**LEASE
AGREEMENT**
 
 
 **BETWEEN**
 
 
 **HCRI WILBURN
GARDENS PROPERTIES, LLC**
 
 
 **AND**
 
 
 **EMERITUS
CORPORATION**
 
 
 **March 31,
2005**
 
 
   
   
 **SECTION**
    **TABLE
      OF CONTENTS**
    **PAGE****ARTICLE
      1:**
    **LEASED
      PROPERTY, TERM AND DEFINITIONS**
    **1****1.1**
    **Leased
      Property**
    **1****1.2**
    **Term**
    **1****1.3**
    **Definitions**
    **1****1.4**
    **Landlord
      As Agent**
    **10****ARTICLE
      2:**
    **RENT**
    **10****2.1**
    **Base
      Rent**
    **10****2.2**
    **Base
      Rent Adjustments**
    **10****2.2.1**
    **Annual
      Increase of Base Rent**
    **10****2.2.2**
    **Additional
      Landlord Payments**
    **11****2.3**
    **Additional
      Rent**
    **11****2.4**
    **Place
      of Payment of Rent**
    **11****2.5**
    **Net
      Lease**
    **11****2.6**
    **No
      Termination, Abatement, Etc.**
    **11****2.7**
    **Transaction
      Fee**
    **12****ARTICLE
      3:**
    **IMPOSITIONS
      AND UTILITIES**
    **12****3.1**
    **Payment
      of Impositions**
    **12****3.2**
    **Definition
      of Impositions**
    **13****3.3**
    **Escrow
      of Impositions**
    **13****3.4**
    **Utilities**
    **14****3.5**
    **Discontinuance
      of Utilities**
    **14****3.6**
    **Business
      Expenses**
    **14****3.7**
    **Permitted
      Contests**
    **14****ARTICLE
      4:**
    **INSURANCE**
    **15****4.1**
    **Property
      Insurance**
    **15****4.2**
    **Liability
      Insurance**
    **16****4.3**
    **Builder’s
      Risk Insurance**
    **17****4.4**
    **Insurance
      Requirements**
    **17****4.5**
    **Replacement
      Value**
    **18****4.6**
    **Blanket
      Policy**
    **18****4.7**
    **No
      Separate Insurance**
    **18****4.8**
    **Waiver
      of Subrogation**
    **18****4.9**
    **Mortgages**
    **18****4.1**
    **Escrows**
    **19****ARTICLE
      5:**
    **INDEMNITY**
    **19****5.1**
    **Tenant’s
      Indemnification**
    **19****5.1.1**
    **Notice
      of Claim**
    **19**
 
 
 
 
 
 **SECTION**
    **TABLE
      OF CONTENTS**
    **PAGE****5.1.2**
    **Survival
      of Covenants**
    **20****5.1.3**
    **Reimbursement
      of Expenses**
    **20****5.2**
    **Environmental
      Indemnity; Audits**
    **20****5.3**
    **Limitation
      of Landlord’s Liability**
    **20****ARTICLE
      6:**
    **USE
      AND ACCEPTANCE OF PREMISES**
    **21****6.1**
    **Use
      of Leased Property**
    **21****6.2**
    **Acceptance
      of Leased Property**
    **21****6.3**
    **Conditions
      of Use and Occupancy**
    **21****ARTICLE
      7:**
    **MAINTENANCE
      AND MECHANICS’ LIENS**
    **22****7.1**
    **Maintenance**
    **22****7.2**
    **Required
      Alterations**
    **22****7.3**
    **Mechanic’s
      Liens**
    **23****7.4**
    **Replacements
      of Fixtures and Landlord’s Personal Property**
    **23****7.5**
    **Lender
      Maintenance Reserve Escrow**
    **23****ARTICLE
      8:**
    **DEFAULTS
      AND REMEDIES**
    **24****8.1**
    **Events
      of Default**
    **24****8.2**
    **Remedies**
    **25****8.3**
    **Right
      of Setoff**
    **29****8.4**
    **Performance
      of Tenant’s Covenants**
    **29****8.5**
    **Late
      Payment Charge**
    **29****8.6**
    **Default
      Rent**
    **29****8.7**
    **Attorneys’
      Fees**
    **29****8.8**
    **Escrows
      and Application of Payments**
    **30****8.9**
    **Remedies
      Cumulative**
    **30****8.10**
    **Waivers**
    **30****8.11**
    **Obligations
      Under the Bankruptcy Code**
    **30****ARTICLE
      9:**
    **DAMAGE
      AND DESTRUCTION**
    **31****9.1**
    **Notice
      of Casualty**
    **31****9.2**
    **Substantial
      Destruction**
    **31****9.3**
    **Partial
      Destruction**
    **32****9.4**
    **Restoration**
    **32****9.5**
    **Insufficient
      Proceeds**
    **33****9.6**
    **Not
      Trust Funds**
    **33****9.7**
    **Landlord’s
      Inspection**
    **33****9.8**
    **Landlord’s
      Costs**
    **33****9.9**
    **No
      Rent Abatement**
    **33**
 
 
 
 
 
 **SECTION**
    **TABLE
      OF CONTENTS**
    **PAGE****ARTICLE
      10:**
    **CONDEMNATION**
    **33****10.1**
    **Total
      Taking**
    **33****10.2**
    **Partial
      Taking**
    **34****10.3**
    **Condemnation
      Proceeds Not Trust Funds**
    **34****ARTICLE
      11:**
    **TENANT’S
      PROPERTY**
    **34****11.1**
    **Tenant’s
      Property**
    **34****11.2**
    **Requirements
      for Tenant’s Property**
    **34****ARTICLE
      12:**
    **RENEWAL
      OPTIONS**
    **36****12.1**
    **Renewal
      Options**
    **36****12.2**
    **Effect
      of Renewal**
    **36****ARTICLE
      13:**
    **RIGHT
      OF FIRST OPPORTUNITY**
    **37****13.1**
    **Right
      of First Opportunity**
    **37****13.2**
    **Fair
      Market Value**
    **38****13.3**
    **Closing**
    **40****ARTICLE
      14:**
    **NEGATIVE
      COVENANTS**
    **40****14.1**
    **No
      Debt**
    **40****14.2**
    **No
      Liens**
    **40****14.3**
    **No
      Guaranties**
    **40****14.4**
    **No
      Transfer**
    **40****14.5**
    **No
      Dissolution**
    **40****14.6**
    **Subordination
      of Payments to Affiliates**
    **40****14.7**
    **Change
      of Location or Name**
    **41****ARTICLE
      15:**
    **AFFIRMATIVE
      COVENANTS**
    **41****15.1**
    **Perform
      Obligations**
    **41****15.2**
    **Proceedings
      to Enjoin or Prevent Construction**
    **41****15.3**
    **Documents
      and Information**
    **41****15.3.1**
    **Furnish
      Documents**
    **41****15.3.2**
    **Furnish
      Information**
    **42****15.3.3**
    **Further
      Assurances and Information**
    **42****15.3.4**
    **Material
      Communications**
    **42****15.3.5**
    **Requirements
      for Financial Statements**
    **42****15.4**
    **Compliance
      With Laws**
    **43****15.5**
    **Broker’s
      Commission**
    **43****15.6**
    **Existence
      and Change in Ownership**
    **43****15.7**
    **Financial
      Covenants**
    **43****15.7.1**
    **Definitions**
    **43**
 
 
 
 
 
 
 **SECTION**
    **TABLE
      OF CONTENTS**
    **PAGE****15.7.2**
    **Coverage
      Ratio**
    **43****15.8**
    **Facility
      Licensure and Certification**
    **44****15.8.1**
    **Notice
      of Inspections**
    **44****15.8.2**
    **Material
      Deficiencies**
    **44****15.9**
    **Transfer
      of License and Facility Operations**
    **44****15.9.1**
    **Licensure**
    **44****15.9.2**
    **Facility
      Operations**
    **44****15.10**
    **Bed
      Operating Rights**
    **45****15.11**
    **Power
      of Attorney**
    **45****15.12**
    **Compliance
      with Loan Documents**
    **45****ARTICLE
      16:**
    **ALTERATIONS,
      CAPITAL IMPROVEMENTS, AND SIGNS**
    **47****16.1**
    **Prohibition
      on Alterations and Improvements**
    **47****16.2**
    **Approval
      of Alterations**
    **47****16.3**
    **Permitted
      Alterations**
    **47****16.4**
    **Requirements
      for Permitted Alterations**
    **47****16.5**
    **Ownership
      and Removal of Permitted Alterations**
    **48****16.6**
    **Minimum
      Qualified Capital Expenditures**
    **48****16.7**
    **Signs**
    **49****ARTICLE
      17:**
    **RESERVED**
    **49****ARTICLE
      18:**
    **ASSIGNMENT
      AND SALE OF LEASED PROPERTY**
    **49****18.1**
    **Prohibition
      on Assignment and Subletting**
    **49****18.2**
    **Requests
      for Landlord’s Consent to Assignment, Sublease or Management
      Agreement**
    **49****18.3**
    **Agreements
      with Residents**
    **50****18.4**
    **Sale
      of Leased Property**
    **50****18.5**
    **Assignment
      by Landlord**
    **51****ARTICLE
      19:**
    **HOLDOVER
      AND SURRENDER**
    **51****19.1**
    **Holding
      Over**
    **51****19.2**
    **Surrender**
    **51****19.3**
    **Indemnity**
    **51****ARTICLE
      20:**
    **RESERVED**
    **52****ARTICLE
      21:**
    **QUIET
      ENJOYMENT, SUBORDINATION, ATTORNMENT AND ESTOPPEL
      CERTIFICATES**
    **52****21.1**
    **Quiet
      Enjoyment**
    **52****21.2**
    **Subordination**
    **52****21.3**
    **Attornment**
    **52****21.4**
    **Estoppel
      Certificates**
    **53**
 
 
 
 
 
 
 
 **SECTION**
    **TABLE
      OF CONTENTS**
    **PAGE****ARTICLE
      22:**
    **REPRESENTATIONS
      AND WARRANTIES**
    **53****22.1**
    **Organization
      and Good Standing**
    **54****22.2**
    **Power
      and Authority**
    **54****22.3**
    **Enforceability**
    **54****22.4**
    **Government
      Authorizations**
    **54****22.5**
    **Financial
      Statements**
    **54****22.6**
    **Condition
      of Facility**
    **54****22.7**
    **Compliance
      with Laws**
    **55****22.8**
    **No
      Litigation**
    **55****22.9**
    **Consents**
    **55****22.10**
    **No
      Violation**
    **55****22.11**
    **Reports
      and Statements**
    **55****22.12**
    **ERISA**
    **56****22.13**
    **Chief
      Executive Office**
    **56****22.14**
    **Other
      Name or Entities**
    **56****22.15**
    **Parties
      in Possession**
    **56****22.16**
    **Access**
    **56****22.17**
    **Utilities**
    **56****22.18**
    **Condemnation
      and Assessments**
    **56****22.19**
    **Zoning**
    **57****22.20**
    **Environmental
      Matters**
    **57****22.21**
    **Leases
      and Contracts**
    **57****22.22**
    **No
      Default**
    **58****22.23**
    **Tax
      Status**
    **58****ARTICLE
      23:**
    **RESERVED**
    **58****ARTICLE
      24:**
    **SECURITY
      INTEREST**
    **58****24.1**
    **Collateral**
    **58****24.2**
    **Additional
      Documents**
    **59****24.3**
    **Notice
      of Sale**
    **59****24.4**
    **Recharacterization**
    **59****24.5**
    **Subordination**
    **59****ARTICLE
      25:**
    **MISCELLANEOUS**
    **59****25.1**
    **Notices**
    **59****25.2**
    **Advertisement
      of Leased Property**
    **60****25.3**
    **Entire
      Agreement**
    **60****25.4**
    **Severability**
    **60**
 
 
 
 
 
 **SECTION**
    **TABLE
      OF CONTENTS**
    **PAGE****25.5**
    **Captions
      and Headings**
    **60****25.6**
    **Governing
      Law**
    **60****25.7**
    **Memorandum
      of Lease**
    **60****25.8**
    **Waiver**
    **60****25.9**
    **Binding
      Effect**
    **61****25.10**
    **No
      Offer**
    **61****25.11**
    **Modification**
    **61****25.12**
    **Landlord’s
      Modification**
    **61****25.13**
    **No
      Merger**
    **61****25.14**
    **Laches**
    **61****25.15**
    **Limitation
      on Tenant’s Recourse**
    **61****25.16**
    **Construction
      of Lease**
    **62****25.17**
    **Counterparts**
    **62****25.18**
    **Landlord’s
      Consent**
    **62****25.19**
    **Custody
      of Escrow Funds**
    **62****25.20**
    **Landlord’s
      Status as a REIT**
    **62****25.21**
    **Exhibits**
    **62****25.22**
    **WAIVER
      OF JURY TRIAL**
    **62****25.23**
    **CONSENT
      TO JURISDICTION**
    **62****25.24**
    **Attorney’s
      Fees and Expenses**
    **63****25.25**
    **Survival**
    **63****25.26**
    **Time**
    **63**
 
 
 
 **ADDENDUM
TO LEASE AGREEMENT**
  **SCHEDULE 1:**
    **INITIAL
      RENT SCHEDULE**
  **EXHIBIT A:**
    **LEGAL
      DESCRIPTIONS**
  **EXHIBIT B:**
    **PERMITTED
      EXCEPTIONS**
  **EXHIBIT C:**
    **FACILITY
      INFORMATION**
  **EXHIBIT D:**
    **LANDLORD’S
      PERSONAL PROPERTY**
  **EXHIBIT E:**
    **DOCUMENTS
      TO BE DELIVERED**
  **EXHIBIT F:**
    **TENANT’S
      CERTIFICATE AND FACILITY FINANCIAL
REPORTS**
  **EXHIBIT G:**
    **GOVERNMENT
      AUTHORIZATIONS TO BE OBTAINED; ZONING
PERMITS**
  **EXHIBIT H:**
    **PENDING
      LITIGATION**
  **EXHIBIT I:**
    **LIST
      OF LEASES AND CONTRACTS**
  **EXHIBIT J:**
    **WIRE
      TRANSFER INSTRUCTIONS**
  
   
   **LEASE
AGREEMENT**
 
 
 This
Lease Agreement (“Lease”) is made effective as of March 31, 2005 (the
“Effective Date”) between **HCRI WILBURN
GARDENS PROPERTIES, LLC** , a
limited liability company organized under the laws of the State of Delaware
(“Landlord” as further defined in §1.3 below), having its principal office
located at One SeaGate, Suite 1500, P.O. Box 1475, Toledo,
Ohio 43603-1475, and **EMERITUS
CORPORATION** , a
corporation organized under the laws of the State of Washington (“Tenant”),
having its chief executive office located at 3131 Elliott Avenue,
Suite 500, Seattle, Washington 98121.
  **R
E C I T A L S**
  A.  As of the
date hereof, Landlord acquired the Leased Property (defined below) and paid the
Acquisition Payment (defined below) towards the purchase price for the Leased
Property. The amount paid by Tenant for the costs incurred by Landlord in
connection with its acquisition from Tenant of the Leased Property, if any,
shall be considered Tenant’s contribution.
  B.  Landlord
desires to lease the Leased Property to Tenant and Tenant desires to lease the
Leased Property from Landlord upon the terms set forth in this
Lease.
  NOW,
THEREFORE, Landlord and Tenant agree as follows:
  **ARTICLE
1:**  **LEASED
PROPERTY, TERM AND DEFINITIONS**
  1.1  Leased
Property .
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the
Leased Property, subject, however, to the Permitted Exceptions and subject to
the terms and conditions of this Lease.
  1.2  Term . The
initial term (“Initial Term”) of this Lease commences on the Effective Date and
expires at 12:00 Midnight Eastern Time on the day before the 15 th anniversary
of the Commencement Date (the “Expiration Date”); provided, however, that Tenant
has one or more options to renew the Lease pursuant to
Article 12.
  1.3  Definitions . Except
as otherwise expressly provided, [i] the terms defined in this section have
the meanings assigned to them in this section and include the plural as well as
the singular; [ii] all accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with generally accepted accounting
principles as of the time applicable; and [iii] the words “herein”,
“hereof” and “hereunder” and similar words refer to this Lease as a whole and
not to any particular section.
  “Acquisition
Payment” means any payment by Landlord to acquire Leased Property.
  “ADA”
means the federal statute entitled Americans with Disabilities Act,
42 U.S.C. §12101, *et seq* .
   **1**
  
  “Additional
Rent” has the meaning set forth in §2.3.
  “Affiliate”
means any person, corporation, partnership, limited liability company, trust, or
other legal entity that, directly or indirectly, controls, or is controlled by,
or is under common control with Tenant or Guarantor. “Control” (and the
correlative meanings of the terms “controlled by” and “under common control
with”) means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such entity. “Affiliate”
includes, without limitation, Guarantor. An Affiliate of Tenant and Guarantor
shall specifically exclude [i] Saratoga Partners IV, L.P.
(“Saratoga”); [ii] Senior Healthcare Partners, LLC; [iii] Columbia
Pacific Management, Inc.; [iv] Holiday Retirement Corporation;
[v] Alterra Healthcare Corporation, but only prior to the date of Tenant’s
acquisition thereof, if such acquisition were to occur; and [vi] any
Affiliate of any of the entities listed in clauses [i] through
[vi].
  “Affiliate
Lease” means each lease now or hereafter made between Landlord or any Landlord
Affiliate and Tenant or any Affiliate, as amended, modified, extended or renewed
from time to time.
  “Affiliate
Tenant” means each Affiliate that is a tenant under an Affiliate
Lease.
  “Annual
Company Budget” means Tenant’s projection of its financial statement for the
next fiscal year (or the 12-month rolling forward period, if applicable), which
shall include the balance sheet, statement of income, statement of cash flows,
statement of shareholders’ equity and statement of capital expenditures for the
applicable period.
  “Annual
Facility Budget” means Tenant’s projection of the Facility Financial Statement
for the next fiscal year (or the 12-month rolling forward period, if
applicable).
  “Annual
Financial Statements” means [i] an audited Facility Financial Statement for
the most recent fiscal year; and [ii] for Guarantor, a current unaudited
personal financial statement.
  “Annual
Rent Increase” means the sum of [i] the product of the Investment Amount as
of the Rent Adjustment Date times the applicable Increaser Rate, plus
[ii] the Rent Shortfall, if any.
  “Average
Daily Census” means the number determined by dividing the total resident days
for a Facility during a specific month by the actual number of days contained in
that month.
  “Bankruptcy
Code” means the United States Bankruptcy Code set forth in 11 U.S.C. §101, *et seq.* , as
amended from time to time.
  “Base
Price” means an amount equal to the greater of [i] Total Investment Amount;
or [ii] the sum of [a] the Total Investment Amount and [b] 50% of
the difference
   **2**
  between
the Fair Market Value at the time of the exercise of the Right of First
Opportunity under Article 13 plus the Total Investment Amount.
  “Base
Rent” has the meaning set forth in §2.1, as increased from time to time pursuant
to §2.2.
  “Borrower”
means Fredericksburg Assisted, L.L.C., a Washington limited liability
company.
  “Business
Day” means any day other than a Saturday, Sunday, or national
holiday.
  “Casualty”
has the meaning set forth in §9.1.
  “CERCLA”
means the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended from time to time.
  “Closing”
means the closing of the lease of the Leased Property to Tenant.
  “Collateral”
has the meaning set forth in §24.1.
  “Commencement
Date” means the Effective Date if such date is the first day of a month, and if
it is not, the first day of the first month following the Effective
Date.
  “Commitment”
means the Amended and Restated Term Sheet for the Lease dated August 27,
2004 and the Project Approval Letter dated August 13, 2004.
  “CPI”
means the Consumer Price Index for Urban Wage Earners and Clerical Workers, U.S.
Cities Average, All Items, (1982-1984=100) published by the Bureau of Labor
Statistics of the U.S. Department of Labor; provided that if compilation of the
CPI in its present form and calculated on its present basis is discontinued or
transferred to any other governmental department or bureau, then the index most
nearly the same as the CPI published by the Bureau of Labor Statistics shall be
used. If there is no such similar index, a substitute index which is then
generally recognized as being similar to the CPI shall be used, such substitute
index to be reasonably selected by Landlord.
  “CPI
Change” shall be determined by dividing [i] the most recently available CPI
as of the applicable Rent Adjustment Date by [ii] the CPI used for the
preceding Rent Adjustment Date. For the 2 nd Lease
Year, the Commencement Date shall serve as the preceding Rent Adjustment
Date.
  “Default
Rent” has the meaning set forth in §8.6.
  “Effective
Date” means the date of this Lease.
  “Environmental
Laws” means all federal, state, and local laws, ordinances and policies the
purpose of which is to protect human health and the environment, as amended from
time to time, including, but not limited to, [i] CERCLA; [ii] the
Resource Conservation and
   **3**
  Recovery
Act; [iii] the Hazardous Materials Transportation Act; [iv] the Clean
Air Act; [v] Clean Water Act; [vi] the Toxic Substances Control Act;
[vii] the Occupational Safety and Health Act; [viii] the Safe Drinking
Water Act; and [ix] analogous state laws and regulations.
  “Event of
Default” has the meaning set forth in §8.1.
  “Expiration
Date” has the meaning set forth in §1.2.
  “Facility”
means the Facility located on the Land, including the Facility
Property.
  “Facility
Cash Flow” has the meaning set forth in §15.7.1.
  “Facility
Coverage Ratio” has the meaning set forth in §15.7.1.
  “Facility
Financial Statement” means a financial statement for the Facility which shall
include the balance sheet, statement of income, statement of cash flows,
statement of shareholders’ equity, occupancy census data (including payor mix),
statement of capital expenditures and a comparison of the actual financial data
versus the Annual Company Budget for the applicable period.
  “Facility
Name” means the name under which the Facility has done business during the Term.
The Facility Name in use by the Facility on the Effective Date is set forth on
the attached Exhibit C.
  “Facility
Property” means the Land on which the Facility is located, the legal description
of which is set forth on Exhibit A, the Improvements on the Land, the
Related Rights, and Landlord’s Personal Property.
  “Facility
State” means the State in which the Facility is located.
  “Facility
Uses” means the uses relating to the operation of the Facility as a facility of
the type and operating the number of beds and units set forth on
Exhibit C.
  “Fair
Market Value” has the meaning set forth in §13.2.
  “Financial
Statements” means [i] the annual, quarterly and year to date financial
statements of Tenant; and [ii] all operating statements for the Facility,
that were submitted to Landlord prior to the Effective Date.
  “Fixtures”
means all permanently affixed equipment, machinery, fixtures and other items of
real and/or personal property (excluding Landlord’s 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
Improvements, including, without limitation, all furnaces, boilers, heaters,
electrical equipment, heating, plumbing, lighting, ventilating, refrigerating,
incineration, air and water pollution control, waste disposal, air-cooling and
air-conditioning systems and apparatus, sprinkler systems and fire and theft
protection equipment, built-in oxygen and vacuum systems, towers and other
devices for the transmission
   **4**
  of radio,
television and other signals, all of which, to the greatest extent permitted by
law, are hereby deemed by the parties hereto to constitute real estate, together
with all replacements, modifications, alterations and additions
thereto.
  “Government
Authorizations” means all permits, licenses, approvals, consents, and
authorizations required to comply with all Legal Requirements, including, but
not limited to, [i] zoning permits, variances, exceptions, special use
permits, conditional use permits, and consents; [ii] the permits, licenses,
provider agreements and approvals required for licensure and operation of the
Facility in accordance with the Facility Uses and, if applicable, certified as a
provider under the federal Medicare and state Medicaid programs;
[iii] environmental, ecological, coastal, wetlands, air, and water permits,
licenses, and consents; [iv] curb cut, subdivision, land use, and planning
permits, licenses, approvals and consents; [v] building, sign, fire,
health, and safety permits, licenses, approvals, and consents; and
[vi] architectural reviews, approvals, and consents required under
restrictive covenants.
  “Guarantor”
means Individual Guarantor.
  “Guaranty”
means the Unconditional and Continuing Lease Guaranty entered into by Guarantor
to guarantee payment and performance of the Obligor Group Obligations and any
amendments thereto or substitutions or replacements therefore.
  “Hazardous
Materials” means any substance [i] the presence of which poses a hazard to
the health or safety of persons on or about the Land, including, but not limited
to, asbestos containing materials; [ii] which requires removal or
remediation under any Environmental Law, including, without limitation, any
substance which is toxic, explosive, flammable, radioactive, or otherwise
hazardous; or [iii] which is regulated under or classified under any
Environmental Law as hazardous or toxic, including, but not limited to, any
substance within the meaning of “hazardous substance”, “hazardous material”,
“hazardous waste”, “toxic substance”, “regulated substance”, “solid waste” or
“pollutant” as defined in any Environmental Law.
  “HCN”
means Health Care REIT, Inc., a Delaware corporation.
  “HIPDB”
means the Healthcare Integrity and Protection Data Bank maintained by the
Department of Health and Human Services.
  “Impositions”
has the meaning set forth in §3.2.
  “Improvements”
means all buildings, structures, Fixtures and other improvements of every kind
on any portion of the Land, including, but not limited to, alleys, sidewalks,
utility pipes, conduits and lines (on-site and off-site), parking areas and
roadways appurtenant to such buildings and structures, now or hereafter situated
upon any portion of the Land.
  “Increaser
Rate” means .40% for the 2 nd ,
3 rd and
4 th Lease
Year and .30% for the 5 th Lease
Year and each Lease Year thereafter plus for each Lease Year the Rate Shortfall,
if any.
  “Individual
Guarantor” means Daniel R. Baty.
   **5**
  
  “Initial
Term” has the meaning set forth in §1.2.
  “Investment
Amount” is an aggregate concept and means the sum of all Landlord Payments
outstanding at the applicable time.
  “Land”
means the real property described in Exhibit A attached
hereto.
  “Landlord”
means HCRI Wilburn Gardens Properties, LLC, a limited liability company
organized under the laws of the State of Delaware.
  “Landlord
Affiliate” means any person, corporation, partnership, limited liability
company, trust, or other legal entity that, directly or indirectly, controls, or
is controlled by, or is under common control with Landlord. “Control” (and the
correlative meanings of the terms “controlled by” and “under common control
with”) means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such entity.
  “Landlord
Payment” means the Acquisition Payment or any advance by Landlord under the
terms hereof.
  “Landlord’s
Personal Property” means all Personal Property owned by Landlord on the
Effective Date and located at the Facility, including, without limitation, all
personal property listed on the attached Exhibit D, together with any and
all replacements thereof, and all Personal Property that pursuant to the terms
of this Lease becomes the property of Landlord during the Term.
  “Lease”
means this Lease Agreement, as amended from time to time.
  “Lease
Documents” means this Lease and all documents executed by Landlord and Tenant
relating to this Lease or the Facility.
  “Lease
Payments” means the sum of the Base Rent payments (as increased from time to
time) for the applicable period.
  “Lease
Year” means each consecutive period of 365 or 366 days throughout the Term.
The first Lease Year commences on the Commencement Date and expires on the day
before the first anniversary of the Commencement Date.
  “Leased
Property” means all of the Land, Improvements, Related Rights and Landlord’s
Personal Property.
  “Legal
Requirements” means all laws, regulations, rules, orders, writs, injunctions,
decrees, certificates, requirements, agreements, conditions of participation and
standards of any federal, state, county, municipal or other governmental entity,
administrative agency, insurance underwriting board, architectural control
board, private third-party payor, accreditation organization, or any restrictive
covenants applicable to the development, construction, condition and operation
of the Facility by Tenant for the Facility Uses, including,
   **6**
  but not
limited to, [i] zoning, building, fire, health, safety, sign, and
subdivision regulations and codes; [ii] certificate of need laws (if
applicable); [iii] licensure to operate as the Facility in accordance with
its Facility Uses; [iv] Medicare and Medicaid certification requirements
(if applicable); [v] the ADA; [vi] any Environmental Laws; and
[vii] requirements, conditions and standards for participation in
third-party payor insurance programs.
  “Lender”
means Collateral Mortgage Capital, LLC, a Delaware limited liability
company.
  “Loan
Documents” as used herein means the Loan Documents, as defined in the Assumption
and Release Agreement of even date herewith, by and among Landlord, HCN,
Borrower, Guarantor, Fannie Mae et al and includes [i] the Note
[ii] the Subordination, Assignment and Security Agreement by and among
Tenant, Landlord, HCN and Fannie Mae; and [iii] any other documents
executed in connection with the assumption of the Note and executed by either
Tenant, Guarantor, Landlord and/or HCN.
  “Material
Obligation” means [i] any indebtedness with respect to any critical care
equipment and for all other equipment any indebtedness in excess of $250,000.00
at the Facility secured by a security interest in or a lien, deed of trust or
mortgage on any of the Leased Property (or any part thereof, including any
Personal Property) and any agreement relating thereto; [ii] any obligation
or agreement that is material to the construction or operation of the Facility
or that is material to Tenant’s business or financial condition and where a
breach thereunder, if not cured within any applicable cure period, would have a
material adverse affect on the financial condition of Tenant or the results of
operations at the Facility; and [iii] any indebtedness or lease of Tenant,
other than this Lease, that has an outstanding principal balance or obligation
of at least $1,000,000.00.
  “Mortgage”
means the Second Amended and Restated Multifamily Deed of Trust, Assignment of
Rents and Security Agreement dated March 19, 2002 from Borrower in favor of
Lender to secure the Note, as assigned to and assumed by Landlord and as the
same may be amended from time to time.
  “Net
Operating Income” means the pre-tax net income of Tenant plus [i] the
amount of the provision for depreciation and amortization; plus [ii] the
amount of the provision for interest and lease payments, if any; plus
[iii] the amount of the provision for Rent payments; plus [iv] the
amount of the provision for management fees.
  “Note”
means the Multifamily Note dated February 26, 2002 in the original
principal amount of $8,500,000.00 from Borrower to Lender as assigned to and
assumed by Landlord and as the same may be amended from time to
time.
  “Obligor
Group Obligations” means all payment and performance obligations of Tenant or
Guarantor to Landlord or any Landlord Affiliate, including, but not limited to,
all obligations under this Lease, any loans extended to Tenant or Guarantor by
Landlord or any Landlord Affiliate and all documents executed by Tenant or
Guarantor in favor of Landlord or any Landlord Affiliate in connection with this
Lease, any loan or any other obligation.
  “Offer”
has the meaning set forth in §13.1.
   **7**
  
