Document:

Exhibit 10.57

 

Exhibit 10.57

AGREEMENT AND FIRST AMENDMENT TO MASTER LEASE

     This Agreement and First Amendment to Master Lease (the “Agreement”)is made as of the
8th day of September, 2005, by and between Tandem Health Care, Inc., a Pennsylvania corporation
(the “Company”), Health Care REIT, Inc., a Delaware corporation (“HCRI”) and HCRI
Pennsylvania Properties, Inc., a Pennsylvania corporation (“HCRI Pennsylvania”)

     WHEREAS, the Company and HCRI are parties to a Warrant Agreement dated as of February 27, 1998
(the “Warrant Agreement”), as amended by an agreement by and among the Company, HCRI,
Behrman Capital II L.P., Strategic Entrepreneur Fund II, L.P., Lawrence R. Deering and Joseph D.
Conte, dated as of March 25, 1998 (the “Amendment”); and

WHEREAS, the Company and HCRI disagree as to certain matters under the Warrant Agreement; and

     WHEREAS, the Company and HCRI desire to terminate the Warrant Agreement, the Amendment and
all certificates evidencing the warrants for the purchase of Common Stock Units (defined as such
number of shares of Common Stock of the Company, including fractional shares, equal to 0.01% of the
shares of Common Stock of the Company outstanding at the time of exercise of a warrant, calculated
after an assumed exercise of all of the warrants, options, convertible securities and other rights
that are then outstanding to purchase Common Stock) of the Company (the “Warrant
Certificates”) in the manner and pursuant to the terms and conditions set forth herein; and

     WHEREAS, the Company, HCRI and HCRI Pennsylvania are parties to a Master Lease Agreement dated
as of January 1, 2002 (the “Master Lease Agreement”) and desire to amend the Master Lease
Agreement as set forth herein;

     NOW THEREFORE, in consideration of the mutual covenants herein contained and other good and
valuable consideration, the receipt of which is hereby acknowledged, and with the intent to be
legally bound, the parties hereto agree as follows:

     1. Warrant Agreement, Amendment and all Warrant Certificates. The Company and HCRI
hereby terminate the Warrant Agreement, the Amendment, all outstanding Warrant Certificates and any
and all other rights associated or attendant therewith, and acknowledge and agree that the Warrant
Agreement, the Amendment and all outstanding Warrant Certificates shall be of no further force and
effect, in exchange for the following consideration, which HCRI deems adequate:

(a) the sum of Five Hundred Thousand Dollars ($500,000.00) in immediately available United
States funds to be paid by the Company to an account designated by HCRI on the date hereof,

(b) a warrant dated as of the date hereof and attached hereto as Exhibit A,
exercisable for 100,000 shares of the Company’s common stock, at an exercise

 

 

price of $0.00008 per share and with certain other rights associated therewith as more
fully described therein (the “Warrant”), and

(c) a registration rights agreement dated as of the date hereof and attached hereto as
Exhibit B, between the Company and HCRI, providing HCRI with among other things,
certain S-3 and piggyback registration rights on the shares of common stock issuable upon
exercise of the Warrant (the “Registration Rights Agreement”).

     2. Amendment of Master Lease Agreement. The Company, HCRI and HCRI Pennsylvania
acknowledge and agree that, if the Company consummates a Qualified Public Offering (as such term is
defined in the Warrant) the Master Lease Agreement shall thereupon be amended as follows without
any further action of such parties:

(a) Section 14.6 of the Master Lease Agreement shall be amended so that Section 14.6 shall
read in its entirety as follows:

“14.6 No Changes in Operation. No material change shall occur in the
licensed operation of the Facility. Each Subtenant shall remain the licensed
operator of the Facility as specified on Exhibit C.”

(b) Section 14.10 of the Master Lease Agreement shall be amended so that Section 14.10
shall read in its entirety as follows:

“14.10 No Changes in Operation. Subtenant shall not change any of the
following: [i] the location of the principal place of business or chief executive
office of Subtenant, or any office where Subtenant’s books and records are
maintained; or [ii] the name under which Subtenant conducts any of its business or
operations. Tenant shall provide Landlord with notice of a change of any of the
following: [i] the location of the principal place of business or chief executive
office of Tenant, or any office where Tenant’s books and records are maintained; or
[ii] the name under which Tenant conducts any of its business or operations.”

(c) Section 15.6 of the Master Lease Agreement shall be amended so that Section 15.6 shall
read as follows:

“15.6 Existence and Change in Ownership. Tenant and Subtenant shall each
maintain its existence throughout the term of this Lease. Any change in the
ownership of Subtenant shall require Landlord’s prior written consent, which shall
not be unreasonably withheld.”

     3. Amendment of Certain Covenants. For the fiscal quarter ending September 30, 2005
through the fiscal quarter ending September 30, 2006, notwithstanding anything to the contrary
contained in the Master Lease Agreement, Tenant shall maintain a Portfolio Coverage Ratio of not
less than 1.00 to 1.00. Except as provided in this Section 3, Section 15.7.2 of the Master Lease
Agreement shall remain in full force and effect.

 - 2 -

 

     4. Mutual Intent. It is the intent of this Agreement to fully satisfy any and all
obligations that the Company has, had, or will have to HCRI under that certain Warrant Agreement,
Amendment or any Warrant Certificate, including any registration rights, preemptive rights, put
rights, future rights, or any other rights, present or inchoate, which HCRI may have now, or may
assert in the future, related to that certain Warrant Agreement and Amendment, and except as
provided in the Warrant and Registration Rights Agreement.

          Each party, on behalf of itself, its affiliates and any person claiming through it, hereby
releases and forever discharges the other party and its affiliates, and their respective directors,
officers, employees, members, shareholders and partners, from any and all claims, suits, judgments,
demands, actions, obligations and liabilities, whether known or unknown, asserted or unasserted,
accrued or contingent, in each case arising out of or related to the Warrant Agreement, the
Amendment and any Warrant Certificate, and hereby covenants and agrees that it and its affiliates
will bring no action at law or in equity seeking to enforce the Warrant Agreement, the Amendment or
any Warrant Certificate or seeking damages or relief in respect of the Warrant Agreement, the
Amendment or any Warrant Certificate.

          The parties further acknowledge that any rights HCRI has, had, or will have (other than the
non-payment of the consideration set forth in Section 1(a), and those rights set forth in the
Warrant and Registration Rights Agreement) are forever extinguished by virtue of this Agreement,
without recourse by either party to challenge the result of this Agreement.

     5. Governing Law. This Agreement shall be governed by and construed in accordance
with the internal substantive laws of the Commonwealth of Pennsylvania, without regard to its
conflict of laws provisions.

     6. Counterparts. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the same instrument.

     7. Legal Fees. The Company agrees to pay the reasonable legal fees and expenses of
HCRI, upon the presentation of a detailed invoice, in an amount not to exceed $16,000.

[The Remainder of this page has been left intentionally blank]

 - 3 -

 

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first
above written.

	 	 	 	 	 	 	 
	ATTEST:	 	 	 	TANDEM HEALTH CARE, INC.
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ Lawrence R. Deering
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Lawrence R. Deering

Chairman and Chief Executive Officer
	 
	 	 	 	 	 	 
	ATTEST:	 	 	 	HEALTH CARE REIT, INC.
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ Erin C. Ibele
	 

	 	 	 	 	 	 
	 	 	 	 	Erin C. Ibele
	 	 	 	 	Vice President-Administration and
	 	 	 	 	Corporate Secretary
	 
	 	 	 	 	 	 
	ATTEST:	 	 	 	HCRI PENNSYLVANIA PROPERTIES, INC.
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ Erin C. Ibele
	 

	 	 	 	 	 	 
	 	 	 	 	Erin C. Ibele
	 	 	 	 	Vice President-Administration and
	 	 	 	 	Corporate SecretaryExhibit 10.58

 

Exhibit
10.58

[Fishersville, Virginia]

[Floyd, Virginia]

[Independence, Virginia]

[Newport News, Virginia]

[Roanoke, Virginia]

[Staunton, Virginia]

[Williamsburg, Virginia]

[Windsor, Virginia]

[Woodstock, Virginia]

 

AMENDED AND RESTATED

MASTER LEASE

among

HCP VIRGINIA, INC.,

as Landlord

AND

GENERATION LEASING COMPANY II, LLC,

SP FISHERSVILLE, LLC,

SP GRAYSON, LLC,

SP KINGS DAUGHTERS, LLC,

SP NEWPORT NEWS, LLC,

SP WILLIAMSBURG, LLC,

SP WINDSOR, LLC

TANDEM HEALTH CARE OF FLOYD, LLC, AND

TANDEM HEALTH CARE OF WOODSTOCK, LLC

collectively, as Tenant

Dated as of April 30, 2004

 

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page	 
	1.   Definitions
	 	 	1	 
	2.   Lease
	 	 	1	 
	3.   Covenant of Title and Quiet Enjoyment
	 	 	1	 
	4.   Governmental Authorizations and Use of Premises
	 	 	2	 
	5.   Term
	 	 	2	 
	6.   Rent
	 	 	2	 
	7.   Use of Premises
	 	 	3	 
	8.   Reports
	 	 	4	 
	9.   Repair and Maintenance of Improvements
	 	 	5	 
	10. Damage or Destruction of Improvements
	 	 	5	 
	11. Taxes and Assessments
	 	 	6	 
	12. Maintenance of License
	 	 	7	 
	13. Insurance Indemnity
	 	 	7	 
	14. Environmental Compliance
	 	 	7	 
	15. Assignment and Subletting
	 	 	8	 
	16. Management and Consulting
	 	 	10	 
	17. Signs
	 	 	11	 
	18. Eminent Domain
	 	 	11	 
	19. Utility Easements
	 	 	11	 
	20. Default
	 	 	12	 
	21. Holding Over
	 	 	13	 
	22. Attornment and Subordination
	 	 	13	 
	23. Indemnification
	 	 	14	 
	24. Compliance with Governmental Programs
	 	 	14	 
	25. Waivers
	 	 	14	 
	26. Force Majeure
	 	 	15	 
	27. Surrender of Premises; Obligations Surviving Termination
	 	 	15	 
	28. Inspection
	 	 	15	 
	29. Further Assurances
	 	 	15	 
	30. No Joint Venture
	 	 	15	 
	31. Personal Liability
	 	 	15	 
	32. Authorization of the Landlord and No Joinder
	 	 	16	 
	33. Authorization of Tenant and No Joinder
	 	 	16	 
	34. Evidence of Authorization
	 	 	16	 
	35. No Representation
	 	 	16	 
	36. Validity
	 	 	16	 
	37. Applicable Law
	 	 	16	 
	38. Notices
	 	 	16	 
	39. Option to Purchase; Right of First Offer
	 	 	17	 
	40. Sale of Assets
	 	 	21	 
	41. Termination with Respect to Fewer than All of the Facilities
	 	 	22	 
	42. Option to Purchase Removable Personal Property
	 	 	22	 
	43. Conveyance By Landlord
	 	 	23	 

i

 

	 	 	 	 	 
	 	 	Page	 
	44. New Lease
	 	 	23	 
	45. Licenses and Operations Transfer Agreements
	 	 	24	 
	46. Provisions Relating to Master Lease
	 	 	25	 
	47. Original Leases; Amendment and Restatement
	 	 	25	 
	48. Attorneys’ Fees
	 	 	26	 
	49. Joint and Several
	 	 	26	 
	50. Brokers
	 	 	26	 
	51. No Warranties
	 	 	27	 
	52. Entire Agreement; Merger
	 	 	27	 
	53. Short Form Lease
	 	 	27	 
	54. Improvements Become Landlord’s Property
	 	 	27	 
	55. Mechanic’s Liens
	 	 	27	 
	56. Headings
	 	 	27	 
	57. Parties
	 	 	27	 
	58. Entire Agreement
	 	 	27	 
	59. Time of Essence
	 	 	28	 
	60. Waiver of Trial by Jury
	 	 	28	 
	61. Submission to Arbitration
	 	 	28	 
	62. Fishersville Facility
	 	 	29	 
	63. Woodstock Facility
	 	 	30	 

ii

 

AMENDED AND RESTATED MASTER LEASE

     THIS AMENDED AND RESTATED MASTER LEASE (the “Lease”), is dated as of April 30, 2004 and
effective with respect to each Facility (as hereinafter defined) as of the applicable Effective
Date (as hereinafter defined) for such Facility, by and among HCP VIRGINIA, INC., a Delaware
corporation (hereinafter referred to as “Landlord”) and GENERATION LEASING COMPANY II, LLC, a
Virginia limited liability company, SP FISHERSVILLE, LLC, a Virginia limited liability company, SP
GRAYSON, LLC, a Virginia limited liability company, SP KINGS DAUGHTERS, LLC, a Virginia limited
liability company, SP NEWPORT NEWS, LLC, a Virginia limited liability company, SP WILLIAMSBURG,
LLC, a Virginia limited liability company, SP WINDSOR, LLC, a Virginia limited liability company,
TANDEM HEALTH CARE OF FLOYD, LLC, a Delaware limited liability company, and TANDEM HEALTH CARE OF
WOODSTOCK, LLC, a Delaware limited liability company (hereinafter collectively and jointly and
severally referred to as “Tenant”).

WITNESSETH

     In consideration of the mutual covenants and obligations herein contained, it is agreed:

     1. Definitions. Initially-capitalized words and phrases in this Lease shall have the
meanings set forth in this Lease and Exhibit D attached hereto and incorporated herein by
this reference, unless otherwise required by the context in which they appear.

