Document:

exv10w1

 

Exhibit 10.1

ELECTION FORM

as of January 31, 2005

Mr. Anthony Bova

c/o Atlantis Plastics, Inc.

1870 The Exchange, Suite 200

Atlanta, Georgia

Grant Summary

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Plan

	 	Grant

Date
	 	Grant

Type
	 	Exercise

Price
	 	Expiration

Date
	 	Shares

Granted
	 	Shares

Outstanding
	 	Shares

Exercisable
	 

	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 

          I have received the Information Statement relating to Atlantis Plastics, Inc.’s (“Atlantis
Plastics”) offer to cancel certain of my stock options and that capitalized terms not defined in
this Election Form will have the same meanings as they do in the Information Statement. I
understand that the Grant Summary above lists one of my Eligible Options that is eligible for this
Offer so long as the Eligible Option is outstanding as of January 31, 2005. I understand this
offer is only available to me.

	 	 	 	 	 	 
	 	(   )

	 	 	I hereby elect to cancel the full number of shares outstanding
under the Eligible Option listed above according to the terms and
conditions stated in the Information Statement.	 
	 	(   )

	 	 	I do not accept the offer to cancel the Eligible Option listed
above. I understand that I will not receive any consideration for
my Eligible Option and my Eligible Option will continue on its
current terms.	 
	 

          I hereby agree that, unless I revoke my election before midnight Eastern Time on January 31, 2005,
my election will be irrevocable, and if accepted by Atlantis Plastics, such surrendered Eligible
Option will be cancelled in its entirety on or after such date. I understand that (a) if the
shareholders of Atlantis Plastics receive a dividend on or before July 29, 2005, I will be paid in
cash on the same date as the dividend is paid to the shareholders and (b) if the shareholders of
Atlantis Plastics receive a dividend after July 29, 2005 or do not receive a dividend at all, on
July 29, 2005, I will be paid a combination of cash and shares of common stock of Atlantis
Plastics, with 60% of the value of the payment in shares and 40% of the value of the payment in
cash. I understand that in either case, my payment will be income to me and subject to withholding
taxes.

          I acknowledge and agree that neither the ability to participate in the offer nor actual
participation in the offer shall be construed as a right to continued employment with Atlantis
Plastics (except on an at-will basis, unless otherwise required by local law or provided for in my
employment agreement). I agree that Atlantis Plastics has made no representations or warranties to
me regarding this offer or the future pricing of Atlantis Plastics stock, and that my participation
in this offer is at my own discretion.

          I AGREE THAT ATLANTIS PLASTICS SHALL NOT BE LIABLE FOR ANY COSTS, TAXES, LOSS OR DAMAGE THAT I MAY
INCUR THROUGH MY ELECTION TO PARTICIPATE IN THIS OFFER.

	 	 	 
	

	 	 
	Optionee Signature

	 	Date

	 
	 	 

	Email Address

	 	 

PLEASE DELIVER YOUR SIGNED AND COMPLETED ELECTION FORM TO DAVID GERSHMAN BY NO LATER THAN MIDNIGHT,
EASTERN TIME ON JANUARY 31, 2005.Exhibit 10.48

                           LOAN MODIFICATION AGREEMENT
                           ---------------------------

This Loan Modification Agreement is entered into as of May 14, 2005, by and
between INFONOW CORPORATION (the "Borrower") and Silicon Valley Bank ("Bank").

1. DESCRIPTION OF EXISTING OBLIGATIONS: Among other Obligations which may be
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other
documents, a Loan and Security Agreement, dated February 15, 2002, (as may be
amended, restated, or otherwise modified from time to time, the "Loan
Agreement"). The Loan Agreement provides for, among other things, a Committed
Revolving Line in the original principal amount of One Million Dollars
($1,000,000) and a Committed Equipment Line in the original principal amount of
One Million Dollars ($1,000,000). Defined terms used but not otherwise defined
herein shall have the same meanings as set forth in the Loan Agreement.

Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Obligations."

2. DESCRIPTION OF COLLATERAL. Repayment of the Obligations is secured by the
Collateral as described in the Loan Agreement.

Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Obligations shall be referred
to as the "Security Documents". Hereinafter, the Security Documents, together
with all other documents evidencing or securing the Obligations shall be
referred to as the "Existing Loan Documents".

3. DESCRIPTION OF CHANGE IN TERMS.

     A.   Modification(s) to Loan Agreement.

          1.   The first sentence in Paragraph "(b)" under Section 2.2 entitled
               "Interest Rate and Payments on Committed Revolving Line" is
               hereby amended to read as follows:

               Interest due on the Committed Revolving Line is payable on the
               13th day of each month.

          2.   Section 3.2 entitled "Conditions Precedent to All Credit
               Extensions" is hereby amended in part to require that any Credit
               Extension is subject to Borrower being in compliance with the
               Adjusted Quick Ratio, as described in Section 6.7, for the two
               months prior to such Credit Extension and immediately following
               such Credit Extension.

          3.   Effective as of the month ended March 31, 2005, Section 6.7
               entitled "Financial Covenants" is amended to read as follows:

<PAGE>

               Borrower shall maintain:

               (i)  Tangible Net Worth (as of the last day of each month). A
                    Tangible Net Worth of at least $1,000,000.

               (ii) Adjusted Quick Ratio (to be maintained as of the last day of
                    each month when outstanding Credit Extensions exist). A
                    ratio of cash held with Bank plus Accounts, to Current
                    Liabilities less maintenance and support deferred revenue of
                    at least 1.50 to 1.00.

          4.   The following terms as defined in Section 13.1 entitled
               "Definitions" are hereby amended to read as follows:

               "Commitment Termination Date" is May 13, 2006.

               "Revolving Maturity Date" is May 13, 2006.

4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.

5. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
below) agrees that, as of the date hereof, it has no defenses against paying any
of the Obligations.

6. PAYMENT OF LOAN FEE. Borrower shall pay Bank a fee in the amount of Five
Thousand Dollars ($5,000) ("Loan Fee") plus all out-of-pocket expenses.

7. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing below)
understands and agrees that in modifying the existing Indebtedness, Bank is
relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to modifications
to the existing Obligations pursuant to this Loan Modification Agreement in no
way shall obligate Bank to make any future modifications to the Obligations.
Nothing in this Loan Modification Agreement shall constitute a satisfaction of
the Obligations. It is the intention of Bank and Borrower to retain as liable
parties all makers and endorsers of Existing Loan Documents, unless the party is
expressly released by Bank in writing. Unless expressly released herein, no
maker, endorser, or guarantor will be released by virtue of this Loan
Modification Agreement. The terms of this paragraph apply not only to this Loan
Modification Agreement, but also to all subsequent loan modification agreements.

8. CONDITIONS. The effectiveness of this Loan Modification Agreement is
conditioned upon payment of the Loan Fee.

         This Loan Modification Agreement is executed as of the date first
written above.

                                       2

<PAGE>

BORROWER:                               BANK:

INFONOW CORPORATION                     SILICON VALLEY BANK

By: /s/ James Medina                    By: /s/ Chris Ennis
    ---------------------------             -----------------------------------
Name: James Medina                      Name: Chris Ennis
      -------------------------               ---------------------------------
Title: CFO                              Title: Relationship Manager
       -------------------------               --------------------------------

                                       3Exhibit 10.79.12

 

LEASE

 

 

Between

 

 

QR
LUBBOCK TEXAS PROPERTIES, L.P.,

a
Texas limited partnership,

 

as
“Landlord”

 

 

and

 

 

ESC
IV, LP,

a
Washington limited partnership,

(doing
business in the State of Texas as Texas - ESC IV, L.P.)

