of any Event of Default which are made to Lessor rather
than Lessee due to the existence of an Event of Default shall be applied to
Lessee’s obligations in the order which Lessor may determine or as may be
prescribed by the laws of the State.




16.8  Facility
Operating
Deficiencies




.  On
notice or request therefor by Lessor to Lessee, upon the occurrence of a
Facility Operating Deficiency specified with particularity in Lessor’s notice,
and for a period equal to the greater of six (6) months or the time necessary
fully to remedy the Facility Operating Deficiency, Lessee shall engage the
services of a management company, unaffiliated with Lessee and approved by
Lessor, to assume responsibility for management of the applicable Facility for
the purpose of taking all steps reasonably necessary to remedy the Facility
Operating Deficiency(ies).  Pursuant to a written agreement among the
management company, Lessee and Lessor, the management company will have complete
responsibility for operation of the applicable Facility, subject to Lessee’s
retaining only such power and authority as shall be required by the State as the
minimum level of power and authority to be possessed by the licensed operator of
a facility of the type of such Facility in the State.  The management
company shall provide the following services:




(a)  furnish
an on-site, full-time licensed administrator and controller approved by Lessor
who shall be an employee of the management company;




(b)  take all
steps reasonably necessary to keep such Facility fully licensed by the State,
certified as a provider under applicable government reimbursement programs and
duly accredited by applicable agencies and bodies;




(c)  perform
all of Lessee’s obligations hereunder with respect to maintenance and repair of
such Facility;




(d)  conduct
at the onset of the management company’s engagement, and monthly thereafter,
reviews and/or audits of Facility operations in at least the following
departments and services:  patient and resident care, activities and
therapy, dietary, medical records, drugs and medicines, supplies, housekeeping
and maintenance, and report the results of such reviews and/or audits in writing
to Lessor no later than five (5) days after the end of each calendar
month;




(e)  immediately
upon receipt thereof, deliver to Lessor by overnight courier copies of all
communications received from any regulatory agency with respect to such
Facility; and




53


(f)  with
respect to the Facility Operating Deficiency(ies) which gave rise to the request
to Lessee to engage the management company, prepare and deliver to Lessor within
five (5) days after the commencement of the management company’s
responsibilities at such Facility a comprehensive written report of the nature
and extent of the Facility Operating Deficiency(ies) and advise Lessor orally by
telephone no later than noon local time on each Friday thereafter as to steps
being taken by the management company to remedy the same and the status of any
threatened or actual governmental administrative action with respect
thereto.




The
management company shall have complete access to such Facility, its records,
offices and facilities, in order that it may carry out its duties.  If
Lessee shall fail to designate a management company acceptable to Lessor within
five (5) days after receipt of the notice of request therefor, Lessor may
designate such management company by further notice to Lessee.  Lessee
shall be responsible for payment of all fees and expenses reasonably charged and
incurred by the management company in carrying out its duties, provided that the
management fee chargeable by a management company designated by Lessor, as
hereinabove provided, shall not exceed Seven Percent (7%) of Gross
Revenues.




16.9  [Intentionally
omitted].




16.10  Lessor’s Security
Interest




.  The
parties intend that if an Event of Default occurs under this Lease, Lessor will
control Lessee’s Personal Property and the Intangible Property so that Lessor or
its designee or nominee can operate or re-let each Facility intact for its
Primary Intended Use.  Accordingly, to implement such intention, and
for the purpose of securing the payment and performance obligations of Lessee
hereunder, Lessor and Lessee agree as follows:




16.10.1  Lessee, as debtor, hereby grants to
Lessor, as secured party, a security interest and an express contractual lien
upon all of Lessee’s right, title and interest in and to Lessee’s Personal
Property and in and to the Intangible Property and any and all products, rents,
leases (including all rights under any leases or residential care agreements,
including Lessee’s right, power and authority to modify the terms of any such
lease or residential care agreement or extend or terminate such lease or
residential care agreement) with respect to all or any portions of the
Facilities), issues, proceeds and profits thereof in which Lessee now
owns or hereafter acquires an interest or right, including any leased
Lessee’s Personal Property (collectively, the “Collateral”).  This
Lease constitutes a security agreement covering all such
Collateral.  The security interest granted to Lessor with respect to
Lessee’s Personal Property in this Section 16.10 is intended by Lessor and
Lessee to be subordinate to any security interest granted in connection with the
financing or leasing of all or any portion of the Lessee’s Personal Property so
long as the lessor or financier of such Lessee’s Personal Property agrees to
give Lessor written notice of any default by Lessee under the terms of such
lease or financing arrangement, to give Lessor a reasonable time following such
notice to cure any such default and consents to Lessor’s written assumption of
such lease or financing arrangement upon Lessor’s curing of any such
defaults.  This security agreement and the security interest created
herein shall survive the expiration or earlier termination of this Lease with
respect to any or all of the Facilities.




54


16.10.2  Lessee hereby authorizes Lessor to file
such financing statements, continuation statements and other documents as may be
necessary or desirable to perfect or continue the perfection of Lessor’s
security interest in the Collateral.  In addition, if required by
Lessor at any time during the Term, Lessee shall execute and deliver to Lessor,
in form reasonably satisfactory to Lessor, additional security agreements,
financing statements, fixture filings and such other documents as Lessor may
reasonably require to perfect or continue the perfection of Lessor’s security
interest in the Collateral.  In the event Lessee fails to execute any
financing statement or other documents for the perfection or continuation of
Lessor’s security interest, Lessee hereby appoints Lessor as its true and lawful
attorney-in-fact to execute any such documents on its behalf, which power of
attorney shall be irrevocable and is deemed to be coupled with an
interest.




16.10.3  Lessee will give Lessor at least thirty
(30) days’ prior written notice of any change in Lessee’s name, identity,
jurisdiction of organization or corporate structure.  With respect to
any such change, Lessee will promptly execute and deliver such instruments,
documents and notices and take such actions, as Lessor deems necessary or
desirable to create, perfect and protect the security interests of Lessor in the
Collateral.




16.10.4  Upon the occurrence of an Event of
Default, Lessor shall be entitled to exercise any and all rights or remedies
available to a secured party under the Uniform Commercial Code, or available to
a lessor under the laws of the State, with respect to Lessee’s Personal Property
and the Intangible Property, including the right to sell the same at public or
private sale.




16.11  Leases and Residential Care
Agreements




.  Lessee
shall comply with and observe in all material respects Lessee's obligations
under all leases and residential care agreements, including Lessee's obligations
pertaining to the maintenance and disposition of resident or tenant security
deposits.  Upon delivery of notice by Lessor to Lessee of Lessor’s
exercise of Lessor’s rights under this Article, at any time after the occurrence
of an Event of Default, and without the necessity of Lessor entering upon and
taking and maintaining control of any Facility directly, by a receiver, or by
any other manner or proceeding permitted by applicable Legal Requirements,
Lessor immediately shall have, to the extent permitted by applicable Legal
Requirements, all rights, powers and authority granted to Lessee under any lease
or residential care agreement relating to such Facility, including the right,
power and authority to modify the terms of any such lease or residential care
agreement for such Facility, or extend or terminate any such lease or
residential care agreement for such Facility.  Following an Event of
Default, unless Lessor elects in its sole discretion to assume the obligations
of Lessee under any lease or residential care agreement for any Facility, Lessor
shall not (i) be obligated to perform any of the terms, covenants or conditions
contained in such lease or residential care agreement relating to such Facility
(or otherwise have any obligation with respect to such lease or residential care
agreement relating to such Facility) or (ii) be obligated to appear in or defend
any action or proceeding relating to such lease or residential care agreement
relating to such Facility.  Notwithstanding anything to the contrary
in this Section 16.11, but subject to the other terms and conditions contained
in this Lease, prior to the occurrence of an Event of Default, Lessee shall be
entitled to exercise any and all rights under any Occupancy
Arrangements




55


relating
to any Facility, including Lessee’s right, power and authority to modify the
terms of any such Occupancy Arrangements or extend or terminate such Occupancy
Arrangements.




16.12  SNF Beds and SNF
Operator




.  Notwithstanding
anything to the contrary set forth in this Article XVI, to the extent the SNF
Beds are subleased to or managed by a SNF Operator pursuant and subject to the
terms of Article XXIV hereof, Lessor hereby agrees that it shall not exercise
any of its rights and remedies under this Article XVI upon the occurrence of a
non-monetary Event of Default with respect to the use or operation of the SNF
Beds which arises solely from the acts or omissions of the SNF Operator (herein,
a “Non-Monetary SNF Bed Default”) provided that: (a) such actions or omissions
of such SNF Operator do not cause a default or event of default by Lessor under
any Facility Mortgage Loan Documents (or if they do, Lessee has obtained, at its
sole cost and expense, an express waiver thereof from such Facility Mortgagee
for the benefit of Lessor, provided that Lessor agrees to reasonably assist and
cooperate with Lessee in Lessee’s efforts to obtain any such waiver); and (b)
Lessee proceeds promptly in good faith and with all due diligence after receipt
of written notice from Lessor of the existence of such Non-Monetary SNF Bed
Default, and subject to any limitations/time constraints imposed by any
applicable Legal Requirements, to either (i) assume fully responsibility for
such SNF Beds and the use and operation thereof in compliance with this Lease
and thereafter promptly commence and prosecute to completion any cure required
to eliminate such Non-Monetary SNF Bed Default caused by such SNF Operator, or
(ii) identify a replacement SNF Operator approved by Lessor in accordance with
and subject to the provisions of Article XXIV hereof, to operate or manage, as
the case may be, the SNF Beds and thereafter cause such replacement SNF Operator
to promptly commence and prosecute to completion any cure required to eliminate
such Non-Monetary SNF Bed Default caused by such prior SNF
Operator.




ARTICLE
XVII.




17.1  Lessor’s Right to CureLessee’s
Default




.  If
Lessee shall fail to make any payment or to perform any act required to be made
or performed hereunder, upon at least thirty (30) days’ prior written notice
(except in the event of an emergency, in which case no prior notice shall be
required) Lessor, without waiving or releasing any obligation or default, may,
but shall be under no obligation to, make such payment or perform such act for
the account and at the expense of Lessee, and may, to the extent permitted by
law, enter upon the Leased Property and any Capital Addition thereto for such
purpose and take all such action thereon as, in Lessor’s opinion, may be
necessary or appropriate therefor.  No such entry shall be deemed an
eviction of Lessee.  All sums so paid by Lessor and all reasonable
costs and expenses, including reasonable attorneys’ fees and expenses, so
incurred, together with interest thereon at the Overdue Rate from the date on
which such sums or expenses are paid or incurred by Lessor, shall be paid by
Lessee to Lessor on demand.




ARTICLE
XVIII.




18.1  Purchase of the Leased
Property; Rights of Lessee Prior to Closing.




56


18.1.1  Generally.  If
Lessee purchases the Leased Property of any Facility from Lessor pursuant to any
provision of this Lease, Lessor shall, upon receipt from Lessee of the
applicable purchase price, together with full payment of any unpaid Rent due and
payable with respect to any period ending on or before the date of the purchase,
deliver to Lessee an appropriate special or limited warranty deed or other
appropriate conveyance instrument conveying the entire interest of Lessor in and
to such Leased Property to Lessee free and clear of all encumbrances other than
(i) those that Lessee has agreed hereunder to pay or discharge; (ii) those
mortgage liens, if any, which Lessee has agreed in writing to accept and to take
title subject to; (iii) those liens and encumbrances which were in effect on the
date of conveyance of such Leased Property to Lessor; and (iv) any other
encumbrances permitted hereunder to be imposed on such Leased Property which are
assumable at no cost to Lessee or to which Lessee may take subject without cost
to Lessee.  The difference between the applicable purchase price and
the total of the encumbrances assumed or taken subject to shall be paid to
Lessor or as Lessor may direct in immediately available funds.  All
expenses of such conveyance, including the cost of title insurance, attorneys’
fees incurred by Lessor in connection with such conveyance and release, transfer
taxes and recording and escrow fees, shall be paid by Lessee.




18.1.2  Rights of Lessee Prior to
Closing




.  Notwithstanding
anything to the contrary in this Lease, or at law or in equity, if Lessee
exercises any right or option of Lessee to purchase or acquire the Leased
Property of any Facility pursuant to any of the provisions of this Lease, or
Lessor shall exercise its right to require Lessee to purchase the Lease Property
of any Facility pursuant to Section 16.5 hereof (herein, a “Purchase
Right/Obligation Exercise”), the following shall pertain:




(a)  Such
Purchase Right/Obligation Exercise (and any purchase or other separate contract
formed upon such Purchase Right/Obligation Exercise) shall not under any
circumstances cause a termination of this Lease, and this Lease shall remain in
full force and effect to and until the consummation of the closing in accordance
with the terms thereof;




(b)  Lessee
hereby acknowledges and agrees that Lessee shall not under any circumstances be
entitled to possession of the Leased Property of any Facility under the terms of
any purchase or other separate contract formed upon such Purchase
Right/Obligation Exercise until the closing thereof, and that Lessee’s
possession of the Leased Property of such Facility shall be solely by way of
this Lease;




(c)  In no
event shall Lessee be deemed a vendee in possession;




(d)  In the
event that an Event of Default shall occur at anytime during the period from
such Purchase Right/Obligation Exercise to and until closing, Lessor shall be
entitled to exercise any and all rights or remedies available to a landlord
against a defaulting tenant, whether at law or equity, including those set forth
in Article XVI hereof, and specifically including the right to recover
possession of the Leased Property of such Facility through summary proceedings
(such as unlawful detainer or other similar action permitted by law), and in no
event shall Lessor be required to bring an action for ejectment or any other
similar non-expedited proceeding; and




57


(e)  It shall
be a condition to the closing of the purchase of the Leased Property of such
Facility, for the benefit of both Lessor and Lessee, that either (a) Lessor and
Lessee shall have mutually determined based upon the advise of their respective
legal counsel that the purchase of the Leased Property of such Facility by
Lessee from Lessor is exempt from filing under the HSR Act or (b) the waiting
period under the HSR Act applicable to the purchase of the Leased Property of
such Facility by Lessee from Lessor shall have expired or been earlier
terminated.  Lessor and Lessee shall each promptly cooperate in good
faith and cause their respective legal counsel to cooperate in good faith to
review the HSR Act and the provisions of this Lease relating to the purchase of
the Leased Property of such Facility by Lessee from Lessor, and take such other
commercially reasonable steps as such party and its legal counsel deem
reasonably appropriate to determine whether an exemption from filing under the
HSR Act is available, and, if Lessor and Lessee cannot mutually agree in good
faith based upon advice from their respective counsel that such an exemption is
available, then Lessor and Lessee shall each (i) promptly make their respective
filings and thereafter make any other required submissions under the HSR Act
with respect to the purchase of the Leased Property of such Facility by Lessee
from Lessor, and (ii) cooperate in good faith with the other party and use
commercially reasonable efforts with respect to the same.




ARTICLE
XIX.




19.1  [Intentionally
Omitted]




.




19.2  Lessor’s Extension Rights and Early
Termination




.  In
order to facilitate the transfer of the operations of each Facility to a third
party and/or to locate a replacement lessee, Lessor shall have the one time
right to either (i) terminate this Lease with respect to any such Facility up to
four (4) months early or (ii) extend the Term of this Lease with respect to any
such Facility for up to one (1) year.  Such right of early termination
shall be exercised by Lessor, if at all, by written notice from Lessor to Lessee
given not less than sixty (60) days prior to the date Lessor desires to
terminate this Lease with respect to any such Facility and stating the date of
such termination (which date shall not be earlier than four (4) months prior to
the expiration of the Term).  In the event that Lessor shall exercise
such right of early termination within the time and in the manner herein
provided, this Lease shall terminate with respect to the applicable Facility on
the date of termination specified in Lessor’s notice.  Such right of
extension shall be exercised by Lessor, if at all, by written notice from Lessor
to Lessee given not less than four (4) months prior to the expiration of the
Term with respect to such Facility and stating the date through which Lessor is
extending the Term of this Lease with respect to such Facility (which date shall
not be later than one (1) year after the originally scheduled expiration
date).  In the event that Lessor shall exercise such right of
extension, all of the terms and conditions of this Lease shall continue in full
force and effect with respect to such Facility and Lessee shall continue to pay
Rent for and during such extension period at the same Minimum Rent rates as were
in effect upon the expiration of the originally scheduled Term for such
Facility; provided, however, that Lessor shall have the right to terminate this
Lease with respect to any such Facility during any such extension period upon
not less than sixty (60) days prior written notice to Lessee.  In such
event, this Lease, as previously extended, shall terminate with respect to such
Facility upon the date specified in Lessor’s notice of termination.




58


ARTICLE
XX.




20.1  Holding
Over




.  Except
as provided in Section 19.2, if Lessee shall for any reason remain in possession
of the Leased Property and/or any Capital Additions of a Facility after the
expiration or earlier termination of the Term, such possession shall be as a
month-to-month tenant during which time Lessee shall pay as Minimum Rent each
month twice the sum of (i) monthly Minimum Rent applicable to the prior Lease
Year for such Facility, plus (ii) all Additional Charges and all other sums
payable by Lessee pursuant to this Lease.  During such period of
month-to-month tenancy, Lessee shall be obligated to perform and observe all of
the terms, covenants and conditions of this Lease, but shall have no rights
hereunder other than the right, to the extent given by law to month-to-month
tenancies, to continue its occupancy and use of the Leased Property and/or any
Capital Additions of such Facility.  Nothing contained herein shall
constitute the consent, express or implied, of Lessor to the holding over of
Lessee after the expiration or earlier termination of this Lease.




ARTICLE
XXI.




21.1  Letter of Credit or Cash
Security Deposit




.  On
or before the Commencement Date, and for sixty (60) days after the expiration or
earlier termination of this Lease, Lessee shall have either deposited with
Lessor a cash security deposit or letters of credit in the aggregate amount of
the Security Amount in accordance with this Article XXI, in either case to
secure Lessee’s obligations hereunder and the obligations of Lessee and any
Affiliate of Lessee under any other lease or other agreement or instrument with
or in favor of Lessor or any Affiliate of Lessor, including any
Guaranty.