     2. Lease. Landlord does hereby demise and lease unto Tenant, and Tenant does hereby
take, hire and let from Landlord, those certain tracts or parcels of real estate, together with the
buildings, improvements and all fixtures constructed thereon, and the privileges and appurtenances
thereunto (including any obligations of Landlord arising pursuant to such privileges and
appurtenances) pertaining, situate, lying and being in the Cities and State described in
Exhibit A attached hereto and incorporated herein by this reference and being more
particularly described on Exhibits A-1 through A-9 (hereinafter collectively
referred to as “Premises” and “Demised Premises”), including but not limited to each nursing
facility located at the Demised Premises, as described on Exhibit A attached hereto (each,
a “Facility” and collectively, the “Facilities”), together with all furniture, equipment and other
items with respect to each Facility listed on Exhibit B-1 through B-9 attached
hereto and incorporated herein by reference, and all replacements, modifications, alterations and
substitutions thereto (whether or not the same are upgrades thereof) (“Personal Property”), but
excluding any proprietary training materials and policy manuals of Tenant.

     3. Covenant of Title and Quiet Enjoyment. Landlord covenants and warrants that as of
the Effective Date of this Lease with respect to each Facility (a) it alone shall have full right
and lawful authority to enter into this Lease with respect to such Facility for the full Term
hereof, (b) that it is lawfully seized of the Premises relating to such Facility in fee simple and has good title thereto, free and clear of all
tenancies, restrictions and encumbrances (with the exception of liens securing any lenders of
Landlord providing financing for such Facility, and other matters not adversely affecting the
intended use of the Premises relating to such Facility or merchantability of title, or other
matters agreed to between the parties, as specified with respect

 

 

to each Facility on Exhibit
C-1 through C-9 attached hereto (with respect to each Facility, the “Permitted
Exceptions”)), and (c) that at all times during the Term of this Lease with respect to each
Facility, so long as Tenant is not in default under this Lease beyond any applicable notice and
cure period provided herein, Tenant’s quiet and peaceful enjoyment of the Premises relating to such
Facility shall not be disturbed or interfered with by anyone claiming by, through or under
Landlord.

     4. Governmental Authorizations and Use of Premises. Landlord hereby represents and
warrants to Tenant, that as of the Effective Date with respect to each Facility, the use of the
Premises of such Facility as a nursing home facility will be a permitted use by right under all
applicable Permitted Exceptions, applicable zoning or other use restrictions or regulations.
Landlord further represents and warrants that, as of the Effective Date with respect to each
Facility, it has not received nor is it aware of any notice of any Building, Municipal or Health
Department Code, regulation, statute, or law which will adversely affect Tenant’s operation of the
Demised Premises of such Facility.

     5. Term.

          (a) The initial term of this Lease with respect to each Facility shall be for a period
commencing on the applicable Effective Date of this Lease with respect to such Facility and ending
at 11:59 p.m. Eastern Standard Time, on the expiration of the fifth (5th) Lease Year for
such Facility (the “Initial Term”). Unless Tenant gives written notice to the Landlord at least 90
days prior to the end of the Initial Term or any Renewal Term, this Lease will renew for the
applicable remaining Renewal Term, if any.

          (b) Following the Effective Date of this Lease with respect to each Facility, the parties
shall execute an amendment to this Lease to confirm the Effective Dates of this Lease for such
Facilities. Notwithstanding the foregoing, the failure of Tenant to so execute and deliver any
such amendments shall not affect Landlord’s determination of the applicable Effective Dates.

     6. Rent.

          (a) Tenant shall pay to Landlord in lawful money of the United States of America which shall
be legal tender for the payment of public and private debts, without offset or deduction, the
amounts set forth hereinafter as Minimum Rent (or Allocated Minimum Rent) and any additional rent
payable to Landlord during the Term at Landlord’s offices located at its address for notices set
forth in Section 38 below, or at such other place as Landlord may advise in writing. Payments of Minimum Rent shall be made in advance in equal monthly installments
on the first (1st) day of each calendar month from and after the Effective Date.

          (b) Tenant shall pay to Landlord as monthly “Allocated Minimum Rent” for each Facility the
amounts allocated to and set forth opposite such Facility on Exhibit A attached hereto and
incorporated herein by this reference, in advance on or before the first (1st) day of
each calendar month, as the same may be increased as set forth in Exhibit E attached hereto
and incorporated herein by this reference. The first monthly payment of Allocated Minimum Rent
with respect to each Facility shall be payable on the Effective Date of this Lease with respect to

2

 

such Facility (prorated as to any partial calendar month at the beginning of the Term for such
Facility).

          (c) If Landlord does not receive from Tenant any payment of Minimum Rent within ten (10) days
after such payment is due, Landlord, at its option may charge Tenant a late charge and handling fee
equal to Five Percent (5%) of such Minimum Rent. Such fee shall be considered additional rent and
shall be due and payable by Tenant to Landlord immediately upon delivery of written notice to
Tenant. In addition, if any check of Tenant is returned to Landlord unpaid, Tenant shall reimburse
Landlord for all charges associated with such returned check and Landlord, at its option, may
thereafter require that Tenant pay the Minimum Rent and any other charges payable hereunder by a
certified or cashier’s check.

          (d) All additional sums payable by Tenant to Landlord under the provisions of this Lease shall
constitute additional rent.

          (e) (1) Except as otherwise expressly provided in this Lease, this Lease is a “net lease”
pursuant to which the parties intend to yield “net” to Landlord the rental provided for in Section
6(b) above.

               (2) To further ensure that the Minimum Rent to Landlord is absolutely “net” to Landlord,
Tenant further agrees to timely pay during the Term of this Lease, all costs and expenses,
including but not limited to the following:

                    (A) All occupational licenses and other permits necessary in the operation of the business to
be conducted on the Demised Premises;

                    (B) All utility charges for water, sewer, electricity, gas, telephone or any other services
provided to or consumed on the Demised Premises; provided, however, it is expressly understood that
utility impact fees and tap or connection fees shall be the expense of Landlord.

                    (C) All sales and use taxes due as a result of the business conducted on the Demised Premises
and any real and personal property taxes assessed against any property located on or used in
connection with the Demised Premises;

                    (D) All real property taxes and assessments levied on the Demised Premises as provided in
Section 11; and

                    (E) All premiums for all insurance required by this Lease as provided in Section 13, and
Tenant agrees to hold Landlord harmless from any such cost or expense related thereto.

     7. Use of Premises. The Tenant shall use the Premises for skilled and intermediate
care nursing facilities and homes for adults which shall be operated in full compliance with all
laws and regulations applicable thereto. Tenant covenants that no part of the Premises shall be
used for any unlawful purpose, nor will any unlawful condition or nuisance be permitted to exist
thereon. Tenant shall maintain Medicaid certification, or any successor program to Medicaid, on
all nursing facility beds located in the nursing homes and the Facilities’ accreditation by the
Joint

3

 

Commission on Accreditation of Health Care Organizations. All such nursing facility beds
shall remain the property of the Landlord and Tenant shall have no right to move, transfer, assign,
decommission or otherwise deprive Landlord of its rights to such beds. Tenant agrees to use its
commercially reasonable efforts to maintain the standard of care for patients of the Facilities at
all times at the level required under the federal regulations at 42 C.F.R. Part 483, Subpart B.
Notwithstanding anything to the contrary contained herein, there shall be no change of any License
Holder for any Facility without Landlord’s prior written consent, except as expressly permitted
pursuant to Section 15(c) below.

     8. Reports. Tenant agrees to provide Landlord the following reports:

          (a) Annual audited consolidating financial statements as part of Tandem Health Care, Inc.
(“Guarantor”) and its Subsidiaries’ audit prepared by a regionally recognized accounting firm or an
independent certified public accounting firm reasonably acceptable to Landlord, within one hundred
twenty (120) days after the end of the respective fiscal year of Guarantor, which statements shall
include a balance sheet and a statement of earnings, a statement of changes in financial position,
cash flow, and a breakdown of source and application of all funds, for the year ended.

          (b) Quarterly and annual unaudited financial statements of the Tenant (and each of them)
prepared in accordance with GAAP consistently applied, within forty-five (45) days after the end of
each calendar quarter which statements shall include a balance sheet and statement of earnings and
statement of expenses and statement of cash flow for the year through the quarter then ended
setting forth in comparative form and details the figures for the corresponding period of the
previous fiscal year and shall be certified by the chief financial officer or other comparable
officer of the Tenant to be true and correct.

          (c) Upon Landlord’s request but not more than one time per calendar quarter, an aged accounts
receivable report of each Facility in sufficient detail to show amounts due from each class of
patient-mix and monthly census information of such Facility in sufficient detail to show
patient-mix on a daily average basis for such month, in the account age classification of 30 days,
60 days, 90 days, 120 days and over 120 days, within ten (10) days of such request.

          (d) All Medicare and Medicaid cost reports and any amendments thereto filed or received with
respect to each Facility and all responses, audit reports, or inquiries with respect to such cost
reports, within ten (10) days of filing or receipt of such reports.

          (e) Copies of all licensure and certification survey reports and statements of deficiencies
(with plans of correction attached thereto) with respect to each Facility within ten (10) days of
receiving such reports.

          (f) Any and all notices (regardless of form) from any and all licensing and/or certifying
agencies that the nursing home license and/or the Medicare and/or Medicaid certification of any
Facility is being downgraded to a substandard category, revoked, or suspended, or that action is
pending or being considered to downgrade to a substandard category, revoke, or suspend any such
Facility’s license or certification within three (3) days of receipt of such reports.

4

 

          (g) Upon Landlord’s request, evidence of payment by Tenant of any applicable provider bed
taxes or similar taxes, within ten (10) days of such request.

     Tenant further agrees to correct any deficiency (identified pursuant to (e) or (f) above)
within the date required by the licensure and certification agency, if such deficiency could
adversely affect either the right to continue participation in Medicare and Medicaid for existing
patients or the right to admit new Medicare and Medicaid patients but in no event later than six
(6) months.

     Landlord reserves the right to require such other financial information of Tenant and/or
Guarantor at such other times as it shall deem necessary. All financial statements must be in such
form and detail as the Landlord and its lender shall from time to time reasonably request and
Tenant agrees to promptly provide same as well as any other information requested by Landlord or
its lender, provided that Tenant shall not be required to prepare any information that it does not
usually prepare for the Facilities or any other facility.

     9. Repair and Maintenance of Improvements. Tenant shall be responsible, during the
Term of this Lease with respect to each Facility, for maintaining the Premises of such Facility in
good repair, including without limitation the roof, exterior walls, all interior surfaces,
electrical, plumbing, heating, air conditioning, generator and other systems, as well as the
exterior grounds of such Facility, and shall at the end of the Term with respect to each Facility,
return the same to Landlord in good repair and condition, with the exception of casualties insured
against and ordinary wear and tear. If Tenant fails to make any repairs, and/or perform any
maintenance for which it is responsible, within thirty (30) days after written notice thereof, or
such reasonable time as is reasonably necessary in the event same cannot be made within 30 days
after notice, Landlord may, at its sole option, make the repairs and/or perform the maintenance and
the reasonable expense thereof shall be paid by Tenant, together with interest at a rate equal to
one and one-half percent (1-1/2%) above the Prime Rate, if such expense is not paid within thirty
(30) days. Tenant shall not make or construct any parking areas, driveways, additions, buildings,
structures or other improvements to any Facility (collectively, “Capital Additions”), without the
prior written consent of Landlord,
which consent shall not be unreasonably withheld or delayed after review of all applicable
architectural plans and building permits. All Capital Additions shall be at Tenant’s sole cost and
expense and shall become the property of Landlord at the termination of this Lease. Tenant agrees
to indemnify Landlord against all claims by laborers and materialmen for any Capital Additions
constructed by Tenant.

     10. Damage or Destruction of Improvements. If as a result of fire or other casualty
the improvements located upon the Premises relating to any Facility are partially, but not
substantially, damaged or destroyed, Landlord shall have the option to rebuild or restore the
damaged or destroyed improvements and this Lease shall remain in full force and effect with respect
to such Facility. In the event of substantial damage or destruction relating to any Facility,
Landlord may at its option elect within thirty (30) days following such damage or destruction to
terminate this Lease with respect to such Facility effective as of the date of casualty, and the
provisions of Section 41 below shall apply. Any such damage or destruction likely to require more
than two hundred seventy (270) days to repair or restore shall, for purposes of this section, be
deemed substantial.

5

 

     11. Taxes and Assessments. Tenant agrees to pay when due all Taxes (as herein
defined) on or with respect to the Premises of each Facility. Landlord will promptly send Tenant
copies of all bills for Taxes to be received by Landlord and Tenant will pay the same to the
appropriate governmental authority. Tenant shall promptly send Landlord reasonable evidence of
payment of such bill after such payment. Such payments shall be further in accordance with the
following provisions.

     (a) Definitions. The term “Taxes” shall mean all taxes payable with respect to the
Premises of each Facility or any property located on or used in connection with the Premises of
each Facility, or any activity conducted on the Premises of each Facility, including but not
limited to, real estate, personal property, and sales and use taxes. Tenant may be required to
make escrow payments of Taxes. In such event Tenant agrees to timely make such payments to
Landlord’s mortgagee, or as otherwise directed, in accordance with the escrow requirements. If, at
any time during the Term of this Lease, any tax or excise on rents or other Taxes, however
described, are levied or assessed upon, or against, or measured by the rent payable to Landlord
hereunder, either wholly or partially in substitution for, or in addition to, Taxes, such tax or
excise in respect of rents shall be included in the Taxes. Taxes shall not include franchise,
estate, inheritance, succession, capital levy, transfer, income, or excess profit taxes assessed on
Landlord.

     (b) Reimbursement of Taxes.

               (1) If, after Tenant shall have paid any Taxes pursuant to this Section, Landlord shall
receive a refund of any portion of Taxes paid by Tenant with respect to any tax year during the
Term hereof as a result of an abatement of such Taxes by legal proceedings, the net refund will be
paid over to Tenant.

               (2) At the request of the Tenant, Landlord will execute any and all proper documents to permit
the Tenant, in the name of the Landlord, and at Tenant’s sole cost
and expense, to protest, institute and pursue any and all legal proceedings necessary or
appropriate to obtain reduction in any Tax assessment or refund of any Taxes. In the event
Landlord elects to undertake any such protest or legal proceedings for such purpose, Landlord will
permit Tenant to participate therein at Tenant’s sole cost and expense in order that Tenant may
assure itself that all appropriate steps are being taken to reduce the tax obligations for which
Tenant is liable hereunder.