  “Opportunity
Notice” has the meaning set forth in §13.1(a).
  “Organization
State” means the State in which an entity is organized.
  “Organizational
Documents” means [i] for a corporation, its Articles of Incorporation
certified by the Secretary of State of the Organization State, as amended to
date, and its Bylaws certified by such entity, as amended to date; [ii] for
a partnership, its Partnership Agreement certified by such entity, as amended to
date, and the Partnership Certificate, certified by the appropriate authority
(if applicable), as amended to date; and [iii] for a limited liability
company, its Articles of Organization certified by the Secretary of State of the
Organization State, as amended to date, and its Operating Agreement certified by
such entity, as amended to date.
  “Payment
Date” means the date on which Landlord makes a Landlord Payment.
  “Periodic
Financial Statements” means [i] for Tenant, an unaudited balance sheet and
statement of income for the most recent quarter; [ii] for the Facility, an
unaudited Facility Financial Statement for the most recent month; and
[iii] for the Individual Guarantor, a current unaudited personal financial
statement.
  “Permitted
Exceptions” means all easements, liens, encumbrances, restrictions, agreements
and other title matters existing as of the Effective Date, including, without
limitation, the exceptions to title set forth on Exhibit B attached hereto,
and any sublease of any portion of the Leased Property made in complete
accordance with Article 18.
  “Permitted
Liens” means [i] liens granted to Landlord; [ii] liens customarily
incurred by Tenant in the ordinary course of business for items not delinquent,
including mechanic’s liens and deposits and charges under worker’s compensation
laws; [iii] liens for taxes and assessments not yet due and payable;
[iv] any lien, charge, or encumbrance which is being contested in good
faith pursuant to this Lease; [v] the Permitted Exceptions; and
[vi] purchase money financing and capitalized equipment leases for the
acquisition of personal property provided, however, that Landlord obtains a
nondisturbance agreement from the purchase money lender or equipment lessor in
form and substance as may be satisfactory to Landlord if the original cost of
the equipment exceeds $250,000.00.
  “Personal
Property” means all machinery, equipment, furniture, furnishings, movable walls
or partitions, computers (and all associated software), trade fixtures and other
personal property (but excluding consumable inventory and supplies owned by
Tenant) used in connection with the Leased Property, together with all
replacements and alterations thereof and additions thereto, except items, if
any, included within the definition of Fixtures or Improvements.
  “Pro
Forma Statement” means a financial forecast for the Facility for the next
five-year period prepared in accordance with the standards for forecasts
established by the American Institute of Certified Public
Accountants.
   **8**
  
  “Protected
Period” has the meaning set forth in §13.1(a).
  “Qualified
Capital Expenditures” means the expenditures capitalized on the books of Tenant
for any of the following: replacement of furniture, fixtures and equipment,
including refrigerators, ranges, major appliances, bathroom fixtures, doors
(exterior and interior), central air conditioning and heating systems (including
cooling towers, water chilling units, furnaces, boilers and fuel storage tanks)
and replacement of siding; roof replacements, including replacements of gutters,
downspouts, eaves and soffits; repairs and replacements of plumbing and sanitary
systems; overhaul of elevator systems; repaving, resurfacing and sealcoating of
sidewalks, parking lots and driveways; repainting of entire building exterior
and normal maintenance and repairs needed to maintain the quality and condition
of the Facility in the market in which it operates, but excluding
Alterations.
  “Rate
Shortfall” means, as of the applicable Rent Adjustment Date, a cumulative
percentage amount equal to the sum of .40% if for the 2 nd ,
3 rd and
4 th Lease
Year there was no Annual Rent Increase and .30% for each Lease Year thereafter
in which there was no Annual Rent Increase.
  “Real
Estate Tax Escrow Agreement” means that certain agreement dated as
of March 31, 2005 by and
among HCN, Lawyers Title Insurance Corporation and Tenant with respect to the
escrow of sums in furtherance of the satisfaction of real estate taxes
associated with the Land.
  “Receivables”
means [i] all of Tenant’s rights to receive payment for providing resident
care and services at the Facility as set forth in any accounts, contract rights,
and instruments, and [ii] those documents, chattel paper, inventory
proceeds, provider agreements, participation agreements, ledger sheets, files,
records, computer programs, tapes, and agreements relating to Tenant’s rights to
receive payment for providing resident care services at the
Facility.
  “Related
Rights” means all easements, rights (including bed operating rights) and
appurtenances relating to the Land and the Improvements.
  “Renewal
Date” means the first day of each Renewal Term.
  “Renewal
Fee” means a fee equal to 1% of the Investment Amount.
  “Renewal
Option” has the meaning set forth in §12.1.
  “Renewal
Term” has the meaning set forth in §12.1.
  “Rent”
means Base Rent, Additional Rent and Default Rent.
  “Rent
Adjustment Date” means each anniversary of the Commencement Date during the
Term.
   **9**
  
  “Rent
Schedule” means the schedule issued by Landlord to Tenant showing the Base Rent
to be paid by Tenant pursuant to the terms of this Lease, as such schedule is
amended from time to time by Landlord. The initial Rent Schedule is attached to
this Lease as Schedule 1 or, after review and approval by Tenant, will be
attached following Closing if the Rent Schedule cannot be determined until the
day of Closing.
  “Rent
Shortfall” means the cumulative amount equal to the difference between the Base
Rent payable for each Lease Year in which there was no Annual Rent Increase and
the Base Rent that would have been payable if the Base Rent had been calculated
based upon a rate of return to Landlord that increased by .40% for the
2 nd ,
3 rd and
4 th Lease
Year and .30% for the 5 th Lease
Year and each Lease Year thereafter.
  “Replacement
Operator” has the meaning set forth in §15.9.1.
  “Right of
First Opportunity Event” has the meaning set forth in §13.1.
  “Secured
Party” has the meaning set forth in §24.1.
  “Seller”
means each person or entity that conveyed title to a Facility to
Landlord.
  “Tenant”
has the meaning set forth in the introductory paragraph of this
Lease.
  “Tenant’s
Property” has the meaning set forth in §11.1.
  “Term”
means the Initial Term and each Renewal Term.
  1.4  Landlord
As Agent . With
respect to its respective Facility, each HCN Landlord appoints HCN as the agent
and lawful attorney-in-fact of such HCN Landlord to act for such HCN Landlord
for all purposes and actions of Landlord under this Lease and the other Lease
Documents. All notices, consents, waivers and all other documents and
instruments executed by HCN pursuant to the Lease Documents from time to time
and all other actions of HCN as Landlord under the Lease Documents shall be
binding upon such Landlord. All Rent payable under this Lease shall be paid to
HCN.
  **ARTICLE
2:**  **RENT**
  2.1  Base
Rent . Tenant
shall pay Landlord base rent (“Base Rent”) in advance in consecutive monthly
installments payable on the first day of each month during the Term commencing
on the Commencement Date. If the Effective Date is not the first day of a month,
Tenant shall pay Landlord Base Rent on the Effective Date for the partial month,
i.e., for the period commencing on the Effective Date and ending on the day
before the Commencement Date. The Base Rent payable for the Lease Year is as
shown on the Rent Schedule, subject to adjustment pursuant to §2.2.2 if
applicable. For the second and each subsequent Lease Lear of the Initial Term,
the Base Rent shall be paid in accordance with the most recent revised Rent
Schedule provided by Landlord pursuant to §2.2, as applicable. The Base Rent for
the Renewal Term will be determined in accordance with §12.2.
   **10**
  
  2.2  Base
Rent Adjustments .
  2.2.1  Annual
Increase of Base Rent .
Commencing on the first Rent Adjustment Date and on each Rent Adjustment Date
thereafter, the monthly installment of Base Rent shall increase by an amount
equal to 1/12 th of the
Annual Rent Increase; provided, however, that if the CPI Change as of the Rent
Adjustment Date is 0% or less, there shall not be an Annual Rent Increase for
such Lease Year and the Base Rent will be equal to the Base Rent payable for the
prior Lease Year. As of each Rent Adjustment Date, Landlord shall calculate the
Annual Rent Increase and shall deliver the revised Rent Schedule to Tenant no
later than 30 days after the Rent Adjustment Date. Until the revised Rent
Schedule is delivered to Tenant, Tenant shall pay the monthly Base Rent with the
Annual Rent Increase calculated based upon an Increaser Rate of .40% for the
2 nd ,
3 rd and
4 th Lease
Year and .30% for the 5 th Lease
Year and each Lease Year thereafter. After the revised Rent Schedule is
delivered to Tenant, if the actual monthly Base Rent is more or less than the
monthly Base Rent paid pursuant to the preceding sentence, the difference shall
be added to or deducted from (as applicable) the monthly Base Rent payment made
for the following month. Thereafter, Tenant shall make monthly Base Rent
payments in accordance with the revised Rent Schedule.
  2.2.2  Additional
Landlord Payments . If
Landlord makes a Landlord Payment other than the initial Acquisition Payment,
the Base Rent will be increased effective on the Payment Date based upon the
applicable rate of return to Landlord as set forth in the then current Rent
Schedule. Until Tenant receives a revised Rent Schedule from Landlord, Tenant
shall for each month [i] continue to make installments of Base Rent
according to the Rent Schedule in effect on the day before the Payment Date; and
[ii] within 10 days following Landlord’s issuance of an invoice, pay
the difference between the installment of Base Rent that Tenant paid to Landlord
for such month and the installment of Base Rent actually due to Landlord for
such month as a result of the Landlord Payment. On the first day of the month
following receipt of the revised Rent Schedule, Tenant shall pay the monthly
installment of Base Rent specified in the revised Rent Schedule.
  2.3  Additional
Rent . In
addition to Base Rent, Tenant shall pay all other amounts, liabilities,
obligations and Impositions which Tenant assumes or agrees to pay under this
Lease including any fine, penalty, interest, charge and cost which may be added
for nonpayment or late payment of such items (collectively the “Additional
Rent”).
  2.4  Place
of Payment of Rent . Tenant
shall make all payments of Rent to Landlord by electronic wire transfer in
accordance with the wiring instructions set forth in Exhibit J attached
hereto, subject to change in accordance with other written instructions provided
by Landlord from time to time.
  2.5  Net
Lease . This
Lease shall be deemed and construed to be an “absolute net lease”, and Tenant
shall pay all Rent and other charges and expenses in connection with the Leased
Property throughout the Term, without abatement, deduction, recoupment or
setoff. Landlord shall have all legal, equitable and contractual rights,
   **11**
  powers
and remedies provided either in this Lease or by statute or otherwise in the
case of nonpayment of the Rent.
  2.6  No
Termination, Abatement, Etc . Except
as otherwise specifically provided in this Lease, Tenant shall remain bound by
this Lease in accordance with its terms. Tenant shall not, without the consent
of Landlord, modify, surrender or terminate the Lease, nor seek nor be entitled
to any abatement, deduction, deferment or reduction of Rent, or setoff or
recoupment against the Rent. Except as expressly provided in this Lease, the
obligations of Landlord and Tenant shall not be affected by reason of
[i] any damage to, or destruction of, the Leased Property or any part
thereof from whatever cause or any Taking (as hereinafter defined) of the Leased
Property or any part thereof; [ii] the lawful or unlawful prohibition of,
or restriction upon, Tenant’s use of the Leased Property, or any part thereof,
the interference with such use by any person, corporation, partnership or other
entity, or by reason of eviction by paramount title; [iii] any claim which
Tenant has or might have against Landlord or by reason of any default or breach
of any warranty by Landlord under this Lease or any other agreement between
Landlord and Tenant, or to which Landlord and Tenant are parties; [iv] any
bankruptcy, insolvency, reorganization, composition, readjustment, liquidation,
dissolution, winding up or other proceeding affecting Landlord or any assignee
or transferee of Landlord; or [v] any other cause, whether similar or
dissimilar to any of the foregoing, other than a discharge of Tenant from any
such obligations as a matter of law. Except as otherwise specifically provided
in this Lease, Tenant 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 or any portion thereof; or [b] entitling Tenant to any
abatement, reduction, suspension or deferment of the Rent or other sums payable
by Tenant hereunder. The obligations of Landlord and Tenant hereunder shall be
separate and independent covenants and agreements and the Rent and all other
sums payable by Tenant 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. Nothing in this §2.6 shall be construed to limit
any right which Tenant may have to bring a separate action against Landlord for
any claim which Tenant may have or allege to have against Landlord.
  2.7  Transaction
Fee . On the
Effective Date, Tenant shall pay or cause to be paid a transaction fee to
Landlord in an amount equal to 1% of the Investment Amount.
  **ARTICLE
3:**  **IMPOSITIONS
AND UTILITIES**
  3.1  Payment
of Impositions . Tenant
shall pay, as Additional Rent, all Impositions that may be levied or become a
lien on the Leased Property or any part thereof at any time (whether prior to or
during the Term), without regard to prior ownership of said Leased Property,
before any fine, penalty, interest, or cost is incurred; provided, however,
Tenant may contest any Imposition in accordance with §3.7. Tenant shall deliver
to Landlord [i] not more than five days after the due date of each
Imposition, copies of the invoice for such Imposition and except for Impositions
being contested by Tenant in accordance with §3.7 the check delivered for
payment thereof; and [ii] not more than 30 days
   **12**
  after the
due date of each Imposition, a copy of the official receipt evidencing such
payment or other proof of payment satisfactory to Landlord. Tenant’s obligation
to pay such Impositions shall be deemed absolutely fixed upon the date such
Impositions become a lien upon the Leased Property or any part thereof. Tenant,
at its expense, shall prepare and file all tax returns and reports in respect of
any Imposition as may be required by governmental authorities. Tenant shall be
entitled to any refund due from any taxing authority if no Event of Default
shall have occurred hereunder and be continuing and if Tenant shall have paid
all Impositions due and payable as of the date of the refund. Landlord shall be
entitled to any refund from any taxing authority if an Event of Default has
occurred and is continuing. Any refunds retained by Landlord due to an Event of
Default shall be applied as provided in §8.8. Landlord and Tenant shall, upon
request of the other, provide such data as is maintained by the party to whom
the request is made with respect to the Leased Property as may be necessary to
prepare any required returns and reports. In the event governmental authorities
classify any property covered by this Lease as personal property, Tenant shall
file all personal property tax returns in such jurisdictions where it may
legally so file. Landlord, to the extent it possesses the same, and Tenant, to
the extent it possesses the same, will provide the other party, upon request,
with cost and depreciation records necessary for filing returns for any property
so classified as personal property. Where Landlord is legally required to file
personal property tax returns, Tenant will be provided with copies of assessment
notices indicating a value in excess of the reported value in sufficient time
for Tenant to file a protest. Tenant may, upon notice to Landlord, at Tenant’s
option and at Tenant’s sole cost and expense, protest, appeal, or institute such
other proceedings as Tenant may deem appropriate to effect a reduction of real
estate or personal property assessments and Landlord, at Tenant’s expense as
aforesaid, shall fully cooperate with Tenant in such protest, appeal, or other
action. Tenant shall reimburse Landlord for all personal property taxes paid by
Landlord within 30 days after receipt of billings accompanied by copies of
a bill therefore and payments thereof which identify the personal property with
respect to which such payments are made. Impositions imposed in respect to the
tax-fiscal period during which the Term terminates shall be adjusted and
prorated between Landlord and Tenant as of the termination date, whether or not
such Imposition is imposed before or after such termination, and Tenant’s
obligation to pay its prorated share thereof shall survive such
termination.
  3.2  Definition
of Impositions .
“Impositions” means, collectively, [i] taxes (including, without
limitation, all capital stock and franchise taxes of Landlord imposed by the
Facility State or any governmental entity in the Facility State due to this
lease transaction or Landlord’s ownership of the Leased Property and the income
arising therefrom, or due to Landlord being considered as doing business in the
Facility State because of Landlord’s ownership of the Leased Property or lease
thereof to Tenant and in the event Landlord owns or leases property other than
the Leased Property in the Facility State, Landlord agrees to allocate the
foregoing on a pro-rata basis to the Leased Property), all real estate and
personal property ad valorem, sales and use, business or occupation, single
business, gross receipts, transaction privilege, rent or similar taxes;
[ii] assessments (including, without limitation, all 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);
[iii] ground rents, water, sewer or other rents and charges, excises, tax
levies, and fees (including, without limitation, license, permit, inspection,
authorization and similar fees); [iv] all taxes imposed on Tenant’s
operations of the Leased Property, including, without limitation,
   **13**
  employee
withholding taxes, income taxes and intangible taxes; [v] all taxes imposed
by the Facility State or any governmental entity in the Facility State with
respect to the conveyance of the Leased Property by Landlord to Tenant or
Tenant’s designee, including, without limitation, conveyance taxes; and
[vi] 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 or any part thereof and/or the Rent
(including all interest and penalties thereon due to any failure in payment by
Tenant), 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 [a] Landlord
or Landlord’s interest in the Leased Property or any part thereof; [b] the
Leased Property or any part thereof or any rent therefrom or any estate, right,
title or interest therein; or [c] any occupancy, operation, use or
possession of, or sales from, or activity conducted on, or in connection with
the Leased Property or the leasing or use by Tenant of the Leased Property or
any part thereof. Tenant shall not, however, be required to pay any capital
gains tax or any tax based on net income imposed on Landlord by any governmental
entity other than the capital stock and franchise taxes described in
clause [i] above.
  3.3  Escrow
of Impositions .
Consistent with and pursuant to the terms of the Real Estate Tax Escrow
Agreement, Tenant shall deposit with Landlord on the first day of each month a
sum equal to 1/12th of the Impositions assessed against the Leased Property for
the preceding tax year for real estate taxes, which sums shall be used by
Landlord toward payment of such Impositions. In addition, if an Event of Default
occurs and while it remains uncured, Tenant shall, at Landlord’s election,
deposit with Landlord on the first day of each month a sum equal to 1/12th of
the Impositions assessed against the Leased Property for the preceding tax year
other than for real estate taxes, which sums shall be used by Landlord toward
payment of such Impositions. Tenant, on demand, shall pay to Landlord any
additional funds necessary to pay and discharge the obligations of Tenant
pursuant to the provisions of this section. The receipt by Landlord of the
payment of such Impositions by and from Tenant shall only be as an accommodation
to Tenant, the mortgagees, and the taxing authorities, and shall not be
construed as rent or income to Landlord, Landlord serving, if at all, only as a
conduit for delivery purposes. The foregoing provision shall become applicable
only at such time as the escrow of Impositions is not required by Lender, it
being understood and agreed that for so long as Lender requires that the real
estate tax portion of the Imposition be escrowed with Lender, Tenant shall be
deemed to have fulfilled its obligations under this §3.3 with respect to the
real estate tax portion of the Imposition provided Tenant receives notice either
from Lender or from Landlord as required pursuant to §15.12.3 and then Tenant
makes the required escrow payment of the real estate tax portion of the
Imposition to Lender as and when due.
  3.4  Utilities . Tenant
shall pay, as Additional Rent, all taxes, assessments, charges, deposits, and
bills for utilities, including, without limitation, charges for water, gas, oil,
sanitary and storm sewer, electricity, telephone service, and trash collection,
which may be charged against the occupant of the Improvements during the Term.
If an Event of Default occurs and while it remains uncured, Tenant shall, at
Landlord’s election, deposit with Landlord on the first day of each month a sum
equal to 1/12th of the amount of the annual utility expenses for the preceding
Lease Year, which sums shall be used by Landlord to pay such utilities. Tenant
shall, on demand, pay to Landlord any additional amount needed to pay such
utilities. Landlord’s receipt of such payments shall only be an accommodation to
Tenant and the utility companies and shall not constitute rent or income to
Landlord. Absent circumstances
   **14**
  beyond
Tenant’s reasonable control, Tenant shall at all times maintain that amount of
heat necessary to ensure against the freezing of water lines. Tenant hereby
agrees to indemnify and hold Landlord harmless from and against any liability or
damages to the utility systems and the Leased Property that may result from
Tenant’s failure to maintain sufficient heat in the Improvements absent
circumstances beyond Tenant’s reasonable control.
  3.5  Discontinuance
of Utilities .
Landlord will not be liable for damages to person or property or for injury to,
or interruption of, business for any discontinuance of utilities nor will such
discontinuance in any way be construed as an eviction of Tenant or cause an
abatement of rent or operate to release Tenant from any of Tenant’s obligations
under this Lease.
  3.6  Business
Expenses . Tenant
shall promptly pay all expenses and costs incurred in connection with the
operation of the Facility on the Leased Property, including, without limitation,
employee benefits, employee vacation and sick pay, consulting fees, and expenses
for inventory and supplies.
  3.7  Permitted
Contests . Tenant,
on its own or on Landlord’s behalf (or in Landlord’s name), but at Tenant’s
expense, may contest, by appropriate legal proceedings conducted in good faith
and with due diligence, the amount or validity or application, in whole or in
part, of any Imposition or any Legal Requirement or insurance requirement or any
lien, attachment, levy, encumbrance, charge or claim provided 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 Landlord and from the Leased Property; [ii] neither
the Leased Property nor any Rent therefrom nor any part thereof or interest
therein would be in any immediate danger of being sold, forfeited, attached or
lost; [iii] in the case of a Legal Requirement, Landlord would not be in
any immediate danger of civil or criminal liability for failure to comply
therewith pending the outcome of such proceedings; [iv] in the event that
any such contest shall involve a sum of money or potential loss in excess of
$50,000.00, Tenant shall deliver to Landlord and its counsel an opinion of
Tenant’s counsel to the effect set forth in clauses [i], [ii] and [iii], to
the extent applicable; [v] in the case of a Legal Requirement and/or an
Imposition, lien, encumbrance or charge, Tenant shall give such reasonable
security as may be demanded by Landlord to insure ultimate payment of the same
and to prevent any sale or forfeiture of the affected Leased Property or the
Rent by reason of such nonpayment or noncompliance; provided, however, the
provisions of this section shall not be construed to permit Tenant to contest
the payment of Rent (except as to contests concerning the method of computation
or the basis of levy of any Imposition or the basis for the assertion of any
other claim) or any other sums payable by Tenant to Landlord hereunder;
[vi] in the case of an insurance requirement, the coverage required by
Article 4 shall be maintained; and [vii] if such contest be finally
resolved against Landlord or Tenant, Tenant shall, as Additional Rent due
hereunder, promptly pay the amount required to be paid, together with all
interest and penalties accrued thereon, or comply with the applicable Legal
Requirement or insurance requirement. Landlord, at Tenant’s expense, shall
execute and deliver to Tenant such authorizations and other documents as may be
reasonably required in any such contest, and, if reasonably requested by Tenant
or if Landlord so desires, Landlord shall join as a party therein. Tenant hereby
agrees to indemnify and save Landlord harmless from and
   **15**
  against
any liability, cost or expense of any kind that may be imposed upon Landlord in
connection with any such contest and any loss resulting therefrom.
  **ARTICLE
4:**  **INSURANCE**
  4.1  Property
Insurance . At
Tenant’s expense, Tenant shall maintain in full force and effect a property
insurance policy or policies insuring the Leased Property against the
following:
  (a)  Loss or
damage commonly covered by a “All Risk” or “Special Form”, policy insuring
against physical loss or damage to the Improvements and Personal Property,
including, but not limited to, risk of loss from fire and other hazards,
collapse, transit coverage, vandalism, malicious mischief, theft, earthquake (if
the Leased Property is in earthquake zone 1 or 2) and sinkholes (if usually
recommended in the area of the Leased Property). The policy shall be in the
amount of the full replacement value (as defined in §4.5) of the Improvements
and Personal Property and shall contain a deductible amount acceptable to
Landlord. Landlord shall be named as an additional insured. The policy shall
include a stipulated value endorsement or agreed amount endorsement and
endorsements for contingent liability for operations of building laws,
demolition costs, and increased cost of construction.
  (b)  If
applicable, loss or damage by explosion of steam boilers, pressure vessels, or
similar apparatus, now or hereafter installed on the Leased Property, in
commercially reasonable amounts acceptable to Landlord.
  (c)  Consequential
loss of rents and income coverage insuring against all “All Risk” or “Special
Form”, risk of physical loss or damage with limits and deductible amounts
acceptable to Landlord covering risk of loss during the first nine months of
reconstruction, and containing an endorsement for extended period of indemnity
of at least 90 days, and shall be written with a stipulated amount of
coverage if available at a reasonable premium.
  (d)  If the
Leased Property is located, in whole or in part, in a federally designated
100-year flood plain area, flood insurance for the Improvements in an amount
equal to the lesser of [i] the full replacement value of the Improvements;
or [ii] the maximum amount of insurance available for the Improvements
under all federal and private flood insurance programs.
  (e)  Loss or
damage caused by the breakage of plate glass in commercially reasonable amounts
acceptable to Landlord.
  (f)  Loss or
damage commonly covered by blanket crime insurance, including employee
dishonesty, loss of money orders or paper currency, depositor’s forgery, and
loss of property of patients accepted by Tenant for safekeeping, in commercially
reasonable amounts acceptable to Landlord.
   **16**
  
  4.2  Liability
Insurance . At
Tenant’s expense, Tenant shall maintain liability insurance against the
following:
  (a)  Claims
for personal injury or property damage commonly covered by comprehensive general
liability insurance with endorsements for incidental malpractice, contractual,
personal injury, owner’s protective liability, voluntary medical payments,
products and completed operations, broad form property damage, and extended
bodily injury, with commercially reasonable amounts for bodily injury, property
damage, and voluntary medical payments acceptable to Landlord, but with a
combined single limit of not less than $5,000,000.00 per
occurrence.
  (b)  Claims
for personal injury and property damage commonly covered by comprehensive
automobile liability insurance, covering all owned and non-owned automobiles,
with commercially reasonable amounts for bodily injury, property damage, and for
automobile medical payments acceptable to Landlord, but with a combined single
limit of not less than $5,000,000.00 per occurrence.
  (c)  Claims
for personal injury commonly covered by medical malpractice and professional
liability insurance in commercially reasonable amounts acceptable to
Landlord.
  (d)  Claims
commonly covered by workers’ compensation insurance for all persons employed by
Tenant on the Leased Property. Such workers’ compensation insurance shall be in
accordance with the requirements of all applicable local, state, and federal
law.
  4.3  Builder’s
Risk Insurance. In
connection with any construction, Tenant shall maintain in full force and effect
a builder’s completed value risk coverage (“Builder’s Risk Policy”) of insurance
in a nonreporting form insuring against all “All Risk” or “Special Form” risk of
physical loss or damage to the Improvements, including, but not limited to, risk
of loss from fire and other hazards, collapse, transit coverage, vandalism,
malicious mischief, theft, earthquake (if Leased Property is in earthquake
zone 1 or 2) and sinkholes (if usually recommended in the area of the
Leased Property). The Builder’s Risk Policy shall include endorsements providing
coverage for building materials and supplies and temporary premises. The
Builder’s Risk Policy shall be in the amount of the full replacement value of
the Improvements and shall contain a deductible amount acceptable to Landlord.
Landlord shall be named as an additional insured. The Builder’s Risk Policy
shall include an endorsement permitting initial occupancy.
  4.4  Insurance
Requirements . The
following provisions shall apply to all insurance coverages required
hereunder:
  (a)  The form
and substance of all policies shall be subject to the approval of Landlord,
which approval will not be unreasonably withheld.
   **17**
  
