Document:

Exhibit 10.36  

[Mesa,
AZ] 

GUARANTY OF OBLIGATIONS  

The
undersigned, The Ensign Group, Inc., a Delaware corporation ("Guarantor"), as a material and necessary inducement to HEALTH CARE PROPERTY INVESTORS, INC., a Maryland corporation
("Owner"), to (i) acquire certain property (the "Property") pursuant to a Contract of Acquisition, dated as of January    , 2003, with BROWN ROAD SENIOR HOUSING LLC, a Nevada limited
liability company ("Seller") (as the same may be amended, supplemented or otherwise modified from time to time, the "Acquisition Agreement"), and (ii) enter into a Lease, of even date herewith,
with MOENIUM HOLDINGS LLC, a Nevada limited liability company ("Lessee"), as Lessee, covering the Property (as the same may be amended, supplemented or otherwise modified from time to time, the
"Lease"), hereby agrees as follows: 

        1.     Guarantor
hereby unconditionally and irrevocably guarantees to Owner: 

        (a)   the
payment when due of all costs, expenses, fees, rents and other sums payable by Seller under the Acquisition Agreement and Lessee under the Lease (collectively, the
"Documents") and the full, faithful and prompt performance when due of each and every one of the terms, conditions and covenants to be kept and performed by Seller and Lessee, as applicable, under any
of the Documents, including, without limitation, (i) any and all indemnification and insurance obligations, (ii) all obligations to operate, repurchase, rebuild, restore or replace the
Property or any facilities or improvements now or hereafter constituting a portion of the Property, (iii) all obligations of the lessee under the Lease resulting from the exercise of any
renewal or extension option under the Lease, and (iv) all obligations of the lessee to purchase the Property upon exercise of any option to purchase or right of first refusal under the Lease;
and 

        (b)   the
payment, on demand, of any fees, costs and charges of enforcement of the Documents, and the preservation and protection of Property and collateral from Lessee, if
any, which would be owing by
Seller or Lessee under clause (a) above, but for the effect of the federal Bankruptcy Code or any other state or local debtor relief law. 

The
foregoing obligations are hereafter collectively referred to as the "Guaranteed Obligations." The Guaranteed Obligations shall not be reduced by any payments or performance made by any other
guarantor or surety, the retention or receipt of any collateral, letter of credit or bond securing or otherwise supporting the Guaranteed Obligations, or the receipt of any proceeds thereof. In the
event of the failure of Seller or Lessee to pay or perform any of the Guaranteed Obligations when due, Guarantor shall forthwith pay or perform the same, as applicable, and pay all damages that may
result from the non-payment or non-performance thereof to the full extent provided under each of the Documents. Guarantor acknowledges that the Guaranteed Obligations may
exceed the payment or performance obligations of Seller and Lessee under the Documents. Payment by Guarantor shall be made to Owner in immediately available federal funds to an account designated by
Owner. 

        2.     Guarantor
represents, warrants and covenants that: 

        (a)   Guarantor
is duly organized/formed, validly existing and, to the extent applicable, in good standing under the laws of its state of organization/formation, is qualified
to do business and, to the extent applicable, in good standing in the State of Arizona, and has full power, authority and legal right to execute and to deliver and to perform and observe the
obligations and provisions of this Guaranty; 

        (b)   this
Guaranty has been duly authorized, executed and delivered by Guarantor, and constitutes the valid and binding obligation of Guarantor, enforceable against Guarantor
in accordance with its terms; 

        (c)   Guarantor
is solvent, has timely and accurately filed all tax returns required to be filed by it and is not in default in the payment of any taxes levied or assessed
against it or any of its assets, 

 

or
subject to any judgment, audit, order, decree, rule or regulation of any Governmental Authority (as defined in the Acquisition Agreement) which would, in each case or in the aggregate, adversely
affect Guarantor's condition, financial or otherwise, or Guarantor's prospects, or the transactions contemplated under the Documents; 

        (d)   no
consent, approval or other authorization of, or registration, declaration or filing with, any Governmental Authority is required for the due execution and delivery by
Guarantor of this Guaranty, or for the performance by or the validity or enforceability hereof against Guarantor; 

        (e)   there
are no actions, proceedings or investigations, including Condemnation (as defined in the Lease) proceedings or tax audits, pending or threatened, against or
affecting Guarantor, seeking to enjoin, challenge or collect damages in connection with the transactions contemplated under the Documents or which could reasonably be expected to materially and
adversely affect the financial condition or operations of Guarantor or the ability of Guarantor to carry out its obligations under this Guaranty; 

        (f)    Guarantor
has delivered to Owner copies of its financial statements dated as of a date no more than sixty (60) days prior to the date hereof. Such financial
statements are true, correct and complete in all material respects, have been prepared from and in accordance with the books and records of Guarantor and fairly present the financial position and, to
the extent applicable, the results of Guarantor's operations at the date(s) and for the period(s) indicated; 

        (g)   since
the date of Guarantor's financial statements, there has been no material adverse change in the financial condition of Guarantor from that disclosed in its
financial statements described in Section 2(f) above; 

        (h)   Guarantor
has delivered to Owner copies of all of the Organizational Documents (as defined in the Acquisition Agreement) of Guarantor. Such Organizational Documents are
true, correct and complete in all material respects; and 

        (i)    neither
this Guaranty nor any certificate, statement or other document furnished or to be furnished to Owner by or on behalf of Guarantor in connection with the
transactions contemplated under the Documents contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading. 

        3.     Guarantor
hereby unconditionally and irrevocably indemnifies, protects and agrees to defend and hold harmless Owner from and against any and all loss, cost or expense,
including costs and reasonable legal fees, arising from the breach or violation of any representation or warranty of Guarantor hereunder. 

        4.     In
such manner, upon such terms and at such times as Owner in its sole discretion deems necessary or expedient, and without notice to or consent by Guarantor, which
notice and consent are hereby expressly waived by Guarantor, Owner may alter, compromise, accelerate, extend or change the time or manner for the payment or the performance of any Guaranteed
Obligation; extend, amend or terminate any of the Documents; release Seller or Lessee or any other party to a Document by consent to any assignment (or otherwise) as to all or any portion of the
Guaranteed Obligations; release, substitute or add any one or more guarantors, lessees or sublessees (including by consent to sublease or otherwise); accept additional or substituted security for any
Guaranteed Obligation; or release or subordinate any security for any Guaranteed Obligation. No exercise or non-exercise by Owner of any right hereby given Owner, no neglect or delay in
connection with exercising any such right, no dealing by Owner with Seller or Lessee, any other guarantor or any other Person (as defined in the Lease), and no change, impairment, release or
suspension of any right or remedy of Owner against any Person, including Seller or Lessee and any other guarantor or other Person, shall in any way affect any of the obligations of Guarantor hereunder
or any security furnished by Guarantor or give Guarantor any 

2

 

recourse
or right of offset against Owner. If Owner has exculpated Seller or Lessee or any other party to a Document from liability in whole or in part and/or agreed to look solely to the Property,
any security for the Guaranteed Obligations or any other asset for the satisfaction of the Guaranteed Obligations, such exculpation and/or agreement shall not affect the obligations of Guarantor
hereunder, it being understood that Guarantor's obligations hereunder are independent of the obligations of Seller, Lessee, any other guarantor and any other party to a Document, and are to be
construed as if no such exculpation or agreement had been given to Seller or Lessee, any other guarantor or any other party to a Document. It is further understood and agreed that if any such
exculpation or agreement has been or at any time hereafter is given to Seller or Lessee, any other guarantor or any other party to a Document, Owner has done or will do so in reliance upon the
agreement of Guarantor expressed herein. 

        5.     In
addition to and without derogation of or limitation on any liens and rights of set-off given to Owner by law against any property of Seller, Lessee,
Guarantor and any other guarantor or other Person, Owner shall have a general lien on and security interest in and a right of set-off against all property of Guarantor now or hereafter in
the possession of or under the control of Owner, whether held in a general or special account, on deposit, held for safekeeping or otherwise in the possession of or under the control of Owner. Each
such lien, security interest and right of set-off may be enforced or exercised without demand upon or notice to Guarantor, shall continue in full force unless specifically waived or
released by Owner in writing and shall not be deemed waived by any conduct of Owner, by any failure of Owner to exercise any such right of set-off or to enforce any such lien or security
interest or by any neglect or delay in so doing. 

