Document:

exv10w3

 

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT
(this “Agreement”), dated as of January 1, 2008 (the
“Effective Date”), is between MHC Operating Limited Partnership, an Illinois limited
partnership (the “Company”), and Joe McAdams (“Executive”).

AGREEMENT

     In consideration of the mutual promises and agreements set forth herein, the parties hereto
agree as follows:

     1. Employment. The Company and Executive agree that Executive shall be employed by
the Company during the Term (as defined in Section 2 below), upon the terms and conditions
set forth in this Agreement. Executive’s title shall be President of the Company’s corporate
parent, Equity LifeStyle Properties, Inc., a Maryland corporation (“ELS”). Executive shall
possess such powers and perform such duties as are normally incident to such position (except as
set forth in Section 5(a) below). Executive shall devote his full business time and
attention to the business affairs of the Company and its affiliates (except for reasonable
vacations, sick days, personal days and similar time off and a reasonable amount of time for the
performance of civic, educational and charitable functions).

     2. Employment Period. The term of employment of Executive under this Agreement (the
“Term”) shall be the period commencing on the Effective Date and continuing until the three
(3) year anniversary of the Effective Date (unless this Agreement is earlier terminated as provided
herein).

     3. Compensation. Executive shall be compensated for services rendered by Executive to
the Company and its affiliates as follows:

          (a) Annual Salary. The Company will pay Executive a base salary at the annual rate of
$300,000 (“Base Salary”), less applicable tax withholdings, payable at the Company’s
regular employee payroll intervals. On each anniversary of the Effective Date (the “Adjustment
Date”), the annual Base Salary shall be increased in accordance with the following formula:
the annual Base Salary paid in the last full year preceding the Adjustment Date shall be multiplied
by a fraction, the numerator of which is the Consumer Price Index—All Urban Consumers, South
Region All Items, 1982-1984=100, compiled and published by the United States Department of Labor,
Bureau of Labor Statistics (“CPI”) for the month closest to the Adjustment Date for which
final, adjusted CPI figures are available, and the denominator of which is the final, adjusted CPI
for the month twelve months prior to such month. The resulting product shall be the new annual
Base Salary; provided, however, that in no event shall the Base Salary for any year be less than
that for the previous year.

          (b) Annual Bonus. Executive shall be eligible to receive an annual non-equity
incentive compensation payment (“bonus”) based on certain performance targets established
by Executive and the Compensation, Nominating and Corporate Governance Committee of ELS’s Board of
Directors (the “Committee”) at the beginning of each year. Executive may earn a bonus in an amount
up to three (3) times the Base Salary on an annual basis, subject to the approval of the Committee.

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          (c) Restricted Stock. Executive shall receive a grant of 30,000 shares of ELS
restricted common stock pursuant to the ELS 1992 Stock Option and
Stock Award Plan, as amended from time to time. The Restricted Stock
vests in three equal installments, one-third on the Effective Date,
one-third on the first anniversary of the Effective Date and
one-third on the second anniversary of the Effective Date.

     4. At-Will Employment. Executive shall be employed by the Company as an employee
at-will. The Company and Executive acknowledge and agree that as an employee at-will, Executive’s
employment may be terminated at any time, for any reason, whether with or without cause, by either
the Company or Employee.

     5. General Terms.

          (a) Privileged Access. Executive shall have no authority, on behalf of the Company or
its affiliates, to enter into any agreement with any entity controlling, controlled by or
affiliated with Privileged Access L.P. (“PA”) However, as the sole equity owner of PA, Executive
shall have sole authority to determine the accounting and tax policies of PA, which authority shall
include, without limitation, complete control of the preparation and filing of PA’s tax returns and
related forms and the engagement of PA’s financial and tax advisors.

          (b) Severance. If Executive’s employment with the Company is terminated by the
Company without cause during the Term, Executive shall receive the following benefits: (i) payment
of a pro rata portion of Executive’s potential bonus for the applicable year during which such
termination occurs (the “Termination Year”), (ii) payment as severance pay of an amount
equal to two (2) times the Base Salary for the Termination Year, (iii) the continuation, at the
Company’s expense, until the earlier of the date [24] months following such termination or the date
on which Executive obtains employment with another employer (the “Continuation Period”), on
behalf of Executive and his dependents and beneficiaries, of all health insurance benefits provided
to similarly situated executives who continue in the employ of the Company during such Continuation
Period, and (iv) all theretofore unvested restricted stock issued to Executive pursuant to
Section 3(c) above shall immediately vest.

          (c) Non-Compete. Executive agrees that during the period of Executive’s employment
with the Company or its affiliates, and for a period of two (2) years following the termination
thereof, Executive shall not, directly or indirectly, (i) engage or participate in any business
activity that directly competes with the business activities of the Company or its affiliates, in
the respective geographic areas in which such activities are conducted, (ii) solicit business
(other than for the Company or its affiliates) from any customers of the Company or its affiliates
for such purpose, or (iii) solicit for employment or employ any employee of the Company or its
affiliates for such purpose.

          (d) Conflicts of Interest. In accordance with the Company’s Business Ethics and
Conduct Policy, Executive shall fully disclose the relevant facts pertaining to any potential
transaction that might conflict with the proper performance of Executive’s duties on behalf of the
Company and its affiliates, or adversely impact Executive’s independent judgment with respect to
same, or otherwise result in a conflict of interest, so that the Company may make an informed,
independent decision regarding the transaction.

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     6. Miscellaneous Provisions.

          (a) Amendment and Termination. This Agreement may not be amended or terminated except
by written instrument signed by the parties hereto.

          (b) Modification and Waiver of Breach. No waiver or modification of this Agreement
shall be binding unless it is in writing, signed by the parties hereto. The waiver by the Company
or Executive of any term or breach of this Agreement shall not prevent a subsequent enforcement of
such term or any other term and shall not be deemed to be a waiver of any subsequent breach.

          (c) Notice. Any notice required or permitted to be given under this Agreement shall be
in writing and delivered personally (which shall include delivery via express courier such as
Federal Express) or sent by registered or certified mail, return receipt requested, addressed as
follows:

	 	 	 
	If to the Company :

	 	MHC Operating Limited Partnership

c/o Equity LifeStyle Properties, Inc.

Two North Riverside Plaza, Suite 800

Chicago, IL 60606

Attention: Legal Department
	 
	 	 
	If to Executive:

	 	Joe McAdams

3801 Parkwood Blvd Suite 100

Frisco, TX 75034

Either the Company or Executive may, at any time, by notice to the other, designate another address
for service of notice on such party. When the notice is dispatched as provided for above, the
notice shall be deemed to be given when the addressee receives the notice, or within three (3) days
after it is sent, whichever is earlier.

          (d) Entire Agreement. This Agreement constitutes the entire understanding between the
parties with respect to the subject matter hereof, superseding all negotiations, prior discussions
and preliminary agreements, whether written or oral.

          (e) Counterparts. The Agreement may be executed in multiple counterparts, any one of
which shall be deemed an original and all of which taken together shall constitute a single
instrument.

          (f) Governing Law. This Agreement, and all matters or disputes relating to the
validity, construction, performance or enforcement hereof, shall be governed, construed and
controlled by and under the laws of the State of Illinois, without regard to principles of
conflicts of law.

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     7. Acknowledgment. Executive acknowledges that he has read, understands and accepts
the provisions of this Agreement. Executive also acknowledges that he has had the opportunity to
review the terms and conditions of this Agreement with advisors of his choice.

     IN WITNESS WHEREOF, each of the parties has executed this Employment Agreement as of the date
and year first above written.

	 	 	 	 	 	 	 
	 	EXECUTIVE:

 	 
	 	/s/ Joe McAdams 	 
	 	Joe McAdams 	 
	 	 	 
	 
	 	COMPANY:

MHC OPERATING LIMITED PARTNERSHIP,

an Illinois limited partnership

 	 
	 	By:  	MHC Trust,
 	 
	 	 	a Maryland real estate investment trust 	 
	 	Its:  	General Partner 	 
	 
	 	 	By:  	Equity LifeStyle Properties, Inc.,
 	 
	 	 	 	a Maryland corporation 	 
	 	 	Its:  	Sole Voting Shareholder 	 
	 
	 	 	 	By:  	/s/ Thomas P. Heneghan 	 
	 	 	 	 	Name:  	Thomas P. Heneghan 	 
	 	 	 	 	Title:  	CEO & President 	 
	 

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EXHIBIT 10.1

AMENDED AND RESTATED MASTER LEASE AGREEMENT

BY

VENTAS REALTY, LIMITED PARTNERSHIP,

AS LANDLORD

AND

ALC CVMA, LLC, ALC GGMG, LLC, ALC HTIF, LLC, ALC PEDG, LLC,

ALC TPCG, LLC, ALC TISSC, LLC, ALC TSKG, LLC, and ALC WRWG, LLC

AS TENANT

DATED AS OF JANUARY 1, 2008

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	1.	 	Leased Property; Term; Joint and Several Liability; Limitation on Rights	 	 	2	 
	 
	 	1.1.	 	Leased Property	 	 	2	 
	 
	 	1.2.	 	Term	 	 	2	 
	 
	 	1.3.	 	Joint and Several Liability; Limitation on Rights	 	 	3	 
	 
	 	1.4.	 	Medicare; Medicaid	 	 	3	 
	 
	 	 	 	 	 	 	 	 
	2.	 	Definitions; Amendment and Restatement	 	 	3	 
	 
	 	2.1.	 	Definitions	 	 	3	 
	 
	 	2.2.	 	Amendment and Restatement	 	 	4	 
	 
	 	 	 	 	 	 	 	 
	3.	 	Rent	 	 	4	 
	 
	 	3.1.	 	Fixed Rent	 	 	4	 
	 
	 	3.2.	 	Additional Rent	 	 	6	 
	 
	 	3.3.	 	Escrow Deposits	 	 	7	 
	 
	 	3.4.	 	Intentionally Omitted	 	 	10	 
	 
	 	3.5.	 	Net Lease	 	 	10	 
	 
	 	3.6.	 	Lease Guaranty	 	 	10	 
	 
	 	 	 	 	 	 	 	 
	4.	 	Impositions	 	 	10	 
	 
	 	4.1.	 	Payment of Impositions	 	 	10	 
	 
	 	4.2.	 	Notice of Impositions	 	 	11	 
	 
	 	4.3.	 	Adjustment of Impositions	 	 	11	 
	 
	 	4.4.	 	No Affect or Impairment, etc.	 	 	11	 
	 
	 	 	 	 	 	 	 	 
	5.	 	Premises; Tenant’s Personal Property	 	 	12	 
	 
	 	5.1.	 	Ownership of the Premises	 	 	12	 
	 
	 	5.2.	 	Tenant’s Personal Property	 	 	12	 
	 
	 	5.3.	 	Landlord’s Personal Property	 	 	12	 
	 
	 	 	 	 	 	 	 	 
	6.	 	Condition and Use of Each Leased Property	 	 	12	 
	 
	 	6.1.	 	Condition of Each Leased Property	 	 	12	 
	 
	 	6.2.	 	Use of Each Leased Property	 	 	13	 
	 
	 	6.3.	 	Authorization Collateral	 	 	15	 
	 
	 	6.4.	 	Granting of Easements, etc.	 	 	15	 
	 
	 	 	 	 	 	 	 	 
	7.	 	Negative and Affirmative Covenants of Tenant	 	 	15	 
	 
	 	7.1.	 	Negative Covenants	 	 	15	 
	 
	 	7.2.	 	Affirmative Covenants	 	 	20	 
	 
	 	7.3.	 	Authorization Non-Compliance	 	 	23	 
	 
	 	 	 	 	 	 	 	 
	8.	 	Maintenance of Facilities	 	 	23	 
	 
	 	8.1.	 	Maintenance and Repair	 	 	23	 
	 
	 	8.2.	 	Encroachments	 	 	25	 
	 
	 	 	 	 	 	 	 	 

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	9.	 	Tenant’s Representations and Warranties	 	 	25	 
	 
	 	9.1.	 	Organization and Good Standing	 	 	25	 
	 
	 	9.2.	 	Power and Authority	 	 	26	 
	 
	 	9.3.	 	Enforceability	 	 	26	 
	 
	 	9.4.	 	Consents	 	 	26	 
	 
	 	9.5.	 	No Violation	 	 	26	 
	 
	 	9.6.	 	Reports and Statements	 	 	26	 
	 
	 	9.7.	 	No Default	 	 	26	 
	 
	 	9.8.	 	Adverse Matters	 	 	26	 
	 
	 	9.9.	 	Certification	 	 	27	 
	 
	 	9.10.	 	Reserved	 	 	27	 
	 
	 	9.11.	 	No Reimbursement Audits or Appeals	 	 	28	 
	 
	 	9.12.	 	No Recoupments Efforts	 	 	28	 
	 
	 	9.13.	 	Professional Liability Reserves	 	 	28	 
	 
	 	9.14.	 	Primary Intended Use	 	 	28	 
	 
	 	9.15.	 	Compliance with Laws	 	 	28	 
	 
	 	9.16.	 	Ownership of Authorizations	 	 	28	 
	 
	 	9.17.	 	Third Party Payor Programs	 	 	28	 
	 
	 	 	 	 	 	 	 	 
	10.	 	Alterations	 	 	29	 
	 
	 	10.1.	 	Alterations	 	 	29	 
	 
	 	10.2.	 	Construction Requirements for all Alterations	 	 	29	 
	 
	 	10.3.	 	Capital Expenditures Account	 	 	31	 
	 
	 	10.4.	 	Annual Capital Expenditure Budget	 	 	33	 
	 
	 	 	 	 	 	 	 	 
	11.	 	Liens	 	 	33	 
	 
	 	 	 	 	 	 	 	 
	12.	 	Permitted Contests	 	 	34	 
	 
	 	 	 	 	 	 	 	 
	13.	 	Insurance	 	 	35	 
	 
	 	13.1.	 	General Insurance Requirements	 	 	35	 
	 
	 	13.2.	 	Policies; Certificates	 	 	39	 
	 
	 	13.3.	 	Blanket Policies	 	 	39	 
	 
	 	13.4.	 	Additional Insured; No Separate Insurance	 	 	39	 
	 
	 	13.5.	 	Policy Requirements	 	 	39	 
	 
	 	13.6.	 	Evidence of Compliance	 	 	40	 
	 
	 	13.7.	 	Foreclosure; Transfer	 	 	40	 
	 
	 	13.8.	 	Insurance Company	 	 	40	 
	 
	 	13.9.	 	Terrorism	 	 	41	 
	 
	 	 	 	 	 	 	 	 
	14.	 	Damage and Destruction	 	 	41	 
	 
	 	14.1.	 	Notice of Casualty	 	 	41	 
	 
	 	14.2.	 	Substantial Destruction	 	 	41	 
	 
	 	14.3.	 	Partial Destruction	 	 	42	 
	 
	 	14.4.	 	Restoration	 	 	42	 
	 
	 	14.5.	 	Disbursement of Insurance Proceeds	 	 	43	 
	 
	 	14.6.	 	Insufficient Proceeds/Risk of Loss	 	 	44	 

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	 	14.7.	 	Excess Proceeds	 	 	44	 
	 
	 	14.8.	 	Landlord’s Inspection	 	 	44	 
	 
	 	14.9.	 	Not Trust Funds	 	 	44	 
	 
	 	14.10.	 	Waiver	 	 	44	 
	 
	 	14.11.	 	Facility Mortgagee	 	 	44	 
	 
	 	 	 	 	 	 	 	 
	15.	 	Condemnation	 	 	45	 
	 
	 	15.1.	 	Parties’ Rights and Obligations	 	 	45	 
	 
	 	15.2.	 	Total Taking	 	 	45	 
	 
	 	15.3.	 	Partial Taking	 	 	45	 
	 
	 	15.4.	 	Restoration	 	 	46	 
	 
	 	15.5.	 	Temporary Taking	 	 	46	 
	 
	 	 	 	 	 	 	 	 
	16.	 	Default	 	 	46	 
	 
	 	16.1.	 	Events of Default	 	 	46	 
	 
	 	16.2.	 	Remedy Election	 	 	49	 
	 
	 	16.3.	 	Certain Remedies	 	 	50	 
	 
	 	16.4.	 	Damages	 	 	50	 
	 
	 	16.5.	 	Waiver; Mitigation; Limitation on Certain Tenant Remedies	 	 	51	 
	 
	 	16.6.	 	Application of Funds	 	 	52	 
	 
	 	16.7.	 	Nature of Remedies	 	 	52	 
	 
	 	16.8.	 	No Mediation or Arbitration	 	 	53	 
	 
	 	16.9.	 	Deletion of Properties	 	 	53	 
	 
	 	 	 	 	 	 	 	 
	17.	 	Landlord’s Right to Cure Tenant’s Default	 	 	54	 
	 
	 	 	 	 	 	 	 	 
	18.	 	Holding Over	 	 	54	 
	 
	 	 	 	 	 	 	 	 
	19.	 	Subordination	 	 	55	 
	 
	 	19.1.	 	Subordination	 	 	55	 
	 
	 	19.2.	 	Attornment	 	 	55	 
	 
	 	19.3.	 	Mortgagee Cure Rights	 	 	56	 
	 
	 	19.4.	 	Modifications	 	 	56	 
	 
	 	 	 	 	 	 	 	 
	20.	 	Property and Accounts Collateral and Other Lease Collateral	 	 	56	 
	 
	 	20.1.	 	Landlord’s Security Interest	 	 	56	 
	 
	 	20.2.	 	Accounts Receivable Financing	 	 	58	 
	 
	 	 	 	 	 	 	 	 
	21.	 	Risk of Loss	 	 	58	 
	 
	 	 	 	 	 	 	 	 
	22.	 	Indemnification	 	 	58	 
	 
	 	 	 	 	 	 	 	 
	23.	 	Assignment; Sublease	 	 	59	 
	 
	 	23.1.	 	Prohibition	 	 	59	 
	 
	 	23.2.	 	Permitted Assignments and Subleases	 	 	60	 
	 
	 	23.3.	 	Rights of Landlord	 	 	60	 
	 
	 	23.4.	 	Sublease Limitation	 	 	61	 
	 
	 	23.5.	 	Right of Assignment	 	 	61	 

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	24.	 	Financial Statements and Reporting	 	 	64	 
	 
	 	24.1.	 	Maintenance of Books and Records	 	 	64	 
	 
	 	24.2.	 	Annual Financial Information	 	 	64	 
	 
	 	24.3.	 	Quarterly Financial Information	 	 	65	 
	 
	 	24.4.	 	Certifications of Compliance	 	 	65	 
	 
	 	24.5.	 	Annual Budgets	 	 	65	 
	 
	 	24.6.	 	Intentionally Omitted	 	 	66	 
	 
	 	24.7.	 	Authorizations	 	 	66	 
	 
	 	24.8.	 	Actuarial Reports	 	 	66	 
	 
	 	24.9.	 	Quarterly Survey Deficiency Summary Reports	 	 	66	 
	 
	 	24.10.	 	Notices from Governmental Authorities	 	 	66	 
	 
	 	24.11.	 	Medicare and Medicaid Cost Reports	 	 	66	 
	 
	 	24.12.	 	Medicare and Medicaid Deficiency Reports	 	 	66	 
	 
	 	24.13.	 	Financial Statements of Guarantor	 	 	67	 
	 
	 	24.14.	 	Estoppel Certificates	 	 	67	 
	 
	 	24.15.	 	SEC Reports	 	 	67	 
	 
	 	24.16.	 	Supplemental Information	 	 	67	 
	 
	 	24.17.	 	Quarterly Meetings; Facility Level Meetings and Reviews	 	 	67	 
	 
	 	24.18.	 	Format	 	 	68	 
	 
	 	 	 	 	 	 	 	 
	25.	 	Landlord’s Right to Inspect	 	 	68	 
	 
	 	 	 	 	 	 	 	 
	26.	 	No Waiver	 	 	68	 
	 
	 	 	 	 	 	 	 	 
	27.	 	Single Lease	 	 	69	 
	 
	 	 	 	 	 	 	 	 
	28.	 	Acceptance of Surrender	 	 	69	 
	 
	 	 	 	 	 	 	 	 
	29.	 	No Merger of Title	 	 	69	 
	 
	 	 	 	 	 	 	 	 
	30.	 	Conveyance by Landlord	 	 	69	 
	 
	 	 	 	 	 	 	 	 
	31.	 	Quiet Enjoyment	 	 	70	 
	 
	 	 	 	 	 	 	 	 
	32.	 	Notices	 	 	70	 
	 
	 	 	 	 	 	 	 	 
	33.	 	General REIT Provisions	 	 	71	 
	 
	 	 	 	 	 	 	 	 
	34.	 	Transfer of Tenant’s Personal Property	 	 	71	 
	 
	 	 	 	 	 	 	 	 
	35.	 	Compliance With Environmental Laws	 	 	72	 
	 
	 	35.1.	 	Hazardous Substances	 	 	72	 
	 
	 	35.2.	 	Remediation; Notification	 	 	72	 
	 
	 	35.3.	 	Indemnity	 	 	73	 
	 
	 	35.4.	 	Environmental Inspection	 	 	73	 
	 
	 	35.5.	 	Removal	 	 	74	 
	 
	 	35.6.	 	Environmental Representations and Warranties	 	 	74	 

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	36.	 	Operational Transfer	 	 	74	 
	 
	 	36.1.	 	Exercise; Transfer of Authorizations	 	 	74	 
	 
	 	36.2.	 	Reasonable Assistance	 	 	76	 
	 
	 	36.3.	 	Facility Termination; Limited Term Contraction Right; Limited Extended Operation by Tenant	 	 	76	 
	 
	 	36.4.	 	Use of Tenant's Names	 	 	77	 
	 
	 	 	 	 	 	 	 	 
	37.	 	Non-Recourse	 	 	78	 
	 
	 	 	 	 	 	 	 	 
	38.	 	Reserved	 	 	78	 
	 
	 	 	 	 	 	 	 	 
	39.	 	Additional Condo Units	 	 	78	 
	 
	 	 	 	 	 	 	 	 
	40.	 	Restrictive Covenant	 	 	79	 
	 
	 	 	 	 	 	 	 	 
	41.	 	Miscellaneous	 	 	79	 
	 
	 	41.1.	 	Survival	 	 	79	 
	 
	 	41.2.	 	Non-Business Day Payments	 	 	79	 
	 
	 	41.3.	 	Brokers	 	 	79	 
	 
	 	41.4.	 	Headings	 	 	79	 
	 
	 	41.5.	 	Counterparts	 	 	79	 
	 
	 	41.6.	 	Integration; Modification; Interpretation	 	 	79	 
	 
	 	41.7.	 	Time of Essence	 	 	80	 
	 
	 	41.8.	 	Force Majeure	 	 	80	 
	 
	 	41.9.	 	Severability; Maximum Rate	 	 	80	 
	 
	 	41.10.	 	Governing Law; Venue	 	 	80	 
	 
	 	41.11.	 	Waiver of Trial by Jury	 	 	80	 
	 
	 	41.12.	 	Waivers; Forbearance	 	 	81	 
	 
	 	41.13.	 	Binding Character	 	 	81	 
	 
	 	 	 	 	 	 	 	 
	42.	 	Extension Options	 	 	81	 
	 
	 	42.1.	 	Exercise of Extension Options	 	 	81	 
	 
	 	42.2.	 	Extension Terms	 	 	81	 
	 
	 	42.3.	 	Fair Market Rental Determination	 	 	82	 
	 
	 	42.4.	 	Extended Period Tenant’s Proportionate Shares	 	 	82	 
	 
	 	 	 	 	 	 	 	 
	43.	 	Special Purpose Entity Obligations	 	 	82	 
	 
	 	 	 	 	 	 	 	 
	44.	 	Memoranda of Lease	 	 	83	 
	 
	 	 	 	 	 	 	 	 
	45.	 	Confidentiality	 	 	83	 
	 
	 	45.1.	 	Confidentiality	 	 	83	 
	 
	 	45.2.	 	Permitted Disclosures	 	 	83	 
	 
	 	45.3.	 	Information	 	 	85	 
	 
	 	45.4.	 	Excluded Information	 	 	85	 
	 
	 	45.5.	 	Injunctive Relief	 	 	85	 
	 
	 	45.6.	 	Intentionally Omitted	 	 	85	 
	 
	 	45.7.	 	Disclosure Notice	 	 	85	 

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	46.	 	State Specific Provisions	 	 	86	 
	 
	 	46.1.	 	Radon Gas	 	 	86	 
	 
	 	46.2.	 	Notification	 	 	86	 
	 
	 	46.3.	 	Transfer of Resident Funds	 	 	86	 
	 
	 	46.4.	 	Resident Statements	 	 	86	 
	 
	 	46.5.	 	Usufruct	 	 	86	 
	 
	 	46.6.	 	Post-Closing Matters	 	 	86	 
	 
	 	 	 	 	 	 	 	 
	47.	 	Substitution	 	 	87	 
	 
	 	47.1.	 	Substitution Notice	 	 	87	 
	 
	 	47.2.	 	Section 1031	 	 	88	 
	 
	 	47.3.	 	Costs and Expenses	 	 	88	 
	 
	 	47.4.	 	Entire Consideration	 	 	89	 
	 
	 	47.5.	 	Transfer of Qualifying Substitute Facility	 	 	89	 

LIST OF SCHEDULES AND EXHIBITS

	 	 	 	 	 
	Schedule 1.3

	 	-
	 	Primary Intended Use
	Schedule 2

	 	-
	 	Tenant’s Proportionate Shares
	Schedule 3.1.1

	 	-
	 	Wiring Instructions
	Schedule 3.1.2

	 	-
	 	Fixed Rent
	Schedule 3.3.2

	 	-
	 	Wire Instructions (Escrow Deposits)
	Schedule 7.3

	 	-
	 	Authorization Collateral
	Exhibit A

	 	-
	 	Addresses of the Leased Properties
	Exhibit A-1 through A-8

	 	-
	 	Legal Descriptions to the Land
	Exhibit B

	 	-
	 	Definitions
	Exhibit C

	 	-
	 	Base Year Patient Revenues
	Exhibit D

	 	-
	 	Officer’s Certificate
	Exhibit E

	 	-
	 	Estoppel Certificates
	Exhibit F

	 	-
	 	Restrictive Covenant
	Exhibit G

	 	-
	 	Subordination of Management Agreement
	Exhibit H

	 	-
	 	Special Purpose Entity Obligations
	Exhibit I

	 	-
	 	Appraisals
	Exhibit J

	 	-
	 	Substitution Notice
	Exhibit K

	 	-
	 	Assignment Right

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AMENDED AND RESTATED MASTER LEASE AGREEMENT

     This AMENDED AND RESTATED MASTER LEASE AGREEMENT (this agreement, as it may be amended,
renewed, supplemented, extended or replaced by the parties hereto from time to time, this
“Lease”) is made and entered into as of January 1, 2008, between VENTAS REALTY, LIMITED
PARTNERSHIP, a Delaware limited partnership (together with its successors and assigns, “Landlord”),
and each of the entities identified on Schedule 1.3 attached hereto, as the same may be modified
from time to time pursuant to Section 17 of this Lease (together with their permitted successors
and assigns, individually and collectively, “Tenant”).

RECITALS:

     WHEREAS, Landlord and Tenant’s predecessors in interest are parties to that certain Master
Lease Agreement (the “Existing Master Lease”) by Landlord, CVMA, LLC, GGMG, LLC, HTIF, LLC, PEDG,
LLC, TPCG, LLC, TISSC, LLC, TSKG, LLC, and WRWG, LLC dated as of April 1, 2005 (the “Existing
Master Lease Date”);

     WHEREAS, CVMA, LLC, GGMG, LLC, HTIF, LLC, PEDG, LLC, TPCG, LLC, TISSC, LLC, TSKG, LLC, and
WRWG, LLC are assigning their interests in the Existing Master Lease to Tenant, which is assuming
those the obligations under the Master Lease in connection with such assignment;

     WHEREAS, Tenant and Landlord desire to amend and restate the Existing Master Lease in
connection with such assignment and assumption;

     WHEREAS, Landlord owns the real property described by the common addresses set forth on
Exhibit A attached hereto and legally described in Exhibits A-1 through A-8 attached hereto; and

     WHEREAS, Landlord desires to lease the Premises (as hereinafter defined) to Tenant, and Tenant
desires to lease the Premises from Landlord; and

     WHEREAS, Landlord acquired the Premises pursuant to that certain P&S Agreement, as defined in
Exhibit B attached hereto; and

     WHEREAS, Tenant’s obligations under this Lease and any surviving obligations under the
Existing Master Lease are guaranteed pursuant to that certain Guaranty Agreement (the “Lease
Guaranty”) dated as of the date hereof made by Assisted Living Concepts, Inc., a Nevada corporation
(the “Guarantor” and “ALC”).

     NOW, THEREFORE, Landlord and Tenant hereby agree to amend and restate the Existing Master
Lease upon the terms and conditions set forth herein:

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     1. Leased Property; Term; Joint and Several Liability; Limitation on Rights. 

          1.1. Leased Property. Effective as of the Commencement Date, upon and subject to
Section 1.3 below and to the other terms and conditions hereinafter set forth, Landlord hereby
leases to Tenant, and Tenant hereby leases from Landlord, all of the following:

               1.1.1. Land. The parcels of land more particularly described in Exhibits A-1
through
A-8 attached hereto, together with all easements and interests appurtenant thereto (collectively,
the “Land”; each parcel of Land described in such Exhibits A-1 through A-8, as amended from time to
time, together with such appurtenances with respect to such parcel, being referred to herein as a
“Leased Land”);

               1.1.2. Leased Improvements. All buildings, structures, Fixtures (as hereinafter
defined) and other improvements of every kind, including, but not limited to, alleyways, sidewalks,
utility pipes, conduits and lines, parking areas and roadways appurtenant to such buildings and
structures situated upon the Land and Alterations upon the Land (collectively, the “Leased
Improvements”);

               1.1.3. Intangible Property. The interest, if any, of Landlord in and to any of
the
following intangible property owned by Landlord in connection with the Land and the Leased
Improvements (collectively, the “Intangibles”), to the extent the same were transferred to Landlord
pursuant to the P&S Agreement: (i) the identity or business of the Facilities as a going concern,
including, without limitation, any names or trade names by which the Facilities or any part thereof
may be known, and all registrations for such names, if any; (ii) to the extent assignable or
transferable, the interest, if any, of Landlord in and to each and every guaranty and warranty
concerning the Leased Improvements, including, without limitation, any roofing, air conditioning,
heating, elevator and other guaranty or warranty relating to the construction, maintenance or
repair of the Leased Improvements or any portion thereof; and (iii) the interest, if any, of
Landlord in and to all Authorizations to the extent the same can be assigned or transferred in
accordance with applicable law; provided, however, that the foregoing shall not
include any CON issued to or held by Landlord which shall only be licensed to Tenant on a temporary
basis, which license shall be revocable at any time by Landlord; and

               1.1.4. Landlord’s Personal Property. All tangible personal property owned
by Landlord
and located at the Land or the Leased Improvements (together with any replacements thereof pursuant
to this Lease, “Landlord’s Personal Property”).

     SUBJECT, HOWEVER, to the Permitted Encumbrances (as hereinafter defined).

          1.2. Term. Landlord hereby leases the Premises to Tenant for an initial term (the
“Initial Term”) of 10 years commencing as of the Commencement Date and expiring at midnight on
March 31, 2015 (the “Initial Expiration Date”). In addition, Tenant shall have the right to extend
the Initial Term for the Extended Terms strictly in accordance with Section 43 below, unless the
Lease is sooner terminated pursuant to the terms of this Lease. Landlord shall have the limited
right to contract the Term (each, a “Landlord Contraction”) as to one or more Leased Properties in
order to facilitate an Operational Transfer(s) pursuant to Section 37. The Initial Term, as it may
be extended pursuant to Section 43 and as revised as to one or more

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Leased Properties pursuant to any applicable Landlord Contraction(s), is referred to as the
“Term”. The Initial Expiration Date, as it may be extended pursuant to Section 43 and as revised
as to one or more Leased Properties pursuant to any applicable Landlord Contraction(s), is herein
referred to as the “Expiration Date”. Landlord and Tenant acknowledge and agree that (i) on
account of any Landlord Contraction(s) as to one or more particular Leased Properties, individual
Leased Properties may have applicable thereto different Expiration Dates and (ii) on account of
Landlord’s exercise of its rights under Section 37 below, Tenant may be obligated to operate one or
more particular Leased Properties beyond the Expiration Date(s) applicable thereto.

          1.3. Joint and Several Liability; Limitation on Rights. Notwithstanding anything
contained herein to the contrary, if there is at any time more than one person or entity
constituting the “Tenant” hereunder, each such person or entity shall be jointly and severally
liable for the payment and performance of all obligations and liabilities of Tenant hereunder,
including, without limitation, the obligations and liabilities of each other Tenant hereunder,
including, without limitation, each such other Tenant’s obligation to pay Rent hereunder;
provided, however, that, without limitation of the joint and several nature of the
obligations of each Tenant hereunder, the possessory and leasehold rights and licenses that are
created by this Lease shall be limited and confined in the case of each Tenant to the applicable
Facility(ies) identified as being leased to and to be operated by such specific individual Tenant
on Schedule 1.3 attached hereto, the Leased Land on which such Facility is located and the
Intangibles and Landlord’s Personal Property that specifically relate to such Leased Land.

          1.4. Medicare; Medicaid. Tenant represents and warrants to Landlord that, as of the
Existing Master Lease Date, as assisted living facilities, independent living facilities and
Alzheimer’s care facilities, none of the Facilities participate in Medicare or Medicaid and are not
regulated or inspected by Governmental Authorities or other Persons administering Third Party Payor
Programs to the same degree and extent as hospitals and/or skilled nursing facilities (e.g. through
the issuance of certificates of need (other than Alzheimer care facilities in Alabama), periodic
surveys of the quality of care, issuance of deficiency reports, assignment of deficiency ratings of
a particular scope or severity or constituting immediate jeopardy events, etc.). Tenant agrees
that if any Tenant or any Facility participates in Medicare or Medicaid and/or becomes subject to
increased levels of regulation or inspection by Governmental Authorities or any of the other
aforesaid Persons, Landlord shall be entitled from time to time to impose, and Tenant shall be
obligated to comply with, such additional covenants and other obligations relating to the Leased
Properties and Tenant’s and/or Manager’s operation thereof as Landlord or its Affiliates
customarily impose upon tenants entering into new leases with Landlord or its Affiliates for
properties similar to the Leased Properties and/or as Landlord from time to time determines, in its
reasonable discretion, are consistent with the practices of commercial landlords entering into new
leases for properties similar to the Leased Properties.

     2. Definitions; Amendment and Restatement.

          2.1. Definitions. For all purposes of this Lease, except as otherwise expressly
provided or unless the context otherwise requires, (i) all accounting terms not otherwise defined
herein have the meanings assigned to them in accordance with GAAP, (ii) all references in this
Lease to designated “Sections”, “Subsections” and other subdivisions are to the designated

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Sections, Subsections and other subdivisions of this Lease, (iii) the words “herein”, “hereof”
and “hereunder” and other words of similar import mean and refer to this Lease as a whole and not
to any particular Section, Subsection or other subdivision, (iv) the terms defined in Exhibit B
attached hereto or elsewhere in this Lease have the meanings assigned to them and include the
plural as well as the singular and (v) without limitation of the definition of “Unit” set forth in
Exhibit B attached hereto, all references in this Lease to “licensed beds” or words of similar
import mean and refer, in the case of each Facility, to licensed beds or licensed units, as
applicable depending upon the particular licensing measure used by the responsible Governmental
Authorities in regulating such Facility operated for its Primary Intended Use.

          2.2. Amendment and Restatement. Lessor and Tenant hereby amend and restate the
Existing Master Lease in its entirety in accordance with the terms of this Lease as of the date
hereof (the “Effective Date”) by executing this Lease. This Lease shall govern and control as to
all events, acts, omissions, liabilities and obligations first occurring, arising or accruing from
and after the Effective Date. The terms of the Existing Master Lease shall continue to govern and
control as to all events, acts, omissions, liabilities and obligations occurring, arising and
accruing prior to the Effective Date. Tenant shall be liable for all of the obligations of the
“Tenant” under the Existing Master Lease.

     3. Rent.

          3.1. Fixed Rent.

               3.1.1. Rental Payments. Tenant shall pay to Landlord, in advance and
without demand,
on or prior to the 15th day of each calendar month during the Term (each, a “Payment
Date”), in lawful money of the United States of America, by wire transfer and pursuant to the
wiring instructions attached hereto as Schedule 3.1.1, or at such place, by such means or to such
Person(s) as Landlord from time to time may designate in writing, the Fixed Rent (and Additional
Rent in those instances described in Section 3.3 below) payable in respect of the one-month period
commencing on said 15th day of such calendar month and ending on the 14th day
of the following calendar month (each, a “Payment Period”). Landlord may, by written notice to
Tenant at any time and from time to time, elect to require that Rent (or portions thereof
designated by Landlord) owing hereunder be paid to a lock box. Fixed Rent (and Additional Rent in
those instances described in Section 3.3 below) shall be paid in advance in consecutive monthly
installments equal to 1/12th of the Fixed Rent for the applicable Lease Year;
provided, however, that the first payment of Fixed Rent (and Additional Rent) was
payable on the Commencement Date and prorated for the period from and including the Commencement
Date through April 14, 2005, and the last monthly payment of Fixed Rent (and Additional Rent) shall
be prorated for the period from the last scheduled Payment Date prior to the Expiration Date
through the Expiration Date. Fixed Rent payable for any Payment Period which includes a portion of
two Lease Years shall be adjusted accordingly to reflect any increase in the rate of Fixed Rent
attributable to the later Lease Year. For example, if the Fixed Rent payable for the second Lease
Year (April 1, 2006 – March 31, 2007) was $600.00, and the Fixed Rent for the third Lease Year
(April 1, 2007 – March 31, 2008) was $615.00, such that the Fixed Rent due for each Payment Period
during each of (a) the second Lease Year was $50.00 and (b) the third Lease Year was $51.25, then
the Fixed Rent owing for the Payment Period which commenced on March 15, 2007 and ended on
April 14, 2007 would be calculated pro rata based upon the

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number of days in such Payment Period which fall within each Lease Year, or by adding the
products of (i) $50.00 x 17/31 and (ii) $51.25 x 14/31, which equals $50.57.

               3.1.2. Rental Amounts. Fixed Rent for the First Lease Year was $4,473,500.00
per
annum, payable in equal monthly installments of $372,791.67, subject to Section 3.1.1 above.
Without limitation of Section 1.3 above or Section 28 below, each Tenant’s allocable share of Fixed
Rent shall be equal to the product of (i) the Tenant’s Proportionate Share for such Tenant set
forth on Schedule 2 attached hereto; and (ii) the Fixed Rent due hereunder, as applicable.
Commencing upon the commencement of the second Lease Year of the Initial Term the Fixed Rent for
such Lease Year was, and upon the commencement of each Lease Year thereafter during the Term the
Fixed Rent for such Lease Year shall be, an amount equal to the sum of (x) the Prior Period Fixed
Rent applicable to such Lease Year, plus (y) the product of (a) the Prior Period Fixed Rent
applicable to such Lease Year and (b) provided the Rent Escalation Condition has been satisfied
with respect to such Lease Year, the amount equal to 2.5%; provided, however, the
Fixed Rent for the first Lease Year of each Extended Term and the Fixed Rent for each of the other
Lease years of the second Extended Term, if applicable, shall be determined as provided in Section
43 below. Notwithstanding anything contained herein to the contrary, if the Rent Escalation
Condition fails with respect to any one or more Lease Years, the Fixed Rent determined for the next
Lease Year with respect to which the Rent Escalation Condition is satisfied shall be determined as
if the Rent Escalation Condition had been satisfied for all previous Lease Years and the Fixed Rent
had been escalated pursuant to, and in accordance with, the terms of this Section 3.1.2 for all
prior Lease Years (except for the Lease Years in the second Extended Term, which shall be
determined as if the Fixed Rent had been escalated pursuant to Section 43.2.2 below). By way of
illustration only, if: (A) the Rent Escalation Condition has failed for both the Lease Year
commencing as of April 1, 2007 and the Lease Year commencing as of April 1, 2008; but (B) the Rent
Escalation Condition is satisfied for the Lease Year commencing as of April 1, 2009, the Fixed Rent
for the Lease Year commencing as of April 1, 2009 shall be determined as if the Rent Escalation
Condition for the two preceding Lease Years (and all other Lease Years) had been satisfied such
that the Fixed Rent for the Lease Year commencing as of April 1, 2009 shall include, and be
determined on the basis of, the escalations for all prior Lease Years which would have occurred
pursuant to this Section 3.1.2 had the Rent Escalation Condition for all prior Lease Years been
satisfied. Further by way of illustration, if the Rent Escalation Condition is satisfied for each
Lease Year, then the Fixed Rent for each Lease Year of the Initial Term shall be as set forth on
Schedule 3.1.2 attached hereto and made a part hereof.