               (3) In the event this Lease shall commence, or shall end with respect to any Facility (by
reason of expiration of the Term or earlier termination pursuant to the provisions hereof), on any
date other than the first or last day of the year, or should the year or period of assessment of
real estate taxes be changed to more or less than one year, as the case may be, then the amount of
Taxes payable by Tenant as provided hereunder shall be appropriately apportioned. Notwithstanding
the foregoing, however, there shall be no apportionment or pro-ration of Taxes at the commencement
of the Term with respect to each Facility, it being acknowledged and agreed that Tenant shall
remain responsible for the payment of all Taxes relating to any period prior to the Effective Date
of this Lease with respect to each Facility pursuant to the terms of the Original Leases.

6

 

     12. Maintenance of License. Tenant shall obtain and maintain in good standing such
licenses to operate the Demised Premises of each Facility as may be required by state and/or
federal law.

     13. Insurance Indemnity. Tenant shall at all times during the Term with respect to
each Facility carry and maintain with respect to the Demised Premises of such Facility and the
Personal Property and operations thereon:

          (a) Business interruption insurance, naming Tenant, Landlord and Landlord’s designated
mortgagee as insureds sufficient to pay the rent and Tenant’s other obligations specifically agreed
to be paid hereunder for a period of not less than six (6) months or twelve (12) months, if
required by Landlord’s mortgagee.

          (b) Fire and hazard insurance, naming Tenant, Landlord and Landlord’s designated mortgagee as
insureds on all buildings and improvements on the Premises insured in the amount of the full
replacement cost of the Premises and the Personal Property and deductibles not to exceed $10,000,
provided that the hazards that are covered shall be reasonably acceptable to Landlord and Tenant
based on availability and cost. The proceeds shall be utilized by Landlord for the restoration of
improvements in the event such restoration is required hereunder. If no restoration is required,
the proceeds shall belong to the Landlord.

          (c) Broad Form Comprehensive General Liability Insurance in an amount of not less than
$5,000,000 (or such higher amount as Landlord’s lender shall from time to time reasonably require)
combined single limit for bodily injury (including death resulting therefrom) and third-party
property damage; such insurance shall include premises liability insurance, blanket contractual
liability insurance and personal injury liability insurance; such requirement may be satisfied by
layering of comprehensive general liability, umbrella and excess liability
policies, but in no event shall the primary comprehensive general liability policy be written
for an amount less than $1,000,000 (or such higher amount as Landlord’s lender shall from time to
time reasonably require) combined single limit and $2,000,000 annual aggregate (or such higher
amount as Landlord’s lender shall from time to time reasonably require) for bodily injury
(including death resulting therefrom and third-party property damage).

          (d) The insurance policies herein mentioned shall provide thirty (30) days notice of
cancellation to all parties named therein as insured.

          (e) Any provision in this Lease to the contrary notwithstanding, each party, to the extent it
is permitted to do so by the terms and provisions of any of the above policies, hereby waives any
and all rights to recover from the other, its agents, or employees, any loss or damage from risks
ordinarily insured against under such policies, but only to the extent that such loss or damage is
in fact covered by such insurance and is collectible by such insured party. Each party further
covenants and agrees that it will, upon request of the other, request each such insurance company
to attach to such policy or policies issued by it a waiver of subrogation with respect to the other
party, its agents or employees.

     14. Environmental Compliance. Tenant will not permit, except in full compliance with
all government regulations, any polluting, toxic or hazardous substances (as defined below)

7

 

to be
used, generated, treated, stored, released, discharged or disposed of, on or from the Demised
Premises or on adjacent sites at any time, nor permit any Person to transport any such substances
under or across the Demised Premises. “Hazardous Substance” shall be defined as such term is
defined in and pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601 et seq. (“CERCLA”), or “RCRA”, “CAA”, “TSCA”, or “FIFRA”, or the
Federal Clean Water Act (33 U.S.C. Section 1251 et seq.), or any state or local environmental law,
regulation or ordinance. Tenant will not permit any PCB, PCB-contaminated, friable asbestos or
formaldehyde-based insulation items to be present on the Demised Premises. Tenant will indemnify
Landlord for any environmental hazards or Hazardous Substances that Tenant creates, or allows to be
created or deposited on the Premises.

     15. Assignment and Subletting.

          (a) Except as expressly permitted pursuant to Section 15(c) below, Tenant shall not assign
this Lease or sublet all or any part of the Premises or the Personal Property of any Facility
without the prior written consent of the Landlord. As used in this Section the prohibition on
assigning or subleasing shall apply to any assignment or sublease to an entity whether by merger or
operation of law or otherwise even though Tenant may be the surviving entity. In the event
Landlord gives such consent, Tenant shall remain liable to Landlord for Tenant’s obligations
hereunder notwithstanding such assignment or subletting. Tenant shall not assign or transfer any
of its interest in any licenses, permits, certificates of need, or Medicaid or Medicare
reimbursement contracts pertaining to any Facility or assign, transfer, or remove or permit any
other Person to assign, transfer, or remove any records pertaining to any Facility
including, without limitation, patient records, clinical and medical records (except for
removal of such patient records as directed by the patients owning such records or removal
otherwise completed in the normal course of business), without Landlord’s written consent. At the
termination of the Lease Term with respect to a Facility, Tenant shall be permitted to remove
copies, but not originals, of all records pertaining to such Facility which are necessary to
maintain complete business records of Tenant’s operations.

          (b) For purposes of this Section 15, the term “assign” shall be deemed to include (i) the
conveyance, sale, assignment, transfer or disposition of any stock or partnership, membership or
other interests (whether equity or otherwise) in Tenant (which shall include any conveyance, sale,
assignment, transfer or disposition of any stock or partnership, membership or other interests
(whether equity or otherwise) in any Controlling Person(s)), if such conveyance, sale, assignment,
transfer or disposition results, directly or indirectly, in a change in control of Tenant (or in
any Controlling Person(s)), (ii) the dissolution, merger or consolidation of Tenant (which shall
include any dissolution, merger or consolidation of any Controlling Person) with any other Person,
if such dissolution, merger or consolidation, directly or indirectly, results in a change in
control of Tenant or in any Controlling Person(s), (iii) the sale, conveyance, assignment, or other
transfer of all or substantially all of the assets of Tenant (which shall include any sale,
conveyance, assignment, or other transfer of all or substantially all of the assets of any
Controlling Person(s)), (iv) the sale, conveyance, assignment or other transfer of any of the
assets of Tenant (which shall include any sale, conveyance, assignment, or other transfer of any of
the assets of any Controlling Person) if the Consolidated Net Worth of Tenant (or such Controlling
Person, as the case may be) immediately following such transaction is not at least equal to
seventy-five percent (75%) of the Consolidated Net Worth of Tenant (or such

8

 

Controlling Person)
immediately prior to such transaction, or (v) the entering into or permitting to be entered into
any agreement or arrangement to do any of the foregoing or to grant any option or other right to
any Person to do any of the foregoing.

          (c) Notwithstanding anything to the contrary contained in Section 15(a) above, Landlord’s
consent shall not be required in connection with any assignment of Tenant’s interest in this Lease
or sublease of the entire Premises of a Facility to an Affiliate of Tenant, so long as in
connection therewith, each of the following conditions is met:

               (1) In connection with such assignment or sublease, there is no change in the use of the
Premises of any Facility from the use set forth on Exhibit A applicable to such Facility;

               (2) No event of default by Tenant or other event or circumstance which, with notice or lapse
of time or both, would constitute an event of default by Tenant, shall have occurred and be
continuing hereunder;

               (3) In the case of such an assignment, the assignee shall assume all of the obligations of
Tenant hereunder accruing subsequent to the effective date of such assignment by an instrument in
writing in form and substance reasonably satisfactory to Landlord. A copy of such executed
assumption shall be delivered to Landlord along with the notice specified in clause (6) below;

               (4) The original Tenant shall not be released from any of the obligations of the Tenant
hereunder, whether occurring prior to or after the effective date of such transaction, and if
requested by Landlord, shall execute a written guaranty of the “Tenant’s” obligations under this
Lease in a form satisfactory to Landlord;

               (5) In the case of such a sublease, such sublease shall be expressly subject and subordinate
to all applicable terms and conditions of this Lease and provide that upon the expiration or
earlier termination of this Lease Landlord, at its option and without any obligation to do so, may
require any sublessee to attorn to Landlord, in which event Landlord shall undertake the
obligations of Tenant, as sublessor under such sublease from the time of the exercise of such
option to the termination of such sublease; provided, however, that in such case Landlord shall not
be liable for any prepaid rents, fees or other charges or for any prepaid security deposits paid by
such sublessee to Tenant or for any other prior defaults of Tenant under such sublease. In the
event that Landlord shall not require such attornment with respect to any sublease, then such
sublease shall automatically terminate upon the expiration or earlier termination of this Lease,
including any early termination by mutual agreement of Landlord and Tenant. In addition, any such
sublease shall provide that in the event that the sublessee receives a written notice from Landlord
stating that an event of default on the part of Tenant has occurred or that an event or
circumstance has occurred which with notice and/or passage of time would constitute an event of
default by Tenant, such sublessee thereafter shall without further consent or instruction of Tenant
pay all rentals accruing under such sublease directly to Landlord or as Landlord may direct;
provided however that (i) as and to the extent that the amounts so paid to Landlord, together with
other amounts paid to or received by Landlord on account of this Lease, exceed the amounts then due
Landlord from Tenant under this Lease, the excess shall be

9

 

promptly remitted to Tenant, and (ii) at
such time as the event of default by Tenant has been cured and this Lease reinstated (if ever),
Landlord shall notify and direct the sublessee in writing to resume making payments of rentals
under their sublease directly to Tenant or as Tenant may direct. Any such rentals collected from
such sublessee by Landlord shall be credited against the amounts owing by Tenant under this Lease
in such order of priority as Landlord shall reasonably determine. Furthermore, any sublease shall
expressly provide that (a) the sublessee shall furnish Landlord with such financial, operational
and other information about the physical condition of the applicable Facility, as Landlord may
request from time to time and (b) to the extent the sublessee is the License Holder of the
applicable Facility, such sublessee shall comply with the terms and provisions of Section 45 below.

               (6) Tenant shall deliver to Landlord a written instrument from Guarantor in form and substance
satisfactory to Landlord consenting to such assignment or sublease and reaffirming all of its
obligations under the written guaranty delivered to Landlord as of the date hereof securing
Tenant’s obligations hereunder; and

               (7) Within ten (10) days after the effectiveness of such transaction, Tenant shall notify
Landlord in writing of the occurrence of such event, the effective date thereof, the facts placing
the same within the provisions of this Section 15(c) and any other change in the address for
billings and notices to the Tenant pursuant to this Lease, accompanied by an executed copy of the
assumption, sublease or written guaranty as required pursuant to this Lease.

          (d) Anything contained in this Lease to the contrary notwithstanding, (i) no assignment,
sublease or other transfer of Tenant’s interest in and to this Lease shall be consummated on any
basis such that the rental or other amounts to be paid by the Occupant, assignee, manager or other
transferee thereunder would be based, in whole or in part, on the income or profits derived by the
business activities of the Occupant, assignee, manager or other transferee; (ii) Tenant shall not
consummate any assignment, sublease or other transfer of Tenant’s interest hereunder with any
Person in which Tenant or Landlord owns an interest, directly or indirectly (by applying
constructive ownership rules set forth in Section 856(d)(5) of the Code); and (iii) Tenant shall
not consummate an assignment, sublease or other transfer of Tenant’s interest hereunder with any
Person or in any manner which could cause any portion of the amounts received by Landlord pursuant
to this Lease or any Occupancy Arrangement to fail to qualify as “rents from real property” within
the meaning of Section 856(d) of the Code, or any similar or successor provision thereto or which
could cause any other income of Landlord to fail to qualify as income described in Section
856(c)(2) of the Code.

     16. Management and Consulting. Tenant may not enter into any management or consulting
agreement involving the operations of any Facility on the Demised Premises, without obtaining the
advance written consent of Landlord, such consent being in Landlord’s reasonable discretion.
Notwithstanding the foregoing, Tenant shall be permitted to enter into management or consulting
agreements with its Affiliates provided that it gives 30 days’ prior notice to Landlord, the
obligations of such Affiliate are guaranteed by Guarantor pursuant to a written guaranty in form
and substance reasonably acceptable to Landlord, and such management or consulting agreement shall
expressly provide that any amounts due and owing from Tenant to such Affiliate pursuant to such
management or consulting agreement shall be subordinate to

10

 

Tenant’s obligation to pay to Landlord
Minimum Rent and all sums due under this Lease; provided, however, that (a) nothing contained in
this Section shall be deemed to restrict or prohibit the payment of any amounts due and owing from
Tenant to any Affiliate of Tenant pursuant to the terms of any such management or consulting
agreement unless and until an event of default has occurred hereunder, and (b) if an event of
default occurs hereunder, any Affiliate of Tenant may terminate any management or consulting
agreement to which it is a party with Tenant if such Affiliate of Tenant is not paid the amounts
due and owing to it thereunder.

     17. Signs. Tenant shall have the right, upon Landlord’s prior written consent, which
consent shall not be unreasonably withheld or delayed, to install, maintain and replace in, on or
over, or in front of, the Premises of any Facility or any part thereof, such signs and advertising
matter as Tenant may desire. Tenant shall comply with all applicable requirements of governmental
authorities having jurisdiction and shall obtain any necessary permits for such purpose. As used
in this paragraph, the word “sign” shall be construed to include any placard, light or other
advertising symbol or object, irrespective of whether same be temporary or permanent.