  (b)  The
carriers of all policies shall have a Best’s Rating of “A” or better and a
Best’s Financial Category of XII or higher and shall be authorized to do
insurance business in the Facility State.
  (c)  Tenant
shall be the “named insured” and Landlord shall be an “additional insured” on
each policy.
  (d)  Tenant
shall deliver to Landlord certificates or policies showing the required
coverages and endorsements. The policies of insurance shall provide that the
policy may not be canceled or not renewed, and no material change or reduction
in coverage may be made, without at least 30 days’ prior written notice to
Landlord.
  (e)  The
policies shall contain a severability of interest and/or cross-liability
endorsement, provide that the acts or omissions of Tenant or Landlord will not
invalidate the coverage of the other party, and provide that Landlord shall not
be responsible for payment of premiums.
  (f)  All loss
adjustment shall require the written consent of Landlord and Tenant, as their
interests may appear.
  (g)  At least
30 days prior to the expiration of each insurance policy, Tenant shall
deliver to Landlord a certificate showing renewal of such policy and payment of
the annual premium therefor and a current Certificate of Compliance (in the form
delivered at the time of Closing) completed and signed by Tenant’s insurance
agent.
  4.5  Replacement
Value . The
term “full replacement value” means the actual replacement cost thereof from
time to time, including increased cost of construction endorsement, with no
reductions or deductions. Tenant shall, in connection with each annual policy
renewal, deliver to Landlord a redetermination of the full replacement value by
the insurer or an endorsement indicating that the Leased Property is insured for
its full replacement value. If Tenant makes any Permitted Alterations (as
hereinafter defined) to the Leased Property, Landlord may have such full
replacement value redetermined at any time after such Permitted Alterations are
made, regardless of when the full replacement value was last
determined.
  4.6  Blanket
Policy .
Notwithstanding anything to the contrary contained in this Article 4,
Tenant may carry the insurance required by this Article under a blanket policy
of insurance, provided that the coverage afforded Tenant will not be reduced or
diminished or otherwise be different from that which would exist under a
separate policy meeting all of the requirements of this Lease.
  4.7  No
Separate Insurance . Tenant
shall not take out separate insurance concurrent in form or contributing in the
event of loss with that required in this Article, or 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 Landlord and any mortgagees, are included therein as
   **18**
  additional
insureds or loss payees, the loss is payable under said insurance in the same
manner as losses are payable under this Lease, and such additional insurance is
not prohibited by the existing policies of insurance. Tenant shall immediately
notify Landlord of the taking out of such separate insurance or the increasing
of any of the amounts of the existing insurance by securing an additional policy
or additional policies.
  4.8  Waiver
of Subrogation . Each
party hereto hereby waives any and every claim which arises or may arise in its
favor and against the other party hereto during the Term for any and all loss
of, or damage to, any of its property located within or upon, or constituting a
part of, the Leased Property, which loss or damage is covered by valid and
collectible insurance policies, to the extent that such loss or damage is
recoverable under such policies. Said mutual waiver shall be in addition to, and
not in limitation or derogation of, any other waiver or release contained in
this Lease with respect to any loss or damage to property of the parties hereto.
Inasmuch as the said waivers will preclude the assignment of any aforesaid claim
by way of subrogation (or otherwise) to an insurance company (or any other
person), each party hereto agrees immediately to give each insurance company
which has issued to it policies of insurance, written notice of the terms of
said mutual waivers, and to have such insurance policies properly endorsed, if
necessary, to prevent the invalidation of said insurance coverage by reason of
said waivers, so long as such endorsement is available at a reasonable
cost.
  4.9  Mortgages . The
following provisions shall apply if Landlord now or hereafter places a mortgage
on the Leased Property or any part thereof: [i] Tenant shall obtain a
standard form of lender’s loss payable clause insuring the interest of the
mortgagee; [ii] Tenant shall deliver evidence of insurance to such
mortgagee; [iii] loss adjustment shall require the consent of the
mortgagee; and [iv] Tenant shall provide such other information and
documents as may be required by the mortgagee.
  4.10  Escrows . After
an Event of Default occurs hereunder, Tenant shall make such periodic payments
of insurance premiums in accordance with Landlord’s requirements after receipt
of notice thereof from Landlord.
  **ARTICLE
5:**  **INDEMNITY**
  5.1  Tenant’s
Indemnification . Tenant
hereby indemnifies and agrees to hold harmless Landlord and HCN (jointly and
severally, “Indemnified Party”), any successors or assigns of Indemnified Party,
and Indemnified Party’s and such successor’s and assign’s directors, officers,
employees and agents from and against any and all demands, claims, causes of
action, fines, penalties, damages (including consequential damages), losses,
liabilities (including strict liability), judgments, and expenses (including,
without limitation, reasonable attorneys’ fees, court costs, and the costs set
forth in §8.7) incurred in connection with or arising from: [i] the use or
occupancy of the Leased Property by Tenant or any persons claiming under Tenant;
[ii] any activity, work, or thing done, or permitted or suffered by Tenant
in or about the Leased Property; [iii] any acts, omissions, or negligence
of Tenant or any person claiming under Tenant, or the contractors, agents,
employees, invitees, or visitors of Tenant or any such person; [iv] any
breach, violation, or nonperformance by Tenant or any person claiming under
Tenant or the employees, agents, contractors, invitees, or visitors of
   **19**
  Tenant or
of any such person, of any term, covenant, or provision of this Lease or any
law, ordinance, or governmental requirement of any kind, including, without
limitation, any failure to comply with any applicable requirements under the
ADA; [v] any injury or damage to the person, property or business of
Tenant, its employees, agents, contractors, invitees, visitors, or any other
person entering upon the Leased Property; [vi] any construction,
alterations, changes or demolition of the Facility performed by or contracted
for by Tenant or its employees, agents or contractors; [vii] any
obligations, costs or expenses arising under any Permitted Exceptions; and
[viii] strictly subject to the limitations of the terms of §15.12.2, any
claim under a Loan Document arising solely from the acts or omissions of Tenant
or Guarantor, including, but not limited to, (a) any claim against HCN
under an Indemnity Agreement granted by HCN to Lender; and (b) any
applicable make-whole premium payable to Lender as a result of an acceleration
of the Loan, as applicable. If any action or proceeding is brought against
Landlord, its employees, or agents by reason of any such claim, Tenant, upon
notice from Landlord, will defend the claim at Tenant’s expense with counsel
reasonably satisfactory to Landlord. All amounts payable to Landlord under this
section shall be payable on written demand and any such amounts which are not
paid within 10 days after demand therefore by Landlord shall bear interest
at Landlord’s rate of return as provided in the Commitment. In case any action,
suit or proceeding is brought against Tenant by reason of any such occurrence,
Tenant shall use its commercially reasonable efforts to defend such action, suit
or proceeding. Nothing in this §5.1 shall be construed as requiring Tenant to
indemnify Landlord, its agents or employee, with respect to Landlord, its agents
or employee gross negligence or willful misconduct or with respect to any claim
under the Loan Documents arising from the acts or omissions of Landlord or
HCN.
  5.1.1  Notice
of Claim .
Landlord shall notify Tenant in writing of any claim or action brought against
Landlord in which indemnity may be sought against Tenant pursuant to this
section. Such notice shall be given in sufficient time to allow Tenant to defend
or participate in such claim or action, but the failure to give such notice in
sufficient time shall not constitute a defense hereunder nor in any way impair
the obligations of Tenant under this section unless the failure to give such
notice precludes or materially adversely affects Tenant’s defense of any such
action.
  5.1.2  Survival
of Covenants . The
covenants of Tenant contained in this section shall remain in full force and
effect after the termination of this Lease until the expiration of the period
stated in the applicable statute of limitations during which a claim or cause of
action may be brought and payment in full or the satisfaction of such claim or
cause of action and of all expenses and charges incurred by Landlord relating to
the enforcement of the provisions herein specified.
  5.1.3  Reimbursement
of Expenses . Unless
prohibited by law, Tenant hereby agrees to pay to Landlord all of the reasonable
fees, charges and reasonable out-of-pocket expenses related to the Facility and
required hereby, or incurred by Landlord in enforcing the provisions of this
Lease.
  5.2  Environmental
Indemnity; Audits . Tenant
hereby indemnifies and agrees to hold harmless Landlord, any successors to
Landlord’s interest in this Lease, and Landlord’s and such successors’
directors, officers,
   **20**
  employees
and agents from and against any losses, claims, damages (including consequential
damages), penalties, fines, liabilities (including strict liability), costs
(including cleanup and recovery costs), and expenses (including expenses of
litigation and reasonable consultants’ and attorneys’ fees) incurred by Landlord
or any other indemnitee or assessed against any portion of the Leased Property
by virtue of any claim or lien by any governmental or quasi-governmental unit,
body, or agency, or any third party, for cleanup costs or other costs pursuant
to any Environmental Law. Tenant’s indemnity shall survive the termination of
this Lease. Provided, however, Tenant shall have no indemnity obligation with
respect to [i] Hazardous Materials first introduced to the Leased Property
subsequent to the date that Tenant’s occupancy of the Leased Property shall have
fully terminated; or [ii] Hazardous Materials introduced to the Leased
Property by Landlord, its agent, employees, successors or assigns. If at any
time during the Term of this Lease any governmental authority notifies Landlord
or Tenant of a violation of any Environmental Law or Landlord reasonably
believes that a Facility may violate any Environmental Law, Landlord may require
one or more environmental audits of such portion of the Leased Property, in such
form, scope and substance as specified by Landlord, at Tenant’s expense. Tenant
shall, within 30 days after receipt of an invoice from Landlord, reimburse
Landlord for all costs and expenses incurred in reviewing any environmental
audit, including, without limitation, reasonable attorneys’ fees and
costs.
  5.3  Limitation
of Landlord’s Liability .
Landlord, its agents, and employees, will not be liable for any loss, injury,
death, or damage (including consequential damages) to persons, property, or
Tenant’s business occasioned by theft, act of God, public enemy, injunction,
riot, strike, insurrection, war, court order, requisition, order of governmental
body or authority, fire, explosion, falling objects, steam, water, rain or snow,
leak or flow of water (including water from the elevator system), rain or snow
from the Leased Property or into the Leased Property or from the roof, street,
subsurface or from any other place, or by dampness or from the breakage,
leakage, obstruction, or other defects of the pipes, sprinklers, wires,
appliances, plumbing, air conditioning, or lighting fixtures of the Leased
Property, or from construction, repair, or alteration of the Leased Property or
from any acts or omissions of any other occupant or visitor of the Leased
Property, or from any other cause beyond Landlord’s control. Nothing in this
§5.3 shall be construed as relieving Landlord or its agents or employees from
any liability arising directly out of Landlord’s or its agents’ or employees’
own gross negligence or willful misconduct.
  **ARTICLE
6:**  **USE
AND ACCEPTANCE OF PREMISES**
  6.1  Use of
Leased Property . Tenant
shall use and occupy the Leased Property exclusively for the Facility Uses
specified for the Facility and for all lawful and licensed ancillary uses,
including the operation of an Alzheimer’s Memory Loss Unit, provided Tenant
complies with all applicable Legal Requirements material to permit the foregoing
and for no other purpose without the prior written consent of Landlord. Tenant
shall obtain and maintain all approvals, licenses, and consents needed to use
and operate the Leased Property as herein permitted. Landlord agrees that in the
event that Tenant has not obtained a license to operate the Facility on the
Effective Date, Tenant shall be in compliance with this section provided
[i] Tenant has entered into contractual arrangements with the current
licenseholder and/or manager of the Facility, including a sublease and/or a
management
   **21**
  agreement
(the “Interim Agreements”), which contractual arrangements are in compliance
with all Legal Requirements material thereto authorizing Tenant or
licenseholder, as applicable, to operate and manager to manage the Facility; and
[ii] Tenant proceeds in a diligent manner to obtain a license to operate
the Facility. Tenant shall deliver (or cause to be delivered) to Landlord
complete copies of surveys, examinations, certification and licensure
inspections, compliance certificates, and other similar reports issued to Tenant
by any governmental agency within 10 Business Days after Tenant’s receipt
of each item.
  6.2  Acceptance
of Leased Property . Tenant
acknowledges that [i] Tenant and its agents have had an opportunity to
inspect the Leased Property; [ii] Tenant has found the Leased Property fit
for Tenant’s use; [iii] Landlord will deliver the Leased Property to Tenant
in “as-is” condition; [iv] Landlord is not obligated to make any
improvements or repairs to the Leased Property; and [v] the roof, walls,
foundation, heating, ventilating, air conditioning, telephone, sewer,
electrical, mechanical, elevator, utility, plumbing, and other portions of the
Leased Property are in good working order. Tenant waives any claim or action
against Landlord with respect to the condition of the Leased Property. LANDLORD
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 QUALITY OF
THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL
SUCH RISKS ARE TO BE BORNE BY TENANT.
  6.3  Conditions
of Use and Occupancy . Tenant
agrees that during the Term it shall use and keep the Leased Property in a
careful, safe and proper manner; not commit or suffer waste thereon; not use or
occupy the Leased Property for any unlawful purposes; not use or occupy the
Leased Property or permit the same to be used or occupied, for any purpose or
business deemed extra-hazardous on account of fire or otherwise; keep the Leased
Property in such repair and condition as may be required by the Board of Health,
or other city, state or federal authorities, free of all cost to Landlord; not
permit any acts to be done which will cause the cancellation, invalidation, or
suspension of any insurance policy; and permit Landlord and its agents to enter
upon the Leased Property at all reasonable times upon prior notice (except in
the case of an emergency where no prior notice shall be required) to examine the
condition thereof. Landlord shall have the right to have an annual inspection of
the Leased Property performed and Tenant shall pay an inspection fee of the
lesser of $1,500.00 or Landlord’s reasonable out-of-pocket expenses within
30 days after receipt of Landlord’s invoice.
  **ARTICLE
7:**  **MAINTENANCE
AND MECHANICS’ LIENS**
  7.1  Maintenance . Tenant
shall maintain, repair, and replace the Leased Property, including, without
limitation, all structural and nonstructural repairs and replacements to the
roof, foundations, exterior walls, HVAC systems, equipment, parking areas,
sidewalks, water, sewer and gas connections, pipes and mains. Tenant shall pay,
as Additional Rent, the full cost of maintenance, repairs, and replacements.
Tenant shall maintain all drives, sidewalks, parking areas, and lawns on or
about the Leased Property in a clean and
   **22**
  orderly
condition, free of accumulations of dirt, rubbish, snow and ice. Tenant shall at
all times maintain, operate and otherwise manage the Leased Property on a basis
and in a manner consistent with the standards currently maintained by Tenant at
the Leased Property. All repairs shall, to the extent reasonably achievable, be
at least equivalent in quality to the original work or the property to be
repaired shall be replaced. Tenant 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 or any parts thereof for the Facility Uses. Tenant shall
permit Landlord to inspect the Leased Property at all reasonable times and on
reasonable advance notice, and if Landlord has a reasonable basis to believe
that there are maintenance problem areas and gives Tenant written notice thereof
setting forth its concerns in reasonable detail, Tenant shall deliver to
Landlord a plan of correction within 10 Business Days after receipt of the
notice. Tenant shall diligently pursue correction of all problem areas within
60 days after receipt of the notice or such longer period as may be
necessary for reasons beyond its reasonable control such as shortage of
materials or delays in securing necessary permits, but not caused by lack of
diligence by Tenant and, upon expiration of the 60-day period, shall deliver
evidence of completion to Landlord or an interim report evidencing Tenant’s
diligent progress towards completion and, at the end of the next 60-day period,
evidence of satisfactory completion. Upon completion, Landlord shall have the
right to re-inspect the Facility and Tenant shall pay a re-inspection fee of
$750.00 plus Landlord’s reasonable out-of-pocket expenses within 30 days
after receipt of Landlord’s invoice. At each inspection of the Leased Property
by Landlord, the Facility employee in charge of maintenance shall be available
to tour the Facility with Landlord and answer questions.
  7.2  Required
Alterations . Tenant
shall, at Tenant’s sole cost and expense, make any additions, changes,
improvements or alterations to the Leased Property, including structural
alterations, which may be required by any governmental authorities, including
those required to maintain licensure or certification under the Medicare and
Medicaid programs (if so certified), whether such changes are required by
Tenant’s use, changes in the law, ordinances, or governmental regulations,
defects existing as of the date of this Lease, or any other cause whatsoever.
All such additions, changes, improvements or alterations shall be deemed to be
Permitted Alterations and shall comply with all laws requiring such alterations
and with the provisions of §16.4.
  7.3  Mechanic’s
Liens . Tenant
shall have no authority to permit or create a mechanic’s lien or construction
lien against Landlord’s interest in the Leased Property, and Tenant shall post
notices or file such documents as may be required to protect Landlord’s interest
in the Leased Property against such liens. **Tenant
shall notify any and all contractors of this provision of the Lease prior to
entering into any contracts for improvements** . Tenant
hereby agrees to defend, indemnify, and hold Landlord harmless from and against
any mechanic’s liens or construction liens against the Leased Property by reason
of work, labor, services or materials supplied or claimed to have been supplied
on or to the Leased Property. Subject to Tenant’s right to contest the same in
accordance with the terms of this Lease, Tenant shall remove, bond-off, or
otherwise obtain the release of any mechanic’s lien or construction liens filed
against the Leased Property within 15 days after notice of the filing
thereof. Tenant shall pay all expenses in connection therewith, including,
without limitation, damages, interest, court costs and reasonable attorneys’
fees.
   **23**
  
  7.4  Replacements
of Fixtures and Landlord’s Personal Property . Tenant
shall not remove Fixtures and Landlord’s Personal Property from the Leased
Property except to replace the Fixtures and Landlord’s Personal Property with
other similar items of equal quality and value. Items being replaced by Tenant
may be removed and shall become the property of Tenant and items replacing the
same shall be and remain the property of Landlord. Tenant shall execute, upon
written request from Landlord, any and all documents reasonably necessary to
evidence Landlord’s ownership of Landlord’s Personal Property and replacements
therefor. Tenant may finance replacements for the Fixtures and Landlord’s
Personal Property by equipment lease or by a security agreement and financing
statement if, with respect to any financing of critical care equipment and with
respect to any other Personal Property having a value in excess of $250,000.00
[i] Landlord has consented to the terms and conditions of the equipment
lease or security agreement; and [ii] the equipment lessor or lender has
entered into a nondisturbance agreement with Landlord upon terms and conditions
reasonably acceptable to Landlord, including, without limitation, the following:
[a] Landlord shall have the right (but not the obligation) to assume such
security agreement or equipment lease upon the occurrence of an Event of Default
under this Lease; [b] the equipment lessor or lender shall notify Landlord
of any default by Tenant under the equipment lease or security agreement and
give Landlord a reasonable opportunity to cure such default; and
[c] Landlord shall have the right to assign its rights under the equipment
lease, security agreement, or nondisturbance agreement. Tenant shall, within
30 days after receipt of an invoice from Landlord, reimburse Landlord for
all costs and expenses incurred in reviewing and approving the equipment lease,
security agreement, and nondisturbance agreement, including, without limitation,
reasonable attorneys’ fees and costs.
  7.5  Lender
Maintenance Reserve Escrow . Upon
request from Tenant, Landlord shall take all necessary action to cooperate with
Tenant to secure the release of funds held by Lender in any Lender Maintenance
Reserve Escrow and/or the Replacement Reserve (as defined in the Loan Documents)
to the extent such funds are available as set forth in the Loan Documents.
Tenant’s obligations set forth in this Article 7 shall not be conditioned
upon the release of funds by Lender from any Lender Maintenance Reserve Fund
and/or the Replacement Reserve.
  **ARTICLE
8:**  **DEFAULTS
AND REMEDIES**
  8.1  Events
of Default . The
occurrence of any one or more of the following shall be an event of default
(“Event of Default”) hereunder without any advance notice to Tenant unless
specified herein:
  (a)  Tenant
fails to pay in full any installment of Base Rent, any Additional Rent or any
other monetary obligation payable by Tenant under this Lease within 10 days
after such payment is due.
  (b)  Tenant or
Guarantor (where applicable) fails to comply with any covenant set forth in
Article 14, §§15.6, 15.7, 15.8 or 15.12 of this Lease.
   **24**
  
  (c)  Tenant
fails to observe and perform any other covenant, condition or agreement under
this Lease to be performed by Tenant and [i] such failure continues for a
period of 30 days after written notice thereof is given to Tenant by
Landlord; or [ii] if, by reason of the nature of such default it cannot be
remedied within 30 days, Tenant fails to proceed with diligence reasonably
satisfactory to Landlord after receipt of the notice to cure the default or, in
any event, fails to cure such default within 60 days after receipt of the
notice. The foregoing notice and cure provisions do not apply to any Event of
Default otherwise specifically described in any other subsection of
§8.1.
  (d)  Tenant
abandons or vacates(except during a period of repair or reconstruction after
damage, destruction or a Taking) the Facility Property or any material part
thereof, ceases to operate any Facility, ceases to do business or ceases to
exist for any reason for five or more days and Tenant has not implemented the
necessary steps to cure.
  (e)  [i] The
filing by Tenant or Guarantor of a petition under the Bankruptcy Code or the
commencement of a bankruptcy or similar proceeding by Tenant or Guarantor;
[ii] the failure by Tenant or Guarantor, as applicable, within 60 days
to dismiss an involuntary bankruptcy petition or other commencement of a
bankruptcy, reorganization or similar proceeding against such party, or to lift
or stay any execution, garnishment or attachment of such consequence as will
impair its ability to carry on its operation at the Leased Property;
[iii] the entry of an order for relief under the Bankruptcy Code in respect
of Tenant or Guarantor; [iv] any assignment by Tenant or Guarantor for the
benefit of its creditors; [v] the entry by Tenant or Guarantor into an
agreement of composition with its creditors; [vi] the approval by a court
of competent jurisdiction of a petition applicable to Tenant or Guarantor in any
proceeding for its reorganization instituted under the provisions of any state
or federal bankruptcy, insolvency, or similar laws; [vii] appointment by
final order, judgment, or decree of a court of competent jurisdiction of a
receiver of the whole or any substantial part of the properties of Tenant or
Guarantor (provided such receiver shall not have been removed or discharged
within 60 days of the date of his qualification).
  (f)  [i] Any
receiver, administrator, custodian or other person takes possession or control
of any of the Leased Property and continues in possession for 60 days;
[ii] any writ against any of the Leased Property is not released within
60 days; [iii] any judgment is rendered or proceedings are instituted
against the Leased Property, Tenant which adversely affect the Leased Property
or any part thereof, which is not dismissed for 60 days (except as
otherwise provided in this section); [iv] all or a substantial part of the
assets of Tenant or Guarantor are attached, seized, subjected to a writ or
distress warrant, or are levied upon, or come into the possession of any
receiver, trustee, custodian, or assignee for the benefit of creditors;
[v] Tenant or Guarantor is enjoined, restrained, or in any way prevented by
court order, or any proceeding is filed or commenced seeking to enjoin, restrain
or in any way prevent Tenant or Guarantor from conducting all or a substantial
part of its business or affairs; or [vi] except as otherwise permitted
hereunder, a final notice of lien, levy or assessment is filed of record with
respect to all or any part of the Leased Property or any property of Tenant
located at the Leased Property and is not dismissed, discharged, or bonded-off
within 30 days.
   **25**
  
  (g)  Any
representation or warranty made by Tenant or Guarantor in this Lease or any
other document executed in connection with this Lease, any guaranty of or other
security for this Lease, or any report, certificate, application, financial
statement or other instrument furnished by Tenant or Guarantor pursuant hereto
or thereto shall prove to be false, misleading or incorrect in any material
respect as of the date made.
  (h)  [i] Tenant,
Guarantor or any Affiliate of Tenant defaults on any indebtedness or obligation
to Landlord or any Landlord Affiliate, any Obligor Group Obligation or any
agreement with Landlord or any Landlord Affiliate, including, without
limitation, any lease with Landlord or any Landlord Affiliate, or [ii] the
occurrence of a default under any Material Obligation, and any applicable grace
or cure period with respect to default under such indebtedness or obligation
expires without such default having been cured. The foregoing provisions apply
to all such indebtedness, obligations and agreements as they may be amended,
modified, extended, or renewed from time to time.
  (i)  Individual
Guarantor dies, is adjudicated incompetent, files a petition in bankruptcy, or
is adjudicated insolvent under the Bankruptcy Code or any other insolvency law,
or fails to comply with any covenant or requirement of such guarantor set forth
in this Lease or in the guaranty of such guarantor, which is not cured within
any applicable cure period and in the case of the death or incompetency of an
Individual Guarantor only, Tenant fails within 30 days to deliver to
Landlord a substitute guaranty or other collateral reasonably satisfactory to
Landlord.
  (j)  The
license for the Facility or any other Government Authorization is canceled,
suspended, reduced to provisional or temporary, or otherwise invalidated, or
license revocation or decertification proceedings are commenced against Tenant,
and in each instance, such action is not stayed pending appeal, or, as a result
of the acts or omissions of Tenant, any reduction of more than 5% occurs in the
number of licensed beds or units at the Facility, or an admissions ban is issued
for the Facility and remains in effect for a period of more than
45 days.
  8.2  Remedies . Upon
the occurrence of an Event of Default under this Lease or any Lease Document,
and at any time thereafter until Landlord waives the default in writing or
acknowledges cure of the default in writing, at Landlord’s option, without
declaration, notice of nonperformance, protest, notice of protest, notice of
default, notice to quit or any other notice or demand of any kind (unless
otherwise expressly stated in this Lease or required by law), Landlord may
exercise any and all rights and remedies provided in this Lease or any Lease
Document or otherwise provided under law or in equity, including, without
limitation, any one or more of the following remedies:
  (a)  Landlord
may re-enter and take possession of the Leased Property without terminating this
Lease, and lease the Leased Property for the account of Tenant, holding Tenant
liable for all costs of Landlord in reletting the Leased Property and for the
difference in the amount received by such reletting and the amounts payable by
Tenant under the Lease.
   **26**
  
  (b)  Landlord
may terminate this Lease by written notice to Tenant, exclude Tenant from
possession of the Leased Property and use commercially reasonable efforts to
lease the Leased Property to others, holding Tenant liable for the difference in
the amounts received from such reletting and the amounts payable by Tenant under
this Lease.
  (c)  Landlord
may re-enter the Leased Property and have, repossess and enjoy the Leased
Property as if this Lease had not been made, and in such event, Tenant and its
successors and assigns shall remain liable for any contingent or unliquidated
obligations or sums owing at the time of such repossession.
  (d)  Landlord
may have access to and inspect, examine and make copies of the books and records
and any and all accounts, data and income tax and other returns of Tenant
insofar as they pertain to the Leased Property subject to Landlord’s obligation
to maintain the confidentiality of any patient or employee information in
accordance with the requirements of applicable State or federal
law.
  (e)  Landlord
may accelerate all of the unpaid Rent hereunder based on the then current Rent
Schedule and Tenant shall be liable for the present value of the aggregate Rent
for the unexpired term of this Lease, discounted at an annual rate equal
to eight
percent (8%), which amount shall become immediately due and
payable.
  (f)  Landlord
may demand payment from Tenant of an amount equal to the Outstanding Straight
Line Rent Receivable accrued by Landlord under this Lease as of the date that
Tenant surrenders possession of the Leased Property (“Surrender Date”). As used
herein, the “Outstanding Straight Line Rent Receivable” means [i] the
amount of Base Rent that would have accrued under this Lease, up to the
Surrender Date, if the Base Rent were calculated based upon the mathematical
average of Landlord’s rate of return over the entire Initial Term after taking
into account the Increaser Rate for each Lease Year of the entire Initial Term,
minus [ii] the amount of Base Rent payable under this Lease, up to the
Surrender Date, based upon the Rent Schedule, i.e., based upon the Increaser
Rate imposed for each Lease Year up to the Surrender Date, as computed in
accordance with generally accepted accounting principles.
  (g)  Landlord
may take whatever action at law or in equity as may appear necessary or
desirable to collect the Rent and other amounts payable under this Lease then
due and thereafter to become due, or to enforce performance and observance of
any obligations, agreements or covenants of Tenant under this
Lease.
  (h)  With
respect to the Collateral or any portion thereof and Secured Party’s security
interest therein, Secured Party may exercise all of its rights as secured party
under Article 9 of the Uniform Commercial Code. Secured Party may sell the
Collateral by public or private sale upon five days notice to Tenant. Tenant
agrees that a commercially reasonable manner of disposition of the Collateral
shall include, without limitation and at the option of Secured Party, a sale of
the Collateral, in whole or in part, concurrently with the sale of the Leased
Property.
   **27**
  