               3.1.3. Fixed Rent Determinations. Landlord shall calculate the Fixed Rent for
the
next Lease Year and submit its determination of Fixed Rent for the next Lease Year for Tenant’s
approval, which determination shall be deemed approved, absent written notice from Tenant setting
forth with reasonable specificity and detail any manifest errors in such determination by Landlord
within five Business Days after its submission to Tenant. In the event Landlord and Tenant are
unable to determine Fixed Rent for any Lease Year on or prior to the commencement of such Lease
Year, Tenant shall pay Fixed Rent for such Lease Year assuming a 2.5% increase over the Prior
Period Fixed Rent applicable to such Lease Year until the correct Fixed Rent is determined for such
Lease Year. If the Fixed Rent ultimately determined for any such Lease Year exceeds the assumed
amount, Tenant shall pay any deficiency, together with interest thereon at the Prime Rate from the
date originally due until paid, with the first

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installment of Fixed Rent owing after such determination is made. If the Fixed Rent
ultimately determined for any such Lease Year is less than the assumed amount, any excess amounts
paid by Tenant on account of the Fixed Rent for such Lease Year shall be credited against the next
installment(s) of Fixed Rent due and owing hereunder. At either party’s written request, following
the determination of Fixed Rent for a particular Lease Year, both parties shall, not later than
five Business Days after the non-requesting party’s receipt of such request, execute and enter into
a written instrument memorializing the amount of such Fixed Rent.

          3.2. Additional Rent. In addition to Fixed Rent, Tenant shall pay and discharge as
and when due and payable the following (collectively “Additional Rent”) (any costs or expenses paid
or incurred by Landlord on behalf of Tenant that constitute Additional Rent shall be reimbursed by
Tenant to Landlord within ten Business Days after the presentation by Landlord to Tenant of
invoices therefor):

               3.2.1. Impositions. Subject to the provisions of Section 3.3 and
Section 13 below,
Tenant shall pay all Impositions when due, and regardless of the period to which they relate, and
in any event before any fine, penalty, interest or cost may be added for non-payment, such payments
to be made directly to the taxing authorities where feasible. Tenant shall, promptly upon request,
furnish to Landlord copies of official receipts or other satisfactory evidence of such payments.
If any such Imposition may, at the option of the taxpayer, lawfully be paid in installments
(whether or not interest shall accrue on the unpaid balance of such Imposition), Tenant may
exercise the option to pay same (and any accrued interest on the unpaid balance of such
Imposition) in installments (provided no such installments shall extend beyond the Term) and, in
such event, shall pay such installments during the Term before any fine, penalty, premium, further
interest or cost may be added thereto.

               3.2.2. Utility Charges. Tenant shall pay any and all charges for electricity,
power,
gas, oil, water, sanitary and storm sewer, refuse collection, medical waste disposal and other
utilities used or consumed in connection with each Leased Property during or prior to the Term. In
the event Landlord is billed directly by any utility company for any utilities or services supplied
to Tenant during the Term, Landlord shall send Tenant the bill and Tenant shall pay the same when
or before it is due. Landlord shall have no obligation or liability with respect to any
interruption or failure in the supply of any such utilities.

               3.2.3. Insurance Premiums. Tenant shall pay all premiums for the insurance
coverage
required to be maintained pursuant to Section 14 hereof.

               3.2.4. Other Charges. Tenant shall pay all other amounts, liabilities,
obligations,
costs and expenses paid or incurred with respect to the ownership, repair, replacement,
restoration, maintenance and operation of the Premises.

               3.2.5. Late Payment of Rent. If any installment of Fixed Rent or Additional
Rent (but
only as to those Additional Rent payments that are payable directly to Landlord or Landlord’s agent
or assignee) shall not be paid on its due date, Tenant shall pay to Landlord for such overdue
installment, on demand, interest computed at the Overdue Rate on the amount of such installment,
from the due date of such installment to the date of payment thereof. In the event of any failure
by Tenant to pay any Additional Rent when due, Tenant shall in

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addition promptly pay and discharge, as Additional Rent, every fine, penalty, interest and
cost that Tenant or Landlord may incur as a result of the non-payment or late payment of such
items.

               3.2.6. Consent Expenses. Tenant shall pay, as Additional Rent, on behalf of
Landlord,
or reimburse Landlord for, any and all out-of-pocket costs or expenses paid or incurred by
Landlord, including, without limitation, reasonable attorneys’ fees (but excluding Landlord’s
overhead and expenses of Landlord’s employees), in connection with any of the following activities
undertaken by or on behalf of Landlord or Landlord’s Representatives under this Lease: (i) the
review of any notices, reports or other information required to be submitted to Landlord by Tenant
pursuant to the terms hereof, including, without limitation, financial statements, Annual Capital
Expenditure Budgets, Officer’s Certificates, Estoppel Certificates, Annual Budgets and Operator
Reports; provided, however, absent the continuation of an Event of Default, Tenant shall not be
responsible hereunder to pay for routine review of such items; (ii) any inspection of one or more
Leased Properties pursuant to any inspection rights granted hereunder, including, without
limitation, any inspection rights relative to any restoration work performed on account of any
Casualty or Condemnation; provided, however, absent the continuation of an Event of Default, Tenant
shall not be responsible hereunder to pay for routine Facility inspections by Landlord’s employees;
(iii) the review, execution, negotiation or delivery of any consent, waiver, estoppel,
subordination agreement or approval requested of Landlord by Tenant hereunder, including, without
limitation, any request for consent to Alterations, any so-called “landlord’s waiver”, or the
negotiation or approval of the terms of, or any instruments associated with, any AR Financing;
(iv) the review of any Plans and Specifications or Restoration Plans and Specifications; (v) the
review of any request by Tenant for any other approval or consent hereunder, or any waiver of any
obligation of Tenant hereunder; (vi) intentionally omitted; (vii) any assistance in connection with
a permitted contest pursuant to Section 13; (viii) any review of invoices, bills, receipts and
other documents reasonably necessary to be reviewed by Landlord, in its reasonable discretion, to
monitor Tenant’s compliance with the terms of this Lease in respect of Impositions, utility
charges, insurance premiums or any other provisions hereunder requiring Tenant to make payments to
any third party; (ix) the establishment and maintenance by Landlord of any bank or investment
account pursuant to Section 3.3 or Section 11.3; and (x) any other negotiation, request or other
activity comparable to any of the foregoing (collectively, such costs and expenses, “Consent
Expenses”). Tenant shall reimburse Landlord for (or pay on behalf of Landlord) any Consent
Expenses for which Tenant is responsible under the terms of this Section 3.2.6 within 10 Business
Days after the presentation by Landlord to Tenant of invoices therefor.

          3.3. Escrow Deposits.

               3.3.1. Escrow. On the Commencement Date, Tenant paid and deposited with
Landlord the
amounts provided in the closing statement under the P&S Agreement as escrows for Impositions, plus
one-half of the amount to be deposited on April 15, 2005 under this Section 3.3.1. In addition,
Tenant did on the 15th day of April, 2005, and shall on the 15th day of each calendar
month thereafter during the Term, pay to and deposit with Landlord a sum equal to 1/12th of the
Impositions to be levied, charged, filed, assessed or imposed upon or against the Premises during
the 12 months from and after April 15, 2005 (the “Escrow Commencement Date”) (or any subsequent
12 month period). If the amount of the Impositions to be levied, charged, filed, assessed or
imposed, during the 12 months following the

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Escrow Commencement Date (or any subsequent 12 month period hereunder) cannot be determined as
of the Escrow Commencement Date (or the commencement of any subsequent 12 month period), such
amount for the purpose of computing the deposit to be made by Tenant hereunder shall be estimated
by Landlord with an appropriate adjustment to be promptly made between Landlord and Tenant as soon
as such amount becomes determinable. Landlord may, at its option, from time to time require that
any particular deposit be greater than 1/12th of the estimated Imposition amount payable during the
12 months after the Escrow Commencement Date (or during any subsequent 12 month period), if such
additional deposit is required to provide a sufficient fund from which to make payment of all
Impositions on or before the next due date of any installment thereof, and in any event, so that
after such payments, the balance of such funds is not less than one-sixth of such estimated
Impositions. Tenant shall deliver to Landlord copies of all notices, demands, claims, bills and
receipts in relation to the Impositions promptly upon receipt thereof by Tenant. The actual or
estimated amounts on account of Impositions shall be adjusted annually, or if Landlord so elects
from time to time, more frequently, in Landlord’s reasonable judgment.

               3.3.2. Landlord’s Deposit. The escrow deposits made by Tenant pursuant to
this
Section 3.3 shall be paid, by wire transfer and pursuant to the wire instructions attached hereto
as Schedule 3.3.2, or at such place, by such means or to such Persons, as Landlord from time to
time may designated in writing, which funds shall be deposited by Landlord in an account (the
“Escrow Account”) of Landlord or with any Facility Mortgagee, in the sole discretion of Landlord,
and may be commingled with other assets of Landlord or such Facility Mortgagee. Landlord shall not
be liable to Tenant or any other Person for any consequent loss of principal or interest on funds
held in the Escrow Account. Furthermore, neither Landlord nor any Facility Mortgagee shall bear
responsibility for the financial condition of, nor any act or omission by, any Lending Institution
at which the Escrow Account may be located. The interest, if any, from deposits into the Escrow
Account shall be retained in the Escrow Account to be applied in accordance with the terms of this
Section 3.3. Any such interest (and any interest on any other escrow created under this Lease)
reported as income of Tenant for tax purposes.

               3.3.3. Use of Deposits. Tenant shall pay any and all Impositions when due and
regardless of whether or not the funds then held in the Escrow Account are sufficient to reimburse
Tenant therefor. The sums deposited by Tenant under this Section 3.3 shall be held by Landlord or
any Facility Mortgagee, and, provided that no default or Event of Default by Tenant exists
hereunder, shall be used to reimburse Tenant for any Impositions paid by Tenant, upon delivery by
Tenant to Landlord or such Facility Mortgagee, as applicable, of documentation evidencing the
payment of such Impositions, which reimbursement shall be provided within five Business Days after
the presentation of such evidence (if Landlord is holding the Escrow Account) or within five
Business Days after Landlord’s receipt of the appropriate reimbursement funds from the Facility
Mortgagee that is holding the Escrow Account (if a Facility Mortgagee is holding the Escrow
Account). If Tenant fails to pay any Impositions or insurance premiums when due and owing
hereunder to the applicable taxing authority or insurance carrier, Landlord or any Facility
Mortgagee may, but shall not be obligated to, pay such Impositions or insurance premiums from any
funds in the Escrow Account. Upon the occurrence of any Event of Default and during the
continuation thereof, Landlord or any Facility Mortgagee may, but shall not be obligated to, apply
any funds held in

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the Escrow Account to pay any amounts due under this Lease or on account any damages suffered
or incurred by Landlord in connection therewith. Any amounts so applied as a result of an Event of
Default shall be replenished by Tenant within 10 Business Days after Landlord makes a demand
therefor, so that the funds on deposit in the Escrow Account are in the amount otherwise required
under this Section 3.3. Provided that (i) no default or Event of Default by Tenant exists
hereunder, (ii) Tenant provides to Landlord, not less than 20 days in advance of the applicable due
date, (x) clear and detailed instructions relative to the payee, place, amount and required manner
of payment of the Impositions referenced above and (y) originals or copies, as necessary, of the
applicable invoices or bills and (iii) there are sufficient funds in the Escrow Account to pay the
applicable invoices or bills, Landlord agrees to make, or if a Facility Mortgagee is holding the
Escrow Account Landlord agrees to cooperate reasonably with Tenant to attempt to arrange for the
Facility Mortgagee to make, direct payment of such invoices and bills from the Escrow Account,
rather than require Tenant first to make payment thereof and then seek reimbursement. Tenant
hereby grants to Landlord a first priority security interest in the Escrow Account and all funds
from time to time on deposit therein or otherwise deposited or paid to Landlord pursuant to this
Section 3.3.

               3.3.4. Deficits. Landlord shall have no liability whatsoever to Tenant if any
deposits held by Landlord under this Section 3.3 are not sufficient to reimburse Tenant for any
Imposition paid by Tenant. Landlord may reasonably change its estimate of any Imposition for any
period on the basis of a change in an assessment or tax rate, a prior miscalculation or for any
other good faith reason. In such event, Tenant shall deposit with Landlord the amount in excess of
the sums previously deposited with Landlord for the applicable period within 10 Business Days after
Landlord’s request therefor and subsequent deposits required hereunder shall be increased
accordingly to reflect such increased estimate.

               3.3.5. Transfers; Refund. In connection with any assignment of the
Landlord’s
interest under this Lease, the assigning Landlord or any predecessor shall have the right to
transfer all amounts deposited pursuant to the provisions of this Section 3.3 and still in its
possession to such assignee (or in the case of a partial transfer of the Premises, such portion as
Landlord in its reasonable discretion allocates to the portion of the Premises so transferred) and,
upon such transfer and assumption of the obligations pursuant to the terms and conditions of this
Lease with respect to such amounts, the assigning Landlord or any such predecessor, as the case may
be, transferring the deposits shall thereupon be completely released from all liability with
respect to such deposits so transferred, and Tenant shall look solely to said assignee in reference
thereto. As of the Expiration Date, any sums held by Landlord under this Section 3.3 shall be
returned to Tenant, if (i) any and all Impositions or insurance premiums which have accrued or are
due and owing hereunder have been paid in full, (ii) no Event of Default is then continuing and
(iii) Tenant has fully performed and satisfied all of its obligations under this Lease.

               3.3.6. Insurance Premium Escrow. In addition to the escrow deposits for
Impositions
required under Section 3.3, commencing October 15, 2005 and continuing on the first day of each of
the following months through October 15, 2008, Tenant shall deposit with Landlord a monthly amount,
which when added to the amounts previously deposited by Tenant under this Section 3.3.6, shall be
sufficient (as reasonably estimated by Landlord from time to time based upon Tenant’s then current
insurance costs) to pay for six months of insurance coverage as required under Section 14 hereof;
it being agreed that such funds in the Escrow

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Account shall not be available to Tenant to fund any insurance premiums or Impositions, but
shall be held by Landlord (or its successors or assigns as set forth in Section 3.3.5
above) throughout the Term of this Lease in the Escrow Account as security for Tenant’s performance
of its obligations under this Lease, including maintaining insurance as required under Section 14
hereof. From and after October 15, 2008, if based upon Landlord’s reasonable estimate of Tenant’s
then current insurance premium costs, the amount of funds which are then on deposit in the Escrow
Account, pursuant to this Section 3.3.6 are less than six months of such insurance premium costs,
then Tenant shall, within 30 days after receipt of an invoice therefor from Landlord, make a
further deposit into the Escrow Account such that at all times from and after October 15, 2008, the
portion of the Escrow Account representing funds deposited pursuant to this Section 3.3.6 are
sufficient to pay for such estimate of six months of insurance premium costs. Tenant shall deliver
to Landlord copies of all bills for insurance premiums promptly upon receipt thereof by Tenant.

          3.4. Intentionally Omitted.

          3.5. Net Lease. The Rent shall be paid absolutely net to Landlord, free of all
Impositions, utility charges, operating expenses, insurance premiums or any other charges or
expenses in connection with the Premises, without any rights of deduction, set-off or abatement, so
that this Lease shall yield to Landlord the full amount of the installments of Fixed Rent,
throughout the Term. This Lease is intended to be and shall be construed as an absolutely net lease
pursuant to which Landlord shall not, under any circumstances or conditions, whether presently
existing or hereafter arising, and whether foreseen or unforeseen by the parties, be required to
make any payment or expenditure of any kind whatsoever or be under any other obligation or
liability whatsoever, except as expressly set forth herein.

          3.6. Lease Guaranty. On the date hereof, Tenant shall cause to be delivered to
Landlord the Lease Guaranty made by Guarantor guarantying all of Tenant’s obligations under this
Lease.

     4. Impositions. 

          4.1. Payment of Impositions. Subject to Section 13 relating to permitted contests,
Tenant shall pay all Impositions payable prior to or during the Term as set forth in Section 3.2.1
and for any tax period (or portion thereof) occurring prior to or during the Term, irrespective of
whether the Impositions for such tax period are due and payable after the Term. Tenant’s
obligation to pay such Impositions shall be deemed absolutely fixed upon the date such Impositions
become a lien upon the Leased Property or any part thereof. If any refund shall be due from any
taxing authority in respect of any Imposition paid by Tenant during the Term, the same shall be
paid over to or retained by Tenant but only if no Event of Default shall have occurred hereunder
and be continuing. If an Event of Default shall have occurred and be continuing, such refund shall
be paid over to and retained by Landlord. If Tenant nevertheless receives such refund during the
continuation of an Event of Default, Tenant shall, upon receipt, promptly pay such refund over to
Landlord in full. Any such funds retained by Landlord due to an Event of Default shall be applied
as Landlord shall determine in its sole discretion. In the event of any Imposition against any
personal property covered by this Lease, Tenant shall file any personal property tax returns that
are required with respect thereto. Subject to the terms of

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Section 13, Tenant may, upon notice to Landlord, at Tenant’s option and at Tenant’s sole cost
and expense, protest, appeal, or institute tax contests to effect a reduction of real estate or
personal property assessments and Landlord, at Tenant’s expense as aforesaid, shall cooperate with
Tenant in such protest, appeal, or other action to the extent required by law and reasonably
requested by Tenant.

          4.2. Notice of Impositions. Landlord or Landlord’s designee shall use reasonable
efforts to give prompt notice to Tenant of all Impositions payable by Tenant hereunder as to which
Landlord at any time has received the original invoice therefor from the applicable Governmental
Authority (which notice shall be deemed properly given if given pursuant to Section 33 hereof or by
email notification to Tenant at jbuono@alcco.com, with simultaneous copies of such email
notification to lbebo@alcco.com, provided, however, that any failure by Landlord to provide such
notice to Tenant shall in no way relieve Tenant of its obligation to timely pay the Impositions.
Tenant shall deliver to Landlord, not more than 10 Business Days prior to the due date of each
Imposition, copies of the invoice for such Imposition, the check delivered for payment thereof and
an original receipt evidencing such payment or, if such evidence is not available, other proof of
payment satisfactory to Landlord. Landlord shall reasonably cooperate with Tenant in order that
original invoices for Impositions are sent directly to Tenant for payment from the applicable
Governmental Authority.

          4.3. Adjustment of Impositions. Any Imposition imposed in respect of the tax-fiscal
period during which the Term terminates or expires shall be adjusted and prorated between Landlord
and Tenant, whether or not such Imposition is imposed before or after such termination or
expiration, and Tenant’s obligation to pay its prorated share thereof shall survive such
termination or expiration.

     5. No Effect or Impairment, etc. The obligations of Tenant shall not be affected or
impaired by reason of (i) any damage to, or destruction of, any Leased Property or any portion
thereof, from whatever cause, or any Condemnation of any Leased Property or any portion thereof
(except as otherwise expressly and specifically provided in Section 15 or Section 16), (ii) the
interruption or discontinuation of any service or utility servicing any Leased Property, (iii) the
lawful or unlawful prohibition of, or restriction upon, Tenant’s use of any Leased Property, or any
portion thereof, whether due to the interference with such use by any Person or eviction by
paramount title or otherwise, (iv) any claim that Tenant has or might have against Landlord on
account of any breach of warranty or default by Landlord under this Lease or any other agreement by
which Landlord is bound, (v) any bankruptcy, insolvency, reorganization, composition, readjustment,
liquidation, dissolution, winding up or other proceedings affecting Landlord or any assignee or
transferee of Landlord, (iv) the revocation, suspension or non-renewal of any license, permit,
approval or other Authorization, (vii) any withholding, non-payment, reduction or other adverse
change respecting any Facility Provider Agreement, Medicare, Medicaid or other Third Party Payor
Program, if applicable, (viii) any admissions hold under Medicare, Medicaid or other Third Party
Payor Program, if applicable, or (ix) for any other cause whether similar or dissimilar to any of
the foregoing. Tenant hereby specifically waives all rights, arising from any occurrence
whatsoever, which may now or hereafter be conferred upon it by law (x) to modify, surrender or
terminate this Lease or quit or surrender any Leased Property or any portion thereof, or (y) that
would entitle Tenant to any abatement, reduction, suspension or deferment of the Rent or other sums
payable by Tenant hereunder. The

K-11

 

obligations of Landlord and Tenant hereunder shall be separate and independent covenants and
agreements and the Rent and all other sums payable by Tenant hereunder shall continue to be payable
in all events. Nothing contained herein to the contrary shall be construed to limit Landlord’s
liability to Tenant for any breach of warranty or default by Landlord under this Lease in a
separate action by Tenant against Landlord.

     6. Premises; Tenant’s Personal Property. 

          6.1. Ownership of the Premises. Tenant acknowledges that the Premises are the
property of Landlord and that Tenant has only the right to the possession and use of the Premises
upon and subject to the terms and conditions of this Lease. Notwithstanding anything to the
contrary contained in this Lease, in the case of any easement or other rights that are appurtenant
to any Leased Property, Tenant agrees that Landlord does not make any representation or warranty
relative to Landlord’s title thereto or whether such appurtenances are encumbered, and Landlord
shall not be obligated to discharge any liens or encumbrances with respect to, or otherwise to
defend, Landlord’s right, title and interest, if any, in any such appurtenances. Tenant agrees
that such appurtenances shall constitute Permitted Encumbrances, as to which Tenant shall have the
obligations set forth in Section 8.2.6 and Section 23.

          6.2. Tenant’s Personal Property. Tenant shall provide and maintain during the entire
Term all such Tenant’s Personal Property and Landlord’s Personal Property as shall be necessary to
maintain the Authorizations in effect and to operate each Facility in compliance with all licensure
and certification requirements, in compliance with all applicable Legal Requirements and Insurance
Requirements and otherwise in accordance with customary practice in the industry for the Primary
Intended Use of each Leased Property. Except as otherwise agreed in writing by Landlord in its
sole discretion, upon the expiration or earlier termination of this Lease (or, if applicable,
Tenant’s right of possession) as it applies to any Leased Property, Tenant’s Personal Property that
is to be transferred to Landlord pursuant to Section 35 below shall include all of the foregoing
required Tenant’s Personal Property, and any other Tenant’s Personal Property, in good operating
condition and repair.

          6.3. Landlord’s Personal Property. Tenant may, from time to time, in Tenant’s
reasonable discretion, without notice to or approval of Landlord, sell or dispose of any item of
Landlord’s Personal Property; provided, however, that, unless such item is
functionally obsolete, Tenant shall promptly replace such item with an item of similar quality, use
and functionality, which replacement items shall be deemed to be an item of Landlord’s Personal
Property under this Lease. Tenant shall, promptly upon Landlord’s request from time to time,
provide such information as Landlord may reasonably request relative to any sales, dispositions or
replacements of Landlord’s Personal Property pursuant to this Section 6.3. Subject to the
foregoing provisions of this Section 6.3, Landlord’s Personal Property shall be returned to
Landlord or left in place at the Premises upon the termination of this Lease (or, if applicable, a
termination of Tenant’s right of possession), in good condition, normal wear and tear excepted.

     7. Condition and Use of Each Leased Property. 

          7.1. Condition of Each Leased Property. Tenant acknowledges receipt and delivery of
possession of each Leased Property. Tenant is leasing each Leased Property “AS IS”

K-12

 

“WHERE IS” and Tenant waives any claim or action against Landlord in respect of the condition
of each Leased Property. LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN
RESPECT OF ANY LEASED PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS, DESIGN OR CONDITION
FOR ANY PARTICULAR USE OR PURPOSE OR THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR
PATENT, OR OTHERWISE, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY TENANT. EXCEPT AS TO
SUCH PORTIONS OF THE LEASED PROPERTY WHICH TENANT EXPRESSLY ACKNOWLEDGES ELSEWHERE IN THIS LEASE
MAY BE IN NEED OF REPAIR OR REPLACEMENT AND WHICH TENANT IS OBLIGATED ELSEWHERE IN THIS LEASE TO SO
REPAIR OR REPLACE AT ITS SOLE COST AND EXPENSE, TENANT ACKNOWLEDGES THAT EACH LEASED PROPERTY HAS
BEEN INSPECTED BY TENANT AND THAT TENANT HAS FOUND EACH LEASED PROPERTY TO BE IN GOOD ORDER AND
REPAIR AND SATISFACTORY FOR ITS PURPOSES HEREUNDER.

          7.2. Use of Each Leased Property.

               7.2.1. Primary Intended Use. During the entire Term, Tenant shall use each
Facility
(including, without limitation, the Leased Improvements thereon) solely for its Primary Intended
Use (and shall not change, or consent to or acquiesce in the change of, such Primary Intended
Use) and shall operate each Facility in a manner consistent with its current operation as a quality
healthcare facility and, if and when applicable, sound reimbursement principles under Medicare,
Medicaid and any other applicable Third Party Payor Programs. No use shall be made or permitted to
be made of any Leased Property, and no acts shall be done, that would cause the cancellation of any
insurance policy covering such Leased Property or any part thereof, nor shall Tenant sell or
otherwise provide to occupants or patients therein, or permit to be kept, used or sold in or about
such Leased Property, any article that may be prohibited by any Legal Requirements or by the
standard form of fire insurance policies, or any other insurance policies required to be carried
hereunder, or fire underwriters’ regulations.

               7.2.2. Authorizations Appurtenant. The Authorizations for any Facility shall,
to the
maximum extent permitted by law, relate and apply exclusively to such Facility, and Tenant
acknowledges and agrees that, subject to all applicable Legal Requirements, the Authorizations are
appurtenant to the Facilities to which they apply, both during and following the termination or
expiration of the Term (or, if applicable, a termination of Tenant’s right of possession). In
jurisdictions where the CONs or any other Authorizations are issued to a Tenant or its subtenant or
the Manager, as the Facility operator, Tenant agrees that (i) such CONs or other Authorizations
shall nevertheless remain the property of Landlord and be held by Tenant or such subtenant or the
Manager, as applicable, in trust for the benefit of Landlord pursuant to a revocable, temporary
license that may be revoked by Landlord upon the termination of this Lease as to such Facility or
the termination of Tenant’s right to possession of such Facility or at any time an Event of Default
is continuing, and (ii) in connection with an Operational Transfer or as otherwise required by
Landlord, Tenant shall cooperate with Landlord, in accordance with Section 37.1 hereof, to assign,
if and to the extent permitted by applicable laws and regulations, all of Tenant’s rights in
connection with such CONs or other Authorizations to Landlord or Successor Operator, as applicable.
This Section 7.2.2 shall
survive the expiration or earlier termination of this Lease (or, if applicable, Tenant’s right
of possession).

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          7.3. Authorization Collateral. To the fullest extent permitted by applicable law,
Tenant hereby grants to Landlord a first priority security interest in, and lien upon, all of
Tenant’s right, title and interest in and to all of the Authorizations issued to, leased or
licensed to, or held by, each Tenant, including, but not limited to, such Tenant’s interest in and
rights under all Facility Provider Agreements, with respect to the Facilities and any CONs issued,
leased or licensed to such Tenant (collectively, the “Authorization Collateral”) to secure the
performance of all of Tenant’s obligations under this Lease, including, but not limited to, its
obligation to engage in, assist with and facilitate any Operational Transfer. Tenant represents
and warrants to Landlord that attached hereto on Schedule 7.3 is a detailed list and description of
all of the Authorization Collateral. Notwithstanding anything contained herein to the contrary,
Tenant shall not (under any circumstances) grant any lien upon, security interest in and to or
otherwise pledge, encumber, hypothecate, transfer or assign, in whole or in part, the Authorization
Collateral to any Person, irrespective of the priority of such security interest, pledge or
hypothecation. The security interest and lien granted by this Section 7.3 shall be in addition to
any lien of Landlord that may now or at any time hereafter be provided by law.

          7.4. Granting of Easements, etc. Landlord may, from time to time, with respect to any
Leased Property: (i) grant easements, covenants and restrictions, and other rights in the nature of
easements, covenants and restrictions, (ii) release existing easements, covenants and restrictions,
or other rights in the nature of easements, covenants or restrictions, that are for the benefit of
such Leased Property, (iii) dedicate or transfer unimproved portions of such Leased Property for
road, highway or other public purposes, (iv) execute petitions to have such Leased Property annexed
to any municipal corporation or utility district, (v) execute amendments to any easements,
covenants and restrictions affecting such Leased Property and (vi) execute and deliver to any
Person any instrument appropriate to confirm or effect such grants, releases, dedications and
transfers (to the extent of its interests in such Leased Property) without the necessity of
obtaining Tenant’s consent provided that Landlord reasonably determines that such easement or other
instrument or action contemplated by this Section 7.4 does not unreasonably interfere with the
conduct of the business of Tenant on such Leased Property. If Landlord reasonably determines that
any easement or other instrument or action contemplated by this Section 7.4 would change the
physical configuration of the Leased Property in a way that reduces or limits access to the Lease
Property (as it currently exists from a publicly dedicated street) or parking at the Leased
Property (excluding in each case any temporary effect due to construction so long as adequate
access and parking are always available) or limits or reduces the ability of Tenant (or Manager) to
provide services to residents at the Facility, or would otherwise unreasonably interfere with the
conduct of business by the applicable Tenant(s) at a Leased Property, Landlord shall obtain
Tenant’s prior written consent to such proposed easement, instrument or action, which consent may
be granted or withheld by Tenant in its sole discretion (and which consent shall be irrevocably
deemed given if not expressly denied by Tenant, in writing, within 10 Business Days of Tenant’s
receipt of such request).

     8. Negative and Affirmative Covenants of Tenant.

          8.1. Negative Covenants. Tenant covenants and agrees with Landlord that:

               8.1.1. Issuance of Equity Interests. No Tenant shall issue or allow to be
created any
stocks, shares, partnership or membership interests or other ownership interests in

K-14

 

any Tenant, other than the stocks, shares, partnership or membership interests and other
ownership interests that are outstanding on the date hereof. Notwithstanding the foregoing
provisions of this Section 8.1.1 to the contrary, any Tenant may issue membership interests
provided all of the following conditions are met: (i) ALC Operating, LLC shall own, in aggregate
together, more than 50% of the membership interests (both as to value and voting interests) of each
Tenant; (ii) Tenant shall provide Landlord with at least 15 Business Days notice of such issuance;
(iii) no Event of Default is then continuing; (iv) no Person acquiring any membership interests in
any Tenant shall be a Person which would make it illegal for the Landlord to continue to own the
Leased Property where such a Person was an owner of a Tenant thereof; (v) each Person acquiring a
membership interest in a Tenant shall be of good business reputation; (vi) all such membership
interests issued by any Tenant shall be issued in compliance with all applicable laws and
regulations, including without limitation, applicable state and federal securities laws and
regulations; (vii) ALC Operating, LLC shall at all times maintain control over all day to day
management and operations of each Tenant; and (viii) no Person acquiring any membership interest in
any Tenant shall be a Person either listed on the specially Designated Nationals and Blocked
Persons List maintained by the Office of Foreign Asset Control, U.S. Department of the Treasury or
otherwise subject to any other prohibition or restriction imposed by laws, regulations or executive
orders, including Executive Order No. 13224, administered by the Office of Foreign Asset Control,
U.S. Department of the Treasury.

               8.1.2. Change in Business or Organizational Status. No Tenant shall make any
material
change in the scope or nature of its business objectives or operations, or undertake or participate
in activities other than in continuance of its present business. No Tenant shall amend, modify or
alter its Tenant Org Docs or allow itself to be dissolved, voluntarily or involuntarily.

               8.1.3. Affiliate Transactions and Payments. No Tenant shall enter into, or be a
party
to, any transaction with any of the partners, members or shareholders of any Tenant or any other
Affiliate of any Tenant, except in the ordinary course of business and on terms that are fully
disclosed to Landlord in advance and are no less favorable to any Tenant than would be obtained in
a comparable arm’s-length transaction with an unrelated third party. During the continuance of an
Event of Default, no Tenant shall make any payments or distributions (including, without
limitation, salaries, bonuses, fees, principal, interest, dividends, liquidating distributions,
management fees, cash flow distributions or lease payments) to any Guarantor or any Affiliate of
any Tenant or any Guarantor, or any shareholder, member, partner or other equity interest holder of
any Tenant, any Guarantor or any Affiliate of any Tenant or any Guarantor. Notwithstanding the
foregoing provisions of this Section 8.1.3 to the contrary, on or before the Commencement Date,
each Tenant shall enter into a management agreement with respect to its Facility in a form
acceptable to Landlord with Manager (collectively, the “Management Agreements”), which shall
provide for management fees not to exceed six percent of the gross revenues of such Facility. On
or before the Commencement Date, Tenant and Manager shall execute and deliver to Landlord a
subordination agreement in the form attached hereto as Exhibit G with respect to each of the
Management Agreements. So long as an Event of Default has not occurred and is continuing, nothing
contained herein shall prohibit the distribution by any Tenant of any cash surplus of such Tenant
to a Guarantor or Affiliate so long as such distribution does not cause the Tenant to violate the
financial covenants set forth in Section 8.2.5.

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               8.1.4. ERISA. No Tenant shall engage in any transaction that would cause any
obligation, or action taken or to be taken, hereunder to be a non-exempt (under a statutory or
administrative class exemption) prohibited transaction under ERISA. Each Tenant shall deliver to
Landlord such certifications or other reasonable evidence from time to time throughout the Term, as
requested by Landlord in its reasonable discretion, that (i) such Tenant is not and does not
maintain an “employee benefit plan”, as defined in Section 3(3) of ERISA, that is subject to Title
I of ERISA, or a “governmental plan” within the meaning of Section 3(3) of ERISA; (ii) such Tenant
is not subject to state statutes regulating investments and fiduciary obligations with respect to
governmental plans; and (iii) one or more of the following circumstances is true: (x) equity
interests in such Tenant are publicly offered securities, within the meaning of 29 C.F.R.
§2510.3-101(b)(2); (y) less than 25% of each outstanding class of equity interests in such Tenant
are held by “benefit plan investors” within the meaning of 29 C.F.R. §2510.3-101(f)(2); or (z) such
Tenant qualifies as an “operating company” or a “real estate operating company” within the meaning
of 29 C.F.R. §2510.3-101(c) or (e).

               8.1.5. Debt Cancellation; Other Indebtedness; Guaranties. No Tenant shall
cancel or
otherwise forgive or release any claim or debt owed to any Tenant by any Person, except for
adequate consideration and in the ordinary course of such Tenant’s business, consistent with past
practice. No Tenant shall create, incur, assume, or permit to exist any indebtedness other than
(i) trade debt incurred in the ordinary course of Tenant’s business (which shall not include
so-called “accounts receivable” financing, which shall be governed by the terms of Section 21.2);
provided that, subject to Section 13 below, at no time shall trade payables of any Tenant
more than 60 days past due exceed (1) $105,062 for ALC CVMA, LLC, (2) $84,050, individually, for
each of ALC GGMG, LLC, ALC HTIF, LLC, ALC PEDG, LLC, ALC TISSC, LLC, ALC TPCG, LLC, ALC TSKG, LLC
and ALC WRWG, LLC and (3) $462,275, in the aggregate, for Tenant (each of the foregoing limits set
forth in clauses (1), (2) and (3) referred to herein as a “Trade Payable Threshold”) provided, that
each such Trade Payable Threshold shall increase by 2.5% at the beginning of each Lease Year after
the Lease Year in which the Effective Date occurs; or (ii) any AR Financing permitted under
Section 21.2. No Tenant shall create, incur, assume, or permit to exist any guarantee of any loan
or other indebtedness except for the endorsement of negotiable instruments for collection in the
ordinary course of business, except as may be expressly permitted under Section 21.2.

               8.1.6. Assets; Investing. No Tenant shall purchase or own any property other
than
property necessary for, or incidental to, the operation of the applicable Facility(ies) for
its/their Primary Intended Use(s). No Tenant shall purchase or otherwise acquire, hold, or invest
in securities (whether capital stock or instruments evidencing indebtedness) of any Person. No
Tenant shall make loans or advances to any Person, except for cash balances temporarily invested in
short-term or money market securities.

               8.1.7. Liens; Waste. No Tenant shall create, incur, assume or suffer to exist
any
lien, charge, encumbrance, easement or restriction on any portion of any of the Leased Properties
or the Lease Collateral (other than (x) Permitted Encumbrances (other than Permitted Encumbrances
under clauses (ii) or (viii) of the definition thereof which have not been consented to in writing
by Landlord and other than Permitted Encumbrances under clause (vii) of the definition thereof that
arise on account of a breach of this Lease by Tenant) and (y) a lien upon the Accounts Collateral
that is consented to by Landlord in accordance with Section 21.2 below).

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No Tenant shall commit or suffer to be committed any waste on any Leased Property, nor shall
any Tenant cause or permit any nuisance thereon. Tenant shall not take or omit to take any action,
the taking or omission of which may materially impair the value or the usefulness of any Leased
Property or any part thereof for its Primary Intended Use.

               8.1.8. Zoning. No Tenant shall initiate or consent to any zoning
reclassification of
any portion of any of the Leased Properties or seek any variance under any existing zoning
ordinance or use (or permit the use of) any portion of any of the Leased Properties in any manner
that could result in such use or the Primary Intended Use becoming a non-conforming use under any
zoning ordinance or any other applicable land use law, rule or regulation.

               8.1.9. Contracts. No Tenant shall execute or modify any material contracts or
agreements with respect to any Facility except for contracts and modifications approved by Landlord
(which approval shall not be unreasonably withheld). Contracts made in the ordinary course of
business and in an amount less than $100,000 per Facility per annum or are cancelable upon 30 days
written notice or less without penalty shall not be considered “material” for purposes of this
Section.

               8.1.10. No Joint Assessment. No Tenant shall suffer, permit or initiate the
joint
assessment of any Leased Property (i) with any other real property constituting a tax lot separate
from such Leased Property, or (ii) with any portion of such Leased Property that may be deemed to
constitute personal property, or any other procedure whereby the lien of any taxes that may be
levied against any such personal property shall be assessed or levied or charged to such Leased
Property.

               8.1.11. Use-Specific Negative Covenants. No Tenant shall:

	 	(a)	 	Transfer any Authorizations to
any location other than the Facility operated by such Tenant or
as otherwise required by the terms of this Lease nor pledge any
Authorizations as collateral security for any loan or
indebtedness except as required by the terms of this Lease.
	 