     18. Eminent Domain. If the whole or substantially all of the Premises of any Facility, or all or substantially
all of the means of access thereto, be acquired by eminent domain or by purchase in lieu thereof,
so that the Premises of such Facility cannot be licensed for the specific use relating to such
Facility as set forth on Exhibit A (including the number of beds specified therein), this
Lease shall terminate as to such Facility as of the date of the actual taking and the provisions of
Section 41 below shall apply. Should, however, only a portion of the Premises of any Facility be
so condemned or taken, so as not to materially and adversely affect the specific use of the
Premises relating to such Facility for the purposes for which it is leased hereunder, this Lease
shall continue in full force and effect; provided, however, that the Allocated Minimum Rent payable
under the unexpired Term of this Lease for such Facility shall be adjusted to such extent as may be
fair and reasonable under the circumstances. Landlord shall, in such event, promptly restore the
Demised Premises of such Facility as nearly as feasible to the condition of such Premises
immediately prior to the taking, subject to reasonable delays, but Landlord shall not be required
to restore or rebuild the Demised Premises of such Facility during the last Lease Year of the
Initial Term or any Renewal Term or to restore Tenant’s fixtures, furnishings, floor coverings,
equipment, stock or other fixtures, furnishings, floor coverings, equipment, stock or other
personalty located at such Facility. Tenant shall not be entitled to any part of the condemnation
proceeds arising from any partial taking of any Facility, except that Tenant shall be entitled to
make a claim for any of Tenant’s property located at such Facility condemned other than Tenant’s
interest in this Lease with respect to such Facility. Notwithstanding the foregoing, this Lease
shall terminate with respect to any Facility if, as the result of only a portion of the Demised
Premises of such Facility being condemned or taken, Tenant is prevented from operating or using the
Demised Premises of such Facility under the then-existing governmental and quasi-governmental
licenses, permits, approvals and certifications. In such case, Landlord and Tenant shall have such
rights to condemnation awards as are set forth above for a total or substantial taking.

     19. Utility Easements. Landlord agrees, without expense to it, to execute all
necessary documents for utility easements required to service the buildings constructed on the
Demised Premises.

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     20. Default.

          (a) Any one or more of the following events shall constitute events of default:

               (1) Tenant’s failure to make any payment of rent (whether monthly Minimum Rent or additional
rent) when the same is due and payable and the continuance of such failure for a period of ten (10)
days after written notice to Tenant by Landlord.

               (2) Tenant’s failure to perform any of the other covenants, conditions and agreements imposed
by it under this Lease and the continuance of such failure without curing of same for a period of
thirty (30) days after receipt by certified mail or delivery to Tenant of notice in writing from
Landlord specifying the nature of such failure. If Tenant cannot reasonably cure such failure
within 30 days, then Tenant shall not be in default hereunder so long
as Tenant commences and diligently pursues to cure such failure within 30 days after receipt
of such notice.

               (3) The adjudication of Tenant as a bankrupt, or the appointment of a receiver or trustee for
Tenant’s property and affairs, or the making by Tenant of any assignment for the benefit of its
creditors or the filing by or against Tenant of a petition in bankruptcy not vacated or set aside
within ninety (90) days of such filing.

               (4) The failure of Tenant to correct or cause to be corrected, within the time deadlines set
by any applicable Medicare, Medicaid or licensing agency, but in no event later than six (6)
months, any deficiency that justifies a termination by such agency of Tenant’s Medicare contract,
Medicaid contract or nursing home license with respect to any Facility.

               (5) Tenant or any Facility should be assessed fines or penalties in excess of $25,000 in the
aggregate in any calendar year by any state or any Medicare, Medicaid, health or licensing agency
having jurisdiction over Tenant or such Facility.

               (6) A final judgment shall be rendered by a court of law or equity against Tenant and the same
shall remain undischarged or unbonded for a period of thirty (30) days, unless such judgment is
either (i) fully covered by collectible insurance and such insurer has within such period
acknowledged such coverage in writing, or (ii) although not fully covered by insurance, enforcement
of such judgment has been effectively stayed, such judgment is being contested or appealed by
appropriate proceedings and Tenant has established reserves adequate for payment in the event
Tenant is ultimately unsuccessful, in such contest or appeal and evidence thereof is provided to
Landlord.

               (7) A default shall occur under any New Lease hereafter with or in favor of Landlord or any
Affiliate of Landlord and made by or with Tenant or any Affiliate of Tenant where the default is
not cured within any applicable grace period provided therein.

               (8) The right to notice and cure is only available to curable and material defaults, including
but not limited to payment defaults, and only to one occurrence of such default during any one year
period. The right to notice and cure shall have no effect with respect to subsequent defaults
within such one year period and shall not be applicable to false warranty or bankruptcy defaults.

12

 

          (b) After the applicable cure periods have elapsed, pursuant to the respective provision
hereinbefore set forth and in the event of default, Landlord, in addition to any other right or
remedy it may have respect to such default, may terminate this Lease with respect to any one or
more (including all, if so elected by Landlord) of the Facilities, regardless of whether such
default emanated primarily from a single Facility, immediately and re-enter the Premises of such
Facility(ies) and take possession of the Premises and the Personal Property of such Facility(ies),
or in such event Landlord may, at its option, without declaring this Lease terminated, re-enter the
Premises of such Facility(ies) and occupy or lease the whole or any part of the Premises and the
Personal Property of such Facility(ies), for and on account of Tenant and on such terms and
conditions and for such rental as Landlord may deem proper, and Landlord shall in such event
collect such rent and apply the same upon the rents due from Tenant and upon the expenses of
such subletting, and any and all other damages sustained by Landlord. In the event of
default, Landlord shall exercise reasonable efforts to mitigate damages hereunder and to relet the
Premises and the Personal Property of the applicable Facility(ies), but Landlord’s failure to so
relet shall not prevent or delay the exercise by Landlord, at its option, of its right to
accelerate and recover as damages rents due and owing for the remainder of the Term reduced to
present value, together with all costs and expenses of collecting the same, subject to Landlord’s
obligation to repay or credit Tenant with all recoveries made by Landlord.

          (c) Notwithstanding anything to the contrary contained in this Section, and without in any way
waiving or otherwise limiting Landlord’s remedies under this Lease or at law or equity, if Tenant
shall (i) fail to make any payment due and owing to any Person other than Landlord or (ii) to
perform any act required to be made or performed hereunder with respect to any Facility and such
failure shall continue for a period of ten (10) days following written notice thereof by Landlord
to Tenant, Landlord, without waiving or releasing any obligation or default, may, but shall be
under no obligation to, make such payment or perform such act for the account and at the expense of
Tenant, and may, to the extent permitted by law, enter upon the Demised Premises of such Facility
for such purpose and take all such action thereon as, in Landlord’s opinion, may be necessary or
appropriate therefor. Notwithstanding anything to the contrary contained in this Section 20(c), in
the event of emergency, Landlord shall be entitled to exercise its right to cure any Tenant default
as set forth in this Section without regard to the notice requirement and ten (10) day period
referenced in the immediately preceding sentence. No such entry shall be deemed an eviction of
Tenant. All sums so paid by Landlord and all costs and expenses, including reasonable attorneys’
fees and expenses, so incurred, shall be paid by Tenant to Landlord on demand as additional rent
hereunder.

     21. Holding Over. In the event Tenant remains in possession of the Premises of any
Facility after the expiration of the Term hereof, and without the execution of a new lease, Tenant
shall occupy the Premises of such Facility as a tenant from month to month, subject to all of the
conditions of this Lease insofar as consistent with such a tenancy, and the Allocated Minimum Rent
for such Facility shall increase by fifty percent (50%) during any such hold-over period.

     22. Attornment and Subordination.

          (a) In the event of the exercise of any power of sale under the provisions of any mortgage or
deed of trust now or hereafter encumbering the Premises of any Facility, or any portion thereof,
Tenant agrees that it shall attorn to the purchaser at such sale and that it shall

13

 

recognize such
purchaser as Landlord under the terms and provisions of this Lease and shall continue this Lease in
full force and effect regardless of whether such mortgage or deed of trust was superior or
subordinate to this Lease, provided such purchaser recognizes Tenant hereunder.

          (b) Tenant agrees that this Lease shall be and is subordinate to any deeds of trust or
mortgages now or hereafter encumbering the land and buildings of which the Demised Premises of any
Facility are a part or against any buildings hereafter placed upon the land on
which the Demised Premises of any Facility is situated, and will execute a subordination
agreement that is in form reasonably acceptable to Tenant, provided the holder of such mortgage(s)
agrees that so long as Tenant is not in default under this Lease beyond any applicable cure period,
Tenant shall not be disturbed in its quiet enjoyment of the Premises pursuant to the terms of this
Lease. Landlord shall use its best efforts to deliver a non-disturbance agreement from any lenders
holding mortgages on the Premises of any Facility, or any portion thereof, in a form reasonably
acceptable to Tenant.

          (c) Upon request by Landlord, Tenant agrees to promptly enter into and deliver to Landlord
such written instruments in reasonable form which confirm the above subordination and effect the
above attornment.

     23. Indemnification. Tenant agrees to indemnify, protect and hold harmless Landlord
from and against any and all liabilities and damages arising from or out of any occurrence in, upon
or at the Demised Premises or any part thereof, or the occupancy or use by Tenant of the Demised
Premises, the Personal Property or any part thereof, or occasioned wholly or in part by any act or
omission of Tenant, its agents, contractors, employees or invitees in connection with the Demised
Premises or the Personal Property during the Term of this Lease, or otherwise related to any
claims, assessments, charge-backs or other expenses (whether owed to or assessed by a private or
governmental party) arising in connection with the Demised Premises or the Personal Property during
the Term of this Lease.

     Landlord agrees to indemnify, protect and hold harmless Tenant from and against any and all
liabilities and damages arising from or out of any occurrence in, upon or at the Demised Premises
or any part thereof, or the occupancy or use by Tenant of the Demised Premises, the Personal
Property or any part thereof, to the extent such liabilities and damages are occasioned wholly or
in part by any act or omission of Landlord, its agents, contractors, employees or invitees, not
including the Tenant or any manager of the Facilities, in connection with the Demised Premises or
the Personal Property during the Term of this Lease.

     24. Compliance with Governmental Programs. Any alterations, changes or expansions to
the Demised Premises of any Facility, or any portion thereof, necessary to remain in compliance
with any standards required for Federal Medicare (Title XVIII) or Medicaid (Title XIX) skilled care
or intermediate care nursing programs will be negotiated at the then-current cost of construction,
which cost, together with interest at the rate of interest at which such construction is financed,
shall be amortized in level monthly additional rent payments over the agreed-upon remaining Term.

     25. Waivers. Failure of Landlord or Tenant to complain of any act or omission on the
part of either other party, no matter how long the same may continue, shall not be deemed to be a

14

 

waiver by said party of any of its rights hereunder. No waiver by Landlord or Tenant at any time,
expressed or implied, of any breach of any provisions of this Lease, shall be deemed a consent to
any subsequent breach of the same or any other provision. No acceptance by Landlord of any
partial payment shall constitute an accord or satisfaction but shall only be deemed a part
payment on account.

     26. Force Majeure. In the event that Landlord or Tenant shall be delayed, hindered in
or prevented from the performance of any act required hereunder by reason of strikes, lock-outs,
labor troubles, inability to procure materials, failure of power, restrictive, governmental laws or
regulations, riots, insurrection, the act, failure to act or default of the other party, war or
other reason beyond their control, then performance of such act (except the payment of rent which
shall not in any case be excused) shall be excused for the period of the delay and the period for
the performance of any such act shall be extended for a period equivalent to the period of such
delay.

     27. Surrender of Premises; Obligations Surviving Termination. Upon the expiration or
other termination of this Lease with respect to any Facility, Tenant covenants and agrees that it
will peaceably leave and surrender possession of the Premises and the Personal Property of such
Facility to Landlord. Upon such surrender, the Premises and the Personal Property of such Facility
shall be in good repair, ordinary wear and tear and alterations, additions and improvements herein
permitted, excepted. Following the expiration or other termination of this Lease with respect to
any Facility, Landlord and Tenant shall remain liable for all of their respective indemnification
obligations hereunder, including without limitation, pursuant to Sections 6, 9, 14, 23, 47(c)(1)
and 50 hereof.

     28. Inspection. Landlord reserves the right to inspect the Demised Premises of any
Facility and all buildings situated thereon at all reasonable times after reasonable notice and
show the property through agents or otherwise to bona fide purchasers or prospective tenants.

     29. Further Assurances. Landlord and Tenant agree to execute and deliver to each
other any additional or supplemental instruments or documents as may be reasonably requested by
Landlord or Tenant in connection with this Lease.

     30. No Joint Venture. The relationship between Landlord and Tenant shall always and
only be that of lessor and lessee. Tenant is not the agent of Landlord. Landlord shall not be
responsible for the acts or omissions of Tenant or its agents. This agreement is, and is intended
to be, a lease. Tenant does not acquire hereby any right, title or interest whatsoever, legal or
equitable, in the Premises, except as the lessee hereunder.

     31. Personal Liability. Tenant agrees to look solely to Landlord’s interest in the
Premises for collection of any judgment (or other judicial process requiring the payment of money
by Landlord) for any default
or breach by Landlord of any of its obligations under this Lease, subject, however, to the
prior rights of any ground or underlying landlord or the holder of any deed of trust or mortgage
encumbering the Premises or Landlord’s interest therein. In no event shall any partners,
principals or stockholders of Landlord ever be personally liable for such judgment. No other
assets of Landlord shall be subject to levy, execution or other judicial process for satisfaction
of Tenant’s claim.

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     32. Authorization of the Landlord and No Joinder. The execution, delivery and
performance by Landlord of this Lease and Landlord’s obligations under this Lease (i) are within
Landlord’s powers and have been duly authorized, (ii) are the valid and binding obligations of
Landlord, and (iii) do not constitute a default (or an event which, with the giving of notice or
the passage of time, or both, would constitute default) under any applicable law or any indenture,
agreement, undertaking or contract to which Landlord is a party or by which Landlord is bound. The
execution of this Lease by Landlord does not require the joinder or approval of any other Person.

     33. Authorization of Tenant and No Joinder. The execution, delivery and performance
by Tenant of this Lease and Tenant’s obligations under this Lease (i) are within Tenant’s powers
and have been duly authorized, (ii) are the valid and binding obligations of Tenant and (iii) do
not constitute a default (or an event which, with the giving of notice or the passage of time, or
both, would constitute a default) under any applicable law or any indenture, agreement or
undertaking to which Tenant is a party or by which Tenant is bound. The execution of this Lease by
Tenant does not require the joinder or approval of any other Person.