        6.     Guarantor
hereby waives and relinquishes all rights and remedies now or hereafter accorded by applicable law to sureties and/or guarantors or any other accommodation
parties, under any statutory provision, common law or any other provision of law, custom or practice, and agrees not to assert or take advantage of any such rights or remedies, including, without
limitation, (a) any right to require Owner to proceed against Seller or Lessee, any other guarantor or any other Person or to proceed against or exhaust any security held by Owner at any time
or to pursue any other remedy in Owner's power before proceeding against Guarantor; (b) any defense based upon any lack of authority of the officers, directors, partners or agents acting or
purporting to act on behalf of Seller, Lessee or any other Person, or any defect in the formation of Seller, Lessee or any other Person; (c) any defense that may arise by reason of the
incapacity, lack of authority, insolvency, bankruptcy, death or disability of any other guarantor or other Person or the failure of Owner to file or enforce a claim against the estate (in
administration, bankruptcy or any other proceeding) of any other guarantor or other Person; (d) notice of the existence, creation or incurring of any new or additional indebtedness or
obligation or of any action or non-action on the part of Seller, Lessee or any other party to a Document, or any creditor thereof, or on the part of any other guarantor or other Person
under any other instrument in connection with any obligation or evidence of indebtedness held by Owner or in connection with any Guaranteed Obligation; (e) any defense based upon an election of
remedies by Owner which destroys or otherwise impairs any subrogation rights of Guarantor or any right of Guarantor to proceed against Seller, Lessee or any other party to a Document for
reimbursement, or both; (f) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more
burdensome than that of the principal; (g) any duty on the part of Owner to disclose to Guarantor any facts Owner may now or hereafter know about Seller, Lessee or any other party to a
Document, regardless of whether Owner has reason to believe that any such fact materially increases the risk beyond that which Guarantor intends to assume or has reason to believe that any such fact
is unknown to Guarantor or has a reasonable opportunity to communicate such fact to Guarantor, it being understood and agreed that Guarantor is fully responsible for being and keeping informed of the
financial condition of Seller, Lessee and all other parties to the Documents and of all circumstances bearing on the risk of non-payment or non-performance of any Guaranteed
Obligation; (h) any defense arising because of Owner's election, in any proceeding instituted under the federal 

3

 

Bankruptcy
Code, of the application of Section 1111(b)(2) of the federal Bankruptcy Code; (i) any defense based upon the validity or enforceability of, or change in, this Guaranty, or
any Document; (j) any defense or rights arising under any appraisal, valuation, stay, extension, marshaling of assets, redemption or similar law or requirement, which may delay, prevent or
otherwise affect the performance by Guarantor of any of the Guaranteed Obligations; (k) diligence, presentment and demand; (l) any requirement to mitigate any damages resulting from any
default under any of the Documents; and (m) any defense based on any borrowing or grant of a security interest under Section 364 of the federal Bankruptcy Code. Without limiting the
generality of the foregoing or any other provision hereof, Guarantor hereby expressly waives any and all benefits which might otherwise be available to guarantors under the laws of the State of
Arizona including, in each instance to the extent such laws, or any one of them, are applicable to this Guaranty, any of the Documents or any of the Guaranteed Obligations. 

        7.     Until
all of the Guaranteed Obligations have been satisfied and discharged in full, Guarantor shall not exercise its right of subrogation and Guarantor hereby waives any
right to enforce any remedy which Owner now has or may hereafter have against Seller or Lessee, any other guarantor or any other party to a Document and any benefit of, and any right to participate
in, any security or other assets now or hereafter held by Owner with respect to any of the Documents. 

        8.     All
existing and future indebtedness and other obligations to Guarantor of Seller, Lessee and each other party to a Document and the right of Guarantor to withdraw any
capital invested by Guarantor in Seller and/or Lessee is hereby subordinated to the Guaranteed Obligations. From and after the occurrence of any event of default under any of the Documents, no portion
of such subordinated indebtedness or capital shall be paid or withdrawn, nor will Guarantor accept any payment of or on account of any such indebtedness or as a withdrawal of capital, without the
prior written consent of Owner. At Owner's request, Guarantor shall cause Seller, Lessee or such other party to pay to Owner all or any part of such subordinated indebtedness or capital which
Guarantor is entitled to withdraw for application by Owner to the Guaranteed Obligations. Any payment of such subordinated indebtedness and any capital which Guarantor is entitled to withdraw which is
received by Guarantor after receipt of the above-referenced request shall be received by Guarantor in trust for Owner, and Guarantor shall cause the same to be paid immediately to Owner on account of
the Guaranteed Obligations. No such payment shall reduce or affect in any manner the liability of Guarantor under this Guaranty. 

        9.     Guarantor
shall file in any bankruptcy or other proceeding in which the filing of claims is required by law all claims which Guarantor may have against Seller, Lessee or
any other party to a Document or relating to any indebtedness or obligations of Seller, Lessee or any other party to a Document to Guarantor and will assign to Owner all rights of Guarantor
thereunder. If Guarantor does not file any such claim, Owner, as attorney-in-fact for Guarantor, is hereby authorized to do so in the name of Guarantor or, in Owner's
discretion, to assign the claim to a nominee and to cause a proof of claim to be filed in the name of Owner's nominee. The foregoing power of attorney is coupled with an interest and is irrevocable.
Owner or its nominee shall have the sole right to accept or reject any plan proposed in any such proceeding and to take any other action which a party filing a claim is entitled to do. In all such
cases, whether in administration, bankruptcy or otherwise, the Person or Persons authorized to pay such claim shall pay to Owner the amount payable on such claim and, to the full extent necessary for
that purpose, Guarantor hereby assigns to Owner all of Guarantor's rights to any such payments or distributions to which Guarantor would otherwise be entitled; provided, however, that Guarantor's
obligations hereunder shall not be satisfied except to the extent that Owner receives cash in full or property acceptable to Owner by reason of such payment or distribution. If Owner receives anything
under this Guaranty other than cash in full or property acceptable to Owner, the same shall be held as collateral for amounts due under this Guaranty. 

4

 

        10.   With
or without notice to Guarantor, Owner, in Owner's sole discretion and at any time and from time to time and in such manner and upon such terms as Owner deems fit,
may (a) apply any or all payments or recoveries from Seller or Lessee or from any other guarantor or party to a Document or realized from any security, in such manner and order of priority as
Owner may determine, to any indebtedness or obligation of Seller or Lessee with respect to any of the Documents, whether or not such indebtedness or obligation is a Guaranteed Obligation or is
otherwise secured or is due at the time of such application, and (b) refund to Seller or Lessee any payment received by Owner under either Document. 

        11.   The
amount of Guarantor's liability and all rights, powers and remedies of Owner hereunder and under any other agreement now or at any time hereafter in force between
Owner and Guarantor, including, without limitation, any other guaranty executed by Guarantor relating to any indebtedness or other obligation of Seller or Lessee to Owner, shall be cumulative and not
alternative, and such rights, powers and remedies shall be in addition to all rights, powers and remedies given to Owner by law. This Guaranty is in addition to and exclusive of any other guaranty of
the Guaranteed Obligations, including, without limitation, any other guaranty. 

        12.   The
obligations of Guarantor hereunder are primary, direct and independent of the obligations of Seller, Lessee and any other party to a Document, including, without
limitation, any other guarantor, and, in the event of any default under any of the Documents following the expiration of any grace period, a separate action or actions may be brought and prosecuted
against Guarantor, whether or not Seller, Lessee or any other party to a Document, including, without limitation, any other guarantor, is joined therein or a separate action or actions are brought
against Seller, Lessee or any other party to a Document, including, without limitation, any other guarantor. Owner may maintain successive actions for other defaults. Owner's rights hereunder shall
not be exhausted by its exercise of any of its rights or remedies or by any such action or by any number of successive actions until and unless all Guaranteed Obligations have been paid in full in
cash or performed in full. 

        13.   Guarantor
shall pay to Owner reasonable attorneys' fees and all costs and other expenses which Owner expends or incurs in collecting or compromising or enforcing payment
or performance of the Guaranteed Obligations or in enforcing this Guaranty, whether or not suit is filed, including, without limitation, all reasonable attorneys' fees and all costs and other expenses
expended or incurred by Owner in connection with any insolvency, bankruptcy, reorganization, arrangement or other similar proceedings involving Guarantor which in any way affects the exercise by Owner
of its rights and remedies hereunder. 

        14.   If
any provision or portion of this Guaranty is declared or found by a court of competent jurisdiction to be unenforceable or null and void, such provision or portion
hereof shall be deemed stricken and severed from this Guaranty, and the remaining provisions and portions hereof shall continue in full force and effect. 