	 	(b)	 	Rescind, withdraw, revoke, amend,
supplement, or otherwise alter the nature, tenor or scope of
(i) any Authorization for any Facility or (ii) any applicable
Facility Provider Agreement for any Facility.
	 
	 	(c)	 	Amend or otherwise change, by
consent, acquiescence or otherwise, any Facility’s licensed bed
capacity and/or the number or type of beds, licensed or
otherwise, and/or the licensing category or type and/or the
number of beds, licensed or otherwise, participating in
governmental payment programs, in each case as the same exist on
the Commencement Date, or apply for approval of any of the
foregoing amendments or changes, provided, however, that,

K-17

 

	 	 	 	notwithstanding the foregoing, Tenant may remove from service
beds at a particular Facility so long as the number of beds
in service at such Facility is not less than a number equal
to 90% of the number of operational beds for such Facility
set forth in Schedule 17.1.13 attached hereto and further so
long as any such removal from service does not impair the
continued licensure of any such out-of-service beds.
	 
	 	(d)	 	Replace or transfer all or any
part of any Facility’s licensed beds to another location or
apply for approval of any such replacement or transfer.
	 
	 	(e)	 	Jeopardize in any manner any
Tenant’s participation in Medicare, Medicaid or any other Third
Party Payor Programs to which any Tenant may become subject at
any time during the Term.
	 
	 	(f)	 	Enter into any patient or
resident care agreements with patients or residents or with any
other Persons that do not qualify as Approved Residency
Agreements or which deviate in any material respect from the
standard form customarily used by any Tenant at the applicable
Facility; provided, however, that (i) Tenant may
so materially deviate from its standard and customarily used
form of patient or resident care agreement for a particular
Facility so long as such deviation (a) does not cause such
agreement not to satisfy the requirements of any of clauses
(i) through (v) in the definition of “Approved Residency
Agreement,” (b) if it was allowed and made in all of Tenant’s
patient or resident care agreements for such Facility, would not
have a Material Adverse Effect on such Facility, any Tenant or
any Guarantor, and (ii) Tenant may so materially deviate from
its other standard and customarily used forms for a particular
Facility so long as such deviation, if it was allowed and made
in all of Tenant’s agreements for such Facility using such form,
would not have a Material Adverse Effect on such Facility, any
Tenant or any Guarantor, and (c) such deviation is either
required by applicable Governmental Authority or is then
customary in the industry in the area in which such Facility is
located.
	 
	 	(g)	 	Change the terms of any Facility
Provider Agreement, any Third Party Payor Program or its normal
billing, payment or reimbursement policies and procedures with
respect thereto (including, without limitation, the amount and
timing of finance charges, fees and write-offs);
provided

K-18

 

	 	 	 	that a Tenant may enter into changes that do not have a
material adverse effect on (i) the business or financial
position or results of operations of such Tenant, (ii) the
ability of such Tenant to perform, or of Landlord to enforce,
the terms of this Lease or (iii) the value of the Leased
Properties taken as a whole.
	 
	 	(h)	 	Assign or transfer any of its
interest in any Authorization or assign, pledge, hypothecate,
transfer or remove, or permit any other Person to assign,
transfer, pledge, hypothecate or remove, any records pertaining
to any Facility, including, without limitation, patient records
and medical and clinical records (except for removal of such
patient records as directed by the patients owning such
records).

          8.2. Affirmative Covenants. Until all of Tenant’s obligations hereunder have been
performed and discharged in full, Tenant covenants and agrees as follows:

               8.2.1. Perform Obligations. Tenant shall perform or cause to be performed, as
and
when due, all of its obligations under this Lease, the Authorizations (including, but not limited
to, any applicable Facility Provider Agreements), any Permitted Encumbrances, any Insurance
Requirements and any Legal Requirements. Tenant represents and warrants that prior to the Existing
Master Lease Date, Tenant’s predecessor(s) has taken all necessary action to obtain all
Authorizations (including, but not limited to, any applicable Facility Provider
Agreements) required for the operation of each of the Facilities for its Primary Intended Use
consistent with such operation prior to the Commencement Date and, to the extent such necessary
Authorizations are not issued on or before the Commencement Date, Tenant shall diligently take all
necessary action to obtain such Authorizations as required by applicable Legal Requirements and
Governmental Authorities. Tenant shall take all necessary action to maintain such Authorizations
(including, but not limited to, any applicable Facility Provider Agreements) during the Term.

               8.2.2. Proceedings to Enjoin or Prevent Construction or Tenant’s Primary Intended
Use.
If any proceedings are filed seeking to enjoin or otherwise prevent or declare invalid or unlawful
Tenant’s construction, occupancy, maintenance, or operation of any Facility or any portion thereof
for its Primary Intended Use, Tenant shall cause such proceedings to be vigorously contested in
good faith, and shall, without limiting the generality of the foregoing, use all reasonable
commercial efforts to bring about a favorable and speedy disposition of all such proceedings and
any other proceedings.

               8.2.3. Documents and Information.

	 	(a)	 	Furnish Information.
Tenant shall (i) promptly supply Landlord with such information
concerning its financial condition, licensing and property as
Landlord may reasonably request from time to time hereafter and
in the format reasonably designated by Landlord and, without

K-19

 

	 	 	 	limitation of the foregoing, promptly, and in any event
within 10 Business Days, after a request from Landlord,
Tenant shall provide to Landlord such additional information
regarding Tenant, Tenant’s financial condition or the
Facilities as Landlord, or any existing or proposed creditor
of Landlord or Ventas, Inc. (including, without limitation,
any existing or proposed Facility Mortgagee), or any auditor
or underwriter of Landlord or Ventas, Inc., may require from
time to time; and (ii) promptly notify Landlord in writing of
any condition or event that constitutes a breach of any term,
condition, warranty, representation, or provision of this
Lease or any other agreement between Landlord or its
Affiliates and any Tenant, any Guarantor or any of their
Affiliates, and of any event or condition having a Material
Adverse Effect on any Facility, any Tenant, any Guarantor or
any Affiliate of any Tenant or any Guarantor and of any Event
of Default. Tenant shall notify Landlord, in writing and
within 10 Business Days, if any Tenant is advised, in
writing, formally or informally, by its insurance carrier,
reinsurance provider, accountants, actuary, any Governmental
Authority, or any Third Party Payor Program provider of any
actual, pending, threatened or contemplated increase in its
reserves for expenses relating to malpractice or professional
liability claims or any material increase in the premium
costs for malpractice or professional liability insurance
(any of the foregoing, a “Reserve Event”).
	 
	 	(b)	 	Further Assurances.
Tenant shall, upon request of Landlord from time to time,
execute, deliver, and furnish such documents as may be necessary
or appropriate to consummate fully the transactions contemplated
under this Lease.
	 
	 	(c)	 	Material Communications.
Tenant shall transmit to Landlord, within 10 Business Days after
receipt thereof (or immediately with respect to any
correspondence related to an “immediate jeopardy” event or
alleged patient abuse or neglect which has allegedly resulted in
serious injury or death), any Actuarial Correspondence or any
material communication affecting one or more Facilities, any
Tenant, any Guarantor, any Affiliate of any Tenant or any
Guarantor, this Lease, the Legal Requirements, the Insurance
Requirements, the Facility Provider Agreements or the
Authorizations, and Tenant shall promptly respond to inquiries
by Landlord with respect to such information. Tenant shall
notify Landlord in writing promptly after any

K-20

 

	 	 	 	Tenant obtains knowledge of any potential, threatened or
existing litigation or proceeding against, or investigation
of, any Tenant, any Guarantor, any Affiliate of any Tenant or
any Guarantor or any Facility that may affect the right to
operate one or more of the Facilities, any Facility Provider
Agreements, any of the Authorizations, the right to receive
regular reimbursement under Medicare, Medicaid or any other
Third Party Payor Program (to the extent Tenant or a Facility
participates in such Third Party Payor Program) or Landlord’s
title to any Facility or any Tenant’s interest therein.
	 
	 	(d)	 	Operator Reports; Actuarial
Reports. Tenant shall provide Landlord with accurate and
complete copies of any and all of the census information
concerning the number of licensed beds occupied by residents or
patients, all cost reports (if applicable under a Third Party
Payor Program), surveys, survey deficiency reports, monthly
financial statements and other reports, materials and
information concerning any Tenant, the Facilities and each
Tenant’s business operations and compliance with material laws,
ordinances, rules, regulations, Authorizations and Facility
Provider Agreements that are submitted by Tenant to any
Governmental Authorities or any provider pursuant to any Third
Party Payor Program (including any Health Department or CMS, if
and as applicable), for any of the Facilities (the “Operator
Reports”) promptly, and in any event, within three Business
Days, after the submission thereof. All Operator Reports shall
be accurate in all material respects as of the date of such
Operator Reports. Tenant shall provide Landlord with any and
all Actuarial Reports received by, or prepared by or on behalf
of, any Tenant within 10 Business Days after the receipt or
submission thereof by or to any Tenant.

               8.2.4. Compliance With Laws. Tenant shall comply in all material respects with
all
Insurance Requirements and all Legal Requirements (and Landlord shall have no responsibility for
such compliance), and keep all Authorizations and, if and to the extent applicable, Facility
Provider Agreements, in full force and effect.

               8.2.5. Financial Covenants. The following financial covenants shall be met
throughout
the Term of this Lease:

	 	(a)	 	Coverage Ratio. Tenant
shall maintain a Coverage Ratio with respect to each Facility
for the 12 month period ending as of the end of each fiscal
quarter of not less than 0.8 to 1.0;

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	 	(b)	 	Intentionally Omitted;
	 
	 	(c)	 	Portfolio Coverage Ratio.
Tenant shall maintain a Portfolio Coverage Ratio for the 12
month period ending as of the end of each fiscal quarter of not
less than 1.0 to 1.0;
	 
	 	(d)	 	Minimum Average
Occupancy. As of the end of each fiscal quarter, the
minimum average occupancy rate (i) for the quarter then ended
for each Facility shall be greater than or equal to 65%,
(ii) for the trailing 12 months then ended (1) for each Facility
shall be greater than or equal to 75% and (2) for all Facilities
in aggregate shall be greater than or equal to 82%.

               8.2.6. Permitted Encumbrances. Tenant shall, at its own cost, fully observe,
perform
and comply with all Permitted Encumbrances as the same apply to or bind Landlord or the Premises.
No Tenant shall cause, or permit its respective Tenant Parties to cause, whether by act or
omission, any breach of, default under or termination of any Permitted Encumbrance applicable to or
binding upon Landlord or the Premises.

          8.3. Authorization Non-Compliance. In the event that Tenant shall receive a written
complaint or notice from a private party to any Third Party Payor Program or Governmental Authority
alleging, asserting or suggesting that Tenant is not in compliance with any Legal Requirement,
license, permit, approval, CON or other Authorization or, if applicable, any certification for
reimbursement under Medicare or Medicaid or any Facility Provider Agreement or other Third Party
Payor Program, Tenant shall, within 10 Business Days (or immediately with respect to any
correspondence related to an “immediate jeopardy” event), send notice to Landlord, whereupon Tenant
shall remedy any condition causing such complaint, notice or non-compliance promptly, and in any
case within any cure period allowed therefor by the applicable agency or authority, in the case of
such non-compliance.

     9. Maintenance of Facilities. 

          9.1. Maintenance and Repair.

               9.1.1. Facility Repair. Tenant, at its sole expense, shall keep each Leased
Property
(and Tenant’s Personal Property) in good and safe order and repair (whether or not the need for
such repairs occurs as a result of Tenant’s use, any prior use, the elements or the age of such
Leased Property, Tenant’s Personal Property or any portion thereof) except as provided in Sections
15 and 16 below with respect to Casualty and Condemnation. Without
limitation of the foregoing, Tenant shall promptly make all necessary and appropriate repairs
and replacements (capital and otherwise) to each Facility, of every kind and nature, whether
interior or exterior, structural or non-structural, ordinary or extraordinary, foreseen or
unforeseen or arising by reason of a condition existing prior to the commencement of the Term
(concealed or otherwise), including, but not limited to, any roof repairs or replacements or
parking lot repairs or replacements, such that each Leased Property is maintained in good and safe
working order and operating and structural condition for use for its Primary Intended Use. Tenant
shall have in place service and maintenance contracts with duly licensed contractors or repair
services (which

K-22

 

contractors or repair services shall be acceptable to Landlord in its reasonable
discretion) providing for regular maintenance and repair of any and all major systems serving each
Leased Property, including, but not limited to, the HVAC systems, life safety systems, plumbing
systems and elevator and conveyor systems. Landlord may from time to time as to any one or more
Leased Properties, and at Tenant’s sole expense (but as to routine inspections not resulting from
an Event of Default or from a condition of which Landlord becomes aware, which if not cured by
Tenant, would become an Event of Default, no more than once every three years at Tenant’s expense,
but not more than $2500 per report and not more than $5000 per Facility in aggregate for multiple
reports in each instance), cause an engineer designated by Landlord, in its sole discretion, to
inspect one or more Leased Properties and issue a report (a “Leased Property Condition
Report”) with respect to the condition of any such Leased Properties. Tenant shall, at its own
expense, make any and all repairs or replacements recommended by such Leased Property Condition
Report as needed to maintain the Leased Property in good and safe order and repair. All repairs
shall be made in a good and workmanlike manner and in accordance with all Legal Requirements
relating to such work. Subject to Sections 15 and 16 below, Landlord shall not under any
circumstances be required to repair, replace, build or rebuild any improvements on any Leased
Property, or to make any repairs, replacements, alterations, restorations or renewals of any nature
or description to any Leased Property, whether ordinary or extraordinary, structural or
non-structural, foreseen or unforeseen, or to make any expenditure whatsoever with respect thereto,
or to maintain any Leased Property in any way. Tenant hereby waives, to the extent permitted by
law, the right to make repairs at the expense of Landlord pursuant to any law currently in effect
or hereafter enacted.

               9.1.2. Notice of Non-Responsibility. Except as expressly set forth in this
Lease,
nothing contained in this Lease and no action or inaction by Landlord shall be construed as:
(i) constituting the consent or request of Landlord, express or implied, to any contractor,
subcontractor, laborer, materialman or vendor to, or for the performance of, any labor or services
or the furnishing of any materials or other property for the construction, alteration, addition,
repair or demolition of or to any Leased Property or any part thereof; or (ii) giving Tenant any
right, power or permission to contract for or permit the performance of any labor or services or
the furnishing of any materials or other property in such fashion as would permit the making of any
claim against Landlord in respect thereof or to make any agreement that might create, or in any way
be the basis for, any right, title, interest, lien, claim or other encumbrance upon the estate of
Landlord in any Leased Property, or any portion thereof. Landlord may post, at Tenant’s sole cost,
such notices of non-responsibility upon, or of record against, any Leased Property to prevent the
lien of any contractor, subcontractor, laborer, materialmen or vendor providing work, services or
supplies to Tenant from attaching against the Premises. Tenant agrees to promptly execute and
record any such notice of non-responsibility at Tenant’s sole cost.

               9.1.3. Vacation and Surrender. Tenant shall, upon the expiration or sooner
termination of the Term (or, if applicable, a termination of Tenant’s right of possession) as to
any Leased Property, vacate and surrender the applicable Leased Property to Landlord in good and
safe order and repair, broom clean and consistent with the requirements of Section 9.1.1, except as
repaired, rebuilt, restored, altered or added to as permitted or required by the provisions of this
Lease and, subject to Sections 15 and 16 below, except for damage from Casualty or Condemnation.
Each Leased Property so returned to Landlord shall include any and

K-23

 

all Alterations, which shall be
and remain the property of Landlord as part of such Leased Property (except for Alterations that
Landlord requests, in writing, that Tenant remove, which Alterations shall be promptly and
completely removed by Tenant). Tenant shall repair, at Tenant’s sole cost, any damage to a Leased
Property resulting from Tenant’s vacation from or surrender of such Leased Property and/or the
removal of any Alterations therefrom, whether effected by Tenant or Landlord. Without limiting the
foregoing in any way, upon the expiration or earlier termination of this Lease (or, if applicable,
a termination of Tenant’s right of possession), Tenant shall return possession of each Facility to
Landlord with all deferred maintenance at, in or on any Leased Property having been completed and
all systems, components, and elements (structural and otherwise) having a useful life determined in
the exercise of Landlord’s reasonable judgment of at least three years (and not less than
seven years as to structural items).

          9.2. Encroachments. If any of the Leased Improvements on any Leased Property shall,
at any time, encroach upon any property, street or right-of-way adjacent to such Leased Property,
or are in violation in any material respect of any applicable Legal Requirements, then, promptly
upon the request of Landlord, Tenant shall, at its expense, subject to its right to contest the
existence of any encroachment or violation, as applicable, and, in such case, in the event of any
adverse final determination, either (i) obtain valid waivers or settlements of all claims,
liabilities and damages resulting from each such encroachment or violation, as applicable, whether
the same shall affect Landlord or Tenant, or (ii) make such changes in the Leased Improvements, and
take such other actions, as Tenant, in the good faith exercise of its judgment deems reasonably
practicable, to remove such encroachment or violation, as applicable, including, if necessary, the
alteration of any of the Leased Improvements, and in any event take all such actions as may be
necessary in order to be able to continue the operation of the Leased Improvements for the Primary
Intended Use substantially in the manner and to the extent the Leased Improvements were operated
prior to the assertion of such encroachment or violation. Any such alteration shall be made in
conformity with the applicable requirements of Section 11. Tenant’s obligations under this Section
9.2 shall be in addition to and shall in no way discharge or diminish any obligation of any insurer
under any policy of title or other insurance and Tenant shall not be entitled to a credit for any
sums recovered by Landlord under any such policy of title or other insurance.

     10. Tenant’s Representations and Warranties. 

          Tenant hereby makes the following representations and warranties, as of the date hereof, to
Landlord and acknowledges that Landlord is granting the Lease in reliance upon such representations
and warranties. Tenant’s representations and warranties shall survive the expiration or termination
of this Lease (or, if applicable, a termination of Tenant’s right of
possession) and, except to the extent otherwise specifically limited, shall continue in full
force and effect, and remain true and correct, and constitute continuing covenants of Tenant, until
Tenant’s obligations hereunder have been performed in full.

          10.1. Organization and Good Standing. Each Tenant is a limited liability company,
duly organized, validly existing and in good standing under the laws of the State of Wisconsin.
Each Tenant is qualified to do business in and is in good standing under the laws of the State in
which the Facility operated by such Tenant is located. Tenant has delivered true and

K-24

 

complete
copies of the documents, certificates and agreements pursuant to which each Tenant is organized to
do business (the “Tenant Org Docs”).

          10.2. Power and Authority. Each Tenant has the power and authority to execute,
deliver and perform this Lease and to make itself jointly and severally liable for the obligations
of each other Tenant. Each Tenant has taken all requisite action necessary to authorize the
execution, delivery and performance of such Tenant’s obligations under this Lease.

          10.3. Enforceability. This Lease constitutes a legal, valid, and binding obligation
of each Tenant enforceable in accordance with its terms.

          10.4. Consents. The execution, delivery and performance of this Lease will not
require any consent, approval, authorization, order, or declaration of, or any filing or
registration with, any court or other Governmental Authority, or any other Person, which has not
been received, filed or registered, as applicable, on or before the Commencement Date.

          10.5. No Violation. The execution, delivery and performance of this Lease (i) do not
and will not conflict with, and do not and will not result in a breach of, any Tenant Org Docs; and
(ii) do not and will not violate any order, writ, injunction, decree, statute, rule or regulation
applicable to any Tenant or any of the Facilities.

          10.6. Reports and Statements. All reports, statements (financial or otherwise),
certificates and other data furnished by or on behalf of Tenant or any Guarantor to Landlord in
connection with this Lease, and all representations and warranties made herein or in any
certificate or other instrument delivered in connection herewith, are true and correct in all
material respects and do not omit to state any material fact or circumstance necessary to make the
statements contained herein or therein, in light of the circumstances under which they are made,
not misleading as of the date of such report, statement, certificate or other data.

          10.7. No Default. As of the date hereof, (i) there is no existing Event of Default
under this Lease; and (ii) no event has occurred which, with the giving of notice or the passage of
time, or both, would constitute or result in such an Event of Default.

          10.8. Adverse Matters. No Guarantor, no Tenant nor, to Tenant’s knowledge, any of
their respective representatives, officers, directors, members, contractors, subcontractors,
agents, employees or Affiliates have been disqualified from participating in either the Medicare or
Medicaid programs or in any other Third Party Payor Program. Without limitation of the foregoing,
no Guarantor, no Tenant nor, to Tenant’s knowledge, any of their respective officers, directors,
members or managing employees or other contractors, subcontractors, employees, agents or Affiliates
have engaged in any activities that are prohibited under criminal law, or are
cause for civil penalties or mandatory or permissive exclusion from Medicare, Medicaid, or any
other Third Party Payor Program. There is no, and there shall continue to be no, threatened,
existing or pending revocation, suspension, termination, probation, restriction, limitation or
non-renewal affecting any Tenant or any Facility with regard to participation in Medicare, Medicaid
or any other Third Party Payor Programs or the applicable Authorizations to which any Tenant or
Facility presently or at any time hereafter is/are subject.

K-25

 

          10.9. Certification. Each Tenant has obtained any and all Authorizations necessary to
operate its Facility(ies) for its Primary Intended Use and to be, and to continue to be, validly
licensed and certified to operate its applicable Facility for its Primary Intended Use in
accordance with all applicable governmental rules and regulations and the requirements of all
applicable Governmental Authorities.

          10.10. Reserved.

K-26

 

          10.11. No Reimbursement Audits or Appeals. There are no current, pending or
outstanding reimbursement audits regarding any Third Party Payor Programs nor any appeals pending
at any Facility.

          10.12. No Recoupments Efforts. There are no current or pending recoupment efforts
regarding any Third Party Payor Programs at (or with respect to) any Facility. Tenant is not and
has not been a participant in any federal program whereby any Governmental Authority may have the
right to recover funds by reason of the advance of federal funds.

          10.13. Professional Liability Reserves. Upon the occurrence of a Reserve Event, each
applicable Tenant will accrue reserves for expenses relating to malpractice and professional
liability claims that are adequate and complete in the exercise of commercially reasonable judgment
and normal commercial practice.

          10.14. Primary Intended Use. Each Facility is being operated for its Primary Intended
Use and contains the number of licensed, operational beds and units described on Schedule 1
attached hereto.

          10.15. Compliance with Laws. Each Tenant and each Facility is in compliance in all
material respects with all applicable federal, state and local laws, regulations and guidelines
(including, without limitation, any government payment program requirements and disclosure of
ownership and related information requirements), quality and safety standards, accepted
professional standards and principles that apply to professionals providing services to independent
or assisted living or Alzheimer’s care facilities, in each case, as applicable, accreditation
standards, and requirements of the applicable Governmental Authorities, including, without
limitation, those requirements relating to the physical structure and environment of each Leased
Property, licensing, quality and adequacy of medical care, distribution of pharmaceuticals, rate
setting, equipment, personnel, operating policies, additions to facilities and services and fee
splitting. No Tenant has committed any act which may give any Governmental Authority the right to
cause Tenant to lose any applicable Authorizations.

          10.16. Ownership of Authorizations. The Authorizations, including, without
limitation, each CON: (i) are not, and have not been, transferred to any location other than the
Facility to which such Authorizations relate; (ii) are not, and have not been, pledged as
collateral security for any loan or indebtedness other than pursuant to the terms of this Lease;
(iii) are held free from restrictions or conflicts that would materially impair the use or
operation of each Facility for its Primary Intended Use; and (iv) are not provisional, probationary
or restricted in any way.

          10.17. Third Party Payor Programs. There is no pending or, to the knowledge of
Tenant, threatened revocation, suspension, termination, probation, restriction, limitation, fine,
civil monetary penalty, recoupment or non-renewal affecting any Tenant or any Leased Property in
respect of any Third Party Payor Programs to which Tenant or any Facility presently is subject.
All cost reports and financial reports, if any, submitted by any Tenant pursuant to any Third Party
Payor Program have been and will continue to be materially accurate and complete and have not been
and will not be misleading in any material respects.

K-27

 

     11. Alterations. 

          11.1. Alterations. Tenant shall not (i) make any Capital Alterations on or to any
Leased Property, (ii) enlarge or reduce the size of any Facility and/or (iii) make any Capital
Alterations or other Alterations that would tie in or connect with any improvements on property
adjacent to the Land. Tenant may, without Landlord’s consent, make any alterations, additions, or
improvements (collectively, with the alterations described in items (i) – (iii) of the preceding
sentence, “Alterations”) to any Leased Property if such Alterations are not of the type described
in clause (i), (ii) or (iii) above, so long as in each case: (w) the same do not (A) decrease the
value of the Leased Property, (B) affect the exterior appearance of the Leased Property, or
(C) affect the structural components of the Leased Property or the main electrical, mechanical,
plumbing, elevator or ventilating and air conditioning systems for any Facility, (x) the same are
consistent in terms of style, quality and workmanship to the original Leased Property and Fixtures,
(y) the same are constructed and performed in accordance with the provisions of Section 11.2 below
and (z) unless such amounts and Alterations are expressly provided for as a separate line item in
an Annual Capital Expenditure Budget approved by Landlord, the cost thereof does not exceed, in the
aggregate, $50,000 for any consecutive 12)month period with respect to any single Facility. Except
for those limited Alterations that expressly do not require Landlord’s consent pursuant to the
preceding sentence, all Alterations shall be subject to Landlord’s prior written consent, in
Landlord’s sole discretion. To the extent Landlord’s prior written consent shall be required in
connection with any Alterations, Landlord may impose such conditions thereon in connection with its
approval thereof as Landlord deems appropriate, including without limitation, increasing the
Capital Expenditures Deposit to cover the cost thereof. Notwithstanding the foregoing, Landlord
agrees that painting, landscaping, and replacement of floor, wall and window coverings and items
constituting furniture and Tenant’s Personal Property shall be deemed Alterations that do not
require Landlord’s consent, regardless of the cost thereof, so long as the same meet the
requirements of clauses (x) and (y) above.

          11.2. Construction Requirements for all Alterations. Whether or not Landlord’s
consent is required, for all Alterations of any Leased Property, the following shall apply and
shall be in addition to and not in lieu of any other requirements that Landlord may impose on
Tenant in connection with the making of any Alterations:

               11.2.1. Plans and Specifications. Prior to commencing any Alterations, Tenant
shall
have submitted to Landlord a written proposal describing in reasonable detail such proposed
Alteration and shall provide to Landlord for approval such plans and specifications, permits,
licenses, construction budgets and other information (collectively, the “Plans and
Specifications”) as Landlord shall request, showing in reasonable detail the scope and nature of
the proposed Alteration. Landlord’s consent to any Alterations or to any Plans and Specifications
therefor shall in no way make Landlord liable for the appropriateness, legality or safety of any
such Alterations or Plans and Specifications in any manner whatsoever; Tenant being responsible for
all aspects of any Plans and Specifications and the construction of any Alterations, including
without limitation, their appropriateness and safety and compliance thereof with all Legal
Requirements.

               11.2.2. Permits. Such construction shall not commence until Tenant shall have
procured and paid for all municipal and other governmental permits and

K-28

 

authorizations required therefor (as well as any permits or approvals required in connection
with any Permitted Encumbrance), and Landlord shall join in the application for such permits or
authorizations whenever such action is necessary; provided, however, that (i) any
such joinder shall be at no liability, cost or expense to Landlord; and (ii) any Plans and
Specifications required to be filed in connection with any such application that require the
approval of Landlord shall have been so approved by Landlord.

               11.2.3. No Impairment. Such construction shall not, and prior to commencement
of such
construction Tenant’s licensed architect or engineer shall certify to Landlord that such
construction shall not, impair the structural strength of any component of the applicable Facility
or overburden or impair the operating efficiency of the electrical, water, plumbing, HVAC or other
building systems of any such Facility .

               11.2.4. Compliance Certification. Prior to commencing any Alterations,
Tenant’s
licensed architect or engineer shall certify to Landlord that the Plans and Specifications conform
to and comply with all Insurance Requirements and all applicable building, subdivision and zoning
codes, laws, ordinances, regulations and other Legal Requirements.

               11.2.5. Parking. During and following completion of such construction, the
parking
that is located on the Land adjoining the applicable Facility shall remain adequate for the
operation of such Facility for its Primary Intended Use and in no event shall such parking be less
than is required by any applicable Legal Requirements.

               11.2.6. Materials; Quality. All work done in connection with such construction
shall
be done promptly and in a good and workmanlike manner using all new material of a quality at least
as good as the material being replaced or supplemented and in conformity with all Legal
Requirements.

               11.2.7. As-Builts. Promptly following the completion of the construction of any
Alterations, Tenant shall deliver to Landlord: (i) ”as built” drawings of any Capital Alterations
included therein, certified as accurate by the licensed architect or engineer selected by Tenant to
supervise such work; and (ii) a certificate from Tenant’s licensed architect or engineer certifying
to Landlord that such Alterations have been completed in compliance with the Plans and
Specifications and all applicable Legal Requirements.

               11.2.8. Certificate of Occupancy. If, by reason of the construction of any
Alteration, a new or revised CON and/or certificate of occupancy for any component of the
applicable Facility is required, Tenant shall obtain such certificate in compliance with all
applicable Legal Requirements and furnish a copy of the same to Landlord promptly upon receipt
thereof.

               11.2.9. Lien Waivers. Upon completion of any Alteration, Tenant shall promptly
deliver to Landlord final lien waivers from each and every general contractor and subcontractor
that provided goods or services in connection with such Alteration indicating that such contractor
or subcontractor has been paid in full for such goods or services, together with

K-29

 

such other evidence as Landlord may reasonably require to satisfy Landlord that no liens have
been created in connection with such Alteration.

          11.3. Capital Expenditures Account.

               11.3.1. Required Capital Expenditures. In order to assure the maintenance of
each
Facility in a condition at least as good as its condition on the Commencement Date, each Tenant
agrees to expend, during each Lease Year, an amount (the “Required Capital Expenditures
Amount”) equal to the product of (i) the Required Per Unit Annual Capital Expenditures Amount times
(ii) the aggregate number of units at its Facility (subject to Section 11.3.4 below, prorated for
any partial Lease Year and adjusted in the event of any change during any Lease Year in the number
of units at a Facility) on repairs, replacements and improvements to such Facility (other than any
part of Landlord’s Personal Property or Tenant’s Personal Property) that (x) in accordance with
GAAP, constitute capital expenditures, (y) are contemplated by the Annual Capital Expenditure
Budget approved by Landlord or have otherwise been reasonably approved by Landlord and (z) have
been completed in a good, workmanlike and lien free fashion and in compliance with all Legal
Requirements and the terms Sections 11.1 and 11.2 applicable to any Alterations (herein, “Capital
Expenditures”). Within 45 days following the end of each Lease Year (and within 30 days following
the expiration or termination of this Lease, or, if applicable, a termination of Tenant’s right of
possession), Tenant shall deliver to Landlord a report (a “Capital Expenditures Report”), certified
as true, correct and complete by Tenant pursuant to an Officer’s Certificate, summarizing and
describing in reasonable detail all of the Capital Expenditures made by Tenant during the preceding
Lease Year (or partial Lease Year, if applicable), on both an aggregate basis and broken down for
each Facility, and such evidence thereof and other information as Landlord may reasonably request
relative to the Capital Expenditures made by Tenant during the applicable Lease Year (or partial
Lease Year, if applicable). If the amount of the Capital Expenditures so made and reported by any
Tenant during a particular Lease Year (or partial Lease Year, if applicable) (the “Actual Capital
Expenditures Amount”) is less than the Required Capital Expenditures Amount applicable to such
Tenant for such period, such Tenant shall, on or prior to the due date of the Capital Expenditures
Report for such period, deposit (herein, a “Capital Expenditures Deposit”) into an interest bearing
account (the “Capital Expenditures Account”) under the sole dominion and control of Landlord (or
any applicable Facility Mortgagee) an amount equal to the amount by which such Tenant’s Required
Capital Expenditures Amount for the applicable period exceeds such Tenant’s Actual Capital
Expenditures Amount for such period. If the Actual Capital Expenditures Amount so made and
reported by a Tenant during a particular Lease Year (or partial Lease Year, if applicable) is
greater than such Tenant’s Required Capital Expenditures Amount applicable to such period, then,
provided no default or Event of Default by any Tenant exists hereunder, within five Business Days
after such Tenant’s presentation of its Capital Expenditures Report reflecting such greater
expenditure (if Landlord is holding the Capital Expenditures Account) or within five Business Days
after Landlord’s receipt of the necessary funds from the Facility Mortgagee that is holding the
Capital Expenditures Account (if a Facility Mortgagee is holding the Capital Expenditures Account),
Landlord shall pay to such Tenant the lesser of (x) the amount by which the Actual Capital
Expenditures Amount so made and reported by such Tenant during a particular period exceeds its
Required Capital Expenditures Amount for such period or (y) the amount of funds in the Capital
Expenditures Account.

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               11.3.2. Capital Expenditures Account. The Capital Expenditures Account shall be
maintained with a Lending Institution reasonably satisfactory to Landlord or with any Facility
Mortgagee. Landlord shall not be liable to Tenant or any other Person for any decline in the value
of the funds held in the Capital Expenditures Account. Furthermore, neither Landlord nor any
Facility Mortgagee shall bear responsibility for the financial condition of, nor any act or
omission by, any Lending Institution at which the Capital Expenditures Account is located. The
interest from deposits into the Capital Expenditures Account, if any, shall be retained in the
Capital Expenditures Account to be applied in accordance with the terms of this Section 11.3.
Tenant hereby grants to Landlord a first priority security interest in the Capital Expenditures
Account and all funds from time to time on deposit therein or otherwise deposited or paid to
Landlord pursuant to this Section 11.3. During the continuance of any Event of Default, Landlord
or any Facility Mortgagee may apply any funds held in the Capital Expenditures Account to pay any
amounts due Landlord under this Lease or on account of any damages suffered or incurred by Landlord
in connection therewith. Any funds so applied shall be replenished by Tenant within 10 Business
Days of demand therefor by Landlord. In connection with any assignment of Landlord’s interest in
the Premises (or any portion thereof), the assigning Landlord or any predecessor shall have the
right to transfer some or all amounts in the Capital Expenditures Account and still in its
possession or control to such assignee and, upon such transfer and assumption of the obligations
pursuant to the terms and conditions of this Lease with respect to such amounts, the assigning
Landlord or any such predecessor, as the case may be, transferring any such amounts shall thereupon
be completely released from all liability with respect to such amounts so transferred, and Tenant
shall look solely to said assignee in reference thereto.

               11.3.3. Disposition of Capital Expenditures Account. As described above, within
30 days following the expiration or termination of this Lease (or, if applicable, a termination of
Tenant’s right of possession), Tenant shall deliver to Landlord a Capital Expenditures Report with
respect to the Lease Year or partial Lease Year immediately preceding such expiration or
termination, and, if applicable, make a deposit into the Capital Expenditures Account. If, on the
basis of such Capital Expenditures Report, Tenant is entitled to a payment as described in Section
11.3.1 above, then, notwithstanding anything to the contrary contained in such Section 11.3.1, such
payment shall be due and payable to Tenant only as and when the conditions of Section 3.3.5 for the
return of the funds held pursuant to Section 3.3 have been met. Except as provided in the
preceding sentence, upon the expiration or termination of this Lease (or, if applicable, a
termination of Tenant’s right of possession), all funds in the Capital Expenditures Account
(including, without limitation, any funds that are required to be deposited therein by Tenant with
respect to the Lease Year or partial Lease Year immediately preceding such expiration or
termination) shall automatically and without further action of the parties become the property of
Landlord, without any obligation on Landlord’s part to credit Tenant in any manner therefor. The
obligations of Landlord and Tenant under this Section 11.3 shall survive the expiration or
termination of this Lease (or, if applicable, a termination of Tenant’s right of possession).

               11.3.4. Certain Divisions and Calculations. In the event that this Lease is
terminated (or Tenant’s right of possession) as to one or more Leased Properties (but not all of
the Premises) on account of any event, circumstance or transaction to which Section 17.9 is
applicable, then, any amounts held in the Escrow Account or the Capital Expenditures

K-31

 

Account shall be allocated to and among each terminated (or dispossessed), and each
non-terminated, Leased Property as determined by Landlord, in its sole discretion if any such
termination (or dispossession) results from an Event of Default and otherwise in its reasonable
discretion.

               11.4. Annual Capital Expenditure Budget. On or before the Commencement Date and
thereafter within 90 days prior to the commencement of each calendar year, Tenant shall deliver to
Landlord, at Tenant’s expense, a budget (the “Annual Capital Expenditure Budget”) setting forth
Tenant’s reasonable estimate of the capital repairs, replacements and improvements to the Premises
that Tenant anticipates will be necessary in such calendar year to comply with the maintenance,
repair and replacement obligations contained in Section 9 hereof and maintain the Leased Properties
in a condition at least as good as their respective condition on the Commencement Date. The Annual
Capital Expenditure Budget shall be subject to Landlord’s approval (which approval shall not be
unreasonably withheld or delayed) for purposes of determining and confirming that the capital
repairs, replacements and improvements are sufficient to satisfy Tenant’s obligations pursuant to
Section 9 hereof; provided, however, that the grant by Landlord of its approval to
any Annual Capital Expenditure Budget shall not be deemed a consent, acknowledgement or agreement
on Landlord’s part that such capital repairs, replacements or improvements are sufficient to
satisfy Tenant’s obligations pursuant to Section 9 hereunder. Tenant shall perform any and all
capital repairs, replacements or improvements contemplated by the Annual Capital Expenditure Budget
within 24 months after the commencement of the calendar year to which such Annual Capital
Expenditure Budget relates. If Tenant has not completed such capital repairs, replacements or
improvements within such 24 month period, Landlord may, but shall not be obligated to, complete
such capital repairs, replacements or improvements, in which case Landlord may reimburse itself for
the cost of any such work by withdrawing funds from the Capital Expenditures Account sufficient to
pay for such capital repairs, replacements or improvements, and Tenant shall, within 10 Business
Days following demand therefor by Landlord, (i) restore to the Capital Expenditures Account any
amount so withdrawn therefrom and paid to Landlord and (ii) to the extent there were insufficient
funds in the Capital Expenditures Account fully to reimburse Landlord for the cost of such work,
pay to Landlord any remaining unreimbursed amount. In the event of any payment by Tenant pursuant
to subsection (i) and/or (ii) above, Tenant shall be entitled to include the amount thereof in its
next Capital Expenditures Report.

     12. Liens. 

          Subject to the provisions of Section 13 below governing a permitted contest by Tenant, Tenant
will not, directly or indirectly, create or allow to remain, and will promptly discharge at its
expense, any lien, encumbrance, attachment, title retention agreement or claim upon any Leased
Property or any attachment, levy, claim or encumbrance in respect of the Rent, not including,
however, (i) liens for those taxes of Landlord that Tenant is not required to pay hereunder,
(ii) liens for Impositions or for sums resulting from noncompliance with Legal Requirements, so
long as (1) the same are not yet payable or (2) such liens are in the process of being contested as
permitted by Section 13, (iii) liens of mechanics, laborers, materialmen, suppliers or vendors for
sums either disputed in good faith or not yet due, provided that (1) such reserve or other
appropriate provisions as shall be required by law or generally accepted

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accounting principles shall have been made therefor and (2) if disputed in good faith, any
such liens are in the process of being contested as permitted by Section 13, and (iv) any liens
that are expressly the responsibility of Landlord hereunder. Notwithstanding the foregoing, Tenant
shall bond over or provide Landlord and any applicable Facility Mortgagee with title insurance (in
form, substance and amount, and issued by a company, acceptable to Landlord) over any lien that is
not permitted by this Lease which affects any Leased Property if Landlord shall request or if any
applicable Facility Mortgagee shall so require.