 

as
“Tenant”

 

 

 

Dated
as of March 1, 2005

 

 

 

 

 

	
      1
	 	
      Term
	
      1

	
      2
	 	
      Rent
	
      1

	 	
      2.1
	 	
      Initial
      Term Rent
	
      1

	 	
      2.2
	 	
      Landlord’s
      Investment; Rent Adjustments
	
      2

	 	
      2.3
	 	
      Renewal
      Term Rent
	
      2

	 	
      2.4
	 	
      Rent
      Caps and Floor
	
      2

	 	
      2.5
	 	
      Payment
      Terms
	
      3

	 	
      2.6
	 	
      Absolute
      Net Lease
	
      3

	
      3
	 	
      Late
      Charges
	
      3

	
      4
	 	
      Security
      Deposit; Collateral for Lease Obligations
	
      3

	
      5
	 	
      Taxes
      and Other Charges
	
      5

	 	
      5.1
	 	
      Protests
	
      5

	 	
      5.2
	 	
      Impounds
	
      5

	
      6
	 	
      Insurance
	
      6

	 	
      6.1
	 	
      Requirements
	
      6

	 	
      6.2
	 	
      Exceptions
      to Insurance Requirements
	
      7

	 	
      6.3
	 	
      Reimbursement
      of Landlord’s Costs
	
      8

	 	
      6.4
	 	
      Determination
      of Commercial Reasonableness
	
      8

	 	
      6.5
	 	
      Insurance
      Required under Wells Fargo Loan Documents
	
      9

	
      7
	 	
      Use,
      Regulatory Compliance and Preservation of Business
	
      9

	 	
      7.1
	 	
      Permitted
      Use; Qualified Care
	
      9

	 	
      7.2
	 	
      Regulatory
      Compliance
	
      9

	 	
      7.3
	 	
      Preservation
      of Business
	
      11

	
      8
	 	
      Acceptance,
      Maintenance, Upgrade, Alteration and Environmental
	
      11

	 	
      8.1
	 	
      Acceptance
      “AS IS”; No Liens
	
      11

	 	
      8.2
	 	
      Tenant’s
      Maintenance Obligations
	
      11

	 	
      8.3
	 	
      Upgrade
      Expenditures
	
      11

	 	
      8.4
	 	
      Alterations
      by Tenant
	
      12

	 	
      8.5
	 	
      Hazardous
      Materials
	
      13

	
      9
	 	
      Tenant
      Property and Security Interest
	
      13

	 	
      9.1
	 	
      Tenant
      Property
	
      13

	 	
      9.2
	 	
      Landlord’s
      Security Interest and Financing Statements
	
      14

	
      10
	 	
      Financial,
      Management and Regulatory Reports
	
      15

	
      11
	 	
      Representations
      and Warranties
	
      15

	
      12
	 	
      Events
      of Default
	
      15

	
      13
	 	
      Remedies
	
      17

	 	
      13.1
	 	
      General
	
      17

	 	
      13.2
	 	
      Receivership
	
      17

	 	
      13.3
	 	
      Remedies
      Cumulative; No Waiver
	
      18

	 	
      13.4
	 	
      Performance
      of Tenant’s Obligations
	
      18

	
      14
	 	
      Provisions
      on Termination
	
      18

	 	
      14.1
	 	
      Surrender
      of Possession
	
      18

	 	
      14.2
	 	
      Removal
      of Tenant Personal Property
	
      19

	 	
      14.3
	 	
      Management
      of Premises
	
      19

	 	
      14.4
	 	
      Holding
      Over
	
      20

	 	
      14.5
	 	
      Survival
	
      20

	
      15
	 	
      Certain
      Landlord Rights
	
      20

	 	
      15.1
	 	
      Entry
      and Examination of Records
	
      20

	 	
      15.2
	 	
      Grant
      Liens
	
      20

	 	
      15.3
	 	
      Estoppel
      Certificates
	
      21

	 	
      15.4
	 	
      Conveyance
      Release
	
      21

	
      16
	 	
      Assignment
      and Subletting
	
      21

	
      17
	 	
      Damage
      by Fire or Other Casualty
	
      22

	
      18
	 	
      Condemnation
	
      22

	
      19
	 	
      Indemnification
	
      22

	
      20
	 	
      Disputes
	
      23

	
      21
	 	
      Notices
	
      23

	
      22
	 	
      Miscellaneous
	
      24

	
      23
	 	
      Collateral
      for Other Leases
	
      25

	
      24
	 	
      Leverage
      Covenant
	
      25

 

EXHIBITS:

 

EXHIBIT
A  LEGAL
DESCRIPTIONS

 

EXHIBIT
B  LANDLORD
PERSONAL PROPERTY

 

EXHIBIT
C  FAIR
MARKET VALUE

 

EXHIBIT
D  CERTAIN
DEFINITIONS

 

EXHIBIT
E  FINANCIAL,
MANAGEMENT AND REGULATORY REPORTS

 

EXHIBIT
F  SCHEDULE
OF RELATED FACILITIES

 

EXHIBIT
G  SCHEDULE
OF MANDATORY REPAIRS

 

SCHEDULE
1  EXCEPTIONS
TO INSURANCE REQUIREMENTS

 

An
extra section break has been inserted above this paragraph. Do not delete this
section break if you plan to add text after the Table of Contents/Authorities.
Deleting this break will cause Table of Contents/Authorities headers and footers
to appear on any pages following the Table of
Contents/Authorities.

 

LEASE

 

This
“Lease” is
entered into as of March 1, 2005 (the “Effective
Date”)
between QR
LUBBOCK TEXAS PROPERTIES, L.P., a Texas
limited partnership (“Landlord”), and
ESC
IV, LP, a
Washington limited partnership (doing business in the State of Texas as Texas -
ESC IV, L.P.) (“Tenant”), for
the real property and improvements thereon (the “Facility”) as
legally described on Exhibit A and the
“Landlord
Personal Property”
associated therewith as described in Exhibit B or as
may be acquired after the Effective Date (collectively, the “Premises”),
operating as a licensed Alzheimer’s care facility (the “Business”).
Pursuant to its concurrent “Guaranty
of Lease”,
Emeritus Corporation, a Washington corporation (“Guarantor”) has
guaranteed Tenant’s obligations hereunder. In consideration of the mutual
covenants, conditions and agreements set forth herein, Landlord hereby leases
the Premises to Tenant for the Term upon the terms and conditions provided
below. Certain capitalized terms used in this Lease are defined on Exhibit D.

  Term. The
“Term” of this
Lease is the Initial Term plus all
Renewal Terms, and, except as otherwise provided herein, a “Lease
Year” is the
twelve
(12) month period
commencing on April 1 of each year of the Term, it being understood and agreed
that the first Lease Year shall commence on the Effective Date and shall
terminate on March 31, 2006. The “Initial
Term”
commences on the Effective Date and ends on March 31, 2019, and may be extended
for three (3) separate “Renewal
Terms” of
five
(5) years each if:
(a) at least
twelve
(12), but not
more than twenty-four
(24) months prior to
the end of the then current Term, Tenant delivers to Landlord a “Renewal
Notice” that it
desires to exercise its right to extend this Lease for one (1) Renewal Term;
(b) there is
no Event of Default hereunder or under the Related Leases (as hereinafter
defined) on the date Landlord receives the Renewal Notice (the “Exercise
Date”) or on
the last day of the then current Term; and
(c) the
Minimum Rent for the Renewal Term is determined pursuant to Section 2.3 within
ninety
(90) days after
the Exercise Date; and (d) Tenant or
its Affiliate, as applicable, concurrently delivers a Renewal Notice to
Nationwide Health Properties, Inc. (“NHP”) or its
Affiliate in compliance with the terms and conditions of those certain leases
(the “Related
Leases”) which
may have already or hereafter be entered into between NHP and/or its Affiliate,
as landlord, and Tenant and/or its Affiliate, as tenant, with respect to the
health care facilities described on Exhibit
F attached
hereto (each a “Related
Facility” and
collectively, the “Related
Facilities”).

 

  Rent. During
the Term, Tenant shall pay Landlord “Rent”
consisting of “Minimum
Rent”
plus
“Additional
Rent”
determined as provided in this Section 2;
provided, the Rent for any Lease Year shall not be less than one
hundred percent (100%) of the
Rent for the previous Lease Year. The Rent for any month that begins or ends on
other than the first or last day of a calendar month shall be prorated based on
actual days elapsed.

 

Initial
Term Rent. During
the Initial Term, “Minimum
Rent” per
Lease Year is equal to the Landlord’s Investment (as defined below) multiplied
by nine
percent (9.0%).
Commencing with the second (2nd) Lease
Year (which shall commence on April 1, 2006) and continuing thereafter during
the Term (excluding the first Lease Year of any Renewal 

 

1

Term),
Tenant agrees to pay “Additional
Rent” to
Landlord monthly in advance together with the payment of Minimum Rent. Such
Additional Rent (which shall be expressed as an annual amount but shall be
payable in equal monthly installments) shall be equal to the sum of (i) the
Additional Rent for the immediately preceding Lease Year and (ii) the
product of the Minimum Rent and Additional Rent due for the immediately
preceding Lease Year and the lesser of (A) three
percent (3.0%), or (B) a
percentage equal to four (4) times the percentage increase (the "CPI
Increase") in the
United States Department of Labor, Bureau of Labor Statistics Consumer Price
Index for All Urban Wage Earners and Clerical Workers, United States Average,
Subgroup "All Items" (1982 - 1984 = 100) (the "CPI"). In no
event shall the CPI Increase be a negative number. The applicable CPI Increase
shall be calculated annually for each Lease Year by comparing the CPI in effect
on the first calendar day of the Lease Year for which Additional Rent is being
calculated to the first calendar day of the immediately preceding Lease
Year. 