        15.   This
Guaranty shall inure to the benefit of Owner, its successors and assigns, including, without limitation, the assignees of any of the Guaranteed Obligations, and any
subsequent owners or encumbrancers of the Property, and shall bind the heirs, executors, administrators, personal representatives, successors and assigns of Guarantor, whether by operation of law or
otherwise; provided, however, that Guarantor may not, without Owner's prior written consent, which such consent may be granted or withheld in Owner's sole discretion, assign or transfer any of its
rights, powers, duties or obligations hereunder. This Guaranty may be assigned by Owner with respect to all or any portion of the Guaranteed Obligations to any subsequent owners or encumbrancers of
the Property. When so assigned, Guarantor shall be liable to the assignees under this Guaranty without in any manner affecting the liability of Guarantor hereunder with respect to any of the
Guaranteed Obligations retained by Owner. 

5

 

        16.   No
provision of this Guaranty or right of Owner hereunder can be waived in whole or in part, nor can Guarantor be released from its obligations hereunder, except by a
writing duly executed by an authorized officer of Owner. 

        17.   When
the context and construction so require, all words used in the singular herein shall be deemed to have been used in the plural and the masculine shall include the
feminine and neuter and vice versa. The terms "Seller" and "Lessee," as used herein, shall mean the parties herein so named and their respective successors and assigns, whether by operation of law or
otherwise, including, without limitation, a debtor in possession under Chapter 11 of the federal Bankruptcy Code and any other Person(s) at any time assuming or succeeding to all or substantially all
of the Guaranteed Obligations. If more than one Person is a Guarantor hereunder, the obligations of all such Persons shall be joint and several. 

        18.   Guarantor
represents and warrants that the value of the consideration received, and to be received, by Guarantor in connection with the transactions contemplated under
the Documents is worth at least as much as the liabilities and obligations of Guarantor under this Guaranty, and that such liabilities and obligations are expected to benefit Guarantor either directly
or indirectly. 

        19.   EXCEPT
WHERE FEDERAL LAW IS APPLICABLE AND UNLESS OTHERWISE EXPRESSLY PROVIDED HEREIN, THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE IN WHICH THE PROPERTY IS LOCATED. In addition, the applicable arbitration provisions set forth in Article XLIV of the Lease are hereby incorporated into and made part of this Guaranty by
this reference and shall govern 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 Guaranty. 

        20.   EACH
OF GUARANTOR AND OWNER, BY OWNER'S ACCEPTANCE OF THIS GUARANTY, ACKNOWLEDGES THAT IT HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHTS TO TRIAL
BY JURY UNDER THE CONSTITUTIONS OF THE UNITED STATES AND THE STATE OF ARIZONA. EACH OF GUARANTOR AND OWNER, BY OWNER'S ACCEPTANCE OF THIS GUARANTY, HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY
OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING UNDER THIS GUARANTY OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF OWNER AND GUARANTOR WITH
RESPECT TO THIS GUARANTY 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 HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH OF GUARANTOR AND OWNER, BY OWNER'S ACCEPTANCE OF THIS GUARANTY, HEREBY AGREES AND CONSENTS THAT, SUBJECT TO THE
LAST SENTENCE OF SECTION 19 ABOVE, ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT EITHER PARTY MAY FILE A COPY OF THIS PARAGRAPH WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF GUARANTOR AND/OR OWNER TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY. 

Guarantor's
Initials:              

        21.   Except
as provided in any other written agreement now or at any time hereafter in force between Owner and Guarantor, this Guaranty shall constitute the entire agreement
of Guarantor with Owner with respect to the subject matter hereof, and no representation, understanding, promise or condition concerning the subject matter hereof shall be binding upon Owner or
Guarantor unless expressed herein. 

6

 

        22.   This
Guaranty shall remain in full force and effect and continue to be effective in the event any petition is filed by or against Seller or Lessee, any other party to a
Document or Guarantor for liquidation or reorganization, in the event Guarantor becomes insolvent or makes an assignment for the benefit of creditors or in the event a receiver or trustee is appointed
for all or any significant part of the assets of Seller or Lessee, any other party to a Document or Guarantor, and shall continue to be effective or be reinstated, as the case may be, if at any time
payment or performance of the Guaranteed Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by Owner, whether
as a "voidable preference," "fraudulent conveyance" or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded,
reduced, restored or returned, the Guaranteed Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. 

        23.   Guarantor
will from time to time promptly execute and deliver all further instruments and take all further action that may be necessary or desirable, or that Owner may
reasonably request, in order to enable Owner to exercise and enforce its rights and remedies under this Guaranty or to carry out the provisions and purposes hereof. 

        24.   Any
notice, demand and other communication hereunder shall be given in accordance with the provisions therefor set forth in the Lease, except that for purposes of this
Guaranty the address for notice for Guarantor is set forth below its signature hereto. 

EXECUTED
as of this    day of January, 2003. 

"Guarantor"

	THE ENSIGN GROUP, INC.,

a Delaware corporation	 
	

By:	
 	

/s/  CHRISTOPHER R. CHRISTENSEN      
	

 
	

Its:	
 	

President	

 

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Exhibit 10.37  

[Mesa, Arizona]

[Bellflower, California]

[Downey, California] 

 
 

FIRST AMENDMENT TO LEASE    

        THIS
FIRST AMENDMENT TO LEASE (this "Amendment") is dated as of May 27th, 2003 (the "Effective Date"), by and among HEALTH CARE PROPERTY
INVESTORS, INC., a Maryland corporation, d/b/a in the State of Arizona under the fictitious name of HC PROPERTIES, INC. ("HCPI") and HEALTH CARE INVESTORS, III, a California general
partnership ("HCI III"), on the one hand, and MOENIUM HOLDINGS LLC, a Nevada limited liability company ("Lessee"), on the other hand. HCPI and HCI III shall sometimes be collectively
referred to as "Lessor." 

RECITALS 

	A.
	HCPI
is the "Lessor," and Lessee is the "Lessee" pursuant to that certain Lease dated as of January 31, 2003 (the "Lease"), covering the Leased Property of that certain
supervisory care and independent living Facility located at 262 East Brown Road, Mesa, Arizona and commonly known as "Grand Court Mesa" (the "Grand Court Facility"), all as more
particularly described in the Lease. All capitalized terms used in this Amendment and not defined or modified herein shall have the meanings assigned to such terms in the Lease.

	B.
	Lessor
desires to add to the Leased Property and lease to Lessee, and Lessee desires to lease and hire from Lessor, certain additional real and personal property (i) comprising
an approximately 53-bed licensed skilled nursing Facility located at 9028 Rose Street, Bellflower, California and commonly known as "Rose Villa Care Center" (the "Bellflower
Facility"), and (ii) comprising an approximately 70-bed licensed skilled nursing Facility located at 9300 Telegraph Road, Downey, California and commonly known as "Brookfield
Care Center" (the "Downey Facility"). A legal description of the Land associated with the Bellflower Facility is attached hereto as Exhibit A-1 and incorporated herein
by this reference, and the Land associated with the Downey Facility is attached hereto as Exhibit A-2 and incorporated herein by this reference.

	C.
	Lessor
and Lessee desire to amend the Lease to reflect the foregoing addition of each of the Bellflower Facility and the Downey Facility to the Leased Property, but only upon the terms
and conditions set forth herein. 

AMENDMENT 

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

	1.
	Leasing.

	(a)
	Effective
as of the Effective Date, and subject to the satisfaction of the conditions to continued effectiveness of this Amendment as set forth in Section 7 below with respect
to each of the Bellflower Facility and the Downey Facility, Lessor hereby leases to Lessee and Lessee hereby hires from Lessor, the Leased Property of each of the Bellflower Facility and the Downey
Facility upon all of the terms and conditions of the Lease, as hereby amended. All references herein and in the Lease to a "Facility" or "Facilities" shall mean each Facility (as defined in the
Lease) together with the Bellflower Facility and the Downey Facility. 