     13. Permitted Contests. 

          Tenant, on its own and in its own name or, if Tenant is unable to conduct such contest in its
own name, then with Landlord’s prior consent (which shall not be unreasonably withheld or delayed),
on Landlord’s behalf (or in Landlord’s name), but in all events at Tenant’s expense, may contest,
by appropriate legal proceedings, conducted in good faith and with due diligence, the amount,
validity or application, in whole or in part, of any delinquent trade payable not otherwise
permitted under Section 8.1.5 or any Imposition or any lien, attachment, levy, encumbrance, charge
or claim not otherwise permitted by Section 12, or any order referred to in the first sentence of
Section 36.2 provided that (i) in the case of an unpaid Imposition, lien, attachment, levy,
encumbrance, charge, or claim, the commencement and continuation of such proceedings shall suspend
the collection thereof from Landlord and from the applicable Leased Property, and in the case of an
order referred to in the first sentence of Section 36.2, enforcement of such order shall be
suspended, (ii) neither the applicable Leased Property nor any Rent therefrom nor any part thereof
or interest therein would be reasonably likely to be in danger of being sold, forfeited, attached
or lost, (iii) Tenant shall indemnify and hold harmless Landlord and the Landlord Indemnified
Parties from and against any Losses incurred by Landlord or the Landlord Indemnified Parties in
connection with any such contest or as a result thereof, (iv) if the amount being disputed, in
aggregate with all other amounts being disputed pursuant to this Section 13, exceeds $175,000,
Tenant shall provide such security as may be reasonably requested by Landlord or a Facility
Mortgagee to insure ultimate payment of, or compliance with, the same and to prevent any sale or
forfeiture of the affected Leased Property or the Rent by reason of such non-payment or
non-compliance; provided, however, the provisions of this Section 13 shall not be construed to
permit Tenant to contest the payment of Rent or any other sums payable by Tenant to Landlord
hereunder, (v) in the case of the contest of an Insurance Requirement, the coverage required by
Section 14 shall be maintained, and (vi) if such contest is resolved against Landlord or Tenant,
Tenant shall, as Additional Rent due hereunder, pay to the appropriate payee the amount required to
be paid, together with all interest and penalties accrued thereon, within 10 Business Days after
such determination (or within such shorter period as may be required by the terms of any applicable
court order, settlement agreement or other determination), and otherwise comply therewith, within
any cure period allowed therefor by the applicable agency or authority (or if no such cure period
shall be allowed or specified by the applicable agency or authority, promptly and diligently
following the effective date of such determination); provided, however, that this clause (vi) is
not intended, and shall not be construed, to afford Tenant any cure or grace period beyond the
effective date of any final unappealable determination. Landlord, at Tenant’s expense, shall
execute and deliver to Tenant such authorizations and other documents as may reasonably be required
in any such contest if necessary to conduct such contest, and, if reasonably requested by Tenant
(and necessary to conduct such contest) or if Landlord so desires, shall join as a party therein.
The terms of this

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Section 13 shall survive the expiration or sooner termination of this Lease (or, if
applicable, a termination of Tenant’s right of possession).

     14. Insurance. 

          14.1. General Insurance Requirements. Tenant shall obtain and maintain, or cause to
be maintained, insurance for Tenant and the Leased Properties providing insurance coverages of such
types, against such risks, in such amounts, with such deductibles and self-insurance retentions and
with such endorsements as (i) are consistent with the insurance coverages that are maintained by
owners of properties similar to the Leased Properties and (ii) as may be required from time to time
by any Facility Mortgagee, but with such insurance coverages at all times to include (without
limitation of the preceding provisions for greater coverages) at least the following minimum
coverages:

               14.1.1. Coverage for Loss. Coverage for loss or damage by fire, lightning, wind
and
such other perils as are included in a standard “special causes of loss” endorsement and against
loss or damage by other risks and hazards covered by a standard property insurance policy,
including, without limitation, riot, civil commotion, vandalism, malicious mischief, burglary and
theft, relative to each Leased Property, in each case (i) in an amount equal to 100% of the Full
Replacement Cost of such Leased Property; (ii) containing an agreed amount endorsement with respect
to the Leased Improvements and Tenant’s Personal Property at such Leased Property waiving all
co-insurance provisions; (iii) containing (a) an “Ordinance or Law Coverage” or “Enforcement”
endorsement and (b) “demolition” insurance and “increased cost of construction” insurance, if any
of the Leased Improvements at, or the use of, such Leased Property shall at any time constitute
legal non-conforming structures or uses and (iv) having a deductible not exceeding Two-Hundred
Fifty Thousand and No/100 Dollars ($250,000). In addition, each Tenant shall at a minimum obtain:
(y) flood hazard insurance in the event that any portion of the Leased Improvements at any Leased
Property is currently or at any time in the future located in a federally designated “special flood
hazard area”, and (z) earthquake insurance in the event that any Leased Property is located in an
area with a high degree of seismic activity, provided that the insurance pursuant to clauses (y)
and (z) hereof shall be on terms consistent with the comprehensive all risk insurance policy
required under this Section 14.1.1.

               14.1.2. Claims. Claims made professional liability/general liability insurance
against claims for personal injury, bodily injury, healthcare professional liability, death or
damage to the Leased Properties or other property (whether or not owned by Landlord or Tenant)
occurring upon, in or about each Leased Property, such insurance:

	 	(a)	 	(i) to be for a combined limit,
excluding umbrella coverage, of not less than One Million and
No/100 Dollars ($1,000,000) per occurrence with not less than
Two Million and No/100 Dollars ($2,000,000) general aggregate
applicable to any single location and a policy general aggregate
limit of not less than Five Million and No/100 Dollars
($5,000,000) during the course of any policy period; (ii) to
cover at least the following: (1) premises and

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	 	 	 	operations; (2) products and completed operations on an “if
any” basis; (3) independent contractors; (4) blanket
contractual liability for all legal contracts;
(5) contractual liability covering indemnities, if any, given
by Tenant contained in the Facility Mortgage, if any,
applicable to the Leased Property, to the extent the same is
available; (6) personal injury (including death resulting
therefrom); (7) liquor liability endorsement if alcoholic
beverages are served or sold at any Leased Property; and
(iii) to have a per claim deductible not exceeding One
Hundred Thousand and No/100 Dollars ($100,000); or
	 
	 	(b)	 	Claims made commercial general
liability insurance against claims for personal injury, bodily
injury, death or damage to the Leased Properties occurring upon,
in or about each Leased Property, such insurance (i) to be for a
combined limit, excluding umbrella coverage, of not less than
One Million and No/100 Dollars ($1,000,000.00) per occurrence
with not less than a Three Million and No/100 Dollars
($3,000,000.00) general aggregate limit and with the applicable
limits applying on a “per location” basis such that any
individual Leased Property will have coverage for up to three
One Million and No/100 Dollars ($1,000,000) claims. The
aggregate limit of insurance, however, will be limited to Three
Million and No/100 Dollars ($3,000,000) during the course of any
policy period; (ii) to cover at least the following: (1)
premises and operations; (2) products and completed operations
on an “if any” basis; (3) independent contractors; (4) blanket
contractual liability for all legal contracts; (5) contractual
liability covering indemnities, if any, given by Tenant
contained in the Facility Mortgage, if any, applicable to the
Leased Property, to the extent the same is available; (6)
personal injury (including death resulting therefrom); (7)
claims made healthcare professional liability coverage of not
less than One Million and No/100 Dollars ($1,000,000) per
occurrence with not less than a Three Million and No/100 Dollars
($3,000,000) aggregate limit; and (8) liquor liability
endorsement if alcoholic beverages are served or sold at any
Leased Property; and (iii) to have a per claim deductible not
exceeding One Hundred Thousand and No/100 Dollars ($100,000).
	 
	 	(c)	 	Regardless of whether 14.1.2 (a.)
or 14.1.2 (b.) is selected an extended reporting or “tail”
provision of three years will be purchased by the Tenant during
the term of this lease in the event that a) the retroactive date
on any renewed or

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	 	 	 	replaced policy is later than the effective date of the
lease; b) coverage is cancelled, non renewed and not
replaced; or c) renewed or replaced by a policy that has an
occurrence or non-claims made coverage trigger.
Alternatively, “nose” coverage can be purchased by the Tenant
such that a coverage continuity date of up to three years is
maintained prior to the date that a) the retroactive date on
any renewed or replaced policy is later than the effective
date of the lease; b) coverage is cancelled, non renewed and
not replaced; or c) renewed or replaced by a policy that has
an occurrence or non-claims made coverage trigger.

               14.1.3. Business Interruption Insurance. Business interruption insurance
(i) with
loss payable to Landlord; (ii) covering all risks required to be covered by the insurance provided
for in Section 14.1.1 above; (iii) on an “Actual Loss Sustained” basis that will cover a period of
12 months from the date of casualty or loss based on the operations of each Facility for the
immediately preceding 12 month period; and (iv) containing an extended period of indemnity
endorsement that provides that, after the physical loss to the applicable Leased Property has been
repaired, the continued loss of income will be insured for a period of not less than 365 days until
such income returns to the same level it was prior to the loss or the expiration of not less than
24 months from the date of the loss, whichever first occurs, and notwithstanding that the policy
may expire prior to the end of such period.

               14.1.4. Coverage of Leased Properties. At all times during which Alterations or
structural construction or repairs are being made with respect to any of the Leased Improvements,
and only if the Leased Properties’ coverage form does not otherwise apply, the insurance provided
for in Section 14.1.1 above written in a so-called builder’s risk completed value form (1) on a
non-reporting basis, (2) against all risks insured against pursuant to Section 14.1.1 above, (3)
including permission to occupy the Leased Properties, and (4) with an agreed amount endorsement
waiving co-insurance provisions.

               14.1.5. Workers’ Compensation Insurance. Workers’ compensation
insurance, subject to
the statutory limits of the State in which the applicable Leased Property is located, and
employer’s liability insurance with limits of at least One Hundred Thousand and No/100 Dollars
($100,000.00) per accident and per disease, per employee, and at least Five Hundred Thousand and
No/100 Dollars ($500,000.00) aggregate in respect of any work or operations on or about any Leased
Property, or in connection with any Leased Property or its operation (if applicable).

               14.1.6. Boiler and Machinery Insurance. Broad form boiler and machinery
insurance
(without exclusion for explosion) covering all boilers or other pressure vessels, machinery, and
equipment located in, on or about any Leased Property (including “system breakdown coverage”) and
insurance against loss of occupancy or use arising from any breakdown of such equipment. [Property
policy includes Equipment Breakdown endorsement.]

               14.1.7. Motor Vehicle Insurance. Motor vehicle liability coverage for all
specifically described, owned, hired and non-owned vehicles, including, without limitation,

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rented and leased vehicles, containing limits per occurrence, including umbrella coverage, of
not less than One Million and No/100 Dollars ($1,000,000.00).

               14.1.8. Prohibition of Alcoholic Beverages. Alcoholic beverages will not be
sold at
any Leased Property.

               14.1.9. Employee Dishonesty. Coverage will be carried at a $1,000,000 limit.

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          14.2. Policies; Certificates. All insurance provided for in Section 14.1 above shall
be obtained under valid and enforceable policies (individually, a “Policy” and, collectively, the
"Policies”) during the period of the lease and shall be subject to the approval of Landlord. Not
less than five days prior to the expiration date of each Policy, a certificate of insurance or
other written evidence that the required insurance coverages have been bound for the next Lease
Year, accompanied by evidence reasonably satisfactory to Landlord of payment of the premiums then
due thereunder subject to any payment plans offered by the Insurer to the Tenant (the “Insurance
Premiums”), shall be delivered by Tenant to Landlord. Tenant, upon request from Landlord, will
deliver certified copies of the Policies to Landlord prior to the date hereof and shall deliver
additional copies thereof upon request. This certification can come from the broker/consultant or
the Tenant that the copy is a certified copy to the best of their knowledge and belief. All
Policies must have a term of not less than one year.

          14.3. Blanket Policies. Any blanket Policy shall specifically allocate to each Leased
Property the amount of coverage from time to time required hereunder and shall otherwise provide
the same protection as would a separate Policy insuring only such Leased Property in compliance
with the provisions of Section 14.1.

          14.4. Additional Insured; No Separate Insurance. All Policies provided for or
contemplated by Section 14.1 above, except for the Policy referenced in Section 14.1.5, shall name
each applicable Tenant as the insured and Landlord and any Facility Mortgagee(s) and its/their
successors and/or assigns as additional insureds, as its/their interests may appear, and, in the
case of property damage, loss of rent, business interruption, terrorism, boiler and machinery,
flood and earthquake insurance, shall contain a so-called New York standard non-contributing
mortgagee clause in favor of Landlord or any Facility Mortgagee, as applicable, providing that the
loss thereunder shall be payable to Landlord or such Facility Mortgagee, as applicable. Tenant
shall not, on Tenant’s own initiative or pursuant to the request or requirement of any third party,
(i) take out separate insurance concurrent in form or contributing in the event of loss with that
required in this Section 14 to be furnished by Tenant or (ii) increase the amounts of any then
existing insurance by securing an additional policy or policies, unless all parties having an
insurable interest in the subject matter of the insurance, including in all cases Landlord and all
Facility Mortgagees, are included therein as additional insureds and the loss is payable under
such insurance in the same manner as losses are payable under this Lease. Tenant shall
immediately notify Landlord of the taking out of any such separate insurance or of the increasing
of any of the amounts of the then existing insurance by securing an additional policy or policies.

          14.5. Policy Requirements. All Policies of insurance provided for in Section 14.1
shall contain clauses or endorsements to the effect that:

	 	(a)	 	the Policy shall not be
materially changed (other than to increase the coverage provided
thereby) or canceled without at least 30 days’ written notice to
Landlord, any Facility Mortgagee and any other party named
therein as an additional insured or loss payee; 10 days written
notice will be provided for nonpayment of premium.

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	 	(b)	 	neither Landlord nor any Facility
Mortgagee shall be liable for any Insurance Premiums thereon or
subject to any assessments thereunder with the exception of
rights available to mortgage holders; and
	 
	 	(c)	 	a waiver of subrogation rights as
to Landlord and any Facility Mortgagee (and Tenant hereby waives
all claims against Landlord for any loss, damage, cost or
expense Tenant may incur for any cause or event whatsoever, to
the extent Tenant has (or is an insured under) any policy of
insurance covering loss, damage, cost or expense arising from
such cause or event).

          14.6. Evidence of Compliance. If at any time Landlord is not in receipt of written
evidence that all insurance required hereunder is in full force and effect, Landlord shall have the
right to take such action as Landlord deems necessary to protect its interest in the Leased
Properties, including, without limitation, the obtaining of such insurance coverages as Landlord
required hereunder and all premiums incurred by Landlord in connection with any such action or in
obtaining any such insurance and keeping it in effect shall be paid by Tenant to Landlord upon
demand and shall bear interest at the Overdue Rate until paid. Landlord agrees to give Tenant 10
Business Days notice of its intent to procure any such insurance and Tenant shall have such notice
period to provide Landlord with proof that such required insurance is in effect, in which case
Landlord will not take any such action to procure such insurance.

          Unless Tenant provides Landlord with evidence of the insurance coverage required by this
Lease, Landlord may purchase insurance at Tenant’s expense to protect Landlord’s interests in the
Premises. This insurance may, but need not, protect Tenant’s interest. The coverage that Landlord
purchases may not pay any claim that Tenant may make or any claim that is made against Tenant in
connection with the Premises. Tenant may later cancel any insurance purchased by Landlord, but
only after providing Landlord with evidence that Tenant has obtained insurance as required by this
Lease. If Landlord purchases insurance for the Premises, Tenant will be responsible for the costs
of such insurance, including interest and any other charges that may be imposed in connection with
the placement of such insurance, until the
effective date of the cancellation or expiration of such insurance. Without limitation of any
other provision of this Lease, the cost of such insurance shall be added to the indebtedness
secured hereby. The cost of the insurance may be more than the cost of insurance Tenant may be
able to obtain on its own.

          14.7. Foreclosure; Transfer. In the event of foreclosure of any Facility Mortgage or
other transfer of title to any Leased Property, all right, title and interest of the applicable
Tenant in and to the Policies then in force concerning the Leased Properties and all proceeds
payable thereunder shall thereupon vest in the purchaser at such foreclosure or in Landlord,
Facility Mortgagee or other transferee in the event of such other transfer of title.

          14.8. Insurance Company. The Policies shall be issued by one or more primary
insurance companies, duly qualified in the jurisdictions where the Leased Properties are located
and, except in the case of any affiliated provider of insurance required by this Lease,

K-39

 

rated A-:
VII or better by A.M. Best. In the event that Tenant satisfies the above-referenced ratings tests
as to a particular Policy as of the Commencement Date or as of a Policy renewal date, as
applicable, but thereafter an insurer under such Policy ceases to satisfy the minimum A.M. Best
ratings that must be met at all times, Tenant shall not be in default under this Section 14.8 so
long as, within 60 days after such cessation arises, Tenant replaces the insurer(s) that do not
satisfy such minimum ratings requirements with insurer(s) that do satisfy such minimum ratings
requirements. In the case of an affiliated provider of insurance, such provider shall comply with
all regulatory requirements of the jurisdiction of its domicile and maintain a capital and surplus
account in excess of $5,000,000. In the event an affiliated provider of insurance satisfies the
requirements of this Section 14.8 as of the Commencement Date or as of a Policy renewal date, as
applicable, but thereafter ceases to satisfy such requirements, Tenant shall not be in default
under this Section 14.8 so long as, within 60 days after such cessation arises, Tenant replaces the
insurer with insurer(s) that satisfy the requirements of this Section 14.8. Tenant shall provide
certified financial reports in a form and on a schedule reasonably required by Landlord, certified
by an Executive Officer of ALC, to allow Landlord to monitor compliance with the covenants within
this Section 14.8.

          14.9. Terrorism. Certified Acts of Terrorism will be insured as available through the
Terrorism Risk Insurance Act of 2002 or the subsequent renewal thereof.

     15. Damage and Destruction.

          15.1. Notice of Casualty. If any Leased Property shall be destroyed, in whole or in
part, or damaged by Casualty, Tenant shall give prompt written notice thereof to Landlord and any
Facility Mortgagee, in no event more than five Business Days after the occurrence of a Casualty.
Within 15 Business Days after the occurrence of a Casualty, or as soon thereafter as such
information is reasonably available to Tenant, Tenant shall provide the following information to
Landlord: (i) the date of the Casualty; (ii) the nature of the Casualty; (iii) a description of the
damage or destruction caused by the Casualty, including, but not limited to, the type of Leased
Property damaged, the area of the Leased Improvements damaged and the general extent of such
damage; (iv) a preliminary estimate of the cost to repair, rebuild, restore or replace the Leased
Property; (v) a preliminary estimate of the schedule to complete the repair, rebuilding,
restoration or replacement of the Leased Property; (vi) a description of the anticipated
property insurance claim, including, but not limited to, the name of the insurer, the
insurance coverage limits, the deductible amounts, and if practical, the expected settlement amount
and the expected settlement date; and (vii) a description of the business interruption claim,
including, but not limited to, the name of the insurer, the insurance coverage limits, the
deductible amounts, and if practical, the expected settlement amount and the expected settlement
date. Tenant shall provide Landlord with copies of any and all material correspondence to and from
the insurance provider within five Business Days after Tenant’s receipt or submission thereof and
provide any other information reasonably requested by Landlord related thereto.

          15.2. Substantial Destruction. Except as otherwise set forth herein, if a Facility is
substantially destroyed or rendered Unsuitable For Its Primary Intended Use by a Casualty at any
time during the Term, Landlord may elect to terminate this Lease with respect to the Leased
Property on which such Facility is located by providing written notice to Tenant within 90 days of
the date upon which Tenant notifies Landlord of the Casualty, which

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termination shall be effective
as of the date which is 90 days after Tenant’s receipt of such notice. If Landlord elects to
terminate, then Landlord shall receive any and all of the insurance proceeds payable by reason of
the Casualty (the “Casualty Insurance Proceeds”) and Tenant shall immediately pay to Landlord an
amount equal to any uninsured deductible, and as of the date of such termination, the applicable
Leased Property shall be deleted from this Lease and the provisions of Section 17.9 governing a
deletion of a Leased Property after Casualty shall be applicable. If Landlord does not elect to
terminate, then Tenant shall promptly rebuild and restore the Leased Property in accordance with
Section 15.4 below and Landlord shall make the Casualty Insurance Proceeds available to Tenant for
such restoration only pursuant to, and in accordance with, Section 15.5 below. The term
“substantially destroyed” means any Casualty resulting in the loss of use of 50% or more of the
licensed beds at the Facility located on the relevant Leased Property or that would require more
than 50% of the value of the Leased Improvements to be restored.

          15.3. Partial Destruction. If a Leased Property is damaged by a Casualty but the
Facility(ies) located on such Leased Property is not substantially destroyed or rendered Unsuitable
For Its Primary Intended Use, then, subject to the requirements of any Facility Mortgage binding
upon, or secured by, the Leased Property, Tenant shall restore the Leased Property in accordance
with the requirements of Section 15.4 below and Landlord shall make the Casualty Insurance Proceeds
available to Tenant for such restoration pursuant to Section 15.5 below. Notwithstanding the
foregoing, if such Casualty shall occur during the final two Lease Years of the Term, then Landlord
shall have the right to terminate this Lease with respect to such Leased Property and retain any
Casualty Insurance Proceeds, by delivering notice of such election to Tenant within 90 days of its
receipt of notice from Tenant of such Casualty, which termination shall be effective as of the date
such notice of termination from Landlord is received by Tenant, whereupon Tenant shall immediately
pay to Landlord the amount of any uninsured deductible and the applicable Leased Property shall be
deleted herefrom pursuant to Section 17.9 below governing the deletion of a Leased Property in
connection with a Casualty; provided, however, if Tenant has the right to extend the Term under
Section 43 and does so within 30 days after receipt of Landlord’s notice of its termination
election under this Section 15.3, then such election by Landlord shall be of no force or effect.

          15.4. Restoration.

               15.4.1. Commencement of Restoration. Within 60 days after the earliest to
occur of
(i) Tenant’s receipt of notice from Landlord directing Tenant to restore a Leased Property damaged
or destroyed by a Casualty, (ii) in the case of a Casualty that results in Landlord having the
option to terminate this Lease as to the affected Leased Property pursuant to Section 15.2 or
Section 15.3, the expiration of the period in which Landlord may exercise such option to terminate
if Landlord fails to affirmatively elect to terminate this Lease with respect to such Leased
Property, or (iii) in the case of damage to a Leased Property by Casualty that does not result in
the substantial destruction or the rendering Unsuitable For Its Primary Intended Use of the
applicable Facility(ies), and that does not occur during the final two Lease Years of the Term, the
date of such Casualty, Tenant shall furnish to Landlord complete plans and specifications (the
"Restoration Plans and Specifications”) describing the work Tenant intends to undertake to restore
the applicable Leased Property (the “Work”) for Landlord’s approval, which approval shall not be
unreasonably withheld or delayed; provided, however, in the case of

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a Casualty resulting from a
natural disaster affecting the area in which the affected Facility is located (such as, but not
limited to, a hurricane), said 60 day period shall be extended so long as Tenant is diligently
trying to have such Restoration Plans and Specifications prepared and delivered to Landlord. The
Restoration Plans and Specifications shall be prepared in accordance with good and customary
construction and design practices and bear the signed approval thereof by an architect licensed to
do business in the State where the applicable Leased Property is located and shall be accompanied
by a written estimate from the architect containing the projected cost of completing the Work. The
Restoration Plans and Specifications shall contemplate Work of such nature, quality and extent
that, upon the completion thereof, the Leased Property shall be at least equal in value and general
utility to its value and general utility prior to the Casualty and shall be adequate to operate the
applicable Facility(ies) for its Primary Intended Use. Tenant shall satisfy all of the terms and
conditions set forth in Sections 11.2.1 through 11.2.4 hereof relative to Alterations as to the
Work and the Restoration Plans and Specifications (said Restoration Plans and specifications taking
the place of the Plans and Specifications referred to in Section 11.2).

               15.4.2. Permits. Prior to the commencement of the Work, Tenant shall furnish to
Landlord certified or photostatic copies of all permits and contracts required by any and all
applicable Legal Requirements or Insurance Requirements in connection with the commencement and
conduct of the Work.

               15.4.3. Conduct of Work. Upon satisfaction of the requirements set forth in
Section
15.4.1 and Section 15.4.2 above, Tenant shall perform the Work diligently and in a good,
workmanlike and lien-free fashion, in accordance with (i) the Restoration Plans and Specifications;
(ii) the permits and contracts referred to in Section 15.4.2 above; and (iii) all applicable Legal
Requirements and other requirements of this Lease.

          15.5. Disbursement of Insurance Proceeds. Tenant shall use its best efforts to
complete the Work on or prior to the estimated completion date provided by its architect. If
Landlord is required or elects to apply any Casualty Insurance Proceeds toward repair or
restoration of the applicable Facility, provided Tenant is diligently performing the Work in
accordance with this Lease, Landlord shall disburse such Casualty Insurance Proceeds as and when
required by Tenant in accordance with normal and customary practice for the payment of a
general contractor in connection with construction projects similar in scope and nature to the
Work, including, at Landlord’s option, (i) the withholding of 10% of each disbursement of such
Casualty Insurance Proceeds until the Work is completed as evidenced by a certificate of occupancy
or similar evidence issued upon an inspection by the applicable Governmental Authority and proof
has been furnished to Landlord that no lien or liability has attached or will attach to the
applicable Leased Property or to Landlord in connection with the Work, and (ii) requiring that
Tenant expend its own funds prior to disbursement of Casualty Insurance Proceeds in order that the
remaining Casualty Insurance Proceeds are sufficient to complete and pay for the repair and
restoration Work. Upon the completion of the Work and the furnishing of such proof, the balance of
the Casualty Insurance Proceeds payable to Tenant on account of the Work shall be paid to Tenant as
and when the terms of Sections 15.4.1 through 15.4.3 have been complied with. Prior to any final
disbursement of Casualty Insurance Proceeds, Tenant shall satisfy all of the conditions set forth
in Sections 11.2.5 through 11.2.9 relative to Alterations as

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to the Work, as well as provide
evidence reasonably satisfactory to Landlord that any amounts required to be paid by Tenant in
connection with such Work pursuant to Section 15.6 below have been paid in full. Notwithstanding
anything contained herein to the contrary, any Facility Mortgagee may retain and disburse the
Casualty Insurance Proceeds and Tenant shall comply with the reasonable requests and requirements
of such Facility Mortgagee in connection with the Work and the disbursement of Casualty Insurance
Proceeds.

          15.6. Insufficient Proceeds/Risk of Loss. If the Casualty Insurance Proceeds are not
sufficient to pay the costs of the Work in full, Tenant shall nevertheless remain responsible, at
its sole cost and expense, to complete the Work. Tenant expressly assumes all risk of loss,
including, without limitation, a decrease in the use, enjoyment or value of the Leased Property
from any Casualty whatsoever, whether or not insurable or insured against. Tenant shall pay any
insurance deductible and any other uninsured Losses.

          15.7. Excess Proceeds. Provided no Event of Default exists and this Lease is not
terminated pursuant to Section 15 with respect to the Leased Property on which the applicable
Facility is located, any amount by which the Casualty Insurance Proceeds exceed the amount
necessary to complete the Work shall be promptly paid by Landlord to Tenant, provided, however,
that any such excess Casualty Insurance Proceeds shall be paid by Landlord to Tenant only following
the disbursement of Casualty Insurance Proceeds necessary to complete the Work in accordance with
Section 15.5.

          15.8. Landlord’s Inspection. During the progress of the Work, Facility Mortgagee,
Landlord and Landlord’s Representatives may, from time to time, inspect the Work and the Leased
Property. If, during such inspection or otherwise, Landlord and Landlord’s Representatives
determine that the Work is not being done in accordance with the Restoration Plans and
Specifications, this Lease or any Legal Requirements, upon receipt by Tenant from Landlord of a
written notice setting forth in reasonable specificity and detail any defect in the Work, Tenant
will cause corrections to be made to any such defect.

          15.9. Not Trust Funds. Notwithstanding anything herein or at law or in equity to the
contrary, none of the Casualty Insurance Proceeds, or Award on account of any Condemnation, that
may be paid to Landlord as herein provided shall be deemed trust funds, and
Landlord shall be entitled to dispose of such Casualty Insurance Proceeds or Award as provided
in this Section 15 or in Section 16 or Section 17.6 below, as applicable.

          15.10. Waiver. Tenant waives any statutory rights of termination that may arise by
reason of any Casualty or Condemnation.

          15.11. Facility Mortgagee. Notwithstanding anything contained herein to the contrary,
in the event that any Facility Mortgagee elects to require that any Casualty Insurance Proceeds in
connection with any Casualty, or the Award in connection with any Condemnation, be applied by
Landlord to reduce the outstanding principal balance of any loan secured by any Leased Property,
Landlord may elect, in its sole discretion and by written notice to Tenant, delivered promptly
after the receipt by Landlord of written notice of such election from Facility Mortgagee, to
terminate this Lease as to the Leased Property affected by such Casualty or Condemnation, in which
event the provisions of Section 17.9 governing a deletion of one or

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more Leased Properties from
this Lease after a Casualty or Condemnation shall apply. Notwithstanding anything contained in
Section 15 or Section 16 hereof, Tenant shall remain liable for the cost of any uninsured portion
of any Casualty or the cost of any restoration not covered by an Award in the event this Lease is
terminated as to the applicable Leased Property pursuant to Section 15 or Section 16 hereof. In
the event a Facility Mortgagee so elects to apply any Casualty Insurance Proceeds or Award in
reduction of a loan secured by a particular Leased Property and Landlord elects not to exercise its
above-described termination right as to such Leased Property, Landlord shall be obligated to
disburse its own funds in replacement for any Casualty Insurance Proceeds or Award so applied by
the Facility Mortgagee, and, in such event, Landlord’s own funds shall be disbursed to Tenant from
time to time as, when and subject to the satisfaction of the same terms, conditions and
requirements as would have governed the disbursement of the Casualty Insurance Proceeds or Award
that Landlord’s funds replace (e.g. the requirements of Section 15.5 shall continue to be required
to be satisfied as a pre-condition to any disbursement of Landlord’s funds).

     16. Condemnation.

          16.1. Parties’ Rights and Obligations. If during the Term there is any Condemnation
of all or any part of any Leased Property, the rights and obligations of the parties shall be
determined by this Section 16.

          16.2. Total Taking. If any Leased Property is totally taken by Condemnation, this
Lease shall terminate as to such Leased Property on the Date of Taking, in which event the
provisions of Section 17.9 governing the deletion of one or more Leased Properties from this Lease
upon a Condemnation shall apply. In the event of a total taking by Condemnation of any Leased
Property, the Award shall be solely the property of Landlord, whether such damages shall be awarded
as compensation for diminution in value of the leasehold or the fee estate of the Premises,
provided, however, Tenant shall be entitled to any damages specifically
attributable to reasonable removal and relocation costs included in the Award.

          16.3. Partial Taking. If any portion of any Leased Property is taken by Condemnation,
this Lease shall remain in effect as to such Leased Property if the Facility(ies) located thereon
is not thereby rendered Unsuitable For Its Primary Intended Use, but if the
Facility(ies) is/are thereby rendered Unsuitable For Its Primary Intended Use, this Lease
shall terminate as to such Leased Property on the Date of Taking, in which event the provisions of
Section 17.9 governing the deletion of one or more Leased Properties from this Lease upon a
Condemnation shall apply. If, as a result of any such partial taking by Condemnation, this Lease
is not terminated as provided above, Tenant’s obligation to make payments of Rent and to pay all
other charges required under this Lease shall remain unabated during the Term notwithstanding such
Condemnation. In the event of any partial taking by Condemnation of any Leased Property, the
entire Award shall belong to and be paid to Landlord, except that, subject to the rights of any
Facility Mortgagees, Tenant shall be entitled to receive from the Award, if and to the extent such
Award specifically includes such item, the following: (i) a sum specifically attributable to
Tenant’s Personal Property and any reasonable removal and relocation costs included in the Award;
and (ii) a sum specifically attributable to the cost of restoring the Leased Property in accordance
with Section 16.4 hereof; and (iii) a sum specifically attributable to the interruption

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of business
operations, which sum, if and to the extent received by Landlord, shall be credited against
payments of Rent and other charges due from Tenant to Landlord under this Lease.

          16.4. Restoration. If there is a partial taking by Condemnation of any Leased
Property and this Lease remains in full force and effect pursuant to Section 16.3, Tenant at its
cost shall accomplish all necessary restoration, which restoration activities shall be performed in
accordance with the terms and conditions applicable to Work under Section 15.

          16.5. Temporary Taking. The taking of any Leased Property, or any part thereof, by
military or other public authority shall constitute a taking by Condemnation only when the use and
occupancy by the Condemnor has continued for longer than four months. During any such four month
period, all the provisions of this Lease shall remain in full force and effect and Rent shall
continue without abatement or reduction.

     17. Default.

          17.1. Events of Default. The occurrence of any one or more of the following events
shall constitute an “Event of Default” under this Lease:

               17.1.1. Payment Default. Tenant fails to make payment of the Rent or any other
sum
payable under or pursuant to the terms of this Lease when the same becomes due and payable and such
failure is not cured within three Business Days after such due and payable date.

               17.1.2. Certain Covenant Defaults. Tenant fails to observe or perform any term,
covenant or agreement on its part to be performed or observed pursuant to Section 8.1.11, Section
8.2.5, Section 8.3 (but only as to conditions which, if remain uncured or unremedied by the
applicable Tenant(s), would give the applicable Governmental Authority the right to terminate an
Authorization or refuse to renew an Authorization), Section 12, clause (vi) of Section 13, Section
14.1, Section 14.2, Section 14.5 or Section 24.

               17.1.3. Reporting Obligations. Any Tenant fails to observe or perform any term,
covenant or other obligation of Tenant set forth in Section 25 hereof and such failure is not cured
within a period of 10 Business Days after receipt of notice thereof from Landlord;
provided, however, said cure period shall only be available to Tenant once in any period of 12
consecutive calendar months.

               17.1.4. General Covenant Defaults. Tenant fails to observe or perform any term,
covenant or condition of this Lease not specifically provided for in this Section 17.1 and such
failure is not cured within a period of 30 days after receipt of notice from Landlord.

               17.1.5. Representations and Warranties. Any representation or warranty made by
or on
behalf of Tenant under or in connection with this Lease or any document, financial statement,
certificate or agreement delivered by or on behalf of Tenant in connection with this Lease
(including, but not limited to, any Officer’s Certificate or Estoppel Certificate) proves to have
been false or misleading in any material respect on the day when made or deemed made.

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               17.1.6. Lease Guaranty Defaults. Any “Event of Default” (as defined
in any Lease
Guaranty) occurs under any Lease Guaranty or any Guarantor shall fail to observe or perform any
term, covenant or condition of any Lease Guaranty and such failure is not cured within any
applicable cure period provided for in such Lease Guaranty.

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

               17.1.8. Bankruptcy Petition. Any petition is filed by or against any Tenant,
any
Guarantor or any Affiliate of any Tenant or any Guarantor under federal bankruptcy laws, or any
other proceeding is instituted by or against any Tenant, any Guarantor or any Affiliate of any
Tenant or any Guarantor seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
reorganization, arrangement, adjustment or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee, custodian or other similar official for any
Tenant, any Guarantor or any Affiliate of any Tenant or any Guarantor, or for any substantial part
of the property of any Tenant, any Guarantor or any Affiliate of any Tenant or any Guarantor, and
such proceeding is not dismissed within 60 days after institution thereof, or any Tenant, any
Guarantor or any Affiliate of any Tenant or any Guarantor shall take any action to authorize or
effect any of the actions set forth above in this Section 17.1.8.

               17.1.9. Liquidation. Any Tenant, any Guarantor or any Affiliate of any Tenant
or any
Guarantor is liquidated or dissolved, or shall begin proceedings toward such liquidation or
dissolution.

               17.1.10. Levy. The estate or interest of any Tenant in any Leased Property or
any
part thereof is levied upon or attached in any proceeding and the same shall not be vacated or
discharged within the later of 60 days after commencement thereof or 30 days after receipt by such
Tenant of notice thereof from Landlord or any other Person (unless such Tenant shall be contesting
such lien or attachment in good faith in accordance with Section 13 hereof).

               17.1.11. Receiver. Any receiver, trustee, custodian or other similar official
is
appointed for any Tenant, any Guarantor or any of the Facilities and any such appointment is not
dismissed within 60 days after the date of such appointment and prior to the entry of a final,
unappealable order approving such appointment.

               17.1.12. Licensure, Authorization or Facility Provider Agreement Defaults. The
receipt by Tenant of written notice of any pending, or the occurrence of any, (i) revocation of any
license, permit, approval or other Authorization (including, without limitation, any CON) required
for the lawful operation of a Leased Property in accordance with

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its Primary Intended Use, or (ii)
other circumstances under which (a) a Tenant is, or may be, required by a determination of any
Governmental Authority to cease or suspend operation of a Facility in accordance with its Primary
Intended Use or (b) any then existing Facility Provider Agreement, or certification of Tenant under
any Third Party Payor Program in which a Tenant or a Facility then participates, is, or may be,
terminated, in whole or in part, prior to the expiration of the term thereof or, without the prior
written consent of Landlord in each instance (which consent may be withheld in Landlord’s sole and
absolute discretion), is not (or may not be) renewed or extended, in whole or in part, upon the
expiration of the stated term thereof. If a Facility is participating in Medicare or Medicaid or
is otherwise surveyed for licensure purposes, the receipt by such Facility of any Level 3 (or its
equivalent) violation or an “F Tag” or higher or other regulatory deficiency related to licensure
(including Life and Safety), with a severity of “G” or higher (or other standard which equates to
“actual harm” to a patient) under Medicare or Medicaid or state licensure, as applicable, shall
constitute an Event of Default under this Section 17.1.12.

               17.1.13. Reduction in Number of Licensed Beds. There is a reduction in the
number of
licensed beds set forth on Schedule 1.13 attached hereto or a change in the type of licensed beds
for any Facility in violation of the requirements of this Lease.

               17.1.14. Material Fines or Penalties. Any Leased Property is assessed material
fines
or penalties (whether monetary or non-monetary) by any Governmental Authority having jurisdiction
over any Tenant or any Leased Property that, in aggregate, result in a Material Adverse Effect.

               17.1.15. Adverse Regulatory Actions. With respect to any Facility, any
Governmental
Authority (i) makes a substandard quality of care determination regarding such Facility and the
underlying conditions that resulted in such determination are not corrected within 90 days after
receipt by Tenant of notice thereof from the Governmental Authority or any other Person; (ii) makes
a determination that such Facility is not in substantial compliance with any applicable regulatory
requirements and the underlying conditions that resulted in such determination are not corrected
within 90 days after receipt by Tenant of notice thereof from the Governmental Authority or any
other Person; (iii) designates any portion of such Facility or the entirety of such Facility as
part of a “poor performing chain” and the underlying conditions that
resulted in such designation are not corrected within 90 days after receipt by Tenant of
notice thereof from the Governmental Authority or any other Person; (iv) takes adverse regulatory
action with respect to such Facility, including, without limitation, the imposing of civil money
penalties, and Tenant has not taken all steps necessary to remedy the circumstances giving rise to
such regulatory action within 60 days following the commencement of such adverse regulatory action
(whether or not such remedy has been acknowledged by said Governmental Authority, whether through a
subsequent survey report or otherwise); (v) commences procedures to impose a ban on new admissions
generally or on the admission of patients otherwise qualifying for reimbursement under any
applicable governmental reimbursement program and the underlying conditions that resulted in the
commencement of such procedures are not corrected on or prior to the earlier of 90 days after
commencement of such procedures or the imposition of such a ban; or (vi) imposes a ban of the
nature described in clause (v) above.