21.2  Requirements for Letters of
Credit




.  Subject
to Section 31.2.4 below, if Lessee elects to deliver one or more letters of
credit hereunder, then each letter of credit delivered by Lessee to Lessor
hereunder shall be in substantially the form of Exhibit D hereto, and
shall be from a financial institution satisfactory to Lessor but in any event
with (a) not less than $1 Billion in net current assets, (b) a letter of
credit issuer rating from Standard and Poors Corporation of A- or better (or any
equivalent rating thereto from any successor or substitute rating service
selected by Lessor) and (c) an investment grade rating from each of Standard and
Poors Corporation and Moody’s Investor Service (or any equivalent rating thereto
from any successor rating agency thereto), naming Lessor as
beneficiary.  Each letter of credit shall be for a term of not less
than one (1) year and irrevocable during that term.  Each letter of
credit shall provide that it will be honored upon a signed statement by Lessor
that Lessor is entitled to draw upon any letter of credit under this Lease, and
shall require no signature or statement from any party other than
Lessor.  No notice to Lessee shall be required to enable Lessor to
draw upon the letter of credit.  Each letter of credit shall also
provide that following the honor of any drafts in an amount less than the
aggregate amount of the letter of credit, the financial institution shall return
the original letter of credit to Lessor and Lessor’s rights as to the remaining
amount of the letter of credit will not be extinguished.  In the event
of a transfer of Lessor’s interest in the Leased Property, Lessor shall have the
right to transfer the letter of credit to the transferee and thereupon shall,
without any further agreement between the parties, be released by Lessee from
all liability therefor, and it is agreed that the provisions hereof shall apply
to every transfer or assignment of the letter of credit to a new
Lessor.  The letter of credit may be assigned as security in
connection with a Facility Mortgage.  If the financial
institution




59


from
which Lessee has obtained a letter of credit shall admit in writing its
inability to pay its debts generally as they become due, file a petition in
bankruptcy or a petition to take advantage of any insolvency act, make an
assignment for the benefit of its creditors consent to the appointment of a
receiver of itself or of the whole or any substantial part of its property, or
file a petition or answer seeking reorganization or arrangement under the
Federal bankruptcy laws or any other applicable law or statute of the United
States of America or any state thereof, then Lessee shall obtain a replacement
letter of credit within thirty (30) days of such act from another financial
institution satisfactory to Lessor or deliver a cash security deposit in lieu
thereof in accordance with the provisions of this Article XXI.




21.3  Cash Security
Deposit




.  If
Lessee elects to deliver to Lessor a cash security deposit, then Lessor shall
not be required to keep the cash security deposit separate from its general
funds.  On the first (1st) day of
each Quarter, except during any period during which any Event of Default, or
event which, with notice or lapse of time or both, would constitute an Event of
Default, has occurred and is continuing hereunder, Lessor shall either pay to
Lessee, or, at Lessor’s option, credit for the restoration of the required
amount of the Security Amount upon any draw hereunder or any scheduled increase
in the Security Amount provided for herein, interest on the amount of such cash
security deposit at a rate equal to the rate of interest received by Lessor from
time to time on the funds held by Lessor in its deposit accounts.  In
the event of a transfer of Lessor’s interest in the Leased Property, Lessor
shall have the right to transfer the cash security deposit to the transferee and
thereupon shall, without any further agreement between the parties, be released
by Lessee from all liability therefor, and it is agreed that the provisions
hereof shall apply to every transfer or assignment of such cash security deposit
to a new Lessor.  The cash security deposit may be assigned as
security in connection with a Facility Mortgage.  IN ADDITION, WITH
RESPECT TO ANY CASH SECURITY DEPOSIT, LESSEE WAIVES THE PROVISIONS OF ANY
APPLICABLE LAWS NOW IN FORCE OR THAT BECOME IN FORCE AFTER THE DATE OF EXECUTION
OF THIS LEASE, THAT PROVIDE IN SUBSTANCE THAT LESSOR MAY CLAIM FROM A CASH
SECURITY DEPOSIT ONLY THOSE SUMS REASONABLY NECESSARY TO REMEDY DEFAULTS IN THE
PAYMENT OF RENT, TO REPAIR DAMAGE CAUSED BY LESSEE, OR TO CLEAN THE LEASED
PROPERTY.  LESSOR AND LESSEE AGREE THAT LESSOR MAY, IN ADDITION, CLAIM
THOSE SUMS NECESSARY TO COMPENSATE LESSOR FOR ANY OTHER FORESEEABLE OR
UNFORESEEABLE LOSS OR DAMAGE CAUSED BY ACT OR OMISSION OF LESSEE OR LESSEE’S
OFFICERS, AGENTS, EMPLOYEES, INDEPENDENT CONTRACTORS, OR INVITEES, INCLUDING,
BUT NOT LIMITED TO THOSE DAMAGES TO WHICH LESSOR IS ENTITLED PURSUANT TO ARTICLE
XVI.




21.4  Timing for Letters of Credit
or Cash Security Deposit




.  The
initial letter of credit or cash security deposit shall be obtained and
delivered to Lessor on or prior to the Commencement Date.  If Lessee
has obtained letters of credit pursuant to this Article XXI, any letters of
credit covering subsequent periods shall be obtained and delivered to Lessor not
less than thirty (30) days prior to the expiration of the then existing letter
of credit (“Letter of Credit Date”).  The term for each such letter of
credit shall begin no later than the expiration date of the previous letter of
credit and shall comply with all requirements of this Article XXI.




60


21.5  Uses of Letters of Credit or
Cash Security Deposit




.  Lessor
shall have the right to draw upon a letter of credit up to its full amount or
apply all or any portion of the cash security deposit up to its full amount, as
applicable, whenever (a) an Event of Default hereunder has occurred, (b) an
event of default under any other lease or agreement between Lessor or an
Affiliate of Lessor and Lessee or an Affiliate of Lessee or under any other
letter of credit, guaranty, mortgage, deed of trust, or other instrument now or
hereafter executed by Lessee or an Affiliate of Lessee in favor of Lessor or an
Affiliate of Lessor has occurred or (c) an event or circumstance has occurred
which with notice or passage of time, or both, would constitute an Event of
Default hereunder or an event of default under any such other lease, agreement,
letter of credit, guaranty, mortgage, deed of trust or other instrument, but
only if Lessor reasonably determines that transmittal of any such notice may be
barred by applicable debtor relief law.  In addition, if Lessee fails
to obtain a satisfactory letter of credit prior to the applicable Letter of
Credit Date, Lessor may draw upon the full amount of the then existing letter of
credit without giving any notice or time to cure to Lessee.  No such
draw upon the letter of credit or application of the cash security deposit, as
applicable, shall (i) cure or constitute a waiver of an Event of Default, (ii)
be deemed to fix or determine the amounts to which Lessor is entitled to recover
under this Lease or otherwise, or (iii) be deemed to limit or waive Lessor’s
right to pursue any remedies provided for in this Lease.  In the event
that the amount of funds drawn by Lessor under any letter of credit exceed the
obligations then owing by Lessee pursuant to the terms of this Lease, then such
excess funds drawn by Lessor shall be held by Lessor as a cash security deposit
for Lessee’s obligations under this Lease in accordance with the provisions of
this Article XXI.  If all or any portion of a letter of credit is
drawn against by Lessor, Lessee shall, within two (2) Business Days after demand
by Lessor, cause the issuer of such letter of credit to issue Lessor, at
Lessee’s expense, a replacement or supplementary letter of credit in
substantially the form attached hereto as Exhibit D or Lessee
shall deposit with Lessor a cash security deposit such that at all times during
the Term, Lessor shall have the ability to draw on one or more letters of credit
and/or cash security deposit totaling, in the aggregate, the Security Amount and
provided that no additional event has occurred that would otherwise entitle
Lessor to draw on the letter of credit or apply all or any portion of the cash
security deposit, as applicable, pursuant to the first sentence of this Section
21.4, Lessor shall, upon the receipt of such replacement or supplementary letter
of credit or cash security deposit, return to Lessee any such amounts drawn down
or applied pursuant to this sentence.  Likewise, if any portion of the
cash security deposit is applied by Lessor, Lessee shall, within two (2)
Business Days after demand by Lessor, cause an amount equal to the amount of
cash security deposit previously applied to be paid over to and deposited with
Lessor or shall cause a letter of credit meeting the requirements of this
Article XXI to be issued to Lessor such that at all times during the Term Lessor
shall have the ability to draw on one or more letters of credit and/or a cash
security deposit totaling, in the aggregate, the Security Amount.




ARTICLE
XXII.




22.1  Risk of
Loss




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




61


ARTICLE
XXIII.




23.1  General
Indemnification




.  In
addition to the other indemnities contained herein, and notwithstanding the
existence of any insurance carried by or for the benefit of Lessor or Lessee,
and without regard to the policy limits of any such insurance, Lessee shall
protect, indemnify, save harmless and defend Lessor from and against all
liabilities, obligations, claims, damages, penalties, causes of action, costs
and expenses, including reasonable attorneys’, consultants’ and experts’ fees
and expenses, imposed upon or incurred by or asserted against Lessor by reason
of:  (i) any accident, injury to or death of Persons or loss of or
damage to property occurring on or about the Leased Property or adjoining
sidewalks; (ii) any use, misuse, non-use, condition, maintenance or repair by
Lessee of the Leased Property; (iii) any failure on the part of Lessee to
perform or comply with any of the terms of this Lease; (iv) the
non-performance of any of the terms and provisions of any and all existing and
future subleases of the Leased Property to be performed by any party thereunder;
(v) any claim for malpractice, negligence or misconduct committed by any Person
on or working from the Leased Property; and (vi) the violation of any Legal
Requirement.  Any amounts which become payable by Lessee under this
Article shall be paid within ten (10) days after liability therefor is
determined by litigation or otherwise, and if not timely paid shall bear
interest at the Overdue Rate from the date of such determination to the date of
payment.  Lessee, at its sole cost and expense, shall contest, resist
and defend any such claim, action or proceeding asserted or instituted against
Lessor or may compromise or otherwise dispose of the same as Lessee sees fit;
provided, however, that any legal counsel selected by Lessee to defend Lessor
shall be reasonably satisfactory to Lessor.  All indemnification
covenants are intended to apply to losses, damages, injuries, claims, etc.
incurred directly by the indemnified parties and their property, as well as by
the indemnifying party or any third party, and their property.  For
purposes of this Article XXIII, any acts or omissions of Lessee, or by
employees, agents, assignees, contractors, subcontractors or others acting for
or on behalf of Lessee (whether or not they are negligent, intentional, willful
or unlawful), shall be strictly attributable to Lessee.  It is
understood and agreed that payment shall not be a condition precedent to
enforcement of the foregoing indemnification obligations.




ARTICLE
XXIV.




24.1  Transfers.




24.1.1  Prohibition.  Subject
to the provisions of Sections 24.1.10, 24.1.11 and 24.1.12 below, Lessee shall
not, without Lessor’s prior written consent, which consent may not be
unreasonably withheld or delayed (except as provided in the last sentence
hereof), either directly or indirectly or through one or more step transactions
or tiered transactions, voluntarily or by operation of law, (i) assign, convey,
sell, pledge, mortgage, hypothecate or otherwise encumber, transfer or dispose
of all or any part of this Lease or Lessee’s leasehold estate hereunder, (ii)
Master Sublease all or any part of the Leased Property and/or any Capital
Additions of any Facility or sublease any of the SNF Beds to a SNF Operator,
(iii) engage the services of any Person that is not an Affiliate of Lessee for
the management or operation of more than Ten Percent (10%) of the Leased
Property and/or any Capital Additions of any Facility or for the management or
operation of the SNF Beds to a SNF Operator, (iv) convey, sell, assign,
transfer or dispose of any stock or partnership,




62


membership
or other interests (whether equity or otherwise) in Lessee (which shall include
any conveyance, sale, assignment, transfer or disposition of any stock or
partnership, membership or other interests (whether equity or otherwise) in any
Controlling Person(s)), if such conveyance, sale, assignment, transfer or
disposition results in a change in control of Lessee (or in any Controlling
Person(s)), (v) dissolve, merge or consolidate Lessee (which shall include any
dissolution, merger or consolidation of any Controlling Person) with any other
Person, if such dissolution, merger or consolidation results in a change in
control of Lessee or in any Controlling Person(s), (vi) sell, convey, assign, or
otherwise transfer all or substantially all of the assets of Lessee (which shall
include any sale, conveyance, assignment, or other transfer of all or
substantially all of the assets of any Controlling Person) or (vii) consummate
or permit to be consummated any agreement or arrangement to do any of the
foregoing (each of the aforesaid acts referred to in clauses (i) through (vii)
being referred to herein as a “Transfer”).  For any Occupancy
Arrangement transaction not requiring the consent of Lessor hereunder (i.e., an
Occupancy Arrangement not constituting a Master Sublease or an engagement of a
Person and/or its Affiliates, directly or indirectly, to manage not more than
Ten Percent (10%) of any Facility), Lessee shall, within ten (10) days of
entering into any such Occupancy Arrangement or management engagement, notify
Lessor of the existence of such Occupancy Arrangement or management engagement
and the identity of the Occupant or manager, as the case may be, and supply
Lessor with a copy of the agreement relating to such Occupancy Arrangement or
management engagement and any other related documentation, materials or
information reasonably requested by Lessor.  Notwithstanding the
foregoing or any other provisions of this Lease to the contrary, Lessee
acknowledges that (x) it is Lessor’s practice not to permit any mortgages,
hypothecations, pledges or other encumbrances of leasehold interests by its
lessees, and (y) Lessor shall have the right to approve or disapprove of any
such mortgages hypothecation, pledge or other encumbrance of the leasehold
estate created hereby by Lessee (whether directly or indirectly) in Lessor’s
sole and absolute discretion, and (z) if Lessor shall approve the same Lessor
shall be entitled to impose such conditions in connection therewith as
Lessor deems appropriate in its sole and absolute descretion.




24.1.2  Consent.




24.1.2.1                           Subject
to the provisions of Sections 24.1.10, 24.1.11 and 24.1.12 below, prior to any
Transfer, Lessee shall first notify Lessor of its desire to do so and shall
submit in writing to Lessor, as applicable: (a) the name of the proposed
Occupant, assignee, manager or other transferee; (b) the terms and provisions of
the Transfer, including any agreements in connection therewith; and (c) such
financial information as Lessor may reasonably request concerning the proposed
Occupant, assignee, manager or other transferee.  In exercising its
right of reasonable approval or disapproval to a proposed Transfer, Lessor shall
be entitled to take into account any fact or factor that is commercially
reasonable to the making of such decision, including the following, all of which
are agreed to be reasonable factors for Lessor’s consideration:




(i)               The
financial strength of the proposed Occupant, assignee, manager or other
transferee, including the adequacy of its working capital.  In
connection with a Transfer resulting from a merger or consolidation to which
Lessee (including Emeritus, if Emeritus is the Lessee) or any
Controlling




63


Party is
a party, Lessor shall be entitled to compare the Consolidated Net Worth and debt
to equity ratio of the surviving party following the effectiveness of such event
as compared to the Consolidated Net Worth and debt to equity ratio of Lessee
(including Emeritus, if Emeritus is the Lessee) or any Controlling Party is a
party  prior to such event.




(ii)               The
operating experience of the proposed Occupant, assignee, manager or other
transferee with respect to businesses of the nature, type and size of the
applicable Facility.




(iii)               The
quality and reputation of the proposed Occupant, assignee, manager or other
transferee.




(iv)               Whether
such Transfer will cause a breach or violation of any material agreements to
which Lessee or any Controlling Person is a party.




(v)               Whether
there then exists any uncured Event of Default by Lessee pursuant to this Lease;
provided, however, that if (A) Lessee is proposing to enter into a Master
Sublease with respect to one or more Facilities, (B) there is no uncured
monetary Event of Default under this Lease, (C) a non-monetary Event of Default
has occurred at another Facility (i.e., a Facility that Lessee is not proposing
to Master Sublease), Lessor has not yet exercised any of its rights or remedies
on account thereof pursuant to Article XVI hereof, and Lessee is diligently
and in good faith proceeding to cure such non-monetary Event of Default at such
other Facility, then Lessor shall not take the same into account as the sole
basis for withholding its consent to any such proposed Master Sublease of such
other Facility(ies).




Moreover,
Lessor shall be entitled to be reasonably satisfied that each and every
covenant, condition or obligation imposed upon Lessee by this Lease and each and
every right, remedy or benefit afforded Lessor by this Lease is not materially
impaired or diminished by such Transfer.  Lessee acknowledges,
however, that any proposed partial assignment, conveyance, sale, transfer or
other disposition of this Lease or Lessee’s leasehold estate hereunder with
respect to less than all of the Facilities would materially impair the
covenants, conditions and obligations imposed upon Lessee by this Lease and the
rights, remedies and benefits afforded Lessor by this Lease as single,
integrated and indivisible agreement and economic unit with respect to all
Facilities, and therefore it would be reasonable for Lessor to withhold its
consent to any such partial assignment, conveyance, sale, transfer or other
disposition of this Lease or Lessee’s leasehold estate hereunder with respect to
less than all the Facilities on such basis.  No withholding of consent
by Lessor for any commercially reasonable reason shall give rise to any claim by
Lessee or any other Person or entitle Lessee to terminate this Lease or to any
abatement of Rent.




24.1.2.2                           Subject
to the provisions of Sections 24.1.10, 24.1.11 and 24.1.12 below, in connection
with any Transfer, Lessor shall be entitled to receive the applicable Transfer
Consideration, if any.




64


24.1.2.3                           In
connection with any Transfer, Lessor shall be entitled to require as a condition
to any such Transfer that the obligations of any Occupant, assignee, manager or
other transferee which is an Affiliate of another Person be guaranteed by its
ultimate parent or other ultimate Controlling Person pursuant to a written
guaranty in form and substance reasonably acceptable to Lessor and that, subject
to Section 24.1.3 below, any existing Guaranty of this Lease be reaffirmed by
the applicable Guarantor notwithstanding such Transfer.




24.1.2.4                           The
consent by Lessor to any Transfer shall not constitute a consent to any
subsequent Transfer or to any subsequent or successive Transfer.  Any
purported or attempted Transfer contrary to the provisions of this Article shall
be void and, at the option of Lessor, shall terminate this Lease.




24.1.3  Release of Existing Lessee
and Guarantors Upon Certain Transfers.  Upon the consummation
of any Transfer by Lessee that (a) constitutes an assignment of Lessee’s entire
interest in this Lease, (b) requires Lessor’s prior written consent pursuant to
the terms of this Article XXIV, and (c) receives such prior written consent by
Lessor, Lessor shall release Lessee and any current Guarantor from all
obligations arising under this Lease and any current Guaranty, as applicable,
following the effective date of such Transfer, so long as each of the following
conditions is met:




(i)  The
Consolidated Net Worth of the assignee, immediately following the effectiveness
of such Transfer shall be equal to or greater than an amount equal to the
Consolidated Net Worth of Emeritus as of the Commencement Date as reasonably
determined by Lessor.