 

Landlord’s
Investment; Rent Adjustments.

 

As used
herein, “Landlord’s
Investment” in the
Premises shall
mean Six Million Seven Hundred Thirty-One Thousand Four Hundred Thirty-Eight
Dollars
($6,731,438),
plus any
amount for Alterations advanced by Landlord pursuant to Section 8.4,
plus any
other amount that, in accordance with any other term or provision of this Lease,
is to be added to Landlord’s Investment, and minus any net
award paid to Landlord for a Partial Taking or Complete Taking pursuant to
Section 18,
minus any
insurance proceeds paid to and retained by Landlord as a result of any casualty,
minus any
other net capital proceeds received by Landlord for any portion of the Premises
sold or conveyed, as to any portion of the Premises for which this Lease is
terminated during the Term in accordance with its terms, and minus any
other amount that, in accordance with any other term of provision of this Lease,
is to be subtracted from Landlord’s Investment. 

 

Concurrently
with any increase or decrease in Landlord’s Investment during the Term as
described in Section 2.2(a), the
Minimum Rent and Additional Rent then due and payable for the balance of the
applicable Lease Year and Term shall be recalculated and reset based on the
adjusted Landlord’s Investment.

 

Renewal
Term Rent. To
establish a
fair market Minimum Rent for the Premises during the Renewal Terms, the Minimum
Rent for each Renewal Term shall be reset and expressed as an annual amount
equal to the greater of (a) the
total of the Minimum
Rent and Additional Rent due for the last Lease Year of the immediately
preceding Term,
multiplied
by one
hundred three percent (103.0%),
or
(b) the
product of: (i) the
“Fair
Market Value” of the
Premises on the Exercise Date as established pursuant to Exhibit C, and
(ii) a
percentage equal to fifty percent (50%) of the sum of (A) the
immediately preceding twenty (20) day trading average of the Ten (10) Year U.S.
Treasury Notes plus five
hundred fifty (550) basis points, plus (B) the
immediately preceding twenty (20) day average dividend yield on the common stock
of NHP plus two
hundred (200) basis points. Commencing with the second (2nd) Lease
Year and continuing thereafter during each Renewal Term, “Additional
Rent” shall
be due and payable and calculated as provided in Section 2.1.

 

2

 

Rent
Caps and Floors.

 

  Notwithstanding any of
the other terms of this Lease, in no event shall the Minimum Rent in the first
(1st) Lease
Year of any Renewal Term exceed one
hundred fifteen percent (115%) of the
Minimum Rent and Additional Rent due for the last Lease Year of the Initial Term
or preceding Renewal Term, as the case may be.

 

  Notwithstanding
any of the other terms of this Lease, in no event shall the Minimum Rent in the
first (1st) Lease
Year of any Renewal Term be less than one
hundred three percent (103%) of the
Minimum Rent and Additional Rent due for the last Lease Year of the Initial Term
or preceding Renewal Term, as the case may be.

 

Payment
Terms. All
Rent and other payments to Landlord shall be paid by wire
transfer or ACH (Automated Clearing House) only. Minimum
Rent and Additional Rent shall be paid in advance in equal monthly installments
on or before the tenth
(10th) day of each
calendar month for the
period commencing on the date such payment is due through the ninth
(9th) day of
following calendar month.

 

Absolute
Net Lease. All
Rent payments
shall be absolutely net to Landlord, free of any and all Taxes, Other Charges,
and operating or other expenses of any kind whatsoever, all of which shall be
paid by Tenant. Tenant shall continue to perform its obligations under this
Lease even if Tenant claims that it has been damaged by Landlord. Thus, Tenant
shall at all times remain obligated under this Lease without any right of
set-off, counterclaim, abatement, deduction or reduction of any kind. Tenant’s
sole right to recover damages against Landlord under this Lease shall be to
prove such damages in a separate action. 

 

  Late
Charges. The
late payment of Rent
or other
amounts due will cause Landlord to lose the use of such money and incur
administrative and other expenses not contemplated under this Lease. While the
exact amount of the foregoing is extremely difficult to ascertain, the parties
agree that as a reasonable estimate of fair compensation to Landlord, if any
Rent or other amount is not paid within (a) two
(2) days after
the due date for such payment, then Tenant shall thereafter pay to Landlord on
demand a late
charge equal to
five
percent (5%) of such
delinquent amounts, and (b) five
(5) days after
the due date for such payment, such unpaid amount shall accrue
interest from
such date at the “Agreed
Rate” of
five
percent (5%) plus
the prime rate of
interest then charged by Wells Fargo Bank, N.A., San Francisco, CA.

 

  Security
Deposit; Collateral for Lease Obligations.

 

 

(a) Subject
to the
limitations set forth in Section 4(e), in the event that at any time following
the sixth (6th) month
of the Initial Term the Rent Coverage Ratio is less than the Applicable Rent
Coverage Ratio set forth below, Tenant shall make deposits to Landlord pursuant
to Section
4(b) until
such time as the total amount of the deposits is equal to three (3)

 

3

times the
monthly Minimum Rent and Additional Rent then due from Tenant to Landlord
(the
“Security
Deposit”). As
used herein, the “Applicable
Rent Coverage Ratio”
means:

 

 

Period
of Determination   Applicable
Rent Coverage Ratio 

 

 

7th through
12th months
of Initial Term    1.10 to
1

 

13th through
18th months
of Initial Term    1.20 to
1

 

19th through
24th months
of Initial Term    1.25 to
1

 

After the
24th month of
Initial Term     1.30 to
1

 

 

(b) The
monthly deposits to be made by Tenant in accordance with Section
4(a) above
shall be due on the tenth (10th) day of
each calendar month in which the actual Rent Coverage Ratio fails to equal or
exceed the Applicable Rent Coverage Ratio described above. Such monthly deposits
shall be equal to five percent (5%) of the gross revenues generated by the
Facilities for the calendar month immediately preceding the date of
determination.

 

 

(c) “Rent
Coverage Ratio” means,
as of the date of determination, the ratio of (i) the
EBITDARM for the
immediately preceding two calendar quarters,
minus (A) an
assumed management fee equal to five percent (5%) of the gross revenues
generated during such two calendar quarters, and (B) the sum
of One
Hundred Twenty-Five Dollars ($125),
multiplied
by the
aggregate
number of licensed dementia care beds and assisted living units in the Facility
and the Related Facilities, to (ii) the
total amount of the Minimum Rent and Additional Rent due for the immediately
preceding two calendar quarters pursuant to the terms of this Lease and the
Related Leases. As used herein, “EBITDARM” means,
for any period of determination, the net income (or loss) of Tenant for such
period to the extent derived from the operation of the Facility
and the Related Facilities,
adjusted to add thereto, to the extent allocable to the Facility and the Related
Facilities, without duplication, any
amounts deducted in determining such net income (or loss) for (v) interest
expense, (w) income
tax expense, (x)
depreciation and amortization expense, (y) rental
expense, and (z)
management fee expense, in each case
determined in conformity with generally accepted accounting principles,
consistently applied.

 

 

 

(d) Landlord
may apply the Security Deposit, in whole or in part, against any Event of
Default, or may use such amounts for any other purpose allowed under applicable
law following the occurrence and during the continuance of an Event of Default.
If Landlord so applies all or any portion of the Security Deposit, Tenant shall,
within five
(5) days of such
application by Landlord and without the requirement of notice or demand by
Landlord, make a cash deposit to Landlord in an amount sufficient to restore the
Security Deposit to the amount on deposit with Landlord immediately prior to the
application of such funds by Landlord.

 

 

(e) Notwithstanding
the provisions of Sections
4(a) and (b) above,
in the event that (i) Tenant
has made monthly deposits to Landlord that equal or exceed one and
one-half (11⁄2) times the monthly Minimum Rent and Additional Rent then due from
Tenant to Landlord, and
(ii) the Rent
Coverage Ratio subsequently equals or exceeds 1.5 to 1
for two (2) consecutive calendar quarters, the
maximum amount of the Security Deposit due from Tenant to Landlord, shall be

 

4

reduced
to one and one-half (11⁄2) times the monthly Minimum Rent and Additional Rent then
due from Tenant to Landlord. Upon the occurrence of such event, Landlord shall
remit any excess amounts then on deposit to Tenant (the “Released
Amount”) within
ten (10) days following Tenant’s delivery of satisfactory evidence to Landlord
that the Rent Coverage Ratio was equal to or greater than 1.5 to 1 for the two
(2) immediately preceding calendar quarters. Notwithstanding the foregoing, if
the Rent Coverage Ratio subsequently declines to less than 1.5 to 1: (i) but is
equal to or greater than the Applicable Rent Coverage Ratio, Tenant shall be
entitled to retain the Released Amount or (ii) and is less than the Applicable
Rent Coverage Ratio, then the Released Amount shall be returned by Tenant to
Landlord within ten (10) days of the date of determination and held by Landlord
as a portion of the Security Deposit then due under the terms of this Lease and
Tenant shall be required to reinstate the Security Deposit to the amount
required by Section 4(a) in accordance with the payment provisions of Section
4(b). 