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               17.1.16. Cessation of Services. Except in connection with restoration of any
Casualty
or Condemnation or on account of any Alteration permitted by the terms of this Lease, any cessation
of operations at all or any material part of any Facility.

               17.1.17.
Intentionally Omitted.

               17.1.18.
Intentionally Omitted.

          17.2. Remedy Election.

               17.2.1. Remedies Generally. Upon the occurrence of any Event of Default, but
subject
to Section 17.2.2 below, Landlord may, at its option and by written notice to Tenant, terminate
this Lease (or, at Landlord’s option and by written notice to Tenant, terminate Tenant’s right of
possession without terminating this Lease) (i) as to the Premises and/or (ii) if such Event of
Default is a Facility Default, as to any one or more of the Leased Property(ies) (selected in
Landlord’s sole discretion and by written notice to Tenant) to which such Facility Default relates
(a termination of this Lease (or, if applicable, a termination of Tenant’s right of possession) as
to less than all of the Premises as provided in this subsection (ii) is herein referred to as a
"Limited Termination Election”) (the Leased Property(ies) as to which Landlord elects to terminate
this Lease or terminate Tenant’s right to possession as provided in subsection (i) or subsection
(ii) above are herein referred to as “Terminated Lease Properties”). Upon receipt of a termination
notice as provided in this Section 17.2, Tenant shall have no right to cure the Event of Default in
question, all rights of Tenant under this Lease shall cease as to the Leased Property(ies) so
specified, and, if the Leased Property(ies) so specified is/are less than all of the Premises, the
provisions of Section 17.9 shall apply. Without limitation of the foregoing, if Landlord makes a
Limited Termination Election, the deletion of the applicable Terminated Lease Properties from this
Lease shall be absolutely without limitation of each Tenant’s continuing obligation (on a joint and
several basis) for the damages and other amounts owing on account of the Event of Default giving
rise to the deletion herefrom of such Terminated Lease Properties and/or the termination of this
Lease as to such Terminated Lease Properties. Notwithstanding any Limited Termination Election,
Tenant shall pay, as Additional Rent, all Litigation Costs as a result of any Event of Default
hereunder.

               17.2.2. Single Facility Event of Default. Notwithstanding
Section 17.2.1 above to the
contrary, if an Event of Default occurs which meets each of the criteria set forth below to
constitute a Single Facility Event of Default, then unless such Event of Default continues uncured
for a period 90 days, Landlord shall not exercise the right it would otherwise have to terminate
this Lease as to all or any of the Facilities or to terminate Tenant’s right to possession of all
or any of the Facilities; provided, however, nothing in this Section 17.2.2 shall limit or prevent
Landlord from (i) exercising the Limited Termination Election solely with respect to the Facility
to which such Event of Default relates or (ii) exercising any other rights or remedies as a result
of such Event of Default with respect to the Facility and/or the Tenant to which such Single
Facility Event of Default pertains other than termination of the Lease or dispossession of Tenant.
In order to constitute a “Single Facility Event of Default”, an Event of Default must meet each of
the following criteria: (1) all amounts payable by Tenant under this Lease must be paid on a
timely basis and the Event of Default in question cannot pertain to failure to pay any amount due
from Tenant under this Lease; (2) the Event of Default in question

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must pertain only to a single
Facility and only to the Tenant thereof; (3) the Event of Default cannot pertain to failure to
deliver required financial reports and statements under this Lease or the Lease Guaranty or failure
to maintain required insurance under this Lease; (4) each of the financial covenants set forth in
Section 8.2.5 above must be met at all times; (5) the Event of Default must be of a type and nature
that the circumstances giving rise to such Event of Default will not adversely affect any of the
other Facilities or the operation thereof; provided, however, and without affecting clause (4) of
this definition, the mere fact that the Portfolio Coverage Ratio declines (but not below the
minimum required in Section 8.2.5(c)) as a result of such Event of
Default shall not be deemed to disqualify such Event of Default from being a Single Facility
Event of Default; and (6) no other Event of Default may be continuing, whether or not such prior
occurring Event of Default was a Single Facility Event of Default.

          17.3. Certain Remedies. If an Event of Default shall have occurred and be continuing,
Tenant shall, if and to the extent required by Landlord so to do, immediately surrender to Landlord
the Leased Property(ies) specified by Landlord and as to which the Lease (or, if applicable,
Tenant’s right of possession) has been or may be terminated pursuant to Section 17.2 or otherwise,
and Landlord may enter upon and repossess such Leased Property(ies) by reasonable force, summary
proceedings, ejectment or otherwise, and may remove Tenant and all other Persons and all personal
property from such Leased Property(ies) subject to the rights of any occupants or patients and to
any requirement of law.

          17.4. Damages. To the extent permitted by law, neither (i) the termination of this
Lease (or, if applicable, Tenant’s right of possession) pursuant to Section 17.2, (ii) the
repossession of any or all of the Leased Properties or any portion thereof, (iii) the failure of
Landlord to relet any or all of the Leased Properties or any portion thereof, (iv) the reletting of
any or all of the Leased Properties or any portion thereof, (v) the failure of Landlord to collect
or receive any rentals due upon any such reletting, nor (vi) the election by Landlord not to
terminate the Lease (or termination of possession but not termination of the Lease) but rather to
seek all damages provided at law or in equity, shall relieve Tenant of any of its liabilities or
obligations hereunder, all of which shall survive any such termination, repossession or reletting.
In the event of any such termination of this Lease or Tenant’s right of possession (or any
termination of this Lease or dispossession as to less than all of the Leased Properties in the
event of a Limited Termination Election or the election by Landlord not to terminate this Lease as
to such Leased Properties, but rather to pursue its damages at law or in equity), without
limitation of Section 17.5 and Section 19 below, Tenant shall forthwith pay to Landlord, at
Landlord’s option, as liquidated damages with respect to Rent for the Premises (or the Terminated
Lease Properties in the event of any Limited Termination Election), either:

	 	(a)	 	the sum of: (1) the unpaid Rent
that had been earned at the time of termination (or the unpaid
Rent as to the Terminated Lease Properties in the event of a
Limited Termination Election), which Rent shall bear interest at
the Overdue Rate from the date of such termination until paid;
and (2) the then net present value (computed using a discount
rate equal to the Prime Rate) of the amount of unpaid Rent (or
the unpaid Rent as to the Terminated Lease

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	 	 	 	Properties in the
event of a Limited Termination Election) for the balance of the
Term not previously collected pursuant to clause (B) below
following the date of termination (excluding, however, any
period following termination on account of which Landlord
previously collected Rent pursuant to clause (B) below) without,
subject to Section 17.5 below, any obligation or deemed
obligation on the part of Landlord to mitigate damages, or
	 
	 	(b)	 	each installment of Rent hereof
and other sums payable hereunder (or such Rent and other sums as
to the Terminated Lease Properties in the event of a Limited
Termination Election) as the same become due and payable, to the
extent that such Rent and other sums exceed the rent and other
sums actually collected by Landlord for the corresponding period
pursuant to any reletting (without subject to Section 17.5
below, any obligation or deemed obligation on the part of
Landlord to mitigate damages) of the Premises (or the Terminated
Lease Properties in the event of a Limited Termination
Election).

          Notwithstanding anything contained herein to the contrary, in the event that Landlord elects
to collect damages pursuant to clause (A) or clause (B) above, Landlord may subsequently elect to
collect damages pursuant to the other of clause (A) and clause (B) above, in each case so long as
Landlord does not collect, and provided that Landlord may not collect, any damages pursuant to
clause (A) or clause (B) above, as applicable, with respect to any period as to which Landlord has
theretofore actually collected damages from Tenant pursuant to the other of clause (A) and clause
(B) above, as applicable. In case of any Event of Default, Landlord may, with or without
terminating this Lease, (x) relet any or all of the Premises or any part or parts thereof, either
in the name of Landlord or otherwise, for a term or terms that may, at Landlord’s option, be equal
to, less than or exceed the period that would otherwise have constituted the balance of the Term
and may grant concessions or free rent to the extent that Landlord considers advisable or necessary
to relet the same, and (y) make such reasonable alterations, repairs and decorations in the
applicable Leased Property(ies) or any portion thereof as Landlord, in its reasonable judgment,
considers advisable or necessary for the purpose of reletting the applicable Leased Property(ies);
and such reletting and the making of such alterations, repairs and decorations shall not operate or
be construed to release Tenant from liability hereunder as aforesaid. Landlord shall in no event
be liable in any way whatsoever for failure to relet any Leased Property, or, in the event that any
Leased Property is relet, for failure to collect the rent under such reletting. To the fullest
extent permitted by law, Tenant hereby expressly waives any and all rights of redemption granted
under any present or future laws in the event of Tenant’s being evicted or dispossessed, or in the
event of Landlord’s obtaining possession of any Leased Property, by reason of the violation by
Tenant of any of the covenants and conditions of this Lease or any other Event of Default.

          17.5. Waiver; Mitigation; Limitation on Certain Tenant Remedies. If this Lease (or,
if applicable, Tenant’s right of possession) is terminated pursuant to this Section 17,

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whether in
whole or, in the case of any Limited Termination Election, in part, Tenant waives, to the maximum
extent permitted by applicable law, (i) any right of redemption, re-entry or repossession, (ii) any
right to a trial by jury in the event of proceedings to enforce the remedies set forth in this
Section 17, and (iii) the benefit of any moratorium laws or any laws now or hereafter in force
exempting property from liability for rent or for debt. In addition, Tenant waives, to the maximum
extent permitted by applicable law, (x) any duty on the part of Landlord to mitigate the damages
recoverable from Tenant on account of any breach or Event of Default by Tenant, except that,
notwithstanding the foregoing or anything to the contrary contained in this Lease, Landlord agrees
to comply with any non-waivable duty to mitigate the aforesaid
damages that may be imposed by applicable law, and (y) the right to interpose any counterclaim
(other than compulsory counterclaims) in any summary proceeding instituted by Landlord against
Tenant in any court or in any action instituted by Landlord in any court for unpaid Rent under this
Lease. In the event that Tenant claims or asserts that Landlord has violated or failed to perform
a covenant of Landlord not to unreasonably withhold, delay or condition Landlord’s consent or
approval hereunder, or in any case where Landlord’s reasonableness in exercising its judgment is in
issue, Tenant’s sole remedy shall be an action for specific performance, declaratory judgment or
injunction, and in no event shall Tenant be entitled to any monetary damages for a breach of any
such covenant or unreasonable exercise of judgment, and Tenant hereby specifically waives the right
to any monetary damages or other remedies in connection with any such breach or unreasonable
exercise of judgment. Without limitation of the foregoing and notwithstanding anything to the
contrary contained in this Lease, Tenant agrees that no breach or default by Landlord hereunder
shall excuse Tenant from performing, or constitute a defense to Tenant’s performance of, any duty,
liability or obligation of Tenant under this Lease and in no event shall any breach or default by
Landlord hereunder entitle Tenant to terminate this Lease or abate Rent, in whole or in part.

          17.6. Application of Funds. Notwithstanding anything to the contrary contained in
this Lease, any payments, deposits, escrows, Casualty Insurance Proceeds or Awards received or held
by Landlord under any of the provisions of this Lease may, during the continuance of any Event of
Default and at Landlord’s option, in its sole discretion, be applied to Tenant’s obligations in the
order that Landlord in its sole discretion may determine.

          17.7. Nature of Remedies. Landlord shall have all rights at law and in equity
available to Landlord as a result of an Event of Default (subject to Section 17.2.2 above) or,
subject to the other express provisions of this Lease, Tenant’s breach of this Lease. To the
extent permitted by law, the rights and remedies of Landlord under this Lease, at law and in equity
shall be cumulative and may be exercised concurrently or successively, on one or more occasions, as
Landlord deems appropriate in its sole discretion, as often as occasion therefor arises. To the
extent permitted by law, each such right and remedy shall be in addition to all other such rights
and remedies, and the exercise by Landlord of any one or more of such rights and remedies shall not
preclude the simultaneous or subsequent exercise of any or all other such rights and remedies.
Without limiting the generality of the foregoing, the liquidated damages in respect of Rent
provided for in clauses (A) and (B) of Section 17.4 hereof, and in Section 19 hereof, shall be
payable by Tenant in addition to, and not in lieu of, any other damages suffered by Landlord in
connection with any default or Event of Default by Tenant (including, without limitation,
Litigation Costs and costs of reletting).

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          17.8. No Mediation or Arbitration. Upon any Event of Default by Tenant, Landlord shall
be entitled to proceed immediately to enforce its rights and remedies pursuant to this Section 17
and the other terms of this Lease, and neither any Event of Default, nor the rights and obligations
of Tenant and Landlord under this Lease, shall be subject to mediation or arbitration of any kind.

          17.9. Deletion of Properties. In the event that this Lease (or Tenant’s right of
possession) is terminated as to one or more Deleted Properties (but not all of the Premises)
pursuant to Section 17.2 or as to one or more Leased Properties (but not all of the Premises) in
connection with a Casualty or Condemnation, the provisions of this Section 17.9 shall be
applicable. Without necessity of any further action of the parties, this Lease (or, if applicable,
Tenant’s right of possession) shall terminate as to the Deleted Property(ies), and the Deleted
Property(ies) shall be separated and removed herefrom, at such time (such date, the “Property
Removal Date”) as Landlord delivers written notice to Tenant exercising its termination rights
pursuant to Section 15, Section 16 or Section 17.2 (any of the foregoing, a “Deletion Notice”). As
of the applicable Property Removal Date, this Lease shall be automatically and ipso facto amended
to:

	 	(a)	 	delete and eliminate the Deleted
Property(ies) herefrom;
	 
	 	(b)	 	exclude the applicable Deleted
Properties from the definition of Premises;
	 
	 	(c)	 	reduce the Fixed Rent payable
hereunder by an amount equal to the product of: (x) the
aggregate Tenant’s Proportionate Share(s) applicable to all of
the Deleted Properties (stated as a percentage); and (y) the
aggregate Fixed Rent in effect under this Lease as of the
Property Removal Date;
	 
	 	(d)	 	amend and reduce, respectively,
Exhibit C attached hereto and the Base Year Patient Revenues to
delete and eliminate the Deleted Property(ies) therefrom and
reduce the Base Year Patient Revenues applicable to the
remaining Leased Property(ies) by the amount of the Allocated
Base Year Patient Revenues applicable to the Deleted Properties
for the purposes of determining whether the Rent Escalation
Condition has been satisfied and otherwise; and
	 
	 	(e)	 	revise Schedule 2 attached hereto
to remove the allocations of rents and the Tenant’s
Proportionate Share(s) for all of the Deleted Property(ies), and
to recalculate the Tenant’s Proportionate Shares applicable to
the remaining Facilities set forth on Schedule 2 attached hereto
so that each Tenant of a remaining Facility shall have a
Tenant’s Proportionate Share equal to the percentage that the
Tenant’s Proportionate Share for the Facility(ies) operated by
such

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	 	 	 	Tenant comprises of the aggregate Tenant’s Proportionate
Shares, prior to such revision of Schedule 2, for all of the
Facilities remaining under this Lease such that the aggregate
of all of such recalculated Tenant’s Proportionate Shares
equals 100%.

          With respect to any Terminated Lease Property(ies), the terms of items (A) through (E) above
shall be without limitation upon the liability of Tenant (joint and several) for the rental amounts
allocated to the Terminated Lease Property(ies), and (a) in case of any termination of this Lease
or Tenant’s right of possession as a result of any Event of Default, for any damages resulting from
the Event of Default that resulted in the deletion of such Terminated Lease Property(ies) herefrom
and (b) in case of any termination of this Lease pursuant to Section 15 or Section 16 hereof, for
any obligations owed by Tenant to Landlord on account of such termination under Section 15 or
Section 16 hereof. Promptly (and in any event within 10 Business Days after receipt of Landlord’s
request therefor, Tenant shall execute and deliver to Landlord such instrument(s) as Landlord may
from time to time request reflecting the elimination of any Deleted Property(ies) herefrom on the
terms described above.

     18. Landlord’s Right to Cure Tenant’s Default. 

          If an Event of Default shall have occurred and be continuing, Landlord, without waiving or
releasing any obligation of Tenant or the Event of Default, may (but shall be under no obligation
to) at any time thereafter make such payments or perform such acts for the account and at the
expense of Tenant, and may, to the extent permitted by law, enter upon any or each Leased Property
or any portion thereof for the purpose of curing such Event of Default and take all such action
thereon as, in Landlord’s opinion, may be necessary or appropriate in connection with curing such
Event of Default. No such entry shall be deemed an eviction of Tenant. All sums so paid or
advanced by Landlord and all costs and expenses (including, without limitation, reasonable
attorneys’ fees and expenses) so incurred, together with interest thereon (to the maximum extent
permitted by law) as Additional Rent hereunder at the Overdue Rate from the date on which such sums
or expenses are paid or incurred by Landlord, shall be paid by Tenant to Landlord on demand. The
obligations of Tenant and rights of Landlord contained in this Section 18 and in Section 17 above
shall survive the expiration or earlier termination of this Lease (or, if applicable, termination
of Tenant’s right of possession).

     19. Holding Over.

          If Tenant shall, for any reason other than if required by this Lease or by Landlord, remain in
possession of any Leased Property after the expiration or earlier termination of the Term (or, if
applicable, a termination of Tenant’s right of possession) as to such Leased Property, such
possession shall, at the option of Landlord, in its sole discretion as to each such Leased
Property, be a tenancy at sufferance during which time Tenant shall pay as rental each month (which
rental constitutes liquidated damages with respect to Fixed Rent, and not a penalty, for the period
to which it relates), two times the aggregate of the Fixed Rent payable by Tenant pursuant to the
provisions of this Lease, in each case, with respect to the Leased Property(ies) in question
(determined on the basis of the aggregate Tenant’s Proportionate Share of each applicable Tenant
for the affected Leased Properties without adjustment or removal of the

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Tenant’s Proportionate Share for such Leased Property pursuant to Section 17.9 hereof).
During such period of tenancy at sufferance, Tenant shall be obligated to perform and observe all
of the terms, covenants and conditions of this Lease with respect to the Leased Property(ies) in
question (including, but not limited to, its obligation to pay Additional Rent), but shall have no
rights hereunder other than the right, to the extent given by law to month-to-month tenancies, to
continue its occupancy and use of the applicable Leased Property(ies). Landlord shall have the
right to terminate Tenant’s tenancy at sufferance at any time after giving Tenant 10 days’ prior
written notice, and at any time thereafter, Landlord may re-enter and take possession of the
Premises. Nothing contained herein shall constitute the consent, express or implied, of Landlord
to the holding over of Tenant after the expiration or earlier termination of this Lease (or, if
applicable, termination of Tenant’s right of possession). The terms of this Section 19 shall be
without limitation upon any other right Landlord may have hereunder, at law or in equity, on
account of any holdover with respect to the applicable Leased Property(ies). The obligations of
Tenant and the rights of Landlord contained in this Section 19 shall survive the expiration or
earlier termination of this Lease (or, if applicable, termination of Tenant’s right of possession).

     20. Subordination.

          20.1. Subordination. This Lease and all rights of Tenant hereunder are subject and
subordinate to all Facility Mortgages that may now or hereafter affect Landlord’s interest in any
Leased Property, and to all renewals, modifications, consolidations, replacements and extensions of
all Facility Mortgages, provided, however, that, in the case of any Facility Mortgage that is not
currently in existence, Tenant’s aforesaid subordination shall be conditioned on Tenant’s receipt
of a so-called “subordination, non-disturbance and attornment” agreement among Tenant, Landlord and
the Facility Mortgagee under any such Facility Mortgage, on such Facility Mortgagee’s commercially
reasonable standard form (an “SNDA”). This Section shall be self-operative and no further
instrument of subordination shall be required. In confirmation of such subordination, Tenant also
agrees to execute and deliver promptly (and in any event within 10 Business Days) any commercially
reasonable and customary agreement (in recordable form, if requested) that Landlord or any Facility
Mortgagee may request to evidence such subordination. Landlord agrees to use reasonable efforts to
obtain an SNDA from each Facility Mortgagee under each Facility Mortgage.

          20.2. Attornment. If the interests of Landlord under this Lease are transferred by
reason of, or assigned in lieu of, foreclosure or other proceedings for enforcement of a Facility
Mortgage, then Tenant shall, at the option of such purchaser or assignee, as the case may be, (i)
attorn to such party and perform for its benefit all the terms, covenants and conditions of this
Lease on Tenant’s part to be performed with the same force and effect as if such party were the
landlord originally named in this Lease, or (ii) enter into a New Lease with such party, as
landlord, for the remaining Term and otherwise on the same terms and conditions as this Lease,
except that such successor landlord shall not in the case of clause (i) or (ii) be (w) liable for
any previous act, omission, breach, default or negligence of Landlord under this Lease; (x) subject
to any counterclaim, defense or offset that theretofore shall have accrued to Tenant against
Landlord; (y) bound by any previous modification or amendment of this Lease or by any previous
prepayment of more than one month’s rent, unless such modification, amendment or prepayment shall
have been approved in writing by the Facility Mortgagee through or by reason of which such
successor landlord shall have succeeded to the rights of Landlord under this Lease

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or, in case of any such prepayment, such prepayment of rent has actually been delivered to
such successor landlord; or (z) liable for any security deposited pursuant to this Lease unless
such security has actually been delivered to such successor landlord. Nothing contained in this
Section 20.2 shall be construed to impair any right otherwise exercisable by any such owner, holder
or lessee.

          20.3. Mortgagee Cure Rights. If any act or omission by Landlord would give Tenant the
right, immediately or after lapse of time, to cancel or terminate this Lease or to claim a partial
or total eviction, or an abatement of Rent, setoff or counterclaim not otherwise expressly
permitted by the terms of this Lease, or to declare a default hereunder, Tenant will not exercise
any such right until (i) it has given written notice of such act or omission to each Facility
Mortgagee whose name and address shall have previously been furnished to Tenant, (ii) Landlord
shall have failed to cure the same after the delivery of such notice as may be herein required and
within the time limits set forth in this Lease, and (iii) following the giving of such notice to
each Facility Mortgagee, no Facility Mortgagee shall have remedied such act or omission (x) in the
case of an act or omission that is capable of being remedied without possession of the applicable
Leased Property, within the cure period available to Landlord under this Lease plus 30 days; and
(y) in the case of any act or omission that is incapable of being remedied without possession of
the applicable Leased Property, within 30 days following the date on which possession is obtained
(either by such Facility Mortgagee or by a receiver in an action commenced by such Facility
Mortgagee).

          20.4. Modifications. Tenant shall execute any modification of this Lease reasonably
requested by any Facility Mortgagee or prospective Facility Mortgagee to cause the terms of this
Lease to conform with customary and reasonable mortgage financing requirements, provided that such
modifications are at no expense to Tenant (and Landlord shall reimburse Tenant for its reasonable
out-of-pocket expenses in negotiating and documenting any such modifications, including reasonable
attorneys’ fees and expenses) and (i) are of the nature typically found in subordination,
non-disturbance and attornment agreements among landlords, tenants and first mortgage lenders with
respect to leases such as this Lease, (ii) do not increase Rent payable hereunder, and (iii) are
requested by any such Facility Mortgagee or prospective Facility Mortgagee only at the time of its
initial loan advance or any subsequent extension of the maturity date of its loan or material
modification of the terms of its loan. Tenant will not unreasonably withhold, delay or condition
its consent to such modification, provided subsections (i), (ii) and (iii) above are complied with.

     21. Property and Accounts Collateral and Other Lease Collateral.

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

               21.1.1. Property Collateral; Accounts Collateral. Tenant, as debtor, hereby
grants to
Landlord, as secured party, a security interest in, and lien upon, (i) all of Tenant’s right, title
and interest in and to Tenant’s Personal Property and any and all products,

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rents, proceeds and profits thereof in which Tenant now owns or hereafter acquires an interest
or right (collectively, the “Property Collateral”) and (ii) all accounts receivable with respect to
each Facility that Tenant now owns or in which Tenant hereafter acquires an interest or right
(collectively, the “Accounts Collateral”). The security interests and liens granted to Landlord in
this Section 21.1 with respect to the Accounts Collateral may be subordinated to any first priority
security interest granted in connection with any permitted AR Financing (as defined in Section 21.2
below); provided, however, that, in connection with such AR Financing, Landlord
shall furnish Tenant’s financiers, and Tenant’s financiers shall execute and return to Landlord, an
intercreditor agreement in form and substance reasonably acceptable to Landlord.

               21.1.2. Security Agreement. This Lease constitutes a security agreement
pursuant to
and in accordance with the UCC covering all Property Collateral and Accounts Collateral, as well as
the Authorization Collateral and any other property in or against which Landlord is granted a
security interest or lien by the terms of this Lease, including pursuant to Sections 3.3, 3.4, 7.3,
11.3 and this Section 21.1 (collectively, the “Lease Collateral”), and such security agreement, and
the security interests and liens created in this Lease, shall survive the expiration or earlier
termination of this Lease (or, if applicable, Tenant’s right of possession). Tenant hereby
authorizes Landlord to file such financing statements, continuation statements and other documents
as may be necessary or desirable to perfect or continue the perfection of Landlord’s security
interests and liens in the Lease Collateral pursuant to the UCC. In addition, if required by
Landlord at any time during the Term, Tenant shall execute and deliver to Landlord, in form
reasonably satisfactory to Landlord, additional security agreements, financing statements, fixture
filings and such other documents as Landlord may reasonably require to create, perfect or continue
the perfection of Landlord’s security interests and liens in the Lease Collateral. Upon the
occurrence of an Event of Default or in connection with an Operational Transfer, Landlord shall be
entitled to exercise any and all rights and remedies available to a secured party under the UCC, or
available to a landlord under the laws of the State(s) where the applicable Leased Property(ies) is
(are) located, with respect to the Lease Collateral, including the right to sell the same at public
or private sale, and, in connection with any such sale, Tenant agrees that the giving of 10 days’
notice by Landlord, designating the time and place of any public sale of any Lease Collateral, or
the time after which any private sale or other intended disposition of any Lease Collateral is to
be made, shall be deemed to be reasonable notice thereof, and Tenant waives any other notice with
respect thereto. Nothing in this Section 21.1 shall be deemed or construed to limit Landlord’s
rights to apply any of the Leased Collateral as provided in any other provisions of this Lease,
including Sections 3.3, 3.4, 7.3 and 11.3.

               21.1.3. Certain Changes. Tenant shall give Landlord at least 30 days’
prior written
notice of any change in any Tenant’s principal place of business, name, identity, jurisdiction of
organization or corporate structure, and any such change shall, without limitation of Section 24
hereof, be subject to Landlord’s prior written approval, which approval shall not be unreasonably
withheld or delayed. With respect to any such change, Tenant will promptly execute and deliver
such instruments, documents and notices and take such actions, as Landlord deems necessary or
desirable to create, perfect and protect the security interests and liens of Landlord in the Lease
Collateral.

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          21.2. Accounts Receivable Financing. Tenant shall not obtain so-called “Accounts
Receivable” financing with respect to any Facility (or its operations therein) or otherwise pledge
any receivables as collateral (“AR Financing”) unless (i) the terms and conditions of this Section
21 have been satisfied; (ii) Tenant obtains Landlord’s consent to the terms thereof; and (iii) no
Event of Default hereunder has occurred and is continuing. Landlord shall not unreasonably
withhold or delay its consent to any AR Financing secured by a first lien upon Tenant’s Accounts
Collateral and as to which Landlord has received an intercreditor agreement as required pursuant to
Section 21.1.1, and, as to any other AR Financing, Landlord may withhold its consent in its sole
discretion.

     22. Risk of Loss. 

          During the Term, the risk of loss or of decrease in the enjoyment and beneficial use of each
Leased Property in consequence of the damage or destruction thereof by fire, the elements, acts of
terrorism, casualties, thefts, riots, wars or otherwise, or in consequence of foreclosures,
attachments, levies or executions is assumed by Tenant, and Landlord shall in no event be
answerable or accountable therefor nor shall any of the events mentioned in this Section entitle
Tenant to any abatement of Rent.

     23. Indemnification. 

          Notwithstanding the existence of any insurance provided for herein, and without regard to the
policy limits of any such insurance, Tenant shall protect, indemnify, save harmless and defend
Landlord and the Landlord Indemnified Parties from and against all Losses (including, without
limitation, Litigation Costs), to the maximum extent permitted by law, imposed upon or incurred by,
or asserted or alleged against, Landlord or any Landlord Indemnified Parties by reason of: (i) any
accident, injury to, or death of, persons or loss of, or damage to, property occurring on or about
any Leased Property; (ii) any use, misuse, non-use, condition, maintenance or repair of any Leased
Property by Tenant, any Tenant Parties or anyone claiming under Tenant or any Tenant Parties; (iii)
any Impositions; (iv) any failure on the part of Tenant, any Tenant Parties or anyone claiming
under Tenant or any Tenant Parties to perform or comply with any of the terms of this Lease; (v)
any claims for work or labor performed or materials supplied to Tenant or any Tenant Parties; (vi)
any breach by Tenant of any of its representations and warranties hereunder; (vii) any breach or
default under any Authorization by any Tenant (or any Facility) or any revocation of any
Authorizations (including, but not limited to, any Facility Provider Agreement); (viii) any
negligence or misconduct on the part of Tenant or any Tenant Parties; (ix) the non-performance of
any of the terms and provisions of any and all existing and future subleases of any Leased Property
to be performed by the subtenant thereunder; (x) the claims of any broker or finder made in
connection with this Lease except to the extent claiming under the written agreements of Landlord,
and/or (xi) any claim asserted against Landlord by any Governmental Authority for taxes owed by a
Seller or a Contract Seller (as such terms are defined in the P&S Agreement) arising because of the
acquisition of any portion of the Premises from such Seller or Contract Seller. Any amounts that
become payable by Tenant under this Section 23 shall be paid within 10 Business Days after demand
by Landlord, and if not timely paid, shall bear interest at the Overdue Rate from the date of such
demand until paid. Tenant, at its expense, shall contest, resist and defend any such claim, action
or proceeding asserted or instituted against Landlord or any Landlord Indemnified Parties with

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counsel reasonably acceptable to Landlord in its sole discretion and shall not, under any
circumstances, compromise or otherwise dispose of any suit, action or proceeding without obtaining
Landlord’s written consent, such consent not to be unreasonably withheld or delayed; provided, in
no event shall Landlord be obligated to consent thereto if doing so would involve any admission of
wrongdoing (whether of a civil or criminal nature) or of liability on the part of Landlord. So
long as no Event of Default is then continuing, Tenant shall have the right to control the defense
or settlement of any claim provided that (A) Tenant shall first confirm in writing to Landlord that
such claim is within the scope of this indemnity and that Tenant shall pay any and all amounts
required to be paid in respect of such claim; and (B) any compromise or settlement shall require
the prior written approval of Landlord, which approval shall not be unreasonably withheld provided
Landlord (or the applicable Landlord Indemnified Parties) are irrevocably released from all
liabilities in connection with such claim as part of such settlement or compromise. Landlord, at
its election and sole cost and expense, shall have the right, but not the obligation, to
participate in the defense of any claim. If Tenant does not act promptly and completely to satisfy
its indemnification obligations hereunder, or at any time an Event of Default is continuing,
Landlord may resist and defend any such claims or causes of action against Landlord or any Landlord
Indemnified Party at Tenant’s sole cost. The terms of this Section 23 shall survive the expiration
or sooner termination of this Lease (or, if applicable, termination of Tenant’s right of
possession). Notwithstanding anything to the contrary contained in this Lease, including, without
limitation, the foregoing provisions of this Section 23, Tenant shall not be liable for any Losses
(including, without limitation, Litigation Costs) based on any event occurring prior to the
Effective Date that would be covered if Tenant’s predecessors under the Existing Master Lease
maintained a policy of insurance as described in Section 14.1.2 (a) or (b), regardless of the
limits of liability and regardless of whether such insurance is actually maintained.

     24. Assignment; Sublease.

          24.1. Prohibition. Tenant shall not, either directly or indirectly, or through one or
more step transactions or tiered transactions, voluntarily or by operation of law, (i) assign,
convey, sell, pledge, mortgage, hypothecate or otherwise encumber, transfer or dispose of all or
any part of this Lease or any Tenant’s leasehold estate hereunder except as provided in Section
24.5, (ii) sublease all or any part of any Leased Property (except subleases to Persons not
Affiliates of Tenant of less than 700 square feet with terms not exceeding one year for ancillary
uses such as a hair salon or other convenience to residents); (iii) engage the services of any
Person for the management or operation of all or any part of any Leased Property other than Manager
pursuant to a Management Agreement; (iv) convey, sell, assign, transfer, pledge, hypothecate,
encumber or otherwise dispose of (or permit such act to occur by any other Person) any stock,
partnership, membership or other interests (whether equity or otherwise) in any Guarantor or any
Tenant or any Person(s) controlling any Guarantor or any Tenant, if such conveyance, sale,
assignment, transfer, pledge, hypothecation, encumbrance or disposition results, directly or
indirectly, in a change in control of such Guarantor or Tenant (or of such controlling Person(s));
(v) dissolve, merge or consolidate (or permit the consolidation, merger or dissolution of) any
Guarantor or any Tenant or any Persons controlling any Guarantor or any Tenant with any other
Person, if such dissolution, merger or consolidation, directly or indirectly, results in a change
in control of such Guarantor or Tenant (or in such controlling Person(s)); (vi) sell, convey,
assign, or otherwise transfer (or permit the same to occur) all or substantially

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all of
the assets of any Guarantor or any Tenant or any Persons controlling any Tenant; (vii) sell,
convey, assign, or otherwise transfer (or permit the same to occur) any of the assets of any
Guarantor or any Tenant or any Persons controlling any Tenant, if the consolidated net worth of
such Guarantor or Tenant (or such controlling Person(s), as the case may be) immediately following
such transaction is not at least equal to the greater of (1) the consolidated net worth of such
Guarantor or Tenant (or such controlling Person(s), as the case may be) immediately prior to such
transaction and (2) the consolidated net worth of such Guarantor or Tenant (or controlling
Person(s), as the case may be) as of the Commencement Date; or (viii) enter into or permit 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 (each of the aforesaid acts referred to in
clauses (i) through (viii) being referred to herein as a “Transfer”). For purposes of this Section
24.1, a change in control of any Guarantor, any Tenant or any controlling Person, as applicable,
shall include, without limitation, (a) a change in the composition of the board of directors or
members, as applicable, of any Guarantor, any Tenant or controlling Person, as applicable, such
that at the end of any period of 12 consecutive months the Persons constituting a majority of such
board of directors or members, as applicable, are not the same as the persons constituting a
majority at the start of such period (or persons appointed by such majority), (b) the sale or other
disposition of (x) all or any part of its interest in any Guarantor or Tenant or (y) all or
substantially all of the assets of any Guarantor or any Tenant, and (c) a merger or consolidation
involving any Guarantor or any Tenant, which results in the owners of any Guarantor or any Tenant
immediately prior to such event owning less than 50% of the capital stock, partnership interests,
limited liability company membership interests or other equity interests of the surviving entity or
any parent of the surviving entity. For purposes of this Section 24, a sublease of all or any part
of any Leased Property shall be deemed to include any concessionaire agreement, license agreement
or other agreement involving use or possession of all or any part of any Leased Property.

          24.2. Permitted Assignments and Subleases. Except as provided in Section 24.5, any
purported Transfer made without the prior written consent of Landlord, which may in each case be
granted or denied in Landlord’s sole discretion, shall be absolutely null and void. If Landlord
consents to any Transfer, such Transfer shall not be effective and valid unless and until the
applicable transferee executes and delivers to Landlord any and all documentation reasonably
required by Landlord. Any consent by Landlord to a particular Transfer shall not constitute
consent or approval of any subsequent Transfer, and Landlord’s written consent shall be required in
all such instances. No consent by Landlord to any Transfer shall be deemed to release any Tenant
from its obligations hereunder and each Tenant shall remain fully liable for payment and
performance of all obligations under this Lease.

          24.3. Rights of Landlord.

          If this Lease is assigned, or if the Premises (or any part thereof) are sublet or used or
occupied by anyone other than Tenant, whether or not in violation of this Lease, Landlord may
(without prejudice to or waiver of its rights), collect rent from the assignee, subtenant or
occupant. Landlord may apply the net amount collected to the Rent herein required to be paid by
Tenant, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of any
of the provisions of this Section 24. With respect to the allocable portion of the Premises
sublet, in the event that the total rent and any other

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considerations received under any sublease by Tenant is greater than the total Fixed Rent
required to be paid, from time to time, under this Lease, Tenant shall pay to Landlord 50% of such
excess received from any subtenant and such amount shall be deemed a component of the Additional
Rent.

          24.4. Sublease Limitation. Anything contained in this Lease to the contrary
notwithstanding, Tenant shall not sublet any Leased Property on any basis such that the rental to
be paid by the subtenant thereunder would be based, in whole or in part, on either (i) the income
or profits derived by the business activities of the subtenant, or (ii) any other formula such that
any portion of the sublease rental, if received by Landlord, would fail to qualify as “rents from
real property” within the meaning of Section 856(d) of the Code, or any similar or successor
provision thereto.

          24.5. Right of Assignment. Provided that there is no Event of Default, nor any
circumstances that with the giving of notice, the passage of time or both would consistitute an
Event of Default, existing under the Lease, and subject to the terms and conditions set forth in
this Section 24, Tenant may assign the Lease with respect to the Facility known as Highland Terrace
in Inverness Florida (“Inverness”) to a third party (“Substitute Tenant”) whereupon Landlord agrees
to release Tenant from the Lease, and Guarantor from the Guaranty, in each case with respect to
obligations related only to Inverness under the Lease that arise and accrue after the effective
date of such assignment, as provided in this Section 24.5.

          24.5.1. Assignment Notice. Upon a minimum of 90 days prior written notice to Landlord
(an “Assignment Notice”, which Assignment Notice shall include the information called for in
Exhibit J) of Tenant’s intent to effect such assignment, Tenant shall have the right to assign the
Lease with respect to Inverness to the Substitute Tenant provided that the conditions set forth in
this Section 24.5 have been met and all of the following additional conditions with regard to such
Substitute Tenant are met (as reasonably determined by Landlord) both at the time the Assignment
Notice is delivered to Landlord and at the time of the closing of the assignment (any Substitute
Tenant satisfying said conditions shall be referred to as a “Qualifying Substitute Tenant”):

	 	(a)	 	the Substitute Tenant (or the
party serving as guarantor of the Substitute Tenant’s
obligations under the terms of the Lease) has a net worth of at
least $1,000,000.00;
	 
	 	(b)	 	the Substitute Tenant is not an
Affiliate of Assisted Living Concepts, Inc.;
	 
	 	(c)	 	the Substitute Tenant operates at
least two other assisted living facilities;
	 
	 	(d)	 	the Substitute Tenant has
operated assisted living facilities for at least five years;

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	 	(e)	 	the Substitute Tenant is not an
Affiliate of Brookdale Senior Living Inc., Senior Care Real
Estate Investment Trust or Assisted Living Concepts, Inc.;
	 
	 	(f)	 	the Substitute Tenant and its
principals and affiliates have good reputations as operators of
assisted living facilities and no history of criminal
convictions or other adverse dispositions of criminal charges;
	 
	 	(g)	 	the Substitute Tenant must
provide insurance as required by the Lease or as otherwise may
be acceptable to Landlord in its sole discretion; and
	 
	 	(h)	 	the assignment, assumption and
release shall be in a form satisfactory to Ventas in its sole
discretion and shall include the consent of the Guarantor.