  (i)  Secured
Party may obtain control over and collect the Receivables and apply the proceeds
of the collections to satisfaction of the Obligor Group Obligations unless
prohibited by law. For purposes of this §8.2(i), upon the occurrence and during
the continuance of an Event of Default, Tenant appoints Landlord or its designee
as attorney for Tenant with powers [i] to receive, to endorse, to sign
and/or to deliver, in Tenant’s name or Secured Party’s name, any and all checks,
drafts, and other instruments for the payment of money relating to the
Receivables, and to waive demand, presentment, notice of dishonor, protest, and
any other notice with respect to any such instrument; [ii] to sign Tenant’s
name on any invoice or bill of lading relating to any Receivable, drafts against
account debtors, assignments and verifications of Receivables, and notices to
account debtors; [iii] to send verifications of Receivables to any account
debtor; and [iv] to do all other acts and things necessary to carry out
this Lease. Absent gross negligence or willful misconduct of Secured Party,
Secured Party shall not be liable for any omissions, commissions, errors of
judgment, or mistakes in fact or law made in the exercise of any such powers. At
Secured Party’s option, Tenant shall [i] provide Secured Party a full
accounting of all amounts received on account of Receivables with such frequency
and in such form as Secured Party may require, either with or without applying
all collections on Receivables in payment of the Obligor Group Obligations or
[ii] deliver to Secured Party on the day of receipt all such collections in
the form received and duly endorsed by Tenant. At Secured Party’s request,
Tenant shall institute any action or enter into any settlement determined by
Secured Party to be necessary to obtain recovery or redress from any account
debtor in default of Receivables. Secured Party may give notice of its security
interest in the Receivables to any or all account debtors with instructions to
make all payments on Receivables directly to Secured Party, thereby terminating
Tenant’s authority to collect Receivables. After terminating Tenant’s authority
to enforce or collect Receivables, Secured Party shall have the right to take
possession of any or all Receivables and records thereof and is hereby
authorized to do so, and only Secured Party shall have the right to collect and
enforce the Receivables. Prior to the occurrence and during the continuance of
an Event of Default, at Tenant’s cost and expense, but on behalf of Secured
Party and for Secured Party’s account, Tenant shall collect or otherwise enforce
all amounts unpaid on Receivables and hold all such collections in trust for
Secured Party, but Tenant may commingle such collections with Tenant’s own
funds, until Tenant’s authority to do so has been terminated, which may be done
only after an Event of Default. Notwithstanding any other provision hereof,
Secured Party does not assume any of Tenant’s obligations under any Receivable,
and Secured Party shall not be responsible in any way for the performance of any
of the terms and conditions thereof by Tenant.
  (j)  Without
waiving any prior or subsequent Event of Default, Landlord may waive any Event
of Default or, with or without waiving any Event of Default, remedy any
default.
  (k)  Landlord
may terminate its obligation, if any, to disburse any Landlord
Payments.
  (l)  Landlord
may enter and take possession of the Land and the Facility without terminating
this Lease and complete construction and renovation of the Improvements (or any
part thereof) and perform the obligations of Tenant under the Lease
   **28**
  Documents.
Without limiting the generality of the foregoing and for the purposes aforesaid,
upon the occurrence and during the continuance of an Event of Default, Tenant
hereby appoints HCN its lawful attorney-in-fact with full power to do any of the
following: [i] complete construction, renovation and equipping of the
Improvements in the name of Tenant; [ii] use unadvanced funds remaining
under the Investment Amount, or funds that may be reserved, escrowed, or set
aside for any purposes hereunder at any time, or to advance funds in excess of
the Investment Amount, to complete the Improvements; [iii] make changes in
the plans and specifications that shall be necessary or desirable to complete
the Improvements in substantially the manner contemplated by the plans and
specifications; [iv] retain or employ new general contractors,
subcontractors, architects, engineers, and inspectors as shall be required for
said purposes; [v] pay, settle, or compromise all existing bills and
claims, which may be liens or security interests, or to avoid such bills and
claims becoming liens against the Facility or security interest against fixtures
or equipment, or as may be necessary or desirable for the completion of the
construction and equipping of the Improvements or for the clearance of title;
[vi] execute all applications and certificates, in the name of Tenant, that
may be required in connection with any construction; [vii] do any and every
act that Tenant might do in its own behalf, to prosecute and defend all actions
or proceedings in connection with the Improvements; and [viii] to execute,
deliver and file all applications and other documents and take any and all
actions necessary to transfer the operations of the Facility to Secured Party or
Secured Party’s designee. This power of attorney is a power coupled with an
interest and cannot be revoked.
  (m)  Landlord
may apply, with or without notice to Tenant, for the appointment of a receiver
(“Receiver”) for Tenant or Tenant’s business or for the Leased Property. Unless
prohibited by law, such appointment may be made either before or after
termination of Tenant’s possession of the Leased Property, without notice,
without regard to the solvency or insolvency of Tenant at the time of
application for such Receiver and without regard to the then value of the Leased
Property, and Secured Party may be appointed as Receiver. After the occurrence
and during the continuance of an Event of Default, Landlord shall be entitled to
appointment of a receiver as a matter of right and without the need to make any
showing other than the existence of an Event of Default. The Receiver shall have
the power to collect the rents, income, profits and Receivables of the Leased
Property during the pendency of the receivership and all other powers which may
be necessary or are usual in such cases for the protection, possession, control,
management and operation of the Leased Property during the whole of said
proceeding. All sums of money received by the Receiver from such rents and
income, after deducting therefrom the reasonable charges and expenses paid or
incurred in connection with the collection and disbursement thereof, shall be
applied to the payment of the Rent or any other monetary obligation of Tenant
under this Lease, including, without limitation, any losses or damages incurred
by Landlord under this Lease. Tenant, if requested to do so, will consent to the
appointment of any such Receiver as aforesaid.
  (n)  Unless
prohibited by law, Landlord may terminate any management agreement with respect
to any of the Leased Property and shall have the right to retain one or more
managers for the Leased Property at the expense of Tenant, such manager(s) to
serve for such term and at such compensation as Landlord reasonably determines
is necessary under the circumstances.
   **29**
  
  8.3  Right
of Setoff . Upon
the occurrence and during the continuance of an Event of Default, Landlord may,
and is hereby authorized by Tenant to, at any time and from time to time without
advance notice to Tenant (any such notice being expressly waived by Tenant),
setoff or recoup and apply any and all sums held by Landlord, any indebtedness
of Landlord to Tenant, and any claims by Tenant against Landlord, against any
obligations of Tenant hereunder and against any claims by Landlord against
Tenant, whether or not such obligations or claims of Tenant are matured and
whether or not Landlord has exercised any other remedies hereunder. The rights
of Landlord under this section are in addition to any other rights and remedies
Landlord may have against Tenant.
  8.4  Performance
of Tenant’s Covenants .
Landlord may perform any obligation of Tenant which Tenant has failed to perform
after expiration of any applicable cure period within five days after Landlord
has sent a written notice to Tenant informing it of its specific failure. Tenant
shall reimburse Landlord on demand, as Additional Rent, for any expenditures
thus incurred by Landlord and shall pay interest thereon at Landlord’s rate of
return as provided in the Commitment.
  8.5  Late
Payment Charge . Tenant
acknowledges that any default in the payment of any installment of Rent payable
hereunder will result in loss and additional expense to Landlord in servicing
any indebtedness of Landlord secured by the Leased Property, handling such
delinquent payments, and meeting its other financial obligations, and because
such loss and additional expense is extremely difficult and impractical to
ascertain, Tenant agrees that in the event any Rent payable to Landlord
hereunder is not paid within 10 days after the due date, within
10 days of receipt of an invoice from Landlord, Tenant shall pay a late
charge of 5% of the amount of the overdue payment as a reasonable estimate of
such loss and expenses, unless applicable law requires a lesser charge, in which
event the maximum rate permitted by such law may be charged by Landlord. The
10-day grace period set forth in this section shall not extend the time for
payment of Rent or the period for curing any default beyond such 10-day grace
period or constitute a waiver of such default following the expiration of such
10-day grace period.
  8.6  Default
Rent . At
Landlord’s option at any time after the occurrence of an Event of Default and
while such Event of Default remains uncured, the Base Rent payable under this
Lease shall be increased to reflect Landlord’s rate of return of 18.5% *per
annum* on the
Investment Amount (“Default Rent”); provided, however, that if a court of
competent jurisdiction determines that any other amounts payable under this
Lease are deemed to be interest, the Default Rent shall be adjusted to ensure
that the aggregate interest payable under this Lease does not accrue at a rate
in excess of the maximum legal rate. Tenant shall not be required to pay
interest on any installment of Rent during the 10-day grace period referenced in
§8.5.
  8.7  Attorneys’
Fees . Tenant
shall pay all reasonable costs and expenses incurred by Landlord in enforcing or
preserving Landlord’s rights under this Lease, whether or not an Event of
Default has actually occurred or has been declared and thereafter cured,
including, without limitation, [i] the fees, expenses, and costs of any
   **30**
  litigation,
appellate, receivership, administrative, bankruptcy, insolvency or other similar
proceeding; [ii] reasonable attorney, paralegal, consulting and witness
fees and disbursements, whether in-house counsel or outside counsel; and
[iii] the expenses, including, without limitation, lodging, meals, and
transportation, of Landlord and its employees, agents, attorneys, and witnesses
in preparing for litigation, administrative, bankruptcy, insolvency or other
similar proceedings and attendance at hearings, depositions, and trials in
connection therewith. All such reasonable costs, expenses, charges and fees
payable by Tenant shall be deemed to be Additional Rent under this
Lease.
  8.8  Escrows
and Application of Payments . As
security for the performance of the Obligor Group Obligations, Tenant hereby
assigns to Landlord all its right, title, and interest in and to all monies
escrowed with Landlord under this Lease and all deposits with utility companies,
taxing authorities and insurance companies; provided, however, that Landlord
shall not exercise its rights hereunder until an Event of Default has occurred.
Any payments received by Landlord under any provisions of this Lease during the
existence or continuance of an Event of Default shall be applied to the Obligor
Group Obligations in the order which Landlord may determine.
  8.9  Remedies
Cumulative . The
remedies of Landlord herein are cumulative to and not in lieu of any other
remedies available to Landlord at law or in equity. The use of any one remedy
shall not be taken to exclude or waive the right to use any other
remedy.
  8.10  Waivers . Tenant
waives [i] any notice required by statute or other law as a condition to
bringing an action for possession of, or eviction from, any of the Leased
Property, [ii] any right of re-entry or repossession, [iii] any right
to a trial by jury in any action or proceeding arising out of or relating to
this Lease, [iv] any objections, defenses, claims or rights with respect to
the exercise by Landlord of any rights or remedies; [v] any right of
redemption whether pursuant to statute, at law or in equity, [vi] all
presentments, demands for performance, notices of nonperformance, protest,
notices of protest, notices of dishonor, notices to quit and any other notice or
demand of any kind other than those specifically provided for in this Lease, and
[vii] all notices of the existence, creation or incurring of any obligation
or advance under this Lease before or after this date.
  8.11  Obligations
Under the Bankruptcy Code . Upon
filing of a petition by or against Tenant under the Bankruptcy Code, Tenant, as
debtor and as debtor-in-possession, and any trustee who may be appointed with
respect to the assets of or estate in bankruptcy of Tenant, agree to pay monthly
in advance on the first day of each month, as reasonable compensation for the
use and occupancy of the Leased Property, an amount equal to all Rent due
pursuant to this Lease. Included within and in addition to any other conditions
or obligations imposed upon Tenant or its successor in the event of the
assumption and/or assignment of this Lease are the following: [i] the cure
of any monetary defaults and reimbursement of pecuniary loss within not more
than five Business Days of assumption and/or assignment; [ii] the deposit
of an additional amount equal to not less than three months’ Base Rent, which
amount is agreed to be a necessary and appropriate deposit to adequately assure
the future performance under this Lease of the Tenant or its assignee; and
[iii] the continued use of the Leased Property for the Facility Uses.
Nothing herein shall be
   **31**
  construed
as an agreement by Landlord to any assignment of this Lease or a waiver of
Landlord’s right to seek adequate assurance of future performance in addition to
that set forth hereinabove in connection with any proposed assumption and/or
assignment of this Lease.
  **ARTICLE
9:**  **DAMAGE
AND DESTRUCTION**
  9.1  Notice
of Casualty . If the
Leased Property shall be destroyed, in whole or in part, or damaged by fire,
flood, windstorm or other casualty in excess of $150,000.00 (a “Casualty”),
Tenant shall give written notice thereof to Landlord within two Business Days
after the occurrence of the Casualty. Within 15 days after the occurrence
of the Casualty or as soon thereafter as such information is reasonably
available to Tenant, Tenant shall provide the following information to Landlord:
[i] the date of the Casualty; [ii] the nature of the Casualty;
[iii] a description of the damage or destruction caused by the Casualty,
including the type of Leased Property damaged and the area of the Improvements
damaged; [iv] a preliminary estimate of the cost to repair, rebuild,
restore or replace the Leased Property; [v] a preliminary estimate of the
schedule to complete the repair, rebuilding, restoration or replacement of the
Leased Property; [vi] a description of the anticipated property insurance
claim, including the name of the insurer, the insurance coverage limits, the
deductible amount, the expected settlement amount, and the expected settlement
date; and [vii] a description of the business interruption claim, including
the name of the insurer, the insurance coverage limits, the deductible amount,
the expected settlement amount, and the expected settlement date. Within five
days after request from Landlord, Tenant will provide Landlord with copies of
all correspondence to the insurer and any other information reasonably requested
by Landlord.
  9.2  Substantial
Destruction .
  9.2.1  If the
Facility Improvements are substantially destroyed at any time other than during
the final 18 months of the Initial Term or any Renewal Term, Tenant shall
promptly rebuild and restore such Improvements in accordance with §9.4 and
Landlord shall make the insurance proceeds available to Tenant for such
restoration. The term “substantially destroyed” means any casualty resulting in
the loss of use of 50% or more of the licensed beds at any one
Facility.
  9.2.2  If the
Facility Improvements are substantially destroyed during the final
18 months of the Initial Term or any Renewal Term, Landlord may elect to
terminate this Lease and retain the insurance proceeds unless Tenant exercises
its option to renew as set forth in §9.2.3. If Landlord elects to terminate,
Landlord shall give notice (“Termination Notice”) of its election to terminate
this Lease within 30 days after receipt of Tenant’s notice of the damage.
If Tenant does not exercise its option to renew under §9.2.3 within 15 days
after delivery of the Termination Notice, this Lease shall terminate on the
15 th day
after delivery of the Termination Notice. If this Lease is so terminated, Tenant
shall be liable to Landlord for all Rent and all other obligations accrued under
this Lease through the effective date of termination.
  9.2.3  If the
Facility Improvements are substantially destroyed during the final
18 months of the Initial Term or the Renewal Term and Landlord gives the
Termination Notice, Tenant shall have the option to renew this Lease. Tenant
shall give Landlord irrevocable notice
   **32**
  of
Tenant’s election to renew within 15 days after delivery of the Termination
Notice. If Tenant elects to renew, the Renewal Term will be in effect for the
balance of the then current Term plus a 15-year period. The Renewal Term will
commence on the third day following Landlord’s receipt of Tenant’s notice of
renewal. All other terms of this Lease for the Renewal Term shall be in
accordance with Article 12. The Improvements will be restored by Tenant in
accordance with the provisions of this Article 9 regarding partial
destruction.
  9.3  Partial
Destruction . If the
Facility Improvements are not substantially destroyed, then Tenant shall comply
with the provisions of §9.4 and Landlord shall make the insurance proceeds
available to Tenant for such restoration.
  9.4  Restoration . Subject
to any limitations imposed by law with respect to the rebuilding of the Leased
Premises, Tenant shall promptly repair, rebuild, or restore the damaged Leased
Property, at Tenant’s expense, so as to make the Leased Property at least equal
in value to the Leased Property existing immediately prior to such occurrence
and as nearly similar to it in character as is practicable and reasonable.
Before beginning such repairs or rebuilding with respect to any Casualty, or
letting any contracts in connection with such repairs or rebuilding, Tenant will
submit for Landlord’s approval, which approval Landlord will not unreasonably
withhold or delay, plans and specifications meeting the requirements of §16.2
for such repairs or rebuilding. Promptly after receiving Landlord’s approval of
the plans and specifications, Tenant will begin such repairs or rebuilding and
will prosecute the repairs and rebuilding to completion with diligence, subject,
however, to strikes, lockouts, acts of God, embargoes, governmental
restrictions, and other causes beyond Tenant’s reasonable control. Landlord will
make available to Tenant the net proceeds of any fire or other casualty
insurance paid to Landlord for such repair or rebuilding as the same progresses,
after deduction of any costs of collection, including reasonable attorneys’
fees. Payments will be made against properly certified vouchers of a competent
architect in charge of the work and approved by Landlord. Payments for deposits
for the repairing or rebuilding or delivery of materials to the Facility will be
made upon Landlord’s receipt of evidence satisfactory to Landlord that such
payments are required in advance. With respect to any Casualty, prior to
commencing the repairing or rebuilding, Tenant shall deliver to Landlord for
Landlord’s approval a schedule setting forth the estimated monthly draws for
such work. Landlord will contribute to such payments out of the insurance
proceeds an amount equal to the proportion that the total net amount received by
Landlord from insurers bears to the total estimated cost of the rebuilding or
repairing, multiplied by the payment by Tenant on account of such work. Landlord
may, however, withhold 10% from each payment until the work is completed and
proof has been furnished to Landlord that no lien or liability has attached or
will attach to the Leased Property or to Landlord in connection with such
repairing or rebuilding. Upon the completion of rebuilding and the furnishing of
such proof, the balance of the net proceeds of such insurance payable to Tenant
on account of such repairing or rebuilding will be paid to Tenant. If required
by law as a result of the nature or extent of the damage, Tenant will obtain and
deliver to Landlord a temporary or final certificate of occupancy before the
damaged Leased Property is reoccupied for any purpose. Tenant shall complete
such repairs or rebuilding free and clear of mechanic’s or other liens, and in
accordance with the building codes and all applicable laws, ordinances,
regulations, or orders of any state, municipal, or other public authority
affecting the repairs or rebuilding, and also in accordance with all
requirements of the insurance rating organization, or
   **33**
  similar
body. Any remaining proceeds of insurance after such restoration will be
Tenant’s property.
  9.5  Insufficient
Proceeds . If the
proceeds of any insurance settlement are not sufficient to pay the costs of
Tenant’s repair, rebuilding or restoration under §9.4 in full, Tenant shall
deposit with Landlord at Landlord’s option, and within 10 days of
Landlord’s request, an amount sufficient in Landlord’s reasonable judgment to
complete such repair, rebuilding or restoration or shall provide Landlord with
evidence reasonably satisfactory to Landlord that Tenant has available the funds
needed to complete such repair, rebuilding or restoration. Tenant shall not, by
reason of the deposit or payment, be entitled to any reimbursement from Landlord
or diminution in or postponement of the payment of the Rent.
  9.6  Not
Trust Funds .
Notwithstanding anything herein or at law or equity to the contrary, none of the
insurance proceeds paid to Landlord as herein provided shall be deemed trust
funds, and Landlord shall be entitled to dispose of such proceeds as provided in
this Article 9. Tenant expressly assumes all risk of loss, including a
decrease in the use, enjoyment or value, of the Leased Property from any
casualty whatsoever, whether or not insurable or insured against.
  9.7  Landlord’s
Inspection . During
the progress of such repairs or rebuilding, Landlord and its architects and
engineers may, from time to time, inspect the Leased Property and will be
furnished, if required by them, with copies of all plans, shop drawings, and
specifications relating to such repairs or rebuilding. Tenant will keep all
plans, shop drawings, and specifications at the building, and Landlord and its
architects and engineers may examine them at all reasonable times and on
reasonable notice. If, during such repairs or rebuilding, Landlord and its
architects and engineers determine that the repairs or rebuilding are not being
done in accordance with the approved plans and specifications, Landlord will
give prompt notice in writing to Tenant, specifying in detail the particular
deficiency, omission, or other respect in which Landlord claims such repairs or
rebuilding do not accord with the approved plans and specifications. Upon the
receipt of any such notice, Tenant will cause corrections to be made to any
deficiencies, omissions, or such other respect. Tenant’s obligations to supply
insurance, according to Article 4, will be applicable to any repairs or
rebuilding under this section.
  9.8  Landlord’s
Costs . Tenant
shall, within 30 days after receipt of an invoice from Landlord, pay the
costs, expenses, and fees of any architect or engineer employed by Landlord to
review any plans and specifications and to supervise and approve any
construction, or for any services rendered by such architect or engineer to
Landlord as contemplated by any of the provisions of this Lease, or for any
services performed by Landlord’s attorneys in connection therewith.
  9.9  No
Rent Abatement . Rent
will not abate pending the repairs or rebuilding of the Leased Property;
provided, however, that credit will be given for any rental insurance proceeds
received by Landlord.
   **34**
  
  **ARTICLE
10:**  **CONDEMNATION**
  10.1  Total
Taking . If, by
exercise of the right of eminent domain or by conveyance made in response to the
threat of the exercise of such right (“Taking”), the entire Facility Property is
taken, or so much of the Facility Property is taken that the number of licensed
beds/units at the Facility Property is reduced by more than 25% as a result of
such Taking, then this Lease will end with respect to the Facility Property only
on the earlier of the vesting of title to the Facility Property in the
condemning authority or the taking of possession of the Facility Property by the
condemning authority. All damages awarded for such Taking under the power of
eminent domain shall be the property of Landlord, whether such damages shall be
awarded as compensation for diminution in value of the leasehold or the fee of
the Facility Property, provided, however, nothing herein shall preclude Tenant
from pursuing a separate award for the Taking of its Tenant’s Property (as
defined below) or for relocation costs or expenses.
  10.2  Partial
Taking . If,
after a Taking, so much of the Facility Property remains that the Facility
Property can be used for substantially the same purposes for which it was used
immediately before the Taking, then [i] this Lease will end as to the part
taken on the earlier of the vesting of title to such Leased Property in the
condemning authority or the taking of possession of the Leased Property by the
condemning authority and the Rent will be adjusted accordingly; [ii] at its
cost, Tenant shall restore so much of the Facility Property as remains to a
sound architectural unit substantially suitable for the purposes for which it
was used immediately before the Taking, using good workmanship and new,
first-class materials; [iii] upon completion of the restoration, Landlord
will pay Tenant the lesser of the net award made to Landlord on the account of
the Taking (after deducting from the total award, reasonable attorneys’,
appraisers’, and other fees and costs incurred in connection with the obtaining
of the award and amounts paid to the holders of mortgages secured by the
Facility Property), or Tenant’s actual out-of-pocket costs of restoring the
Facility Property; and [iv] Landlord shall be entitled to the balance of
the net award except to the extent specifically allocated to the value of
Tenant’s Property or any relocation costs or expenses incurred by Tenant as a
result of such partial Taking. The restoration shall be completed in accordance
with §§9.4, 9.5, 9.7, 9.8 and 9.9 with such provisions deemed to apply to
condemnation instead of casualty.
  10.3  Condemnation
Proceeds Not Trust Funds .
Notwithstanding anything in this Lease or at law or equity to the contrary, none
of the condemnation award paid to Landlord shall be deemed trust funds, and
Landlord shall be entitled to dispose of such proceeds as provided in this
Article 10. Tenant expressly assumes all risk of loss, including a decrease
in the use, enjoyment, or value, of the Leased Property from any
Taking.
  **ARTICLE
11:**  **TENANT’S
PROPERTY**
  11.1  Tenant’s
Property . Tenant
shall have the right to install, place, and use on the Leased Property such
fixtures, furniture,
   **35**
  equipment,
inventory and other personal property in addition to Landlord’s Personal
Property as may be required or as Tenant may, from time to time, deem necessary
or useful to operate the Leased Property for its permitted purposes. All
fixtures, furniture, equipment, inventory, and other personal property
installed, placed, or used on the Leased Property which is owned by Tenant or
leased by Tenant from third parties is hereinafter referred to as “Tenant’s
Property”.
  11.2  Requirements
for Tenant’s Property . Tenant
shall comply with all of the following requirements in connection with Tenant’s
Property:
  (a)  Tenant
shall, at Tenant’s sole cost and expense, maintain, repair, and replace Tenant’s
Property.
  (b)  Tenant
shall, at Tenant’s sole cost and expense, keep Tenant’s Property insured against
loss or damage by fire, vandalism and malicious mischief, sprinkler leakage,
earthquake, and other physical loss perils commonly covered by fire and extended
coverage, boiler and machinery, and difference in conditions insurance in an
amount not less than 90% of the then full replacement cost thereof. Tenant shall
use the proceeds from any such policy for the repair and replacement of Tenant’s
Property. The insurance shall meet the requirements of §4.3.
  (c)  Tenant
shall pay all taxes applicable to Tenant’s Property.
  (d)  If
Tenant’s Property is damaged or destroyed by fire or any other cause, Tenant
shall have the right, but not the obligation, to repair or replace Tenant’s
Property (unless the same is required for the operation of the Leased Property
in compliance with applicable Legal Requirements, in which case Tenant shall be
required to promptly repair or replace the same) unless Landlord elects to
terminate this Lease pursuant to §9.2.2.
  (e)  Unless an
Event of Default or any event which, with the giving of notice or lapse of time,
or both, would constitute an Event of Default has occurred, Tenant may remove
Tenant’s Property from the Leased Property from time to time provided that
[i] the items removed are not required to operate the Leased Property for
the Facility Uses (unless such items are being replaced by Tenant); and
[ii] Tenant repairs any damage to the Leased Property resulting from the
removal of Tenant’s Property.
  (f)  Tenant
shall not, without the prior written consent of Landlord or as otherwise
provided in this Lease, remove any Tenant’s Property or Leased Property. Tenant
shall, at Landlord’s option, remove Tenant’s Property upon the termination or
expiration of this Lease and shall repair any damage to the Leased Property
resulting from the removal of Tenant’s Property. If Tenant fails to remove
Tenant’s Property within 30 days after request by Landlord, then Tenant
shall be deemed to have abandoned Tenant’s Property, Tenant’s Property shall
become the property of Landlord, and Landlord may remove, store and dispose of
Tenant’s Property. In such event, Tenant shall have no claim or right against
Landlord for such property or the value thereof regardless of the disposition
thereof by Landlord. Tenant shall pay Landlord, upon demand, all expenses
incurred by Landlord in removing, storing, and disposing
   **36**
  of
Tenant’s Property and repairing any damage caused by such removal. Tenant’s
obligations hereunder shall survive the termination or expiration of this
Lease.
  (g)  Tenant
shall perform its obligations under any equipment lease or security agreement
for Tenant’s Property. For equipment loans or leases for critical care equipment
and for all other equipment having an original cost in excess of $250,000.00,
Tenant shall cause such equipment lessor or lender to enter into a
nondisturbance agreement with Landlord upon terms and conditions acceptable to
Landlord, including, without limitation, the following: [i] Landlord shall
have the right (but not the obligation) to assume such equipment lease or
security agreement upon the occurrence of an Event of Default by Tenant
hereunder; [ii] such equipment lessor or lender shall notify Landlord of
any default by Tenant under the equipment lease or security agreement and give
Landlord a reasonable opportunity to cure such default; and [iii] Landlord
shall have the right to assign its interest in the equipment lease or security
agreement and nondisturbance agreement. Tenant shall, within 30 days after
receipt of an invoice from Landlord, reimburse Landlord for all costs and
expenses incurred in reviewing and approving the equipment lease, security
agreement and nondisturbance agreement, including, without limitation,
reasonable attorneys’ fees and costs.
  **ARTICLE
12:**  **RENEWAL
OPTIONS**
  12.1  Renewal
Options . Tenant
has the option to renew (“Renewal Option”) this Lease for one 15-year renewal
term (“Renewal Term”). Tenant can exercise the Renewal Option only upon
satisfaction of the following conditions:
  (a)  There
shall be no uncured Event of Default, or any event which with the passage of
time or giving of notice would constitute an Event of Default, at the time
Tenant exercises its Renewal Option nor on the date the Renewal Term is to
commence.
  (b)  Tenant
shall give Landlord irrevocable written notice of renewal no later than the date
which is [i] 90 days prior to the expiration date of the Initial Term;
or [ii] 15 days after Landlord’s delivery of the Termination Notice as
set forth in §9.2.3.
  (c)  Tenant
and each Affiliate Tenant shall concurrently give irrevocable notice of renewal
for each Affiliate Lease.
  (d)  Tenant
shall pay all amounts, costs, expenses, charges, Rent and other items payable by
Tenant to Landlord, including, but not limited to, enforcement costs as set
forth in §8.7 and any unpaid cumulative Rent Shortfall, and the Renewal Fee to
Landlord on the Renewal Date.
  12.2  Effect
of Renewal . The
following terms and conditions will be applicable if Tenant renews the
Lease:
  (a)  Effective
Date . Except
as otherwise provided in §9.2.3, the effective date of any Renewal Term will be
the first day after the expiration date of the Term. The first day of the
Renewal Term is also referred to as the Renewal Date.
   **37**
  