(ii)  The debt
to equity ratio of the assignee following the effectiveness of such Transfer
shall be equal to or less than an amount equal to the debt to equity ratio of
Emeritus as of the Commencement Date as reasonably determined by
Lessor.  For purposes of this clause (ii), “debt” shall include the
capitalized value of any leases required to be capitalized in accordance with
GAAP to which Emeritus and/or such assignee (and/or their consolidated
Subsidiaries) are parties and the same shall be demonstrated by financial
statements prepared in accordance with GAAP and reasonably satisfactory to
Lessor.




(iii)  The
assignee shall have adequate experience and skill in (i) operating facilities
comparable to the applicable Facility(ies) and (ii) a business of the nature,
type and size of the business of Emeritus immediately prior to the effectiveness
of such Transfer, as determined by Lessor in its reasonable
discretion.




24.1.4  Attornment and
Related
Matters.  Any Commercial Occupancy Arrangement (including any
Master Sublease or sublease to a SNF Operator) or management engagement shall be
expressly subject and subordinate to all applicable terms and conditions of this
Lease.  With respect to any Commercial Occupancy Arrangement or
management agreement, Lessor, at its option and without any obligation to do so,
may require any Occupant under any such Commercial Occupant Arrangement or
manager to attorn to Lessor, in which event Lessor shall undertake the
obligations of Lessee, as sublessor, licensor




65


or
otherwise under such Commercial Occupancy Arrangement or management engagement
from the time of the exercise of such option to the termination of such
Commercial Occupancy Arrangement or management engagement and in such case
Lessor shall not be liable for any prepaid rents, fees or other charges or for
any prepaid security deposits paid by such Occupant under any such Commercial
Occupant Arrangement to Lessee or for any other prior defaults of Lessee under
such Commercial Occupancy Arrangement or management engagement.  In
the event that Lessor shall not require such attornment with respect to any such
Commercial Occupancy Arrangement or management engagement, then such Commercial
Occupancy Arrangement or management engagement shall automatically terminate
upon the expiration or earlier termination of this Lease, including any early
termination by mutual agreement of Lessor and Lessee.  Furthermore,
any such Commercial Occupancy Arrangement, management engagement or other
agreement regarding a Transfer shall expressly provide that the Occupant,
assignee, manager or other transferee shall furnish Lessor with such financial,
operational or other information about the physical condition of the applicable
Facility, including the information required by Section 25.1.2 herein, as Lessor
may request from time to time.




24.1.5  Assignment of
Lessee’s Rights Against Occupant
Under a Master Sublease or Sublease to a SNF Operator.  If
Lessor shall consent to a Master Sublease or a sublease of the SNF Beds to a SNF
Operator, then the written instrument of consent, executed and acknowledged by
Lessor, Lessee and the Occupant under such Master Sublease or SNF Bed sublease,
as the case may be, shall contain a provision substantially similar to the
following:




(i)               Lessee
and such Occupant hereby agree that, if such Occupant shall be in default of any
of its obligations under the Master Sublease or SNF Bed sublease, which default
also constitutes an Event of Default by Lessee under this Lease (subject to the
express provisions of Section 16.11 hereof), then Lessor shall be permitted to
avail itself of all of the rights and remedies available to Lessee against such
Occupant in connection therewith.




(ii)               Without
limiting the generality of the foregoing, Lessor shall be permitted (by
assignment of a cause of action or otherwise) to institute an action or
proceeding against such Occupant in the name of Lessee in order to enforce
Lessee’s rights under the Master Sublease or SNF Bed sublease, and also shall be
permitted to take all ancillary actions (e.g., serve default notices and
demands) in the name of Lessee as Lessor reasonably shall determine to be
necessary.




(iii)               Lessee
agrees to cooperate with Lessor, and to execute such documents as shall be
reasonably necessary, in connection with the implementation of the foregoing
rights of Lessor.




(iv)               Lessee
expressly acknowledges and agrees that the exercise by Lessor of any of the
foregoing rights and remedies shall not constitute an election of remedies, and
shall not in any way impair Lessor’s entitlement to pursue other rights and
remedies directly against Lessee.




66


24.1.6  Costs.  Lessee
shall reimburse Lessor for Lessor’s reasonable costs and expenses incurred in
conjunction with the processing and documentation of any request for consent as
required under this Article XXIV, including reasonable attorneys’, architects’,
engineers’ or other consultants’ fees whether or not the transaction for which
consent is requested is actually consummated.




24.1.7  NoRelease of
Lessee’s
Obligations.  Except as expressly set forth in Section 24.1.3
above, no Transfer shall relieve Lessee of its obligation to pay the Rent and to
perform all of the other obligations to be performed by Lessee
hereunder.  Except as expressly set forth in Section 24.1.3 above, the
liability of Lessee named herein and any immediate and remote successor in
interest of Lessee (i.e., by means of any
Transfer), and the due performance of the obligations of this Lease on Lessee’s
part to be performed or observed, shall not in any way be discharged, released
or impaired by any (i) agreement which modifies any of the rights or obligations
of the parties under this Lease, (ii) stipulation which extends the time within
which an obligation under this Lease is to be performed, (iii) waiver of the
performance of an obligation required under this Lease, or (iv) failure to
enforce any of the obligations set forth in this Lease.  Except as
expressly set forth in Section 24.1.3 above, if any such Occupant, assignee,
manager or other transferee defaults in any performance due hereunder, Lessor
may proceed directly against the Lessee named herein and/or any immediate and
remote successor in interest of Lessee without exhausting its remedies against
such Occupant, assignee, manager or other transferee.




24.1.8  REIT
Protection.  Anything contained in this Lease to the contrary
notwithstanding, no Transfer shall be consummated on any basis such that, based
on the reasonable advice of Lessor’s outside counsel, the status of Lessor as a
real estate investment trust could be jeopardized because (i) the rental or
other amounts to be paid by the Occupant, assignee, manager or other transferee
thereunder would be based, in whole or in part, on the income or profits derived
by the business activities of the Occupant, assignee, manager or other
transferee; (ii) the Transfer is with any Person in which Lessee or Lessor owns
an interest, directly or indirectly (by applying constructive ownership rules
set forth in Section 856(d)(5) of the Code); or (iii) the Transfer is to be
consummated with a Person or in a manner which could cause any portion of the
amounts received by Lessor pursuant to this Lease or any Occupancy Arrangement
to fail to qualify as “rents from real property” within the meaning of Section
856(d) of the Code, or any similar or successor provision thereto or which could
cause any other income of Lessor to fail to qualify as income described in
Section 856(c)(2) of the Code.  Lessee shall provide such information
as Lessor’s outside counsel may reasonably request to provide its advice
regarding the foregoing, and in rendering such advice, Lessor’s counsel shall be
entitled to rely on factual representations from Lessee and Lessor; provided,
however, that Lessee shall have no liability therefor if Lessee has provided
such information and representations in good faith and after a reasonably
diligent review and inquiry of the subject matter thereof.




24.1.9  Transfers In
Bankruptcy.  It is the intent of the parties hereto that in the
event of a Transfer pursuant to the provisions of the Bankruptcy Code, all
consideration payable or otherwise to be delivered in connection with such
Transfer shall be paid or delivered to Lessor, shall be and remain the exclusive
property of Lessor and shall not constitute property of Lessee or of the estate
of Lessee within the meaning of the




67


Bankruptcy
Code.  Any consideration constituting Lessor’s property pursuant to
the immediately preceding sentence and not paid or delivered to Lessor shall be
held in trust for the benefit of Lessor and be promptly paid or delivered to
Lessor.  For purposes of this Section 24.1.9, the term “consideration”
shall mean and include money, services, property and any other thing of value
such as payment of costs, cancellation or forgiveness of indebtedness,
discounts, rebates, barter and the like.  If any such consideration is
in a form other than cash (such as in kind, equity interests, indebtedness
earn-outs, or other deferred payments, consulting or management fees, etc.)
Lessor shall be entitled to receive in cash the then present fair market value
of such consideration.  Notwithstanding any provision of this Lease to
the contrary, including this Section 24.1.9, it is expressly understood and
agreed that it is the intention of the parties hereto that, notwithstanding any
provision of the Bankruptcy Code, including Section 365(f) thereof, Lessee is
precluded from effecting any Transfer of a Facility except as may otherwise be
expressly provided in this Lease.




24.1.10  Public Offering/Public
Trading.  Notwithstanding anything to the contrary in this
Article XXIV, (i) Lessor’s consent shall not be required in connection with, and
the other provisions of this Article XXIV shall not apply to any transfer of any
stock of Lessee as a result of a public offering of Lessee’s stock (which
transfers shall be deemed not to be “Transfers” hereunder) which (a) constitutes
a bona fide public distribution of such stock pursuant to a firm commitment
underwriting or a plan of distribution registered under the Securities Act of
1933 and (b) results in such stock being listed for trading on the American
Stock Exchange or the New York Stock Exchange or authorized for quotation on the
NASDAQ National Market immediately upon the completion of such public offering,
(ii) for so long as the stock of Lessee or any Controlling Person(s) is listed
for trading on the American Stock Exchange or the New York Stock Exchange or
authorized for quotation on the NASDAQ National Market, the transfer or exchange
of such stock over such exchange or market (which transfers or exchanges
shall be deemed not to be “Transfers” hereunder).




24.1.11  Certain Other
Transfers. Notwithstanding anything to the contrary in this Article XXIV,
but subject to the provisions of Section 24.1.8 above, so long as Emeritus has
other material assets other than its interest (whether direct or indirect) in
this Lease, the Facilities and any other leases of facilities between Lessor or
an Affiliate of Lessor and Emeritusor
an Affiliate of Emeritus, Lessor shall consent to any
Transfer resulting from (a) a sale or transfer of all or substantially all of
the outstanding capital stock of Emeritus or a sale or transfer of all or
substantially all of the assets of Emeritus, in each case to a single purchaser
or transferee in a single transaction or (b) a merger, consolidation or stock
exchange to which Emeritus is a party, and the provisions of Section
24.1.2.2 shall not apply  (i.e., there shall not be any Transfer
Consideration payable) in connection with or related to to such Transfer, so
long as each of the following conditions is met:




(i)               The
Consolidated Net Worth of the purchaser or transferee resulting from a Transfer
pursuant to clause (a) above or the surviving party resulting from a Transfer
pursuant to clause (b) above, as the case may be, following the effectiveness of
such event shall be equal to or greater than the average Consolidated Net Worth
of Emeritus for the twelve (12) month period immediately prior to the
effectiveness of such event, as reasonably determined by Lessor;




68


(ii)               The
debt to equity ratio of the purchaser or transferee resulting from a Transfer
pursuant to clause (a) above or the surviving party resulting from a Transfer
pursuant to clause (b) above, as the case may be, following the effectiveness of
such event shall be equal to or less than the average debt to equity ratio of
Emeritus for the twelve (12) month period immediately prior to the effectiveness
of such event, as reasonably determined by Lessor.  For purposes of
this clause (ii), “debt” shall include the capitalized value of any leases
required to be capitalized in accordance with GAAP to which Emeritus and/or such
transferee or surviving entity (and/or their consolidated Subsidiaries) are
parties and the same shall be demonstrated by financial statements prepared in
accordance with GAAP and reasonably satisfactory to Lessor;




(iii)               The
purchaser or transferee resulting from a Transfer pursuant to clause (a) above
or the other party(s) to the Transfer pursuant to clause (b) above, as the case
may be, shall have sufficient operating experience and history with respect to a
business of the nature, type and size of the business of Emeritus as the same
exists prior to the effectiveness of such event, as reasonably determined
by Lessor.  Such purchaser or transferee or other party to such
Transfer, as the case may be, shall be deemed to have “sufficient operating
experience and history” if, (A) the core management team of such purchaser,
transferee or other party, as the case may be, has an average of not less
than three (3) years’ operating experience with respect to the operation and
management of facilities of the type and nature operated and/or managed by
Emeritus and its Subsidiary(ies), or (B) such transferee or purchaser
or other party, as the case may be, shall immediately following the
effectiveness of such Transfer, and for a period of not less than one (1) year
thereafter, retain and/or hire in a full-time management or consulting capacity
a majority of the principal officers of Emerituswho
were in the employment of Emeritusprior
to the effectiveness of such Transfer;




(iv)               Except
in the case of a Transfer as to which such transferee or purchaser or surviving
party, as the case may be, assumes the obligations of Lessee hereunder and any
Guarantorunder
the applicable Guaranty as a matter of law, such transferee or purchaser or
surviving party shall execute a written assumption of this Lease and with
respect to each Guaranty, either (A) a written assumption of such Guaranty in
form and substance reasonably acceptable to Lessor or (B) a new guaranty of this
Lease consistent in form and substance with each such Guaranty.  In
addition, if any such transferee, purchaser or surviving party is an Affiliate
of another Person, its ultimate parent or other ultimate Controlling Person
shall execute a written guaranty of Lessee’s obligations under this Lease
pursuant to a written guaranty in form and substance reasonably acceptable to
Lessor;




(v)               No
Event of Default shall have occurred and be continuing hereunder;




(vi)               [Intentionally
Omitted]; and




69


(vii)               Lessor
shall receive the applicable information required by Section 24.1.2.1(i) with
respect to each such proposed Transfer and the proposed purchaser or transferee
resulting therefrom.




As used
in this Section 24.1.11, “other material assets” shall mean that Emeritushas
other net assets as determined in accordance with GAAP, whether direct or
indirect, other than its interests (whether direct or indirect) in this Lease,
the Facilities and the facilities covered thereby and any other facilities
leased by Emeritusor
an Affiliate of Emeritusfrom
Lessor or an Affiliate of Lessor, which in the aggregate total not less than
$100,000,000 or represent at least Forty Percent (40%) of the total net assets
as determined in accordance with GAAP of Emeritus, including its interests
(whether direct or indirect) in the Facilities and any other facilities leased
by Emeritus or any Affiliate of Emeritus from Lessor or an Affiliate of
Lessor.




24.1.12  Affiliate Transactions.  Notwithstanding
anything to the contrary contained in this Article XXIV but subject to the
provisions of Section 24.1.8 above, Lessor’s consent shall not be required in
connection with, and the provisions of Section 24.1.2.2 shall not apply (i.e.,
there shall not be any Transfer Consideration payable) in connection with or
related to any such assignment of Lessee’s interest in this Lease to any
Affiliate(s) of Lessee, so long as in connection therewith, each of the
following conditions is met:




(i)  In
connection with such assignment, there is no change in the use of the Leased
Property of any Facility from its Primary Intended Use;




(ii)  No Event
of Default shall have occurred and be continuing hereunder;




(iii)  The
assignee shall assume all of the obligations of Lessee hereunder accruing
subsequent to the effective date of such assignment by an instrument in writing
in form and substance reasonably satisfactory to Lessor.  A copy of
such executed assumption shall be delivered to Lessor along with the notice
specified in clause (v) below;




(iv)  Except as
expressly set forth in clause (vi) below, the original Lessee shall not be
released from any of the obligations of the Lessee hereunder, whether occurring
prior to or after the effective date of such transaction, and if requested by
Lessor, shall execute a written guaranty of the “Lessee’s” obligations under
this Lease in a form satisfactory to Lessor.  In addition, no
Guarantor shall be released from any of its obligations under any Guaranty and
each Guarantor shall, if requested by Lessor, execute a written reaffirmation of
such Guaranty in a form satisfactory to Lessor; and




(v)  Within
ten (10) days after the effectiveness of such transaction, Lessee shall notify
Lessor in writing of the occurrence of such event, the effective date thereof,
the facts placing the same within the provisions of this Section 24.1.12 and any
other change in the address for billings and notices to the Lessee




70


pursuant
to this Lease, accompanied by an executed copy of the assumption or written
guaranty as required pursuant to this Lease.




(vi)  Notwithstanding
anything to the contrary contained in this Section 24.1.12, the original Lessee
following an assignment to any Affiliate(s) of Lessee as provided in this
Section 24.1.12 shall be released from all obligations under this Lease upon the
dissolution or liquidation of such original Lessee.




ARTICLE
XXV.




25.1  Officer’s Certificates and Financial
Statements




25.1.1  Officer’s
Certificate.  At any time and from time to time upon Lessee’s
receipt of not less than ten (10) days’ prior written request by Lessor, Lessee
shall furnish to Lessor an Officer’s Certificate certifying (i) that this Lease
is unmodified and in full force and effect, or that this Lease is in full force
and effect as modified and setting forth the modifications; (ii) the dates to
which the Rent has been paid; (iii) whether or not, to the best knowledge of
Lessee, Lessor is in default in the performance of any covenant, agreement or
condition contained in this Lease and, if so, specifying each such default of
which Lessee may have knowledge; and (iv) responses to such other questions or
statements of fact as Lessor, any ground or underlying lessor, any purchaser or
any current or prospective Facility Mortgagee shall reasonably
request.  Lessee’s failure to deliver such statement within such time
shall constitute an acknowledgement by Lessee that (x) this Lease is unmodified
and in full force and effect except as may be represented to the contrary by
Lessor; (y) Lessor is not in default in the performance of any covenant,
agreement or condition contained in this Lease; and (z) the other matters set
forth in such request, if any, are true and correct.  Any such
certificate furnished pursuant to this Article may be relied upon by Lessor and
any current or prospective Facility Mortgagee, ground or underlying lessor or
purchaser of the Leased Property.