               24.5.2. Conditions of Assignment. Tenant shall have no right to assign the
Lease with
respect to Inverness unless all of the following conditions have been met both at the time of the
Assignment Notice (or in the case of (f), 45 days prior to the closing of the assignment) and at
the time of the closing of the assignment and Tenant shall deliver a certification to Landlord with
respect to each of the following at both such times:

	 	(a)	 	no Event of Default, nor any
circumstances that with the giving of notice, the passage of
time or both would constitute an Event of Default, exists under
the Lease;
	 
	 	(b)	 	all the matters set forth in the
Assignment Notice are accurate and not misleading and were so
when such Assignment Notice was delivered;
	 
	 	(c)	 	the Coverage Ratio for the 12
months prior to such time shall be at least 1.10;
	 
	 	(d)	 	Guarantor has consented in
writing to the proposed assignment; and
	 
	 	(e)	 	all legal documentation relating
to the assignment shall have been delivered to Landlord
concurrent with the Assignment Notice and such documentation
shall reflect that the assignment is occurring on an arms-length
basis in compliance with the other requirements of this Section
24.5.

               24.5.3. Landlord’s Costs. Tenant shall pay all of Landlord’s
reasonable costs and
out-of-pocket expenses in connection with any proposed assignment hereunder, whether or not such
assignment is completed (“Landlord’s Costs”); provided that Tenant shall not be obligated to pay
any amount of Landlord’s Costs, other than attorneys’ fees and costs, in

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excess of $25,000.00 unless such amounts have been approved by Tenant prior to their
incurrence, which approval will not be unreasonably withheld. If Tenant withholds its approval of
any such Landlord’s Costs in excess of $25,000 that are commercially reasonable in scope and amount
in light of the proposed transaction and are costs customarily incurred in other similar
transactions (“Reasonable Excess Costs”), Landlord shall have no obligation with respect to any
proposed transaction to which such costs relate. For example and to avoid doubt, if Tenant has not
approved any Reasonable Excess Costs in accordance with the foregoing with respect to a proposed
assignment to a Substitute Tenant, Landlord shall have no obligation to consent to, proceed with,
evaluate or allow such assignment until such Landlord’s Costs have been approved by Tenant. If
Tenant withholds its approval to any such Landlord’s Costs in excess of $25,000 that are not
Reasonable Excess Costs, Landlord shall not have the right to cease evaluating a proposed
assignment.

               24.5.4. Security Deposit. Substitute Tenant shall be required to deposit with
Landlord
an amount equal to 12 months Rent for Inverness as security (the “Security Deposit”) for the full
and faithful performance by Tenant (including Substitute Tenant) of each and every term, provision,
covenant and condition of this Lease. Any Security Deposit shall be deemed to be the property of
Landlord. Upon the occurrence of an Event of Default, Landlord may, but shall not be required to,
use, apply or retain the whole or any part of the Security Deposit for the payment of any Rent in
default or for any other sum that Landlord may expend or be required to expend by reason of
Tenant’s default, including any damages or deficiency in the reletting of the Premises, whether
such damages or deficiency accrue before or after summary proceedings or other re-entry by
Landlord. Tenant shall not be entitled to any interest on the Security Deposit and Landlord may
commingle the Security Deposit with its other funds. In case of a sale or transfer of the Premises
by Landlord, or any cessation of Landlord’s interest therein, whether in whole or in part, Landlord
may pay over any unapplied part of the Security Deposit (or, in the case of any such partial
transfer or cessation, such portion as Landlord allocates to such part of the Premises, in its
reasonable discretion) to the successor owner of the Premises, and from and after such payment,
Landlord shall be relieved of all liability with respect thereto. The provisions of the preceding
sentence shall apply to every subsequent sale or transfer of the Premises or any part thereof. If:
(i) no Event of Default has occurred and is continuing hereunder and (ii) Tenant has fully
performed and satisfied all of its obligations under the Lease (including, without limitation and
as applicable, its obligations relative to any Operational Transfer(s)), then the Security Deposit
or Letter of Credit, or the remaining unapplied portion thereof, shall be paid or returned to
Tenant within 93 days after the expiration or termination of this Lease and the surrender of the
Premises to Landlord in the condition required hereunder; provided, however, that Landlord may
retain an amount of the Security Deposit, or make a draw on the Letter of Credit for such amount,
as it shall reasonably determine, to secure the payment of any Rent, the amount of which Landlord
is then unable to determine finally (and Landlord shall return any such retained amount to Tenant
promptly following the final determination of such Rent amount and the full payment to Landlord of
such Rent). The Security Deposit or Letter of Credit, as applicable, shall not be deemed an
advance payment of Rent or a measure of Landlord’s damages for any default hereunder by Tenant, nor
shall it be a bar or defense to any action that Landlord may at any time commence against Tenant.

               24.5.5. Tenant Liability. Notwithstanding any assignment under this
Section 24.5,
Tenant shall remain liable under the terms of the Lease and to the extent provided

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in the Lease for any claims which may arise prior to the effective date of any such assignment
as if such assignment had not occurred. Guarantor’s obligations under the Lease Guaranty, with
respect to Inverness matters arising prior to the effective date of any such assignment, shall not
be affected by any assignment of the Lease.

               24.5.6. Tenant Assignment. At the closing of any assignment under this
Section 24.5
and in addition to Landlord’s Costs, Tenant shall pay Landlord an assignment fee of $50,000.00.

               24.5.7. Consideration. Landlord and Tenant hereby agree that the assignment as
set
forth in this Section 24.5 represents the entire consideration for such Substitute Tenant and that
there shall be no alteration of any Rent due under this Lease to Landlord, and neither Landlord nor
Tenant shall be entitled any other consideration whether in the form of cash or otherwise.

               24.5.8. Expedited Procedures. Promptly following receipt of the Assignment
Notice,
Landlord shall undertake its evaluation of the proposed Substitute Tenant and thereafter diligently
pursue such evaluation in good faith to completion as soon as reasonably possible, and in any event
within 15 business days after receipt of (i) the Substitution Notice and (ii) receipt of all other
materials and information reasonably required by Landlord to evaluate the Substitute Tenant
(including all materials specified in this Section 24.5). If Landlord fails to approve a proposed
Substitute Tenant, it shall promptly so notify Tenant in writing. If Tenant disagrees with
Landlord’s decision and the parties are unable to resolve such disagreement, or if Landlord fails
to comply with its obligations set forth above, the matter shall be submitted to a court of
competent jurisdiction for resolution using whatever expedited judicial procedures are available
(provided, however, that Landlord shall not be deemed to have agreed to arbitration or to any
dispute resolution procedure in which Landlord waives or forfeits any procedural or substantive
rights to which it would otherwise be entitled).

     25. Financial Statements and Reporting.

          25.1. Maintenance of Books and Records. Tenant shall keep and maintain, or cause to be
kept and maintained, proper and accurate books and records in accordance with GAAP, and a standard
modern system of accounting, in all material respects reflecting the financial affairs of each
Tenant and the results from operations of each Facility. Landlord shall have the right, from time
to time during normal business hours after 10 Business Days prior oral or written notice to the
applicable Tenant, itself or through any of Landlord’s Representatives, to examine such books and
records at the office of such Tenant or other Person maintaining such books and records and to make
such copies or extracts thereof as Landlord or Landlord’s Representatives shall request; provided,
however, said 10 Business Day period shall be reduced to two Business Days if (i) any Event of
Default is continuing; (ii) any Tenant or Guarantor files for bankruptcy protection (or a
bankruptcy filing is made against any of them); (iii) Tenant fails to timely provide Landlord with
financial statements or reports required under this Lease; or (iv) an event occurs which has a
Material Adverse Effect on any Tenant or any Facility.

          25.2. Annual Financial Information. As soon as available, and in any event within 120
days after the close of each Fiscal Year, Tenant shall deliver to Landlord, presented

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on a consolidated basis, financial statements of the Person which owns each of the Tenants and
any affiliated provider of insurance required by this Lease, prepared for such Fiscal Year
including a balance sheet and operating statement as of the end of such Fiscal Year, together with
related statements of income for each Tenant for such Fiscal Year on a property-by-property basis,
and if otherwise available, a copy of the auditor’s opinion as to such financial statements (but if
not otherwise performed, nothing herein shall require an audit of such financial statements).
Together with Tenant’s annual financial statements, Tenant shall deliver to Landlord such other
information as Landlord shall reasonably request. So long as such Person is a public company, the
requirements of this Section 25.2 may be satisfied by the filing by Person of such Person’s Form
10K.

          25.3. Quarterly Financial Information. As soon as available, and in any event within
45 days after the end of each fiscal quarter, Tenant shall deliver to Landlord, presented on a
consolidated basis, quarterly, year-to-date and trailing 12 month unaudited financial statements of
the Person which owns each of the Tenants prepared for such fiscal quarter, including a balance
sheet and operating statement as of the end of such fiscal quarter, together with related
statements of income for each Tenant for such fiscal quarter on a property-by-property basis, for
the portion of the Fiscal Year ending with such fiscal quarter and for the trailing 12 months then
ended. Each such quarterly statement shall show the separate operations of each Leased Property,
including, without limitation, (i) a breakdown of Patient Revenues and other revenues itemized by
payor type and a reasonably detailed breakdown of operating expenses and (ii) patient census
information by payor type (collectively, “Census Information”). Each such quarterly report shall
be accompanied by the following: (1) a statement in reasonable detail showing the calculation of
Net Operating Income for each Facility for the trailing four fiscal quarters, in each case, ending
at the end of the fiscal quarter as to which such statement is being delivered; (2) a then current
occupancy report for each Facility; (3) an Officer’s Certificate certifying as to any material
variances from the approved Annual Budget on a line-item basis; (4) a report describing in
reasonable detail the occurrence during such quarter of any event that is reasonably likely to
result in a material adverse effect on the ability of Tenant to perform any material provision of
this Lease, or the value, use or enjoyment of any of the Leased Properties or the operation
thereof; (5) a quarterly summary of accounts receivable with respect to each Facility and all of
the Facilities in form acceptable to Landlord; and (6) such other information as Landlord shall
reasonably request. So long as such Person is a public company, the requirements of this Section
25.3 may be satisfied by the filing by Person of such Person’s Form 10Q.

          25.4. Certifications of Compliance. Simultaneously with the delivery of the annual and
quarterly financial statements contemplated by Sections 25.2 and 25.3, Tenant shall deliver to
Landlord an Officer’s Certificate in the form of Exhibit D attached hereto and dated as of the date
of such delivery.

          25.5. Annual Budgets. Tenant (or its predecessor in interest) has previously delivered
to Landlord the Annual Budget for each Leased Property for the 2005 Fiscal Year. At least 30 days
prior to the commencement of each subsequent Fiscal Year during the Term, Tenant shall deliver to
Landlord an Annual Budget presented on a consolidated and consolidating as well as a
property-by-property basis for the ensuing Fiscal Year and, promptly after preparation thereof, any
subsequent revisions to the Annual Budget.

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          25.6. Intentionally Omitted.

          25.7. Authorizations. As soon as available, and in any event within 90 days after the
end of each calendar year, Tenant shall deliver to Landlord as to each Facility a report describing
in reasonable detail the status of such Facility’s compliance with all Authorizations for such
Facility. In addition, not later than 30 days after the commencement of each Fiscal Year during
the Term, Tenant shall deliver to Landlord copies of any and all Authorizations (together with any
renewals or extensions thereof) certified by Tenant as accurate and complete in an Officer’s
Certificate.

          25.8. Actuarial Reports. Promptly (and in any event no later than 10 days) after
Tenant’s receipt thereof, Tenant shall deliver to Landlord a complete copy of any Actuarial
Report(s) received by Tenant.

          25.9. Quarterly Survey Deficiency Summary Reports. If and to the extent the
Facilities are subject to periodic inspections or surveys by a Governmental Authority, as soon as
available, and in any event no later than 30 days after the end of each fiscal quarter, Tenant
shall deliver to Landlord a quarterly consolidated survey deficiency summary report, indicating for
each Facility whether any survey, citation or report alleging any deficiency with respect to such
Facility has been issued during the prior fiscal quarter and, if so, setting forth the identity of
the Governmental Authority that issued such survey, citation or report, a description of the
alleged deficiency and the timetable or deadline for remedying same and Tenant’s plan for curing
such deficiency. Tenant shall also deliver to Landlord promptly after request therefor by Landlord
any other Facility specific survey reports reasonably requested by Landlord.

          25.10. Notices from Governmental Authorities. As soon as available, and in any event
within 10 Business Days of Tenant’s receipt, Tenant shall deliver to Landlord copies of any and all
notices (regardless of form) from any Governmental Authority (i) that any Authorization for any
Facility or, if applicable, the certification of any Facility to participate in any Third Party
Payor Program is the subject of any enforcement action, revocation or suspension or is subject to
assessment for civil monetary penalties or is the subject of any overpayment claim or recoupment
claim or (ii) that action is pending or being considered to revoke or suspend any Authorization or
to institute enforcement actions of any kind.

          25.11. Medicare and Medicaid Cost Reports. If a Facility participates in Medicare or
Medicaid, upon the request of Landlord, Tenant shall deliver to Landlord, as to each such Facility
and within 10 Business Days after the earlier of (i) the date a cost report is required to be filed
for such Facility with the applicable Medicare and/or Medicaid agency, as applicable, or (ii) the
date of actual filing of such cost report for such Facility with such agency, a complete copy of
any Medicare and/or Medicaid cost report for such Facility, which report will be prepared by an
independent certified public accountant or by an experienced cost report preparer reasonably
acceptable to Landlord, and Tenant shall further promptly deliver to Landlord any amendments filed
with respect to such reports and all responses, audit reports or inquiries with respect to such
reports.

          25.12. Medicare and Medicaid Deficiency Reports. If a Facility participates in
Medicare or Medicaid, as soon as available, and in any event within five Business Days of

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Tenant’s receipt thereof, Tenant shall deliver to Landlord a complete copy of any Medicare,
Medicaid or other Governmental Authority survey, report or statement of deficiencies relating to
any of such Facilities and, within the time period required by the particular agency for furnishing
a plan of correction, Tenant shall also deliver or cause to be delivered to Landlord a complete
copy of a plan of correction generated from such survey, report or statement of deficiencies and
delivered by Tenant to such agency.

          25.13. Financial Statements of Guarantor. Tenant shall cause each Guarantor to
deliver to Landlord on a timely basis the financial statements, and Officer’s Certificates, that
are required by the terms of each Lease Guaranty.

          25.14. Estoppel Certificates. Together with every Officer’s Certificate required to
be provided hereunder, or otherwise upon request by Landlord in connection with a proposed sale or
refinancing of any Leased Property(ies) by Landlord or otherwise (and, in the case of any such
request, in any case within five Business Days), Tenant shall deliver an “Estoppel Certificate” in
form and substance satisfactory to Landlord and certifying as to the matters described in Exhibit E
attached thereto. Each such Estoppel Certificate shall be certified to Landlord and Landlord’s
designees and may be relied upon by Landlord and its designees. Any Estoppel Certificate shall, at
Landlord’s request, be delivered together with complete and accurate copies (originals of which
shall be made available for inspection upon request by Landlord) of all licenses, permits and other
Authorizations necessary to operate the Facilities in accordance with all applicable laws.

          25.15. SEC Reports. As soon as reasonably available, Tenant shall deliver to Landlord
copies of any Forms 10K, 10Q and 8K, and any other annual, quarterly, monthly or other reports,
copies of all registration statements and any other public information that any Tenant, any
Guarantor or any Affiliate of any Tenant or any Guarantor files with the SEC or any other
Governmental Authority. Promptly upon the furnishing thereof to the shareholders of any Tenant,
any Guarantor or any Affiliate of any Tenant or any Guarantor, Tenant shall deliver to Landlord
copies of all statements, reports, notices and proxy statements so furnished.

          25.16. Supplemental Information. Tenant shall deliver to Landlord such supplements to
the foregoing documents, and such other information and reports (including, without limitation,
non-financial information), as Landlord or any Facility Mortgagee may reasonably request from time
to time, provided such supplements, and such information and reports, are consistent with the types
of supplements, reports and information generally utilized by institutions within the healthcare or
financing industry.

          25.17. Quarterly Meetings; Facility Level Meetings and Reviews. On a quarterly basis,
Tenant shall permit, and upon request by Landlord, shall make appropriate arrangements for,
Landlord and/or Landlord’s Representatives to discuss the affairs, operations, finances and
accounts of each Tenant, each Guarantor and their respective Affiliates with, and be advised as to
the same by, senior officers of each Tenant (and such of each Tenant’s financial advisors (other
than independent accountants) as would be relevant to the topic(s) of the particular meeting), all
as Landlord may deem appropriate for the purpose of verifying any report(s) delivered by Tenant to
Landlord under this Lease or for otherwise ascertaining compliance with this Lease by Tenant or the
business, operational or financial condition of each

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Tenant, each Guarantor and/or their respective Affiliates and/or any of the Facilities.
Without limitation of the foregoing, from time to time promptly following receipt of written notice
from Landlord to Tenant (and in any event within five Business Days of such receipt), Tenant shall
permit, and shall make appropriate arrangements for, Landlord and/or Landlord’s Representatives to
discuss the business, operational and financial condition of specific Facility(ies) designated by
Landlord with, and be advised as to the same by, appropriate personnel of Tenant and its Affiliates
having operational and accounting responsibilities for the Facility(ies) so specified by Landlord
and to review, and make abstracts from and copies of, the books, accounts and records of Tenant and
its Affiliates relative to any such Facility(ies). Unless otherwise agreed in writing by Landlord
and Tenant, all of the discussions, reviews, abstracting and copying referenced in this Section
25.17 shall occur during normal business hours.

          25.18. Format. Notwithstanding anything contained herein to the contrary, Tenant
shall deliver to Landlord the financial information, statements, reports, operating budgets and
other financial data contemplated by Section 25 in electronic form and in a format acceptable to
Landlord in the exercise of its reasonable discretion.

     26. Landlord’s Right to Inspect. 

          Tenant shall permit Landlord, Landlord’s Representatives, any then current or prospective
Facility Mortgagee or other lender to Landlord, any then current or prospective investment banker,
mortgage broker or other professional engaged by Landlord, any prospective purchaser of any Leased
Property or any investor in Landlord or any Affiliate of Landlord and/or any prospective lessee,
and its and their respective authorized representatives, to enter upon and conduct a physical
inspection of any Leased Property during normal business hours and, except in an emergency, upon
not less than five Business Days’ prior written notice, subject to any security, health, safety or
confidentiality requirements of any Governmental Authority relating to the Premises, or imposed by
law or applicable regulations or any insurance requirement, and provided that no such entry or
inspection shall materially interfere with Tenant’s business operations within the affected Leased
Property(ies); provided, however, said five Business Day period shall be reduced to two Business
Days if (i) any Event of Default is continuing; (ii) if any Tenant or Guarantor files for
bankruptcy protection (or a bankruptcy filing is made against any of them); or (iii) an event
occurs which has a Material Adverse Effect on any Tenant or any Facility. Nothing contained in
this Section 26 shall limit or impair Landlord’s right to immediately enter upon and inspect the
Premises, or any of Landlord’s other rights or remedies, upon the occurrence of any Event of
Default by Tenant.

     27. No Waiver. 

          No failure by Landlord or Tenant to insist upon the strict performance of any term hereof or
to exercise any right, power or remedy consequent upon a breach thereof, and no acceptance of full
or partial payment of Rent during the continuance of any such breach, shall constitute a waiver of
any such breach or of any such term. To the extent permitted by law, no waiver of any breach shall
affect or alter this Lease, which shall continue in full force and effect with respect to any other
then existing or subsequent breach.

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     28. Single Lease. 

          Tenant hereby acknowledges that the agreement between Landlord and Tenant to treat this Lease
as single lease in all respects was and is of primary importance to Landlord, and Landlord would
not have entered into this Lease without there being such an agreement and such treatment of this
Lease. All rights and obligations under this Lease relating to the Premises shall apply to each
Leased Property and any default under this Lease pertaining to a single Leased Property or to the
Premises or any portion thereof shall be an Event of Default pertaining to the Premises and each
Leased Property, subject only to Section 17.2.2 above. Without limiting the generality of the
foregoing, the parties hereto acknowledge that, notwithstanding any references herein to any
individual Leased Property and notwithstanding the possibility that certain individual Leased
Properties may be deleted herefrom pursuant to the express provisions of this Lease under certain
limited circumstances, the parties hereto expressly intend and agree that this Lease is not
divisible and shall be treated as a single lease for all purposes whatsoever (including, without
limitation, in the context of Tenant’s attempted rejection, assumption and/or assignment of this
Lease in any bankruptcy or other insolvency proceeding affecting any Tenant, in which case the
parties hereto intend for such rejection to terminate this Lease with respect to the entire
Premises or such assumption to apply with respect to the entire Premises, i.e., all but not less
than all of the Leased Properties). Notwithstanding anything contained in this Section 28 or
elsewhere in this Lease to the contrary, the existence of Tenant’s Proportionate Share and the
allocations of Rent described in Section 3.1.2 hereof and elsewhere in this Lease do not change the
joint and several nature of each Tenant’s obligation to pay all Rent owing hereunder as provided in
Section 1.3 above. This Lease does not constitute, and may not be enforced (except at Landlord’s
sole discretion in connection with a Limited Termination Election) or treated as, a separate lease
for any individual Leased Property. Notwithstanding the foregoing, the right of possession and
leasehold right granted to each Tenant hereunder is limited as provided in Section 1.3 above.

     29. Acceptance of Surrender. 

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

     30. No Merger of Title. 

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

     31. Conveyance by Landlord. 

          Landlord may, without the consent or approval of Tenant, sell, transfer, assign, pledge,
encumber, hypothecate, convey or otherwise dispose of all or any portion of the

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Premises. If Landlord or any successor owner of any Leased Property shall sell, transfer,
assign, convey or otherwise dispose of any Leased Property in accordance with the terms hereof
other than as security for a debt, and the purchaser, grantee, assignee or transferee of the Leased
Property(ies) shall expressly assume all obligations of Landlord hereunder with respect to such
Leased Property(ies) arising or accruing from and after the date of such sale, conveyance,
transfer, assignment or other disposition, Landlord or such successor owner, as the case may be,
shall thereupon be released from all future liabilities and obligations of Landlord under this
Lease with respect to such Leased Property(ies) arising or accruing from and after the date of such
sale, conveyance, transfer, assignment or other disposition as to such Leased Property(ies) and all
such future liabilities and obligations with respect to such Leased Property(ies) shall thereupon
be binding upon such purchaser, grantee, assignee or transferee.

     32. Quiet Enjoyment.

          So long as Tenant shall pay all Rent as the same becomes due and shall fully comply with all
of the terms of this Lease and fully perform its obligations hereunder, Tenant shall peaceably and
quietly enjoy each Leased Property for the Term hereof, free of any claim, interruption or other
action by Landlord or anyone claiming through Landlord, but subject to all Permitted Encumbrances.
No failure by Landlord to comply with the foregoing covenant shall give Tenant any right to abate,
reduce or make a deduction from or offset against the Rent or any other sum payable under this
Lease, or to fail to perform any other obligation of Tenant hereunder. Notwithstanding the
foregoing, Tenant shall have all rights and remedies available at law or in equity, except as
otherwise provided herein, by separate and independent action, to pursue any claim or claims it may
have against Landlord as a result of any breach by Landlord of the covenant of quiet enjoyment
contained in this Section 32.

     33. Notices. 

          All notices, demands, requests, consents, approvals and other communications hereunder shall
be in writing and delivered (i) by certified mail, return receipt requested, in which case such
notice shall be deemed received three Business Days after its deposit, (ii) by confirmed facsimile,
in which case such notice shall be deemed received the next Business Day, or (iii) by reputable
nationally recognized overnight courier service, in which case such notice shall be deemed received
the next Business Day, addressed to the respective parties, as follows:

	 	(a)	 	if to any Tenant:
	 
	 	 	 	Assisted Living Concepts, Inc.

W140 N8981 Lilly Road

Menomonee Falls, WI 53051

Attention: Chief Financial Officer

Facsimile: (262) 251-7562

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	 	 	 	with a copy to:
	 
	 	 	 	Assisted Living Concepts, Inc.

W140 N8981 Lilly Road

Menomonee Falls, WI 53051

Attention: General Counsel

Facsimile: (262) 251-7627
	 
	 	(b)	 	if to Landlord:
	 
	 	 	 	Ventas Realty, Limited Partnership

c/o Ventas, Inc.

111 South Wacker Drive, Suite 4800

Chicago, Illinois 60606

Attention: Lease Administration

Facsimile: (312) 596-3850
	 
	 	 	 	with a copy to:
	 
	 	 	 	Ventas Realty, Limited Partnership

c/o Ventas, Inc.

10350 Ormsby Park Place, Suite 300

Louisville, Kentucky 40223

Attention: General Counsel

Facsimile: (502) 357-9001

          or to such other address as either party may hereunder designate in writing.

     34. General REIT Provisions. 

          Tenant understands that, in order for Landlord’s general partner, Ventas, Inc., to qualify as
a REIT, certain requirements (the “REIT Requirements”) must be satisfied, including, without
limitation, the provisions of Section 856 of the Code. Accordingly, Tenant agrees, and agrees to
cause its Affiliates, permitted subtenants, if any, and any other parties subject to its control by
ownership or contract, to reasonably cooperate with Landlord to ensure that the REIT Requirements
are satisfied, including, but not limited to, providing Landlord or Ventas, Inc. with information
about the ownership of Tenant and its Affiliates. Tenant agrees, and agrees to cause its
Affiliates, upon request by Landlord or Ventas, Inc., to take all action reasonably necessary to
ensure compliance with the REIT Requirements.

     35. Transfer of Tenant’s Personal Property. 

          Upon the expiration or earlier termination of this Lease (or, if applicable, Tenant’s right of
possession) with respect to a Leased Property (unless such termination is the result of Tenant’s
purchase of such Leased Property), all Tenant’s Personal Property relating to such

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Leased Property shall become the property of Landlord, free of any lien, claim or encumbrance,
and Tenant shall, at its expense, take any actions reasonably necessary to discharge any applicable
lien, claim or encumbrance (and, relative to any Tenant’s Personal Property that is leased by
Tenant, Tenant agrees, at its expense, immediately to acquire title thereto, in order to be able to
convey title thereto to Landlord as provided in this Section 35). Subject to Section 21 hereof,
Landlord acknowledges and agrees that Tenant’s proprietary software, trademarks, accounts
receivable are not to be transferred to Landlord pursuant to this Section 35, and at Landlord’s
express written direction, Tenant’s automobiles and vans shall be transferred directly by Tenant to
Landlord’s designee Tenant shall execute and deliver such assignments, conveyance documents, bills
of sale and other instruments as Landlord shall reasonably require to evidence the conveyances and
transfers referenced in this Section 35 and otherwise reasonably assist Landlord with such
conveyances and transfers.

     36. Compliance With Environmental Laws.

          36.1. Hazardous Substances. Tenant shall not place or hold any Hazardous Substances
under, on or at any of the Leased Properties, except as is necessary or reasonable in the ordinary
course of its business for its Primary Intended Use. If Tenant’s business requires the use of any
Hazardous Substances, other than such materials as are typically found in healthcare facilities,
Tenant shall notify Landlord in writing and shall comply with hazard communication and notification
requirements of the Occupational Safety and Health Act and any other Environmental Laws with
respect to such Hazardous Substances. Tenant shall comply in all material respects with all
applicable Environmental Laws in connection with its use, operation and management of the Leased
Properties. Tenant shall not cause or allow any asbestos to be incorporated into any Leased
Improvements or Alterations that it makes or causes to be made on or to any of the Leased
Improvements. Tenant shall not use any of the Leased Properties as a treatment, storage, or
disposal (whether permanent or temporary) facility for Hazardous Substances as defined under RCRA
such that a permit therefor would be required under RCRA. If Tenant, in the ordinary course of its
business, generates Hazardous Substances, then Tenant shall comply with all Environmental Laws
relating to the use, storage, transportation and disposal of Hazardous Substances. Tenant further
agrees that it shall properly, and in compliance in all material respects with all applicable
Environmental Laws, dispose of all “infectious waste” such as, without limitation, laboratory
waste, pathological waste, blood specimens or products, resident or patient waste, including,
without limitation, bandages and disposable gowns, sharp waste and any material generated by the
production or testing of biological agents. All of the terms, covenants, warranties and
indemnifications contained in this Section 36 shall survive the expiration or sooner termination of
this Lease (or, if applicable, Tenant’s right of possession).

          36.2. Remediation; Notification. If Tenant becomes aware of a material violation of
any Environmental Laws relating to any Hazardous Substance or otherwise in, on, under or about any
Leased Property, or if Tenant, Landlord or a Leased Property becomes subject to any order of any
federal, state or local agency to repair, close, detoxify, decontaminate or otherwise remediate a
Leased Property, Tenant shall promptly notify Landlord of such event and, at its sole cost and
expense, cure such violation or effect such repair, closure, detoxification, decontamination or
other remediation, which activities shall in all events be performed in accordance with all
applicable Environmental Laws and shall be subject to Landlord’s written

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approval as to their scope, process, content and standard for completion prior to their
commencement, such approval not to be unreasonably withheld or delayed, and in no event shall
Landlord prevent Tenant from timely complying with applicable Environmental Laws. If Tenant fails
to implement and diligently pursue any such cure, repair, closure, detoxification, decontamination
or other remediation as required under this Section 36.2, or if applicable, to contest such order
in accordance with Section 13 above, Landlord shall have the right, but not the obligation, to
carry out such action and to recover from Tenant all of Landlord’s reasonable costs and expenses
incurred directly in connection therewith. Each of Landlord and Tenant shall promptly notify the
other upon becoming aware (or being notified) of (i) any claims, suits, proceedings, investigations
or written demands, or any enforcement, cleanup or other regulatory or judicial action, threatened,
made, or initiated against or involving it and relating to any of the Leased Properties pursuant to
any applicable Environmental Laws, including, without limitation, those relating to the presence,
treatment, storage, handling, disposal, generation, spill, release or discharge of any Hazardous
Substances on, at, in, under or about the Leased Properties or the migration thereof from or to any
other property; and (ii) the imposition of any lien arising under applicable Environmental Laws on
any of the Leased Properties.

          36.3. Indemnity. Tenant shall indemnify, defend, protect, save, hold Landlord and all
of the Landlord Indemnified Parties harmless from and against any and all Losses suffered or
incurred by Landlord or any Landlord Indemnified Parties in connection with, arising out of,
resulting from or incident to: (i) the production, use, generation, storage, treatment,
transporting, disposal, discharge, release or other handling or disposition of any Hazardous
Substances from, in, on or about any of the Leased Properties, whenever caused, arising or
occurring, except to the extent caused by Landlord or any of the Landlord Indemnified Parties from
and after the date hereof; (ii) the presence of any Hazardous Substances in, on, under or about any
Leased Properties before the Commencement Date or during the Term; (iii) the violation of any
Environmental Laws with respect to any Leased Property during the Term or prior to the Commencement
Date; and (iv) any breach by Tenant or any Tenant Parties of this Section 36.

          36.4. Environmental Inspection. Landlord shall have the right, upon not less than
five Business Days’ written notice to Tenant, except in the case of an emergency, in which event no
notice shall be required, to conduct an inspection of any Leased Property as may reasonably be
necessary to determine the existence or presence of Hazardous Substances at, in, on, under or about
any Leased Property in violation of any applicable Environmental Laws or the existence at any
Leased Property of any violation of any applicable Environmental Laws. Landlord shall have the
right to enter and inspect any Leased Property and to conduct any testing, sampling and analyses
reasonably necessary and shall further have the right to inspect materials brought into any Leased
Property. Landlord may, in its reasonable discretion, retain such experts to conduct the
inspections, or perform the tests, referred to herein, and to prepare a written report in
connection therewith. Landlord shall have the right to inspect the Leased Properties with regard
to the management and disposal of Hazardous Substances at all reasonable times during the Term.
All reasonable costs and expenses incurred by Landlord under this Section 36.4 shall be paid by
Tenant and shall be deemed to constitute Consent Expenses (i) if such tests or inspections are done
after the start of the last year of the Term and are in preparation for the Term expiring, (ii) if
such costs or expenses are incurred in connection with or during the continuance of an Event of
Default, (iii) if there is any remediation of

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Hazardous Substances ongoing or necessary at or about any Leased Premises or (iv) Landlord had
a good faith reason to perform such tests or inspections, including without limitation, receipt of
any notice indicating there may be Hazardous Substances present at any Leased Premises in violation
of an applicable Environmental Law.

          36.5. Removal. Upon the earlier of the expiration or earlier termination of this
Lease (or, if applicable, Tenant’s right of possession) as to one or more Leased Properties, Tenant
shall forthwith remove all Hazardous Substances from any portion of the Leased Properties as to
which such expiration or termination relates, to the extent required by any applicable
Environmental Law or to the extent such Hazardous Substances (excluding small quantities of
cleaning supplies or other office supplies typically used at facilities such as the Leased Premises
and which are in appropriate safe containers) were brought onto or released at the applicable
Leased Premises on or before such expiration or earlier termination which removal shall be
performed in accordance with any Environmental Laws and to Landlord’s satisfaction.

          36.6. Environmental Representations and Warranties. This Section 36 contains the
exclusive representations and warranties by Tennant regarding Hazardous Substances and
Environmental Laws in this Lease.

     37. Operational Transfer.

          37.1. Exercise; Transfer of Authorizations.

               37.1.1. Exercise. Upon (i) the expiration of this Lease as to any Leased
Property in
accordance with its terms as of the Expiration Date applicable to such Leased Property or (ii) the
occurrence of an Early Termination Event as to any Leased Property (including any Deleted
Property), Landlord shall have the unequivocal, unilateral right to require an Operational Transfer
with respect to such Leased Property (any Leased Property with respect to which Landlord elects to
require an Operational Transfer, a “Transition Property”) by delivery of written notice to Tenant
specifying such election (a “Transition Notice”). Landlord may exercise (in its sole
discretion) its right to require an Operational Transfer, with respect to any Leased Property with
respect to which this Lease will terminate by its terms as of the Expiration Date applicable to
such Leased Property, by delivering a Transition Notice on or prior to 30 days prior to such
Expiration Date. In the event of an Early Termination Event as to any Leased Property as a result
of an Event of Default, Landlord may exercise in its sole discretion) its right to require an
Operational Transfer with respect to such Leased Property at any time (but in any event prior to
the Expiration Date) by delivering a Transition Notice to Tenant.

               37.1.2. Transfer of Authorizations. If Landlord exercises its right to require
an
Operational Transfer with respect to a particular Leased Property(ies), Tenant shall take any and
all necessary actions; file such transfer notices that are required by applicable law to be filed
by Tenant; make such assignments, conveyances and transfers of permits, licenses, approvals and
Facility Provider Agreements issued to Tenant to and for the benefit of Landlord and/or any
Landlord’s designee (any such designee, a “Successor Operator”) to the extent the same are
permitted by applicable law; and cooperate to have such permits, licenses, approvals and Facility
Provider Agreements to be issued to and for the benefit of Landlord and/or any

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Successor Operator, in any and all such cases as are necessary, such that the day-to-day
operations of the Transition Property(ies) for the Primary Intended Use(s) of the
Facility(ies) located on such Transition Property(ies) are transferred and transitioned,
practically and legally, to Landlord and/or any Successor Operator simultaneously with the
termination or earlier expiration of this Lease (or, if applicable, termination of Tenant’s right
of possession) as to the Transition Property(ies) without interruption of the business activities
therein, regulatory or otherwise (such transfer of operations, an “Operational Transfer”);
provided, however, Tenant shall not be required to make any filings on behalf of Landlord or any
Successor Operator (but Tenant shall cooperate with Landlord and any Successor Operator to permit
them to make their filings). Without limitation of the foregoing or any other rights of Landlord
or any Successor Operator as set forth in this Section 37, as part of any Operational Transfer,
Tenant shall, to the extent permitted by applicable law, (i) sell, transfer, convey and assign to
Landlord and/or any Successor Operator, as applicable, those of the Authorizations that Landlord
elects to assume and accept (or cause Successor Operator to assume and accept) (the “Assigned
Authorizations”) or allow Landlord or any Successor Operator to continue to rely upon any
Authorizations (including, but not limited to, any Facility Provider Agreements); (ii) cooperate to
enable Landlord and/or Successor Operator to apply for and obtain any and all licenses, operating
permits, Provider Agreements, provider status, certificates of need, certificates of exemption,
approvals, waivers, variances and other governmental, quasi-governmental and private authorizations
necessary or advisable for the continuous operation of the Facility(ies) located on each Transition
Property for its/their Primary Intended Use(s) (collectively, “Transfer Authorizations”);
(iii) assign to Landlord or any Successor Operator, as applicable, such assignable patient, vendor,
service provider and other contracts relating to the Facility(ies) located on each Transition
Property as Landlord or any Successor Operator may request (the “Assigned Contracts”); (iv) if
requested by Landlord, enter into an operations transfer agreement with Landlord or Successor
Operator, as applicable, that is reasonably acceptable to Landlord and Tenant; (v) not unreasonably
withhold, condition or delay its consent to entering into any interim sublease or management
agreements as may be necessary to effectuate an early transfer of the operations of the
Facility(ies) located on each Transition Property for its/their Primary Intended Use(s) prior to
the time that Landlord or Successor Operator, as applicable, holds all Authorizations from all
applicable Governmental Authorities necessary to so operate such Facility(ies), provided that if
the Operational Transfer did not result from an Event of Default, Tenant is compensated for any
such management duties in an amount equal to the management fees Tenant is obligated to pay the
applicable Manager, or as to a sublease, that Tenant is indemnified and held harmless, to its
reasonable satisfaction, as to the activities of the Successor Operator at the subject Facility
during the term of such sublease; and (vi) indemnify, defend, protect and hold harmless Landlord
and any Successor Operator from and against any loss, damage, cost or expense incurred by Landlord
or Successor Operator in connection with the correction of any and all deficiencies of a physical
nature identified by any Governmental Authority in the course of any Operational Transfer that
existed during the period prior to the Operational Transfer. Notwithstanding anything contained
herein to the contrary, unless the Operational Transfer results from an Event of Default, Tenant
shall not be obligated to incur any out-of-pocket expense to perform any action under this Section
37.1.2 that is not otherwise required of Tenant by applicable law unless Landlord agrees to
reimburse Tenant therefor. It is the express intention of the parties that, at the expiration or
earlier termination of the Term as to each Transition Property, and upon any dispossession of
Tenant in connection

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 with any Event of Default as to any Facility(ies) located on a Transition Property, any and
all Authorizations needed to operate each Transition Property as to which the Term is expired or
terminated, or as to which Tenant has been dispossessed, for its/their Primary Intended
Use(s) shall, to the maximum extent permitted by applicable law, and if Landlord so elects, remain
with such Facility(ies) and shall be transferred into the name of Landlord and/or Successor
Operator, as applicable, regardless of whether any such Authorization is in the name of Tenant at
any time during the Term.