  (b)  Investment
Amount .
Effective as of the Renewal Date, a single Investment Amount will be computed by
summing all Landlord Payments made to date.
  (c)  Rent
Adjustment .
Effective as of the Renewal Date, Landlord shall calculate Base Rent for the
Renewal Term based upon the applicable rate of return to Landlord as set forth
in the Commitment and shall issue a new Rent Schedule reflecting the Base Rent
adjustment. Until Tenant receives a revised Rent Schedule from Landlord, Tenant
shall for each month [i] continue to make installments of Base Rent
according to the Rent Schedule in effect on the day before the Renewal Date; and
[ii] within 10 days following Landlord’s issuance of an invoice, pay
the difference between the installment of Base Rent paid to Landlord for such
month and the installment of Base Rent actually due for such month as a result
of the renewal of the Lease.
  (d)  Other
Terms and Conditions . Except
for the modifications set forth in this §12.2, all other terms and conditions of
the Lease will remain the same for the Renewal Term.
  **ARTICLE
13:**  **RIGHT
OF FIRST OPPORTUNITY**
  13.1  Right
of First Opportunity . In the
event at any time during the Term either [i] Landlord elects to seek a
purchaser of the Leased Property (the “Right of First Opportunity Event”) or
[ii] Landlord receives a bona fide offer from a third party (the “Offer”)
setting forth the terms and conditions upon which it proposes to purchase the
Leased Property which it is interested in accepting, but in no event shall
Landlord be obligated to accept (the “Right of First Refusal Event”), the
following provisions shall apply:
  (a)  In the
event of the occurrence of the Right of First Opportunity Event, Landlord shall
provide Tenant with written notice of its intent to sell the Leased Property and
its proposed terms with respect thereto (the “Opportunity Notice”). Landlord and
Tenant shall have a period of 30 days after Tenant’s receipt of the
Opportunity Notice (the “Protected Period”) to negotiate in good faith with
respect to the terms and conditions under which such transaction shall occur
provided that in no event shall the purchase price be less than the Base Price
and shall occur on the terms and conditions set forth in the Transaction
Documents (as defined below) (the “Opportunity Transaction”). In the event
Landlord and Tenant are unable to reach agreement within the Protected Period
with respect to the terms of the Opportunity Transaction, then Landlord shall be
free to enter into negotiations with respect to the Opportunity Transaction with
any other person or entity; provided, however, that Landlord shall not be
permitted to consummate a transaction with any other person or entity on terms
which are less favorable to Landlord than those offered to Tenant during the
Protected Period without first offering Tenant the opportunity on written notice
setting forth such terms to consummate the Opportunity Transaction on such
alternative terms and conditions (the “Modified Opportunity Notice”); provided,
however, that Tenant shall be deemed to have waived its right to proceed
   **38**
  with such
revised Opportunity Transaction in the event it does not advise Landlord of its
election to proceed within 10 days after its receipt of the Modified
Opportunity Notice.
  (b)  In the
event of the occurrence of a Right of First Refusal Event, Landlord shall
provide Tenant with a true and correct copy of the Offer (the “Right of First
Refusal Notice”). Tenant shall have 20 days from its receipt of the Right
of First Refusal Notice to advise Landlord in writing whether it is prepared to
purchase the Leased Property on the same terms and conditions as set forth in
the Offer. Tenant’s failure to so advise Landlord within such 20 day period
shall be deemed to be a determination by Tenant not to exercise the right of
first refusal provided for herein, at which time Landlord shall be free to
consummate the transaction which was the subject of the Offer; provided,
however, that Landlord shall not be permitted to modify the terms specified in
the Offer in an manner more favorable to the third party than those reflected in
the original Offer (the “Modified Offer”) without first again offering Tenant
the opportunity to consummate a transaction on the terms set forth in the
Modified Offer; provided, however, that Tenant shall be deemed to have waived
its right to proceed with such a transaction in the event it does not advise
Landlord of its election to proceed within 10 days after its receipt of the
Modified Offer.
  (c)  In the
event Landlord does not consummate a transaction on the terms provided for in
the Offer or the Modified Offer, as applicable, within 90 days after the
date thereof, Landlord shall not be permitted to sell the Leased Property to the
Offeror or to any other party, whether on the terms set forth in the Offer or
the Modified Offer, as applicable, or pursuant to a new Offer without again
first offering Tenant an option to consummate a transaction on the terms
specified in the Offer, the Modified Offer or any new Offer, as applicable;
provided, however, that Tenant shall be deemed to have waived its rights
hereunder in the event it does not advise Landlord of its election to proceed
within 10 days after its receipt of another copy of the Offer or of the
Modified Offer or the new Offer, as applicable.
  (d)  In the
event Tenant exercises its right of first refusal or right of first opportunity
provided for herein, Tenant and Landlord shall have a period of 30 days in
which to enter into one or more written agreements outlining the terms and
conditions, in addition to those set forth in the Offer or the Modified Offer,
if applicable, on which the sale will occur (the “Transaction Documents”). In
the event Landlord and Tenant fail to execute the Transaction Documents within
said 30 day period, then Tenant shall be deemed to have forfeited its
rights hereunder with respect to such transaction; provided, however, that
Landlord shall not be permitted to sell the Leased Property to any other person
or entity on terms which are less favorable to Landlord than those offered to
Tenant during the Protected Period or beyond the expiration of the 90 day
period provided for in clause (c), without first complying with the terms
of this §13.1 unless Landlord and Tenant failed to execute the Transaction
Documents as a result of Tenant’s bad faith in the negotiation of the terms of
such Transaction Documents, in which case Landlord shall be permitted to sell
the Leased Property to any other person or entity regardless of the terms of
such transaction.
  (e)  Any sale
of the Leased Property by Landlord pursuant to this §13, other than to Tenant,
shall be subject to the rights of Tenant under this Lease, including, but not
limited to, its rights under this §13.
   **39**
  
  13.2  Fair
Market Value . The
fair market value (the “Fair Market Value”) of the Leased Property shall be
determined as follows:
  13.2.1  The
parties shall attempt to determine the Fair Market Value by mutual agreement
within 15 days after giving the purchase notice (the “Negotiation Period”).
However, if the parties do not agree on the Fair Market Value during the
Negotiation Period, the following provisions shall apply.
  13.2.2  Landlord
and Tenant shall each give the other party notice of the name of an acceptable
appraiser five Business Days after the end of the Negotiation Period. The two
appraisers will then select a third appraiser within an additional five days.
Each appraiser must demonstrate to the reasonable satisfaction of both Landlord
and Tenant that it has significant experience in appraising properties similar
to the Leased Property. Within five days after designation, each appraiser shall
submit a resume to Landlord and Tenant setting forth such appraiser’s
qualifications, including education and experience with similar properties. A
notice of objections to the qualifications of any appraiser shall be given
within 10 days after receipt of such resume. If a party fails to timely
object to the qualifications of an appraiser, then the appraiser shall be
conclusively deemed satisfactory. If a party gives a timely notice of objection
to the qualifications of an appraiser, then the disqualified appraiser shall be
replaced by an appraiser selected by the qualified appraisers or, if all
appraisers are disqualified, then by an appraiser selected by a commercial
arbitrator acceptable to Landlord and Tenant.
  13.2.3  The Fair
Market Value shall be determined by the appraisers within 60 days
thereafter as follows. Each of the appraisers shall be instructed to prepare an
appraisal of the Leased Property in accordance with the following
instructions:
  The
Leased Property is to be valued upon the three conventional approaches to
estimate value known as the Income, Sales Comparison and Cost Approaches. Once
the approaches are completed, the appraiser correlates the individual approaches
into a final value conclusion.
  The three
approaches to estimate value are summarized as follows:
  **Income
Approach** : This
valuation approach recognizes that the value of the operating tangible and
intangible assets can be represented by the expected economic viability of the
business giving returns on and of the assets.
  **Sales
Comparison Approach** : This
valuation approach is based upon the principle of substitution. When a facility
is replaceable in the market, the market approach assumes that value tends to be
set at the price of acquiring an equally desirable substitute facility. Since
healthcare market conditions change and frequently are subject to regulatory and
financing environments, adjustments
   **40**
  need to
be considered. These adjustments also consider the operating differences such as
services and demographics.
  **Cost
Approach** : This
valuation approach estimates the value of the tangible assets only. Value is
represented by the market value of the land plus the depreciated reproduction
cost of all improvements and equipment.
  In
general, the Income and Sales Comparison Approaches are considered the best
representation of value because they cover both tangible and intangible assets,
consider the operating characteristics of the business and have the most
significant influence on attracting potential investors.
  The
appraised values submitted by the three appraisers shall be ranked from highest
value to middle value to lowest value, the appraised value (highest or lowest)
which is furthest from the middle appraised value shall be discarded, and the
remaining two appraised values shall be averaged to arrive at the Fair Market
Value.
  13.2.4  Tenant
shall pay, or reimburse Landlord for, all costs and expenses in connection with
the appraisals.
  13.3  Closing . Any
closing pursuant to, and the consequences to Tenant of failing to close after
exercising its rights under §13.1 shall be in accordance with the terms set
forth in the Offer or Modified Offer and in the Transaction Documents executed
pursuant to the terms of this Article 13.
  **ARTICLE
14:**  **NEGATIVE
COVENANTS**
  Until the
Obligor Group Obligations shall have been performed in full, Tenant and
Guarantor covenant and agree that Tenant (and Guarantor where applicable) shall
not do any of the following without the prior written consent of
Landlord:
  14.1  No
Debt . Tenant
shall not create, incur, assume, or permit to exist any indebtedness with
respect to the Leased Property other than [i] trade debt incurred in the
ordinary course of business; [ii] indebtedness for Facility working capital
purposes; and [iii] indebtedness that is secured by any Permitted
Lien.
  14.2  No
Liens . Tenant
shall not create, incur, or permit to exist any lien, charge, encumbrance,
easement or restriction upon the Leased Property, except for Permitted
Liens.
  14.3  No
Guaranties . Except
for the Obligor Group Obligations, Tenant shall not create, incur, assume, or
permit to exist any guarantee of any loan or other indebtedness with respect to
the Leased Property except for the endorsement of negotiable instruments for
collection in the ordinary course of business.
  14.4  No
Transfer . Tenant
shall not sell, lease, sublease, mortgage, convey, assign or otherwise transfer
any legal or equitable interest in the
   **41**
  Leased
Property or any part thereof, except for transfers made in connection with any
Permitted Lien, the Interim Agreements or leases to the residents of the Leased
Property or commercial leases with respect to a portion of the leased Property
comprising in the aggregate less than 2,500 square feet provided such
commercial leases shall be for services that are an integral part of the
Facility.
  14.5  No
Dissolution . Tenant
shall not dissolve, liquidate, merge, consolidate or terminate its existence or
sell, other than in a sale/leaseback or sale/manage back transaction, assign,
lease, or otherwise transfer (whether in one transaction or in a series of
transactions) all or substantially all of its assets (whether now owned or
hereafter acquired) unless, in the case of a merger or consolidation by Tenant,
the surviving entity in such merger has a net worth immediately after the merger
or consolidation at least equal to that of the Tenant immediately prior
thereto.
  14.6  Subordination
of Payments to Affiliates .
  (a)  Except as
otherwise provided in §14.6(b) below, after the occurrence of an Event of
Default and until such Event of Default is cured or waived in writing, Tenant
and Guarantor shall not make any payments or distributions (including, without
limitation, salary, bonuses, fees, principal, interest, dividends, liquidating
distributions, management fees, cash flow distributions or lease payments to
Guarantor, any Affiliate, or any shareholder, member or partner of Tenant or any
Affiliate.
  (b)  Notwithstanding
the provisions of §14.6(a) or any other provision to the contrary contained in
this Lease, [1] whether or not there is outstanding an Event of Default,
the following shall be expressly permitted: [A] salaries paid to employees
of the Facilities or employees of Tenant in the ordinary course of business;
[B] equity contributions and inter-company loans from Tenant to its direct
and indirect subsidiaries made in the ordinary course of business;
[C] payment made by Individual Guarantor to Tenant under the Cash Flow
Agreement provided that any such payment will be held in trust by Tenant only
for the purposes of paying Rent to Landlord and other expenses incurred by
Tenant in connection with the performance of its obligations under this Lease;
and [D] with respect to the preferred stock of Tenant issued to Saratoga,
PIK dividends; and [2] so long as there is no Event of Default under
§8.1(a) of this Lease, Tenant may pay cash dividends to Saratoga or to any other
preferred shareholder of Tenant who is not an Affiliate of Tenant.
  14.7  Change
of Location or Name . Tenant
shall not, without providing Landlord with 30 days prior notice thereof,
change any of the following: [i] the location of the principal place of
business or chief executive office of Tenant, or any office where any of
Tenant’s books and records are maintained; [ii] the name under which Tenant
conducts any of its business or operations; or [iii] reorganize or
otherwise change its Organization State.
   **42**
  
  **ARTICLE
15:**  **AFFIRMATIVE
COVENANTS**
  15.1  Perform
Obligations . Tenant
shall perform all of its obligations under this Lease, all material obligations
under the Government Authorizations, the Permitted Exceptions, and all Legal
Requirements. If applicable, Tenant shall take all necessary action to obtain
all Government Authorizations required for the operation of the Facility as soon
as possible after the Effective Date.
  15.2  Proceedings
to Enjoin or Prevent Construction . If any
proceedings are filed seeking to enjoin or otherwise prevent or declare invalid
or unlawful Tenant’s construction, occupancy, maintenance, or operation of the
Facility or any portion thereof, Tenant will cause such proceedings to be
vigorously contested in good faith, and in the event of an adverse ruling or
decision, prosecute all allowable appeals therefrom, and will, without limiting
the generality of the foregoing, resist the entry or seek the stay of any
temporary or permanent injunction that may be entered, and use its best
commercially reasonable efforts to bring about a favorable and speedy
disposition of all such proceedings and any other proceedings.
  15.3  Documents
and Information .
  15.3.1  Furnish
Documents . Tenant
shall periodically during the term of the Lease deliver to Landlord the Annual
Financial Statements, Periodic Financial Statements, Annual Company Budget and
all other documents, reports, schedules and copies described on Exhibit E
within the specified time periods. With each delivery of Annual Financial
Statements and Periodic Financial Statements (other than the monthly Facility
Financial Statement) to Landlord, Tenant shall also deliver to Landlord a
certificate signed by the Chief Financial Officer or managing member (as
applicable) of Tenant, an Annual Facility Financial Report or Quarterly Facility
Financial Report, as applicable, and a Quarterly Facility Accounts Receivable
Aging Report all in the form of Exhibit F. In addition, Tenant shall
deliver to Landlord the applicable Annual Facility Financial Report and the
applicable Quarterly Facility Accounts Receivable Aging Report (based upon
internal financial statements) within 60 days after the end of each fiscal
year. After the occurrence of an Event of Default and receipt of Landlord’s
written request, Tenant shall deliver to Landlord an updated Annual Company
Budget (based on a 12-month rolling forward period) within 10 Business Days
after receipt of Landlord’s request.
  15.3.2  Furnish
Information . Tenant
shall [i] promptly supply Landlord with such information concerning its
financial condition, affairs and property, as Landlord may reasonably request
from time to time hereafter; [ii] promptly notify Landlord in writing of
any condition or event that constitutes a breach or event of default of any
term, condition, warranty, representation, or provisions of this Lease or any
other agreement, and of any material adverse change in its financial condition;
[iii] maintain a standard and modern system of accounting; [iv] permit
Landlord or any of its agents or representatives to
   **43**
  have
access to and to examine all of its books and records regarding the financial
condition of the Facility at any time or times hereafter during business hours
and after reasonable oral or written notice; and [v] permit Landlord to
copy and make abstracts from any and all of said books and records subject to
any limitations imposed by State or federal law with respect to the
confidentiality of patient and employee records.
  15.3.3  Further
Assurances and Information . Tenant
shall, on request of Landlord from time to time, execute, deliver, and furnish
documents as may be necessary to fully consummate the transactions contemplated
under this Lease. Within 15 days after a request from Landlord, Tenant
shall provide to Landlord such additional information regarding Tenant, Tenant’s
financial condition, or the Facility as Landlord, or any existing or proposed
creditor of Landlord, or any auditor or underwriter of Landlord, may reasonably
require from time to time, including, without limitation, a current Tenant’s
Certificate and Facility Financial Report in the form of Exhibit F. From
and after and during the continuance of an Event of Default, Landlord shall have
the right to require Tenant to provide to Landlord, at Tenant’s expense, an
appraisal prepared by an MAI appraiser setting forth the current fair market
value of the Leased Property.
  15.3.4  Material
Communications . Tenant
shall transmit to Landlord, within five days after receipt thereof, any material
communication affecting a Facility, this Lease, the Legal Requirements or the
Government Authorizations, and Tenant will promptly respond to Landlord’s
inquiry with respect to such information. Tenant shall notify Landlord in
writing within five days after Tenant has knowledge of any potential, threatened
or existing litigation or proceeding against, or investigation of, Tenant or the
Facility that would reasonably be expected to adversely affect the right to
operate the Facility or Landlord’s title to the Facility or Tenant’s interest
therein.
  15.3.5  Requirements
for Financial Statements . Tenant
shall meet the following requirements in connection with the preparation of the
financial statements: [i] all audited financial statements shall be
prepared in accordance with general accepted accounting principles consistently
applied; [ii] all unaudited financial statements shall be prepared in a
manner substantially consistent with prior audited and unaudited financial
statements submitted to Landlord; [iii] all financial statements shall
fairly present the financial condition and performance for the relevant period
in all material respects; [iv] the audited financial statements shall
include all notes to the financial statements and a complete schedule of
contingent liabilities and transactions with Affiliates; and [v] the
audited financial statements shall contain an unqualified opinion.
  15.4  Compliance
With Laws . Tenant
shall comply in all material respects with all Legal Requirements and keep all
Government Authorizations in full force and effect. Subject to Tenant’s right to
contest the same in accordance with the terms of this Lease, Tenant shall pay
when due all taxes and governmental charges of every kind and nature that are
assessed or imposed upon Tenant at any time during the term of the Lease,
including, without limitation, all income, franchise, capital stock, property,
sales and use, business, intangible, employee withholding, and all taxes and
charges relating to Tenant’s business and operations at the Leased Property.
Tenant shall be solely responsible for
   **44**
  compliance
with all Legal Requirements, including the ADA, and Landlord shall have no
responsibility for such compliance.
  15.5  Broker’s
Commission . Tenant
shall indemnify Landlord from claims of brokers arising by the execution hereof
or the consummation of the transactions contemplated hereby and from expenses
incurred by Landlord in connection with any such claims (including reasonable
attorneys’ fees).
  15.6  Existence
and Change in Ownership . Except
as otherwise specifically provided herein or in §14.5, Tenant shall maintain its
existence throughout the term of this Lease. Any change in the equity ownership
of Tenant, directly or indirectly, that results in a change in Control (as
defined in the definition of Affiliate in §1.4 hereof) of such entity shall
require Landlord’s prior written consent.
  15.7  Financial
Covenants . The
defined terms used in this section are defined in §15.7.1. The method of valuing
assets shall be consistent with the Financial Statements. The following
financial covenants shall be met throughout the term of this Lease:
  15.7.1  Definitions .
  (a)  “Facility
Cash Flow” means the net income of Tenant arising from the Facility as reflected
on the Facility Financial Statement plus [i] the amount of the provision
for depreciation and amortization; plus [ii] the amount of the provision
for management fees; plus [iii] the amount of the provision for income
taxes; plus [iv] the amount of the provision for Base Rent payments and
interest and equipment lease payments, if any relating to the Facility; minus
[v] an imputed management fee equal to 5% of gross revenues (net of
contractual allowances); and minus [vi] an imputed replacement reserve of
$300 per licensed unit at the Facility, per year.
  (b)  “Facility
Coverage Ratio” is the ratio of [i] Facility Cash Flow for each applicable
period; to [ii] the Base Rent payments and all debt service and equipment
lease payments relating to the Facility for the applicable period.
  15.7.2  Coverage
Ratio . Tenant
shall maintain for each fiscal quarter a Facility Coverage Ratio for the
Facility of not less than 1.00 to 1.00 for the 1st Lease Year, 1.10 to 1.00
for the 2 nd Lease
Year, 1.20 to 1.00 for the 3 rd Lease
Year and 1.25 to 1.00 for the 4 th Lease
Year and each Lease Year thereafter.
  15.8  Facility
Licensure and Certification .
  15.8.1  Notice
of Inspections . Tenant
shall [i] give written notice to Landlord within five days after an
inspection of the Facility with respect to health care licensure or
certification has occurred; and [ii] deliver to Landlord copies of each of
the reports, notices, correspondence and all other items and documents listed
under item no. 18 of Exhibit E within five days after receipt thereof.
Tenant acknowledges that it has reviewed Exhibit E and agrees to the
foregoing obligation.
   **45**
  
  15.8.2  Material
Deficiencies . If
Tenant receives a Facility survey or inspection report with material
deficiencies that threatens a loss of licensure or, if applicable, certification
of the Facility or the imposition of a ban on admissions to the Facility (the
“Material Deficiencies”) or notice of failure to comply with a previously
submitted plan of correction or an HIPDB adverse action report related to any
Material Deficiencies, Tenant shall cure all of the Material Deficiencies and
implement all corrective actions with respect thereto by the date required by
the regulatory authority and shall deliver evidence of same to
Landlord.
  15.9  Transfer
of License and Facility Operations . If this
Lease is terminated due to expiration of the Term, pursuant to an Event of
Default or for any reason other than Tenant’s purchase of the Leased Property,
or if Tenant vacates the Leased Property (or any part thereof) without
termination of this Lease (other than during periods of repair or reconstruction
after damage, destruction or a Taking), the following provisions shall be
immediately effective:
  15.9.1  Licensure . Tenant
shall execute, deliver and file all documents and statements reasonably
requested by Landlord to effect the transfer of the Facility license and
Government Authorizations to a replacement operator designated by Landlord
(“Replacement Operator”), subject to any required approval of governmental
regulatory authorities, and Tenant shall provide to Landlord all information and
records required by Landlord in connection with the transfer of the license and
Government Authorizations.
  15.9.2  Facility
Operations . In
order to facilitate a responsible and efficient transfer of the operations of
the Facility, Tenant shall, if and to the extent requested by Landlord and
subject to all applicable law, [i] deliver to Landlord the most recent
updated reports, notices, schedules and documents listed under item nos. 17
and 18 of Exhibit E; [ii] assuming Tenant has not already vacated the
Leased Property, continue and maintain the operation of the Facility in the
ordinary course of business, including using its commercially reasonable efforts
to retain the residents at the Facility to the fullest extent practicable and
consistent with applicable laws and regulations, until transfer of the Facility
operations to the Replacement Operator is completed; [iii] enter into such
management agreements, operations transfer agreements and other types of
agreements that may be reasonably requested by Landlord or the Replacement
Operator, provided, however, in no event shall Tenant be required to permit the
Replacement Operator to operate the Leased Property under their licenses unless
they receive confirmation that doing so will not violate applicable Legal
Requirements and they get appropriate indemnities from the Replacement Operator
in form and substance reasonably acceptable to Tenant; and [iv] provide
reasonable access during normal business hours and on reasonable advance notice
for Landlord and its agents to show the Facility to potential replacement
operators. Tenant consents to the distribution by Landlord to potential
replacement operators of Facility financial statements, licensure reports,
financial and property due diligence materials and other documents, materials
and information relating to the Facility. The provisions of this section do not
create or establish any rights in Tenant or any third party and Landlord
reserves all rights and remedies relating to termination of this
Lease.
   **46**
  