     34. Evidence of Authorization. Upon Landlord’s request, Tenant shall furnish Landlord
with evidence of the authorization of the execution of this Lease and that each person signing this
Lease on behalf of Tenant has been duly authorized by Tenant’s governing body to execute and
deliver this Lease.

     35. No Representation. It is understood and agreed by the parties hereto that this
Lease contains all of the covenants, agreements, terms, provisions, and conditions relating to the
leasing of the Premises and the Personal Property, and that Landlord has not made and is not
making, and Tenant in executing and delivering this Lease is not relying upon any warranties,
representations, promises or statements, except to the extent that the same may expressly be set
forth in this Lease.

     36. Validity. In the event that any provisions of this Lease shall be held invalid,
the same shall not affect in any respect whatsoever the validity of the remainder of this Lease.

     37. Applicable Law. This Lease and the rights of the parties hereunder shall be interpreted in accordance with
the laws of the Commonwealth of Virginia.

     38. Notices. All notices, demands and requests contemplated hereunder by either party
to the other shall be in writing, and shall be deemed given when delivered by hand, or national
recognized overnight courier, transmitted by cable, telephonic facsimile (fax), telegram, or
mailed, postage prepaid, registered, or certified mail return receipt requested:

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          (a) To Landlord, by addressing the same to:

c/o Health Care Property Investors, Inc.

3760 Kilroy Airport Way, Suite 300

Long Beach, California 90806

Attn: Legal Department

Fax: (562) 733-5200

with a copy to:

Latham & Watkins LLP

650 Town Center Drive, Suite 2000

Costa Mesa, California 92626

Attn: David C. Meckler, Esq.

Fax: (714) 755-8290

          (b) To Tenant, by addressing the same to:

Tandem Health Care, Inc.

800 Concourse Parkway South, Suite 200

Maitland, Florida 32751

Attn: Lawrence R. Deering, Chairman and CEO

Fax: (407) 571-0595

with a copy to:

Tandem Health Care, Inc.

301 Grant Street, 20th Floor

Pittsburgh, Pennsylvania 15219

Attn: Rosemary L. Corsetti, Esq., General Counsel

Fax: (412) 281-4435

or to such other address or to such other person as may be designated by notice given from time to
time during the Term by one party to the other. Any notice hereunder shall be deemed given five
(5) days after mailing, if given by mailing in the manner provided above, or on the date delivered
or transmitted if given by hand, cable, fax, overnight courier, or telegraph.

     39. Option to Purchase; Right of First Offer.

          (a) Option to Purchase. Landlord hereby grants and conveys to Tenant the exclusive
right and option to purchase the Premises of the Facilities from Landlord strictly upon the terms
and conditions set forth below.

               (1) Tenant shall have the right, upon the expiration of the Initial Term, to purchase no more
than two (2) of the Facilities from Landlord for the Purchase Price relating to such Facility(ies)
(the “Initial Option”). If Tenant desires to exercise the Initial Option, Tenant shall notify
Landlord of its exercise of the Initial Option in writing not less than one

17

 

hundred eighty (180)
days prior to the expiration of the Initial Term (the “Initial Option Notice”). In the event
Tenant delivers the Initial Option Notice to Landlord within the time period set forth in the
preceding sentence, Landlord shall have the right, within ten (10) days following receipt of the
Initial Option Notice, to require Tenant to purchase one (1) additional Facility as selected by
Landlord in its sole discretion (the “Additional Purchase Facility”), from Landlord for the
Purchase Price relating to such Facility, and the following terms and conditions shall apply to
such purchase and sale: (a) Landlord agrees to sell and Tenant agrees to purchase, upon the terms
and conditions set forth herein, the Premises of the Facility(ies) identified in the Initial Option
Notice and the Additional Purchase Facility, if any, and the Personal Property located thereat, (b)
this Lease shall become a binding agreement of purchase and sale for such identified Facility(ies)
and Additional Purchase Facility, if any and (c) the closing of the purchase and sale of the
Facility(ies) identified in the Initial Option Notice and the Additional Purchase Facility, if any,
shall occur together, pursuant to the terms of subsection (3) below.

               (2) Tenant shall have the right, upon the expiration of the first Renewal Term, to purchase
all of the Facilities then leased by Landlord to Tenant pursuant to this Lease for the Purchase
Price relating to such Facilities (the “Subsequent Option”). In no event shall Tenant purchase
less than all of the Facilities then currently leased by Landlord to Tenant pursuant to this Lease
pursuant to the Subsequent Option. If Tenant desires to exercise the Subsequent Option, Tenant
shall notify Landlord of its exercise of the Subsequent Option in writing not less than one hundred
eighty (180) days prior to the expiration of the first Renewal Term (the “Subsequent Option
Notice”). In the event Tenant delivers the Subsequent Option Notice to Landlord within the time
period set forth in the preceding sentence, (a) Landlord agrees to sell and Tenant agrees to
purchase, upon the terms and conditions set forth herein, the Premises of all the Facilities then
leased by Landlord to Tenant pursuant to this Lease, and the Personal Property located thereat, (b)
this Lease shall become a binding agreement of purchase and sale for such Facilities and (c) the
closing of the purchase and sale of such Facilities shall occur together pursuant to the terms of
subsection (3) below.

               (3) The closing of the purchase and sale of the Option Facility(ies), if any, shall take place
at a location (or through an escrow established with a nationally recognized title company)
mutually satisfactory to the parties on the Option Outside Date or no later than five (5) days
following the Option Outside Date. If Tenant fails to close within the time period specified in
the preceding sentence for a reason other than the default of the Landlord, then the Option shall
terminate and be of no further force or effect and the same shall constitute a default
by Tenant under this Lease. If Landlord fails to close within such specified time period for
a reason other than a default of the Tenant, then Tenant shall have the right to seek specific
performance of Landlord’s obligation to convey the Premises of the Option Facility(ies) in
accordance with the terms of this Section; provided, however, that the remedy of specific
performance shall not be available to enforce any other obligation of Landlord hereunder; and
provided further, that Tenant shall have no right to file suit for specific performance against
Landlord if Tenant fails to file such suit in a court of competent jurisdiction within thirty (30)
days following the date upon which the closing was to have occurred. At the closing, Landlord
shall deliver a Special Warranty Deed in proper form for recording conveying to Tenant fee simple
marketable and insurable title to the Premises relating to the Option Facility(ies), subject only
to (i) the Permitted Exceptions, (ii) encumbrances to title created or suffered by Tenant or its
Affiliates, (iii) any additional matters affecting title that are acceptable to Tenant in its

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reasonable discretion, and (iv) payment of any transfer tax and surtax for recording such Special
Warranty Deed. Landlord will also provide a Bill of Sale, No Lien Affidavit, Non-Foreign Status
Affidavit (in conformity with Section 1445(b)(2) of the Code) and such other documentation
reasonably requested by Tenant and the title company insuring Tenant’s title to the Facility(ies)
subject to the Initial Option or Subsequent Option and customarily utilized by parties in similar
transactions. At the closing, Tenant shall deliver to Landlord or the title company administering
the escrow described above, as applicable, the Purchase Price relating to the Option Facility(ies)
in immediately available funds.

               (4) Real estate taxes relating to the Option Facility(ies) shall not be pro-rated between
Tenant and Landlord as of the closing date of such Option Facility(ies), it being acknowledged and
agreed that Tenant shall be responsible for the payment of such real estate taxes prior to such
closing date pursuant to the terms of this Lease.

               (5) Risk of loss of the Premises relating to the Option Facility(ies) by reason of fire or
other casualty or by exercise of the power of eminent domain shall remain on Landlord until the
transfer of legal title.

               (6) In the event Tenant fails to notify Landlord of its exercise the Option within the
applicable time periods set forth in subsections (1) and (2) above, then Tenant’s right to purchase
the Facility(ies) pursuant to such Option shall terminate and be of no further force and effect;
provided, however, that in the event Tenant’s purchase rights pursuant to the Initial Option have
terminated, Tenant shall nonetheless have the right, pursuant to the Subsequent Option, to purchase
the Facilities then leased by Landlord to Tenant pursuant to this Lease on the terms and conditions
set forth in this Section 39(a).

          (b) Right of First Offer. In the event that during the Term of this Lease with
respect to any Facility Landlord desires to transfer or sell the Premises of such Facility,
Landlord agrees that it shall first offer to sell the Premises of such Facility to Tenant (“Right
of First Offer”). Such Right of First Offer shall be by written notice from Landlord to Tenant,
and shall specify the purchase price of the Premises of such Facility, and the material terms of
the proposed transaction (collectively, the “Terms of the Offer”). Notwithstanding anything to the
contrary contained in this Section, Landlord shall have the right to enter into a written agreement
with a third party or entity for the sale of the Premises of any Facility prior to notifying Tenant
of the Terms of the Offer, so long as such written agreement is conditioned upon Tenant’s waiver
of its Right of First Offer with respect to the Premises of such Facility and Landlord
promptly thereafter notifies Tenant of the Terms of the Offer of such written agreement.

               (1) Within twenty (20) days after delivery to Tenant of Landlord’s notice stating the Terms of
the Offer, Tenant shall by written notice to Landlord (i) accept the Terms of the Offer, (ii)
reject the Terms of the Offer or (iii) reject the Terms of the Offer but counter with a new offer
under its own terms. If Tenant fails to deliver such written notice to Landlord in the manner and
within the time specified in the preceding sentence, then Tenant shall be deemed to have elected
not to accept the Terms of the Offer.

               (2) In the event Tenant shall, in the manner and within the time specified above, (i) elect to
accept the Terms of the Offer or (ii) reject the Terms of the Offer but

19

 

propose a counter offer
under its own terms and, Landlord shall by written notice to Tenant accept such counter offer
within ten (10) days after Tenant’s delivery of its notice of such counter offer, then Landlord and
Tenant shall enter into a written agreement under the Terms of the Offer or the terms of Tenant’s
counter offer, as the case may be. If Landlord fails to accept or reject Tenant’s counter offer in
the manner and within the time specified in this subsection (2), then Landlord shall be deemed to
have elected not to accept Tenant’s counter offer.

               (3) In the event that Tenant rejects or is deemed to have rejected the Terms of the Offer
pursuant to subsection (1) above, or Landlord rejects or is deemed to have rejected Tenant’s
counter offer pursuant to subsection (2) above, Landlord shall have the right to offer to sell the
Premises of such Facility to any third person or entity, negotiate with any third party or entity
and to sell the Premises of such Facility to any third party or entity upon such terms as shall be
acceptable to Landlord and such purchaser without again offering to sell the Premises of such
Facility to Tenant; provided, however, that (a) in no event shall the purchase price of the
Premises of such Facility be less than ninety percent (90%) of the purchase price contained in the
Terms of the Offer and (b) if Landlord does not (i) execute and deliver a written purchase contract
for the sale of the Premises of such Facility with such purchaser within one hundred eighty (180)
days after Tenant’s election (or deemed election) to not accept the Terms of the Offer and (ii)
thereafter proceed to closing thereunder pursuant to the terms thereof, then any future sale of the
Premises of such Facility shall remain subject to the Right of First Offer contained herein. The
Right of First Offer contained in this Section with respect to the Premises of any Facility shall
not survive any sale or transfer of the Premises of such Facility by Landlord to any third party or
entity is accordance with the terms of this subsection (3).

               (4) Notwithstanding anything to the contrary contained in this Section 39(b), Tenant’s Right
of First Offer shall not apply to the sale or transfer of the Premises of any Facility, or any
portion thereof, (i) to any Affiliate of Landlord, (ii) to the surviving Person in connection with
a merger, consolidation or acquisition of or with Landlord, (iii) to a Person which acquires all or
substantially all of the assets of Landlord, (iv) by any lender of Landlord in connection with a
foreclosure or transfer in lieu of foreclosure of any deed of trust or mortgage executed by
Landlord for the benefit of such lender or (v) resulting from the conveyance, sale, assignment,
transfer or disposition of any stock or partnership, membership or other interests (whether equity
or otherwise) in Landlord.

               (5) In the event Landlord fails to provide Tenant with notice of the Terms of the Offer
pursuant to the terms of this subsection (b), Tenant shall have the right to seek injunctive relief
against Landlord.

          (c) Termination of Lease. In the event Tenant purchases any Facility pursuant to the
provisions of this Section 39, this Lease shall terminate with respect to such Facility, and the
provisions of Section 41 shall apply.

          (d) Landlord’s Election of 1031 Exchange. In the event that Tenant exercises its
option to purchase as provided in this Section 39, Landlord may elect to sell the Demised Premises
subject to such purchase by Tenant to Tenant in the form of a tax-deferred exchange pursuant to
Section 1031 of the Code, as amended (“1031 Exchange”). In the event that

20

 

Landlord shall so elect, Landlord shall give written notice to Tenant of such election and the following shall apply:

               (1) Simultaneous Exchange. Landlord may attempt to identify before the close of
escrow other property which qualifies as “like-kind” property for a 1031 Exchange (the “Target
Property”) by giving written notice to Tenant and identifying to the escrow holder the Target
Property prior to the close of escrow.

               (2) Non-simultaneous Exchange. If Landlord has not so identified the Target Property
before the close of escrow, then Landlord shall proceed with the close of escrow unless Landlord at
its option enters into an exchange agreement with an accommodation party (“Accommodator”) in order
to facilitate a non-simultaneous or so-called “Starker deferred” exchange. If an Accommodator is
so designated, Landlord shall cause the Accommodator (i) to acquire title to the Demised Premises
of the applicable Facility(ies) from Landlord at or before the close of escrow and, (ii) to
transfer title in the Demised Premises of the applicable Facility(ies) to Tenant on the close of
escrow for the applicable purchase price.