25.1.2  Statements.  Lessee
shall furnish the following statements to Lessor:




(a)  within
120 days after the end of each of Lessee’s and each Guarantor’s (if any) fiscal
years, a copy of the audited consolidated balance sheets of Lessee, its
consolidated Subsidiaries and each Guarantor (if any) as of the end of such
fiscal year, and related audited consolidated statements of income, changes in
common stock and other stockholders’ equity and changes in the financial
position of Lessee, its consolidated Subsidiaries and each Guarantor (if any)
for such fiscal year, prepared in accordance with GAAP applied on a basis
consistently maintained throughout the period involved, such consolidated
financial statements to be certified by nationally recognized certified public
accountants;




(b)  within
120 days after the end of each of Lessee’s and each Guarantor’s (if any) fiscal
years, and together with the annual audit report furnished in accordance with
clause (a) above, an Officer’s Certificate stating that to the best of the
signer’s knowledge and belief after making due inquiry, Lessee is not in default
in the




71


performance
or observance of any of the terms of this Lease, or if Lessee shall be in
default, specifying all such defaults, the nature thereof, and the steps being
taken to remedy the same;




(c)  within
thirty (30) days after the end of each calendar month, all monthly financial
reports Lessee produces for reporting purposes and detailed statements of income
and detailed operational statistics regarding occupancy rates, patient and
resident mix and patient and resident rates by type for each Facility for each
such calendar month;




(d)  within
120 days after the end of each of Lessee’s fiscal years, a copy of each cost
report filed with the appropriate governmental agency for each
Facility;




(e)  within
forty-five (45) days after the end of each fiscal quarter (other than the last
fiscal quarter during any fiscal year of the applicable Person), Lessee shall
furnish to Lessor (i) a copy of the unaudited consolidated balance sheets of
Lessee, each Guarantor (if any) and their respective consolidated Subsidiaries
as of the end of such fiscal quarter, and related unaudited consolidated
statements, changes in common stock and other stockholders’ equity and changes
in the financial position of Lessee, each Guarantor (if any) and their
respective consolidated Subsidiaries for such fiscal quarter, and (ii) a
statement of income of Lessee, each Guarantor (if any) and their respective
consolidated Subsidiaries that sets forth the results for both such fiscal
quarter and year-to-date, in all cases prepared in accordance with GAAP applied
on a basis consistently maintained throughout the applicable
period;




(f)  not later
than fifteen (15) days before the end of each calendar year during the Term, a
capital expenditure and operations budget for the next calendar year for each
Facility, setting forth an estimate, on a monthly basis, of Gross Revenues,
together with an explanation of anticipated changes to resident charges, payroll
rates and positions, non-wage cost increases, and all other factors differing
from the current calendar year;




(g)  within
thirty (30) days after they are required to be filed with the SEC, copies of any
annual reports and of information, documents and other reports, or copies of
such portions of any of the foregoing as the SEC may prescribe, which Lessee is
required to file with the SEC pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934;




(h)  immediately
upon Lessee’s receipt thereof, copies of all written communications received by
Lessee from any regulatory agency relating to (i) surveys of any Facility
for purposes of licensure, Medicare and Medicaid certification and accreditation
and (ii) any proceeding, formal or informal, with respect to cited deficiencies
with respect to services and activities provided and performed at any Facility,
including patient and resident care, patient and resident activities, patient
and resident therapy, dietary, medical records, drugs and medicines, supplies,
housekeeping and maintenance, or the condition of such Facility, and involving
an actual or threatened




72


warning,
imposition of a fine or a penalty, or suspension, termination or revocation of
such Facility’s license to be operated in accordance with its Primary Intended
Use;




(i)  within
120 days after the end of each fiscal year of the financial institution issuing
the letter of credit required under Article XXI, a copy of the audited
consolidated balance sheets of such financial institution as of the end of such
fiscal year, and related unaudited consolidated statements of income, changes in
common stock and other stockholders equity and changes in the financial position
of such financial institution and its consolidated subsidiaries for each
such fiscal year, prepared in accordance with generally accepted accounting
principles applied on a basis consistently maintained throughout the period
involved, such consolidated financial statements to be certified by nationally
recognized certified public accountants;




(j)  immediately
upon Lessee’s receipt thereof, copies of all claims, reports, complaints,
notices, warnings or asserted violations relating in any way to the Leased
Property or any Capital Additions or Lessee’s use thereof; and




(k)  with
reasonable promptness, such other information respecting (i) the financial and
operational condition and affairs of Lessee, any Guarantor and each Facility,
(ii) the physical condition of the Leased Property and any Capital Addition
thereto and (iii) any suspected Transfer, in each case as Lessor or any Facility
Mortgagee may reasonably request, in the form of a questionnaire or otherwise,
from time to time.




25.1.3  Charges.  Lessee
acknowledges that the failure to furnish Lessor with any of the certificates or
statements required by this Article XXV will cause Lessor to incur costs and
expenses not contemplated hereunder, the exact amount of which is presently
anticipated to be extremely difficult to ascertain.  Accordingly, if
Lessee fails to furnish Lessor with any of the certificates or statements
required by this Article XXV, Lessee shall pay to Lessor upon demand $1,000
for each such failure as Additional Charges.  The parties agree that
this charge represents a fair and reasonable estimate of the costs that Lessor
will incur by reason of Lessee’s failure to furnish Lessor with such
certificates and statements.




25.1.4  Lessee’s Submission of
Certificates/Statements.  Lessee shall be obligated to furnish
Lessor with all certificates and statements required under this Article XXV by
(i) delivery of printed copies of the same to Lessor at its address set forth in
Article XXXIII below or any other address that Lessor may from time to time
designate in writing and (ii) electronic delivery of the same to Lessor
in Microsoft® Office Excel format (or such other format as Lessor may from
time to time reasonably require) at any electronic mail address that Lessor may
from time to time designate in writing.




ARTICLE
XXVI.




26.1  Lessor’s Right to Inspect and Show
the Leased Property




.  Lessee
shall permit Lessor and its authorized representatives upon two (2) Business
Days’ prior notice to (i) inspect the Leased Property of any Facility and any
Capital Addition thereto and (ii) exhibit the same to prospective purchasers and
lenders, and during the last twelve




73


(12)
months of the Term, to prospective lessees or managers, in each instance during
usual business hours and subject to any reasonable security, health, safety or
confidentiality requirements of Lessee or any Legal Requirement or Insurance
Requirement.  Lessee shall cooperate with Lessor in exhibiting the
Leased Property of any Facility and any Capital Additions thereto to prospective
purchasers, lenders, lessees and managers.




ARTICLE
XXVII.




27.1  No
Waiver




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




ARTICLE
XXVIII.




28.1  Remedies
Cumulative




.  Each
legal, equitable or contractual right, power and remedy of Lessor now or
hereafter provided either in this Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power
and remedy and the exercise or beginning of the exercise by Lessor of any one or
more of such rights, powers and remedies shall not preclude the simultaneous or
subsequent exercise by Lessor of any or all of such other rights, powers and
remedies.




ARTICLE
XXIX.




29.1  Acceptance of
Surrender




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




ARTICLE
XXX.




30.1  No
Merger




.  There
shall be no merger of this Lease or of the leasehold estate created hereby by
reason of the fact that the same Person may acquire, own or hold, directly or
indirectly, (i) this Lease or the leasehold estate created hereby or any
interest in this Lease or such leasehold estate and (ii) the fee estate in the
Leased Property or any part(s) thereof.




ARTICLE
XXXI.




31.1  Conveyance by
Lessor




.  If
Lessor or any successor owner of the Leased Property shall convey the Leased
Property other than as security for a debt, Lessor or such successor owner, as
the case may be, shall thereupon be released from all future liabilities and
obligations of the Lessor under this Lease arising or accruing from and after
the date of such conveyance or other transfer and all such future liabilities
and obligations shall thereupon be binding upon the new owner.




74


31.2  New
Lease




.  Lessor
shall have the right, in connection with any Separation Event during the Term
for any purpose, by written notice to Lessee, to require Lessee to execute an
amendment to this Lease whereby the Leased Property of one or more Facilities
affected by such Separation Event (individually, a “Separated Property” or
collectively, the “Separated Properties”) is separated and removed from this
Lease, and to simultaneously execute a substitute lease with respect to such
Separated Property(ies), in which case:




31.2.1  Lessor
and Lessee shall execute a new lease (the “New Lease”) for such Separated
Property(ies), effective as of the date specified in Section 31.2.3. below (the
“New Lease Effective Date”), in the same form and substance as this Lease, but
with such changes thereto as necessary to reflect the separation of the
Separated Property(ies) from the balance of the Leased Property, including
specifically the following:




(i)  The total
monthly Minimum Rent payable under such New Lease shall be the total applicable
monthly Allocated Minimum Rent with respect to such Separated
Property(ies);




(ii)  All
Minimum Rent rental escalations under such New Lease shall be at the times and
in the amounts set forth in this Lease for Minimum Rent increases for the
applicable Separated Property(ies);




(iii)  The
Minimum Purchase Price payable under such New Lease shall be the aggregate of
the Allocated Minimum Purchase Price for such Separated Property(ies);
and




(iv)  Such New
Lease shall provide that the lessee thereunder shall be responsible for the
payment, performance and satisfaction of all duties, obligations and liabilities
arising under this Lease, insofar as they relate to the Separated Property(ies),
that were not paid, performed and satisfied in full prior to the effective date
of such New Lease (and Lessee under this Lease shall also be responsible for the
payment, performance and satisfaction of the aforesaid duties, obligations and
liabilities not paid, performed and satisfied in full prior to the effective
date of such New Lease).




31.2.2  Lessor
and Lessee shall also execute an amendment to this Lease effective as of such
New Lease Effective Date reflecting the separation of the Separated
Property(ies) from the balance of the Leased Property and making such
modifications to this Lease as are necessitated thereby.




31.2.3  In the
case of any New Lease that is entered into in accordance with this Section 31.2
such New Lease shall be effective on the date which is the earlier of (i) the
date such New Lease is fully executed and delivered by the parties thereto and
(ii) the date specified in the written notice from Lessor to Lessee requiring
such New Lease as described above, which date shall be no sooner than ten (10)
days after the date such notice is issued.




75


31.2.4  Lessee’s
obligation to provide letters of credit in accordance with Article XXI of this
Lease shall be segregated so that (a) the applicable Lessee shall be required to
provide a letter of credit pursuant to such New Lease, on the same terms and
conditions as set forth in this Lease, except that ‘Letter of Credit Amount’
under such New Lease shall mean an amount equal to the applicable Letter of
Credit Amount for the Separated Property(ies), and (b) the ‘Letter of Credit
Amount’ under this Lease (as amended) shall be reduced by the ‘Letter of Credit
Amount’ for such New Lease determined in accordance with subsection (a)
above.




31.2.5  Lessee
and Lessor shall take such actions and execute and deliver such documents,
including without limitation such New Lease and an amendment to this Lease, as
are reasonably necessary and appropriate to effectuate the provisions and intent
of this Section 31.2.




31.2.6  Each party shall bear its own costs and
expenses in connection with any such New Lease entered into in accordance with
this Section 31.2.




ARTICLE
XXXII.




32.1  Quiet
Enjoyment




.  So
long as Lessee shall pay the Rent as the same becomes due and shall fully comply
with all of the terms of this Lease and fully perform its obligations hereunder,
Lessee shall peaceably and quietly have, hold and enjoy the Leased Property of
each Facility for the Term, free of any claim or other action by Lessor or
anyone claiming by, through or under Lessor, but subject to all liens and
encumbrances of record as of the Commencement Date or created thereafter as
permitted hereunder or thereafter consented to by Lessee.  No failure
by Lessor to comply with the foregoing covenant shall give Lessee any right to
cancel or terminate this Lease or abate, reduce or make a deduction from or
offset against the Rent or any other sum payable under this Lease, or to fail to
perform any other obligation of Lessee hereunder.  Notwithstanding the
foregoing, Lessee shall have the right, by separate and independent action to
pursue any claim it may have against Lessor as a result of a breach by Lessor of
the covenant of quiet enjoyment contained in this Article.




ARTICLE
XXXIII.




33.1  Notices




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




If
      to Lessor:
            c/o
      HCP, Inc.




3760
      Kilroy Airport Way, Suite 300




Long
      Beach, California 90806




Attn:  Legal
      Department




Fax:  (562)
      733-5200




with
      a copy to:
            Latham
      & Watkins LLP




650
      Town Center Drive, 20th
      Floor









76


Costa
Mesa, California 92626




Attn:  David
C. Meckler, Esq.




Fax:  (714)
755-8290




If
      to Lessee:
            Emeritus
      Corporation




3131
      Elliott Avenue, Suite 500




Seattle,
      Washington 98121




Attn:  Eric
      Mendelsohn




Fax:  (206)
      357-7388




with
      a copy to:
            The
      Nathanson Group




One
      Union Square




600
      University Street, Suite 200




Seattle,
      Washington 98101




Attn:  Randi
      S. Nathanson, Esq.




Fax:  (206)
      623-1738




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




ARTICLE
XXXIV.




34.1  Appraiser




.  If
it becomes necessary to determine the Fair Market Value, Fair Market Rental or
Leasehold FMV of any Facility for any purpose of this Lease, the same shall be
determined by an independent appraisal firm, in which one or more of the
members, officers or principals of such firm are Members of the Appraisal
Institute (or any successor organization thereto), as may be reasonably selected
by Lessor (the “Appraiser”).  Lessor shall cause such Appraiser to
determine the Fair Market Value, Fair Market Rental or Leasehold FMV of such
Facility as of the relevant date (giving effect to the impact, if any, of
inflation from the date of the Appraiser’s decision to the relevant date) and
the determination of such Appraiser shall be final and binding upon the
parties.  A written report of such Appraiser shall be delivered and
addressed to each of Lessor and Lessee.  To the extent consistent with
sound appraisal practice as then existing at the time of any such appraisal, an
appraisal of Fair Market Value for purposes of this Lease shall take into
account and shall give appropriate consideration to all three customary methods
of appraisal (i.e., the cost approach, the sales comparison approach and the
income approach), and no one method or approach shall be deemed conclusive
simply by reason of the nature of Lessor’s business or because such approach may
have been used for purposes of determining the fair market value of such
Facility at the time




77


of
acquisition thereof by Lessor.  This provision for determination by
appraisal shall be specifically enforceable to the extent such remedy is
available under applicable law, and any determination hereunder shall be final
and binding upon the parties except as otherwise provided by applicable
law.  Lessor and Lessee shall each pay one-half (1/2) of the fees and
expenses of the Appraiser and one-half (1/2) of all other costs and expenses
incurred in connection with such appraisal.




ARTICLE
XXXV.




35.1  Lessee’s Option to Purchase the
Leased Property.




Provided
(a) no Event of Default, or event which, with notice or lapse of time or both,
would constitute an Event of Default, has occurred and is continuing hereunder
and (b) EBITDARM Coverage for the Facilities then subject to this Lease and any
Facility(ies) subject to a New Lease hereafter with or in favor of Lessor or any
Affiliate of Lessor, taken as a whole, which are then subject to this Lease or a
New Lease for the twelve (12) months preceding the date on which Lessee
exercises its option pursuant to this Section 35.1 exceeds 1.0, then Lessee
shall have the option to purchase the Leased Property of all (but not less than
all) of the Facilities then subject to the terms of this Lease and any
Facility(ies) subject to a New Lease hereafter with or in favor of Lessor or any
Affiliate of Lessor upon the expiration of the fifth (5th) Lease
Year of the Term and at any point during the Term thereafter (the “Option
Period”), at the Purchase Option Price.  Lessee may exercise such
option to purchase the Leased Property of all (but not less than all) of the
Facilities then subject to the terms of this Lease and any Facilitiy(ies)
subject to a New Lease hereafter with or in favor of Lessor or any Affiliate of
Lessor by (i) opening an escrow (the “Escrow”) by depositing either (1)
cash or (2) a letter of credit from a financial institution and in form in each
case acceptable to Lessor, the sum of Two and One-Half Percent (21⁄2%) of the
Minimum Purchase Price (the “Opening Deposit”) and a copy of this Lease and each
New Lease with a national title company reasonably acceptable to Lessor (“Escrow
Holder”), (ii) giving written notice to Lessor of such deposit with Escrow
Holder (the “Option Exercise Notice”) and specifying the date on which Lessee
shall acquire the Leased Property of all (but not less than all) of the
Facilities then subject to the terms of this Lease and any Facility(ies) subject
to a New Lease hereafter with or in favor of Lessor or any Affiliate of Lessor
(the “Purchase Option Closing Date”), which Purchase Option Closing Date shall
not be (A) earlier than two hundred seventy (270) days following the date of
Lessee's notice or (B) later than the Expiration Date, and (iii) if applicable,
delivering to Lessor concurrent with the Option Exercise Notice a reaffirmation
of each Guaranty executed by the applicable Guarantor stating, in substance,
that such Guarantors’ obligations under such Guaranty shall extend to the
purchase contract formed by Lessor and Lessee upon proper and timely exercise of
such option.  For the avoidance of doubt, Lessor and Lessee agree
that, if Lessee desires to exercise its purchase option as herein provided and
acquire the Leased Property on the Expiration Date, Lessee shall deliver notice
of such exercise to Lessor and satisfy the other conditions set forth herein, no
later than two hundred seventy (270) days prior to Expiration
Date.  If Lessee shall not be entitled to exercise such option (e.g.,
by reason of an Event of Default) or shall be entitled to exercise the same but
shall fail to do so within the time and in the manner herein provided, such
option shall lapse and thereafter not be exercisable by Lessee.  No
failure by Lessor to notify Lessee of any defect in any attempted exercise of
the foregoing option shall be deemed a waiver by Lessor of the right to insist
upon Lessee’s exercise of such option in strict accordance with the provisions
hereof.  In


78


the event
that Lessee shall properly and timely exercise such option, then such
transaction shall be consummated on the applicable Purchase Option Closing Date
(the “Outside Closing Date”).





Notwithstanding
anything to the contrary herein, if Lessee shall be entitled to and shall
exercise its option to purchase the Leased Property of all (but not less than
all) of the Facilities then subject to this Lease and any Facility(ies) subject
to a New Lease pursuant to this Section 35.1, Lessee shall have a one-time right
to cancel and rescind in writing to Lessor Lessee’s exercise of the same within
(10) Business Days after the Purchase Option Price is “finally determined”;
provided, however, that in no event shall Lessee be entitled to exercise such
right of cancellation and rescission less than twelve (12) months prior to the
expiration of the Term, irrespective of whether the Purchase Option Price has
been finally determined as of such date. For purposes of the foregoing, the
Purchase Option Price shall be “finally determined” upon the earlier of (x) the
date the parties agree in writing upon the Purchase Option Price or (y) the date
the Purchase Option Price is determined pursuant to the procedures set forth in
Article XXXIV hereof and Lessee receives notice thereof.  If Lessee is
entitled to and does not elect to cancel and rescind such purchase option within
the time and manner herein provided, then Lessee shall proceed to purchase the
Leased Property of all (but not less than all) of the Facilities then subject to
this Lease and any Facility(ies) subject to a New Lease on the applicable
Purchase Option Closing Date, at the Purchase Option Price, and otherwise in
accordance with the provisions of Article XVIII and Sections 35.2 and 35.3
hereof.  If Lessee is entitled to and shall elect to cancel and
rescind such purchase option within the time and manner herein provided, then
the following shall occur:  (1) the purchase contract formed by
Lessee’s exercise of such purchase option shall be cancelled and terminated; (2)
the Escrow opened upon such exercise shall be cancelled and Lessee shall pay all
title, Escrow and other cancellation charges incurred or imposed in connection
therewith; (3) the Opening Deposit and all interest accrued thereon shall be
returned to Lessee, notwithstanding anything in Section 35.2(a) to the contrary;
(4) Lessee shall pay all fees and expenses of the Appraiser appointed pursuant
to Article XXXIV hereof, notwithstanding anything in such Article XXXIV to the
contrary, (5) this Lease shall continue in full force and effect in accordance
with the terms hereof; and (6) all future purchase rights or options of Lessee
contained in this Section 35.1 shall automatically terminate and lapse and
Lessee shall not thereafter have any right to purchase the Leased Property
pursuant to this Section 35.1.