  15.10  Bed
Operating Rights . Tenant
acknowledges and agrees that the rights to operate the beds located at the
Facility as set forth on Exhibit C under the law of the Facility State
[i] affect the value of the Leased Property, and [ii] the grant of
this Lease is conditioned upon the existence of such rights. Tenant shall not
relocate any licensed bed to any other location and shall not transfer any bed
operating rights to any other party without the prior written consent of
Landlord.
  15.11  Power
of Attorney .
Effective upon [i] the occurrence and during the continuance of an Event of
Default, or [ii] termination of this Lease for any reason other than
Tenant’s purchase of the Leased Property, to the extent permitted by law, Tenant
hereby irrevocably and unconditionally appoints Landlord, or Landlord’s
authorized officer, agent, employee or designee, as Tenant’s true and lawful
attorney-in-fact, to act for Tenant in Tenant’s name, place, and stead, to
execute, deliver and file all applications and any and all other necessary
documents and statements to effect the issuance, transfer, reinstatement,
renewal and/or extension of the Facility license and all Governmental
Authorizations issued to Tenant or applied for by Tenant in connection with
Tenant’s operation of the Facility, to permit any designee of Landlord or any
other transferee to operate the Facility under the Governmental Authorizations,
and to do any and all other acts incidental to any of the foregoing, but only in
the event Tenant fails to take such actions or execute such documents after a
request from Landlord. Tenant irrevocably and unconditionally grants to Landlord
as its attorney-in-fact full power and authority to do and perform every act
necessary and proper to be done in the exercise of any of the foregoing powers
as fully as Tenant might or could do if personally present or acting, with full
power of substitution, hereby ratifying and confirming all that said attorney
shall lawfully do or cause to be done by virtue hereof. This power of attorney
is coupled with an interest and is irrevocable prior to Tenant’s purchase of the
Leased Property. Landlord shall provide Tenant with copies of any documents
filed and/or with a summary of any action taken pursuant to this power of
attorney.
  15.12  Compliance
with Loan Documents . Tenant
and Guarantor acknowledge that [i] Landlord is acquiring the Leased
Property subject to the Mortgage; [ii] Landlord and HCN will assume the
obligations set forth in the Mortgage and Loan Documents; and
[iii] Landlord and HCN would not have assumed the obligations set forth in
the Mortgage or the Loan Documents without Tenant and Guarantor’s agreement to
comply with the terms and conditions set forth in the Loan Documents as
hereinafter set forth. Tenant and Guarantor have each reviewed the Loan
Documents and are familiar with the terms and conditions thereof. Tenant and
Guarantor agree to comply with the terms and conditions set forth in the Loan
Documents to the extent such terms and conditions apply to Tenant or Guarantor,
or the operation of the Facility including, but not limited to, satisfying all
insurance requirements, maintaining required reserves and escrow accounts,
making payments due thereunder and as applicable, other than regularly scheduled
payments of principal and interest, and granting reasonable access to the Leased
Property to the Lenders as set forth in the Loan Documents. Neither Tenant nor
Guarantor shall, in connection with either Tenant’s or Guarantor’s compliance
with the terms and conditions of the Loan Documents and the operation of the
Facility, create or permit any third party (other than Landlord for which
neither Tenant nor Guarantor assumes any responsibility hereunder) to create any
condition that
   **47**
  would
cause an Event of Default, as defined in any such Loan Documents. Tenant’s or
Guarantor’s failure to comply with the Loan Documents to the extent such terms
and conditions apply to Tenant or Guarantor, or the operation of the Facility
and to cure same within any applicable cure period provided for in the Loan
Documents shall be an Event of Default under this Lease.
  15.12.1  In the
event of a Landlord Default, as hereinafter defined, Landlord shall indemnify,
defend and hold harmless Tenant and Guarantor from and against any and all
demands, claims, causes of action, fines, penalties, damages (including
consequential damages), losses, liabilities (including strict liability),
judgments and expenses (including, without limitation, reasonable attorneys’
fees, court costs and the costs described in §8.7) to the extent incurred by
Tenant as a result of the Landlord Default including, but not limited to, as a
result of the foreclosure by Lender with respect to any of the collateral
provided by Tenant or Guarantor under the Loan Documents or the taking of any
other action by the Lender against Tenant or Guarantor under the terms of the
Loan Documents. Landlord Default shall mean an Event of Default under the Loan
Document caused solely by the acts or omissions of Landlord or HCN and is not an
Event of Default under a Loan Document arising due to Tenant’s or Guarantor’s
failure to comply with the terms and conditions of a Loan Document as agreed to
by Tenant and Guarantor pursuant to §15.12 (“Landlord Defaults”).
  15.12.2  Upon the
occurrence of an Event of Default under the Loan Documents caused by Tenant
(“Tenant Default”), Tenant or Guarantor, as applicable pursuant to the Guaranty,
shall indemnify, defend and hold harmless Landlord and HCN from and against any
and all demands, claims, causes of action, fines, penalties, damages (including
consequential damages), losses, liabilities (including strict liability),
judgments and expenses (including, without limitation, reasonable attorneys’
fees, court costs and the costs described in §8.7) to the extent incurred by
Landlord or HCN solely as a result of the Tenant Default including, but not
limited to, as a result of the foreclosure by Lender with respect to any of the
collateral provided by Landlord or HCN under the Loan Documents or the taking of
any other action by the Lender against Landlord or HCN under the terms of the
Loan Documents; provided, however, Tenant and/or Guarantor shall have no
obligation or duty to indemnify, defend and hold harmless Landlord and HCN from
and against any claim by either arising from the payment of any principal,
interest or default interest amount due under the Note to Lender.
  15.12.3  Landlord
shall, within five Business Days after receipt thereof from Lender, deliver to
Tenant all notices received by Landlord from Lender. Tenant shall, within five
Business Days after receipt thereof from Lender, deliver to Landlord all notices
received by Tenant from Lender. Landlord further acknowledges and agrees that
Tenant shall not be in default of its obligations under this §15.12 in the event
Tenant fails to fulfill the obligations imposed under a Loan Document as and
when due solely as a result of the failure of Landlord to remit any such Lender
notice within the time period specified herein, the same shall be deemed to be a
Landlord Default.
   **48**
  
  **ARTICLE
16:**  **ALTERATIONS,
CAPITAL IMPROVEMENTS, AND SIGNS**
  16.1  Prohibition
on Alterations and Improvements . Except
for Permitted Alterations (as hereinafter defined), Tenant shall not make any
structural or nonstructural changes, alterations, additions and/or improvements
(hereinafter collectively referred to as “Alterations”) to the Leased
Property.
  16.2  Approval
of Alterations . If
Tenant desires to perform any Permitted Alterations, Tenant shall deliver to
Landlord plans, specifications, drawings, and such other information as may be
reasonably requested by Landlord (collectively the “Plans and Specifications”)
showing in reasonable detail the scope and nature of the Alterations that Tenant
desires to perform. It is the intent of the parties hereto that the level of
detail shall be comparable to that which is referred to in the architectural
profession as “design development drawings” as opposed to working or biddable
drawings. Landlord agrees not to unreasonably delay its review of the Plans and
Specifications. Within 30 days after receipt of an invoice, Tenant shall
reimburse Landlord for all costs and expenses incurred by Landlord in reviewing
and, if required, approving or disapproving the Plans and Specifications,
inspecting the Leased Property, and otherwise monitoring compliance with the
terms of this Article 16. Tenant shall comply with the requirements of
§16.4 in making any Permitted Alterations.
  16.3  Permitted
Alterations .
Permitted Alterations means any one of the following: [i] Alterations
approved by Landlord; [ii] Alterations required under §7.2;
[iii] Alterations affecting the structure of the Leased Property and having
a total cost of less than $250,000.00 individually or in the aggregate;
[iv] repairs, rebuilding and restoration required or undertaken pursuant to
§9.4 or [v] non-structural Alterations such as painting, landscaping,
wallpapering, installing new floor coverings, etc. without regard to the cost
thereof.
  16.4  Requirements
for Permitted Alterations . Tenant
shall comply with all of the following requirements in connection with any
Permitted Alterations:
  (a)  The
Permitted Alterations shall be made in accordance with the approved Plans and
Specifications.
  (b)  The
Permitted Alterations and the installation thereof shall comply with all
applicable legal requirements and insurance requirements.
  (c)  The
Permitted Alterations shall be done in a good and workmanlike manner, shall not
impair the value or the structural integrity of the Leased Property, and shall
be free and clear of all mechanic’s liens.
  (d)  For any
Permitted Alterations having a total cost of $100,000.00 or more, Tenant shall
deliver to Landlord a payment and performance bond, with a surety
   **49**
  acceptable
to Landlord, in an amount equal to the estimated cost of the Permitted
Alterations, guaranteeing the completion of the work free and clear of liens and
in accordance with the approved Plans and Specifications, and naming Landlord
and any mortgagee of Landlord as joint obligees on such bond.
  (e)  Tenant
shall, at Tenant’s expense, obtain a builder’s completed value risk policy of
insurance insuring against all risks of physical loss, including collapse and
transit coverage, in a nonreporting form, covering the total value of the work
performed, and equipment, supplies, and materials, and insuring initial
occupancy. Landlord and any mortgagee of Landlord shall be additional insureds
of such policy. The form and substance of such policy shall be reasonably
acceptable to Landlord.
  (f)  Tenant
shall pay the premiums required to increase the amount of the insurance
coverages required by Article 4 to reflect the increased value of the
Improvements resulting from installation of the Permitted Alterations, and shall
deliver to Landlord a certificate evidencing the increase in
coverage.
  (g)  Tenant
shall, not later than 60 days after completion of the Permitted
Alterations, deliver to Landlord a revised “as-built” survey of the Facility if
the Permitted Alterations altered the Land or “footprint” of the Improvements
and an “as-built” set of Plans and Specifications for the Permitted Alterations
in form and substance reasonably satisfactory to Landlord.
  (h)  Tenant
shall, not later than 30 days after Landlord sends an invoice, reimburse
Landlord for any reasonable costs and expenses, including attorneys’ fees and
architects’ and engineers’ fees, incurred in connection with reviewing and
approving the Permitted Alterations and ensuring Tenant’s compliance with the
requirements of this section. The daily fee for Landlord’s consulting engineer
is $750.00.
  16.5  Ownership
and Removal of Permitted Alterations . The
Permitted Alterations shall become a part of the Leased Property, owned by
Landlord, and leased to Tenant subject to the terms and conditions of this
Lease. Tenant shall not be required or permitted to remove any Permitted
Alterations.
  16.6  Minimum
Qualified Capital Expenditures . During
each calendar year of the Term, Tenant shall expend at least $450.00 per unit
for Qualified Capital Expenditures to improve the Facilities (provided that as
to any Facility with respect to which a certificate of occupancy was not issued
prior to the end of the first calendar year, the minimum Qualified Capital
Expenditures required by this section shall be waived until the calendar year
immediately following the year in which such certificate of occupancy is
issued). Thereafter throughout the Term, Tenant shall expend such amount each
calendar year, increased annually in proportion to increases in the CPI. Within
60 days after the end of each fiscal year, Tenant shall deliver to Landlord
a certificate in the form of Exhibit N listing the Qualified Capital
Expenditures made in the prior year. If the entire minimum amount was not
expended in such year, the certificate will include certification that the
balance of the current minimum amount has been deposited in a reserve account to
be used
   **50**
  solely
for Qualified Capital Expenditures for the Facilities. At least annually, at the
request of Landlord, Landlord and Tenant shall review capital expenditures
budgets and agree on modifications, if any, required by changed circumstances
and the changed conditions of the Leased Property. Notwithstanding the
foregoing, Tenant shall be deemed to have satisfied the requirements of this
§16.6 by providing Landlord with written documentation that it has expended an
average of $450.00 per unit per year calculated on a three year rolling
average.
  16.7  Signs . Tenant
may, at its own expense, erect and maintain identification signs at the Leased
Property, provided such signs comply with all laws, ordinances, and regulations.
Upon the termination or expiration of this Lease (other than as a result of the
exercise by Tenant of its purchase rights), Tenant shall, within 30 days
after notice from Landlord, remove the signs and restore the Leased Property to
its original condition.
  **ARTICLE
17:**  **RESERVED**
  **ARTICLE
18:**  **ASSIGNMENT
AND SALE OF LEASED PROPERTY**
  18.1  Prohibition
on Assignment and Subletting . Tenant
acknowledges that Landlord has entered into this Lease in reliance on the
personal services and business expertise of Tenant. Tenant may not assign,
sublet, mortgage, hypothecate, pledge, grant a right of first refusal or
transfer any interest in this Lease, or in the Leased Property, in whole or in
part, without the prior written consent of Landlord, which Landlord may withhold
in its sole and absolute discretion. The following transactions will be deemed
an assignment or sublease requiring Landlord’s prior written consent:
[i] an assignment by operation of law; [ii] an imposition (whether or
not consensual) of a lien, mortgage, or encumbrance upon Tenant’s interest in
the Lease other than Permitted Liens; [iii] except as otherwise permitted
by §§14.4 and 18.3, an arrangement (including, but not limited to, management
agreements, concessions, licenses, and easements) which allows the use or
occupancy of all or part of the Leased Property by anyone other than Tenant; and
[iv] a material change of ownership of Tenant other than changes resulting
from the trading of Tenant’s stock on a national stock exchange as permitted
under §14.5. Landlord’s consent to any assignment, right of first refusal or
sublease will not release Tenant (or any guarantor) from its payment and
performance obligations under this Lease, but rather Tenant, any guarantor, and
Tenant’s assignee or sublessee will be jointly and severally liable for such
payment and performance. An assignment, right of first refusal or sublease
without the prior written consent of Landlord will be void at Landlord’s option.
Landlord’s consent to one assignment, right of first refusal or sublease will
not waive the requirement of its consent to any subsequent assignment or
sublease. Notwithstanding the foregoing, Tenant may enter into the Interim
Agreements required to comply with licensure requirements until such time as the
license to operate the Facility is issued in Tenant’s name, as
applicable.
  18.2  Requests
for Landlord’s Consent to Assignment, Sublease or Management
Agreement . If
Tenant is required to obtain Landlord’s consent to a specific assignment,
sublease, or management agreement, Tenant shall give Landlord [i] the name
and address of the proposed assignee, subtenant or manager; [ii] a copy of
the proposed assignment, sublease or
   **51**
  management
agreement; [iii] reasonably satisfactory information about the nature,
business and business history of the proposed assignee, subtenant, or manager
and its proposed use of the Leased Property; and [iv] banking, financial,
and other credit information, and references about the proposed assignee,
subtenant or manager sufficient to enable Landlord to determine the financial
responsibility and character of the proposed assignee, subtenant or manager. Any
assignment, sublease or management agreement shall contain provisions to the
effect that [a] such assignment, sublease or management agreement is
subject and subordinate to all of the terms and provisions of this Lease and to
the rights of Landlord and that the assignee, subtenant or manager shall comply
with all applicable provisions of this Lease; [b] such assignment, sublease
or management agreement may not be modified without the prior written consent of
Landlord not to be unreasonably withheld or delayed; [c] if this Lease
shall terminate before the expiration of such assignment, sublease or management
agreement, the assignee, subtenant or manager thereunder will, solely at
Landlord’s option and only upon the express written notice of attornment from
Landlord, attorn to Landlord and waive any right the assignee, subtenant or
manager may have to terminate the assignment, sublease or management agreement
or surrender possession thereunder as a result of the termination of this Lease;
and [d] if the assignee, subtenant or manager receives a written notice
from Landlord stating that Tenant is in default under this Lease, the assignee,
subtenant or manager shall thereafter pay all rentals or payments under the
assignment, sublease or management agreement directly to Landlord until such
default has been cured. Any attempt or offer by an assignee, subtenant or
manager to attorn to Landlord shall not be binding or effective without the
express written consent of Landlord. Tenant hereby collaterally assigns to
Landlord, as security for the performance of its obligations hereunder, all of
Tenant’s right, title, and interest in and to any assignment, sublease or
management agreement now or hereafter existing for all or part of the Leased
Property. Tenant shall, at the request of Landlord, execute such other
instruments or documents as Landlord may request to evidence this collateral
assignment. If Landlord, in its sole and absolute discretion, consents to such
assignment, sublease, or management agreement, such consent shall not be
effective until [i] a fully executed copy of the instrument of assignment,
sublease or management agreement has been delivered to Landlord; [ii] in
the case of an assignment, Landlord has received a written instrument in which
the assignee has assumed and agreed to perform all of Tenant’s obligations under
the Lease; and [iii] Tenant has paid to Landlord a fee in the amount equal
to the lesser of Landlord’s actual out-of-pocket costs and expenses and
$2,500.00 (applies only to consent requests after the Closing); and
[iv] Landlord has received reimbursement from Tenant or the assignee for
all attorneys’ fees and expenses and all other reasonable out-of-pocket expenses
incurred in connection with determining whether to give its consent, giving its
consent and all matters relating to the assignment (applies only to consent
requests after the Closing).
  18.3  Agreements
with Residents .
Notwithstanding §18.1, Tenant may enter into an occupancy agreement with
residents of the Leased Property without the prior written consent of Landlord
provided that, except as otherwise specifically provided in this §18.3,
[i] the agreement does not provide for lifecare services; [ii] the
agreement does not contain any type of rate lock provision or rate guaranty for
more than one calendar year; [iii] the agreement does not provide for any
rent reduction or waiver other than for an introductory period not to exceed six
months; [iv] Tenant may not collect rent for more than one month in
advance, other than one month of rent collected to be held as security for the
performance of the resident’s obligation to Tenant; and [v] all residents
of the Leased Property are accurately shown in accounting records for the
Facility. Without the prior written
   **52**
  consent
of Landlord, Tenant shall not materially change the form of resident occupancy
agreement that was submitted to Landlord prior to the Effective Date except such
changes required under applicable law or except in accordance with local market
and existing practices of Tenant.
  18.4  Sale
of Leased Property . If
Landlord or any subsequent owner of the Leased Property sells the Leased
Property, its liability for the performance of its agreements in this Lease will
end on the date of the sale of the Leased Property, and Tenant will look solely
to the purchaser for the performance of those agreements. For purposes of this
section, any holder of a mortgage or security agreement which affects the Leased
Property at any time, and any landlord under any lease to which this Lease is
subordinate at any time, will be a subsequent owner of the Leased Property when
it succeeds to the interest of Landlord or any subsequent owner of the Leased
Property.
  18.5  Assignment
by Landlord .
Landlord may transfer, assign, mortgage, collaterally assign, or otherwise
dispose of Landlord’s interest in this Lease or the Leased Property; provided,
however, that unless written notice is provided to Tenant regarding the
foregoing, Tenant shall continue to deal with HCN as agent
hereunder.
  **ARTICLE
19:**  **HOLDOVER
AND SURRENDER**
  19.1  Holding
Over . If
Tenant, with or without the express or implied consent of Landlord, continues to
hold and occupy the Leased Property (or any part thereof) after the expiration
of the Term or earlier termination of this Lease (other than pursuant to
Tenant’s purchase of the Leased Property), such holding over beyond the Term and
the acceptance or collection of Rent in the amount specified below by Landlord
shall operate and be construed as creating a tenancy from month to month and not
for any other term whatsoever. Said month-to-month tenancy may be terminated by
Landlord by giving Tenant either [a] five days written notice or
[b] such longer period of time as may be required by law, and at any time
thereafter Landlord may re-enter and take possession of the Leased Property. If
without Landlord’s consent or at Landlord’s request, Tenant continues after the
expiration of the Term or earlier termination of this Lease to hold and occupy
the Leased Property whether as a month-to-month tenant or a tenant at sufferance
or otherwise, Tenant shall pay Rent for each month in an amount equal to the sum
of [i] one and one-half (11⁄2) times the Base Rent payable during the
month in which such expiration or termination occurs, plus [ii] all
Additional Rent accruing during the month, plus [iii] any and all other
sums payable by Tenant pursuant to this Lease. During any continued tenancy
after the expiration of the Term or earlier termination of this Lease, Tenant
shall be obligated to perform and observe all of the terms, covenants and
conditions of this Lease, but shall have no rights hereunder other than the
right, to the extent given by applicable law, to continue its occupancy and use
of the Leased Property until the tenancy is terminated. Nothing contained herein
shall constitute the consent, express or implied, of Landlord to the holding
over of Tenant after the expiration or earlier termination of this
Lease.
  19.2  Surrender . Except
for [i] Permitted Alterations; [ii] normal and reasonable wear and
tear (subject to the obligation of Tenant to maintain the
   **53**
  Leased
Property in good order and repair during the Term); and [iii] damage and
destruction not required to be repaired by Tenant, Tenant shall surrender and
deliver up the Leased Property at the expiration or termination of the Term in
as good order and condition as of the Commencement Date. The provisions of this
§19.2 shall not apply in the event of the termination of the Lease upon the
exercise by Tenant of the rights set forth in Article 13.
  19.3  Indemnity . If
Tenant fails to surrender the entire Leased Property or any part thereof upon
the expiration or termination of this Lease in a timely manner and in accordance
with the provisions of this Lease, in addition to any other liabilities to
Landlord accruing therefrom, Tenant shall defend, indemnify and hold Landlord,
its principals, officers, directors, agents, and employees harmless from loss or
liability resulting from such failure, including, without limiting the
generality of the foregoing, loss of rental with respect to any new lease in
which the rental payable thereunder exceeds the Rent collected by Landlord
pursuant to this Lease during Tenant’s holdover and any claims by any proposed
new tenant founded on Tenant’s failure to surrender the Leased Property. The
provisions of this Article 19 shall survive the expiration or termination
of this Lease. The provisions of this §19.3 shall not apply in the event of the
termination of this Lease upon the exercise by Tenant of the rights set forth in
Article 13.
  **ARTICLE
20:**  **[RESERVED]**
  **ARTICLE
21:**  **QUIET
ENJOYMENT, SUBORDINATION, ATTORNMENT AND ESTOPPEL
CERTIFICATES**
  21.1  Quiet
Enjoyment . So long
as Tenant performs all of its obligations under this Lease, Tenant’s possession
of the Leased Property will not be disturbed by Landlord or any party claiming
by, through or under Landlord.
  21.2  Subordination . Subject
to the terms and conditions of this section, this Lease and Tenant’s rights
under this Lease are subordinate to any ground lease or underlying lease, first
mortgage, first deed of trust, or other first lien against the Leased Property,
together with any renewal, consolidation, extension, modification or replacement
thereof, which now or at any subsequent time affects the Leased Property or any
interest of Landlord in the Leased Property, except to the extent that any such
instrument expressly provides that this Lease is superior. The foregoing
subordination provision is expressly conditioned upon any lessor or mortgagee
being obligated and bound to recognize Tenant as the tenant under this Lease,
and such lessor or mortgagee shall have no right to disturb Tenant’s possession,
use and occupancy of the Leased Property or Tenant’s enjoyment of its rights
under this Lease unless and until an Event of Default occurs hereunder. Any
foreclosure action or proceeding by any mortgagee with respect to the Leased
Property shall not affect Tenant’s rights under this Lease and shall not
terminate this Lease unless and until an Event of Default occurs hereunder. The
foregoing provisions will be self-operative, and no further instrument will be
required in order to effect them. However, Tenant shall execute, acknowledge and
deliver to Landlord, at any time and from time to time upon demand by Landlord,
such documents as may be requested by Landlord or any mortgagee or any holder of
any mortgage or other instrument described in this section, to confirm or effect
any such subordination, provided
   **54**
  that any
such document shall include a nondisturbance provision as set forth in this
section satisfactory to Tenant. Any mortgagee of the Leased Property shall be
deemed to be bound by the nondisturbance provision set forth in this section. If
Tenant fails or refuses to execute, acknowledge, and deliver any such document
within 20 days after written demand, Landlord may execute acknowledge and
deliver any such document on behalf of Tenant as Tenant’s attorney-in-fact.
Tenant hereby constitutes and irrevocably appoints Landlord, its successors and
assigns, as Tenant’s attorney-in-fact to execute, acknowledge, and deliver on
behalf of Tenant any documents described in this section. This power of attorney
is coupled with an interest and is irrevocable.
  21.3  Attornment . If any
holder of any mortgage, indenture, deed of trust, or other similar instrument
described in §21.2 succeeds to Landlord’s interest in the Leased Property,
Tenant will pay to such holder all Rent subsequently payable under this Lease.
Tenant shall, upon request of anyone succeeding to the interest of Landlord,
automatically become the tenant of, and attorn to, such successor in interest
without changing this Lease. The successor in interest will not be bound by
[i] any payment of Rent for more than one month in advance unless actually
received by such successor; [ii] any amendment or modification of this
Lease thereafter made without its consent as provided in this Lease;
[iii] any claim against Landlord arising prior to the date on which the
successor succeeded to Landlord’s interest; or [iv] any claim or offset of
Rent against Landlord. Upon request by Landlord or such successor in interest
and without cost to Landlord or such successor in interest, Tenant will execute,
acknowledge and deliver an instrument or instruments confirming the attornment.
If Tenant fails or refuses to execute, acknowledge, and deliver any such
instrument within 20 days after written demand, then Landlord or such
successor in interest will be entitled to execute, acknowledge, and deliver any
document on behalf of Tenant as Tenant’s attorney-in-fact. Tenant hereby
constitutes and irrevocably appoints Landlord, its successors and assigns, as
Tenant’s attorney-in-fact to execute, acknowledge, and deliver on behalf of
Tenant any such document. This power of attorney is coupled with an interest and
is irrevocable.
  21.4  Estoppel
Certificates . At the
request of Landlord or any mortgagee or purchaser of the Leased Property, Tenant
shall execute, acknowledge, and deliver an estoppel certificate, in recordable
form, in favor of Landlord or any mortgagee or purchaser of the Leased Property
certifying (to the extent true) the following: [i] that the Lease is
unmodified and in full force and effect, or if there have been modifications
that the same is in full force and effect as modified and stating the
modifications; [ii] the date to which Rent and other charges have been
paid; [iii] whether Tenant or Landlord is in default or whether there is
any fact or condition known to Landlord or Tenant which, with notice or lapse of
time, or both, would constitute a default, and specifying any existing default,
if any; [iv] that Tenant has accepted and occupies the Leased Property;
[v] that Tenant has no defenses, setoffs, deductions, credits, or
counterclaims against Landlord, if that be the case, or specifying such that
exist; and [vi] such other information as may reasonably be requested by
Landlord or any mortgagee or purchaser. Any purchaser or mortgagee may rely on
this estoppel certificate. If Tenant fails to deliver the estoppel certificates
to Landlord within 10 days after the request of Landlord, then Tenant shall
be deemed to have certified that [a] the Lease is in full force and effect
and has not been modified, or that the Lease has been modified as set forth in
the certificate delivered to Tenant; [b] Tenant has not prepaid any Rent or
other charges except for the current month; [c] Tenant has accepted and
occupies the Leased Property; [d] neither Tenant
   **55**
  nor
Landlord is in default nor is there any fact or condition which, with notice or
lapse of time, or both, would constitute a default; and [e] Tenant has no
defenses, setoffs, deductions, credits, or counterclaims against Landlord.
Tenant hereby irrevocably appoints Landlord as Tenant’s attorney-in-fact to
execute, acknowledge, and deliver on Tenant’s behalf any estoppel certificate to
which Tenant does not object within 10 days after Landlord sends the
certificate to Tenant. This power of attorney is coupled with an interest and is
irrevocable.
  **ARTICLE
22:**  **REPRESENTATIONS
AND WARRANTIES**
  Tenant
and Guarantor, respectively as applicable, hereby makes the following
representations and warranties, as of the Effective Date, to Landlord and
acknowledge that Landlord is granting the Lease in reliance upon such
representations and warranties. The following representations and warranties
shall survive the Closing and, except to the extent made as of a specific date,
shall continue in full force and effect until the Obligor Group Obligations have
been performed in full.
  22.1  Organization
and Good Standing . Tenant
is a corporation, duly organized, validly existing and in good standing under
the laws of the State of Washington. Tenant is qualified to do business in and
is in good standing under the laws of the Facility State.
  22.2  Power
and Authority . Tenant
has the power and authority to execute, deliver and perform this Lease. Tenant
has taken all requisite action necessary to authorize the execution, delivery
and performance of its obligations under this Lease.
  22.3  Enforceability . This
Lease constitutes a legal, valid, and binding obligation of Tenant, enforceable
in accordance with its terms, except as such enforceability may be limited by
creditors rights laws and general principles of equity.
  **22.4**  Government
Authorizations . The
Facility is in material compliance with all Legal Requirements. All Government
Authorizations are in full force and effect where the failure to so maintain
them would have a material adverse effect on the Facility. Except as otherwise
noted in Exhibit G, Tenant or subtenant under the Interim Agreements holds
all Government Authorizations necessary for the operation of the Facility in
accordance with the Facility Uses. No prior notice to or approval from any
licensure authority is required in connection with the Lease or the transfer of
the fee interest in the Leased Property to Landlord other than those notices
which have been given or approvals which have been obtained prior to the
Commencement Date.
  22.5  Financial
Statements . Tenant
has furnished Landlord with true, correct and complete copies of the Financial
Statements described on Exhibit E. The Financial Statements fairly present
the financial position of Tenant, Guarantor and the Facility, as applicable, as
of the respective dates and the results of operations for the periods then ended
in conformance with generally accepted accounting principles applied on a basis
consistent with prior periods. The Financial Statements and other information
furnished to
   **56**
  Landlord
are true, complete and correct and, as of the Effective Date, no material
adverse change has occurred since the furnishing of such statements and
information. As of the Effective Date, the Financial Statements and other
information do not contain any untrue statement or omission of a material fact
and are not misleading in any material respect. Tenant and Guarantor are
solvent, and no bankruptcy, insolvency, or similar proceeding is pending or
contemplated by or, to the knowledge of Tenant, against Tenant or
Guarantor.
  22.6  Condition
of Facility . To the
best of Tenant’s knowledge and except as otherwise disclosed in writing by
Tenant to Landlord prior to the Effective Date, all of the mechanical and
electrical systems, heating and air-conditioning systems, plumbing, water and
sewer systems, and all other items of mechanical equipment or appliances are in
good working order, condition and repair, are of sufficient size and capacity to
service the Facility for the Facility Uses and conform with all applicable
ordinances and regulations, and with all building, zoning, fire, safety, and
other codes, laws and orders. The Improvements, including the roof and
foundation, are structurally sound and free from leaks and other
defects.
  22.7  Compliance
with Laws . To the
best of Tenant’s knowledge, there is no violation of, or noncompliance with,
[i] any laws, orders, rules or regulations, ordinances or codes of any kind
or nature whatsoever relating to the Facility or the ownership or operation
thereof (including, without limitation, building, fire, health, occupational
safety and health, zoning and land use, planning and environmental laws, orders,
rules and regulations); [ii] any covenants, conditions, restrictions or
agreements affecting or relating to the ownership, use or occupancy of the
Facility; or [iii] any order, writ, regulation or decree relating to any
matter referred to in [i] or [ii] above.
  22.8  No
Litigation . As of
the Effective Date and except as disclosed on Exhibit H, [i] there are
no actions or suits, or any proceedings or investigations by any governmental
agency or regulatory body pending against Tenant with respect to its operation
at the Facility or against the Facility; [ii] no HIPDB adverse action
reports have been issued to Tenant, Guarantor with respect to the operations at
the Facility or to the Facility; [iii] Tenant has not received notice of
any threatened actions, suits, proceedings or investigations against Tenant or
with respect to its operations at the Facility or against the Facility at law or
in equity, or before any governmental board, agency or authority which, if
determined adversely to Tenant or Guarantor, would materially and adversely
affect the Facility or title to the Facility (or any part thereof), the right to
operate the Facility as presently operated, or the financial condition of Tenant
or Guarantor; [iv] there are no unsatisfied or outstanding judgments
against Tenant with respect to its operations at the Facility or against the
Facility; [v] there is no labor dispute materially and adversely affecting
the operation or business conducted by Tenant at the Facility; and
[vi] Tenant does not have knowledge of any facts or circumstances which
might reasonably form the basis for any such action, suit, or
proceeding.
  22.9  Consents . The
execution, delivery and performance of this Lease will not require any consent,
approval, authorization, order, or declaration of, or any filing or registration
with, any court, any federal, state, or local governmental or regulatory
authority, or any other person or entity, the absence of which would materially
impair the ability
   **57**
  of Tenant
to operate the Facility for the Facility Uses except for the post-acquisition
filing for licensure of the Facility.
  22.10  No
Violation . The
execution, delivery and performance of this Lease [i] do not and will not
conflict with, and do not and will not result in a breach of Tenant’s
Organizational Documents; [ii] do not and will not conflict with, and do
not and will not result in a breach of, and do not and will not constitute a
default under (or an event which, with or without notice or lapse of time, or
both, would constitute a default under), any of the terms, conditions or
provisions of any agreement or other instrument or obligation to which Tenant is
a party or by which its assets are bound; and [iii] do not and will not
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Tenant or the Facility.
  22.11  Reports
and Statements . All
reports, statements, certificates and other data furnished by or on behalf of
Tenant or Guarantor to Landlord in connection with this Lease, and all
representations and warranties made herein or in any certificate or other
instrument delivered in connection herewith and therewith, are true and correct
in all material respects and do not omit to state any material fact or
circumstance necessary to make the statements contained herein or therein, in
light of the circumstances under which they are made, not misleading as of the
date of such report, statement, certificate or other data. The copies of all
agreements and instruments submitted to Landlord, including, without limitation,
all agreements relating to management of the Facility and Tenant’s working
capital are true, correct and complete copies in all material respects and
include all material amendments and modifications of such
agreements.
  22.12  ERISA . All
plans (as defined in §4021(a) of the Employee Retirement Income Security Act of
1974, as amended or supplemented from time to time (“ERISA”)) for which Tenant
is an “employer” or a “substantial employer” (as defined in §§3(5) and
4001(a)(2) of ERISA, respectively) are in compliance with ERISA and the
regulations and published interpretations thereunder. To the extent Tenant
maintains a qualified defined benefit pension plan: [i] there exists no
accumulated funding deficiency; [ii] no reportable event and no prohibited
transaction has occurred; [iii] no lien has been filed or threatened to be
filed by the Pension Benefit Guaranty Corporation established pursuant to
Subtitle A of Title IV of ERISA; and [iv] Tenant has not been
deemed to be a substantial employer.
  22.13  Chief
Executive Office . Tenant
maintains its chief executive office and its books and records at Tenant’s
address set forth in the introductory paragraph of this Lease. Tenant does not
conduct any business or operations of the Facility other than at Tenant’s chief
executive office and at the Facility.
  22.14  Other
Name or Entities . Except
as disclosed herein, none of Tenant’s business is conducted through any
subsidiary, unincorporated association or other entity and Tenant has not,
within the six years preceding the date of this Lease [i] changed its name,
[ii] used any name other than the name stated at the beginning of this
Lease, or [iii] merged or consolidated with any corporation or other
business.
   **58**
  