 
	(b)
	Lessee
shall hold and occupy the Bellflower Facility and the Downey Facility upon all the terms and provisions of the Lease, as hereby amended, applicable to the Leased Property,
except that:

	(i)
	The
"Commencement Date" of the Lease, as hereby amended, with respect to (a) the Bellflower Facility shall be the earlier of (1) the date Lessee takes
possession or commences use of the Leased Property of the Bellflower Facility for any purpose whatsoever and (2) the date of tender of delivery of possession of the Leased Property of the
Bellflower Facility to Lessee following satisfaction of the conditions to continued effectiveness of this Amendment as set forth in Section 7 below with respect to the Bellflower Facility, and
(b) the Downey Facility shall be the earlier of (1) the date Lessee takes possession or commences use of the Leased Property of the Downey Facility for any purpose whatsoever and
(2) the date of tender of delivery of possession of the Leased Property of the Downey Facility to Lessee following satisfaction of the conditions to continued effectiveness of this Amendment as
set forth in Section 7 below with respect to the Downey Facility;

	(ii)
	Lessee
shall pay Minimum Rent with respect to the Bellflower Facility and the Downey Facility in accordance with Article III of the Lease and the applicable
provisions of Exhibit B-2 attached to the Lease, as hereby amended and supplemented;

	(iii)
	The
"Primary Intended Use" of the Bellflower Facility and the Downey Facility shall be the use set forth under the heading "Primary Intended Use" on
Exhibit B-1 attached to the Lease, as hereby amended and supplemented, and such other uses necessary or incidental to such use;

	(iv)
	Each
"Lease Year" with respect to (a) the Bellflower Facility shall be each period of twelve (12) full calendar months from and after the Commencement
Date for the Bellflower Facility, unless the Commencement Date for the Bellflower Facility is a day other than the first (1st) day of a calendar month, in which case the first Lease Year for the
Bellflower Facility shall be the period commencing on the Commencement Date for the Bellflower Facility and ending on the last day of the eleventh (11th) month following the month in which the
Commencement Date for the Bellflower 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 for the Bellflower Facility during the Term for the Bellflower Facility may be a period of less than twelve (12) full calendar months and shall end
on the last day of the Term with respect to the Bellflower Facility and (b) the Downey Facility shall be each period of twelve (12) full calendar months from and after the Commencement
Date for the Downey Facility, unless the Commencement Date for the Downey Facility is a day other than the first (1st) day of a calendar month, in which case the first Lease Year for the Downey
Facility shall be the period commencing on the Commencement Date for the Downey Facility and ending on the last day of the eleventh (11th) month following the month in which the Commencement Date for
the Downey 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 for the Downey Facility during the Term for the Downey Facility may be a period of less than twelve (12) full calendar months and shall end on the last day of the Term with respect
to the Downey Facility. Notwithstanding anything to the contrary contained herein, if the Commencement Dates with respect to the Bellflower Facility and the Downey Facility are not coterminous, the
first (1st) Lease Year for each such Facility shall expire upon the expiration of the first (1st) Lease Year for such Facility with the latest Commencement Date, unless this Amendment is terminated
with respect to a Facility pursuant to Section 7 below, in which case this last sentence shall have no force or effect and the expiration of the first (1st) Lease Year with respect to the
Facility remaining (i.e., either the Bellflower Facility or the Downey Facility) shall be determined pursuant to the other provisions of this clause (iv); 

2

 
	(v)
	Notwithstanding
anything to the contrary in the Lease, the "Minimum Repurchase Price" with respect to the Bellflower Facility and the Downey Facility shall be as
follows: (1) Bellflower Facility: an amount equal to the product of (i) ten (10), times (ii) the annual Allocated Minimum Rent for the Bellflower Facility; and (2) Downey
Facility: an amount equal to the product of (i) ten (10), times (ii) the annual Allocated Minimum Rent for the Downey Facility;

	(vi)
	Subject
to Lessee's option to extend this Lease with respect to the Bellflower Facility and the Downey Facility for the applicable Extended Term(s) for such Facilities
as provided in Section 19.1 of the Lease, as hereby amended, the "Fixed Term" of the Lease, as hereby amended, with respect to (a) the Bellflower Facility shall commence on the
Commencement Date for the Bellflower Facility, as determined pursuant to Section 1(b)(i) above, and shall expire at 11:59 p.m. (local time in the applicable County) on the
expiration of the fifteenth (15th) Lease Year for the Bellflower Facility, unless sooner terminated pursuant to any provisions of the Lease, as hereby amended and (b) the Downey Facility shall
commence on the Commencement Date for the Downey Facility, as determined pursuant to Section 1(b)(i) above, and shall expire at 11:59 p.m. (local time in the applicable County) on
the expiration of the fifteenth (15th) Lease Year for the Downey Facility, unless sooner terminated pursuant to any provisions of the Lease, as hereby amended;

	(vii)
	Lessee
shall have the right to renew the Lease with respect to the Bellflower Facility and the Downey Facility for two (2) five (5) year renewal terms as
set forth in Section 19.1 of the Lease, as hereby amended; provided, however, that such option to extend the Term of the Lease with respect to the Bellflower Facility and the Downey Facility
for the applicable Extended Terms may only be exercised for the Bellflower Facility and the Downey Facility together and not independently;

	(viii)
	Notwithstanding
anything in the Lease (including Section 4.1 of the Lease) to the contrary, "Impositions" shall not include, and Lessee shall have no
responsibility or liability for, any real or personal property taxes with respect to the Leased Property of either the Bellflower Facility or the Downey Facility which were assessed in 2002 or any
prior tax-fiscal period (including any interest or penalty thereon), and with respect to any such taxes assessed in the tax-fiscal period in which the Commencement Date for
such Facility occurs, such taxes shall be adjusted and prorated between Lessor and Lessee;

	(ix)
	Notwithstanding
anything in the Lease (including Section 4.2 of the Lease) to the contrary, Lessee shall have no responsibility or liability for any costs or
charges for electricity, power, gas, oil, water, other utilities, drainage or parking easements incurred or imposed in connection with the Leased Property of either the Bellflower Facility or the
Downey Facility prior to the applicable Commencement Date for such Facility, including any interest, penalty and other damage charge related to such costs or expenses;

	(x)
	Notwithstanding
anything in the Lease (including Section 13.1.1 of the Lease) to the contrary, Lessor and Lessee hereby acknowledge and agree that for purposes of
the Bellflower Facility and the Downey Facility, Lessee shall pay the greater of (i) Two Thousand Dollars ($2,000.00) and (ii) twenty percent (20%) of the annual premium for an
earthquake or other "differences in condition" insurance policy. Such policy shall provide coverage limits of One Million Dollars ($1,000,000.00) combined single limit with a deductible of five
percent (5%); provided however that Lessor shall have the right to place different or higher coverages for such risks, but Lessee's payment and other obligations with respect to such insurance
coverage shall not be increased thereby;

	(xi)
	Notwithstanding
anything in the Lease (including Section 13.1.5 of the Lease) to the contrary, Lessor and Lessee hereby acknowledge and agree that for purposes
of the Bellflower Facility and the Downey Facility, the required insurance coverage for claims for personal injury or property damage shall be provided under a policy of comprehensive general public
liability insurance with 

3

 

amounts
not less than One Million Dollars ($1,000,000.00) combined single limit and Three Million Dollars ($3,000,000.00) in the annual aggregate if and to the extent that such coverage is
commercially reasonably available, as reasonably determined by Lessor and Lessee. If such comprehensive general public liability insurance is not commercially reasonably available in such amount,
Lessee shall obtain and maintain such comprehensive general public liability insurance in such lesser amount, or such other insurance as reasonably approximates the required comprehensive general
public liability insurance and in such amounts, as is commercially reasonably available. Such insurance shall be deemed commercially reasonably available if the cost thereof together with the
insurance required pursuant to Section 13.1.6 (as amended hereby with respect to the Bellflower Facility and the Downey Facility) does not exceed One Thousand Two Hundred Dollars
($1,200.00) per bed, per year on an occurrence basis (adjusted to equate to constant 2003 U.S. Dollar values). In the event any such insurance is not deemed commercially reasonable herein, the
parties shall cooperate in good faith to locate suitable equivalent insurance, if any; 

	(xii)
	Notwithstanding
anything in the Lease (including Section 13.1.6 of the Lease) to the contrary, Lessor and Lessee hereby acknowledge and agree that for purposes
of the Bellflower Facility and the Downey Facility, the required insurance coverage for claims for medical professional liability shall be provided under a policy of medical professional liability
insurance with amounts not less than One Million Dollars ($1,000,000.00) combined single limit and Three Million Dollars ($3,000,000.00) in the annual aggregate if and to the extent that such coverage
is commercially reasonably available, as reasonably determined by Lessor and Lessee. If such medical professional liability insurance is not commercially reasonably available in such amount, Lessee
shall obtain and maintain such medical professional liability insurance in such lesser amount, or such other insurance as reasonably approximates the required medical professional liability insurance
and in such amounts, as is commercially reasonably available. Such insurance shall be deemed commercially reasonably available if the cost thereof together with the insurance required pursuant to
Section 13.1.5 (as amended hereby with respect to the Bellflower Facility and the Downey Facility) does not exceed One Thousand Two Hundred Dollars ($1,200.00) per bed, per year on an
occurrence basis (adjusted to equate to constant 2003 U.S. Dollar values). In the event any such insurance is not deemed commercially reasonable herein, the parties shall cooperate in good
faith to locate suitable equivalent insurance, if any;