35.2  Defaults.




(a)  Liquidated
Damages.  IF, FOLLOWING A VALID AND PROPER EXERCISE OF THE FOREGOING
OPTION, LESSEE FAILS TO COMPLETE THE PURCHASE OF THE LEASED PROPERTY AND SUCH
FAILURE CONSTITUTES A BREACH HEREOF, THEN LESSOR, AT ITS OPTION, MAY TERMINATE
THE PURCHASE CONTRACT FORMED BY LESSEE’S EXERCISE OF SUCH OPTION AND THE ESCROW
BY GIVING WRITTEN NOTICE TO LESSEE AND ESCROW HOLDER AND, THEREUPON, THE ESCROW
SHALL BE CANCELLED, ALL DOCUMENTS SHALL BE RETURNED TO THE RESPECTIVE PARTIES
WHO DEPOSITED THE SAME, AND LESSEE SHALL PAY ALL TITLE AND ESCROW CANCELLATION
CHARGES AND ALL OF LESSOR’S REASONABLE LEGAL FEES AND
COSTS.  IN ADDITION, LESSOR AND LESSEE AGREE THAT, BASED ON THE
CIRCUMSTANCES NOW EXISTING, KNOWN




79


OR
UNKNOWN, IT WOULD BE EXCESSIVELY COSTLY AND IMPRACTICABLE TO ESTABLISH LESSOR’S
DAMAGES BY REASON OF LESSEE’S DEFAULT RESULTING IN A FAILURE OF THE ESCROW TO
CLOSE, AND, THEREFORE, LESSOR AND LESSEE AGREE THAT IT WOULD BE REASONABLE TO
AWARD LESSOR LIQUIDATED DAMAGES IN THE AMOUNT OF THE OPENING DEPOSIT PLUS ANY
ACCRUED INTEREST ON THE OPENING DEPOSIT.  BY THEIR RESPECTIVE INITIALS
SET FORTH BELOW, LESSOR AND LESSEE ACKNOWLEDGE AND AGREE THAT THE OPENING
DEPOSIT, PLUS ANY INTEREST ACCRUED ON THE OPENING DEPOSIT, TOGETHER WITH PAYMENT
OF LESSOR’S LEGAL FEES AND COSTS, IS REASONABLE AS LIQUIDATED DAMAGES FOR A
DEFAULT OF LESSEE UNDER THE PURCHASE CONTRACT FORMED BY LESSEE’S EXERCISE
OF SUCH OPTION  THAT RESULTS IN A FAILURE OF THE ESCROW TO CLOSE AND
SHALL BE IN LIEU OF ANY OTHER RELIEF, RIGHT OR REMEDY, AT LAW OR IN EQUITY, TO
WHICH LESSOR MIGHT OTHERWISE BE ENTITLED BY REASON OF A LESSEE’S DEFAULT THAT
RESULTS IN A FAILURE OF THE ESCROW TO CLOSE, BUT NOTHING CONTAINED HEREIN
SHALL LIMIT LESSOR’S RIGHTS AND REMEDIES FOR LESSEE’S DEFAULT OCCURRING AFTER
THE CLOSE OF ESCROW OR FOR LESSEE’S DEFAULT UNDER THIS LEASE.  ESCROW
HOLDER IS HEREBY AUTHORIZED AND INSTRUCTED TO RELEASE THE OPENING DEPOSIT PLUS
ACCRUED INTEREST THEREON TO LESSOR UPON THE DELIVERY OF UNILATERAL WRITTEN
INSTRUCTIONS THEREOF TO ESCROW HOLDER BY LESSOR AND ABSENT ANY OBJECTION ON THE
PART OF LESSEE THERETO, AND ESCROW HOLDER IS HEREBY RELIEVED OF ALL LIABILITY
THEREFOR.  IF LESSEE ATTEMPTS TO INTERFERE WITH THE RELEASE OF ANY
SUCH SUMS BY ESCROW HOLDER TO LESSOR, OR COMMENCES ANY ACTION AGAINST LESSOR OR
THE LEASED PROPERTY ARISING OUT OF THIS ARTICLE, THEN LESSOR SHALL NOT BE
LIMITED IN THE AMOUNT OF DAMAGES IT MAY RECOVER FROM LESSEE.




Lessor’s
Initials:                                           /s/
BJM
__                                /s/
BJM                      /s/
BJM                      _/s/
BJM _









_/s/
BJM                      _/s/
BJM                      /s/
BJM




Lessee’s
Initials:                                           /s/
EM_




(b)  Other Defaults by Lessee or
its Affiliates




.  A
default under any other lease or other agreement or instrument, including any
purchase contract formed upon exercise of any other option, with or in favor of
Lessor or any Affiliate of Lessor and made by or with Lessee or any Affiliate of
Lessee where such default is not cured within the applicable time period, if
any, shall be deemed a default under this Article XXXV and the purchase contract
formed upon proper exercise by Lessee of the option herein provided, entitling
Lessor, as seller, at its option, to terminate such purchase contract and the
Escrow and upon any such termination the Opening Deposit plus all accrued
interest thereon shall be paid over to Lessor as provided in Section 35.2(a)
above.




80


(c)  Defaults by
Lessor




.  Subject
to the provisions of Article XXXIX, if following a valid and proper exercise of
the foregoing option to purchase the Leased Property of the Facilities, Lessor
fails to complete the sale of the Leased Property of the Facilities at the time
required herein, Lessee shall have the right to seek specific performance of the
provisions of this Article XXXV.




35.3  Escrow
Provisions.




(a)  Opening of
Escrow.  Escrow shall be deemed open when the Opening Deposit
and a copy of this Lease are delivered to Escrow Holder.




(b)  General and Supplemental
Instructions.  Lessee and Lessor each shall execute, deliver
and be bound by such further escrow instructions or other instruments as may be
reasonably requested by the other party or by Escrow Holder from time to time,
so long as the same are consistent with the provisions of this
Lease.




(c)  Disposition of Opening
Deposits.  Escrow Holder shall hold the Opening Deposit in
interest-bearing accounts.  All interest earned on the Opening Deposit
shall accrue to Lessee’s benefit unless Lessor is entitled thereto under Section
35.2(a).  With full knowledge that Escrow shall not have closed,
Lessee nevertheless agrees to relieve Escrow Holder of all liabilities in making
such payment and for any failure to recover said sum in the event that Escrow
does not close at anytime thereafter; provided, however, that the foregoing
release shall not extend to any willful misconduct by Escrow Holder or any
negligent acts by Escrow Holder or other acts by Escrow Holder that are
inconsistent with the terms of this Section 35.  The Opening Deposit
plus interest thereon shall be (i) applied against the Purchase Option
Price if Escrow closes, (ii) returned to Lessee in full if Escrow does not
close for any reason other than Lessee’s default, or (iii) be paid to
Lessor as nonrefundable liquidated damages under Section 35.2(a), if Escrow
fails to close under the provisions hereof as a result of Lessee’s
default.




(d)  Closing
Funds.  At least one (1) Business Day before the Close of
Escrow (as hereinafter defined), Escrow Holder shall calculate and Lessee shall
wire cash into Escrow (using wiring instructions reasonably satisfactory to
Escrow Holder) in an amount which, when added to the Opening Deposit and all
accrued interest shall equal the Purchase Option Price for the Leased Property
plus any other sums payable by Lessee pursuant to the provisions
hereof.




(e)  Close of
Escrow.  Escrow shall close on the Outside Closing
Date.  The term “Close of Escrow” as used in this Article shall mean
the time and date that an appropriate deed or other conveyance document
conveying Lessor’s entire interest in the Leased Property, subject to the
permitted liens and encumbrances described in Article XVIII hereof, is recorded
in appropriate records of the county in which the Leased Property of each
Facility is located.  The Outside Closing Date shall not be extended
for any reason.




81


(f)  Closing
Costs.  The closing costs of consummating the purchase of the
Leased Property shall be paid by Lessee as provided in Article
XVIII.




35.4  Assurances




.  At
any time within one hundred twenty (120) days of the anticipated date of Close
of Escrow, Lessor may request Lessee to provide reasonable assurances that it
will be able to consummate the purchase of the Leased Property, including that
Lessee has a firm, written commitment from a reputable lending institution to
finance such purchase and/or has sufficient liquidity to pay any balance of the
purchase price owing by Lessee on the date of the Close of Escrow; provided,
however, that in no event shall Lessee be entitled to exercise such option
conditioned upon Lessee obtaining any such financing.




35.5  Lessor’sElection of 1031
Exchange.




35.5.1  In the
event that Lessee exercises its option to purchase as provided in this
Article XXXV, Lessor may elect to sell the Leased Property to Lessee in the
form of a tax-deferred exchange pursuant to Section 1031 of the Internal Revenue
Code of 1986, as amended (“1031 Exchange”).  In the event that Lessor
shall so elect, Lessor shall give written notice to Lessee and Escrow Holder of
such election and the following shall apply:




(a)  Simultaneous
Exchange.  Lessor may attempt to identify before the Close of
Escrow other property which qualifies as “like-kind” property for a 1031
Exchange (the “Target Property”) by giving written notice to Lessee and Escrow
Holder and identifying to Escrow Holder the Target Property prior to the Close
of Escrow.




(b)  Non-simultaneous
Exchange.  If Lessor has not so identified the Target Property
before the Close of Escrow, then Lessor shall proceed with the Close of Escrow
unless Lessor at its option enters into an exchange agreement with an
accommodation party (“Accommodator”) in order to facilitate a non-simultaneous
or so-called “Starker deferred” exchange.  If an Accommodator is so
designated, Lessor shall cause the Accommodator (i) to acquire title to the
Leased Property from Lessor at or before the Close of Escrow and,
(ii) to transfer title in the Leased Property to Lessee on the Close of
Escrow for the Purchase Option Price.




(c)  Expenses and
Documents.  Lessee shall fully cooperate with any such 1031
Exchange, including but not limited to executing and delivering additional
documents requested or approved by Lessor; provided, that Lessee shall not be
required to incur any additional costs or liabilities or financial obligation as
a consequence of any of the foregoing exchange transactions.




ARTICLE
XXXVI.




36.1  Lessor May Grant
Liens




.  Without
the consent of Lessee, Lessor may, from time to time, directly or indirectly,
create or otherwise cause to exist any ground lease, mortgage, trust deed, lien,
encumbrance or title retention agreement (collectively, an “encumbrance”) upon
the Leased Property and any Capital Additions or any part(s) or portion(s)
thereof or interests therein.  This Lease is and at all times shall be
subject




82


and
subordinate to any such encumbrance which may now or hereafter affect the Leased
Property and/or any such Capital Additions or any part(s) or portion(s) thereof
and to all renewals, modifications, consolidations, replacements and extensions
thereof.  This clause shall be self-operative and no further
instrument of subordination shall be required; provided, however, that in
confirmation of such subordination, Lessee shall execute promptly any
certificate or document that Lessor or any ground or underlying lessor,
mortgagee or beneficiary may request for such purposes; provided further,
however, that any such subjection and subordination of this Lease or Lessee’s
leasehold interest hereunder to any such encumbrance imposed after the Effective
Date shall be conditioned upon the execution by the holder of such encumbrance
and delivery to Lessee of a non-disturbance and attornment agreement in form
reasonably satisfactory to Lessor, Lessee and such holder of such encumbrance
and which provides, in substance, that so long as no Event of Default has
occurred, the holder of such encumbrance shall not disturb either Lessee’s
leasehold interest or possession of the Leased Property in accordance with the
terms hereof.  Lessee shall also promptly execute and deliver to
Lessor and such holder of such encumbrance such non-disturbance and attornment
agreement if requested by Lessor and/or such holder.  If, in
connection with obtaining new financing or in connection with any refinance of
an existing encumbrance (including any refinance of the Existing Loan), a
Facility Mortgagee or prospective Facility Mortgagee shall request reasonable
modifications to this Lease as a condition to such financing or refinancing,
Lessee shall not withhold or delay its consent thereto; provided, however,
Lessee shall not be required to consent to any modifications which increase the
Minimum Rent or Additional Charges due hereunder, increase the Security Amount,
reduce the Term or which otherwise, in the reasonable, good faith judgment of
Lessee, would reasonably be expected to materially and adversely affect the
other rights or obligations of Lessee hereunder; provided further, however, that
Lessee shall consent to any such proposed amendments or modifications to this
Lease to the extent the same are not otherwise materially and adversely
inconsistent with the duties, covenants and obligations imposed upon Lessee
under the Existing Facility Mortgage Loan Documents.  Further, Lessee
shall cooperate with Lessor in connection with Lessor’s efforts to encumber any
Facility with a Facility Mortgage and with Lessor’s negotiations with any such
Facility Mortgagee.




36.2  Attornment




.  If
Lessor’s interest in the Leased Property and/or any Capital Additions or any
part(s) or portion(s) thereof is sold or conveyed upon the exercise of any
remedy provided for in any Facility Mortgage, or otherwise by operation of
law:  (i) at the new owner’s option, Lessee shall attorn to and
recognize the new owner as Lessee’s Lessor under this Lease or enter into a new
lease substantially in the form of this Lease with the new owner, and Lessee
shall take such actions to confirm the foregoing within ten (10) days after
request; and (ii) the new owner shall not be (a) liable for any act or omission
of Lessor under this Lease occurring prior to such sale or conveyance, (b)
subject to any offset, abatement or reduction of rent because of any default of
Lessor under this Lease occurring prior to such sale or conveyance, (c) bound by
any previous modification or amendment to this Lease or any previous prepayment
of more than one month’s rent, unless such modification, amendment or prepayment
shall have been approved in writing by such Facility Mortgagee or, in the case
of such prepayment, such prepayment of rent has actually been delivered to such
successor lessor, or (d) liable for any security deposit or other collateral
deposited or delivered to Lessor pursuant to this Lease unless such security
deposit or other collateral has actually been delivered to such successor
lessor.




83


36.3  Compliance with Facility
Mortgage Documents




.




36.3.1  As of the
Commencement Date, Lessee acknowledges that, pursuant to Article XLVIII hereof,
Lessee has had the opportunity to review the Existing Facility Mortgage Loan
Documents.  With respect to any new financing or refinancing of the
Existing Loan and Existing Facility Mortgages with one or more new Facility
Mortgage(s), prior to the execution and delivery of any Facility Mortgage Loan
Documents relating thereto, Lessor shall provide copies of the same to Lessee
for Lessee’s review and, in the event that the applicable Facility Mortgagee
requests modifications to this Lease, Lessor shall obtain Lessee’s consent
thereto in accordance with Section 36.1 above.




36.3.2  Lessee
acknowledges that the Existing Facility Mortgage Loan Documents and any new
Facility Mortgage Loan Documents executed by Lessor will impose certain
obligations on the “Borrower” thereunder to comply with or cause the operator
and/or lessee of the Facilities to comply with all representations, covenants
and warranties contained therein relating to such Facilities and the operator
and/or lessee of such Facilities, including, covenants relating to (a) the
maintenance and repair of the Facilities, (b) maintenance and submission of
financial records and accounts of the operation of each Facility and related
financial and other information regarding the operator and/or lessee of such
Facilities and the Facilities themselves, (c) the procurement of insurance
policies with respect to the Facilities and (d) without limiting the foregoing,
compliance with all Legal Requirements relating to the Facilities and the
operation thereof for their Primary Intended Use.  For so long as any
Facility Mortgages encumber the Leased Property, or any portion thereof, Lessee
covenants and agrees, at its sole cost and expense and for the express benefit
of Lessor, to operate the Facilities in strict compliance with the terms and
conditions of the Facility Mortgage Loan Documents (other than payment of any
indebtedness evidenced or secured thereby) and to timely perform all of the
duties, covenants and obligations of Lessor and the operator and/or lessee of
such Facilities relating thereto, or to the extent that any of such duties,
covenants and/or obligations may not properly be performed by Lessee, Lessee
shall cooperate with and assist Lessor in the timely performance thereof (other
than payment of any indebtedness evidenced or secured thereby); provided,
however, that in connection with any new financing or in connection with any
refinancing of the Existing Loan for the Leased Property of any Facility and/or
any Capital Additions thereto, Lessor shall use good faith efforts to ensure
that the duties, covenants and obligations imposed upon Lessee by any such new
Facility Mortgage Loan Documents and this Section 36.3 are not materially more
burdensome to Lessee than those duties, covenants and obligations imposed upon
Lessee by the Existing Facility Mortgage Loan Documents and this Section
36.3.




ARTICLE
XXXVII.




37.1  Hazardous
Substances




.  Lessee
shall not allow any Hazardous Substance to be located in, on, under or about the
Leased Property or incorporated in any Facility; provided, however, that
Hazardous Substances may be brought, kept, used or disposed of in, on or about
the Leased Property or any Capital Additions of any Facility in quantities and
for purposes similar to those brought, kept, used or disposed of in, on or about
similar facilities used for purposes similar to the Primary Intended Use of such
Facility or in connection with the construction of facilities similar to such
Facility and which are brought, kept,




84


used and
disposed of in strict compliance with Legal Requirements.  Lessee
shall not allow the Leased Property or any Capital Additions to be used as a
waste disposal site or, except as permitted in the immediately preceding
sentence, for the manufacturing, handling, storage, distribution or disposal of
any Hazardous Substance.