  22.15  Parties
in Possession . Except
as disclosed on Exhibit B and except for the parties to the Interim
Agreements or the Leases and Contracts identified on Exhibit I, there are
no parties in possession of any Leased Property or any portion thereof as
managers, lessees, tenants at sufferance, or trespassers.
  22.16  Access . Except
as otherwise disclosed in writing by Tenant to Landlord prior to the Effective
Date, access to the Land is directly from a dedicated public right-of-way
without any easement. To the knowledge of Tenant, there is no fact or condition
which would result in the termination or reduction of the current access to and
from the Land to such right-of-way.
  22.17  Utilities . There
are available at the Land gas, municipal water, and sanitary sewer lines, storm
sewers, electrical and telephone services in operating condition which are
adequate for the operation of the Facility at a reasonable cost. Except as
otherwise disclosed in writing by Tenant to Landlord prior to the Effective
Date, the Land has direct access to utility lines located in a dedicated public
right-of-way without any easement. As of the Effective Date, there is no pending
or, to the knowledge of Tenant, threatened governmental or third party
proceeding which would impair or result in the termination of such utility
availability.
  22.18  Condemnation
and Assessments . As of
the Effective Date, Tenant has not received notice of, and there are no pending
or, to the best of Tenant’s knowledge, threatened, condemnation, assessment
(except as otherwise disclosed in writing by Tenant to Landlord prior to the
Effective Date), or similar proceedings affecting or relating to the Facility,
or any portion thereof, or any utilities, sewers, roadways or other public
improvements serving the Facility.
  22.19  Zoning . As of
the Effective Date, except as disclosed on Exhibit G, [i] the use and
operation of the Facility for the Facility Uses is a permitted use under the
applicable zoning code; [ii] except as disclosed on Exhibit G hereto,
no special use permits, conditional use permits, variances, or exceptions have
been granted or are needed for such use of the Facility; [iii] the Land is
not located in any special districts such as historical districts or overlay
districts; and [iv] the Facility has been constructed in accordance with
and complies with all zoning laws in effect at the time of its construction,
including, but not limited to, dimensional, parking, setback, screening,
landscaping, sign and curb cut requirements or the Facility obtained required
waivers or variances from such requirements.
  22.20  Environmental
Matters . During
the period of Tenant’s ownership or possession of the Leased Property and, to
the best of Tenant’s knowledge after diligent inquiry, for the period prior to
Tenant’s ownership or possession of the Leased Property, [i] the Leased
Property is in compliance with all Environmental Laws; [ii] there were no
releases or threatened releases of Hazardous Materials on, from, or under the
Leased Property, except in compliance with all Environmental Laws; [iii] no
Hazardous Materials have been, are or will be used, generated, stored, or
disposed of at the Leased Property, except in compliance with all Environmental
Laws; [iv] asbestos has not been and will not be used in the
   **59**
  construction
of any Improvements; [v] no permit is or has been required from the
Environmental Protection Agency or any similar agency or department of any state
or local government for the use or maintenance of any Improvements;
[vi] underground storage tanks on or under the Land, if any, have been and
currently are being operated in compliance with all applicable Environmental
Laws; [vii] any closure, abandonment in place or removal of an underground
storage tank on or from the Land was performed in compliance with applicable
Environmental Laws and any such tank had no release contaminating the Leased
Property or, if there had been a release, the release was remediated in
compliance with applicable Environmental Laws to the satisfaction of regulatory
authorities; [viii] no summons, citation or inquiry has been made by any
such environmental unit, body or agency or a third party demanding any right of
recovery for payment or reimbursement for costs incurred under CERCLA or any
other Environmental Laws and the Land is not subject to the lien of any such
agency; and [ix] to the best of Tenant’s knowledge, the environmental
assessment of the Facility (and all follow-up reports, supplements and
amendments) that was delivered to Landlord by Tenant in connection with the
closing of this Lease is true, complete and accurate. “Disposal” and “release”
shall have the meanings set forth in CERCLA.
  22.21  Leases
and Contracts . As of
the Effective Date and except as disclosed on Exhibit I, there are no
leases or contracts (including, but not limited to, insurance contracts,
maintenance contracts, construction contracts, employee benefit plans,
employment contracts, equipment leases, security agreements, architect
agreements, and management contracts) to which Tenant or Guarantor is a party
relating to any part of the ownership, operation, possession, construction,
management or administration of the Land or the Facility.
  22.22  No
Default . As of
the Effective Date, [i] there is no existing Event of Default under this
Lease; and [ii] no event has occurred which, with the giving of notice or
the passage of time, or both, would constitute or result in such an Event of
Default.
  22.23  Tax
Status . If
Tenant is a limited liability company, it is taxable as a partnership under the
Internal Revenue Code and all applicable facility state tax laws.
  **ARTICLE
23:**  **[RESERVED]** ****
  **ARTICLE
24:**  **SECURITY
INTEREST**
  24.1  Collateral . Tenant
hereby grants to each Landlord and HCN (if not a Landlord) (individually and
collectively called “Secured Party”) a security interest in the following
described property located at, or arising out of or in connection with the use
and operation of, the Leased Property, whether now owned or hereafter acquired
by Tenant (the “Collateral”), to secure the payment and performance of the
Obligor Group Obligations:
   **60**
  
  (a)  All
machinery, furniture, equipment, trade fixtures, appliances, inventory and all
other goods (as “equipment”, “inventory” and “goods” are defined for purposes of
Article 9 (“Article 9”) of the Uniform Commercial Code as adopted in
Virginia) and any leasehold interest of Tenant in any of the foregoing,
including, without limitation, those items which are to become fixtures or which
are building supplies and materials to be incorporated into any improvement or
fixture.
  (b)  All
accounts, contract rights, general intangibles, instruments, documents, and
chattel paper [as “accounts”, “contract rights”, “general intangibles”,
“instruments”, “documents” and “chattel paper” are defined for purposes of
Article 9] now or hereafter arising.
  (c)  All
franchises, permits, licenses, operating rights, certifications, approvals,
consents, authorizations and other general intangibles, including, without
limitation, certificates of need, state health care facility licenses, and
Medicare and Medicaid provider agreements, to the extent permitted by
law.
  (d)  Unless
expressly prohibited by the terms thereof, all contracts, agreements, contract
rights and materials relating to the design, construction, operation or
management of any improvements, including, but not limited to, plans,
specifications, drawings, blueprints, models, mock-ups, brochures, flyers,
advertising and promotional materials and mailing lists.
  (e)  All
subleases, occupancy agreements, license agreements and concession agreements,
written or unwritten, of any nature, now or hereafter entered into, and all
right, title and interest of Tenant thereunder, and including, without
limitation, Tenant’s right, if any, to cash or securities deposited thereunder
whether or not the same was deposited to secure performance by the subtenants,
occupants, licensees and concessionaires of their obligations thereunder,
including the right to receive and collect the rents, revenues, and other
charges thereunder.
  (f)  All
ledger sheets, files, records, computer programs, tapes, other electronic data
processing materials, and other documentation.
  (g)  The
products and proceeds of the preceding listed property, including, without
limitation, cash and non-cash proceeds, proceeds of proceeds, and insurance
proceeds.
  24.2  Additional
Documents . At the
request of Landlord, Tenant shall execute additional security agreements,
financing statements, and such other documents as may be requested by Landlord
to maintain and perfect such security interest in the Collateral. Tenant hereby
irrevocably appoints Landlord, its successors and assigns, as Tenant’s
attorney-in-fact to execute, acknowledge, deliver and file such documents on
behalf of Tenant. This power of attorney is coupled with an interest and is
irrevocable. Tenant authorizes Landlord to file financing statements describing
the Collateral to perfect and maintain the security interest granted hereunder
without the signature or any further authorization of Tenant.
   **61**
  
  24.3  Notice
of Sale . With
respect to any sale or other disposition of any of the Collateral after the
occurrence of an Event of Default, Landlord, Tenant agrees that the giving of
five days’ notice by Landlord, sent by overnight delivery, postage prepaid, to
Tenant’s notice address designating the time and place of any public sale or the
time after which any private sale or other intended disposition of such
Collateral is to be made, shall be deemed to be reasonable notice thereof and
Tenant waives any other notice with respect thereto.
  24.4  Recharacterization .
Landlord and Tenant intend this Lease to be a true lease. However, if despite
the parties’ intent, it is determined or adjudged by a court for any reason that
this Lease is not a true lease or if this Lease is recharacterized as a
financing arrangement, then this Lease shall be considered a secured financing
agreement and Landlord’s title to the Leased Property shall constitute a
perfected first priority lien in Landlord’s favor on the Leased Property to
secure the payment and performance of all the Obligor Group
Obligations.
  24.5  Subordination Landlord
acknowledges and agrees that the liens and rights granted to Landlord under this
Article 24 are and shall be subordinate to any liens and rights granted by
Tenant in favor of Lender with respect to the Collateral.
  **ARTICLE
25:**  **MISCELLANEOUS**
  25.1  Notices .
Landlord and Tenant hereby agree that all notices, demands, requests, and
consents (hereinafter “notices”) required to be given pursuant to the terms of
this Lease shall be in writing, shall be addressed to the addresses set forth in
the introductory paragraph of this Lease, and shall be served by
[i] personal delivery; [ii] certified mail, return receipt requested,
postage prepaid; or [iii] nationally recognized overnight courier.
Notwithstanding the foregoing, any notice received by Landlord from Lender may
be sent to Tenant, Attn: Director of Real Estate Finance, by facsimile at
206/301-4500 and deemed sent upon receipt of successful transmission.
Notwithstanding the foregoing, any notice received by Tenant from Lender may be
sent to Landlord, Attn: Erin C. Ibele, by facsimile at 419/247-2826 and
deemed sent upon receipt of successful transmission. All notices shall be deemed
to be given upon the earlier of actual receipt or three Business Days after
mailing, or one Business Day after deposit with the overnight courier. Any
notices meeting the requirements of this section shall be effective, regardless
of whether or not actually received. Landlord or Tenant may change its notice
address at any time by giving the other party notice of such
change.
  25.2  Advertisement
of Leased Property . In the
event Tenant fails to exercise its option to renew within the time period set
forth in §12.1 or in the event, the parties hereto have not executed a renewal
Lease within 80 days prior to the expiration of the Initial Term, or Tenant
has not exercised its Right of First Opportunity, then Landlord or its agent
shall have the right to enter the Leased Property at all reasonable times for
the purpose of exhibiting the Leased Property to others and to place upon
   **62**
  the
Leased Property for and during the period commencing 80 days prior to the
expiration of this Lease, “for sale” or “for rent” notices or
signs.
  25.3  Entire
Agreement . This
Lease contains the entire agreement between Landlord and Tenant with respect to
the subject matter hereof. No representations, warranties, and agreements have
been made by Landlord except as set forth in this Lease. No oral agreements or
understandings between Landlord and Tenant shall survive execution of this
Lease.
  25.4  Severability . If any
term or provision of this Lease is held or deemed by Landlord to be invalid or
unenforceable, such holding shall not affect the remainder of this Lease and the
same shall remain in full force and effect, unless such holding substantially
deprives Tenant of the use of the Leased Property or Landlord of the rents
herein reserved, in which event this Lease shall forthwith terminate as if by
expiration of the Term.
  25.5  Captions
and Headings . The
captions and headings are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this Lease or the
intent of any provision hereof.
  25.6  Governing
Law . This
Lease shall be governed by and construed in accordance with the laws of the
Commonwealth of Virginia, except as to matters under applicable procedural
conflicts of laws rules which require the application of laws of another state,
in which case the laws or conflicts of laws rules, as the case may be, of such
state shall govern to the extent required.
  25.7  Memorandum
of Lease . Tenant
shall not record this Lease. Tenant shall, however, record a memorandum of lease
approved by Landlord upon Landlord’s request.
  25.8  Waiver . No
waiver by Landlord of any condition or covenant herein contained, or of any
breach of any such condition or covenant, shall be held or taken to be a waiver
of any subsequent breach of such covenant or condition, or to permit or excuse
its continuance or any future breach thereof or of any condition or covenant,
nor shall the acceptance of Rent by Landlord at any time when Tenant is in
default in the performance or observance of any condition or covenant herein be
construed as a waiver of such default, or of Landlord’s right to terminate this
Lease or exercise any other remedy granted herein on account of such existing
default.
  25.9  Binding
Effect . This
Lease will be binding upon and inure to the benefit of the heirs, successors,
personal representatives, and permitted assigns of Landlord and
Tenant.
  25.10  No
Offer .
Landlord’s submission of this Lease to Tenant is not an offer to lease the
Leased Property, or an agreement by Landlord to reserve the Leased Property for
Tenant. Landlord will not be bound to Tenant until Tenant has duly executed and
delivered duplicate original leases to Landlord, and Landlord has duly executed
and delivered one of these duplicate original leases to Tenant.
   **63**
  
  25.11  Modification . This
Lease may only be modified by a writing signed by both Landlord and Tenant. All
references to this Lease, whether in this Lease or in any other document or
instrument, shall be deemed to incorporate all amendments, modifications and
renewals of this Lease, made after the date hereof. If Tenant requests
Landlord’s consent to any change in ownership, merger or consolidation of
Tenant, any assumption of the Lease, or any modification of the Lease, Tenant
shall provide Landlord all relevant information and documents sufficient to
enable Landlord to evaluate the request. In connection with any such request,
Tenant shall pay to Landlord a fee in the amount equal to the lesser of
$2,500.00 and Landlord’s actual reasonable attorney’s fees and expenses and
other reasonable out-of-pocket expenses incurred in connection with Landlord’s
evaluation of Tenant’s request, the preparation of any documents and amendments,
the subsequent amendment of any documents between Landlord and its collateral
pool lenders (if applicable), and all related matters.
  25.12  Landlord’s
Modification . Tenant
acknowledges that, provided Lender consents or the Lender has been paid in full,
Landlord may mortgage the Leased Property or use the Leased Property as
collateral for collateralized mortgage obligations or Real Estate Mortgage
Investment Companies (REMICS). If any mortgage lender of Landlord desires any
modification of this Lease, Tenant agrees to consider such modification in good
faith and to execute an amendment of this Lease if Tenant finds such
modification acceptable. Landlord shall not do anything in connection with its
financing of the Leased Property which would limit the rights granted Tenant
hereunder.
  25.13  No
Merger . The
surrender of this Lease by Tenant or the cancellation of this Lease by agreement
of Tenant and Landlord or the termination of this Lease on account of Tenant’s
default will not work a merger, and will, at Landlord’s option, terminate any
subleases or operate as an assignment to Landlord of any subleases. Landlord’s
option under this paragraph will be exercised by notice to Tenant and all known
subtenants of the Leased Property.
  25.14  Laches . No
delay or omission by either party hereto to exercise any right or power accruing
upon any noncompliance or default by the other party with respect to any of the
terms hereof shall impair any such right or power or be construed to be a waiver
thereof.
  25.15  Limitation
on Tenant’s Recourse .
Tenant’s sole recourse against Landlord, and any successor to the interest of
Landlord in the Leased Property, is to the interest of Landlord, and any such
successor, in the Leased Property. Tenant will not have any right to satisfy any
judgment which it may have against Landlord, or any such successor, from any
other assets of Landlord, or any such successor. In this section, the terms
“Landlord” and “successor” include the shareholders, venturers, and partners of
“Landlord” and “successor” and the officers, directors, and employees of the
same. The provisions of this section are not intended to limit Tenant’s right to
seek injunctive relief or specific performance.
   **64**
  
  25.16  Construction
of Lease . This
Lease has been prepared by Landlord and its professional advisors and reviewed
by Tenant and its professional advisors. Landlord, Tenant, and their advisors
believe that this Lease is the product of all their efforts, that it expresses
their agreement, and agree that it shall not be interpreted in favor of either
Landlord or Tenant or against either Landlord or Tenant merely because of their
efforts in preparing it.
  25.17  Counterparts . This
Lease may be executed in multiple counterparts, each of which shall be deemed an
original hereof.
  25.18  Landlord’s
Consent .
Whenever Landlord’s consent is required under this Lease, such consent shall be
in writing and shall not be unreasonably withheld or delayed.
  25.19  Custody
of Escrow Funds . Any
funds paid to Landlord in escrow hereunder may be held by Landlord or, at
Landlord’s election, by a financial institution, the deposits or accounts of
which are insured or guaranteed by a federal or state agency. The funds shall
not be deemed to be held in trust, may be commingled with the general funds of
Landlord or such other institution, and shall not bear interest.
  25.20  Landlord’s
Status as a REIT . Tenant
acknowledges that Landlord (or a Landlord Affiliate) has elected and may
hereafter elect to be taxed as a real estate investment trust (“REIT”) under the
Internal Revenue Code.
  25.21  Exhibits . All of
the exhibits referenced in this Lease are attached hereto and incorporated
herein.
  25.22  WAIVER
OF JURY TRIAL .
LANDLORD AND TENANT WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM BROUGHT BY ANY OF THEM AGAINST THE OTHER ON ALL MATTERS ARISING OUT
OF THIS LEASE OR THE USE AND OCCUPANCY OF THE LEASED PROPERTY (EXCEPT CLAIMS FOR
PERSONAL INJURY OR PROPERTY DAMAGE). IF LANDLORD COMMENCES ANY SUMMARY
PROCEEDING FOR NONPAYMENT OF RENT, TENANT WILL NOT INTERPOSE, AND WAIVES THE
RIGHT TO INTERPOSE, ANY COUNTERCLAIM IN ANY SUCH PROCEEDING.
  25.23  CONSENT
TO JURISDICTION . TENANT
HEREBY IRREVOCABLY SUBMITS AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION AND
VENUE OF ANY STATE OR FEDERAL COURT HAVING JURISDICTION OVER LUCAS COUNTY, OHIO
OR ANY COUNTY IN WHICH A FACILITY IS LOCATED FOR ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO [I] THE COMMITMENT;
[II] THIS LEASE; OR [III] ANY DOCUMENT EXECUTED BY TENANT IN
CONNECTION WITH THIS LEASE. TENANT HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT TENANT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING. TENANT
   **65**
  AGREES
THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON THE JUDGMENT OR IN ANY
OTHER MANNER PROVIDED BY LAW.
  TENANT
AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR PROCEEDING AGAINST LANDLORD OR ANY
DIRECTOR, OFFICER, EMPLOYEE, AGENT OR PROPERTY OF LANDLORD, CONCERNING ANY
MATTER ARISING OUT OF OR RELATING TO THE COMMITMENT, THIS LEASE OR ANY RELATED
DOCUMENT IN ANY COURT OTHER THAN A STATE OR FEDERAL COURT HAVING JURISDICTION
OVER LUCAS COUNTY, OHIO UNLESS SUCH COURT LACKS IN PERSONAM OR SUBJECT MATTER
JURISDICTION IN WHICH CASE TENANT SHALL HAVE THE RIGHT TO INSTITUTE SUCH ACTION
OR PROCEEDING BEFORE ANY COURT HAVING SUCH JURISDICTION.
  TENANT
HEREBY CONSENTS TO SERVICE OF PROCESS BY LANDLORD IN ANY MANNER AND IN ANY
JURISDICTION PERMITTED BY LAW. NOTHING HEREIN SHALL AFFECT OR IMPAIR LANDLORD’S
RIGHT TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW, OR LANDLORD’S RIGHT
TO BRING ANY ACTION OR PROCEEDING AGAINST TENANT OR THE PROPERTY OF TENANT IN
THE COURTS OF ANY OTHER JURISDICTION.
  25.24  Attorney’s
Fees and Expenses . Tenant
shall pay to Landlord all reasonable costs and expenses incurred by Landlord in
administering this Lease and the security for this Lease, enforcing or
preserving Landlord’s rights under this Lease and the security for this Lease,
and in all matters of collection, whether or not an Event of Default has
actually occurred or has been declared and thereafter cured, including, but not
limited to, [a] reasonable attorney’s and paralegal’s fees and
disbursements; [b] the fees and expenses of any litigation, administrative,
bankruptcy, insolvency, receivership and any other similar proceeding;
[c] court costs; [d] the expenses of Landlord, its employees, agents,
attorneys and witnesses in preparing for litigation, administrative, bankruptcy,
insolvency and other proceedings and for lodging, travel, and attendance at
meetings, hearings, depositions, and trials; and [e] consulting and witness
fees and expenses incurred by Landlord in connection with any litigation or
other proceeding; provided, however, Landlord’s internal bookkeeping and routine
lease servicing costs are not payable by Tenant.
  25.25  Survival . The
following provisions shall survive termination of the Lease: Article 8
(Defaults and Remedies); Article 9 (Damage and Destruction);
Article 10 (Condemnation); §15.9 (Transfer of License and Facility
Operations); §15.10 (Bed Operating Rights); §18.2 (Assignment or Sublease);
Article 19 (Holdover and Surrender); Article 24 (Security Interest)
and §25.25 (Survival).
  25.26  Time . Time is
of the essence in the performance of this Lease.
  **[THE
REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]**
  
   **66**
   IN
WITNESS WHEREOF, the parties hereto have executed this Lease or caused the same
to be executed by their respective duly authorized officers as of the date first
set forth above.
  Signed
      and acknowledged in the presence of:
      
      
      
      
      
      Signature/s/
      Rita J. Rogge
      
      Print
      NameRita
      J. Rogge
      
      
      
      Signature
      /s/Kathleen A. Sullivan
      
      Print
      Name Kathleen A. Sullivan
    **HCRI WILBURN
      GARDENS PROPERTIES, LLC**
      
      By:Health
      Care REIT, Inc.
      Its:Sole
      Member
      
      By:/s/
      Erin C. Ibele
      
      Title:
      Vice President and Corporate SecretarySignature/s/Tara
      Anderson
      
      Print
      NameTara
      Anderson
      
      
      
      Signature/s/
      A. Conti
      
      Print
      NameA.
      Conti
    **EMERITUS
      CORPORATION**
      
      By:/s/William M. Shorten
      
      Title:Director
      of Real Estate Finance
      
      Tax
      I.D. No.: 91-1605464
 
  **67**
  
 
 STATE
      OF OHIO)
      )
      SS:
      COUNTY
      OF LUCAS)
      
      The
      foregoing instrument was acknowledged before me this _12__ day
      of April, 2005 by __Erin
      C. Ibele__________________,
      theVice
      President and Corporate Secretary_________________________
      of Health Care REIT, Inc., a Delaware corporation, the sole member of
      HCRI Wilburn Gardens Properties, LLC, a Delaware limited liability
      company, on behalf of the company.
      
      /s/
      Rita J. Rogge
      Notary
      Public
      
      My
      Commission Expires:8/26/05[SEAL]STATE
      OF WASHINGTON)
      )
      SS:
      COUNTY
      OF KING)
      
      The
      foregoing instrument was acknowledged before me this_31__ day
      of March, 2005 by ___William
      M. Shorten_____,
      theDirector
      of Real Estate Financeof
      Emeritus Corporation, a Washington corporation, on behalf of the
      corporation.
      