	(xiii)
	Notwithstanding
anything in the Lease (including Section 13.1.7 of the Lease) to the contrary, Lessor and Lessee hereby acknowledge and agree that for purposes
of the Bellflower Facility and the Downey Facility, the phrase "Six Hundred Dollars ($600.00) per unit" as set forth in such Section 13.1.7 is amended to read "One Thousand Two Hundred Dollars
($1,200.00) per bed";

	(xv)
	If
any alternative arrangements are made under Sections 13.1.5, 13.1.6 or 13.1.7 of the Lease, Lessor and Lessee shall execute an Insurance Amendment
substantially in the form of Exhibit F, attached hereto in order to memorialize their understanding;

	(xvi)
	Notwithstanding
anything in the Lease (including Section 13.5 of the Lease) to the contrary, Lessor and Lessee hereby acknowledge and agree that for purposes of
the Bellflower Facility and the Downey Facility, Lessee shall secure so-called "tail coverage" for not less than two (2) years after the expiration of any claims made policy;

	(xvii)
	Notwithstanding
anything in the Lease (including Sections 2.1 and 16.5 of the Lease) to the contrary, the following shall apply with respect to the
Bellflower Facility and the Downey Facility: (A) upon the occurrence of a Put Event, Lessor shall be entitled to require Lessee to purchase the Leased Property of the Bellflower Facility or the
Downey Facility, or both, for an amount equal to the Minimum Repurchase Price of such Facility, plus all Rent then due and payable (excluding the installment of Minimum Rent due on the purchase date)
with respect to such 

4

 

Facility;
and (B) a "Put Event" shall be limited to an Event of Default pursuant to Section 16.1(e) (arising out of (i) a breach or default by Lessee during the Term of any of its
obligations or covenants pursuant to Sections 7.2.3, 37.1 or 37.2 relating to the Bellflower Facility or the Downey Facility, or (ii) any other failure of Lessee to obtain and
maintain all material licenses, permits and other authorizations to use and operate each of the Bellflower Facility and the Downey Facility for its Primary Intended Use in accordance with all Legal
Requirements); 

	(xviii)
	Notwithstanding
anything in the Lease (including Section 16.10.1 of the Lease) to the contrary, for purposes of the Bellflower Facility and the Downey
Facility, "Intangible Property" shall include all accounts and accounts receivable, including patient receivables, with respect to the Bellflower Facility and the Downey Facility; provided, however,
that at Lessee's request, Lessor agrees to enter into a subordination agreement with any institutional accounts receivable lender of Lessee subordinating Lessor's first priority security interest in
and to such accounts and accounts receivable to the security interests of such lender. The form of such subordination agreement shall be reasonably acceptable to Lessor, Lessee and such lender;

	(xix)
	Upon
the expiration of the first (1st) Lease Year with respect to each of the Bellflower Facility and the Downey Facility, if applicable, the Letter of Credit Amount
shall be increased by the amount of three (3) months Allocated Minimum Rent for the Bellflower and Downey Facilities and Lessee shall promptly provide an amendment to the letter of credit in
such increased amount. Thereafter the Letter of Credit Amount shall at all times be equal to three (3) months Minimum Rent for all Facilities for the applicable Lease Year in accordance with
the terms of Article XXI of the Lease;

	(xx)
	Notwithstanding
anything in the Lease (including Section 35.1 of the Lease, as hereby amended) to the contrary, Lessee shall have the option to purchase the
Leased Property of the Bellflower Facility and the Downey Facility at any time during the Fixed Term or each Extended Term, if any, for such Facilities for the applicable Minimum Repurchase Price for
such Facilities in accordance with the terms of Section 35.1 of the Lease, as hereby amended; provided, however, that such option to purchase the Leased Property of the Bellflower Facility and
the Downey Facility may only be exercised for the Bellflower Facility and the Downey Facility together and not independently;

	(xxi)
	Notwithstanding
anything in the Lease (including Article XXXVII of the Lease) to the contrary, Lessee shall have no liability or responsibility for the presence
of any Hazardous Substances in, on or about the Leased Property of the Bellflower Facility and the Downey Facility in violation of applicable Legal Requirements as of the Commencement Date of the
Bellflower Facility or the Downey Facility, as applicable; and

	(xxii)
	Lessor
agrees to provide Lessee with a Capital Allowance for the Downey Facility pursuant to Section 4 hereof.

	2.
	Modifications
to Terms of the Lease. Effective as of the Effective Date, the Lease shall be amended and supplemented in the following particulars:

	(a)
	New Definitions.
Except as otherwise expressly provided or unless the context otherwise requires, for all purposes of the Lease, as hereby amended, the terms defined in this
Section 2(a) shall have the meanings assigned to them as provided below and shall be added to Article II of the Lease to read, in their entireties, as follows: 

        HCI
III: Health Care Investors, III, a California general partnership. 

	(b)
	Amended
and Restated Definitions. The following definitions appearing in Article II of the Lease shall be amended and restated, in their entireties, as indicated: 

        Lessor:
Collectively, HCPI and HCI III, as their interests may appear. 

5

 

	(c)
	Renewal
Terms. The first sentence of Section 19.1 of the Lease is hereby amended to read, in its entirety, as follows: 

        "19.1 Renewal
Terms. Provided that no Event of Default, or event which, with notice or lapse of time or both, would constitute an Event of Default, has occurred and is continuing,
either at the date of exercise or upon the commencement of an Extended Term (as hereunder defined), then Lessee shall have the right to renew this Lease for two (2) five (5) year
renewal terms with respect to each Facility (each an "Extended Term"), upon (i) giving written notice to Lessor of such renewal not less than twelve (12) months and not more than
twenty-four (24) months prior to the expiration of the then current Term applicable to such Facility and (ii) delivering to Lessor concurrent with such notice a reaffirmation
of the Guaranty executed by Guarantor stating, in substance, that Guarantor's obligations under the Guaranty shall extend to this Lease, as extended by the Extended Term." 

	(d)
	Lessee's
Option to Purchase the Facilities. Section 35.1 of the Lease is hereby amended to read, in its entirety, as follows: 

        "35.1 Lessee's
Option to Purchase the Facilities. Provided no Event of Default, or event which, with notice or lapse of time or both, would constitute an Event of Default, has
occurred and is continuing hereunder, Lessee shall have the option to purchase the Leased Property of each Facility upon the expiration of the applicable Fixed Term and each Extended Term, if any, for
such Facility, at the greater of (i) the Minimum Repurchase Price for such Facility or (ii) the Fair Market Value for such Facility. Lessee may exercise such option to purchase the
Leased Property of each Facility by (i) opening an escrow (the "Escrow") with and by depositing 5% of the applicable purchase price (the "Opening Deposit) and a copy of this Lease
with a national title company reasonably acceptable to Lessor ("Escrow Holder") and giving written notice to Lessor of such deposit with Escrow Holder no earlier than eighteen (18) months and
not less than twelve (12) months prior to the expiration of the Fixed Term or the Extended Term, as applicable, for such Facility and (ii) delivering to Lessor concurrent with such
notice a reaffirmation of the Guaranty executed by Guarantor stating, in substance, that
Guarantor's obligations under the Guaranty shall extend to the purchase contract formed by Lessor and Lessee upon proper and timely exercise of such option. If Lessee shall not be entitled to exercise
such option (e.g., by reason of an Event of Default) or shall be entitled to exercise the same but shall fail to do so within the time and in the manner herein provided, such option shall lapse
and thereafter not be exercisable by Lessee. No failure by Lessor to notify Lessee of any defect in any attempted exercise of the foregoing option shall be deemed a waiver by Lessor of the right to
insist upon Lessee's exercise of such option in strict accordance with the provisions hereof. In the event that Lessee shall properly and timely exercise such option, then such transaction shall be
consummated on or within ten (10) days after the expiration of the Fixed Term or Extended Term, as applicable, for such Facility (the "Outside Closing Date")." 