          37.2. Reasonable Assistance. In anticipation of the expiration of this Lease as to
any Leased Property, or upon any Early Termination Event as to any Leased Property, Tenant shall
cooperate with Landlord in all respects to facilitate and effectuate an Operational Transfer if
Landlord elects to require an Operational Transfer. Such cooperation shall include, without
limitation: (i) furnishing to Landlord or any prospective Successor Operator complete and accurate
books, records, files, documents and information in Tenant’s possession, custody or control
necessary or reasonably requested by Landlord or Successor Operator in connection with any
Operational Transfer, the assessment and/or assumption of the operations of any Transition
Property(ies) and/or the completion and processing of any applications for the assignment of the
Assigned Authorizations or the Assigned Contracts or obtaining Transfer Authorizations; and
(ii) facilitating the evaluation and employment by Landlord or any prospective Successor Operator
of such employees of Tenant or its Affiliates (or any third party employment agency with whom
Tenant or its Affiliates has an agreement pursuant to which such agency employs such parties) as
Landlord or Successor Operator may elect to evaluate or employ, including, without limitation, to
the extent permitted by law, affording Landlord or Successor Operator, as applicable, access to all
relevant personnel files, records, documents and information in Tenant’s or its Affiliates’
possession, custody or control.

          37.3. Facility Termination; Limited Term Contraction Right; Limited Extended Operation by
Tenant.

               37.3.1. Facility Termination. Notwithstanding anything to the contrary
contained in
this Lease, Tenant shall not, prior to the 30th day preceding the Expiration Date
applicable to each Leased Property, commence to wind up and terminate the operations of the
Facility(ies) operated thereon (a “Facility Termination”). In no event, and under no
circumstances, shall any Tenant relocate the patients or occupants of any Facility to any other
healthcare facility without obtaining Landlord’s prior written consent (which consent may be
withheld in Landlord’s sole discretion); provided, however, that, if Landlord has
not delivered a Transition Notice to Tenant prior to the 30th day preceding the
Expiration Date applicable under this Lease to a particular Leased Property, then Tenant may
commence the Facility Termination (including the relocation of patients) as to the
Facility(ies) located on such Leased Property and, upon the expiration of this Lease as to such
Leased Property and Facility(ies), Tenant shall vacate such Leased Property and surrender
possession thereof to Landlord in accordance with all of the applicable requirements of this Lease.
If, prior to the 30th day preceding the Expiration Date applicable under this Lease to
a particular Leased Property, Landlord elects to require an Operational Transfer by delivering a
Transition Notice to Tenant, Tenant shall not commence or otherwise engage in a Facility
Termination with respect to the Facility(ies) located on such Leased Property. In the event of an
Early Termination Event with respect to any Leased Property, Tenant shall in no event commence a
Facility Termination in connection with the

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applicable Leased Property unless and until Landlord affirmatively elects, in writing and in its
sole discretion, not to deliver a Transition Notice with respect to such Leased Property.

               37.3.2. Limited Term Contraction Right. Subject to the following sentence,
Landlord
shall have the right, as to each Leased Property, to elect to contract the Term, and accelerate the
Expiration Date, of this Lease as it applies to such Leased Property; provided, with respect to the
initial Term and the first Extended Term, absent the continuation of an Event of Default, Landlord
shall not make such election unless Tenant has not given notice of its election to extend the Term
pursuant to Section 43.1. To exercise such election and right as to a particular Leased Property,
Landlord shall give a written notice (a “Contraction Notice”) to Tenant specifying the revised,
earlier Expiration Date that will, for all purposes of this Lease, thereafter be applicable to such
Leased Property, which revised, earlier Expiration Date so specified by Landlord shall be (i) not
more than 120 days prior to the Expiration Date that was applicable to such Leased Property
immediately prior to Landlord’s Contraction Notice with respect thereto, (ii) no sooner than 60
days after the date of Landlord’s aforesaid Contraction Notice, and (iii) binding upon Landlord and
Tenant upon Landlord’s issuance of such Contraction Notice. Landlord may issue one, but not more
than one, Contraction Notice as to each Leased Property.

               37.3.3. Limited Extended Operation by Tenant. In the event Landlord delivers a
Transition Notice as to a particular Transition Property, Tenant shall thereafter operate the
Facility(ies) located on such Transition Property in accordance with all of the requirements of
this Lease until the earliest to occur of (i) the date (on or after the expiration of this Lease as
to such Transition Property and Facility(ies)) on which Landlord or Successor Operator, as
applicable, will assume the operation of such Facility(ies), as specified in a written notice from
Landlord to Tenant given not less than 15 days prior to the date of such assumption; (ii) the date
that is 120 days after the Expiration Date applicable to such Transition Property and Facility(ies)
(except that in connection with any Early Termination Event or any early dispossession of Tenant
with respect to any Leased Property, such 120 day period shall not commence until Landlord delivers
a Transition Notice as to the applicable Leased Property); (iii) the date (on or after the
Expiration Date applicable to any Transition Property and Facility(ies)) that is 90 days after
Tenant receives written notice from Landlord that, notwithstanding the foregoing, Tenant may
commence the Facility Termination; on which earliest date, Tenant shall vacate the Leased Property
in question and surrender possession thereof to Landlord in accordance with all of the applicable
requirements of this Lease. Notwithstanding the foregoing provisions of this Section 37.3.3 to the
contrary, in the case of the expiration of the Term of this Lease at its then scheduled Expiration
Date (without regard to acceleration of the Expiration Date pursuant to Section 37.3.2) and the
absence of any continuing Event of Default, Landlord shall not have the right to extend the Term
beyond the Expiration Date. The terms of this Section 37 shall survive the expiration or sooner
termination of this Lease (or, if applicable, Tenant’s right of possession).

          37.4. Use of Tenant’s Names. Without limitation of the other provisions of this
Section 37 and notwithstanding anything to the contrary contained in this Lease, Tenant agrees to
allow Landlord or any Successor Operator, at its option and at no cost to Landlord or any such
Successor Operator, to continue to use, in its signage, marketing and advertising

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materials, operations and otherwise, any or all name(s) (including, without limitation, trade
names) associated with the operation of a particular Leased Property and related Facility(ies) as a
going concern for up to 120 days following (i) the expiration or termination of this Lease (or, if
applicable, Tenant’s right of possession) as it applies to such Leased Property and Facility(ies)
and (ii) the vacation from, and surrender of, such Leased Property and Facility(ies) by Tenant in
accordance with this Section 37 and the other requirements of this Lease. At the end of such 120
period, or upon sooner written notice from Landlord to Tenant, Tenant shall, promptly and at its
expense, remove its aforesaid name(s) (but not any trade names associated with the operation of the
Facilities, which trade names Landlord or any subsequent owner or tenant may continue to use) from
all signs and other Leased Improvements at such Leased Property and Facility(ies) and repair any
damage to such signs or other Leased Improvements caused by such removal. Landlord acknowledges
and agrees that Tenant, not Landlord, owns the aforesaid names and that neither Landlord nor any
Successor Operator may use the same except as described in this Section 37.4 or as otherwise agreed
in writing by Tenant.

     38. Non-Recourse.

          Tenant specifically agrees to look solely to Landlord’s and any successor owner’s interest in
the then applicable Premises for recovery of any judgment from Landlord, it being specifically
agreed that neither Landlord, any such successor owner, nor any officer, director, employee,
lender, agent or Affiliate of Landlord or any such successor owner shall ever be personally liable
for any such judgment or for the payment of any monetary obligation to Tenant. Tenant shall have
no recourse against any other property or assets of Landlord or any successor owner, or against any
property or assets of any officer, director, employee, lender, agent or Affiliate of Landlord or
any successor owner. Furthermore, in no event shall Landlord (original or successor) ever be
liable to Tenant for any special, indirect or consequential damages suffered by Tenant from
whatever cause.

     39. Reserved.

     40. Additional Condo Units.

          Pursuant to the P&S Agreement, Landlord may acquire certain Additional Condo Units (as defined
in the P&S Agreement) after the Commencement Date. If Landlord does so pursuant to the P&S
Agreement, then automatically and without amendment of this Lease: (i) each such Additional Condo
Unit shall become part of the Premises and part of the Leased Property located in Montgomery,
Alabama to be operated by CVMA; (ii) the Fixed Rent per annum shall be increased by 9.2% of the
Purchase Price (as defined in the P&S Agreement) paid by Landlord for each such Additional Condo
Unit, effective as of the date of the closing of each such acquisition; (iii) Schedules 1.3, 2 and
3.1.2 and Exhibit A shall be revised accordingly by Landlord (and upon receipt by Tenant of such
revised schedules, and exhibit such revised schedules and exhibit shall automatically be deemed to
replace said schedules and exhibit attached to this Lease as of the Commencement Date); and (iv)
Landlord shall promptly notify Tenant if any escrow deposits required under Section 3.3 of this
Lease need to be increased as a result of such Additional Condo Unit(s) being added to this Lease
(each such Additional Condo Unit being considered as a “unit” for purposes of Section 11.3.1.

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     41. Restrictive Covenant. 

          Tenant, Guarantor and their respective Affiliates shall be subject to the restrictive
covenants and conditions governing the ownership, leasing, management or operation of additional
healthcare facilities contained in Exhibit F attached hereto and any violation of the provisions of
Exhibit F shall be deemed a default by Tenant under this Lease.

     42. Miscellaneous.

          42.1. Survival. Anything contained in this Lease to the contrary notwithstanding, all
claims against, and liabilities of, Tenant or Landlord arising prior to any date of expiration or
termination of this Lease (or, if applicable, Tenant’s right of possession) shall survive such
expiration or termination, and, without limitation of the foregoing, Tenant’s obligation to pay any
Rent owing hereunder with respect to any period on or prior to the expiration or termination of
this Lease (or, if applicable, Tenant’s right of possession), as this Lease applies to any or all
of the Premises, shall survive any such expiration or termination.

          42.2. Non-Business Day Payments. Notwithstanding anything herein to the contrary, if
any payment required to be made hereunder falls on a date that is not a Business Day, then such
required payment shall be made on the Business Day immediately preceding the date on which such
payment would otherwise be due.

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

          42.4. Headings. The headings in this Lease are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.

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

          42.6. Integration; Modification; Interpretation. This Lease (including, without
limitation, the preamble, recitals, schedules and exhibits hereto, each of which is fully
incorporated into and made a part of this Lease) contains the entire agreement between Landlord and
Tenant with respect to the subject matter hereof. Landlord and Tenant hereby agree that all prior
or contemporaneous oral understandings, agreements or negotiations relative to the leasing of the
Premises are merged into and revoked by this Lease. No representations, warranties or agreements
have been made by Landlord or Tenant except as set forth in this Lease or in the P&S Agreement.
This Lease may only be modified by a writing signed by both Landlord and Tenant. Both Landlord and
Tenant have been represented by counsel, and this Lease and every

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provision hereof has been freely and fairly negotiated. Consequently, all provisions of this
Lease shall be interpreted according to their fair meaning and shall not be strictly construed
against any party. Landlord and Tenant agree that nothing contained in any P&S Agreement shall
abrogate or impair any of the rights, duties and obligations of Landlord and Tenant under this
Lease and that, in the event of any conflict between the terms and provisions of this Lease and the
terms and provisions of any P&S Agreement, the terms and provisions of this Lease shall govern.

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

          42.8. Force Majeure. In the event that either Landlord or Tenant is delayed in
performing its respective obligations pursuant to this Lease by any cause beyond the reasonable
control of the party required to perform such obligation, the time period for performing such
obligation shall be extended by a period of time equal to the period of the delay. For purposes of
this Lease: (i) a cause shall be beyond the reasonable control of a party to this Lease when such
cause would affect any Person similarly situated (such as a power outage, labor strike, Act of God
or trucker’s strike) but shall not be beyond the reasonable control of such party when peculiar to
such party (such as financial inability or failure to order long lead time material sufficiently in
advance); (ii) this Section shall not apply to any obligation to pay money or otherwise perform any
financial obligation hereunder; and (iii) in the event of any occurrence that a party believes
constitutes a cause beyond the reasonable control of such party and that will delay any performance
by such party, such party shall promptly in writing notify the other party of the occurrence and
nature of such cause, the anticipated period of delay and the steps being taken by such party to
mitigate the effects of such delay.

          42.9. Severability; Maximum Rate. If any term or provision of this Lease is held or
deemed to be invalid or unenforceable, such term or provision shall be modified as slightly as
possible so as to render it valid and enforceable; if such term or provision, as modified, shall be
held or deemed invalid or unenforceable, such holding shall not affect the remainder of this Lease
and same shall remain in full force and effect. If any late charges or interest computations
provided for in any provision of this Lease are based upon a rate in excess of the maximum rate
permitted by applicable law, the parties agree that such charges or interest computations shall be
fixed at the maximum permissible rate.

          42.10. Governing Law; Venue. This Lease was negotiated in the State of Illinois,
which State the parties agree has a substantial relationship to the parties and to the underlying
transaction embodied hereby. In all respects, the internal laws of the State of Illinois (without
regard to principles of conflicts of laws) and any applicable laws of the United States of America
shall govern the validity, enforceability and construction of the obligations of the parties set
forth herein, but all provisions hereof relating to the creation of the leasehold estate and
remedies set forth in Section 17 shall be governed by the laws of the State in which each
applicable Leased Property that is the subject of dispute is located. The parties hereto will
submit to jurisdiction and the laying of venue for any suit on this Lease in the State of Illinois.

          42.11. 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. EACH OF
LANDLORD AND

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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 (ii) IN ANY MANNER CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF LANDLORD AND TENANT WITH RESPECT TO THIS LEASE 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 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 SUCH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.

          42.12. Waivers; Forbearance. All waivers, consents and releases provided for in this
Lease are effective only to the extent permitted by applicable law. No waiver of any condition or
covenant herein contained, or of any breach of any such condition or covenant, shall be held or
taken to be a waiver of any subsequent breach of such covenant or condition, or to permit or excuse
its continuance or any future breach thereof, or of Landlord’s right to terminate this Lease or
exercise any other remedy granted herein on account of such existing breach. No delay or omission
by either party hereto to exercise any right or power accruing upon any noncompliance or breach by
the other party with respect to any of the terms hereof shall impair any such right or power or be
construed to be a waiver thereof.

          42.13. Binding Character. This Lease shall be binding upon and shall inure to the
benefit of the heirs, successors, personal representatives, and permitted assigns of Landlord and
Tenant.

     43. Extension Options.

          43.1. Exercise of Extension Options. Tenant is hereby granted the right to extend the
Term of this Lease, with respect to all, but not less than all, of the Premises for three 5-year
periods (collectively the “Extended Terms” and each an “Extended Term") upon giving written notice
to Landlord of each such extension at least nine months but not more than 18 months ( or in the
event of a Casualty to which Section 15.3 pertains, within 30 days after notice from Landlord of
Landlord’s intention to terminate this Lease (as to such affected Facility) prior to the
termination of the then current Term, provided and on the conditions that, at the time Tenant gives
an extension notice as set forth above and at the time of the commencement of the applicable
Extended Term, (a) an Event of Default shall not have occurred and be continuing under this Lease
and (b) Tenant provides reasonable evidence to Landlord that the Management Agreements shall be
extended for a period concurrent with the applicable Extended Term. Tenant may not exercise its
option or more than one Extended Term at a time.

          43.2. Extension Terms. During each Extended Term, all of the terms and conditions of
this Lease shall continue in full force and effect, subject, however, to the following provisions.

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               43.2.1. First Extended Term. In the case of the first Extended Term
(i) Tenant shall
have only two further options to extend the Term pursuant to Section 43.1, (ii) the Fixed Rent for
the first Lease Year of such Extended term shall equal 103% of the Fixed Rent for the immediately
prior Lease Year, and (iii) the Fixed Rent for each subsequent Lease Year of the first Extended
Term shall increase in accordance with the escalation provisions set forth in Section 3.1.2 of this
Lease.

               43.2.2. Second Extended Term. In the case of the second Extended Term
(i) Tenant
shall have only one further option to extend the Term pursuant to Section 43.1, and (ii) the Fixed
Rent for the first Lease Year of such Extended Term, and for each Lease Year thereafter during such
Extended Term, shall be an amount equal to the sum of (x) the Prior Period Fixed Rent applicable to
such Lease Year, plus (y) the product of (a) the Prior Period Fixed Rent applicable to such Lease
Year and (b) provided the Rent Escalation Condition has been satisfied with respect to such Lease
Year (with respect to each Lease Year during such second Extended Term other than the first Lease
Year), the amount equal to the greater of (1) 3% or (2) 75% of the CPI Increase, expressed as a
percentage, for such Lease Year for which such calculation is being performed.

               43.2.3. Third Extended Term. In the case of the third Extended Term,
(i) Tenant shall
have no further option to extend the Term pursuant to Section 43.1, (ii) the Fixed Rent for the
first Lease year of such Extended Term shall be the greater of the Fixed Rent for the immediately
prior Lease Year and the Fair Market Rental of the Premises (as determined in accordance with
Section 43.3 hereof), and (iii) the Fixed Rent for each subsequent Lease Year of the third
Extended Term shall increase in accordance with the escalation provisions set forth in Section
3.1.2 of this Lease.

          43.3. Fair Market Rental Determination. At any time after receipt from Tenant of a
notice of extension under Section 43.1 hereof for the third Extended Term, Landlord may, by written
notice to Tenant, request that the Fair Market Rental of the Premises, and the Fair Market Rental
of each Leased Property within the Premises, be determined by appraisal under the procedures of
Exhibit I attached hereto and in such event such Fair Market Rentals shall be so determined in
accordance with the procedures of such Exhibit I.

          43.4. Extended Period Tenant’s Proportionate Shares. If Fixed Rent for the first
Lease Year of the third Extended Term is based upon the Fair Market Rental of the Premises as
determined pursuant to Section 43.3 and Exhibit I hereof, then, effective as of the first day of
such Extended Term, Schedule 2 attached hereto shall be revised so as to allocate the aggregate
Fixed Rent payable hereunder to the individual Leased Properties covered by this Lease, and to
assign Tenant’s Proportionate Shares to such Leased Properties, in a manner that is consistent with
the respective Fair Market Rentals of such Leased Properties as determined pursuant to Section 43.3
and Exhibit I hereof.

     44. Special Purpose Entity Obligations.

          Tenant agrees to comply with the representations, warranties and covenants set forth in
Exhibit H attached hereto.

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     45. Memoranda of Lease.

          Landlord and Tenant shall, promptly upon the request of either, enter into short form
memoranda of this Lease, in form suitable for recording under the laws of the State in which each
Leased Property is located, in which reference to this Lease, and all extension options contained
herein, shall be made. Tenant shall pay all costs and expenses of preparing and recording any such
Memoranda of Lease or amendments thereto and for releasing any such Memorandum of Lease that relate
to a particular Leased Property upon any expiration or termination of this Lease as it relates to
any such Leased Property.

     46. Confidentiality.

          46.1. Confidentiality. Each of Landlord and Tenant agrees that, except as otherwise
provided in this Section 46, all Information (as defined below) provided by Landlord to Tenant or
by Tenant to Landlord (the party providing Information being referred to as “Disclosing Party” and
the party receiving Information being referred to as “Recipient”) will be kept confidential and
will not, without Disclosing Party’s prior written consent, be disclosed by Recipient, in whole or
in part, to any Person.

          46.2. Permitted Disclosures. Recipient may disclose Information:

     (i) to those of Recipient’s officers, directors and employees who are
informed by Recipient of the confidential nature of the Information and who
agree, for Disclosing Party’s benefit, to act in accordance with the terms
and conditions of this Section 46; Recipient will be responsible for any
breach of this Section 46 by such persons; or

     (ii) in the case where Landlord is the Recipient:

	 	(a)	 	to the extent the Information is
both (x) of a financial, operating, regulatory, business or
similar nature, and (y) has been aggregated to relate to this
Lease, a jurisdiction or jurisdictions (such as a state or
region) or any other category; or
	 
	 	(b)	 	to the extent the Information
either:

     (w) is provided to Facility Mortgagees, prospective Facility
Mortgagees, purchasers, prospective purchasers, tenants or
prospective tenants of a Leased Property(ies); provided that
any such party listed in this clause (w) who receives such
Information is informed by Landlord of the confidential nature of the
Information and agrees with Landlord to keep such Information
confidential pursuant to a standard confidentiality agreement; and
provided further that such Information may be disclosed to tenants or
prospective tenants only if (i) Tenant has not, at least nine months
prior to the expiration of the then current Term, given to Landlord
written notice of Tenant’s intention to extend the Term of

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this Lease, (ii) an Event of Default has occurred, (iii) Tenant
has provided Landlord with a written indication that it does not
intend to extend the Term of this Lease, or (iv) during the last nine
months of the second Extended Term; or

     (x) is disclosed in connection with or following a sale,
closure, material casualty, default or prospective default with
respect to a Leased Property(ies); or

     (y) relates to the location or size of, or the number of
licensed beds at, a Leased Property(ies); or

     (z) is of the type customarily disclosed by a public healthcare
real estate investment trust; or

     (i) to the extent Recipient reasonably determines that disclosure of
the Information is required by any Legal Requirement applicable to Recipient
or any applicable rule, regulation, or requirement of any securities
exchange on which the Recipient’s securities are listed or admitted for
trading (a “Disclosure Law”) pursuant to the procedures set forth in Section
46.7 below; or

     (ii) in connection with any proceeding in which Recipient is attempting
to protect or enforce any rights and/or remedies in connection with this
Lease or any of the Other Leases, but only to the extent necessary to
protect or enforce such rights and/or remedies; or

     (iii) to any person in a confidential relationship with Recipient,
including Recipient’s auditors, advisors, consultants, lawyers, and others
who agree with Recipient to be bound by a standard confidentiality
agreement, such as lenders, prospective lenders, purchasers, potential
purchasers, tenants and prospective tenants; provided,
however, that Recipient shall not be liable to Disclosing Party for
any breach by such persons of such confidential relationship or
confidentiality arrangements; or

     (iv) to the extent required by applicable law or regulation or
Governmental Authority or to the extent legally compelled to disclose any of
the Information pursuant to a subpoena or other legal process having the
force of law. Recipient will provide Disclosing Party with prompt notice so
that Disclosing Party or any of its representatives may seek a protective
order or other appropriate remedy. In the event that such protective order
or other remedy is not obtained, Recipient will furnish only that portion of
the Information which Recipient has been advised is legally required and
Recipient will exercise its reasonable efforts to attempt to obtain reliable
assurance that confidential treatment will be accorded the Information so to
be furnished. In any event, Recipient will

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cooperate with (and not oppose) any reasonable action by Disclosing
Party to obtain an appropriate protective order or other reliable assurance
that confidential treatment will be accorded such Information.

          46.3. Information. Information means (i) all and any data, reports, forecasts,
records, agreements and other information furnished after the Commencement Date by Disclosing Party
or by any of its representatives or advisors to Recipient that is both (x) material and
proprietary, and (y) in the case where Tenant is the Disclosing Party, that is required to be
furnished pursuant to Section 11.4 or Section 25.5 of this Lease and (ii) the economic terms and
provisions of this Lease.

          46.4. Excluded Information. The obligations under Section 46.1 will not apply to any
Information that (i) was known to Recipient prior to Disclosing Party’s disclosure of such
Information to Recipient (unless Recipient’s knowledge was obtained confidentially or from a source
that to Recipient’s knowledge was not permitted to disclose such Information to Recipient) or (ii)
becomes available to Recipient on a nonconfidential basis from a source (other than Disclosing
Party or any of its employees, agents, representatives or advisors) who to the knowledge of
Recipient is not prohibited from disclosing such Information to Recipient by any legal, contractual
or fiduciary obligation.

          46.5. Injunctive Relief. Recipient acknowledges that remedies at law may be
inadequate to protect against breach of the provisions of this Section 46, and Recipient hereby in
advance agrees that Disclosing Party shall not be obligated to establish actual damages or the
inadequacy of monetary damages in seeking an injunction. Such injunctive relief will not be deemed
to be the exclusive remedy for a breach by Recipient of the provisions of this Section, but will be
in addition to all other remedies available at law or equity to Disclosing Party.

          46.6. Intentionally Omitted.

          46.7. Disclosure Notice. In connection with any proposed disclosure pursuant to
Section 46.2(iii), Recipient shall provide Disclosing Party with advance written notice of the
proposed disclosure and shall set forth the Information to be disclosed, the proposed date of
disclosure (the “Disclosure Date”), the basis for such disclosure as well as the manner of such
disclosure (the “Disclosure Notice”). The Disclosure Notice shall be delivered to Disclosing Party
no later than the Disclosure Notification Date (as defined below). Recipient and Disclosing Party
shall cooperate with one another and negotiate in good faith to seek a mutually satisfactory
resolution with respect to such proposed disclosure. In the event Disclosing Party has not, prior
to the Disclosure Date, either (i) consented to the proposed disclosure (or such modified
disclosure as Recipient and Disclosing Party may mutually agree) or (ii) itself made disclosure of
the Information contained in such Disclosure Notice (or such modified disclosure as Recipient and
Disclosing Party may mutually agree), Recipient may disclose such Information to the extent and in
the manner set forth in such Disclosure Notice. “Disclosure Notification Date” shall mean the
latest of the following dates: (a) five Business Days prior to the Disclosure Date; and (b) in the
case of Section 46.2(iii), such shorter period of time prior to the Disclosure Date which is
reasonable (in light of the nature of the Information to be disclosed and the Disclosure Law
applicable thereto).

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     47. State Specific Provisions. 

          47.1. Radon Gas. Radon is a naturally occurring radioactive gas that, when it has
accumulated in a building in sufficient quantities, may present health risks to persons who are
exposed to it over time. Levels of radon that exceed federal and state guidelines have been found
in buildings in Florida. Additional information regarding radon and radon testing may be obtained
from your county health department.

          47.2. Notification. If and to the extent required by applicable law or regulation,
Tenant shall notify the residents of the Facilities, in writing, of the transfer of ownership
within 7 days of each Tenant’s receipt of the license with respect to its Facility, or otherwise
comply with all such requirements or time periods of applicable state law, including, but not
limited to, Florida.

          At Closing, if and to the extent required by applicable law or regulation, Tenant shall notify
each resident of the Facilities in writing of the manner in which Tenant is holding the resident’s
funds and state the name and address of the depository where the funds are being held, the amount
held, and type of funds credited, or otherwise comply with all such requirements of applicable
state law, including, but not limited to, Florida.

          47.3. Transfer of Resident Funds. As to the Facility in Florida, Tenant shall provide
proof that resident funds have been transferred in compliance with Fla. Admin. Code
58A-5.014 to the Agency for Health Care Administration at the time of its survey and prior to the
issuance of the Tenant’s license.

          47.4. Resident Statements. At Closing, if and to the extent required by applicable
law or regulation, Tenant shall provide to each resident of the Facilities a statement detailing
the amount and type of funds credited to the resident whom funds are held by the applicable
Facility, or otherwise comply with all such requirements of applicable state law, including, but
not limited to, Florida.

          47.5. Usufruct. This Lease gives Tenant the right to possess and enjoy the use of the
Premises subject to the terms and provisions of this Lease; no estate is conveyed by this Lease and
Tenant has only a usufruct that is not subject to levy and sale.

          47.6. Post-Closing Matters.

               47.6.1. Highland Terrace. Tenant represents and warrants that it or its
predecessor
in interest restriped or otherwise reconfigured the parking lot at the Premises known as Highland
Terrace located in Inverness, Florida in order to add one additional parking space within 90 days
of the Commencement Date, if necessary to comply with local zoning requirements.

               47.6.2. Cara Vita Village and Sanctuary. Tenant represents and warrants that it
or
its predecessor in interest, if required to bring the Leased Properties located in Montgomery,
Alabama and Acworth, Georgia into compliance with applicable zoning requirements, added such
additional parking at such Leased Properties as was necessary within six months of the Commencement
Date.

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     48. Substitution. 

          Provided that there is no Event of Default, nor any circumstances that with the giving of
notice, the passage of time or both would constitute an Event of Default, existing under the Lease,
and subject to the terms and conditions set forth in this Section 48, Tenant may substitute into
the Lease an assisted living facility or facilities owned and operated by ALC or an Affiliate of
ALC (a “Substitute Facility”) for Inverness and transfer ownership of such Substitute Facility to
Landlord, whereupon Landlord shall transfer ownership of Inverness to Tenant and pursuant to
documentation reference in Section 48.5, Inverness shall cease to be a Leased Property under the
Lease.

          48.1. Substitution Notice. Upon a minimum of 90 days prior written notice to Landlord
(a “Substitution Notice”, which Substitution Notice shall include the information called for in
Exhibit I) of Tenant’s intent to effect such substitution, Tenant shall have the right to
substitute into the Lease a Substitute Facility provided that the other provisions of this Section
48 have been complied with and all of the following additional conditions with regard to such
Substitute Facility are met both at the time of the Substitution Notice and at the time of the
closing of the substitution (any Substitute Facility satisfying said conditions shall be referred
to as a “Qualifying Substitute Facility”):

               48.1.1. Substitute Facility. The Substitute Facility: (x) has 39 or more
assisted
living or Alzheimer’s units; (y) does not have independent living or skilled nursing units; and (z)
was constructed in 1997 or later;

               48.1.2. EBITDARM. The EBITDARM of the Substitute Facility for each of
(x) the
trailing three months (y) the trailing 24 months, is equal to or greater than that of Inverness for
the comparable period and (z) no event or circumstance shall have occurred since the date 24 months
prior to the date of the Substitution Notice, or be existing, that could reasonably be expected to
have a material adverse effect on the EBITDARM of the Substitute Facility;

               48.1.3. Facility Encumbrances. The Substitute Facility is free of any
encumbrances or
liens other than municipal and zoning ordinances and agreements entered thereunder, recorded
building and use restrictions, recorded easements and similar matters of record, and unrecorded
leases and occupancy agreements (such matters affecting title, the “Facility Encumbrances”), none
of which, considered individually or on a combined basis, adversely affect or diminish the use,
value or operation of the Substitute Facility, and none of which differ materially in content,
purpose or effect from the Facility Encumbrances affecting title to Inverness;

               48.1.4. Compliance. The Substitute Facility shall be in compliance with all
state and
federal regulations, including all licensing and operating requirements, all state and local
building and zoning codes as of the date of construction, and all other requirements necessary to
operate the Substitute Facility as an assisted living facility;

               48.1.5. Change of Ownership. The Substitute Facility shall be in compliance
with all
requirements necessary to allow a change of ownership;

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               48.1.6. Compliance with Laws. The Substitute Facility shall be in material
compliance
with any applicable laws, rules or regulations governing the use, handling, storage and disposal of
hazardous substances and that prior to the substitution Tenant has delivered a Phase I
Environmental report dated no more than six months prior to the effective date of such substitution
evidencing such compliance and showing no other matters of environmental concern;

               48.1.7. Acceptance by Landlord. The Substitute Facility shall be acceptable to
Landlord in all material respects (as determined by Landlord in its reasonable discretion) after
Landlord has been provided (i) complete and unfettered access to such Substitute Facility to
conduct customary due diligence and (ii) complete and accurate copies of all documentation Landlord
may request with respect to such Substitute Facility. Landlord shall have 45 days following
delivery of all items in clause (ii) to determine whether such Substitute Facility is acceptable to
Landlord;

               48.1.8. Documentation. A current survey, title commitment and complete set of
documents affecting title to the Substitute Facility have been delivered to Landlord and approved
by Landlord in its reasonable discretion.

          48.2. Section 1031. Any substitution under this Lease shall be treated as an exchange
of property under Section 1031 of the Internal Revenue Code, with the result being that Landlord
shall be the owner of the real property and improvements thereon of the Qualifying Substitute
Facility and that Tenant shall be the owner of the real property and improvements thereon of
Inverness. In connection with the foregoing, Landlord shall have Inverness, on or before the date
of substitution, released from any and all liens or encumbrances (i) securing mortgage financing,
(ii) securing obligations unrelated to Inverness, or (iii) arising on or after the Commencement
Date (other than those caused by Tenant or not otherwise prohibited by this Lease). Subject to the
preceding sentence, at closing Tenant shall take Inverness “As is, where is and with all faults”
pursuant to a special warranty deed, with no representations or warranties being made by Landlord
except that Inverness is not encumbered by liens (i) securing mortgage financing, (ii) securing
obligations unrelated to Inverness, or (iii) arising on or after the Commencement Date (other than
those caused by Tenant or not otherwise prohibited by this Lease).

          48.3. Costs and Expenses. Tenant shall pay all of Landlord’s reasonable costs and
out-of-pocket expenses in connection with any proposed substitution hereunder, whether or not such
substitution is completed, excepting any principal and accrued interest to pay off mortgage debt or
monetary obligations secured by liens or encumbrances against Inverness that do not relate to
Inverness, (“Landlord’s Substitution Costs”), but including closing costs, all title insurance, due
diligence costs and legal fees and expenses, all acceleration or prepayment charges (but not
principal and accrued interest charges) incurred by Landlord in connection with effecting a payoff
of any liens or encumbrances; provided that Tenant shall not be obligated to pay any amount of
Landlord’s Substitution Costs, other than attorneys’ fees and costs, in excess of $25,000.00 unless
such amounts have been approved by Tenant prior to their incurrence, which approval will not be
unreasonably withheld. If Tenant withholds its approval of any such Landlord’s Substitution Costs
in excess of $25,000 that are commercially reasonable in scope and amount in light of the proposed
transaction and are costs customarily incurred in other

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similar transactions (“Substitution Reasonable Excess Costs”), Landlord shall have no
obligation with respect to any proposed transaction to which such costs relate. For example and to
avoid doubt, if Tenant has not approved any Substitution Reasonable Excess Costs in accordance with
the foregoing with respect to a proposed substitution, Landlord shall have no obligation to consent
to, proceed with, evaluate or allow such substitution until such Landlord’s Substitution Costs have
been approved by Tenant. If Tenant withholds its approval to any such Landlord’s Substitution
Costs in excess of $25,000 that are not Substitution Reasonable Excess Costs, Landlord shall not
have the right to cease evaluating a proposed substitution. Tenant shall have the right to inquire
of Landlord regarding the existence of, and Landlord shall either (i) provide a written statement
summarizing, the then currently applicable acceleration or prepayment charges associated with
payoff of any liens or encumbrances affecting Inverness, or (ii) a copy of the documents under
which such charges arise, the foregoing to be provided to Tenant prior to its election, if any, to
deliver a Substitution Notice to Landlord.

          48.4. Entire Consideration. Landlord and Tenant hereby agree that the substitution as
set forth in this Section 48 represents the entire consideration for such Qualifying Substitute
Facility and that there shall be no alteration of any Rent due under this Lease to Landlord, and
neither Landlord nor Tenant shall be entitled any other consideration whether in the form of cash
or otherwise.

          48.5. Transfer of Qualifying Substitute Facility. Any transfer of the Qualifying
Substitute Facility to Landlord shall occur pursuant to documentation acceptable to Ventas in its
sole and absolute discretion, which shall include, without limitation (i) customary
representations, warranties and covenants being made by the transferor of such Qualifying
Substitute Facility, (ii) customary indemnities with respect thereto from an entity with a net
worth reasonably acceptable to Ventas, (iii) conditions to closing (including the delivery of title
insurance and the absence of material adverse changes) of the type customarily demanded by Landlord
in acquisition transactions, and (iv) other closing procedures of the type customarily demanded by
Landlord in acquisition transactions. If Ventas so requests, prior to the commencement of the 45
day due diligence period referenced above, following the Substitution Notice the parties shall
enter into an Exchange Agreement in a form specified by Landlord that is consistent with the
requirements of this Section 48.

          48.6. Expedited Procedures. Promptly following receipt of the Substitution Notice,
Landlord shall undertake its evaluation of the proposed Substitute Facility and thereafter
diligently pursue such evaluation in good faith to completion as soon as reasonably possible, and
in any event within 45 days after receipt of (i) the Substitution Notice and (ii) receipt of all
other materials and information reasonably required by Landlord to evaluate the Substitute Facility
(including all materials specified in this Section 48). If Landlord fails to approve a proposed
Substitute Facility, it shall promptly so notify Tenant in writing. If Tenant disagrees with
Landlord’s decision and the parties are unable to resolve such disagreement, or if Landlord fails
to comply with its obligations set forth above, the matter shall be submitted to a court of
competent jurisdiction for resolution using whatever expedited judicial procedures are available
(provided, however, that Landlord shall not be deemed to have agreed to arbitration or to any
dispute resolution procedure in which Landlord waives or forfeits any procedural or substantive
rights to which it would otherwise be entitled).

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

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	LANDLORD:
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	VENTAS REALTY, LIMITED
	 	 	 	 	 	 	PARTNERSHIP, a Delaware limited
	 	 	 	 	 	 	partnership
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Witness:	 	 	 	 	 	By:	 	Ventas, Inc., a Delaware corporation, its	 	 
	 	 	 	 	 	 	 	 	sole General Partner	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	   	 	 	 	 	 	 	 	 	 	 
	Name:

	 	 	 	 	 	 	 	By:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Title:	 	 	 	 
	   	 	 	 	 	 	 	 	 	 	 
	Name:
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	TENANT:
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	ALC CVMA, LLC, a Wisconsin limited
	 	 	 	 	 	 	liability company
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Witness:	 	 	 	 	 	By:	 	ALC Operating, LLC, a Wisconsin limited	 	 
	 	 	 	 	 	 	 	 	liability company, its Manager	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	   	 	 	 	 	 	 	 	 	 	 
	Name:

	 	 	 	 	 	 	 	By:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	   	 	 	 	 	 	 	 	 	 	 
	Name:
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	ALC GGMG, LLC, a Wisconsin limited
	 	 	 	 	 	 	liability company
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Witness:	 	 	 	 	 	By:	 	ALC Operating, LLC, a Wisconsin limited	 	 
	 	 	 	 	 	 	 	 	liability company, its Manager	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	   	 	 	 	 	 	 	 	 	 	 
	Name:

	 	 	 	 	 	 	 	By:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	   	 	 	 	 	 	 	 	 	 	 
	Name:
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	     	 	 	 	 	 	 

          

K-89

 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	ALC HTIF, LLC, a Wisconsin limited
	 	 	 	 	 	 	liability company
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Witness:	 	 	 	 	 	By:	 	ALC Operating, LLC, a Wisconsin limited	 	 
	 	 	 	 	 	 	 	 	liability company, its Manager	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	   	 	 	 	 	 	 	 	 	 	 
	Name:

	 	 	 	 	 	 	 	By:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	   	 	 	 	 	 	 	 	 	 	 
	Name:
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	ALC TPCG, LLC, a Wisconsin limited
	 	 	 	 	 	 	liability company
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Witness:	 	 	 	 	 	By:	 	ALC Operating, LLC, a Wisconsin limited	 	 
	 	 	 	 	 	 	 	 	liability company, its Manager	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	   	 	 	 	 	 	 	 	 	 	 
	Name:

	 	 	 	 	 	 	 	By:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	   	 	 	 	 	 	 	 	 	 	 
	Name:
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	ALC PEDG, LLC, a Wisconsin limited
	 	 	 	 	 	 	liability company
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Witness:	 	 	 	 	 	By:	 	ALC Operating, LLC, a Wisconsin limited	 	 
	 	 	 	 	 	 	 	 	liability company, its Manager	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	   	 	 	 	 	 	 	 	 	 	 
	Name:

	 	 	 	 	 	 	 	By:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	   	 	 	 	 	 	 	 	 	 	 
	Name:
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 

K-90

 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	ALC TISSC, LLC, a Wisconsin limited
	 	 	 	 	 	 	liability company
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Witness:	 	 	 	 	 	By:	 	ALC Operating, LLC, a Wisconsin limited	 	 
	 	 	 	 	 	 	 	 	liability company, its Manager	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	   	 	 	 	 	 	 	 	 	 	 
	Name:

	 	 	 	 	 	 	 	By:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	   	 	 	 	 	 	 	 	 	 	 
	Name:
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	ALC TSKG, LLC, a Wisconsin limited
	 	 	 	 	 	 	liability company
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Witness:	 	 	 	 	 	By:	 	ALC Operating, LLC, a Wisconsin limited	 	 
	 	 	 	 	 	 	 	 	liability company, its Manager	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	   	 	 	 	 	 	 	 	 	 	 
	Name:

	 	 	 	 	 	 	 	By:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	   	 	 	 	 	 	 	 	 	 	 
	Name:
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	ALC WRWG, LLC, a Wisconsin limited
	 	 	 	 	 	 	liability company
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Witness:	 	 	 	 	 	By:	 	ALC Operating, LLC, a Wisconsin limited	 	 
	 	 	 	 	 	 	 	 	liability company, its Manager	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	   	 	 	 	 	 	 	 	 	 	 
	Name:

	 	 	 	 	 	 	 	By:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	   	 	 	 	 	 	 	 	 	 	 
	Name:
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 

K-91

 

EXHIBIT B

Definitions

          For all purposes of this Lease, except as otherwise expressly provided in the Lease or unless
the context otherwise requires, the following terms have the meanings assigned to them in this
exhibit and include the plural as well as the singular:

          “Accounts Collateral” shall have the meaning set forth in Section 21.1.1.