      /s/Rani
      U. Souza
      Notary
      Public
      
      My
      Commission Expires:11/19/08[SEAL]
 
 
 **THIS
INSTRUMENT PREPARED BY:**
 
 **Oksana M.
Ludd, Esq.**
 **Shumaker,
Loop & Kendrick, LLP**
 **1000 Jackson
Street**
 **Toledo,
Ohio 43624-1573**
 
   **68**
   **ADDENDUM
TO LEASE AGREEMENT**
 
 
 This
Addendum to Lease Agreement (“Addendum”) is hereby made a part of the Lease
Agreement entered into as of March 31, 2005 by and between HCRI Wilburn
Gardens Properties, LLC, a Delaware limited liability company (“Landlord”), and
Emeritus Corporation, a Washington corporation (“Tenant”). Health Care REIT,
Inc., a Delaware corporation (“HCN”), joins in this Addendum for the sole
purpose of consenting to the terms and provisions of §§2, 3 and 4 hereof. Unless
otherwise noted or defined, capitalized terms shall have the meaning set forth
in the Lease.
  **RECITALS:**
  A.  Under the
terms of the Loan Documents, the purchase of the Land by Landlord and the
assumption of the Loan by Landlord, is subject to the prior consent of Fannie
Mae as the current holder of that certain Multifamily Note (the “Note”), dated
as of February 26, 2002, in the original principal amount of $8,500,000.00
made by Fredericksburg Assisted L.L.C. to Lender.
  B.  Fannie
Mae has agreed to consent provided Landlord, Tenant and Fannie Mae enter into a
certain Subordination, Assignment and Security Agreement of even date
(“Subordination Agreement”).
  C.  As of the
date hereof, the Subordination Agreement does not contain certain nondisturbance
provisions as requested by Tenant. Tenant and Landlord agree to proceed with
this transaction and sign the Subordination Agreement in its current form,
provided the parties hereto enter into this Addendum.
  In
consideration of the foregoing and the mutual covenants and promises set forth
in this Addendum and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
  1.  Negotiation
of Subordination Agreement . As a
condition precedent to the exercise by Tenant of the rights set forth in §§2 and
3 hereof, Tenant shall use commercially reasonable best efforts to reach an
agreement with Fannie Mae to amend the Subordination Agreement to include
customary reasonable non disturbance provisions for the benefit of Tenant within
the first one hundred and eighty (180) days after the date hereof; provided
that if any event occurs prior to the one hundred and eightieth day after the
date hereof that would allow for the exercise of Tenant’s rights if it occurred
after that period, and up to that date Tenant has used its commercially
reasonable best efforts to reach an agreement with Fannie Mae, as above, then
the condition precedent to the exercise of Tenant’s rights under §§2 and 3
hereof shall be deemed satisfied and Tenant will be free to exercise such
rights.
  2.  Loan
Breach .
Landlord and HCN agree to promptly and timely provide Tenant with a copy of any
written notice received by either from Fannie Mae regarding any breach of the
terms of, default or an event which with the passage of time would result in an
Event of Default under the Loan Documents (“Loan Breach”) that has not yet
become an “Event of Default”, as
   
  such term
is defined in the Subordination Agreement (hereinafter referred to as a “Loan
Event of Default”). Upon receipt of the same, Tenant shall have the right, but
not the obligation, to cure any Loan Breach, with such right to include the
right to make any payment of any amount of principal and interest or otherwise
as necessary to effect such cure directly to Fannie Mae or its designee. Tenant
shall provide Landlord with written notice and reasonable evidence of the cure
of the Loan Breach and the amount paid by Tenant to cure such Loan Breach, and
thereupon to the extent that any funds expended by Tenant for such cure are not
amounts that Tenant is otherwise obligated to pay in the due course of and
pursuant to the terms of the Lease, Tenant shall be entitled to a setoff or
credit of any such amount paid by Tenant to Fannie Mae to cure any such Loan
Breach against Base Rent or any other sum due and owing to (i) Landlord
under the Lease; and/ or
(ii) HCN under either Master Lease, as hereinafter defined. “Master Lease”
shall mean the Amended and Restated Master Lease Agreement dated
September 30, 2003, by and between HCN and certain HCN affiliates and
Tenant and/or the Master Lease Agreement dated September 30, 2004 by and
between HCN and certain HCN affiliates and Tenant. Landlord and HCN agree and
acknowledge that the foregoing right of setoff and credit is granted to the
Tenant notwithstanding any prohibitions, if any, on setoff or credit under the
Master Lease, and to the extent that the Master Lease has a term or condition
prohibiting a Tenant setoff or credit against sums due and owing Landlord,
Landlord Affiliate or HCN hereunder, such term is hereby amended and the
foregoing (and set forth below) Tenant right to setoff and credit is
incorporated therein, solely for the limited purposes of the exercise of such
right as set forth in this Addendum at §§2 and 3 hereof.
  3.  Setoff
for Loan Event of Default . If (a)
a court of competent jurisdiction determines or (b) the parties hereto mutually
agree, that a Loan Event of Default has occurred and as a result of such Loan
Event of Default the Lender exercises any of its rights and remedies under the
Subordination Agreement or otherwise, directly against the Tenant or the UCC
Collateral (as such term is defined in the Subordination Agreement), then Tenant
shall have a right of setoff for or credit of Allowable Damages, as hereinafter
defined, against Base Rent or any other sums due and owing to Landlord under the
Lease and/ or HCN
under either Master Lease, as the same now exist, are amended or come
into being. For purposes of this paragraph, if the Loan Event of Default arises
solely as a result of a Landlord Event of Default under the Loan, then
“Allowable Damages” shall mean (i) actual reasonable out of pocket expenses
arising solely as a result of the termination of the Lease by Fannie Mae;
(ii) the present value of the leasehold interest of Tenant in the Lease as
of the date of the termination of the Lease by Fannie Mae and any unamortized
lease acquisition or leasehold improvement costs; (iii) to the extent that
Lender has exercised its right to collect payments of rent from residents at the
Facility, the value of resident deposits and UCC Collateral owned by Tenant; and
(iv) any
payments made by Tenant in excess of amounts due under the Lease. For purposes
of this paragraph, if the Loan Event of Default arises solely as a result of a
Tenant Event of Default under the Loan, then “Allowable Damages” shall mean any
damages, losses, costs or expenses of Tenant that are the result of the
assessment of any amounts of principal, interest or default interest under the
Note against the Tenant or the UCC Collateral .
  4.  Termination
of Addendum . This
Addendum shall automatically terminate if Tenant has not satisfied the condition
precedent set forth in §1 hereof or at such time as the parties hereto enter
into a revised Subordination Agreement with Fannie Mae that is acceptable to all
parties, whichever occurs first. Notwithstanding the automatic termination, the
parties hereto
   
  agree to
execute an amendment to the Lease and any other documentation reasonably
requested to document the termination of this Addendum.
  **[THE
REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]**
   
  IN
WITNESS WHEREOF, the parties have executed this Addendum as of the date first
above written.
  **HCRI WILBURN
      GARDENS PROPERTIES, LLC**
      
      By:Health
      Care REIT, Inc., its sole member
      
      By:/s/
      Erin C. Ibele(Seal)
      Name:Erin
      C. Ibele
      Title:Vice
      President and Corporate Secretary
      Date:**HEALTH
      CARE REIT, INC.**
      
      
      By/s/
      Erin C. Ibele(Seal)
      Name:Erin
      C. Ibele
      Title:Vice
      President and Corporate Secretary
      Date:**EMERITUS
      CORPORATION**
      
      By:/s/
      William M. Shorten(Seal)
      Name:William
      M. Shorten
      Title:Director
      of Real Estate Fianance
      Date:
 
  
  
   
   **SCHEDULE 1:
INITIAL RENT SCHEDULE**
  **EMERITUS
      CORPORATION - FREDERICKSBURG, VA****HEALTH
      CARE REIT, INC.****EFFECTIVE
      DATE**
    03/31/05**INITIAL
      TERM COMMENCEMENT DATE**
    04/01/05**INITIAL
      TERM**
    15
    Yrs**INITIAL
      TERM EXPIRATION DATE**
    03/31/20**INITIAL
      INVESTMENT AMOUNT**
    21,000,000**RATE
      OF RETURN**
    **N/A****(365/360 BASIS)**
    **N/A****INITIAL
      RATE OF RETURN**
    **8.60%****INCREASER**
    **As
      defined within the Master Lease Agreement*****LEASE
      YEAR***
    ***DATES***
    ***ACTUAL
      CPI***
    ***INCREASER
      (BP)***
    ***BEGINNING
      RENT RATE OF RETURN (ROUNDED)***
    ***PERCENTAGE
      RATE SHORTFALL***
    ***ADJUSTED
      RENT RATE OF RETURN (ROUNDED)***
    ***MONTHLY
      RENT AMOUNT***
    ***ANNUAL
      RENT AMOUNT******FROM***
    ***TO***03/31/05
    03/31/05
    N/A
    N/A
    8.60%
    N/A
    N/A
    4,947.95
    4,947.951
    04/01/05
    03/31/06
    TBD
    N/A
    8.60%
    N/A
    N/A
    150,500.00
    1,806,000.002
    04/01/06
    03/31/07
    TBD
    TBD
    8.60%
    Unknown
    Unknown
    150,500.00
    1,806,000.003
    04/01/07
    03/31/08
    TBD
    TBD
    8.60%
    Unknown
    Unknown
    150,500.00
    1,806,000.004
    04/01/08
    03/31/09
    TBD
    TBD
    8.60%
    Unknown
    Unknown
    150,500.00
    1,806,000.005
    04/01/09
    03/31/10
    TBD
    TBD
    8.60%
    Unknown
    Unknown
    150,500.00
    1,806,000.006
    04/01/10
    03/31/11
    TBD
    TBD
    8.60%
    Unknown
    Unknown
    150,500.00
    1,806,000.007
    04/01/11
    03/31/12
    TBD
    TBD
    8.60%
    Unknown
    Unknown
    150,500.00
    1,806,000.008
    04/01/12
    03/31/13
    TBD
    TBD
    8.60%
    Unknown
    Unknown
    150,500.00
    1,806,000.009
    04/01/13
    03/31/14
    TBD
    TBD
    8.60%
    Unknown
    Unknown
    150,500.00
    1,806,000.0010
    04/01/14
    03/31/15
    TBD
    TBD
    8.60%
    Unknown
    Unknown
    150,500.00
    1,806,000.0011
    04/01/15
    03/31/16
    TBD
    TBD
    8.60%
    Unknown
    Unknown
    150,500.00
    1,806,000.0012
    04/01/16
    03/31/17
    TBD
    TBD
    8.60%
    Unknown
    Unknown
    150,500.00
    1,806,000.0013
    04/01/17
    03/31/18
    TBD
    TBD
    8.60%
    Unknown
    Unknown
    150,500.00
    1,806,000.0014
    04/01/18
    03/31/19
    TBD
    TBD
    8.60%
    Unknown
    Unknown
    150,500.00
    1,806,000.0015
    04/01/19
    03/31/20
    TBD
    TBD
    8.60%
    Unknown
    Unknown
    150,500.00
    1,806,000.00
 
  
  
    
   **EXHIBIT A:
LEGAL DESCRIPTION**
  **Facility
Name: Wilburn Gardens**
 
 
 ALL OF
THAT certain tract or parcel of land situate, lying and being in the Chancellor
District of Spotsylvania County, Virginia, a short distance West of Bragg Road
(State Secondary Route #639), fronting 457.36 feet on the West of
Meekins Drive and containing 4.2844 acres, more or less, as shown on a plat
thereof made October 2, 1984 and revised July 23, 1985, by Sullivan,
Donahoe & Ingalls, a copy of which plat is recorded with Deed in Deed
Book 656 at Page 434, among the land records of Spotsylvania County,
Virginia.
  
  
    
   **EXHIBIT B:
PERMITTED EXCEPTIONS**
  **Facility
Name: Wilburn Gardens**
 
 
 1.
    Taxes
      and assessments not yet due and payable.
  2.
    Rights
      or claims of parties in possession, as residents only, with no purchase
      options and no rights of first refusal.
  3.
    Easement(s)
      granted to GTE South Incorporated recorded in Deed Book 1527,
      Page 47, among the Land Records of Spotsylvania County,
      Virginia.
  4.
    Easement(s)
      granted to Virginia Electric and Power Company recorded in Deed
      Book 1641, Page 457; in Deed Book 611, Page 322; in
      Deed Book 602, Page 595; in Deed Book 159, Page 36;
      and in Deed Book 138, Page 397, among the Land Records of
      Spotsylvania County, Virginia.
  5.
    Easement(s)
      granted to Natural Gas Service Company, recorded in Deed Book 182,
      Page 354, among the Land Records of Spotsylvania County,
      Virginia.
  6.
    Terms,
      provisions, conditions, easements and all matters as set forth in Deed And
      Easement Agreement recorded in Deed Book 656 at Page 424, as
      assigned by instrument recorded in Deed Book 1503 at Page 8,
      among the Land Records of Spotsylvania County,
Virginia.
  7.
    Ten
      foot (10’) slope, drain and utility easement; twenty foot (20’) wide drain
      easement; and drain easement, all as shown on plat recorded in Deed
      Book 635, Page 118, among the Land Records of Spotsylvania
      County, Virginia.
  8.
    Twenty
      foot (20’) sanitary sewer and storm drain easement; twelve foot (12’)
      sanitary sewer easement and drain easement, all as shown on plat recorded
      in Deed Book 656, Page 436, among the Land Records of
      Spotsylvania County, Virginia.
  9.
    Deed
      of Trust from Fredericksburg Assisted L.L.C., a Washington limited
      liability company, to James W. DeBoer, Trustee(s), dated
      February 26, 2002 and recorded in Deed Book 2126, Page 572,
      as amended by Amended and Restated Multifamily Deed of Trust, Assignment
      of Rents and Security Agreement recorded in Deed Book 2133,
      Page 219 in the Clerk’s Office of the Circuit Court of Spotsylvania
      County, Virginia, SECURING Collateral Mortgage Capital, LLC an
      indebtedness in the original principal sum of $8,500,000.00, as assigned
      to FANNIE MAE by Assignment recorded in Deed Book 2139,
      Page 213, as amended by that Second Amended and Restated Multifamily
      Deed of Trust, Assignment of Rents and Security Agreement recorded in Deed
      Book 2139, Page 218 and assigned to FANNIE MAE by that
      Assignment of Second Amended and Restated Multifamily Deed of Trust,
      Assignment of Rents and Security Agreement recorded in Deed
      Book 2139, Page 274 and as assumed by HCRI Wilburn Gardens
      Properties, LLC and Health Care REIT, Inc.
   
  
  10.
    Financing
      Statement from Fredericksburg Assisted L.L.C., as Debtor, to FANNIE MAE as
      Secured Party, filed March, 2002 as Financing Statement No. 137 and
      as assigned to HCRI Wilburn Gardens Properties, LLC and Health Care
      REIT, Inc.
  11.
    Memorandum
      of Lease by and between Landlord and
Tenant.
  12.
    Survey
      prepared by Edison L. Sullivan of Sullivan, Donahoe & Ingalls,
      dated January 17, 2000, designated Job No. 00SP0018 discloses
      the following:
  a.
    Access
      to the rear of the property is by way of Wills Way, a private drive,
      without the benefit of a recorded easement or
agreement.
  
  
    
   **EXHIBIT C:
FACILITY INFORMATION**
  **Facility
      Name**
    **Street
      Address**
      **County**
    **Facility
      Type (per license)**
      **Beds/Units**
    **Investment
      Amount**Wilburn
      Gardens
    3500 Meekins
      Drive
      Fredericksburg,
      VA 22407
      County:
      Independent City
    Boarding
      Home
      195 licensed
      beds
      ___ operating
      beds
      99 units
    $21,000,000
 
  
    
   **EXHIBIT D:
LANDLORD’S PERSONAL PROPERTY**
  [Tenant
to provide]
  
  
    
   **EXHIBIT E:
DOCUMENTS TO BE DELIVERED**
 
 
 Tenant
shall deliver each of the following documents to Landlord no later than the date
specified for each document:
  1.  Annual
Financial Statement of Tenant (audited) - within 90 days after the end
of each fiscal year.
  2.  Annual
Company Budget not later than fiscal year end.
  3.  Quarterly
Variance Report for the Facility, including occupancy, census, capital
expenditures and operating revenues and expenses by line item with a detailed
explanation of the cause of all material variances from the Annual Company
Budget (i.e., more than 10% for that line item) and a description of Tenant’s
plans for eliminating all material variances - within 45 days after
the end of each quarter.
  4.  Quarterly
Update to Annual Company Budget (on a 12-month rolling forward period) -
within 45 days after the end of each quarter.
  5.  Quarterly
Healthcare Integrity and Protection Data Bank (HIPDB) Report (dated not earlier
than the end of the quarter) - within 45 days after the end of each
quarter.
  6.  Quarterly
Updates to Operator Profile of Tenant, including a review of the Profile
prepared by Landlord and identification of all changes to the Profile to reflect
the current situation - within 45 days after the end of each
quarter.
  7.  Periodic
Financial Statement of Tenant (unaudited)  - within 45 days after the
end of each quarter.
  8.  Monthly
Facility Financial Statement(unaudited) - within 30 days after the end
of each month.
  9.  Tenant’s
Certificate and Annual or Quarterly Facility Financial Report
(Exhibit F) - with each delivery of Tenant’s financial
statements.
  10.  Annual
Facility Financial Report (based upon internal financial records) - within
60 days after the end of each fiscal year.
  11.  Annual
Financial Statement of Individual Guarantor - within 90 days after the
end of each calendar year.
  12.  The most
recent Periodic Financial Statement of Individual Guarantor - upon request
of Landlord.
  13.  Guarantor’s
certificate - with each delivery of Guarantor’s financial
statements.
   
  
  14.  Federal
tax returns of Tenant, on a consolidated basis,  - within 15 days
after the filing of the return. If the filing date is extended, also provide a
copy of the extension application within 15 days after filing.
  15.  If
applicable, Medicaid cost reports for the Facility - within 15 days
after filing of the report with the State agency.
  16.  State and
federal health care survey and inspection reports, inspector exit interview
notes and report (if delivered to Tenant), plans of correction, re-survey
reports, evidence of annual license renewal within 30 days after receipt by
Tenant, HIPDB adverse action report, notice of any investigation, inspection or
survey by licensing authorities, notice of licensure deficiencies or
commencement of licensure revocation or decertification proceeding, notice of
admissions ban, issuance of a provisional or temporary license and all
correspondence regarding any of the foregoing for the Facility - within
five days after receipt by Tenant.
  17.  Real
estate taxes
  (a)  Copy of
invoice and check - within five days after the due date; and
  (b)  Copy of
official receipt or other satisfactory evidence of payment - within
30 days after the due date.
  18.  Certificate
of insurance renewal, current Certificate of Compliance from insurance agent and
evidence of payment of premium - at least 30 days prior to the
expiration of each policy.
  19.  Facility
information: [i] a security deposit report, including resident name, date
of move-in, security deposit, and corresponding security deposit bank account
balance, with a monthly update of any changes; [ii] a report accounting for
all resident trust funds, including corresponding trust fund deposit bank
accounts; [iii] a schedule and copies of any equipment leases and
financings, including vendor, equipment descriptions, monthly payment, rate and
maturity, with a monthly update of any changes and the required nondisturbance
agreement if the original cost of the equipment exceeds $50,000.00; [iv] a
schedule of all utility providers and utility deposits; [v] a list of all
rent concessions, including, but not limited to, free rent, rent reduction,
community fee waivers, rate locks, rate guaranties and waivers of security
deposits; [vi] a copy of each private pay resident’s occupancy agreement
and the Facility’s form of agreement; [vii] a schedule of all employee
vacation and sick days; and [viii] employee policies and procedures
handbook, including employee benefits - current and annually updated
reports, schedules and copies to be delivered upon request.
  
   
   **EXHIBIT F:
TENANT’S CERTIFICATE**
 **AND
FACILITY FINANCIAL REPORTS**
 
 
 Report
Period :  Commencing
_______________ and ending _______________
 
 Lease:  Lease
made by HCRI Wilburn Gardens Properties, LLC (“Landlord”) to Emeritus
Corporation (“Tenant”)
 
 
 Tenant
hereby certifies to Landlord to the best of its knowledge as
follows:
 
 1.  The
attached [specify audited or unaudited and annual or quarterly , and if consolidated , so
state] financial statements of Tenant [i] have been prepared in accordance
with generally accepted accounting principles consistently applied;
[ii] have been prepared in a manner substantially consistent with prior
financial statements submitted to Landlord; and [iii] fairly present the
financial condition and performance of Tenant in all material
respects.
  2.  The
attached [Annual or Quarterly] Facility Financial Report and Facility Accounts
Receivable Aging Report for the Report Period is complete, true and accurate and
has been prepared in a manner substantially consistent with prior schedules
submitted to Landlord. As set forth in the [Annual or Quarterly] Facility
Financial Report, Tenant has maintained the Facility Coverage Ratio **[*IF
APPLICABLE** : and the
Current Ratio/Debt to Equity Ratio **]** for the
Report Period as required under the Lease between Tenant and
Landlord.
  3.  To the
best of its knowledge, Tenant was in compliance with all of the provisions of
the Lease and all other documents executed by Tenant in connection with the
Lease at all times during the Report Period, and no default, or any event which
with the passage of time or the giving of notice or both would constitute a
default, has occurred under the Lease.
  Executed
this ___ day of _______________, _____.
 
 
  
 Name:
 
 Title:
  
  **ANNUAL
FACILITY FINANCIAL REPORT**
 
 **Facility
      Name:**
 **Facility
      Address:**
 
 
 **Report
      Period:**
    Twelve
      (12) months beginning _______________ and ending _______________. All
      information reported should be for this period
only.
 
 **Occupancy
      Data**
    
    **Census
      Data**
    **%
      Resident**
      **Days**
    **% Revenues**Total
      Beds/Units:
    _______
    Medicaid:
    _______%
    _______%Total
      Available Days:
    _______
    Medicare:
    _______%
    _______%Total
      Occupied Days:
    _______
    Private
      and Other:
    _______%
    _______%Occupancy
      Percentage:
    _______%
    Total:
    _______%
    _______%
 
 **OPERATING
DATA**
 
 1.  Gross
Revenues $
 
 2.  Contractual
Allowances $
 
 3.  Net
Revenues $
 
 4.
    Operating
      Expenses(before
      interest, lease/rent, depreciation,
 amortization
and management fees) $
 
 5.  Net
Operating Income $
 
 6.  Interest
Expense $
 
 7.  Lease/Rent
Expense $
 
 8.  Depreciation
Expense $
 
 9.  Amortization
Expense $
 
 10.  Management
Fees $
 
 11.  Management
Fees (as a
percent of Gross Revenues)  %
 
 12.  Overhead
Allocation (if
applicable) $
 
 13.  Other
(identify) $
 
 14.  Income
Taxes $
 
 15.  Net
Income (amount
should agree with the facility’s financial statements) $
  
  **FINANCING
DATA**
 (Note:
This data breaks out Items 6 and 7 above.)
 
 
 Related
      to HCN
    All
      Other Leases and/or Debt
    TotalLease
      Payments
    _________
    _________
    ________Interest
      Payments
    _________
    _________
    ________Principal
      Payments (if any)
    _________
    _________
    ________$
    $
    $
  **COVERAGE
RATIO**
 
 1.  Net
Operating Income $______________
  2.  Less
Imputed Management Fee
 ( _____%
of gross revenues) (______________)
  3.  Less
Imputed Replacement Reserve for period
 ($_________
per bed [or unit] per year) (______________)
  4.  Adjusted
Net Operating Income $______________
  5.  Loan/Lease
Payments to HCN $______________
  6.  Actual
Coverage Ratio (Line 4  ̧ Line
5) ______________
  7.  Minimum
Coverage Ratio (per Lease Agreement) ______________
  
 **CURRENT
RATIO**
 **[*DELETE
IF NOT APPLICABLE]**
 
 1.  Current
Assets $______________
  2.  Current
Liabilities $______________
  3.  Actual
Current Ratio (Line 1  ̧ Line
2) ______________
  4.  Minimum
Current Ratio (per Lease Agreement) ______________
  
 
 Tenant
hereby certifies that the foregoing is true and accurate.
 
 Date:
 
 Name: Phone
Number:
 
 Title:
 
  
  **QUARTERLY
FACILITY FINANCIAL REPORT**
 
 **Facility
      Name:**
 **Facility
      Address:**
 
 
 **Report
      Period:**
    Three
      (3) months beginning _______________ and ending _______________. All
      information reported should be for this period
only.
 
 **Occupancy
      Data**
    
    **Census
      Data**
    **%
      Resident**
      **Days**
    **% Revenues**Total
      Beds/Units:
    _______
    Medicaid:
    _______%
    _______%Total
      Available Days:
    _______
    Medicare:
    _______%
    _______%Total
      Occupied Days:
    _______
    Private
      & Other:
    _______%
    _______%Occupancy
      Percentage:
    _______%
    Total:
    _______%
    _______%
 
 **OPERATING
DATA**
 
 1.  Gross
Revenues $
 
 2.  Contractual
Allowances $
 
 3.  Net
Revenues $
 
 4.
    Operating
      Expenses(before
      interest, lease/rent, depreciation,
 amortization
and management fees) $
 
 5.  Net
Operating Income $
 
 6.  Interest
Expense $
 
 7.  Lease/Rent
Expense $
 
 8.  Depreciation
Expense $
 
 9.  Amortization
Expense $
 
 10.  Management
Fees $
 
 11.  Management
Fees (as a
percent of Gross Revenues)  %
 
 12.  Overhead
Allocation (if
applicable) $
 
 13.  Other (identify) $
 
 14.  Income
Taxes $
 
 15.  Net
Income (amount
should agree with the facility’s financial statements) $
  
  **FINANCING
DATA**
 (Note:
This data breaks out Items 6 and 7 above.)
 
 
 Related
      to HCN
    All
      Other Leases and/or Debt
    TotalLease
      Payments
    _________
    _________
    ________Interest
      Payments
    _________
    _________
    ________Principal
      Payments (if any)
    _________
    _________
    ________$
    $
    $
  **COVERAGE
RATIO**
 
 1.  Net
Operating Income $______________
  2.  Less
Imputed Management Fee
 ( _____%
of gross revenues) (______________)
  3.  Less
Imputed Replacement Reserve for period
 ($_________
per bed [or unit] per year) (______________)
  4.  Adjusted
Net Operating Income $______________
  5.  Loan/Lease
Payments to HCN $______________
  6.  Actual
Coverage Ratio (Line 4  ̧ Line
5) ______________
  7.  Minimum
Coverage Ratio (per Lease Agreement) ______________
  
 **CURRENT
RATIO**
 **[*DELETE
IF NOT APPLICABLE]**
 
 1.  Current
Assets $______________
  2.  Current
Liabilities $______________
  3.  Actual
Current Ratio (Line 1  ̧ Line
2) ______________
  4.  Minimum
Current Ratio (per Lease Agreement) ______________
  
 
 Tenant
hereby certifies that the foregoing is true and accurate.
 
 Date:
 
 Name: Phone
Number:
 
 Title:
 
 
   
   **QUARTERLY
FACILITY ACCOUNTS RECEIVABLE AGING REPORT**
  **Facility
Name:**
  **Facility
Address:**
  
 
 
 **Accounts
Receivable Aging as of ____________ (most recent quarter
ended)**
 
 **PAYOR**
    **0-30
      DAYS****%**
    **31-60
      DAYS****%**
    **61-90
      DAYS****%**
    **OVER
      90 DAYS****%**
    **TOTALS****%**Medicaid
    $______________%
    $______________%
    $______________%
    $______________%
    $______________%Medicare
    $______________%
    $______________%
    $______________%
    $______________%
    $______________%Commercial
      Insurance
    $______________%
    $______________%
    $______________%
    $______________%
    $______________%Other
      -_____________
    $______________%
    $______________%
    $______________%
    $______________%
    $______________%TOTALS
    $__________100%
    $__________100%
    $__________100%
    $__________100%
    $__________100%%
      OF TOTALS $
    ___________%
    ___________%
    ___________%
    ___________%
    100%
 
 **Accounts
Receivable Aging as of ____________ (2nd recent quarter
ended)**
 
 **PAYOR**
    **0-30
      DAYS****%**
    **31-60
      DAYS****%**
    **61-90
      DAYS****%**
    **OVER
      90 DAYS****%**
    **TOTALS****%**Medicaid
    $______________%
    $______________%
    $______________%
    $______________%
    $______________%Medicare
    $______________%
    $______________%
    $______________%
    $______________%
    $______________%Commercial
      Insurance
    $______________%
    $______________%
    $______________%
    $______________%
    $______________%Other
      -_____________
    $______________%
    $______________%
    $______________%
    $______________%
    $______________%TOTALS
    $__________100%
    $__________100%
    $__________100%
    $__________100%
    $__________100%%
      OF TOTALS $
    ___________%
    ___________%
    ___________%
    ___________%
    100%
 
 
   
   **EXHIBIT G:
GOVERNMENT AUTHORIZATIONS**
 **TO
BE OBTAINED; ZONING PERMITS**
  
  
  
   
   **EXHIBIT H:
PENDING LITIGATION**
  
  
  
    
   **EXHIBIT I:
LIST OF LEASES AND CONTRACTS**
  1.
  2.
  
  
    
   **EXHIBIT J:
WIRE TRANSFER INSTRUCTIONS**
  **HEALTH
CARE REIT, INC.**
  **WIRE
TRANSFER INSTRUCTIONS**
  **Bank:**
    KeyBank
      Cleveland,
      Ohio**ABA
      Number:**
    041001039**Account
      Name:**
    Health
      Care REIT, Inc.**Account
      Number:**
    353321001011**Notify:**
    Michael A.
      Crabtree**Phone:**
    (419)
      247-2800