	(e)
	Governing
Law. Section 45.1.7 of the Lease is hereby amended to read, in its entirety, as follows: 

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

6

 

ACCORDING
TO, AND GOVERNED BY, THE LAWS OF THE STATE IN WHICH THE LEASED PROPERTY OF SUCH FACILITY IS LOCATED. THE PARTIES CONSENT TO THE NON-EXCLUSIVE JURISDICTION OF ANY FEDERAL OR STATE
COURT IN THE COUNTY OF ORANGE, STATE OF CALIFORNIA, AND ALSO CONSENT TO SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY APPLICABLE LAW." 

	3.
	Addition
of HCI III as Lessor. By its signature hereto, HCI III joins HCPI as "Lessor" under the Lease, as hereby amended, as its interests may appear.

	4.
	Capital
Repair/Improvement Allowance for Downey Facility. In connection with the Downey Facility, Lessor and Lessee agree as follows:

	(a)
	Lessor
shall provide Lessee with a Capital Repair allowance ("Capital Allowance") equal to the lesser of (i) One Hundred Thousand Dollars ($100,000.00), or (ii) the
Aggregate Allowed Costs of Capital Repairs to the Downey Facility performed on or before the expiration of the first (1st) Lease Year with respect to the Downey Facility (the "Outside
Completion Date"); provided that (A) Lessee obtains Lessor's prior approval of the nature and cost of such Capital Repairs, which approval shall not be unreasonably withheld or delayed, and
(B) Lessee shall comply with such reasonable requirements relating to such Capital Repair as Lessor may impose in connection therewith. For purposes of this Section 4, "Aggregate Allowed
Costs of Capital Repairs" shall mean the actual out-of-pocket costs actually incurred by Lessee pursuant to the provisions of the Lease, as hereby amended, with respect to the
Capital Repairs of the Downey Facility.

	(b)
	Prior
to commencing any work pursuant to this Section 4, Lessee shall provide Lessor with the following, each of which shall be subject to Lessor's approval in its reasonable
discretion: (i) detailed plans and specifications for the work to be performed pursuant to this Section 4, (ii) a detailed estimate report to be prepared by or for Lessee, which
report shall also provide a detailed cost breakdown of all construction costs, and (iii) any other detailed budget information as Lessor may reasonably request and approve from Lessee.

	(c)
	The
Capital Allowance shall be disbursed to Lessee as follows:

	(i)
	From
and after (A) the Commencement Date of the Downey Facility, (B) issuance by any applicable governmental authority with jurisdiction any required
building permit and/or other approvals required for Lessee to perform any such Capital Repairs, (C) approval by Lessor of the nature and cost of such Capital Repairs, and (D) compliance
by Lessee with such reasonable requirements reasonably required by Lessor to be satisfied prior to commencement of any alterations, Lessor shall disburse the Capital Allowance to Lessee in draws not
more frequently than once per calendar month within fifteen (15) days after Lessee submits to Lessor evidence reasonably satisfactory to Lessor as to the Aggregate Allowed Costs of Capital
Repairs during the period since the last draw date, together with conditional lien releases executed by all contractors, subcontractors and suppliers performing that portion of the Capital Repairs to
be paid for with the Capital Allowance proceeds to be so disbursed. Additionally, notwithstanding the preceding sentence, Lessor shall be entitled to withhold, as a retainage, ten percent (10%) of any
such Capital Allowance applicable to any contract for such work.

	(ii)
	Lessor
shall disburse any portion of the Capital Allowance retained by Lessor as retainage pursuant to the last sentence of clause (i) above within fifteen
(15) days after the last to occur of: (A) delivery by Lessee to Lessor of a copy of a notice of completion with respect to such work (if applicable) showing thereon the recording
stamp of the County recorder, (B) delivery by Lessee to Lessor of evidence reasonably satisfactory to Lessor that all of the work performed by Lessee has been paid in full and that no claim of
any mechanic or materialman may become a lien on the Leased Property, or any portion thereof, (C) delivery by Lessee to Lessor of evidence satisfactory to Lessor as to the Aggregate Allowed
Costs Capital Repairs for which such Capital Allowance is 

7

 

being
applied, (D) completion of all work relating to such item of Capital Repair as to which such Capital Allowance is being applied, including all punch-list items, and
(E) delivery to Lessor of unconditional lien releases executed by all contractors, subcontractors and suppliers performing that portion of the Capital Repairs to be paid for with the retainage
portion of the Capital Allowance proceeds to be so disbursed and evidence reasonably satisfactory to Lessor that no claim of any contractor, subcontractor, supplier, mechanic or other person may
become a lien on the Leased Property arising out of such work. 

	(iii)
	In
no event will Lessor be required to make any disbursement of any portion of the Capital Allowance after the Outside Disbursement Date.

	(d)
	For
the purposes of Section 4(c) above, it is understood and agreed that the amount expended by Lessee with respect to the Aggregate Allowed Costs of Capital Repairs as
specified in any draw request by Lessee shall be demonstrated by such evidence as shall be reasonably satisfactory to Lessor.

	(e)
	Promptly
following the last disbursement provided for in clause (ii) of Section 4(c) above, Lessor shall reconcile the disbursements actually made by Lessor
pursuant to this Section 4 with the actual Lessee's Capital Allowance due to Lessee, and shall provide to Lessee a copy of such written reconciliation. If it is determined that Lessor has
disbursed to Lessee, in the aggregate, more than the Capital Allowance due to Lessee, any such excess shall be repaid by Lessee to Lessor, as an Additional Charge, within ten (10) days after
Lessee's receipt of Lessor's reconciliation. If, despite Lessee's completion of the work described in the plans and specifications and the budget and report approved by Lessor pursuant to
Section 4(b) above to Lessor's satisfaction, it is determined that Lessor has disbursed to Lessee less than the Capital Allowance due to Lessee, the difference shall be disbursed to Lessee with
Lessor's reconciliation.

	(f)
	Notwithstanding
anything to the contrary contained herein, all amounts paid or funded by Lessor on account of the Capital Allowance pursuant to this Section 4 shall be deemed
for all purposes as Capital Addition Costs paid for by Lessor under the Lease, as hereby amended.

	5.
	Exhibits
and Schedules. Exhibit A-1 and Exhibit A-2 attached hereto are hereby appended to Exhibit A to the Lease.
Exhibit B-1 attached to the Lease is hereby deleted in its entirety and replaced with Exhibit B-1 attached hereto. Exhibit B-2 attached to the
Lease is hereby renamed Exhibit B-2-1, and Exhibits B-2-2 and B-2-3 are hereby added as a new
Exhibit B-2-2 and B-2-3 to the Lease. In addition, Schedule 1 (Bellflower) and Schedule 1 (Downey) attached hereto are
hereby appended to Schedule 1 to Exhibit C to the Lease, as an itemized list of Lessor's Personal Property with respect to the Bellflower Facility and the Downey Facility,
respectively. Exhibit F attached hereto is hereby added to the Lease.

	6.
	Delays
In Delivery Of Possession. Lessee acknowledges that (i) the Leased Property of the Bellflower and Downey Facilities is currently occupied and operated as licensed skilled
nursing facilities by Sun Healthcare Corporation or an Affiliate thereof (the "Current Operator"), pursuant to the holdover provisions of a written lease between Current Operator and Lessor
which was terminated (the "Terminated Old Lease"), and (ii) Lessor's ability to tender delivery of possession of and/or Lessee's ability to obtain possession of the Leased Property of
the Bellflower and Downey Facilities is conditioned upon Current Operator's surrender of the Leased Property of such Facilities and fulfillment of the conditions precedent to its obligations under a
Transfer Agreement (as defined below) by and between Lessee and Current Operator, which is expected to occur upon satisfaction of the last of the conditions to the continued effectiveness of
this Amendment pursuant to Section 7 below.

	7.
	Conditions
to Continued Effectiveness of Amendment. With respect to each of the Bellflower Facility and the Downey Facility, the continued effectiveness of this Amendment and
the 

8

 

obligations
of Lessor and Lessee hereunder are expressly conditioned upon (i) Lessee's ability to obtain through a transfer from the Current Operator or otherwise all licenses, permits,
accreditations, authorizations and certifications from all governmental or quasi-governmental authorities, agencies, departments or otherwise which are required for the operation of each of the
Bellflower Facility and the Downey Facility for its Primary Intended Use, including any accreditations or certifications from Medicare and/or Medicaid (collectively, the "Required Approvals") and
(ii) Lessee's ability to arrange for a transition of operational responsibility under the terms of a transfer agreement between Lessee and Current Operator in form reasonably acceptable to
Lessee and Current Operator (the "Transfer Agreement"). Lessor hereby agrees that it will cooperate with Lessee in connection with obtaining all such Required Approvals and entering into such a
Transfer Agreement as reasonably requested by Lessee. Promptly upon Lessee's satisfaction of the conditions described in this Section 7 (i.e., obtaining all such Required Approvals and
executing a Transfer Agreement), Lessee shall notify Lessor of the same. 