          “Actual Capital Expenditures Amount” shall have the meaning set forth in Section 11.3.1.

          “Actuarial Correspondence” shall mean any and all correspondence, analysis, reports, studies
or other information to or from any Tenant or any Guarantor or their respective insurance carriers,
reinsurance providers or accountants, or from any Governmental Authorities or any Third Party Payor
Program providers, concerning any Tenant’s malpractice or professional liability insurance or its
reserves for expenses relating to malpractice or professional liability claims.

          “Actuarial Reports” shall mean any and all written reports, studies, analyses or reviews
prepared by or behalf of any Tenant or any Guarantor or their respective insurance providers or
carriers, whether quarterly or otherwise, concerning any Tenant’s malpractice or professional
liability insurance or any Tenant’s reserves for expenses relating to malpractice or professional
liability claims.

          “Additional Rent” shall have the meaning set forth in Section 3.2.

          “Adjusted Allocated Base Year Patient Revenues” shall mean, for a particular Leased Property,
the Allocated Base Year Patient Revenues for such Leased Property, adjusted as described in the
definition of “Adjusted Base Year Patient Revenues” for closures, removals, deletions and/or
reductions in licensed beds.

          “Adjusted Base Year Patient Revenues” shall mean the Base Year Patient Revenues from the
Premises, adjusted as follows. Without limitation of other provisions of this Lease, (i) if a
particular Facility or Facilities within the Premises, for any period after the Commencement Date,
for any reason is closed, or is removed or deleted from this Lease, the Base Year Patient Revenues
that correspond to any such closed, removed or deleted Facility or Facilities (and, in the case of
a partial period closure or a mid-period removal or deletion, the Base Year Patient Revenues that
correspond to any such closed, removed or deleted Facility or Facilities for the days or months
such Facility or Facilities were closed, removed or deleted) shall be excluded from Base Year
Patient Revenues (and, correspondingly, from the Allocated Base Year Patient Revenues relative to
the affected Facility(ies)) in order to arrive at “Adjusted Base Year Patient Revenues” (and,
correspondingly, “Adjusted Allocated

K-92

 

Base Year Patient Revenues” relative to the affected Facility(ies)) and (ii) in the event that
the number of licensed beds at any Facility is reduced at any time from and after the Commencement
Date, the Base Year Patient Revenues (and the Allocated Base Year Patient Revenues for the
applicable Facility) shall be reduced proportionally (and, in the case of a mid-period reduction in
the number of licensed beds, on a prorated basis) to reflect such reduction in the number of
licensed beds as if such licensed beds had not been part of the Facility for the period from
January 1, 2003 through December 31, 2003 (or a portion of such period, in the case of a mid-period
reduction in the number of licensed beds).

          “Affiliate” shall mean, with respect to any Person, any other Person directly or indirectly
controlling (including, but not limited to, all partners, directors, officers and members of such
Person), controlled by or under direct or indirect common control with any such Person. A Person
shall be deemed to control a corporation, a partnership, a trust, or a limited liability company if
such Person possesses, directly or indirectly, the power to direct or cause the direction of the
management and policies of such Person, through the ownership of voting securities, partnership
interests or other equity interests.

          “Alterations” shall have the meaning set forth in Section 11.1.

          “Allocated Base Year Patient Revenues” shall mean, for a particular Leased Property, the Base
Year Patient Revenues for such Leased Property set forth on Exhibit C to the Lease.

          “Annual Budget” shall mean Tenant’s projection of Tenant’s revenues and expenses for a
particular Fiscal Year in a format and containing such information as is reasonably acceptable to
Landlord.

          “Annual Capital Expenditure Budget” shall have the meaning set forth in Section 11.4.

          “Appraisal Notice” shall have the meaning set forth in Exhibit I.

          “Approved Residency Agreement” shall mean an agreement with a resident of a Leased Property:
(i) that does not provide for lifecare services; (ii) that does not contain any type of rate lock
provision or rate guaranty for more than one (1) calendar year; (iii) that does not provide for any
rent reduction or waiver other than for an introductory period not to exceed six (6) months;
(iv) under which Tenant at no time collects rent for more than one (1) month in advance, other than
an amount equal to not more than two (2) months’ rent collected and held by Tenant as security for
the performance of the resident’s obligations to Tenant; (v) that is accurately shown in the
accounting records for such Leased Property; and (vi) that is on a form previously approved by
Landlord and that includes no material amendments to such form (other than amendments approved by
Landlord).

          “AR Financing” shall have the meaning set forth in Section 21.2.

K-93

 

          “Assigned Authorizations” shall have the meaning set forth in Section 37.1.2.

          “Assigned Contracts” shall have the meaning set forth in Section 37.1.2.

          “Authorizations” shall mean any and all licenses, operating permits, Provider Agreements,
CONs, certificates of exemption, approvals, waivers, variances and other governmental or
“quasi-governmental” authorizations necessary or advisable for the use of any Facility for its
Primary Intended Use and receipt of reimbursement or other payments under any Third Party Payor
Programs, if and to the extent a Tenant or a Facility participates in any such Third Party Payor
Programs.

          “Authorization Collateral” shall have the meaning set forth in Section 7.3.

          “Award” shall mean all compensation, sums or anything of value awarded, paid or received in
respect of a total or partial Condemnation.

          “Base Year Patient Revenues” shall mean Patient Revenues from the Premises for the period
commencing on January 1, 2003 and ending on December 31, 2003, as set forth on Exhibit C to the
Lease.

          “Beneficial Owner” shall have the meaning set forth in Exhibit H.

          “BLS” shall mean Bureau of Labor Statistics, U.S. Department of Labor or any successor
thereto.

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

          “Capital Alterations” shall mean, with respect to any Leased Property: (i) the addition of
one or more new buildings, or (ii) the annexation of one or more additional structures to any
portion of any of the Leased Improvements on such Leased Property, or (iii) the expansion or
contraction of the Leased Improvements on such Leased Property, or (iv) any alteration or
modification affecting the foundation, floor slab, roof or roof structure, curtain wall, structural
columns, beams or shafts or other structural components of any of the Leased Improvements on such
Leased Property, or (v) any alteration or modification affecting any of the electrical, plumbing,
life safety, heating, ventilating, air conditioning, elevator, conveyor or other operating systems
serving any of the Leased Improvements on such Leased Property. “Capital Alterations” shall
include, without limitation, (1) the construction of a new wing or new story on a Leased Property,
(2) the repair, replacement, restoration, remodeling or rebuilding of the existing Leased
Improvements on a Leased Property or any portion thereof, where the purpose and effect of such work
is to provide a functionally new facility needed to provide services not previously offered, and
(3) any expansion, construction, renovation or conversion to increase or change the bed capacity of

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the Facility located on a Leased Property, to change the purpose for which such beds are
utilized or to improve materially the quality of such Facility.

          “Capital Expenditures” shall have the meaning set forth in Section 11.3.1.

          “Capital Expenditures Account” shall have the meaning set forth in Section 11.3.1.

          “Capital Expenditures Deposit” shall have the meaning set forth in Section 11.3.1.

          “Capital Expenditures Report” shall have the meaning set forth in Section 11.3.1.

          “Cash Flow” shall mean the net income of any Tenant arising from the applicable Facility as
reflected on the income statement of Tenant plus (i) the provision for depreciation and
amortization in such income statement; plus (ii) the provision for management fees in such income
statement; plus (iii) the provision for income taxes in such income statement; plus (iv) the
provision for Fixed Rent payments allocated to such Facility (and, for the purpose of calculating
the applicable Cash Flow with respect to any period commencing prior to the Commencement Date, the
Fixed Rent for any Facility for any period prior to the Commencement Date shall be assumed to have
accrued and been payable by Tenant at the same annual rate of Fixed Rent that is allocable to such
Facility as of the Commencement Date) and interest and lease payments, if any, relating to such
Facility in such income statement; minus (v) an imputed management fee equal to six percent (6%) of
gross revenues of such Facility (net of contractual allowances); and minus (vi) a replacement
reserve of $300 per licensed bed at such Facility per year.

          “Casualty” shall mean damage to one or more Leased Properties by fire, flood, windstorm,
earthquake, act of God or other casualty.

          “Casualty Insurance Proceeds” shall have the meaning set forth in Section 15.2.

          “Census Information” shall have the meaning set forth in Section 25.3.

          “CMS” shall mean the United States Department of Health, Centers for Medicare and Medicaid
Services or any successor agency thereto.

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

          “Commencement Date” shall mean April 1, 2005.

          “CON” shall mean a certificate of need or similar permit or approval (not including
conventional building permits) from a Governmental Authority related to (i) the construction and/or
operation of the Facility at any Leased Property for the use of a specified number of beds in a
nursing facility, assisted living facility, senior independent living facility

K-95

 

and/or rehabilitation hospital, or (ii) the alteration of any such Facility or (iii) the
modification of the services provided at a Facility used as a nursing facility, assisted living
facility, senior independent living facility and/or rehabilitation hospital.

          “Condemnation” shall mean, as to any Leased Property, (i) the exercise of any governmental
power on such Leased Property, whether by legal proceedings or otherwise, by a Condemnor, (ii) a
voluntary sale or transfer by Landlord to any Condemnor, either under threat of condemnation or
while legal proceedings for condemnation are pending, and (iii) a taking or voluntary conveyance of
all or part of such Leased Property, or any interest therein, or right accruing thereto or use
thereof, as the result or in settlement of any condemnation or other eminent domain proceeding
affecting such Leased Property, whether or not the same shall have been actually commenced.

          “Condemnor” shall mean any Person having the power of condemnation.

          “Consent Expenses” shall have the meaning set forth in Section 3.2.6.

          “Contraction Notice” shall have the meaning set forth in Section 37.3.2.

          “Cost of Living Index” shall mean the Consumer Price Index for All Urban Consumers, U.S. City
Average (1982-1984 = 100), published by the BLS, or such other renamed index. If the BLS changes
the publication frequency of the Cost of Living Index so that a Cost of Living Index is not
available to make a cost-of-living adjustment a specified herein, the cost-of-living adjustment
shall be based on the percentage difference between the Cost of Living Index for the closest
preceding month for which a Cost of Living Index is available and the Cost of Living Index for the
comparison month as required b this Lease. If the BLS changes the base reference period for the
Cost of Living Index from 1982-84=100, the cost-of-living adjustment shall be determined with the
use of such conversion formula or table as may be published by the BLS. If the BLS otherwise
substantially revises, or ceases publication of, the Cost of Living Index, then a substitute index
for determining cost-of-living adjustments, issued by the BLS or by a reliable governmental or
other nonpartisan publication, shall be reasonable selected by Landlord and Tenant.”

          “CPI Increase” shall mean, for a particular Lease Year, the percentage increase (rounded to
two (2) decimal places), if any, in (i) the arithmetic mean of the Cost of Living Index published
for each of the twelve calendar months ending with the month that is two (2) months prior to the
month containing the day immediately preceding the commencement of such lease Year, over (ii) the
arithmetic mean of the Cost of Living Index published for each of the twelve calendar months ending
with the month that is two (2) months prior to the month containing the date immediately preceding
the commencement of the Lease Year immediately preceding such particular Lease Year.”

          “Coverage Ratio” shall mean the ratio of (i) Cash Flow of any Facility for the applicable
period; to (ii) the sum of the Fixed Rent payments allocated to such Facility, and all other debt
service, if any, of the Tenant which owns such Facility and lease payments payable by such Tenant
relating to such Facility, for the applicable period.

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          “Date of Taking” means, as to the applicable Leased Property, the date the Condemnor has the
right to possession of such Leased Property, or any portion thereof, in connection with a
Condemnation.

          “Deleted Properties” shall mean any Leased Property for which this Lease or Tenant’s right of
possession is terminated pursuant to Section 15, Section 16 or Section 17.2 hereof.

          “Deletion Notice” shall have the meaning set forth in Section 17.9.

          “Early Termination Event” shall mean, as to any Leased Property, the termination of this Lease
prior to the stated Expiration Date hereof pursuant to the express provisions of this Lease or the
dispossession of the applicable Tenant as a result of an Event of Default.

          “EBITDARM” shall mean, as to any facility, the net income of any operator arising from such
facility as reflected on the accurate income statement of such operator as adjusted for
non-recurring revenue and/or expenses as reasonably determined by Landlord, plus (i) the provision
for depreciation and amortization in such income statement; plus (ii) the provision for management
fees in such income statement; plus (iii) the provision for income taxes in such income statement;
plus (iv) the provision for Fixed Rent payments allocated to such facility (and, for the purpose of
calculating the applicable EBITDARM with respect to any period prior to the date of such facility
being leased under this Lease, the Fixed Rent for such facility for such prior period shall be
assumed to have accrued and been payable by the operator at the same annual rate of Fixed Rent that
is (x) allocable to such facility as of the Commencement Date, or (y) would be allocable to such
facility if it became leased under this Lease) and interest and lease payments, if any, relating to
such facility in such income statement.

          “Environmental Costs” shall mean reasonable costs of response, removal, remedial action,
containment, cleanup, investigation, design, engineering and construction, damages (including,
without limitation, actual, consequential and punitive damages) for personal injuries and for
injury to, destruction of or loss of property or natural resources, relocation or replacement
costs, penalties, fines, charges or expenses, attorney’s fees, expert fees, consultation fees, and
court costs, and all amounts paid in investigating, defending or settling any of the foregoing, in
connection with any Hazardous Substance.

          “Environmental Laws” shall mean any and all laws, orders of a Governmental Authority, rules or
regulations pertaining to Hazardous Substances or that otherwise deal with, or relate to, air or
water quality, air emissions, soil, contamination or pollution or protection of the environment.

          “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

          “Escrow Account” shall have the meaning set forth in Section 3.3.2.

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          “Escrow Commencement Date” shall have the meaning set forth in Section 3.3.1.

          “Estoppel Certificate” shall have the meaning set forth in Section 25.14.

          “Event of Default” shall have the meaning set forth in Section 17.1.

          “Expiration Date” shall have the meaning set forth in Section 1.2.

          “Extended Term” and “Extended Terms” shall have the meanings set forth in
Section 43.1.

          “Facility” shall mean the facility or facilities located on the applicable Leased Property.

          “Facility Default” shall mean an Event of Default that relates directly to one or more of the
Leased Properties and/or the Facilities operated thereon (such as, for example only and without
limitation, an Event of Default arising from a failure to maintain or repair, or to operate for the
Primary Intended Use, or to maintain the required Authorizations for, one or more of the
Facilities), as opposed to an Event of Default that, by its nature, does not relate directly to any
of the Leased Properties or Facilities (such as, for example only and without limitation, an Event
of Default arising from a breach of Section 3.1.1).

          “Facility Mortgage” shall mean any mortgage, deed of trust, or other security agreement
securing any encumbrance placed on the applicable Leased Property in accordance with the provisions
of Section 31.

          “Facility Mortgagee” shall mean the holder of any Facility Mortgage.

          “Facility Provider Agreements” shall mean Provider Agreements issued to or held by Tenant
pursuant to which the Facilities are licensed, certified, approved or eligible to receive
reimbursement under Medicare, Medicaid or any Third Party Payor Program, as may be applicable from
time to time.

          “Facility Termination” shall have the meaning set forth in Section 37.3.1.

          “Fair Market Rental” shall mean the annual amount per annum that a willing tenant would pay,
and a willing landlord would accept, at arm’s length, for leasing of the Premises (or, if
applicable, any one or more, but less than all, of the Leased Properties) for the Second Extended
Term. The Fair Market Rental may include therein such escalations of rent as would be paid by such
a tenant, and accepted by such a landlord, as part of an arm’s length transaction entered into as
of the aforesaid Fair Market Rental determination date; provided, however, that,
(i) the determination shall assume that during years 2 through 5 (both inclusive) of the Second
Extended Term, Fixed Rent shall increase over prior years as provided in Section 3.1.2 of the Lease
and (ii) in addition to such other market factors as may be applicable in determining the Fair
Market Rental, the Fair Market Rental shall be

K-98

 

determined on the basis, and on the assumptions, that (a) the Fair Market Rental may not
include therein any rent, or method of rent calculation, that would adversely affect any landlord
by virtue of it being a real estate investment trust or the ability of any such landlord to satisfy
the requirements for maintaining its status as a real estate investment trust (and, without
limitation of the foregoing, the Fair Market Rental shall not include any rent that would fail to
qualify as “rents from real property” for purposes of Section 856(d) of the Code), (b) the Fair
Market Rental amount is to be paid absolutely net to the aforesaid landlord, without any rights of
deduction, set-off or abatement, (c) all of the Leased Properties as to which the Fair Market
Rental is being determined are in good condition and repair, without any deferred maintenance, are
in compliance with any and all applicable laws, codes, ordinances and regulations and have in full
force and effect, for the benefit of the aforesaid tenant, the Facilities and the Leased
Properties, any and all necessary or appropriate Authorizations for use thereof in accordance with
the respective Primary Intended Uses applicable thereto, and (d) the aforesaid tenant has complied,
and shall be required to comply, with the requirements of this Lease.

          “Final Appraiser” shall have the meaning set forth in Exhibit I.

          “Fiscal Year” shall mean the twelve (12) month period from January 1 to December 31.

          “First Lease Year” shall mean the period from the Commencement Date through March 31, 2006.

          “Fixed Rent” shall mean, for the period from the Commencement Date through the Expiration
Date, rent at an annual rate of Four Million Four Hundred Seventy-Three Thousand Five Hundred and
No/100 Dollars ($4,473,500.00), as such amount shall be increased or adjusted from time to time
during the Term as provided in this Lease, including as such amount shall be increased or adjusted
from time to time during the Term as set forth in Section 3.1.2, Section 43.2 and Section 43.3.

          “Fixtures” shall mean all permanently affixed equipment, machinery, elevators, conveyors,
fixtures, commercial kitchen equipment, laundry equipment and other items of real and/or personal
property, including, without limitation, all components thereof, now and hereafter located in or on
or used in connection with, and permanently affixed to or incorporated into, the Leased
Improvements, including, without limitation, all furnaces, boilers, heaters, electrical equipment,
heating, plumbing, lighting, ventilating, refrigeration, incineration, air and water pollution
control, waste disposal, air-cooling and air-conditioning systems and apparatus, sprinkler systems
and fire and theft protection equipment, and built-in oxygen and vacuum systems, all of which, to
the greatest extent permitted by law, are hereby deemed by the parties hereto to constitute real
property, together with all replacements, modifications, alterations and additions thereto.

          “Full Replacement Cost” shall mean the actual replacement cost of the applicable property,
without reduction or deduction for depreciation, as determined for any applicable property by an
accredited appraiser approved by Landlord, and at Tenant’s sole

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cost and expense, hereinafter referred to as an “impartial appraiser”, every five years during
the Term, and at such other times that either party believes, in good faith, that the full
replacement cost of such property has increased or decreased. Tenant shall forthwith, on receipt
of such determination by such impartial appraiser, give written notice thereof to Landlord. The
determination of such impartial appraiser shall be final and binding on the parties hereto.

          “GAAP” shall mean generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting Standards Board (or
agencies with similar functions of comparable stature and authority within the accounting
profession), or in such other statements by such entity as may be in general use by significant
segments of the U.S. accounting profession.

          “Governmental Authority” shall mean any court, board, agency, licensing agency, commission,
office or authority or any governmental unit (federal, state, county, district, municipal, city or
otherwise) whether now or hereafter in existence, including, without limitation, CMS, the United
States Department of Health and Human Services, any state licensing agency and/or any state
Medicaid agency and any quasi-governmental authorities.

          “Guarantor” shall have the meaning set forth in the recitals to the Lease.

          “Hazardous Substances” shall mean any material that is defined as a hazardous waste, substance
or material under RCRA as now or at any time hereafter in effect, medical waste and any hazardous
substance defined as such in the Occupational Safety & Health Act, the Toxic Substances Control
Act, or any other federal, state or local statute, law, ordinance, code, rule, regulation, order or
decree regulating, relating to, or imposing liability or standards of conduct concerning, any
hazardous substance or material, as now or at anytime hereafter in effect.

          “Health Department” shall mean any federal, state or local health department, licensing
agency, governing body or comparable agency.

          “Impositions” shall mean, for each applicable Leased Property, collectively, all taxes
(including, without limitation, all taxes imposed under the laws of each State in which the Leased
Property is located), as such laws may be amended from time to time, and all ad valorem, sales and
use, single business, gross receipts, transaction privilege, rent or similar taxes as the same
relate to, or are imposed upon, any rents from the applicable Leased Property or upon Tenant or its
business conducted upon the applicable Leased Property (but excluding any tax based on the net
income or net profit of Landlord derived from any such rents), assessments (including, without
limitation, all assessments for public improvements or benefits, whether or not commenced or
completed prior to the date hereof and whether or not to be completed within the Term; provided,
that Tenant shall not be responsible for the payment of any installment of any such assessment that
comes due after the expiration of the Term, except that portion of the first such installment
coming due after expiration of the

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Term which, in accordance with local custom and practice, would be prorated between a buyer
and seller of real estate and which would be chargeable to the seller in such a proration made as
of the last day of the Term), water, sewer or other rents and charges, excises, tax levies, fees
(including, without limitation, license, permit, inspection, authorization and similar fees), and
all other governmental charges, in each case whether general or special, ordinary or extraordinary,
or foreseen or unforeseen, of every character in respect of the applicable Leased Property or any
rents therefrom or the business conducted thereon by Tenant (including all interest and penalties
thereon due to any failure in payment by Tenant), which at any time prior to (including, without
limitation, a “roll-back” of any such taxes or charges for periods prior to the Commencement Date),
during or in respect of the Term hereof may be assessed or imposed on or in respect of, or be a
lien upon, (i) Landlord or Landlord’s interest in such Leased Property, (ii) such Leased Property
or any part thereof or any rent therefrom or any estate, right, title or interest therein, or
(iii) any occupancy, operation, use or possession of, or sales from, or activity conducted on, or
in connection with, such Leased Property or the leasing or use of such Leased Property or any part
thereof by Tenant.

          “Initial Expiration Date” shall have the meaning set forth in Section 1.2.

          “Insurance Premiums” shall have the meaning set forth in Section 14.2.

          “Insurance Requirements” shall mean all terms of any insurance policy required by this Lease
with respect to the applicable Leased Property(ies) and all requirements of the issuer of any such
policy.

          “Intangibles” shall have the meaning set forth in Section 1.1.3.

          “Land” shall have the meaning set forth in Section 1.1.1.

          “Landlord Contraction” shall have the meaning set forth in Section 1.2.

          “Landlord Indemnified Parties” shall mean Landlord’s Affiliates and Landlord’s and its
Affiliates’ agents, employees, owners, partners, members, managers, contractors, representatives,
consultants, attorneys, auditors, officers and directors.

          “Landlord’s Personal Property” shall have the meaning set forth in Section 1.1.4.

          “Landlord’s Representatives” shall mean Landlord’s agents, employees, contractors,
consultants, attorneys, auditors, architects and other representatives.

          “Lease” shall have the meaning set forth in the preamble to the Lease.

          “Lease Collateral” shall have the meaning set forth in Section 21.1.2.

          “Lease Guaranty” shall have the meaning set forth in the recitals to the Lease.

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          “Lease Year” shall mean the First Lease Year and each twelve (12) month period of the Term
after the First Lease Year.

          “Leased Improvements” shall have the meaning set forth in Section 1.1.

          “Leased Property” shall mean the Land (or if applicable in the context in which the term
“Leased Property” appears, a portion of the Land associated with one or more particular
Facilities), the Leased Improvements located thereon and the Intangibles and Landlord’s Personal
Property associated therewith from time to time leased by Landlord to Tenant hereunder.

          “Leased Property Condition Report” shall have the meaning set forth in Section 9.1.1.

          “Legal Requirements” shall mean, as to any Leased Property or Facility, all federal, state,
county, parish, municipal and other governmental statutes, laws, rules, orders, regulations,
ordinances, judgments, decrees and injunctions applicable to such Leased Property and/or Tenant’s
Personal Property or the maintenance, construction, use, operation or alteration thereof, whether
now or hereafter enacted and in force, including, without limitation, (i) Authorizations,
(ii) building codes and zoning regulations and (iii) any statutes, laws, rules, orders,
regulations, ordinances, judgments, decrees and injunctions that (1) require repairs, modifications
or alterations in or to such Leased Property, (2) adversely affect the use thereof or (3) regulate
the transport, handling, use, storage or disposal or require the cleanup or other treatment of any
Hazardous Substances.

          “Lending Institution” shall mean any insurance company, federally insured commercial or
savings bank, national banking association, savings and loan association, credit union, employees’
welfare, pension or retirement fund or system, corporate profit sharing or pension trust, college
or university, endowment fund, REIT, investment bank, commercial credit lending corporation, or
other institutional lender or financial enterprise, in each case acting on its own behalf or as
agent on behalf of other Lending Institutions.

          “Limited Termination Election” shall have the meaning set forth in Section 17.2.

          “Litigation Costs” shall mean all costs incurred by Landlord or any Landlord Indemnified
Parties in connection with the enforcement of any provision of this Lease and/or in connection with
any third-party claim against Landlord, any Landlord Indemnified Parties or any Leased Property
arising on account of or in connection with any default or Event of Default hereunder by Tenant,
including, without limitation, costs incurred by Landlord or any Landlord Indemnified Parties in
investigating, settling and/or prosecuting claims and for reasonable attorneys’ and legal assistant
fees and expenses, court costs and fees and reasonable consultant and witness fees and expenses.

          “Losses” shall mean all expenses, judgments, damages, penalties, fines, liabilities, losses of
every kind and nature, suits, administrative proceedings, costs and fees,

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including, without limitation, reasonable attorneys’ and reasonable consultants’ fees and
expenses, and Environmental Costs.

          “Manager” shall mean ALC Operating, LLC, a Wisconsin limited liability company.

          “Material Adverse Effect” shall mean, as to a particular Person or, in the case of clause
(i) below, a particular Facility, any event or condition that (i) has a material adverse effect on
the business, assets, properties, operations or financial condition on such Person or such
Facility, (ii) materially impairs the ability of such Person to perform its obligations under this
Lease or any Lease Guaranty, as applicable, or (iii) materially impairs the rights, remedies or
benefits available to Landlord under this Lease or any Lease Guaranty; provided,
however, that any event or condition will be deemed to have a “Material Adverse Effect” if
such event or condition, when taken together with all other events and conditions occurring or in
existence at such time (including all other events and conditions that, but for the fact that a
representation, warranty or covenant is subject to a “Material Adverse Effect” exception or test,
would cause such representation, warranty or covenant contained herein to be breached) would result
in a “Material Adverse Effect”, even though, individually, such event or condition would not do so.

          “Medicaid” shall mean that certain program of medical assistance, funded jointly by the
federal government and the states for impoverished individuals who are aged, blind and/or disabled,
and for members of families with dependent children, which program is more fully described in Title
XIX of the Social Security Act (42 U.S.C. §§ 1396 et seq.) and the regulations promulgated
thereunder.

          “Medicare” shall mean that certain federal program providing health insurance for eligible
elderly and other individuals, under which physicians, hospitals, nursing facilities, home health
care and other providers are reimbursed for certain covered services they provide to the
beneficiaries of such program, which program is more fully described in Title XVIII of the Social
Security Act (42 U.S.C. §§ 1395 et seq.) and the regulations promulgated thereunder.

          “Net Operating Income” shall mean, for any period, the amount by which Operating Revenue for
such period exceeds Operating Expenses for such period.

          “Notice” shall mean any note, notice, or report of any suit, proceeding, investigation, order,
consent order, injunction, writ, award, or action related to or affecting or indicating the
treatment, storage, handling, disposal, generation, spill, release or discharge of any Hazardous
Substances in, on, under, about or affecting any of the Leased Properties or any violation of
Environmental Laws as they apply to any Leased Property.

          “Officer’s Certificate” shall mean a certificate of Tenant collectively, or each Tenant or
Guarantor, as applicable, signed by any of the following: the chairman of the board of directors,
the president, the chief operating officer, the chief financial officer, the general counsel or the
general partner or managing member, as applicable, of each Tenant in

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the case of a certificate of Tenant collectively, or of such particular Tenant or of
Guarantor, as applicable, in the case of a certificate of an individual Tenant or Guarantor, as
applicable.

          “Operating Expenses” shall mean, with respect to any or all of the Leased Properties, and
without duplication, all costs and expenses incurred by Tenant, determined on an accrual basis,
relating to the operation, maintenance, repair, use and management of such Leased Property(ies),
including, without limitation, utilities, repairs and maintenance, insurance, Impositions,
advertising expenses, payroll and related taxes, equipment lease payments and actual management
fees, but excluding (i) Fixed Rent, (ii) depreciation, amortization and other non-cash expenses of
the Leased Property(ies); provided, however, that such costs and expenses shall be
subject to reasonable adjustment by Landlord to normalize such costs and expenses, and
(iii) capital expenditures.

          “Operational Transfer” shall have the meaning set forth in Section 37.1.2.

          “Operator Reports” shall have the meaning set forth in Section 8.2.3.4.

          “Overdue Rate” shall mean, on any date, a rate equal to four percent (4%) per annum above the
Prime Rate, but in no event greater than the maximum rate then permitted under applicable law.
Interest at the aforesaid rates shall be determined for actual days elapsed based upon a 360 day
year.

          “P&S Agreement” shall mean that certain Purchase and Sale Agreement dated as of April 1, 2005,
among Ventas Healthcare Properties, Inc., as Buyer, and CaraVita Alabama LLC, Greenwood Gardens,
LLC, Inverness of Georgia, LLC, CaraVita Dalton, LLC, Tara Plantation, LLC, Sanctuary at Northstar,
LLC, CaraVita Winterville, LLC, each a Georgia limited liability company, and CaraVita South
Carolina, Inc., a Georgia corporation, collectively as Seller, pertaining to the Premises, as
assigned by Buyer to Landlord.

          “Patient Revenues” shall mean revenues generated from the sale of goods or services at or
through the Premises, whether by Tenant or any subtenant or licensee of Tenant, or any other party,
which revenues are primarily derived from services provided to patients (including, without
limitation, revenues received or receivable for the use of or otherwise by reason of all rooms,
beds and other facilities provided, meals served, services performed or goods sold at the Premises,
but excluding revenues received by Tenant as rent or other consideration from the permitted
assignment of this Lease or any part thereof or a permitted sublease of any Leased Property(ies) or
any part thereof), and which revenues shall be measured and computed using substantially the same
methodology as during the period commencing on January 1, 2003 and ending on December 31, 2003 and
net of contractual adjustments of governmental and other third party payors.

          “Payment Date” shall have the meaning provided in Section 3.1.

          “Permitted Encumbrances” shall mean (i) all easements, covenants, conditions, restrictions,
agreements and other matters with respect to the Premises that are of record as of the Commencement
Date; (ii) all easements, covenants, conditions, restrictions,

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agreements and other matters with respect to the Premises, whether or not of record, that are
executed by Tenant or approved or consented to by Tenant; (iii) any easements, covenants,
conditions, restrictions or utility agreements entered into by Landlord with respect to a Leased
Property after the Commencement Date; (iv) any agreement required pursuant to any Legal Requirement
entered into by Landlord with respect to a Leased Property after the Commencement Date; (v) any
real estate taxes, assessments and other governmental levies, fees or charges imposed with respect
to a Leased Property(ies) that are not yet due and payable; (vi) any zoning, building codes and
other land use laws regulating the use or occupancy of any Leased Property(ies); (vii) occupancy
rights of residents and patients of the Facilities; (viii) any other matters affecting title to the
Premises or any portion thereof caused by Tenant or its assignees or sublessees or their respective
agents or employees; and (ix) purchase money financing available to Tenant for Tenant’s Personal
Property so long as the lien securing such financing pertains only to the item so financed.

          “Person” shall mean any individual, sole proprietorship, corporation, general partnership,
limited partnership, limited liability company, joint venture, association, joint stock company,
bank, trust, estate, unincorporated organization, Governmental Authority, endowment fund or other
form of entity.

          “Plans and Specifications” shall have the meaning set forth in Section 11.2.1.

          “Policy” and “Policies” shall have the meanings set forth in Section 14.2.

          “Portfolio Coverage Ratio” shall mean the ratio of (i) the Cash Flow for all of the Facilities
for the applicable period; to (ii) the sum of the Fixed Rent, and all other debt service, if any,
of any of the Tenants, and lease payments (other than Fixed Rent) payable by any Tenant relating to
such Facilities, for the applicable period.

          “Premises” shall mean all of the Land, the Leased Improvements, the Intangibles and Landlord’s
Personal Property from time to time leased hereunder by Landlord to Tenant.

          “Primary Intended Use” shall mean, as to each Facility, the type of healthcare facility
corresponding to such Facility on Schedule 1 attached hereto.

          “Prime Rate” shall mean, on any date, a rate equal to the annual rate on such date reported in
The Wall Street Journal to be the “prime rate.”

          “Prior Period Fixed Rent” shall mean, for any Lease Year, the annual rate of Fixed Rent that
was in effect immediately prior to the commencement of such Lease Year. By way of illustration
only, the Prior Period Fixed Rent applicable to Lease Year 2 shall equal the annual rate of Fixed
Rent that was in effect as of the end of Lease Year 1.

          “Prior Period Patient Revenues” shall mean, for any Lease Year, the Patient Revenues for all
of the Leased Properties that are subject to this Lease as of the commencement of such Lease Year
for the period commencing two (2) months prior to the

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commencement of the preceding Lease Year and ending twelve (12) months later. By way of
illustration only, if the Prior Period Patient Revenues were being determined for the Lease Year
commencing as of April 1, 2010 and expiring March 31, 2011, the Prior Period Patient Revenues
applicable to such Lease Year would be determined on the basis of the Patient Revenues for the
Leased Properties subject to this Lease for the period commencing as of February 1, 2010 and ending
January 31, 2011.

          “Property Collateral” shall have the meaning set forth in Section 21.1.

          “Property Removal Date” shall have the meaning set forth in Section 17.9.

          “Provider Agreements” shall mean any agreements under which healthcare facilities are eligible
to receive payment under Medicare, Medicaid or any Third Party Payor Program from Governmental
Authorities or non-public entities.

          “Rating Agencies” shall mean each of S&P, Moody’s and Fitch or any other nationally recognized
statistical rating agency that has been designated by Landlord.

          “RCRA” shall mean the Resource Conservation and Recovery Act and the Comprehensive
Environmental Response, Compensation and Liability Act, in either case as amended from time to
time.

          “REIT” shall mean a real estate investment trust.

          “REIT Requirements” shall have the meaning set forth in Section 34.

          “Rent” shall mean, collectively, Fixed Rent and Additional Rent.

          “Rent Escalation Condition” shall mean, as to any Lease Year, that the Prior Period Patient
Revenues determined for such Lease Year equal or exceed seventy percent (70%) of the Adjusted Base
Year Patient Revenues for those Leased Properties that were subject to this Lease during the period
for which the Prior Period Patient Revenues are being determined. By way of illustration only, for
purposes of determining whether the Rent Escalation Condition has been satisfied for the Lease Year
commencing as of April 1, 2010 and expiring as of March 31, 2011, the Patient Revenues for the
period commencing as of February 1, 2010 and ending as of January 31, 2011 would be compared to the
Adjusted Base Year Patient Revenues, determined on the basis of those Leased Properties that were
subject to this Lease during such Prior Period Patient Revenues period to determine whether the
Prior Period Patient Revenues equal or exceed seventy percent (70%) of the Adjusted Base Year
Patient Revenues.

          “Required Capital Expenditures Amount” shall have the meaning set forth in Section 11.3.1.

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          “Required Per Unit Annual Capital Expenditures Amount” shall mean an amount per unit per Lease
Year that Tenant is required to expend on Capital Expenditures equal to $350 per unit per Lease
Year.

          “Reserve Event” shall have the meaning set forth in Section 8.2.3.1.

          “Restoration Plans and Specifications” shall have the meaning set forth in Section 15.4.1.

          “SEC” shall mean the Securities and Exchange Commission or any successor thereto.

          “Successor Operator” shall have the meaning set forth in Section 37.1.2.

          “Tenant” shall have the meaning set forth in the preamble to the Lease.

          “Tenant Org Docs” shall have the meaning set forth in Section 10.1.

          “Tenant Parties” shall mean any Guarantor, any of Tenant’s agents, employees, Affiliates,
invitees, visitors, patients, contractors, subcontractors, physicians, licensees, officers,
directors, representatives and comparable parties.

          “Tenant’s Personal Property” shall mean all motor vehicles, machinery, equipment, furniture,
furnishings, inventory, supplies, movable walls and partitions, computers and trade fixtures and
all other personal property, now leased or owned or hereafter leased or acquired by Tenant and
located, or used in Tenant’s business, on the applicable Leased Property, including, without
limitation, all modifications, replacements, alterations and additions to such personal property,
except items, if any, included within the definition of Fixtures.

          “Tenant’s Proportionate Share” shall mean each Tenant’s allocable share of the Rent
obligations set forth hereunder, which Tenant’s Proportionate Share is expressed as a percentage
and set forth on Schedule 2 attached hereto and made a part hereof and subject to adjustment as
described in Section 17.9.

          “Term” shall have the meaning set forth in Section 1.2.

          “Terminated Lease Properties” shall have the meaning set forth in Section 17.2.

          “Third Party Payor Programs” shall mean any third party payor programs pursuant to which
healthcare facilities qualify for payment or reimbursement for medical or therapeutic cure or other
goods or services rendered, supplied or administered to any admittee, occupant, resident or patient
by or from any Governmental Authority, bureau, corporation, agency, commercial insurer, non-public
entity, “HMO,” “PPO” or other comparable party.

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          “Transfer Authorization” shall have the meaning set forth in Section 37.1.2.

          “Transfer” shall have the meaning set forth in Section 24.1.

          “Transition Notice” shall have the meaning set forth in Section 37.1.1.

          “Transition Property” shall have the meaning set forth in Section 37.1.1.

          “UCC” shall mean the Uniform Commercial Code of the applicable state, as the same may be
amended from time to time.

          “Unit” shall mean a living unit within a Facility, regardless of the number of patients or
residents living therein.

          “Unsuitable For Its Primary Intended Use” shall mean a state or condition of the
Facility(ies) located at the applicable Leased Property such that, by reason of Casualty or
Condemnation, in the reasonable judgment of Landlord, such Facility(ies) cannot be operated for its
(their) primary intended use(s) taking into account, among other relevant factors, the number of
usable beds affected by such Casualty or Condemnation; provided, however that such
Facility(ies) shall not be deemed to be “Unsuitable For Its Primary Intended Use” if such
Facility(ies) can, within eighteen (18) months after the occurrence of such Casualty or
Condemnation, be restored to substantially the same state and condition as existed immediately
prior to such Casualty or Condemnation.

          “Work” shall have the meaning set forth in Section 15.4.1.

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