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

     40. Sale of Assets. Notwithstanding any other provision of this Lease, Landlord shall
not be required to (i) sell or transfer the Demised Premises of any Facility, or any portion
thereof, which is a real estate asset as defined in Section 856(c)(5)(B), or functionally
equivalent successor provision, of the Code, to Tenant if Landlord’s counsel advises Landlord that
such sale or transfer may not be a sale of property described in Section 857(b)(6)(C), or
functionally equivalent successor provision, of the Code or (ii) sell or transfer the Demised
Premises of any Facility, or any portion thereof, to Tenant if Landlord’s counsel advises Landlord
that such sale or transfer could result in an unacceptable amount of gross income for purposes of
the Ninety-Five Percent (95%) gross income test contained in Section 856(c)(2), or functionally
equivalent successor provision, of the Code. If Tenant has the right or obligation to purchase the
Demised Premises of any Facility pursuant to the terms herein, and if Landlord determines not to sell the Demised Premises of
such Facility pursuant to the above sentence, then Landlord shall promptly provide Tenant with
written notice of such determination and Tenant shall have the right, in its sole and absolute
discretion, to (a) purchase the Demised Premises of such Facility, upon and subject to all
applicable terms and conditions set forth in this Lease, at such time as the transaction, upon the
advice of Landlord’s counsel, would be a sale of property (to the extent the Demised Premises of
any Facility is a real estate asset) described in Section 857(b)(6)(C), or functionally equivalent
successor provision, of the Code, and would not result in an unacceptable amount of gross income
for purposes of the Ninety-Five Percent (95%) gross income test contained in Section 856(c)(2), or
functionally equivalent successor provision of the Code and until such time Tenant shall lease the
Demised Premises of such Facility from Landlord at the Fair Market Rental or (b) rescind the
transaction whereby Tenant was to purchase such Demised Premises by giving Landlord written notice
of such election within thirty (30) days after its receipt of Landlord’s notice described above, in
which case any additional rights of Tenant

21

 

pursuant to the terms of this Lease to purchase the
Demised Premises shall remain in full force and effect.

     41. Termination with Respect to Fewer than All of the Facilities. Wherever in this
Lease the action of terminating this Lease with respect to a Facility (or action of similar import)
is discussed, such action shall mean the termination of Tenant’s rights in and to the Demised
Premises of such Facility. Notwithstanding anything in this Lease to the contrary, if this Lease
shall be terminated by Landlord or Tenant pursuant to rights granted hereunder with respect to any
Facility, such termination shall not affect the applicable Term of this Lease with respect to the
balance of the Facilities not so terminated by Landlord or Tenant, and this Lease shall continue in
full force and effect with respect to each other such Facility, except that (a) the total Minimum
Rent payable hereunder shall be reduced by the amount of Allocated Minimum Rent with respect to
such Facility as to which this Lease has so terminated, and (b) the License Holder for the Facility
with respect to which this Lease has terminated shall be released from all obligations and
liability arising under this Lease from and after the date this Lease is terminated with respect to
such Facility, subject, however, to Landlord’s right, in the event of a termination because of an
event of default, to recover damages with respect to any such Facility as to which this Lease has
been terminated as provided in Section 20.

     42. Option to Purchase Removable Personal Property. Subject to Tenant’s right to
purchase the Facilities pursuant to Section 39 above, Landlord shall have the option, exercisable
by written notice to the Tenant, not less than thirty (30) days prior to the end of the Term or
within thirty (30) days after the earlier termination of this Lease with respect to each Facility,
to purchase all or any portion of the Removable Personal Property of such Facility at the greater
of (a) then book value of each item of such Removable Personal Property as reflected on Tenant’s
books and records maintained in accordance with GAAP, or if no book value, then for an amount equal
to the then unamortized original cost thereof or (b) the then outstanding principal balance of any
purchase money debt secured by and properly allocable to such Removable Personal Property. The
foregoing amortization rate, if applicable, shall be in accordance with the useful life of the
particular item of Removable Personal Property as reasonably determined by Tenant in accordance
with GAAP. Within ten (10) days after Landlord’s exercise of its option to purchase any Removable
Personal Property
Tenant shall notify Landlord in writing of Tenant’s determination of the purchase price
therefor based upon the foregoing formula. Upon receipt of Tenant’s purchase price notice,
Landlord shall have five (5) days within which to cancel and rescind in writing to Tenant
Landlord’s exercise of its purchase option with respect to all or any portion of the Removable
Personal Property. If Landlord does not so elect to cancel and terminate such purchase option,
Landlord shall proceed to purchase those items of Removable Personal Property as to which Landlord
has exercised its purchase option. Upon payment of the purchase price therefor, Tenant shall
convey such items of Removable Personal Property free of any encumbrance and shall execute all
documents and take any other actions reasonably necessary to evidence the transfer and conveyance
of ownership of the Removable Personal Property to Landlord and the discharge of any encumbrance
thereon. Landlord acknowledges that any such conveyance of Removable Personal Property shall be
“AS IS,” “WHERE IS,” and Landlord shall not rely on any representations or warranties regarding the
Removable Personal Property, including, without limitation, the physical condition thereof and
LANDLORD SHALL EXPRESSLY WAIVE ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

22

 

     43. Conveyance By Landlord. Subject to Tenant’s right of first offer set forth in
Section 39(b) above, Landlord may, without the consent or approval of Tenant, sell, transfer,
assign, convey or otherwise dispose of any or all of the Demised Premises of any Facility. If
Landlord or any successor owner of the Demised Premises of any Facility shall sell, transfer,
assign, convey or otherwise dispose of the Demised Premises of such Facility other than as security
for a debt, Landlord or such successor owner, as the case may be, shall thereupon be released from
all future liabilities and obligations of Landlord with respect to the Demised Premises of such
Facility under this Lease arising or accruing from and after the date of such sale, transfer,
assignment or other disposition and all such future liabilities and obligations with respect to the
Demised Premises of such Facility shall thereupon be binding upon such purchaser, grantee, assignee
or transferee. In the event of any such sale, transfer, assignment, conveyance or other
disposition (other than as security for a debt) of the Demised Premises with respect to less than
all of the Facilities then subject to this Lease, the provisions of Section 41 above shall apply.

     44. New Lease. Landlord shall have the right, subject to the terms of subsection (f)
below, at any time and from time to time during the Term for any purpose, by written notice to
Tenant, to require Tenant to execute an amendment to this Lease whereby the Demised Premises of one
or more Facilities (individually, a “Separated Property” or collectively, the “Separated
Properties”) is separated and removed from this Lease, and to simultaneously execute a substitute
lease with respect to such Separated Property(ies), in which case:

          (a) Landlord and the Tenant that is the License Holder with respect to the Separated Property
shall execute a new lease (the “New Lease”) for such Separated Property(ies), effective as of the
date specified in Section 44(c) below (the “New Lease Effective Date”), in the same form and
substance as this Lease, but with such changes thereto as necessary
to reflect the separation of the Separated Property(ies) from the balance of the Demised
Premises, including specifically the following:

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

               (2) All Minimum Rent rental escalations under the New Lease shall be at the times and in the
amounts set forth in this Lease for Minimum Rent increases; and

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

          (b) Landlord and Tenant shall also execute an amendment to this Lease effective as of the New
Lease Effective Date reflecting the separation of the Separated

23

 

Property(ies) from the balance of
the Demised Premises and making such modifications to this Lease as are necessitated thereby.

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

          (d) Landlord and Tenant shall take such actions and execute and deliver such documents,
including without limitation the New Lease and an amendment to this Lease, as are reasonably
necessary and appropriate to effectuate the provisions and intent of this Section.

          (e) Except as expressly set forth in Section 48 below, each party shall bear its own costs and
expenses in connection with any New Lease entered into in accordance with this Section.

          (f) Notwithstanding anything to the contrary contained in this Section 44, Landlord shall not
separate and remove any Separated Property(ies) from this Lease or enter into a New Lease for such
Separated Property(ies) without the prior written consent of Tenant, which consent shall not be
unreasonably withheld or delayed. Landlord shall notify Tenant in writing of its desire to remove
any Separated Property(ies) from this Lease and enter into a New Lease for such Separated
Property(ies), and Tenant shall have ten (10) days following its receipt of such notice to approve
or reasonably disapprove such removal and New Lease by written notice of such election to Landlord;
provided, however, that Tenant acknowledges and agrees that it shall not be reasonable for
Tenant to disapprove of the removal of any Separated Property(ies) from this Lease and any New
Lease for such Separated Property(ies) to be entered into in connection with any deed of trust or
other security instrument hereafter placed on Landlord’s fee
interest in the Premises of any Facility by Landlord (or any foreclosure or transfer in lieu
of foreclosure pursuant to the terms thereof). If Tenant reasonably disapproves of the removal of
any Separated Property(ies) from this Lease and any New Lease for such Separated Property(ies)
within the ten (10) day period set forth in the preceding sentence, it shall deliver to Landlord
along with the written notice of such election, a reasonably detailed writing setting forth the
reasonable grounds for such disapproval. If Tenant fails to deliver written notice to Landlord in
the manner and within the ten (10) day time period set forth herein, then Tenant shall be deemed to
have approved of the removal of the Separated Property(ies) from this Lease and the New Lease for
such Separated Property(ies).

     45. Licenses and Operations Transfer Agreements. Upon the expiration or earlier
termination of the Term applicable to any Facility, Tenant shall use reasonable efforts to transfer
to Landlord or Landlord’s nominee such Facility in a fully operational condition and shall
cooperate with Landlord or Landlord’s designee or nominee in connection with the processing by
Landlord or Landlord’s designee or nominee of any applications for all licenses, operating permits
and other governmental authorization, all contracts, including contracts with governmental or
quasi-governmental entities, business records, data, patient and resident records, and patient and
resident trust accounts, which may be necessary or useful for the operation of such Facility;
provided that the costs and expenses of any such transfer or the processing of any

24

 

such application
shall be paid by Landlord or Landlord’s designee or nominee. Tenant shall not commit any act or be
remiss in the undertaking of any act that would jeopardize the licensure or certification of such
Facility, and Tenant shall comply with all reasonable requests for an orderly transfer of the same
upon the expiration or early termination of the Term applicable to such Facility. Without limiting
the generality of the foregoing, if requested by Landlord or a proposed replacement operator for
such Facility, Tenant hereby agrees to enter into a reasonable operations transfer agreement with
such replacement operator as is customary in the transfer to a new operator of the operations of a
facility similar to such Facility, at no cost or expense to Tenant. Tenant shall not unreasonably
withhold, condition or delay its consent to entering into any interim subleases or management
agreements as may be necessary to effectuate an early transfer of the operations of such Facility
prior to the time that such replacement operator holds all licenses and permits from all applicable
governmental authorities with jurisdiction necessary to operate such Facility for its specified use
as set forth in Exhibit A. In addition, upon request, Tenant shall promptly deliver copies
of all books and records relating to the Demised Premises and all Capital Additions of such
Facility and operations thereon to Landlord or Landlord’s designee or nominee; provided however,
that Tenant shall not be required to deliver (a) any materials relating to Tenant’s policies or
procedures relating to its operations at such Facility, (b) any intellectual property of Tenant or
documents or materials relating thereto or (c) any other documents, records or other materials of a
proprietary or confidential nature.

     46. Provisions Relating to Master Lease. Landlord and Tenant hereby acknowledge and
agree that, except as otherwise expressly provided herein to the contrary, this Lease is and the
parties intend the same for all purposes to be treated as a single, integrated and indivisible
agreement. Tenant acknowledges that in order to induce Landlord to lease the Demised Premises of
each Facility to Tenant and as a condition
thereto, Landlord insisted that the parties execute this Lease covering all of the Facilities
in a single, integrated and indivisible agreement.

     47. Original Leases; Amendment and Restatement.

          (a) Pursuant to those certain written lease agreements set forth on Schedule 47 attached
hereto and incorporated herein by this reference (each, an “Original Lease” and collectively, the
“Original Leases”), the applicable Persons comprising Tenant have leased from Landlord’s
predecessors-in-interest (each, a “Prior Landlord” and collectively, the “Prior Landlords”), the
respective Facilities comprising the Demised Premises. Pursuant to the Independence/Windsor
Purchase Agreement and the Portfolio Purchase Agreement, as applicable, on the Effective Date of
this Lease with respect to each Facility, the Prior Landlords shall assign all of their right,
title and interest in and to the applicable Original Lease relating to such Facility to Landlord.

          (b) In connection with the assumption by Landlord of all of the right, title and interest of
the Prior Landlords under the Original Leases as set forth in subsection (a) above, Tenant hereby
acknowledges and agrees that, as of the Effective Date of this Lease with respect to each Facility,
Landlord shall not assume any of the obligations of the Prior Landlords under the applicable
Original Lease relating to such Facility, and Tenant hereby releases Landlord from all liabilities
and obligations of the Prior Landlords pursuant to the Original Leases.

25

 

          (c) As of the Effective Date of this Lease with respect to each Facility, this Lease amends,
consolidates and restates in their entirety the applicable Original Lease relating to such
Facility, and, to the extent applicable, shall constitute an assignment by each tenant under each
such Original Lease to all parties constituting “Tenant” hereunder, jointly and severally.
Landlord and Tenant acknowledge and agree that from and after the Effective Date of this Lease with
respect to each Facility, Tenant shall occupy the Demised Premises of such Facility pursuant to the
applicable Original Lease, as amended, consolidated and restated by this Lease. Notwithstanding
the foregoing amendment, consolidation and restatement of the Original Leases, the following
obligations of Tenant under the Original Leases, prior to amendment hereby, shall be preserved and
continue subsequent to such termination:

               (1) The applicable “Tenant” under each Original Lease shall remain responsible for and shall
indemnify and hold Landlord harmless from and against any and all claims, liabilities, damages,
actions and causes of action, costs and expenses, including attorneys’ fees, for which such Person
is responsible pursuant to such Original Lease and which accrue or have accrued on or before the
Effective Date of this Lease with respect to the Facility subject to such Original Lease.