In
the event that the conditions set forth above are not satisfied on or before July 1, 2003 (the "Adios Date") with respect to either the Bellflower Facility or the Downey Facility,
then Lessor or Lessee shall have the right and option to terminate this Amendment with respect to either Facility, or both (if applicable), for which the conditions have not occurred at any
time after the Adios Date; provided, however, that in the event that Lessee has paid licensure fees to the California Department of Health Services for the Bellflower Facility or the Downey Facility,
the Adios Date for such applicable Facility or both (if applicable) shall be extended to August 1, 2003, provided Lessee is diligently pursuing completion of the transactions
contemplated herein. In the event that Lessor reasonably determines in good faith any time after the date of this Amendment that Lessee is not using its best efforts to obtain the Required Approvals
or to enter into a Transfer Agreement on or before the Adios Date or that despite using commercially reasonable efforts Lessee will be unable to obtain such Required Approvals or enter into a Transfer
Agreement prior to the Adios Date, then Lessor shall have the right and option to terminate this Amendment with respect to any Facility for which the conditions have not occurred at any time after the
date Lessor makes such determination, and prior to the date (A) Lessee receives the Required Approvals for such Facility, and (B) Lessee executes the Transfer Agreement for such
Facility, as applicable. In the event that Lessee reasonably determines in good faith any time after the date of this Amendment that despite using commercially reasonable efforts Lessee will be unable
to obtain the Required Approvals or enter into a Transfer Agreement prior to the Adios Date for either Facility, then Lessee shall have the right and option to terminate this Amendment with respect to
any Facility for which the conditions have not occurred at any time after the date Lessee makes such determination, and prior to the date (A) Lessee receives the Required Approvals for such
Facility, and (B) Lessee executes the Transfer Agreement for such Facility, as applicable. Upon any termination of this Amendment with respect to the Bellflower Facility or the Downey Facility
pursuant to this Section 7, each party shall bear its own costs and fees incurred in the negotiation and preparation of this Amendment with respect to such Facility and in performing its
respective obligations hereunder through the date of such termination with respect to such Facility and neither party shall have any further obligation to the other hereunder with respect to such
Facility except for those obligations which are intended to survive the earlier termination of this Amendment prior to the applicable Commencement Date of the Lease with respect to the Bellflower
Facility and the Downey Facility, if
any. Pending any such termination, each party shall perform its respective obligations pursuant to this Amendment. 

	8.
	Representations
and Warranties of Lessee. As of the Effective Date, Lessee represents and warrants to the Lessor as follows.

	(a)
	Lessee
is duly organized and validly existing under the laws of its state of organization/formation, is qualified to do business and in good standing in the State and has full power,
authority and legal 

9

 

right
to execute and deliver this Amendment and to perform and observe the provisions of this Amendment to be observed and/or performed by Lessee. 

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

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

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

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

	9.
	Reaffirmation
of Master Lease. Lessor and Lessee hereby acknowledge, agree and reaffirm that the Lease, as hereby amended, is and the parties intend the same for all purposes to be
treated as a single, integrated and indivisible agreement. Lessee acknowledges that in order to induce Lessor to lease the Leased Property of each Facility (including the Bellflower Facility and the
Downey Facility) to Lessee and as a condition thereto, Lessor insisted that the parties execute the Lease, as hereby amended, covering all of the Facilities in a single, integrated and indivisible
agreement.

	10.
	Full
Force and Effect; Counterparts; Facsimile Signatures. Except as hereby amended, the Lease shall remain in full force and effect. This Amendment may be executed in any number of
counterparts, all of which shall constitute one and the same instrument. Telecopied signatures may be used in place of original signatures on this Amendment, and Lessor and Lessee both intend to be
bound by the signatures of the telecopied document. 

        [Signatures
on Next Page] 

10

 

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

	 "Lessor"	 	"Lessee"
	
 HEALTH CARE PROPERTY INVESTORS, INC.,

a Maryland corporation	
 	

MOENIUM HOLDINGS LLC, a Nevada limited liability company
	
 	

 	
 	

By:	

The Ensign Group, Inc., a Delaware corporation,

its sole Member
	By:	/s/  ARTHUR G. SUNDBY      
 Name: Arthur G. Sundby

Title: Vice President	 	 	 
	 	 	 	By:	 
	 	 	 	 	
 Christopher R. Christensen

President
	 HEALTH CARE INVESTORS, III, a

California general partnership

By HEALTH CARE PROPERTY

INVESTORS, INC., a Maryland corporation	 	 	 
	
 By:	

/s/  ARTHUR G. SUNDBY      
 Name: Arthur G. Sundby

Title: Vice President

	
 	

 	

 

CONSENT AND REAFFIRMATION OF GUARANTOR 

        The
undersigned Guarantor hereby (i) consents to this Amendment and (ii) reaffirms to Lessor that his obligations under the Guaranty dated January 31, 2003, remain
in full force and effect with respect to the Lease, as amended hereby. 

	 	 	THE ENSIGN GROUP, INC.,

a Delaware corporation
	
 	
 	

By:	

 
	 	 	 	
 Christopher R. Christensen

President

11

 

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

	 "Lessor"	 	"Lessee"
	
 HEALTH CARE PROPERTY INVESTORS, INC.,

a Maryland corporation	
 	

MOENIUM HOLDINGS LLC, a Nevada limited liability company
	
 	

 	
 	

By:	

The Ensign Group, Inc., a Delaware corporation,

its sole Member
	By:	 	 	 	 
	 	
	 	 	 
	Name:	 	 	 	 
	 	
	 	 	 
	Title:	 	 	 	 
	 	
	 	 	 
	 	 	 	By:	/s/  CHRISTOPHER R. CHRISTENSEN      
 Christopher R. Christensen

President
	 HEALTH CARE INVESTORS, III, a

California general partnership

By HEALTH CARE PROPERTY

INVESTORS, INC., a Maryland corporation	 	 	 
	
 By:	

 	
 	

 	

 
	 	
	 	 	 
	Name:	 	 	 	 
	 	
	 	 	 
	Title:	 	 	 	 
	 	
	 	 	 

CONSENT AND REAFFIRMATION OF GUARANTOR 

        The
undersigned Guarantor hereby (i) consents to this Amendment and (ii) reaffirms to Lessor that his obligations under the Guaranty dated January 31, 2003, remain
in full force and effect with respect to the Lease, as amended hereby. 

	 	 	THE ENSIGN GROUP, INC.,

a Delaware corporation
	
 	
 	

By:	

/s/  CHRISTOPHER R. CHRISTENSEN      
 Christopher R. Christensen

President

12

 
 

EXHIBIT A-1
  
    Land—Bellflower Facility    

[See
attached] 

 
 

EXHIBIT A-2
  
    Land—Downey Facility    

[See
attached] 

 
 
 

EXHIBIT B-1
  
    List of Facilities, Facility Description and Primary Intended Use, Allocated Initial Investment, and Reserve Amount    

	Facility
 
	 	Facility Description and Primary Intended Use
	 	Allocated Initial Investment
	 	Reserve Amount

	Grand Court Mesa

262 East Brown Road

Mesa, Arizona (Grand

Court Facility)	 	Supervisory care facility

consisting of 50 supervisory care

units and an independent living

facility consisting of 127 units	 	$4,500,000; plus Buyer's

Excess Transaction Costs	 	An annual amount equal to

Two Hundred Fifty Dollars

($250.00) per unit
	
 Rose Villa Care Center

9028 Rose Street

Bellflower, California

(Bellflower Facility)	
 	

Licensed skilled nursing facility

consisting of 53 beds	
 	

N/A	
 	

An annual amount equal to

Two Hundred Fifty Dollars

($250.00) per unit
	
 Brookfield Care Center

9300 Telegraph Road

Downey, California

(Downey Facility)	
 	

Licensed skilled nursing facility

consisting of 70 beds	
 	

N/A	
 	

An annual amount equal to

Two Hundred Fifty Dollars

($250.00) per unit

Exhibit B-1-1

 
 
 

EXHIBIT B-2-2
  
    MINIMUM RENT SCHEDULE
  (BELLFLOWER FACILITY)    

        1.     Monthly
Minimum Rent for the Bellflower Facility for the Term with respect to the Bellflower Facility (including the Extended Terms, if any) shall be as follows: 

	(a)
	For
the period from the Commencement Date of this Lease with respect to the Bellflower Facility through the expiration of the first (1st) Lease Year, monthly "Allocated Minimum Rent"
shall be equal to Eleven Thousand Nine Hundred Twenty-Five Dollars ($11,925.00). The first monthly payment of Allocated Minimum Rent for the Bellflower Facility shall be payable on the
Commencement Date for the Bellflower Facility (prorated as to any partial calendar month at the beginning of the Term).