 

 

(f) Tenant
acknowledges that pursuant to the terms of the Loan Assumption and Substitution
Agreement dated as of March 1, 2005 by and among Landlord, NH Texas Properties
Limited Partnership, a Texas limited partnership, NHP, Lubbock Group, Ltd., a
Texas limited partnership, Craig W. Spaulding, Jerry Erwin and Wells Fargo (as
hereinafter defined) (the “Loan
Assumption Agreement”)
Landlord is required to maintain a Minimum OLCR Compliance Reserve (as defined
in the Loan Assumption Agreement) in the amount of Two Hundred Thousand Dollars
($200,000). Accordingly, at all times during which Landlord is obligated to
maintain such Minimum OLCR Compliance Reserve, Tenant shall, in addition to any
other security deposit required to be made by Tenant pursuant to the foregoing
provisions of this Section
4,
maintain with Landlord a $200,000 cash deposit or Letter of Credit (as defined a
Letter of Credit Agreement to be executed by and between Tenant and Landlord in
such event (the “LC
Agreement”)) as
partial collateral to secure Tenant’s performance of the terms and conditions of
this Lease (the “OLCR
Compliance Deposit”). Each
Letter of Credit comprising the OLCR Compliance Deposit shall be in the form set
forth in, and shall otherwise be in compliance with the terms of, the LC
Agreement. Landlord shall not be deemed a trustee as to any such cash deposit
and shall have the right to commingle any such security deposit with its own or
other funds. Landlord may apply the OLCR Compliance Deposit (cash deposit and/or
proceeds of any draw on a Letter of Credit), in whole or in part, against any
Event of Default. The application by Landlord of the OLCR Compliance Deposit to
an Event of Default shall not be deemed to constitute a cure of such default
and, at any time Landlord applies all or any portion of the OLCR Compliance
Deposit, Tenant shall, within five
(5) days of
Landlord’s written demand therefor, deposit cash or post additional Letters of
Credit such that the total amount of cash and undrawn face amounts of Letters of
Credit comprising the OLCR Compliance Deposit is equal to $200,000.
Notwithstanding the foregoing, Landlord shall have no obligation to apply the
OLCR Compliance Deposit to an Event of Default hereunder. At such time as
Landlord is no longer obligated to maintain the Minimum OLCR Compliance Reserve
and such cash deposit or letter of credit is returned to Landlord, Landlord
shall promptly disburse such funds or return Tenant’s Letter of Credit, as the
case may be, to Tenant. Any interest actually earned on the Minimum OLCR
Compliance Reserve and remitted to Landlord shall also be concurrently delivered
from Landlord to Tenant. 

 

5

 

  Taxes
and Other Charges. At the
commencement and end of the Term, all Taxes and Other Charges shall be prorated.
Landlord shall promptly forward to Tenant copies of all bills and payment
receipts for Taxes or Other Charges received by it. Subject to Landlord’s
obligations to make payments from the impound deposits made by Tenant pursuant
to Section 5.2 below,
Tenant shall pay and discharge (including the filing of all required returns),
prior to delinquency or imposition of any fine, penalty, interest or other cost
(“Penalty”)
(excluding any Penalty payable by Landlord pursuant to Section
5.2 below),
(a) “Taxes”,
consisting of any property (real and personal) and other taxes and assessments
levied or assessed with respect to this Lease, any portion of the Premises or
Landlord, with respect to the Premises [including,
without limitation, any state or county occupation tax, transaction privilege,
franchise taxes, business privilege, rental tax or other excise taxes, and other
assessments levied or assessed against the Premises, Tenant’s interest therein
or Landlord (with respect to this Lease and/or the Premises, but excluding any
local, state or federal income tax based upon the net income of
Landlord and any
transfer tax or stamps for its transfer of any interest in any portion of the
Premises to any Person other than Tenant or any of its Affiliates)], and
(b) “Other
Charges”,
consisting of any utilities and other costs and expenses of the Business or any
portion of the Premises and all other charges, obligations or deposits assessed
against any portion of the Premises during the Term. Tenant may pay the
foregoing in permitted installments (whether or not interest accrues on the
unpaid balance) when due and before any Penalty. Within thirty
(30) days of its
receipt of Landlord’s written notice of payment from a source other than the
amounts impounded by Tenant with Landlord pursuant to Section 5.2, Tenant shall
pay Landlord an amount equal to any Taxes or Penalty that Landlord at any time
is assessed or otherwise becomes responsible and for which Tenant is liable
under this Lease, whether arising from the sole liability of Landlord or the
joint liability of the parties. 

 

Protests. Tenant
has the right, but not the obligation, in good faith to protest or contest (a
“Protest”) in
whole or in part (a) the
amount or payment of any Taxes or Other Charges and (b) the
existence, amount or validity of any Lien (as defined in Section 8.1) by
appropriate proceedings sufficient to prevent its collection or other
realization and the sale, forfeiture or loss of any portion of the Premises or
Rent to satisfy it (so long as it provides Landlord with reasonable security to
assure the foregoing). Tenant shall diligently prosecute any such Protest at its
sole cost and expense and pay such Taxes, Other Charges or Lien before the
imposition of any Penalty. Landlord will cooperate fully in any Protest that
involves an amount assessed against it.

 

Impound.

 

 

(a)Tenant
shall include with each Minimum Rent payment a deposit of
one-twelfth
(1/12th) of the
amount required
to discharge the annual amount of real property Taxes secured by a Lien
encumbering any portion of the Premises as and when they become due. The
deposits shall not bear interest nor be held by Landlord in trust or as an agent
of Tenant, but rather shall be applied to the payment of the related
obligations. Provided that the impound deposits are then sufficient for payment
of the applicable obligations, (i) the
amounts held by 

 

6

Landlord
shall be applied by Landlord directly to the payment of the related obligations
in a timely fashion and prior to the imposition of any Penalty, and (ii) if any
Penalty results from Landlord’s failure to timely make any such payment, such
Penalty shall be borne by Landlord. If at any time within thirty
(30) days prior to
the due date the deposits shall be insufficient for the payment of the
obligation in full, Tenant shall within ten
(10) days after
demand deposit the deficiency with Landlord. If deposits are in excess of the
actual obligation, the required monthly deposits for the ensuing Lease Year
shall be reduced proportionately and any such excess at the end of the final
Lease Year shall be refunded to Tenant within thirty
calendar (30) days so long
as there is not then outstanding an Event of Default under this
Lease. Tenant
shall forward to Landlord or its designee all Tax bills, bond and assessment
statements as soon as they are received. If Landlord transfers this Lease, it
shall transfer all such deposits to the transferee, and Landlord shall
thereafter have no liability of any kind with respect thereto. 

 

 

(b) Notwithstanding
the provisions of Section
5.2(a) above,
in the
event the monthly
impound deposits required for real property Taxes under the terms of the Wells
Fargo Loan Documents (as
hereinafter defined) are greater than the amount that Tenant would be required
to pay under the terms of Section
5.2(a) and
Landlord has given Tenant written notice thereof, the monthly impound deposits
required to be made by Tenant pursuant to Section
5.2(a) shall
increase to equal the amount of the monthly impound deposits required for real
property Taxes under the terms of the Wells Fargo Loan Documents.
As used
herein, “Wells
Fargo Loan Documents” means
the following documents evidencing and/or securing that certain loan (the
“Loan”) in the
original principal amount of Four Million One Hundred Thousand Dollars
($4,100,000) assigned by Wachovia Bank, National Association (f/k/a First Union
National Bank) (“Original
Lender”) to
Wells Fargo Bank,
N.A. (f/k/a Wells Fargo Bank Minnesota, N.A. (f/k/a Norwest Bank, National
Association)) (“Wells
Fargo”), as
Trustee for the Registered Holders of First Union National Bank Commercial
Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 2000-C2:
(a) that
certain Promissory Note dated as of April 19, 2000, executed by Lubbock Group,
Ltd. (“Lubbock
Ltd”) in
favor of Original Lender and evidencing the Loan; (b) that certain Deed of Trust
and Security Agreement dated as of April 19, 2000, executed by Lubbock Ltd, as
grantor, in favor of Michael Alessio, as trustee, for the benefit of Original
Lender, as beneficiary, and recorded in the official records of the County of
Lubbock, State of Texas (the “Deed
of Trust”); and
(c) any other document, agreement or instrument which now or hereafter evidences
and/or secures the Loan, together with any replacements, substitutions,
supplements, modifications or amendments thereof or thereto (including, without
limitation, any amendment to such documents made in connection with Landlord’s
acquisition of the Premises and assumption of the Loan).