37.2  Notices




.  Lessee
shall provide to Lessor promptly, and in any event immediately upon Lessee’s
receipt thereof, a copy of any notice, or notification with respect to, (i) any
violation of a Legal Requirement relating to Hazardous Substances located in,
on, or under the Leased Property or any Capital Additions or any adjacent
property thereto; (ii) any enforcement, cleanup, removal, or other
governmental or regulatory action instituted, completed or threatened with
respect to the Leased Property or any Capital Additions; (iii) any claim
made or threatened by any Person against Lessee or the Leased Property or any
Capital Additions relating to damage, contribution, cost recovery, compensation,
loss, or injury resulting from or claimed to result from any Hazardous
Substance; and (iv) any reports made to any federal, state or local
environmental agency arising out of or in connection with any Hazardous
Substance in, on, under or removed from the Leased Property or any Capital
Additions, including any complaints, notices, warnings or asserted violations in
connection therewith.




37.3  Remediation




.  Subject
to the provisions of Section 37.6 hereof, if Lessee becomes aware of a violation
of any Legal Requirement relating to any Hazardous Substance in, on, under or
about the Leased Property or any Capital Additions or any adjacent property
thereto, or if Lessee, Lessor or the Leased Property or any Capital Additions
becomes subject to any order of any federal, state or local agency to repair,
close, detoxify, decontaminate or otherwise remediate the Leased Property and
any Capital Additions, Lessee shall immediately notify Lessor of such event and,
at its sole cost and expense, cure such violation or effect such repair,
closure, detoxification, decontamination or other
remediation.  Subject to the provisions of Section 37.6 hereof, if
Lessee fails to implement and diligently pursue any such cure, repair, closure,
detoxification, decontamination or other remediation, Lessor shall have the
right, but not the obligation, to carry out such action and to recover from
Lessee all of Lessor’s costs and expenses incurred in connection
therewith.




37.4  Indemnity




.  Subject
to the provisions of Section 37.6 hereof, Lessee shall indemnify, defend,
protect, save, hold harmless, and reimburse Lessor for, from and against any and
all costs, losses (including, losses of use or economic benefit or diminution in
value), liabilities, damages, assessments, lawsuits, deficiencies, demands,
claims and expenses (collectively, “Environmental Costs”) (whether or not
arising out of third-party claims and regardless of whether liability without
fault is imposed, or sought to be imposed, on Lessor) incurred in connection
with, arising out of, resulting from or incident to, directly or indirectly,
before or during the Term (i) the production, use, generation, storage,
treatment, transporting, disposal, discharge, release or other handling or
disposition of any Hazardous Substances from, in, on or about the Leased
Property or any Capital Additions or any part(s) or portion(s) thereof
(collectively, “Handling”), including the effects of such Handling of any
Hazardous Substances on any Person or property within or outside the boundaries
of the Leased Property or any Capital Additions, (ii) the presence of any
Hazardous Substances in, on, under or about the Leased Property or any Capital
Additions or any part(s) or portion(s) thereof and (iii) the violation of any
Legal Requirements (including Environmental Laws).  “Environmental
Costs” include interest, costs of response, removal, remedial action,
containment, cleanup,




85


investigation,
design, engineering and construction, damages (including actual, consequential
and punitive damages) for personal injuries and for injury to, destruction of or
loss of property or natural resources, relocation or replacement costs,
penalties, fines, charges or expenses, attorney’s fees, expert fees,
consultation fees, and court costs, and all amounts paid in investigating,
defending or settling any of the foregoing.




Without
limiting the scope or generality of the foregoing, but subject to the provisions
of Section 37.6 hereof, Lessee expressly agrees to reimburse Lessor for any and
all costs and expenses incurred by Lessor:




(a)  In
investigating any and all matters relating to the Handling of any Hazardous
Substances, in, on, from, under or about the Leased Property or any Capital
Additions or any part(s) or portion(s) thereof;




(b)  In
bringing the Leased Property or any Capital Additions into compliance with all
Legal Requirements; and




(c)  Removing,
treating, storing, transporting, cleaning-up and/or disposing of any Hazardous
Substances used, stored, generated, released or disposed of in, on, from, under
or about the Leased Property or any Capital Additions or any part(s) or
portion(s) thereof or offsite.




If any
claim is made hereunder, Lessee agrees to pay such claim promptly, and in any
event to pay such claim within thirty (30) calendar days after receipt by Lessee
of notice thereof.  If any such claim is not so paid and Lessor is
ultimately found or agrees to be responsible therefore, Lessee agrees also to
pay interest on the amount paid from the date of the first notice of such claim,
at the Overdue Rate.




37.5  Environmental
Inspection




.  Lessor
shall have the right, from time to time, and upon not less than five (5) days’
written notice to Lessee, except in the case of an emergency in which event no
notice shall be required, to conduct an inspection of the Leased Property and
all Capital Additions or any part(s) or portion(s) thereof at any reasonable
time to determine the existence or presence of Hazardous Substances on or about
such Leased Property or any such Capital Additions, if Lessor has reasonable
belief to suspect that Lessee has not fully complied with the terms of this
Article XXXVII.  Lessor shall have the right to enter and inspect the
Leased Property and all Capital Additions, conduct any testing, sampling and
analyses it deems necessary and shall have the right to inspect materials
brought into the Leased Property or any such Capital Additions; provided,
however, that Lessor shall (i) conduct its activities on the Leased Property or
any such Capital Additions pursuant to the terms of this Section 37.5 in a
commercially reasonable manner designed to minimize the impact of such
activities on Lessee’s operation of the applicable Facility, (ii) restore the
Leased Property and any such Capital Additions to substantially the same
condition as existed immediately prior to Lessor’s inspection thereof and (iii)
indemnify, defend, protect, save, hold harmless, and reimburse Lessee for, from
and against any and all loss, cost or expense, including costs and reasonable
legal fees, arising out of any damage to persons or property occurring in or
about the Leased Property and any such Capital Additions, or any liens filed
against the Leased Property or any such Capital Additions, in either case
resulting directly from Lessor’s inspection of the




86


Leased
Property and any such Capital Additions pursuant to the terms of this Section
37.5.  Lessor may, in its discretion, retain such experts to conduct
the inspection, perform the tests referred to herein, and to prepare a written
report in connection therewith.  All costs and expenses incurred by
Lessor under this Section shall be paid on demand as Additional Charges by
Lessee to Lessor.  Failure to conduct an environmental inspection or
to detect unfavorable conditions if such inspection is conducted shall in no
fashion be intended as a release of any liability for environmental conditions
subsequently determined to be associated with or to have occurred during
Lessee’s tenancy.  Lessee shall remain liable for any environmental
condition related to or having occurred during its tenancy regardless of when
such conditions are discovered and regardless of whether or not Lessor conducts
an environmental inspection at the termination of the Lease.  The
obligations set forth in this Article shall survive the expiration or earlier
termination of the Lease.




37.6  Pre-Existing Environmental
Conditions




.  Notwithstanding
anything to the contrary in this Lease, including this Article XXXVII, Lessee
shall have no responsibility (whether as to performance or payment of costs) or
any other liability (a) to cure, repair, remove, close, detoxify, decontaminate
or otherwise to commence or complete any other remediation with respect to any
Pre-Existing Environmental Condition, or (b) to indemnify, defend, protect,
save, hold harmless or reimburse Lessor for, from or against any Environmental
Costs or other liabilities arising out of, resulting from or incident to, any
Pre-Existing Environmental Condition, unless the need for such cure, repair,
removal, closure, detoxification, decontamination or other remediation with
respect to any Pre-Existing Environmental Condition or any such Environmental
Costs associated therewith result directly from or arise directly out of any
actions of Lessee, its Affiliates, Occupants, employees, agents or contractors
that exacerbate any Pre-Existing Environmental Condition, in which case the
provisions of this Article XXXVII shall apply to the extent of any such
exacerbation.  In no event, however, shall the foregoing exculpation
of Lessee from any such responsibility or liability for any Pre-Existing
Environmental Conditions be deemed or construed to be an agreement by Lessor to
assume or otherwise be responsible for the same or to otherwise indemnify,
defend, protect, save, hold harmless or reimburse Lessee for, from or against
any Environmental Costs or other liabilities associated
therewith.  If, however, a claim or action is brought by a third party
or governmental entity against either Lessor or Lessee for any Pre-Existing
Environmental Condition, Lessor hereby agrees to pursue in good faith any and
all rights and claims (including any right or claim to indemnification or
defense) that Lessor may have (or, at the option of Lessor, to assign such
rights to Lessee to the extent the same are assignable) against any third party
responsible for any such Pre-Existing Environmental Condition, including any
such rights or claims that Lessor may have against Current Lessees or Current
Manager under the Current Leases or the Current Management Agreements or
otherwise.




ARTICLE
XXXVIII.




38.1  Memorandum of
Lease




.  Lessor
and Lessee shall, promptly upon the request of either, enter into one or more
short form memoranda of this Lease, in form suitable for recording under the
laws of the applicable State.  Lessee shall pay all costs and expenses
of recording any such memoranda and shall fully cooperate with Lessor
in




87


removing
from record any such memoranda upon the expiration or earlier termination of the
Term with respect to the applicable Facility.




ARTICLE
XXXIX.




39.1  Sale of
Assets




.  Notwithstanding
any other provision of this Lease, Lessor shall not be required to (i) sell or
transfer the Leased Property, or any portion thereof, which is a real estate
asset as defined in Section 856(c)(5)(B), or functionally equivalent successor
provision, of the Code, to Lessee if Lessor’s counsel advises Lessor that such
sale or transfer may not be a sale of property described in Section
857(b)(6)(C), or functionally equivalent successor provision, of the Code or
(ii) sell or transfer the Leased Property, or any portion thereof, to Lessee if
Lessor’s counsel advises Lessor that such sale or transfer could result in an
unacceptable amount of gross income for purposes of the Ninety-Five percent
(95%) gross income test contained in Section 856(c)(2), or functionally
equivalent successor provision, of the Code.  If Lessee has the right
or obligation to purchase the Leased Property or any portion thereof pursuant to
the terms herein, and if Lessor determines not to sell such Leased Property
pursuant to the above sentence, then Lessee shall purchase such Leased Property,
upon and subject to all applicable terms and conditions set forth in this Lease,
including the provisions of Article XXXV, at such time as the transaction, upon
the advice of Lessor’s counsel, would be a sale of property (to the extent the
Leased Property is a real estate asset) described in Section 857(b)(6)(C), or
functionally equivalent successor provision, of the Code, and would not result
in an unacceptable amount of gross income for purposes of the Ninety-Five
Percent (95%) gross income test contained in Section 856(c)(2), or functionally
equivalent successor provision of the Code and until such time Lessee shall
lease the Leased Property and all Capital Additions from Lessor at the Fair
Market Rental.




ARTICLE
XL.




40.1  Subdivision




.  If
the Land is in excess of that which is required to operate any Facility in
accordance with its Primary Intended Use, Lessor may, with Lessee’s prior
consent, which consent shall not be unreasonably withheld, conditioned or
delayed, subdivide the Land and amend this Lease and the legal description
attached hereto as Exhibit A such
that the Land contains only so much of the Land as is necessary to operate such
Facility in accordance with its Primary Intended Use.  If Lessor
subdivides the Land relating to any Facility there shall be no change in the
Rent payable hereunder.  After any such subdivision, Lessee shall have
no rights to any land which is no longer part of the Leased Property and Lessor
may sell, lease or develop any land which is no longer part of the Leased
Property; provided, however, that Lessor will not develop or allow such land to
be used for any purpose that would materially adversely affect Lessee’s use of
such Facility, including, without limitation, as a facility or institution
providing services or similar goods to those provided in connection with such
Facility and its Primary Intended Use.  If Lessor elects to subdivide
the Land Lessee shall cooperate with Lessor and take all actions reasonably
requested by Lessor to effect such subdivision.




88


ARTICLE
XLI.




41.1  Authority




.  If
Lessee is a corporation, limited liability company, trust, or partnership,
Lessee, and each individual executing this Lease on behalf of Lessee, represent
and warrant that each is duly authorized to execute and deliver this Lease on
behalf of Lessee and shall concurrently with the execution and delivery of this
Lease to Lessor deliver to Lessor evidence of such authority satisfactory to
Lessor.




ARTICLE
XLII.




42.1  Attorneys’Fees




.  If
Lessor or Lessee brings an action or other proceeding (including an arbitration
pursuant to Article XLIV) against the other to enforce any of the terms,
covenants or conditions hereof or any instrument executed pursuant to this
Lease, or by reason of any breach or default hereunder or thereunder, the party
prevailing in any such action or proceeding and any appeal thereupon shall be
paid all of its costs and reasonable attorneys’ fees incurred
therein.  In addition to the foregoing and other provisions of this
Lease that specifically require Lessee to reimburse, pay or indemnify against
Lessor’s attorneys’ fees, Lessee shall pay, as Additional Charges, all of
Lessor’s reasonable attorneys’ fees incurred in connection with the
administration or enforcement of this Lease, including attorneys’ fees incurred
in connection with Lessee’s exercise of its option to purchase the Leased
Property, the review of any letters of credit, the review, negotiation or
documentation of any subletting, assignment, or management arrangement or any
consent requested in connection therewith, and the collection of past due
Rent.




42.2  Set-Up
Costs




.  Lessor
shall be responsible for and shall pay all Lessor’s Set-Up Costs and Lessee
shall be responsible for and shall pay all Lessee’s Set-Up Costs.




ARTICLE
XLIII.




43.1  Brokers




.  Lessee
warrants that it has not had any contact or dealings with any Person or real
estate broker which would give rise to the payment of any fee or brokerage
commission in connection with this Lease, and Lessee shall indemnify, protect,
hold harmless and defend Lessor from and against any liability with respect to
any fee or brokerage commission arising out of any act or omission of
Lessee.  Lessor warrants that it has not had any contact or dealings
with any Person or real estate broker which would give rise to the payment of
any fee or brokerage commission in connection with this Lease, and Lessor shall
indemnify, protect, hold harmless and defend Lessee from and against any
liability with respect to any fee or brokerage commission arising out of any act
or omission of Lessor.




ARTICLE
XLIV.




44.1  SUBMISSION TO
ARBITRATION.




44.1.1  EXCEPT AS
PROVIDED IN SECTION 44.1.2 BELOW, ANY CONTROVERSY, DISPUTE OR CLAIM OF
WHATSOEVER NATURE ARISING OUT OF, IN CONNECTION WITH, OR IN RELATION TO THE
INTERPRETATION, PERFORMANCE OR BREACH OF THIS LEASE, INCLUDING ANY CLAIM
BASED




89


ON
CONTRACT, TORT OR STATUTE, SHALL BE DETERMINED BY FINAL AND BINDING,
CONFIDENTIAL ARBITRATION ADMINISTERED BY THE AMERICAN ARBITRATION ASSOCIATION
(“AAA”) IN ACCORDANCE WITH ITS THEN-EXISTING COMMERCIAL ARBITRATION RULES BY A
SOLE ARBITRATOR SELECTED IN ACCORDANCE WITH SUCH AAA RULES.  ANY
ARBITRATION HEREUNDER SHALL BE GOVERNED BY THE UNITED STATES ARBITRATION
ACT, 9 U.S.C. 1-16 (OR ANY SUCCESSOR LEGISLATION THERETO), AND JUDGMENT UPON THE
AWARD RENDERED BY THE ARBITRATOR MAY BE ENTERED BY ANY STATE OR FEDERAL COURT
HAVING JURISDICTION THEREOF.  NEITHER LESSOR, LESSEE NOR THE
ARBITRATOR SHALL DISCLOSE THE EXISTENCE, CONTENT OR RESULTS OF ANY ARBITRATION
HEREUNDER WITHOUT THE PRIOR WRITTEN CONSENT OF ALL PARTIES; PROVIDED, HOWEVER,
THAT EITHER PARTY MAY DISCLOSE THE EXISTENCE, CONTENT OR RESULTS OF ANY
SUCH ARBITRATION TO ITS PARTNERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
ATTORNEYS AND ACCOUNTANTS AND TO ANY OTHER PERSON TO WHOM DISCLOSURE IS REQUIRED
BY APPLICABLE LEGAL REQUIREMENTS, INCLUDING PURSUANT TO AN ORDER OF A COURT OF
COMPETENT JURISDICTION.  UNLESS OTHERWISE AGREED BY THE PARTIES, ANY
ARBITRATION HEREUNDER SHALL BE HELD AT A NEUTRAL LOCATION SELECTED BY THE
ARBITRATOR IN LOS ANGELES, CALIFORNIA.  THE COST OF THE ARBITRATOR AND
THE EXPENSES RELATING TO THE ARBITRATION (EXCLUSIVE OF LEGAL FEES) SHALL BE
BORNE EQUALLY BY LESSOR AND LESSEE UNLESS OTHERWISE SPECIFIED IN THE AWARD
OF THE ARBITRATOR.  SUCH FEES AND COSTS PAID OR PAYABLE TO THE
ARBITRATOR SHALL BE INCLUDED IN “COSTS AND REASONABLE ATTORNEYS’ FEES” FOR
PURPOSES OF ARTICLE XLII AND THE ARBITRATOR SHALL SPECIFICALLY HAVE THE
POWER TO AWARD TO THE PREVAILING PARTY PURSUANT TO SUCH ARTICLE XLII SUCH
PARTY’S COSTS AND EXPENSES INCURRED IN SUCH ARBITRATION, INCLUDING FEES AND
COSTS PAID TO THE ARBITRATOR.




44.1.2  THE
PROVISIONS OF THIS ARTICLE XLIV SHALL NOT APPLY TO:




(a)  ANY
UNLAWFUL DETAINER OR OTHER SIMILAR SUMMARY OR EXPEDITED PROCEEDING FOR EJECTMENT
OR RECOVERY OF POSSESSION OF THE LEASED PROPERTY AND CAPITAL ADDITIONS OR ANY
PORTION(S) THEREOF INSTITUTED BY LESSOR IN ACCORDANCE WITH APPLICABLE LEGAL
REQUIREMENTS AS THE RESULT OF AN EVENT OF DEFAULT OR ALLEGED EVENT OF DEFAULT BY
LESSEE PURSUANT TO THIS LEASE.  IN ADDITION, IF PERMITTED BY
APPLICABLE LEGAL REQUIREMENTS, LESSOR SHALL BE ENTITLED IN CONNECTION WITH ANY
SUCH PROCEEDING TO SEEK ANY DAMAGES TO WHICH IT IS ENTITLED AT LAW,
INCLUDING THOSE SET FORTH IN ARTICLE XVI.