	(b)
	Commencing
upon the expiration of the first (1st) Lease Year of the Fixed Term, and upon the expiration of each Lease Year thereafter during the Term (including the Extended Terms, if
any) for the Bellflower Facility, the then current monthly Allocated Minimum Rent shall be increased for the ensuing Lease Year by a percentage equal to the lesser of (i) Three Percent (3%) or
(ii) the applicable CPI Increase, but in no event shall such monthly Allocated Minimum Rent for any Lease Year be less than the monthly Allocated Minimum Rent of the immediately prior
Lease Year. 

        2.     If
any adjustment or calculation provided for in subparagraph 1(b) shall not have been made as of the commencement of the applicable Lease Year, Lessee shall
continue to pay monthly Allocated Minimum Rent for such Facility at the last rate applicable until Lessee receives Lessor's notice as to such adjustment. Within ten (10) days after Lessee's
receipt of Lessor notice, Lessee shall pay to Lessor an amount equal to the new monthly Allocated Minimum Rent for such Facility times the number of months since the commencement of the applicable
Lease Year to the date of receipt of Lessor's notice, less the aggregate amount paid by Lessee on account of monthly Allocated Minimum Rent for such Facility for the same period. Thereafter, Lessee
shall pay monthly Allocated Minimum Rent for such Facility for the applicable period at the new rate set forth in Lessor's notice. 

Exhibit B-2-2

 
 
 

EXHIBIT B-2-3
  
    MINIMUM RENT SCHEDULE
  (DOWNEY FACILITY)    

        1.     Monthly
Minimum Rent for the Downey Facility for the Term with respect to the Downey Facility (including the Extended Terms, if any) shall be as follows: 

        (a)   For
the period from the Commencement Date of this Lease with respect to the Downey Facility through the expiration of the first (1st) Lease Year, monthly "Allocated
Minimum Rent" shall be equal to the sum of (i) Eighteen Thousand Four Hundred Sixteen and 67/100 Dollars ($18,416.67), plus One-Twelfth (1/12th) of the product of
(i) the amount of Aggregate Allowed Costs of Capital Repairs disbursed as of the end of the previous month, times (ii) Ten Percent (10%). The first monthly payment of Allocated Minimum
Rent for the Downey Facility shall be payable on the Commencement Date for the Downey Facility (prorated as to any partial calendar month at the beginning of the Term). 

        (b)   For
the period from the commencement of the second (2nd) Lease Year through the expiration of the Term (including the Extended Terms, if any) for the Downey Facility,
monthly "Allocated Minimum Rent" shall be equal to Nineteen Thousand Two Hundred Fifty Dollars ($19,250.00). 

        (c)   In
addition to the increases provided for in clauses (a) and (b) above, commencing upon the expiration of the first (1st) Lease Year of the Fixed Term, and
upon the expiration of each Lease Year thereafter during the Term (including the Extended Terms, if any) for the Downey Facility, the then current monthly Allocated Minimum Rent shall be increased for
the ensuing Lease Year by a percentage equal to the lesser of (i) Three Percent (3%) or (ii) the applicable CPI Increase, but in no event shall such monthly Allocated Minimum Rent for
any Lease Year be less than the monthly Allocated Minimum Rent of the immediately prior Lease Year. 

        2.     If
any adjustment or calculation provided for in subparagraphs 1(a), 1(b) or 1(c) shall not have been made as of the commencement of the applicable Lease
Year, Lessee shall continue to pay monthly Allocated Minimum Rent for such Facility at the last rate applicable until Lessee receives Lessor's notice as to such adjustment. Within ten (10) days
after Lessee's receipt of Lessor notice, Lessee shall pay to Lessor an amount equal to the new monthly Allocated Minimum Rent for such Facility times the number of months since the commencement of the
applicable Lease Year to the date of receipt of Lessor's notice, less the aggregate amount paid by Lessee on account of monthly Allocated Minimum Rent for such Facility for the same period.
Thereafter, Lessee shall pay monthly Allocated Minimum Rent for such Facility for the applicable period at the new rate set forth in Lessor's notice. 

Exhibit B-2-3

 
 

SCHEDULE 1 (BELLFLOWER)
  
    Lessor's Personal Property—Bellflower Facility    

"Schedule
1" 

 
 

SCHEDULE 1 (DOWNEY)
  
    Lessor's Personal Property—Downey Facility    

"Schedule
1" 

 
 

EXHIBIT F
  
    Form of Insurance Amendment    

        This
Insurance Amendment No. 1 to Lease ("Insurance Amendment") is dated as
of                                    , 2003 by and between HEALTH
CARE PROPERTY INVESTORS, INC., a Maryland
corporation and HEALTH CARE INVESTORS, III, a California general partnership ("Lessor"),
and                                    ,
a                                    ("Lessee"). 

RECITALS

        A.    Lessor
and Lessee entered into a Lease dated as of the date hereof (the "Lease") for
the                                    facility located
in                                    ,
                        .
 

        B.    Lessor
and Lessee desire to memorialize their understanding regarding certain insurance provisions of the Lease. 

AGREEMENT

        Capitalized
terms not otherwise defined herein shall have the meaning ascribed to them in the Lease. Lessor and Lessee hereby agree as follows: 

        1.     The
policy limits set forth in Section 13.1.5 shall be modified as follows for the period
from                         to               
          .
 

        2.     The
policy limits set forth in Section 13.1.6 shall be modified as follows for the period
from                         to               
          : 

        3.     The
policy requirements set forth in Section 13.5 shall be modified as noted below for the period
from                         to               
          :
 

        4.     Excess
liability coverage shall be required in an amount of not less
than                                    
($                                    ) for the base year referenced
herein for the period from
                         to                
         . 

        5.     This
Insurance Amendment shall be effective as of the date hereof and throughout the first (1st) Lease Year hereafter or such other term as may be specified above. The
original Lease terms (prior to this Insurance Amendment) shall be effective thereafter. 

        Except
as amended above, the Lease between Lessor and Lessee shall remain in full force and effect. This Insurance Amendment may be executed in any number of counterparts, all of which
together shall constitute one and the same instrument. 

"Exhibit
F" 

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

	
 HEALTH CARE PROPERTY INVESTORS, INC.,

a Maryland corporation	
 	

 	

	

,
	
 	

 	
 	

a	

	

 
	
 By:	

	
 	

By:	

	

 
	
 Its:	

	
 	

Its:	

	

 
	
 Title:	

	
 	

Title:	

	

 
	
 HEALTH CARE INVESTORS, III,

a California general partnership	
 	

 	

 	

 
	
 By:	

	
 	

 	

 	

 
	
 Name:	

	
 	

 	

 	

 
	
 Title:	

	
 	

 	

 	

 
	
 The undersigned Guarantor hereby consents to this Insurance Amendment and reaffirms to Lessor that its obligations under the Guaranty
dated                                    , 200    ,
 remain in full force and effect with respect to the Lease as amended hereby.	

 
	
 	

 	
 	

 	

	

,
	
 	

 	
 	

a	

	

 
	
 	

 	
 	

By:	

	

 
	
 	

 	
 	

Its:	

	

 

"Exhibit
F" 

QuickLinks

FIRST AMENDMENT TO LEASE

EXHIBIT A-1 Land—Bellflower Facility

EXHIBIT A-2 Land—Downey Facility

EXHIBIT B-1 List of Facilities, Facility Description and Primary Intended Use, Allocated Initial Investment, and Reserve Amount

EXHIBIT B-2-2 MINIMUM RENT SCHEDULE (BELLFLOWER FACILITY)

EXHIBIT B-2-3 MINIMUM RENT SCHEDULE (DOWNEY FACILITY)

SCHEDULE 1 (BELLFLOWER) Lessor's Personal Property—Bellflower Facility

SCHEDULE 1 (DOWNEY) Lessor's Personal Property—Downey Facility

EXHIBIT F Form of Insurance Amendment

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