 

  Insurance.

 

6.1 Requirements. All
insurance provided for in this Lease shall (i) be
maintained under valid and enforceable policies issued by insurers licensed and
approved to do business in the state where the Facility is located and having
general policyholders and financial ratings of not less than “A” and “XII”,
respectively, in the then current Best’s Insurance Report, (ii) 
name Landlord as an additional insured and, for the casualty policy referenced
in Section 6.1, as the
owner and loss payable beneficiary, (iii) be
on an “occurrence” basis, 

 

7

(iv) cover
all of Tenant’s operations at the Facility or portion of the Premises,
(v) provide
that the policy may not be canceled except upon not less than thirty
(30) days prior
written notice to Landlord and (vi) be
primary and provide that any insurance with respect to any portion of the
Premises maintained by Landlord is excess and noncontributing with Tenant’s
insurance. The parties hereby waive as to each other all rights of subrogation
which any insurance carrier, or either of them, may have by reason of any
provision in any policy issued to them, provided such waiver does not thereby
invalidate such policy. Satisfactory insurer certificates evidencing the
existence of the insurance required by this Lease and showing the interest of
Landlord shall be provided to it prior to the commencement of the Term or, for a
renewal policy, prior to the expiration date of the policy being renewed. If
required by Landlord’s lender in
writing, Tenant shall provide Landlord with a complete copy of the related
policy within twenty
(20) days of
Landlord’s written request therefor. If requested by Landlord, Tenant shall
permit representatives of Landlord, upon not less than seventy-two (72) hours
notice, to review a complete copy of the applicable insurance policy at the
principal business office of Tenant. Provided that Landlord agrees to maintain
the confidentiality of the terms thereof, Landlord shall be entitled to copy
such portions of the applicable insurance policy as may be reasonably necessary
to Landlord as the fee owner of the Premises. Tenant shall maintain the
following insurance and any claims thereunder shall be adjudicated by and at the
expense of it or its insurance carrier:

 

Fire
and Extended Coverage with
respect to the Facility against loss or damage from all causes under standard
“all risk” property insurance coverage with an agreed amount endorsement (such
that the insurance carrier has accepted the amount of coverage and has agreed
that there will be no co-insurance penalty), without exclusion for fire,
lightning, windstorm, explosion, smoke damage, vehicle damage, sprinkler
leakage, flood, vandalism, earthquake, malicious mischief or any other risks
normally covered under an extended coverage endorsement, in amounts that are not
less than the actual replacement value of the Facility and all Tenant Personal
Property associated therewith (including the cost of compliance with changes in
zoning and building codes and other laws and regulations, demolition and debris
removal and increased cost of construction);

 

Commercial
General Public Liability Coverage with
respect to the Facility (including products liability and broad form coverage)
against claims for bodily injury, death or property damage occurring on, in or
about the Facility, affording the parties protection of not less than Five
Million Dollars ($5,000,000)
for
bodily injury or death to any one person, not less than Ten Million Dollars
($10,000,000) for any
one accident, and not less than One Million Dollars ($1,000,000) for
property damage;

 

Professional
Liability Coverage with
respect to the Facility for damages for injury, death, loss of service or
otherwise on account of professional services rendered or which should have been
rendered, in a minimum amount of Five Million Dollars ($5,000,000)
per claim
and Ten Million Dollars ($10,000,000)
in the
aggregate;

 

8

 

Worker’s
Compensation Coverage with
respect to the Facility for injuries sustained by Tenant’s employees in the
course of their employment and otherwise consistent with all applicable legal
requirements;

 

Boiler
and Pressure Vessel Coverage with
respect to the Facility on any fixtures or equipment which are capable of
bursting or exploding, in an amount not less than Five Million Dollars
($5,000,000) for
resulting damage to property, bodily injury or death and with an endorsement for
boiler business interruption insurance;

 

Business
Interruption and Extra Expense Coverage with
respect to the Facility for loss of rental value for a period not less than
one
(1) year;
and

 

Deductibles/Self-Insured
Retentions for the
above policies shall not be greater than Fifty Thousand Dollars ($50,000), and
Landlord shall have the right at any time to require a lower such amount or set
higher policy limits, to the extent commercially available and reasonable and
customary for similar properties.

 

 

6.2Exceptions
to Insurance Requirements. Tenant
has
advised Landlord that, to the
extent described on Schedule
1, it is
not in compliance as of the Effective Date with the requirements set forth in
Section 6.1. Tenant
nonetheless represents and warrants to Landlord that the policies of insurance
(including the deductible or self-insured retention provisions thereof) and risk
management programs that Tenant has in effect as of the Effective Date are, and
as may be in effect at any time during the Term will be, consistent with custom,
practice and prudent management standards in the business and industry in which
Tenant is engaged. As and when insurance meeting the requirements set forth in
Section 6.1 becomes
generally available to operators of alzheimer’s care facilities owned by
institutional landlords and similar to the Facility at commercially reasonable
rates, as jointly determined by Landlord and Tenant in their respective
reasonable judgment, Tenant shall purchase and maintain such insurance. Tenant’s
non-compliance with the requirements of Section 6.1 shall
not give rise to an Event of Default so long as (i) no
other Event of Default then exists, (ii) such
non-compliance is limited to the matters described on Schedule 1, as it
may be amended from time to time during the Term with the consent of Landlord in
its sole discretion, (iii) the
representations and warranties set forth in this Section 6.2 remain
true, correct and complete in all respects, and (iv) Tenant
is in compliance with the other covenants contained in this Section 6.2 and
Section
6.3.
Notwithstanding
anything to the contrary set forth herein, if any insurance provided by Tenant
in accordance with Schedule
1 provides
for coverage on a “claims-made” basis, every
“claims made” renewal or replacement policy shall continue to show the first
date of claims made coverage as of the Effective Date, or a date prior thereto,
as its prior acts/retroactive or continuity date. Furthermore, if any “claims
made” policy is cancelled or non-renewed, and not replaced by an “occurrence”
policy with “full prior acts”, Tenant will purchase an “Extended Reporting
Provision Option” (i.e., tail coverage), for a minimum of two (2) years, and if
any “claims made” policy is subsequently replaced by an “occurrence” policy,
Tenant agrees that said “occurrence” policy will contain a “full prior acts”
provision.

 

9

 

 

6.3 Reimbursement
of Landlord’s Insurance Costs. During
any Lease Year or portion thereof in which Tenant is not in compliance with the
provisions of Section 6.1 (without
consideration of the effect of Section 6.2), Tenant
shall reimburse Landlord, within ten
(10) days of
Landlord’s demand therefor, for the costs of the premiums of the general
liability and environmental insurance policies maintained by Landlord, or
contributions to self-insurance in lieu thereof, in connection with the
Premises, which amount shall not exceed in any Lease Year the sum of eleven
cents ($.11) multiplied
by the
total square footage of the Facility located on the Premises (as adjusted at the
end of each Lease Year for increases since the Effective Date in the CPI).
Tenant shall have no right to receive any proceeds or other benefits from any
such insurance. For purposes of this Section 6.3, Tenant
shall not be in compliance with Section 6.1 (without
consideration of the effect of Section 6.2) at any
such time that any insurance required hereunder is provided to Tenant by or
through a “captive” insurance company.