(b)  ANY
SPECIFIC CONTROVERSY, DISPUTE, QUESTION OR ISSUE AS TO WHICH THIS LEASE
SPECIFICALLY PROVIDES ANOTHER METHOD OF DETERMINING SUCH CONTROVERSY, DISPUTE,
QUESTION OR




90


ISSUE AND
PROVIDES THAT A DETERMINATION PURSUANT TO SUCH METHOD IS FINAL AND BINDING,
UNLESS BOTH LESSOR AND LESSEE AGREE IN WRITING TO WAIVE SUCH PROCEDURE AND
PROCEED INSTEAD PURSUANT TO THIS ARTICLE XLIV.




(c)  ANY
REQUEST OR APPLICATION FOR AN ORDER OR DECREE GRANTING ANY PROVISIONAL OR
ANCILLARY REMEDY (SUCH AS A TEMPORARY RESTRAINING ORDER OR INJUNCTION) WITH
RESPECT TO ANY RIGHT OR OBLIGATION OF EITHER PARTY TO THIS LEASE, AND ANY
PRELIMINARY DETERMINATION OF THE UNDERLYING CONTROVERSY, DISPUTE, QUESTION OR
ISSUE AS IS REQUIRED TO DETERMINE WHETHER OR NOT TO GRANT SUCH
RELIEF.  A FINAL AND BINDING DETERMINATION OF SUCH UNDERLYING
CONTROVERSY, DISPUTE, QUESTION OR ISSUE SHALL BE MADE BY AN ARBITRATION
CONDUCTED PURSUANT TO THIS ARTICLE XLIV AFTER AN APPROPRIATE TRANSFER OR
REFERENCE TO THE ARBITRATOR SELECTED PURSUANT TO THIS ARTICLE XLIV UPON MOTION
OR APPLICATION OF EITHER PARTY HERETO.  ANY ANCILLARY OR PROVISIONAL
RELIEF WHICH IS GRANTED PURSUANT TO THIS CLAUSE (C) SHALL CONTINUE IN EFFECT
PENDING AN ARBITRATION DETERMINATION AND ENTRY OF JUDGMENT THEREON PURSUANT TO
THIS ARTICLE XLIV.




44.1.3  NOTICE:  BY
INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT
OF THE MATTERS INCLUDED IN THE “ARBITRATION OF DISPUTES” PROVISION DECIDED BY
NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY
RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY
TRIAL.  BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR
JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY
INCLUDED IN THE “ARBITRATION OF DISPUTES” PROVISION.  IF YOU REFUSE TO
SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO
ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL
PROCEDURE.  YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS
VOLUNTARY.




WE HAVE
READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF
THE MATTERS INCLUDED IN THE “ARBITRATION OF DISPUTES” PROVISION TO NEUTRAL
ARBITRATION.




91


Lessor’s
Initials:                                           /s/
BJM_                      /s/
BJM
_                      /s/
BJM                      /s/
BJM









/s/ BJM
_                      /s/
BJM
_                      /s/
BJM




Lessee’s
Initials:                                           _/s/
EM_




ARTICLE
XLV.




45.1  Miscellaneous




45.1.1  Survival.  Anything
contained in this Lease to the contrary notwithstanding, all claims against, and
liabilities and indemnities of, Lessee or Lessor arising prior to the expiration
or earlier termination of the Term shall survive such expiration or
termination.  In addition, all claims against, and all liabilities and
indemnities hereunder of Lessee shall continue in full force and effect and in
favor of the Lessor named herein and its successors and assigns, notwithstanding
any conveyance of the Leased Property to Lessee.




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




45.1.3  Non-Recourse.  Lessee
specifically agrees to look solely to the Leased Property for recovery of any
judgment from Lessor.  It is specifically agreed that no constituent
partner in Lessor or officer, director or employee of Lessor shall ever be
personally liable for any such judgment or for the payment of any monetary
obligation to Lessee.  The provision contained in the foregoing
sentence is not intended to, and shall not, limit any right that Lessee might
otherwise have to obtain injunctive relief against Lessor, or any action not
involving the personal liability of Lessor.  Furthermore, except as
otherwise expressly provided herein, in no event shall Lessor ever be liable to
Lessee for any indirect or consequential damages suffered by Lessee from
whatever cause.




45.1.4  Licenses.  Upon
the expiration or earlier termination of the Term with respect to any Facility,
Lessee shall use commercially reasonable efforts to transfer to Lessor or
Lessor’s nominee a fully operational Facility and shall cooperate with Lessor or
Lessor’s designee or nominee in connection with the processing by Lessor or
Lessor’s designee or nominee of any applications for all licenses, operating
permits and other governmental authorization, all contracts, including contracts
with governmental or quasi-governmental entities, business records, data,
patient and resident records, and patient and resident trust accounts, which may
be necessary or useful for the operation of such Facility; provided, however,
that the costs and expenses of any such transfer or the processing of any such
application shall be paid by Lessor or Lessor’s designee or nominee; and
provided further, however, that nothing herein shall be construed to require
Lessee to allow Lessor or Lessor’s nominee to operate such Facility under
Lessee’s license.  Lessee shall not commit any act or be remiss in the
undertaking of any act that would jeopardize the licensure or certification of
such Facility, and Lessee shall comply with all requests for an orderly transfer
of the same upon the expiration or early termination of the Term.  In
addition, upon request upon the expiration or earlier termination of the Term
with respect to




92


any
Facility, Lessee shall promptly deliver copies of all books and records relating
to the Leased Property of such Facility and all Capital Additions and operations
thereon to Lessor or Lessor’s designee or nominee but Lessee shall not be
required to deliver corporate financial records or proprietary
materials.  Lessee shall indemnify, defend, protect and hold harmless
Lessor from and against any loss, damage, cost or expense incurred by Lessor or
Lessor’s designee or nominee in connection with the correction of any and all
deficiencies of a physical nature identified by any governmental authority
responsible for licensing the Leased Property of any Facility and all Capital
Additions thereon in the course of any change of ownership inspection and audit
to the extent that the remediation of such deficiencies is required solely as a
result of retrofit requirements in connection with the change of ownership of
such Facility.  The provisions of this Section 45.1.4 shall not apply
if the expiration or earlier termination of the Term with respect to a Facility
arises from (i) the purchase of such Facility by Lessee, (ii) the damage to or
destruction of or taking of such Facility or (iii) the execution of a New Lease
with respect to such Facility.




45.1.5  Successors and
Assigns.  This Lease shall be binding upon Lessor and its
successors and assigns and, subject to the provisions of Article XXIV, upon
Lessee and its successors and assigns.




45.1.6  Termination
Date.  If this Lease is terminated by Lessor or Lessee under
any provision hereof with respect to any one or more (including all, if
applicable) of the Facilities, and upon the expiration of the Term applicable to
a Facility (collectively, the “termination date”), the following shall
pertain:




(i)  Lessee
shall vacate and surrender the Leased Property, Lessee’s Personal Property and
all Capital Additions relating to the applicable Facility to Lessor in the
condition required by Section 9.1.4.  Prior to such vacation and
surrender, Lessee shall remove any items which Lessee is permitted or required
to remove hereunder.  Lessee shall, at Lessee’s cost, repair any
damage to such Leased Propertyand any Capital
Additions caused by such vacation and/or removal of any items which Lessee is
required or permitted hereunder to remove.  Any items which Lessee is
permitted to remove but fails to remove prior to the surrender to Lessor of such
Leased Property, Lessee’s Personal Property and Capital Additions shall be
deemed abandoned by Lessee, and Lessor may retain or dispose of the same as
Lessor sees fit without claim by Lessee thereto or to any proceeds
thereof.  If Lessor elects to remove and dispose of any such items
abandoned by Lessee, the cost of such removal and disposal shall be an
Additional Charge payable by Lessee to Lessor upon demand.




(ii)  Without
limiting the provisions of Section 45.1.1 above, upon any such termination
or expiration of this Lease with respect to a Facility, the following shall
pertain:




(A)  Lessee
agrees to defend, protect, indemnify, defend and hold harmless Lessor from and
against any and all claims, costs, losses, expenses, damages, actions, and
causes of action for which Lessee is responsible under this Lease (including
Lessee’s indemnification obligations




93


under
Articles XXIII and XXXVII) and which accrue or have accrued on or before the
termination date.




(B)  Lessee
shall remain liable for the cost of all utilities used in or at the Leased
Property and any Capital Additions relating to such Facility through the
termination date and accrued and unpaid, whether or not then billed, as of the
termination date until full payment thereof by Lessee.  Lessee
shall obtain directly from the companies providing such services closing
statements for all services rendered through the termination date and shall
promptly pay the same.  If any utility statement with respect to such
Leased Property and any Capital Additions includes charges for a period
partially prior to and partially subsequent to the termination date, such
charges shall be prorated as between Lessor and Lessee, with Lessee responsible
for the portion thereof (based upon a fraction the numerator of which is the
number of days of service on such statement through the termination date and the
denominator of which is the total number of days of service on such statement)
through the termination date and Lessor shall be responsible for the
balance.  The party receiving any such statement which requires
proration hereunder shall promptly pay such statement and the other party shall,
within ten (10) days after receipt of a copy of such statement, remit to the
party paying the statement any amount for which such other party is responsible
hereunder.




(C)  Lessee
shall remain responsible for any and all Impositions imposed against the Leased
Property, the Personal Property and any Capital Additions with a lien date prior
to the termination date (irrespective of the date of billing therefor) and for
its pro rata share of any Impositions imposed in respect of the tax-fiscal
period during which the Term terminates as provided in Section 4.1.7, and Lessee
shall indemnify and hold Lessor harmless with respect to any claims for such
Impositions or resulting from nonpayment thereof.




(D)  Lessee
shall (y) execute all documents and take any actions reasonably necessary to (1)
cause the transfer to Lessor of all of Lessee’s Personal Property and any
Capital Additions not owned by Lessor, as provided in Section 6.3in each case free of any
encumbrance, as provided in Section 6.3 and (2) remove this Lease and/or any
memorandum hereof as a matter affecting title to the Leased Property as provided
in Article XXXVIII and (z) comply with its covenants set forth in Section
45.1.4.




(E)  Lessee
shall continue to observe the covenants of Lessee set forth in Sections 7.4.1
and 7.4.2 and any other covenant or agreement of Lessee in this Lease which is
intended to survive the expiration or sooner termination of this
Lease.




45.1.7  Governing
Law.  THIS LEASE WAS NEGOTIATED IN THE STATE OF CALIFORNIA,
WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND
TO THE UNDERLYING




94


TRANSACTION
EMBODIED HEREBY.  ACCORDINGLY, IN ALL RESPECTS THIS LEASE (AND ANY
AGREEMENT FORMED PURSUANT TO THE TERMS HEREOF) SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA (WITHOUT REGARD OF PRINCIPLES OR CONFLICTS OF LAW) AND ANY
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA, EXCEPT THAT ALL PROVISIONS
HEREOF RELATING TO THE CREATION OF THE LEASEHOLD ESTATE AND ALL REMEDIES SET
FORTH IN ARTICLE XVI RELATING TO RECOVERY OF POSSESSION OF THE LEASED PROPERTY
OF ANY FACILITY (SUCH AS AN ACTION FOR UNLAWFUL DETAINER OR OTHER SIMILAR
ACTION) SHALL BE CONSTRUED AND ENFORCED ACCORDING TO, AND GOVERNED BY, THE LAWS
OF THE STATE IN WHICH THE LEASED PROPERTY OF SUCH FACILITY IS
LOCATED.




45.1.8  Waiver of Trial by
Jury.  EACH OF LESSOR AND LESSEE ACKNOWLEDGES THAT IT HAS HAD
THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY
UNDER THE CONSTITUTION OF THE UNITED STATES, THE STATE OF CALIFORNIA AND THE
STATES IN WHICH THE LEASED PROPERTY OF ANY OF THE FACILITIES IS
LOCATED.  EACH OF LESSOR AND LESSEE HEREBY EXPRESSLY WAIVES ANY RIGHT
TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING
UNDER THIS LEASE (OR ANY AGREEMENT FORMED PURSUANT TO THE TERMS HEREOF) OR (ii)
IN ANY MANNER CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF LESSOR
AND LESSEE WITH RESPECT TO THIS LEASE (OR ANY AGREEMENT FORMED PURSUANT TO THE
TERMS HEREOF) OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO,
IN EACH CASE WHETHER NOW EXISTING OR HEREINAFTER ARISING, AND WHETHER SOUNDING
IN CONTRACT OR TORT OR OTHERWISE; EACH OF LESSOR AND LESSEE HEREBY AGREES AND
CONSENTS THAT, SUBJECT TO THE PROVISIONS OF ARTICLE XLIV ABOVE, ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY A COURT TRIAL
WITHOUT A JURY, AND THAT EITHER PARTY MAY FILE A COPY OF THIS SECTION WITH ANY
COURT AS CONCLUSIVE EVIDENCE OF THE CONSENT OF EACH SUCH PARTY TO THE WAIVER OF
ITS RIGHT TO TRIAL BY JURY.




Lessor’s
Initials:                                           __________                                __________                                ____________________









__________                                __________                                __________




Lessee’s
Initials:                                           __________




45.1.9  Legal
Descriptions.  Notwithstanding anything to the contrary in this
Lease, Lessor and Lessee shall cooperate to confirm the exact legal description
for the Land of each Facility prior to the Commencement Date.  In the
event that the exact legal description for the Land of any Facility differs from
the legal description attached hereto for




95


the Land
of such Facility, then Lessor and Lessee shall cooperate to substitute the
correct legal description for the Land of such Facility for the incorrect legal
description attached hereto as Exhibit
A.




45.1.10  Entire
Agreement.  This Lease, the Exhibits hereto and such other
documents as are contemplated hereunder or thereunder, constitutes the entire
agreement of the parties with respect to the subject matter hereof, and may not
be changed or modified except by an agreement in writing signed by the parties.
Lessor and Lessee hereby agree that all prior or contemporaneous oral
understandings, agreements or negotiations relative to the leasing of the Leased
Property are merged into and revoked by this Lease.  Without limiting
the generality of the foregoing, any schedules, abstracts and any other
materials prepared in connection with this Lease are hereby merged into and
revoked by this Lease.




45.1.11  Headings.  All
titles and headings to sections, subsections, paragraphs or other divisions of
this Lease are only for the convenience of the parties and shall not be
construed to have any effect or meaning with respect to the other contents of
such sections, subsections, paragraphs or other divisions, such other content
being controlling as to the agreement among the parties hereto.




45.1.12  Counterparts.  This
Lease may be executed in any number of counterparts, each of which shall be a
valid and binding original, but all of which together shall constitute one and
the same instrument.




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




45.1.14  Interpretation.  Both
Lessor and Lessee have been represented by counsel and this Lease and every
provision hereof has been freely and fairly negotiated.  Consequently,
all provisions of this Lease shall be interpreted according to their fair
meaning and shall not be strictly construed against any party.




45.1.15  Time of
Essence.  Time is of the essence of this Lease and each
provision hereof in which time of performance is established.




45.1.16  Force
Majeure.  In the event that either Lessor or Lessee is delayed
in performing its respective obligations pursuant to this Lease by any cause
beyond the reasonable control of the party required to perform such obligation,
the time period for performing such obligation shall be extended by a period of
time equal to the period of the delay.  For purposes of this
Lease:




(a)  A cause
shall be beyond the reasonable control of a party to this Lease when such cause
would affect any person similarly situated (such as power outage, labor strike,
Act of God or trucker’s strike) but shall not be beyond the reasonable control
of such party when peculiar to such party (such as financial inability or
failure to order long lead time material sufficiently in advance).




96


(b)  This
Section shall not apply to any obligation to pay money or otherwise perform any
financial obligation hereunder.




(c)  In the
event of any occurrence which a party believes constitutes a cause beyond the
reasonable control of such party and which will delay any performance by such
party, such party shall promptly in writing notify the other party of the
occurrence and nature of such cause, the anticipated period of delay and the
steps being taken by such party to mitigate the effects of such
delay.  Failure to give such notice promptly, shall deem such
occurrence or event not to be a cause beyond the
reasonable control of such party.




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




45.1.18  Public
Disclosure.  From and after the Effective Date, any press
release or other written release to the public of information with respect to
this Lease or any matters regarding the transaction contemplated hereby shall be
made only in a form reasonably approved in writing by Lessor and Lessee;
provided, however, that any release of such information or other matters
required by applicable law or deemed prudent (in the disclosing party’s
judgment) under SEC or other federal or state securities’ laws or the rules and
regulations of the NYSE, NASDAQ or American Stock Exchange, shall not require
approval from the other party.




ARTICLE
XLVI.




46.1  Provisions Relating to
Master Lease




.  Lessor
and Lessee hereby acknowledge and agree that, except as otherwise expressly
provided herein to the contrary and for the limited purposes so provided, this
Lease is and the parties intend the same for all purposes to be treated as a
single, integrated and indivisible agreement and economic
unit.  Lessee acknowledges that in order to induce Lessor to lease the
Leased Property of each Facility to Lessee pursuant to this Lease and as a
condition thereto, Lessor insisted that the parties execute this Lease, thereby
covering all of the Facilities in a single, integrated and indivisible agreement
and economic unit, and that but for such agreement Lessor would not have leased
the Leased Property of the Facilities to Lessee under the terms and conditions
set forth herein.




46.2  Treatment of
Lease




.  Lessor
and Lessee hereby acknowledge and agree that this Lease shall be treated as an
operating lease for all purposes and not as a synthetic lease, financing lease
or loan, and that Lessor shall be entitled to all the benefits of ownership of
the Leased Property, including depreciation for all federal, state and local tax
purposes.




ARTICLE
XLVII.




47.1  Delays in Delivery of
Possession and Commencement Date




.




47.1.1  Lessee
acknowledges that (a) the Leased Property of each Facility is currently leased
to Aureus Acquisition I, LLC or Aureus Acquisition III, L.P.




97


(collectively,
the “Current Lessees”) pursuant to the terms of certain written leases
(collectively, the “Current Leases,” and each, a “Current Lease”) between the
applicable Current Lessee and the applicable Person comprising Lessor, (b) each
Current Lessee has engaged Sunrise Senior Living Management, Inc. or an
Affiliate thereof (the “Current Manager”) to manage the respective Facility
pursuant to the terms of certain written management agreements between the
applicable Current Lessee and the Current Manager (collectively, the “Current
Management Agreements,” and each, a “Current Management Agreement”), and
accordingly, the Current Manager is currently in possession of and operating
each Facility pursuant to the terms of the Current Management Agreements for and
on behalf of each applicable Current Lessee, and (c) Lessor’s ability to tender
or cause the tender of delivery of possession of and Lessee’s ability to obtain
possession of the Leased Property of each Facility is conditioned upon each of
Current Lessees’ and Current Manager’s surrender of the Leased Property and
fulfillment of the conditions precedent to its obligations under one or more
Lease Termination Agreements (as hereinafter defined) and Operations Transfer
Agreements (hereinafter defined), which is expected to occur upon satisfaction
of the last of the conditions to continued effectiveness of this Lease as
provided in Sections 48.1 and 48.2 below.