               (2) The applicable “Tenant” under each Original Lease shall remain responsible for all
obligations of the tenant under each applicable Original Lease which have accrued on or before the
Effective Date of this Lease with respect to the Facility subject to such Original Lease until full
and complete payment and/or performance of the same.

     48. Attorneys’ Fees. If Landlord or Tenant brings an action or other proceeding against the other to enforce any
of the terms, covenants or conditions hereof or any instrument executed pursuant to this Lease, or
by reason of any breach or default hereunder or thereunder, the party prevailing in any such action
or proceeding and any appeal thereupon shall be paid all of its costs and reasonable attorneys’
fees incurred therein. In addition to the foregoing and other provisions of this Lease that
specifically require (a) Tenant to reimburse, pay or indemnify against Landlord’s attorneys’ fees,
Tenant shall pay, as additional rent, all of Landlord’s reasonable attorneys’ fees incurred in
connection with the renewal of this Lease for any Renewal Term, the review, negotiation or
documentation of any subletting, assignment, management arrangement or Capital Additions or any
consent requested in connection therewith, the collection of past due rent, and the enforcement of
Landlord’s rights under this Lease as a result of an event of default by Tenant hereunder, and (b)
Landlord to reimburse, pay or indemnify against Tenant’s attorneys’ fees, Landlord shall promptly
reimburse to Tenant all of Tenant’s reasonable attorneys’ fees incurred in connection with the
review, negotiation and documentation of (i) any non-disturbance agreement referenced in Section
22(b) above, (ii) any New Lease pursuant to Section 44 above, or (iii) any Lease amendment
referenced in Sections 62 or 63 below.

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

     50. Brokers. Landlord and Tenant represent and warrant to each other that all
negotiations relating to this Lease and the transactions contemplated hereby have been conducted
without the intervention of any real estate brokers or agents, or any other Persons acting for such

26

 

parties, so as to give rise to any valid claim against any of the parties hereto for any brokerage
commission or similar payment. Landlord and Tenant, respectively, agree to indemnify and hold
harmless the other parties hereto with respect to any breach of the foregoing representation and
warranty.

     51. No Warranties. Tenant acknowledges that, except as expressly set forth herein,
Landlord has not made, and Tenant has not relied upon, any representations or warranties regarding
the Demised Premises of any Facility or the Personal Property thereof, if any, including, without
limitation, the physical condition of the improvements located on the Demised Premises of any
Facility or the Personal Property thereof or the land use restrictions applicable to the Demised
Premises of any Facility, and that Tenant agrees to accept the Demised Premises of each Facility in
an “AS IS” condition. As to the Personal Property of each Facility, if any, TENANT EXPRESSLY
WAIVES ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, except as expressly set
forth herein.

     52. Entire Agreement; Merger. This Lease sets forth the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior negotiations and
agreements, written or oral,
except as expressly set forth herein. This Lease shall be construed, performed and enforced
under Virginia law.

     53. Short Form Lease. Neither Landlord nor Tenant shall record this Lease. Each
party shall, concurrently herewith, execute a memorandum of lease in the form attached hereto as
Exhibit F, which either party may, at its option, record at its sole cost and expense.

     54. Improvements Become Landlord’s Property. Tenant agrees that all additions and
improvements and attached equipment installed in or on the Premises relating to any Facility by
Tenant, shall immediately become the property of Landlord and shall not be removed by Tenant at the
termination of this Lease with respect to such Facility, unless requested so to do by Landlord, in
which event Tenant agrees to do so and to repair promptly any damage caused by such removal.

     55. Mechanic’s Liens. Tenant will not permit any mechanic’s or other liens incurred
by it to be established or remain against the Premises for labor or materials furnished. Tenant
shall have the ability to bond off mechanic’s liens in the event of any disputes with contractors
or subcontractors, which bonds shall be acceptable to Landlord in its reasonable discretion.

     56. Headings. The headings of each section of this Lease are intended only for
convenience of reference, and are not to be considered in construing this instrument.

     57. Parties. The covenants, conditions, obligations and agreements contained in this
Lease shall bind and inure to the benefit of Landlord and Tenant and their respective successors
and assigns.

     58. Entire Agreement. No oral statement or prior written matter shall have any force
or effect. Tenant agrees that it is not relying on any representations or agreements other than
those contained in this Lease. This Lease shall not be modified or canceled except by writing
subscribed to by all parties.

27

 

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

     60. Waiver of Trial by Jury. EACH OF LANDLORD AND TENANT ACKNOWLEDGES THAT IT HAS HAD THE ADVICE OF COUNSEL OF ITS
CHOICE WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY UNDER THE CONSTITUTION OF THE UNITED STATES AND
THE COMMONWEALTH OF VIRGINIA. EACH OF LANDLORD AND TENANT HEREBY EXPRESSLY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS LEASE (OR ANY
AGREEMENT FORMED PURSUANT TO THE TERMS HEREOF) OR (ii) IN ANY MANNER CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF LANDLORD AND TENANT WITH RESPECT TO THIS LEASE (OR ANY AGREEMENT
FORMED PURSUANT TO THE TERMS HEREOF) OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE
WHETHER NOW EXISTING OR HEREINAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE;
EACH OF LANDLORD AND TENANT HEREBY AGREES AND CONSENTS THAT, SUBJECT TO SECTION 61, ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY, AND THAT EITHER
PARTY MAY FILE A COPY OF THIS SECTION WITH ANY COURT AS CONCLUSIVE EVIDENCE OF THE CONSENT OF EACH
SUCH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.

     61. Submission to Arbitration.

          (a) Except as provided in subsection (b) below, any controversy, dispute or claim of
whatsoever nature arising out of, in connection with, or in relation to the interpretation,
performance or breach of this Lease, including any claim based on contract, tort or statute, shall
be determined by final and binding, confidential arbitration administered by the American
Arbitration Association (“AAA”) in accordance with its then-existing Commercial Arbitration Rules,
and the sole arbitrator shall be selected in accordance with such AAA rules. Any arbitration
hereunder shall be governed by the United States Arbitration Act, 9 U.S.C. 1-16 (or any successor
legislation thereto), and judgment upon the award rendered by the arbitrator may be entered by any
state or federal court having jurisdiction thereof. Neither Landlord, Tenant nor the arbitrator
shall disclose the existence, content or results of any arbitration hereunder without the prior
written consent of all parties; provided, however, that either party may disclose the existence,
content or results of any such arbitration to its partners, officers, directors, employees, agents,
attorneys and accountants and to any other Person to whom disclosure is required by applicable
legal requirements, including pursuant to an order of a court of competent jurisdiction. Unless
otherwise agreed by the parties, any arbitration hereunder shall be held at a neutral location
selected by the arbitrator in a major metropolitan area in the Commonwealth of Virginia. The cost
of the arbitrator and the expenses relating to the arbitration (exclusive of legal fees) shall be
borne equally by Landlord and Tenant unless otherwise specified in the award of the arbitrator.
Such fees and costs paid or payable to the arbitrator shall be included in “costs and reasonable
attorneys’ fees” for purposes of Section 48 and the arbitrator shall specifically

28

 

have the power to
award to the prevailing party pursuant to such Section 48 such party’s costs and expenses incurred
in such arbitration, including fees and costs paid to the arbitrator.

     (b) The provisions of this Section 61 shall not apply to:

          (i) Any unlawful detainer or other similar summary or expedited proceeding for ejectment or
recovery of possession of the Demised Premises of any Facility instituted by Landlord in accordance
with applicable legal requirements as the result of an event of default or alleged event of default
by Tenant pursuant to this Lease. In addition, if permitted by applicable legal requirements,
Landlord shall be entitled in connection with any such proceeding to seek any damages to which it
is entitled at law, including those set forth in Section 20.

          (ii) Any specific controversy, dispute, question or issue as to which this Lease specifically
provides another method of determining such controversy, dispute, question or issue and provides
that a determination pursuant to such method is final and binding, unless both Landlord and Tenant
agree in writing to waive such procedure and proceed instead pursuant to this Section 61.

          (iii) Any request or application for an order or decree granting any provisional or ancillary
remedy (such as a temporary restraining order or injunction) with respect to any right or
obligation of either party to this Lease, and any preliminary determination of the underlying
controversy, dispute, question or issue as is required to determine whether or not to grant such
relief. A final and binding determination of such underlying controversy, dispute, question or
issue shall be made by an arbitration conducted pursuant to this Section 61 after an appropriate
transfer or reference to the arbitrator selected pursuant to this Section 61 upon motion or
application of either party hereto. Any ancillary or provisional relief which is granted pursuant
to this clause (iii) shall continue in effect pending an arbitration determination and entry of
judgment thereon pursuant to this Section 61.

     62. Fishersville Facility. Tenant acknowledges that, as of the Effective Date of this
Lease with respect to the Fishersville Facility, Crossroads Baptist Church (the “Church”), occupies
a portion of the Premises of the Fishersville Facility (the “Church Occupied Property”). Landlord
plans to enter into a written license agreement (the “License”), with the Church pursuant to which
Landlord will grant to the Church a nonexclusive license to enter upon the Church Occupied Property
and the Church will agree to complete a lot line adjustment (the “Lot Line Adjustment”) in order to
sever the Church Occupied Property from the Premises of the Fishersville Facility, and annex it to
certain property (the “Adjacent Church Property”) owned by the Church located adjacent to such
Premises of the Fishersville Facility. The form and substance of the License shall be satisfactory
to Landlord, Tenant and the Church, it being acknowledged that Landlord will use reasonable efforts
to obtain an agreement from the Church to (a) annex to the Adjacent Church Property as part of the
Lot Line Adjustment that certain sloped portion of the Premises of the Fishersville Facility
immediately adjacent to the Church Occupied Property, (b) at all times maintain such sloped portion
of the Premises of the Fishersville Facility in good condition and improve the same with
landscaping reasonably satisfactory to Tenant and (c) allow the owner of the Premises of the
Fishersville Facility, or any lessee thereof, to perform the obligations set forth in subsection
(b) above in the event that the

29

 

Church fails to perform such obligations. Tenant hereby consents
to the Lot Line Adjustment (subject to its approval of the terms and conditions of the License),
and shall execute an amendment to this Lease amending the legal
description of the Premises of the Fishersville Facility to exclude the Church Occupied
Property promptly following the completion of the Lot Line Adjustment.

     63. Woodstock Facility. Tenant acknowledges that as of the Effective Date of this
Lease with respect to the Woodstock Facility, certain property adjacent to the Premises of the
Woodstock Facility (the “Adjacent Woodstock Property”), is being subdivided in connection with the
sale of such Adjacent Woodstock Property from Landlord to Shenandoah Memorial Hospital, Inc. (the
“Adjacent Property Sale”). Tenant covenants to cooperate with Landlord in Landlord’s efforts to
consummate the Adjacent Property Sale, and shall execute an amendment to this Lease amending the
legal description of the Premises of the Woodstock Facility promptly following the consummation of
the Adjacent Property Sale.

     64. Roanoke Facility. Tenant acknowledges that, following the Effective Date,
Landlord, Pheasant Ridge Health Investors, LLC and certain of its affiliates will execute and
record a written agreement establishing certain access easements and covenants regarding the
maintenance of a roadway located on the Premises of the Roanoke Facility and a walking trail
located on the Premises of the Roanoke Facility and certain adjacent property, and providing for
the payment of all costs and expenses incurred in connection therewith (the “Roanoke Declaration”).
The Roanoke Declaration shall be subject to Tenant’s prior approval, which approval shall not be
unreasonably withheld so long as the Roanoke Declaration does not materially increase the
obligations of the owner and/or occupant of the Premises of the Roanoke Facility with respect to
the maintenance and expense obligations contained therein from the maintenance and expense
obligations of such owner and/or occupant immediately prior to the Effective Date. Tenant agrees
to cooperate in good faith with Landlord, Pheasant Ridge Health Investors, LLC and its affiliates
in connection with the execution and recordation of the Roanoke Declaration. Upon the approval of
the Roanoke Declaration by Tenant and the execution and recordation of the same, Tenant shall pay
and perform all of Landlord’s obligations under the Roanoke Declaration.

30

 

     IN WITNESS WHEREOF, each of the parties hereto has caused this Lease to be executed under seal
in its name and on its behalf, each by its duly authorized officer, all as of this day and year
first above written.