 

 

6.4 Determination
of Commercial Reasonableness. In
the event
that Landlord and Tenant are unable to agree on any matter in this
Section 6 requiring a determination of commercial reasonableness, such
determination shall be made by a reputable insurance company, consultant or
expert (an “Insurance Arbitrator”) with experience in the alzheimer’s care
insurance industry as mutually identified by Landlord
and Tenant in the
exercise of their reasonable judgment. As a condition to a determination of
commercial reasonableness with respect to any particular matter, the Insurance
Arbitrator shall be capable of providing, procuring or identifying particular
policies or coverages that would be available to Tenant and would satisfy the
requirement in issue. The determinations made by any such experts shall be
binding on Landlord and
Tenant for purposes of Section
6, and the
costs, fees and expenses of the same shall be shared equally by Tenant and
Landlord. If Tenant and Landlord are unable to mutually agree upon an Insurance
Arbitrator, each party shall within ten
(10) days after
written demand by the other select one Insurance Arbitrator. Within ten
(10) days of such
selection, the Insurance Arbitrators so selected by the parties shall select a
third (3rd)
Insurance Arbitrator who shall be solely responsible for rendering a final
determination of commercial reasonableness. If either party fails to select an
Insurance Arbitrator within the time period set forth above, the Insurance
Arbitrator selected by the other party shall alone render the final
determination of commercial reasonableness in accordance with the foregoing
provisions and such final determination shall be binding upon the parties. If
the Insurance Arbitrators selected by the parties are unable to agree upon a
third (3rd)
Insurance Arbitrator within the time period set forth above, either party shall
have the right to apply at Tenant’s and Landlord’s joint expense to the
presiding judge of the court of original trial jurisdiction in the county in
which the Premises are located to name the third (3rd)
Insurance Arbitrator. 

 

 

6.5 Insurance
Required under Wells Fargo Loan Documents.
Notwithstanding any provision set forth in this Section
6, in the
event that the insurance
coverages and policy amounts required
to be maintained under the terms of the Wells Fargo Loan Documents are greater
than the insurance coverages and policy amounts required under the terms of this
Lease and Wells Fargo has not agreed to waive such requirements under the terms
of any documents to 

 

10

which
Wells Fargo and Tenant may be a party with respect to the Facility, Tenant shall
be obligated to maintain such insurance policies and coverages as are necessary
to comply with the requirements under the Wells Fargo Loan Documents.
Landlord
covenants and agrees that it shall not enter into any agreement to modify the
insurance requirements under the Wells Fargo Loan Documents without the prior
consent of Tenant, which consent shall not be unreasonably withheld or
delayed.

 

  Use,
Regulatory Compliance and Preservation of Business.

 

Permitted
Use; Qualified Care. Tenant
shall continuously use and occupy the Facility during the Term as a licensed
alzheimer’s care facility with not less than thirty (30) units and fifty-six
(56) beds and for ancillary services relating thereto, but for no other purpose.
Landlord acknowledges and agrees that Tenant shall have the right to combine
units at the Facility at the request of a resident or to provide for their use
by multiple residents. Tenant shall not allow the average occupancy of the
Facility for any trailing three
(3) month period
to be less than sixty percent
(60%). Tenant
shall provide care, treatment and services to the residents of the Facility and
the Business conducted thereon in a manner consistent with all applicable
laws.

 

Regulatory
Compliance .
Tenant, the
Facility and the other portions of the Premises shall comply in all material
respects with all licensing and other laws and all CC&R’s and other use or
maintenance requirements applicable to the Business conducted thereon and, to
the extent Tenant elects to participate in the same or as may be required by law
to serve its resident population, all Medicare, Medicaid and other third-party
payor certification requirements, including timely filing properly completed
cost and other required reports, timely paying all expenses shown thereon, and
ensuring that, to the extent Tenant has elected to participate in the same or as
required by law to serve its respective resident population, the Facility
continues to be fully certified for participation in Medicare and Medicaid
throughout the Term and when it is returned to Landlord, all without any
suspension, revocation, decertification or other material limitation. Further,
Tenant shall not commit any act or omission that would in any way violate any
certificate of occupancy affecting the Facility, result in closure of the
Business conducted at the Facility or result in the sale or transfer of all or
any portion of any related certificate of need, bed rights or other similar
certificate or license. All inspection fees, costs and charges associated with a
change of such licensure or certification shall be borne solely by
Tenant.

 

Preservation
of Business. Tenant
acknowledges that a fair return to Landlord on and protection of its investment
in the Premises is dependent, in part, on Tenant’s dedication to the Business
and the concentration on the Facility of similar businesses of Tenant and its
Affiliates in the geographical area of the Facility. Tenant further acknowledges
that the diversion of residents or patient care activities from the Facility to
other facilities owned or operated by Tenant or its Affiliates at any time
during the Term will have a material adverse affect on the value and utility of
the Facility. Therefore, Tenant agrees that during the Term and for a period of
one
(1) year thereafter,
neither Tenant nor any of its Affiliates shall, without the prior written
consent of Landlord: (i) operate,
own, participate in or otherwise receive revenues 

 

11

from any
other business providing services similar to those of the Business of the
Facility within a ten (10) mile radius of the Facility; provided,
however, the
foregoing shall not be deemed or construed to apply to the facility known as
Elmbrook Estates and located at 5301 66th Street,
Lubbock, Texas 79424, which Landlord acknowledges is currently owned, leased or
managed by Tenant or its Affiliate or to any facilities acquired by Tenant or
its Affiliates after the Effective Date (except during the last three (3) Leases
Years of the
Initial Term or any applicable Renewal Term unless
Tenant has elected to renew this Lease for the next applicable Renewal
Term), whether
by acquisition, lease or management agreement, as part of a transaction or
series of related transactions involving three (3) or more facilities, provided
that, (A) less than fifty percent (50%) of the facilities involved in any such
transaction are located within the area protected by this Section
7.3 and
Section 7.3 of each of the Related Leases, and (B) without the prior written
consent of Landlord no such transactions may collectively have the effect of
allowing Tenant to operate more than five (5) facilities within the area
protected by this Section
7.3 and
Section 7.3 of each of the Related Leases, or
(ii) except as
is necessary to provide residents or patients with an alternative level of care
or as is otherwise necessary as a result of an admissions ban or non payment of
stay or to ensure the health and welfare of other residents of the Facility, (A)
recommend or solicit the removal or transfer of any resident or patient from the
Facility to any other nursing, health care, senior housing or retirement housing
facility or (B) divert actual or potential residents or patients of the Business
conducted at the Facility to any other facilities owned or operated by Tenant or
its Affiliates or to facilities from which Tenant or its Affiliates receive any
type of referral fees or other compensation for transfers. Tenant further agrees
that during the last
two (2) years of the Initial Term or any applicable Renewal Term (unless Tenant
has elected to renew this Lease for the next applicable Renewal Term)
and for a
period of one (1) year after the
expiration or earlier termination of the Term, Tenant
shall not employ any management or supervisory personnel working at the Facility
for any other business without the consent of Landlord in its reasonable
discretion. Notwithstanding the foregoing, unless this Lease terminates as a
result of an Event of Default by Tenant, the prohibition of employment during
the one (1) year period after the expiration or earlier termination of the Term
shall not apply to unsolicited personnel who approach Tenant directly and
request employment by Tenant.

 

  Acceptance,
Maintenance, Upgrade, Alteration and Environmental.

 

Acceptance
“AS IS”; No Liens. Tenant
acknowledges that it is presently engaged in operations like the Business
conducted at the Facility in the state where the Facility is located and has
expertise in such industry and, in deciding to enter into this Lease, has not
relied on any representations or warranties, express or implied, of any kind
from Landlord. Tenant has examined the condition of title to and thoroughly
investigated the Premises, has selected the Premises to its own specifications,
has concluded that no improvements or modifications to them are required in
order to conduct the Business, and accepts them on an “AS
IS” basis
and assumes all responsibility and cost for the correction of any observed or
unobserved deficiencies or violations. Except with respect to the liens which
are being duly protested in accordance with Section 5.1, and
liens on furniture, fixtures and equipment located at the Facility and acquired
by Tenant during the Term, provided the value of the furniture, fixtures and
equipment secured by such liens does not exceed Seventy Five Thousand and

 

12

no/100
Dollars ($75,000), Tenant shall not cause or permit any lien, levy or attachment
to be placed or assessed against any portion of the Premises or the operation
thereof (a “Lien”) for
any reason (excluding,
however, any such Liens arising from the acts or omissions of Landlord or its
predecessors in interest in the Premises or any
Liens granted in favor of Wells Fargo pursuant to any collateral documents
executed by Tenant in favor of Wells Fargo (the “Tenant
Collateral Documents”) in
connection with Landlord’s acquisition of the Premises and assumption of the
Loan; including, without limitation, the: (i)
Assignment of Leases and Rents, (ii) Assignment of Warranties and Other Contract
Rights, (iii) Hypothecation Agreement, (iv) Assignment and Subordination of
Property Management Agreement, (v) Subordination, Non-Disturbance and Attornment
Agreement, and (vi) Closing Side Letter Agreement).