47.1.2  Prior to
the Commencement Date, Lessor and Lessee shall be in the Pre-Commencement Date
Period.  The “Commencement Date” of this Lease shall be the earlier of
(a) the date Lessee takes possession of or commences use of the Leased Property
for any purpose whatsoever (exclusive of any temporary access pursuant to the
Access Agreement) or (ii) the date of tender of delivery of possession of the
Leased Property to Lessee following satisfaction or waiver of the last of the
conditions to the continued effectiveness of the Lease as provided in Sections
48.1 and 48.2 below.  From and after the Commencement Date, Lessee
shall observe and perform all obligations of the “Lessee” pursuant to this
Lease, including the payment of all Minimum Rent and Additional Charges as and
when due.




47.1.3  The
target Commencement Date for all Facilities is January 1, 2009; provided,
however, that if the Commencement Date shall not have occurred with respect to
all Facilities on or before the target Commencement Date, this Lease shall not
be void or voidable, nor shall Lessor be liable for any loss or damage resulting
therefrom.  Instead this Lease shall continue in full force and effect
to and until occurrence of the Commencement Date for all Facilities, unless
earlier terminated as herein provided.  Notwithstanding anything to
the contrary in this Lease, however, the Commencement Date must
occur simultaneous with respect to all of the Facilities, and Lessee shall
not take possession of or commence any use of any Facility until all of the
conditions to the continued effectiveness of this Lease as provided in Sections
48.1 and 48.2 below have been satisfied or waived with respect to all
Facilities.




ARTICLE
XLVIII.




48.1  Lessor’s Conditions to Continued
Effectiveness of Lease




.




98


48.1.1  Notwithstanding
anything to the contrary contained in this Lease, Lessor and Lessee acknowledge
and agree that the continued effectiveness of this Lease and Lessor’s
obligations hereunder are expressly conditioned upon the satisfaction or waiver
in writing by Lessor of each of the following:




(a)  On or
before 5:00 p.m. (California time) on September 26, 2008, Lessee shall have
submitted evidence reasonably satisfactory to Lessor that Lessee and, in the
case of the SNF Beds, any approved SNF Operator, has applied for all licenses,
permits, accreditations, authorizations and certifications from all governmental
or quasi-governmental authorities, agencies, departments or otherwise which are
material to or required for the operation of each Facility for its Primary
Intended Use, including without limitation any state facility license,
certificate of need and any accreditations or certifications from Medicare
and/or Medicaid (collectively, the “Required Governmental
Approvals”);




(b)  On or
before 5:00 p.m. (California time) on October 31, 2008, Lessee shall have
submitted evidence reasonably satisfactory to Lessor that Lessee and, in the
case of the SNF Beds, the approved SNF Operator, the applicable Current Lessee
and the Current Manager have entered into one or more transfer agreements in
form and substance acceptable to Lessee and, in the case of the SNF Beds, the
approved SNF Operator, the applicable Current Lessee and the Current Manager
(the “Operations Transfer Agreement(s)”) to arrange for a transition of full
operational responsibility for each of the Facilities to Lessee and, in the case
of the SNF Beds, to the approved SNF Operator;




(c)  On or
before 5:00 p.m. (California time) on October 31, 2008, Lessor and the
applicable Current Lessee shall have entered into one or more lease termination
agreements in form and substance acceptable to Lessor and the applicable Current
Lessee (the “Lease Termination Agreement(s)”) providing for the early
termination of each of the Current Leases (and any other agreements or
instruments ancillary thereto) effective immediately prior to the Commencement
Date hereof and, in any event, upon such terms that do not impose on Lessee any
liability with respect to pre-Commencement Date leasing and operation of the
Facilities;




(d)  On or
before 5:00 p.m. (California time) on October 30, 2008, the transactions
contemplated by this Lease and the Lease Termination Agreement(s) shall have
been approved by the Board of Directors of HCP, Inc.;




(e)  On or
before 5:00 p.m. (California time) on November 14, 2008, Lessor shall have
obtained from each Facility Mortgagee under each Existing Facility Mortgage
encumbering the Leased Property (or any potion thereof), a written consent to
this Lease, the Lease Termination Agreement(s), the Operation Transfer
Agreement(s) and the transactions contemplated hereby and thereby (each, an
“Existing Facility Mortgagee Consent”) upon such terms and conditions as are
acceptable to Lessor and such Facility Mortgagee, and Lessor, Lessee and each
Facility Mortgagee shall have executed and delivered all documents reasonably
required by such Facility Mortgagee in




99


connection
with such Facility Mortgagee’s delivery of the Existing Facility Mortgagee
Consent; and




(f)  On or
before 5:00 p.m. (California time) on December 31, 2008, Lessee shall have
delivered to Lessor copies or other reasonable evidence that Lessee and, in the
case of the SNF Beds, the approved SNF Operator, has obtained all of the
Required Governmental Approvals.




48.1.2  In the event that any of the conditions
set forth in Section 48.1.1 above are not satisfied within the time period
specified therein, then
Lessor shall have the option to terminate this Lease.  Such option
shall be exercised, if at all, by written notice from Lessor to Lessee given at
anytime after the date by which such condition must be satisfied and prior to
the date the same issatisfied; provided, however, that
Lessor may in its sole discretion waive in writing any such condition or delay
the date the same is required to be satisfied.  If Lessor is entitled
to terminate this Lease pursuant to this Section 48.1.2 and timely andproperly exercises such option, this
Lease shall terminate on the date of Lessee’s receipt of Lessor’s notice of termination, Lessor shall
bear Lessor’s Set-Up Costs, Lessee shall bear
Lessee’s Set-Up Costs,each party shall bear any of their
other costs and fees
incurred in the negotiation and preparation of this Leaseand in performing its respective
obligations hereunder through the date of such termination and neither party
shall have any further obligation to the other hereunder except for those
obligations which are
intended to survive the earlier termination of this Lease prior to the
Commencement Date, if any.  Pending any such termination by Lessor
pursuant to this Section 48.1.2, each party shall perform its respective
obligations pursuant to thisLease.




48.1.3  Promptly
upon execution and delivery of this Lease, Lessee shall use good faith efforts
to satisfy, and, in the case of the SNF Beds, cause the approved SNF Operator to
use good faith efforts to satisfy, the conditions set forth in Sections
48.1.1(a), (b) and (f) and cooperate with Lessor in Lessor’s efforts to satisfy
the conditions in Sections 48.1.1(c) and (d) above, including: (a) attempting to
reach agreement in principle and, if such agreement in principle with each
Current Lessee and Current Manager is reached, to thereafter negotiate for and
enter into one or more definitive and binding Operations Transfer Agreement(s);
and (b) promptly and timely making application for and using commercially
reasonable efforts to diligently pursue and obtain all such Required
Governmental Approvals.  Lessor hereby agrees that it will cooperate
with Lessee and, in the case of the SNF Beds, with such approved SNF Operator,
in connection with Lessee’s and such SNF Operator’s efforts to satisfy the
conditions set forth in such Sections 48.1.1(a), (b) and (f) as reasonably
requested by Lessee (including, executing such documents and instruments as are
reasonably required in connection therewith), but without requirement that
Lessor incur any out-of-pocket costs or assume any obligations (financial or
otherwise) in connection therewith.  Lessee hereby acknowledges and
agrees, however, that there can be no assurances that the Current Lessees or
Current Manager will cooperate and/or continue to cooperate, and no such
non-cooperation or cessation of cooperation by the Current Lessees or Current
Manager shall relieve Lessee from its obligation to use and, in the case of the
SNF Beds, to cause the approved SNF Operator to use, commercially reasonable
efforts to satisfy the conditions set forth in Sections 48.1.1(a), (b) and (f)
above.  From and after the Effective Date, Lessee shall keep and, in
the case of the SNF Beds, cause the approved SNF Operator




100


to keep,
Lessor reasonably apprised of the status of Lessee’s and, in the case of the SNF
Beds, the SNF Operator’s, efforts to satisfy such conditions for the benefit
Lessor including all material communications with all applicable governmental or
quasi-governmental authorities, the status of obtaining the Required
Governmental Approvals and the status of obtaining the Operations Transfer
Agreement(s).  Lessee shall promptly deliver to Lessor copies of the
fully executed Operations Transfer Agreement(s) (if and when obtained), and
copies of all application(s) for new licenses, permits, accreditations,
authorizations and certifications (when made) and all Required Governmental
Approvals issued in connection therewith (if and when obtained).




48.1.4  Promptly
upon execution and delivery of this Lease, Lessor shall use good faith efforts
to satisfy the conditions set forth in Sections 48.1.1(c) and (d) including: (a)
attempting to reach agreement in principle and, if such agreement in principle
with the Current Lessees is reached, to thereafter negotiate for and enter into
one or more definitive and binding Lease Termination Agreement(s); and (b)
promptly and timely seeking each Existing Facility Mortgagee Consent from all
Facility Mortgagees under an Existing Facility Mortgage.  Lessee
hereby agrees that it will and, in the case of the SNF Beds, it will cause
the approved SNF Operator to, cooperate with Lessor in connection with the same
as reasonably requested by Lessor (including, executing such documents and
instruments as are reasonably required in connection therewith), but without
requirement that Lessee and, in the case of the SNF Beds, such approved SNF
Operator assume any obligations (financial or otherwise) in connection
therewith, except as provided in Section 36.3 hereof.  Lessee hereby
acknowledges and agrees, however, that there can be no assurances that the
Current Lessees or Existing Facility Mortgagees will cooperate and/or continue
to cooperate with Lessor or that Lessor will be able to satisfy the conditions
set forth in Sections 48.1.1 (c) or (d).  From and after the Effective
Date, Lessor shall keep Lessee reasonably apprised of the status of Lessor’s
efforts to satisfy such conditions, including the status of negotiations with
the Current Lessees and all material communications with the Existing Facility
Mortgagees.  Lessor shall promptly notify Lessee if and when Lessor
has obtained (i) the executed Lease Termination Agreement(s), along with a copy
of any short form memorandum thereof or other reasonable summary of the terms
thereof that may affect Lessee, (ii) the Existing Facility Mortgagee Consent(s),
along with copies thereof, and (iii) the approval of HCP’s Board of Directors as
provided in Section 48.1.1(e) above.




48.2  Lessee’s Conditions to Continued
Effectiveness of Lease.




48.2.1  Notwithstanding
anything to the contrary contained in this Lease, Lessor and Lessee acknowledge
and agree that the continued effectiveness of this Lease and Lessee’s
obligations hereunder are expressly conditioned upon the satisfaction or waiver
in writing by Lessee of each of the following:




(a)  Subject
to the terms of the Access Agreement, on or before 5:00 p.m. (California time)
on October 15, 2008, Lessee shall have been satisfied with the results of its
due diligence review of the Leased Property, the Facilities and the operations
thereof, including the terms of the Existing Facility Mortgage Loan
Documents;




101


(b)  On or
before 5:00 p.m. (California time) on October 31, 2008, Lessee and, in the case
of the SNF Beds, the approved SNF Operator, the applicable Current Lessee and
the Current Manager shall have entered the Operations Transfer
Agreement(s);




(c)  On or
before 5:00 p.m. (California time) on October 31, 2008, Lessor shall have
submitted evidence reasonably satisfactory to Lessee that Lessor and the
applicable Current Lessee shall have entered into the Lease Termination
Agreement(s); and




(d)  On or
before 5:00 p.m. (California time) on November 14, 2008, Lessor shall have
obtained from each Facility Mortgagee under each Existing Facility Mortgage
encumbering the Leased Property (or any potion thereof), an Existing Facility
Mortgagee Consent, and Lessor, Lessee and each Facility Mortgagee shall have
executed and delivered all documents reasonably required by such Facility
Mortgagee in connection with such Facility Mortgagee’s delivery of the Existing
Facility Mortgagee Consent.




48.2.2  Subject
to Lessee’s obligations pursuant to Sections 48.1.3 and 48.1.4, in the event
that any condition set forth in Section 48.2.1 is not satisfied within the time
period specified therein, Lessee shall have the option to terminate this Lease.
Such option shall be exercised, if at all, with respect to any such condition by
written notice to Lessor delivered on or before the applicable date specified
therefor and specifying in reasonable detail the particular condition(s) which
has or have not been satisfied and the reasons therefor.  If
Lessee is entitled to terminate this Lease pursuant to this Section 48.2.2 and
timely and properly exercises such option, this Lease shall terminate on the
date of Lessor’s receipt of Lessee’s notice of termination, Lessor shall bear
Lessor’s Set-Up Costs, Lessee shall bear Lessee’s Set-Up Costs, each party shall
bear any of their other costs and fees incurred in the negotiation and
preparation of this Lease and in performing its respective obligations hereunder
through the date of such termination and neither party shall have any further
obligation to the other hereunder except for those obligations which are
intended to survive the earlier termination of this Lease prior to the
Commencement Date, if any.  Pending any such termination by Lessee
pursuant to this Section 48.2.2, each party shall perform its respective
obligations pursuant to this Lease.  If Lessee shall fail to give a
notice of termination in the manner and within the time period specified in this
Section 48.2.2 with respect to any such condition, such condition set forth in
Section 48.2.1 shall be deemed satisfied or waived by Lessee and this Lease
shall continue in full force and effect in accordance with the terms
hereof.




48.3  Amendment to
Lease




.  Following
the Commencement Date, the parties shall execute an amendment to this Lease in
substantially the form of Exhibit E to confirm
certain matters, including the Commencement Date and the Expiration
Date.  Notwithstanding the foregoing, the failure of Lessor to prepare
and/or Lessee to execute and deliver any such amendment shall not affect the
matters which would have been confirmed thereby.




102


ARTICLE
XLIX.




49.1  Certain Additional Representations and
Warranties by Lessee




.  Lessee
represents and warrants to Lessor as follows:




(a)  Lessee is
duly organized, validly existing and in good standing under the laws of its
state of organization/formation, is qualified to do business and in good
standing in the State and has full power, authority and legal right to execute
and deliver and to perform and observe the provisions of this Lease to be
observed and/or performed by Lessee.




(b)  This
Lease has been duly authorized, executed and delivered by Lessee, and
constitutes and will constitute the valid and binding obligations of Lessee
enforceable against Lessee in accordance with its terms, except as such
enforceability may be limited by creditors rights, laws and general principles
of equity.




(c)  Lessee is
solvent, has timely and accurately filed all tax returns required to be filed by
Lessee, and is not in default in the payment of any taxes levied or assessed
against Lessee or any of its assets, or subject to any judgment, order, decree,
rule or regulation of any governmental authority which would, in each case or in
the aggregate, adversely affect Lessee’s condition, financial or otherwise, or
Lessee’s prospects or the Leased Property.




(d)  Except
for the Required Governmental Approvals to use and operate each Facility for its
Primary Intended Use, no other consent, approval or other authorization of, or
registration, declaration or filing with, any governmental authority is required
for the due execution and delivery of this Lease, or for the performance by or
the validity or enforceability of this Lease against Lessee.




(e)  Subject
to Lessee’s receipt of the Required Governmental Approvals, the execution and
delivery of this Lease and compliance with the provisions hereof will not result
in (i) a breach or violation of (A) any Legal Requirement applicable to Lessee
now in effect; (B) the organizational or charter documents of such party; (C)
any judgment, order or decree of any governmental authority binding upon Lessee;
or (D) any agreement or instrument to which Lessee is a counterparty or by which
it is bound; or (ii) the acceleration of any obligation of Lessee.




(f)  Lessee is
in compliance with the requirements of Executive Order No. 13224, 66 Fed. Reg.
49079 (Sept. 25, 2001) (the “Order”) and other similar requirements contained in
the rules and regulations of the Office of Foreign Assets Control, Department of
Treasury (“OFAC”) and in any enabling legislation or other Executive Orders or
regulations in respect thereof (the Order and such other rules, regulations,
legislation or orders collecting called the “Orders”).  Neither Lessee
nor any of its Affiliates (A) is listed on the Specially Designated Nationals
and Blocked Person List maintained by OFAC pursuant to the Order and/or on any
other list of terrorists or terrorist organizations maintained pursuant to any
of the rules and regulations of OFAC or pursuant to any other applicable Orders
(such lists are collectively referred to as the




103


“Lists”),
(B) is a Person (as defined in the Order) who has been determined by competent
authority to be subject to the prohibitions contained in the Orders; or (C) is
owned or controlled by (including without limitation by virtue of such Person
being a director or owning voting shares or interests), or acts for or on behalf
of, any person on the Lists or any other person who has been determined by
competent authority to be subject to the prohibitions contained in the
Orders.




[SIGNATURE
PAGE FOLLOWS]







104


IN
WITNESS WHEREOF, the parties have caused this Lease to be executed and attested
by their respective officers thereunto duly authorized.




LESSOR:
            HCP AUR1 CALIFORNIA A PACK,
      LLC,




a
      Delaware limited liability company









HCP AUR1 CALIFORNIA B PACK,
      LLC,




a
      Delaware limited liability company









HCP AUR1 CONNECTICUT,
      LLC,




a
      Delaware limited liability company









HCP AUR1 MARYLAND,
      LLC,




a
      Delaware limited liability company









HCP AUR1 MASSACHUSETTS,
      LLC,




a
      Delaware limited liability company









HCP AUR1 NEW JERSEY,
      LLC,




a
      Delaware limited liability company









HCP AUR1 VIRGINIA,
      LLC,




a
      Delaware limited liability company









By:
            HCP
      Partners, LP, a Delaware limited
partnership,




their
      member









By:
            HCP
      GP Corp., a Delaware corporation,




its
      general partner




By:           /s/  Brian J.
Maas




Name:                      Brian J.
Maas




Title:                      Senior Vice
President














[Signatures continue on the following
page]




105


LESSEE:
            EMERITUS
      CORPORATION,




a
      Washington corporation









By:/s/ Eric
Mendelsohn




Name:                      Eric
Mendelsohn




Title:                      SVP Corporate
Development




106