	 	 	 	 	 
	 	 	LANDLORD:
	 
	 	 	 	 
	 	 	HCP VIRGINIA, INC., a Delaware corporation
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Stephen R. Maulbetsch
	 

	 	 	 	 
	 

	 	Name:
	 	Stephen R. Maulbetsch
	 

	 	Title:
	 	Senior Vice President

	 	 	 	 	 	 	 	 	 
	 	 	TENANT:	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	GENERATION LEASING COMPANY II, LLC,
	 	 	a Virginia limited liability company
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Tandem Health Care of Virginia, LLC,
	 	 	 	 	Member	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	Tandem Health Care, Inc., its Member
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	By: /s/ Lawrence R. Deering
	 

	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Name: Lawrence R. Deering
	 	 	 	 	 	 	Title: Chairman & CEO
	 
	 	 	 	 	 	 	 	 
	 	 	SP FISHERSVILLE, LLC, a Virginia limited
	 	 	liability company
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Tandem Health Care of Virginia, LLC,
	 

	 	 	 	Member	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	Tandem Health Care, Inc., its Member
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	By: /s/ Lawrence R. Deering
	 

	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Name: Lawrence R. Deering
	 	 	 	 	 	 	Title: Chairman & CEO

 

 

	 	 	 	 	 	 	 	 	 
	 	 	SP GRAYSON, LLC, a Virginia limited liability
	 	 	company
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Tandem Health Care of Virginia, LLC,
	 	 	 	 	Member	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	Tandem Health Care, Inc., its Member
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	By: /s/ Lawrence R. Deering
	 

	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Name: Lawrence R. Deering
	 	 	 	 	 	 	Title: Chairman & CEO

	 	 	 	 	 	 	 	 	 	 	 
	 	 	SP KINGS DAUGHTERS, LLC, a Virginia limited	 	 
	 	 	liability company	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	By:	 	Tandem Health Care of Virginia, LLC,
	 	 	 	 	Member	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	Tandem Health Care, Inc., its Member	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ Lawrence R. Deering	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Name: Lawrence R. Deering	 	 
	 	 	 	 	 	 	Title: Chairman & CEO	 	 

	 	 	 	 	 	 	 	 	 	 	 
	 	 	SP NEWPORT NEWS, LLC, a Virginia limited	 	 
	 	 	liability company	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	By:	 	Tandem Health Care of Virginia, LLC,
	 	 	 	 	Member	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	Tandem Health Care, Inc., its Member	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ Lawrence R. Deering	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Name: Lawrence R. Deering	 	 
	 	 	 	 	 	 	Title: Chairman & CEO	 	 

	 	 	 	 	 	 	 	 	 
	 	 	SP WILLIAMSBURG, LLC, a Virginia limited
	 	 	liability company
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Tandem Health Care of Virginia, LLC, Member

 

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	Tandem Health Care, Inc., its Member
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ Lawrence R. Deering
	 

	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Name: Lawrence R. Deering
	 	 	 	 	 	 	Title: Chairman & CEO

	 	 	 	 	 	 	 	 	 
	 	 	SP WINDSOR, LLC, a Virginia limited liability
	 	 	company,	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Tandem Health Care of Virginia, LLC,
	 	 	 	 	Member	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	Tandem Health Care, Inc., its Member
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ Lawrence R. Deering
	 

	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Name: Lawrence R. Deering
	 	 	 	 	 	 	Title: Chairman & CEO
	 
	 	 	 	 	 	 	 	 

									
	 	 	TANDEM HEALTH CARE OF FLOYD, LLC,
	 	 	a Delaware limited liability company
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Tandem Health Care, Inc., Member
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	By: /s/ Lawrence R. Deering
	 

	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Name: Lawrence R. Deering
	 	 	 	 	 	 	Title: Chairman & CEO

	 	 	 	 	 	 	 	 	 	 	 
	 	 	TANDEM HEALTH CARE OF WOODSTOCK,	 	 
	 	 	LLC, a Delaware limited liability company	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	By:	 	Tandem Health Care, Inc., Member
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ Lawrence R. Deering	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Name: Lawrence R. Deering	 	 
	 	 	 	 	 	 	Title: Chairman & CEO	 	 

 

 

EXHIBIT D

DEFINED TERMS

“Accommodator” shall have the meaning set forth in Section 39.

“Additional Purchase Facility” shall have the meaning set forth in Section 39.

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

“Allocated Initial Investment” shall mean, with respect to each Facility, at any given
time, the “Allocated Initial Investment” allocated to such Facility as set forth on Exhibit
A.

“Allocated Minimum Rent” shall mean, with respect to each Facility, at any given time, the
amount of Minimum Rent allocated to such Facility as set forth in Exhibit A, as the same
shall be increased as set forth in Exhibit E.

“Appraiser” shall have the meaning set forth in Exhibit E attached hereto.

“Capital Additions” shall have the meaning set forth in Section 9.

“CERCLA” shall have the meaning set forth in Section 14.

“Code” shall mean the Internal Revenue Code of 1986, as amended.

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

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

D-1

 

     (a) the amount of capital or stated capital (after deducting the cost of any shares, if
applicable, held in its treasury), plus

     (b) the amount of capital surplus and retained earnings (or, in the case of a capital surplus
or retained earnings deficit, minus the amount of such deficit), minus

     (c) the sum of the following (without duplication of deductions in respect of items already
deducted in arriving at surplus and retained earnings): (a) unamortized debt discount and expense;
and (b) any write-up in book value of assets resulting from a revaluation thereof subsequent to the
most recent Consolidated Financials prior to the date hereof, excluding, however, any (i) net
write-up in value of foreign currency in accordance with GAAP, (ii) write-up resulting from a
reversal of a reserve for bad debts or depreciation, and (iii) write-up resulting from a change in
methods of accounting for inventory.

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

“Demised Premises” or “Premises” shall have the meaning set forth in Section 2.

“Effective Date” shall mean, with respect to each Facility, the date set forth in or
determined under the heading “Effective Date” on Exhibit A with respect to such Facility.

“Facility” and “Facilities” shall have the meaning set forth in Section 2.

“Fair Market Rental” shall mean, with respect to each Facility, the annual fair market
rental value of the Premises of such Facility, or applicable portion(s) thereof (including any
appropriate periodic escalations therein), determined in accordance with the appraisal procedures
set forth in Exhibit E and this definition assuming the same is exposed on the open market
at the time of the appraisal, but specifically excluding brokerage commissions and other Landlord
payments that do not directly inure to the benefit of lessees.

“GAAP” shall mean generally accepted accounting principles.

“Guarantor” shall have the meaning set forth in Section 8.

“Hazardous Substance” shall have the meaning set forth in Section 14.

“Independence/Windsor Purchase Agreement” shall mean that certain Purchase and Sale
Agreement and Escrow Instructions dated as of March 22, 2004, as amended, by and among Grayson
Health Investors, LLC, Windsor Health Investors, LLC and Smith/Packett Med-Com, LLC, collectively,
as “Seller,” and Landlord or Landlord’s Affiliate, as “Buyer,” relating to the Premises of the
Independence Facility and the Windsor Facility.

2

 

“Initial Option” shall have the meaning set forth in Section 39.

“Initial Option Notice” shall have the meaning set forth in Section 39.

“Initial Term” shall have the meaning set forth in Section 5.

“Lease Year” shall mean with respect to such Facility each period of twelve (12) full
calendar months from and after the Effective Date of this Lease with respect to such Facility,
unless the applicable Effective Date of this Lease, with respect to such Facility, is a day other
than the first (1st) day of a calendar month, in which case the first Lease Year for such Facility
shall be the period commencing on the applicable Effective Date of this Lease with respect to such
Facility and ending on the last day of the eleventh (11th) month following the month in
which the applicable Effective Date of this Lease with respect to such Facility occurs and each
subsequent Lease Year shall be each period of twelve (12) full calendar months after the last day
of the prior Lease Year; provided, however, that the last Lease Year during the term of this Lease
may be a period of less than twelve (12) full calendar months and shall end on the last day of the
term of this Lease. Notwithstanding anything to the contrary contained herein, if the Effective
Dates with respect to each Facility are not coterminous, the first (1st) Lease Year for
each Facility shall expire upon the expiration of the first (1st) Lease Year for the
Facility with the earliest Effective Date.

“License Holder” shall mean, with respect to any Facility, the Tenant that holds all
permits, licenses, approvals, entitlements and other authorizations issued by governmental
authorities necessary to operate such Facility for its specified use as set forth in Exhibit
A.

“Minimum Rent” shall mean the sum of the Allocated Minimum Rent for all of the Facilities.

“New Lease” shall have the meaning set forth in Section 44.

“New Lease Effective Date” shall have the meaning set forth in Section 44.

“Occupancy Arrangement” shall mean any sublease, license or other arrangement with a Person
for the right to use, occupy or possess any portion of the Demised Premises and/or any Capital
Additions.

“Occupant” shall mean any Person having rights of use, occupancy or possession under an
Occupancy Arrangement.

“Option” shall mean the Initial Option or the Subsequent Option, as applicable.

“Option Facility(ies)” shall mean any Facility identified by Tenant in the Initial Option
Notice together with the Additional Purchase Facility, if any, with respect to the Initial Option,
and all Facilities then leased by Landlord to Tenant pursuant to this Lease with respect to the
Subsequent Option.

3

 

“Option Outside Date” means, with respect to the Initial Option and the Additional Purchase
Facility, the expiration of the Initial Term, and with respect to the Subsequent Option, the
expiration of the first Renewal Term.

“Original Lease” or “Original Leases” shall have the meaning set forth in Section
47.

“Permitted Exceptions” shall have the meaning set forth in Section 3.

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

“Personal Property” shall have the meaning set forth in Section 2.

“Portfolio Purchase Agreement” shall mean that certain Purchase and Sale Agreement and
Escrow Instructions dated as of March 22, 2004, as amended, by and among Fishersville Health
Investors, LLC, Floyd Health Investors, LLC, Kings Daughters Health Investors, LLC, Newport News
Health Investors, LLC, Pheasant Ridge Health Investors, LLC, Williamsburg Health Investors, LLC,
Woodstock Health Investors, LLC and Smith/Packett Med-Com, LLC, collectively, as “Seller,” and
Landlord or Landlord’s Affiliate, as “Buyer,” relating to the Premises of the Floyd Facility,
Fishersville Facility, Newport News Facility, Roanoke Facility, Staunton Facility, Williamsburg
Facility and Woodstock Facility.

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

“Prior Landlords” shall have the meaning set forth in Section 47.

“Purchase Price” shall mean, with respect to each Option Facility, the Allocated Initial
Investment of such Facility, as increased by One and One-Half Percent (1.5%) each Lease Year from
the applicable Effective Date through and including, (i) with respect to the Initial Option, the
expiration of the Initial Term, and (ii) with respect to the Subsequent Option, the expiration of
the first Renewal Term.

“Removable Personal Property” shall mean any item of furniture, equipment and other
tangible personal property owned by Tenant which (i) does not constitute a replacement,
modification, alteration or substitution of or to any of the Personal Property (whether or not an
upgrade thereof) or (ii) is not required in order to operate any Facility in compliance with all
licensure and certification requirements and all other legal requirements and insurance
requirements for the specified use of such Facility as set forth in Exhibit A, or either;
provided, however, that “Removable Personal Property” shall specifically not include (a) any
motorized vehicle used by

4

 

Tenant to transport residents/patients, (b) any materials relating to Tenant’s policies or
procedures relating to its operations at such Facility, (c) any intellectual property of Tenant or
documents or materials relating thereto or any other documents, records or (d) other materials of a
proprietary or confidential nature.

“Renewal Term” shall mean three (3) five (5) year renewal terms, each commencing upon the
expiration of the Initial Term or the immediately prior Renewal Term, as applicable.

“Right of First Offer” shall have the meaning set forth in Section 39.

“Separated Property” or “Separated Properties” shall have the meaning set forth in
Section 44.

“Subsequent Option” shall have the meaning set forth in Section 39.

“Subsequent Option Notice” shall have the meaning set forth in Section 39.

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

“1031 Exchange” shall have the meaning set forth in Section 39.

“Target Property” shall have the meaning set forth in Section 39.

“Taxes” shall have the meaning set forth in Section 11.

“Tenant” shall have the meaning set forth in the Preamble; provided, however, that it is
agreed and understood by all parties hereto that, with respect to each Facility, only the License
Holder with respect to such Facility shall be entitled to operate or maintain such Facility, and in
no event shall any Tenant other than the applicable License Holder with respect to such Facility be
entitled to operate or maintain such Facility or take other actions with respect to such Facility
to the extent that such operations or the taking of such actions would violate the licensure
requirements or other laws or regulations of any governmental authority with respect to such
Facility. Notwithstanding the foregoing, nothing herein shall affect the joint and several
liability of the Persons comprising the Tenant.

“Term” shall mean the Initial Term and any Renewal Terms unless earlier terminated pursuant
to the provisions hereof.

“Terms of the Offer” shall have the meaning set forth in Section 39.

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EXHIBIT E

ALLOCATED MINIMUM RENT SCHEDULE

1. Monthly Allocated Minimum Rent for each Facility for the Initial Term and the first Renewal Term
and second Renewal Term, if any, shall be as follows:

     (a) For the first (1st) Lease Year, monthly Allocated Minimum Rent for each
Facility shall be the amount set forth as “Initial Monthly Allocated Minimum Rent” for such
Facility in Exhibit A, which shall be paid in accordance with the terms of Section 6 of the
Lease.

     (b) Commencing upon the expiration of the first (1st) Lease Year of the Initial
Term, and upon the expiration of each Lease Year thereafter during the Initial Term and the first
and second Renewal Terms, if any, the then current monthly Allocated Minimum Rent for each Facility
for such Lease Year shall be increased by a percentage equal to Two Percent (2%) of the monthly
Allocated Minimum Rent for such Facility in effect for the immediately preceding Lease Year.

     2. Monthly Allocated Minimum Rent for the third Renewal Term, if any, for each Facility then leased
by Landlord to Tenant pursuant to this Lease, shall be equal to one-twelfth (1/12) of Fair Market
Rental for such Facility.

     (a) Fair Market Rental shall be determined by an independent appraisal firm, in which one or
more of the members, officers or principals of such firm are Members of the Appraisal Institute (or
any successor organization thereto), as may be reasonably selected by Landlord (the “Appraiser”).
Landlord shall cause such Appraiser to determine the Fair Market Rental of each Facility as of the
relevant date (giving effect to the impact, if any, of inflation from the date of the Appraiser’s
decision to the relevant date) and the determination of such Appraiser shall be final and binding
upon the parties. A written report of such Appraiser shall be delivered and addressed to each of
Landlord and Tenant. This provision for determination by appraisal shall be specifically
enforceable to the extent such remedy is available under applicable law, and any determination
hereunder shall be final and binding upon the parties except as otherwise provided by applicable
law. Landlord and Tenant shall each pay one-half of the fees and expenses of the Appraiser and
one-half of all other costs and expenses incurred in connection with such appraisal.

3. If any adjustment provided for in this exhibit shall not have been made at the commencement of
the Lease Year for which applicable, Tenant shall continue to pay monthly Allocated Minimum Rent
for the applicable Facility at the last rate applicable until Tenant receives Landlord’s written
notice as to such adjustment. Within ten (10) days after Tenant’s receipt of Landlord’s notice,
Tenant shall pay to Landlord an amount equal to the new monthly Allocated Minimum Rent for the
applicable Facility times the number of months from the commencement of the then current
Lease Year to the date of receipt of Landlord’s notice, less the aggregate amount paid by
Tenant on account of monthly Allocated Minimum Rent for such Facility during the same period.
Thereafter, Tenant shall pay monthly Allocated Minimum Rent

E-1

 

for the applicable Facility for the applicable Lease Year at the new rate set forth in Landlord’s
notice.

E-2

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