 

Tenant’s
Maintenance Obligations. Tenant
shall (a) keep and
maintain the Premises in good appearance, repair and condition and maintain
proper housekeeping, (b) promptly
make all repairs (interior and exterior, structural and nonstructural, ordinary
and extraordinary, foreseen and unforeseen) necessary to keep the Facility in
good and lawful order and condition and in substantial compliance with all
applicable requirements and laws relating to the Business conducted thereon,
including if applicable certification for participation in Medicare and
Medicaid, and (c) keep and
maintain all Landlord and Tenant Personal Property in good condition, ordinary
wear and tear excepted, and repair and replace such property consistent with
prudent industry practice. In addition, Tenant shall, within one (1) year
following the Effective Date and at Tenant’s sole cost and expense, diligently
make the repairs and/or improvements to the Facility set forth on Exhibit
G attached
hereto, if any (the “Mandatory
Repairs”).

 

Upgrade
Expenditures.

 

 

(a) Tenant
shall deliver to Landlord, with each payment of Minimum Rent, a deposit to be
added to a reserve (the “Upgrade
Reserve”) equal
to the sum of (a) of
one-twelfth
(1/12th) of the
Applicable Annual Reserve (as hereinafter defined and as
adjusted annually after the tenth (10th) Lease
Year for increases in the CPI since the commencement of the tenth
(10th) Lease
Year),
multiplied
by (b) the
aggregate number of alzheimer’s care units in the Facility (the
“Upgrade
Minimum”)
minus
(c) the
Upgrade Overage (as hereinafter defined). As used herein, the “Applicable
Annual Reserve”
means:

 

 

 

Lease
Years    Applicable
Annual Reserve 

 

 

One
through Four     $
360.00

 

Five
through Seven     $
460.00

 

Eight
through Ten      $
500.00

 

Each
Lease Year thereafter    $
500.001 

 

 

From time
to time, but not more often than twice in any calendar month and provided that
no 

 

13

Event of
Default is then continuing, Landlord will disburse to Tenant amounts from the
Upgrade Reserve for the payment of costs incurred by Tenant with respect to the
Premises, subject to the following conditions: (i) the
costs incurred by Tenant shall be for the purposes of making capital
improvements to the Facility, acquiring furniture and fixtures needed for the
operation of the Facility or making Upgrade Expenditures (the “Permitted
Expenditures”);
provided,
however, in no
event shall the Permitted Expenditures be deemed or construed to include the
costs of the Mandatory Repairs to be made by Tenant pursuant to Section
8.2 above;
and (ii) Tenant’s
request for disbursement shall be accompanied with such invoices or purchase
orders evidencing the expenditure as Landlord may reasonably require. Landlord
shall make the reimbursements to Tenant required hereunder within fourteen
(14) days after
satisfaction of all conditions to such disbursement. Upon reasonable advance
request, Landlord may require Tenant to procure mechanic’s lien waivers, in form
and substance reasonably satisfactory to Landlord, in connection with any
Upgrade Expenditures in excess of Twenty-Five
Thousand Dollars ($25,000). As used
herein, “Upgrade
Expenditures” means
expenditures in commercially reasonable amounts to Persons not affiliated with
Tenant for (x) upgrades
or improvements to the Facility that have the effect of maintaining or improving
its competitive position in its respective marketplace, including new or
replacement wallpaper, tiles, window coverings, lighting fixtures, painting,
upgraded landscaping, carpeting, architectural adornments, common area amenities
and the like, but excluding capital improvements or repairs such as repairs or
replacements of the roof, structural elements of the walls, parking area or the
electrical, plumbing, HVAC or other mechanical or structural systems, and
(y) other
improvements to the Facility as reasonably approved by Landlord. Any amount
remaining in the Upgrade Reserve at the expiration of the Term or earlier
termination of this Lease shall be retained by Landlord as additional or
supplemental Rent hereunder. As used herein “Upgrade
Overage” means
any amounts expended by Tenant on the Permitted Expenditures in the two
immediately preceding Lease Years in excess of the Upgrade Minimum (excluding
any such amounts that are financed by Tenant and secured by a lien on the
personal property relating thereto). 

 

 

(b) Notwithstanding
the provisions of Section
8(a) above,
in the event the monthly deposits
required to be made to the Replacement Reserve (as defined in the Wells Fargo
Loan Documents) under the terms of the
Wells Fargo Loan Documents are greater than the amount that Tenant would be
otherwise be required to deliver under the terms of Section
8(a), the
monthly Upgrade Minimum shall be equal to the amount of the monthly Replacement
Reserve deposits required to be made under the Wells Fargo Loan Documents.
Tenant further covenants and agrees that any disbursement request made by Tenant
shall be accompanied with copies of such invoices or purchase orders, lien
waivers and other documentation and may be required by Wells Fargo in order to
make disbursements from the Replacement Reserve. Landlord covenants and agrees
that it (i) will
cooperate with Tenant and execute such documents as may reasonably be necessary
to cause Wells Fargo to make required disbursements from the Replacement
Reserve, and (ii) shall
not enter into any agreement to increase the Replacement Reserve requirements
under the Wells Fargo Loan Documents without the prior consent of Tenant, which
consent shall not be unreasonably withheld or delayed.

 

Alterations
by Tenant. Tenant
may alter, improve, exchange, replace, modify or expand (collectively,
“Alterations”) the
Facility, equipment or appliances in the Premises from time to time as it may
determine is desirable for the continuing and proper use and maintenance of the
Premises; provided, that any Alterations in excess of Two Hundred Fifty Thousand
Dollars ($250,000) during
any Lease Year with respect to the Facility shall require Landlord’s prior
written consent, which consent shall not be unreasonably withheld or delayed;
provided further, that any Alterations to the Premises must satisfy the
requirements set forth in Sections
4.04 (2) and (3) of
Revenue Procedure 2001-28, 2001-19 I.R.B. 1156. All Alterations shall
immediately become a part of the Premises and the property of Landlord subject
to this Lease, and except to the extent that Landlord in its sole discretion
agrees to fund them following Tenant’s written request therefor, the cost of all
Alterations or other purchases, whether undertaken as an on-going licensing,
Medicare, Medicaid or other regulatory requirement, or otherwise shall be borne
solely by Tenant. All Alterations shall be done in a good and workmanlike manner
in compliance with all applicable laws and the insurance required under this
Lease. 

 

Hazardous
Materials.
Tenant’s use of the Premises shall comply with all Hazardous Materials Laws. If
any Environmental Activities occur or are suspected to have occurred in
violation of any Hazardous Materials Laws or if Tenant has received notice of
any Hazardous Materials Claim against any portion of the Premises, Tenant shall
promptly obtain all permits and approvals necessary to remedy any such actual or
suspected problem through the removal of Hazardous Materials or otherwise, and
upon Landlord’s approval of the remediation plan, remedy any such problem to the
satisfaction of Landlord and all applicable governmental authorities, in
accordance with all Hazardous Materials Laws and good business practices. Tenant
shall immediately advise Landlord in writing of (a) any
Environmental Activities in violation of any Hazardous Materials Laws;
(b) any
Hazardous Materials Claims against Tenant or any portion of the Premises;
(c) any
remedial action taken by Tenant in response to any Hazardous Materials Claims or
any Hazardous Materials on, under or about any portion of the Premises in
violation of any Hazardous Materials Laws; (d) Tenant’s
discovery of any occurrence or condition on or in the vicinity of the Premises
that materially increases the risk that any portion of the Premises will be
exposed to Hazardous Materials; and (e) all
communications to or from Tenant, any governmental authority or any other Person
relating to Hazardous Materials Laws or Hazardous Materials Claims with respect
to the Premises, including copies thereof. Notwithstanding any other provision
of this Lease, if any Hazardous Materials are discovered on, under or about any
portion of the Premises in violation of any Hazardous Materials Law, the Term
shall be automatically extended and this Lease shall remain in full force and
effect until the earlier to occur of the completion of all remedial action or
monitoring, as approved by Landlord, in accordance with all Hazardous Materials
Laws, or the date specified in a written notice from Landlord to Tenant
terminating this Lease (which date may be subsequent to, but not earlier than,
the date upon which the Term was to have expired). Landlord shall have the
right, at Tenant’s sole cost and expense (including, without limitation,
Landlord’s reasonable attorneys’ fees and costs) and with counsel chosen by
Landlord, to join and participate in, as a party if it so elects, any legal
proceedings or actions initiated in connection with any Hazardous Materials
Claims.

 

14

 

  Tenant
Property and Security Interest.

 

Tenant
Property. Tenant
shall obtain and install all items of furniture, fixtures, supplies and
equipment not included as Landlord Personal Property as shall be necessary or
reasonably appropriate to operate the Facility in compliance with this Lease
(“Tenant
Personal Property”).
(Tenant Personal Property and “Tenant
Intangible Property” shall
be collectively referred to herein as “Tenant
Property”.) As
used herein, “Tenant
Intangible Property” means
all the following at any time owned by Tenant in connection with its use of the
Premises during the Term: Medicare, Medicaid and other accounts and proceeds
thereof; rents, profits, income or revenue derived from such operation or use;
all documents, chattel paper, instruments, contract rights (including contracts
with residents, employees and third-party payors), deposit accounts, general
intangibles and choses in action; refunds of any Taxes or Other Charges;
licenses and permits necessary or desirable for Tenant’s use of the Premises,
including any certified Medicaid beds, any applicable certificate of need or
other similar certificate, and, to the extent permitted by law, the exclusive
right to transfer, move or apply for the foregoing and manage the Business
conducted at the Premises (including the right to apply for permission to reduce
the licensed bed complement, take any of the licensed beds out of service or
move the beds to a different location); and the right to use the name “Quail
Ridge” and any other trade or other name or logo now or hereafter associated
with Tenant’s operation of the Premises (excluding the “Emeritus” or “ESC” name
or any variation thereof and any name that now or hereafter begins with
“Loyalton of”). 

 

Landlord’s
Security Interest and Financing Statements. The
parties intend that upon the occurrence of an Event of Default under this Lease,
Landlord will have the right, subject to any limitations imposed by applicable
law, including any requirements that Landlord or its designee must be licensed
to operate the Facility before assuming operational control with respect
thereto, to control the Tenant Property so that Landlord or its designee can
operate or re-let the Facility and associated personal property intact for use
as a licensed facility engaged in the applicable Business. Therefore, to
implement the intention of the parties, and for the purpose of securing the
payment and performance of Tenant’s obligations under this Lease, subject to any
limitations imposed by applicable law, including any licensure laws, Tenant, as
debtor, hereby grants to Landlord, as secured party, in addition to any
statutory lien provided to Landlord under applicable law, a security interest in
and an express contractual Lien upon, all of Tenant’s right, title and interest
in and to the Tenant Property and any and all products and proceeds thereof,
which Tenant now owns or leases or at anytime during the Term acquires an
interest or right. This Lease constitutes a security agreement covering all such
Tenant Property and Tenant shall keep such Tenant Property free and clear of all
Liens other than Liens in favor of Landlord and Assumable Tenant Property Liens
(as defined below). The security interest granted to Landlord hereunder is
intended by the parties to be subordinate to any security interest granted in
Tenant Personal Property in connection with the financing or leasing of all or
any portion thereof, so long as, if the value of the property which is subject
to such financing exceeds Seventy Five Thousand and no/100 Dollars ($75,000)
with respect to the Facility, the lessor or financier agrees to give Landlord
written notice of any default by Tenant under the terms of such 

 

15

arrangement
and a reasonable time following such notice to cure any such default and to
consent to Landlord’s written assumption of such arrangement upon curing such
default (“Assumable
Tenant Property Liens”).
Landlord agrees to execute and deliver such subordination or intercreditor
agreements as may be reasonably required by a third party creditor of Tenant in
connection with Assumable Tenant Property Liens in favor of such creditor. With
respect to any of the Tenant’s Property now owned or acquired by Tenant during
the Term, this security interest and agreement shall survive the termination of
this Lease resulting from an Event of Default. Tenant shall pay all filing and
reasonable record search fees and other costs for such additional security
agreements, financing statements, fixture filings and other documents as
Landlord may reasonably require to perfect or continue the perfection of its
security interest. Tenant shall have the right to review and approve, which
approval shall not be unreasonably withheld, any financing statements or
continuation statements which Landlord proposes to file. To the extent any
amounts collected by Landlord upon the exercise of its rights under this Section
9.2 exceed the amounts due from Tenant to Landlord under this Lease, including
any amounts due as a result of the occurrence of an Event of Default hereunder,
Landlord shall be required to remit such excess to Tenant.

 

  Financial,
Management and Regulatory Reports. Tenant
shall provide Landlord with the reports
listed in Exhibit
E at the
times described therein, and
such other information about it or the operations of the Premises and Business
as Landlord may reasonably request from time to time. All financial information
provided shall be prepared in accordance with generally accepted accounting
principles consistently applied except with respect to the method of accounting
for resident move in fees, which are on a cash basis. If Tenant or Guarantor is
or becomes subject to any reporting requirements of the Securities and Exchange
Commission during the Term, it shall concurrently deliver to Landlord such
reports as are delivered pursuant to applicable securities laws. Tenant shall be
assessed with a $500 administrative fee for each instance in which Tenant fails
to provide Landlord with the monthly, quarterly or annual financial reports
listed in Exhibit
E within
the time specified therein, which administrative fee shall be immediately due
and payable to Landlord. Notwithstanding
the foregoing, such administrative fee shall not be assessed to Tenant so long
as (a) Tenant is
not delinquent in the delivery of such financial reports more than two (2) times
in any consecutive
twelve (12) month period, and (b) Tenant
remits any delinquent report to Landlord within five (5) business days of
Landlord’s written request therefor.

 

  Representations
and Warranties. Each
party represents and warrants to the other that: (a) this
Lease and all other documents executed or to be executed by it in connection
herewith have been duly authorized and shall be binding upon it; (b) it is
duly organized, validly existing and in good standing under the laws of the
state of its formation and is duly authorized and qualified to perform this
Lease within the state in which the Premises is located; and (c) neither
this Lease nor any other document executed or to be executed in connection
herewith violates the terms of any other agreement of such party.

 

  Events
of Default. So long
as there is no Event of Default, Tenant shall peaceably and quietly have, hold
and enjoy the Premises for the Term, free of any claim or other action not
caused or created by Tenant or pursuant to Sections 17 or
18. The
occurrence of any 

 

16

of the
following events will constitute an “Event
of Default” on the
part of Tenant, and there shall be no cure period therefor except as otherwise
expressly provided: 

 

  Tenant’s
failure to pay within two (2) business days of when due any Rent, tax impound
deposits, Upgrade Reserve Deposits, Other Charges or other required
payments;

 

  (i) The
revocation of any license which would have a material adverse affect on the
operation of the Premises or the certification of the Premises for provider
status under Medicare or Medicaid, if applicable; (ii) the
closure of a material portion (as hereinafter defined) of the Business other
than during a period of repair or reconstruction following damage or destruction
thereto or a Taking (as
hereinafter defined) thereof;
(iii) the sale
or transfer, without Landlord’s consent, of all or any portion of any
certificate of need, bed rights or other similar certificate or license relating
to the Business or the Premises; or (iv) the use
of any portion of the Premises other than for a licensed facility engaged in the
Business and for ancillary services relating thereto (each a “Catastrophic
Event of Default”), it
being understood and agreed that for purposes of clause (ii) above the phrase “a
material portion” shall mean any portion of the Premises that is equal to or
greater than ten percent (10%) of the units at the Facility; 

 

  Any other
material suspension, termination or restriction placed upon Tenant, any license
to operate the Business, the Premises or the ability to admit residents or
patients (e.g., an admissions ban or non-payment for new admissions by Medicare
or Medicaid resulting from an inspection survey); provided,
however, if any
such material suspension or restriction is curable by Tenant it shall not
constitute an Event of Default if Tenant promptly commences to cure such breach
and thereafter diligently pursues such cure to the completion thereof within the
lesser of: (i) the time
period in which the applicable governmental agency has given Tenant to undertake
corrective action, or (ii) one
hundred twenty (120) days after the occurrence of any such material suspension
or restriction;

 

  A
material default by Tenant, Guarantor or any
Affiliate of Tenant or Guarantor as of the date of such default [including,
without limitation, Alterra Healthcare Corporation (“Alterra”) if
such entity subsequently becomes an Affiliate of Tenant (an “Alterra
Event”)] with
respect to any scheduled monetary obligation (including, without limitation, any
payment due upon the maturity of an obligation,
but
specifically excluding any payment due upon the acceleration of the maturity of
any such obligation as a result of an event of default thereunder unless such
acceleration is a result of the failure to pay such scheduled monetary
obligation when due or within any applicable cure period) (i) under
any other lease, agreement or obligation between it and Landlord or any of its
Affiliates, which is not cured within any applicable cure period specified
therein, or (ii) with
respect to any such scheduled monetary obligation due under (A) any other lease
or leases with any other party under which Tenant or its Affiliate is obligated
to make annual rental payments in excess of One Hundred Thousand Dollars
($100,000) which is not cured within any applicable cure period specified
therein, or (B) any financing agreement with a then outstanding principal
balance in excess of $1 million with any
other party which is
not cured within any applicable cure period specified therein;
provided,
however, that
the Events of Default set forth in this Section
12(d) shall be
of no force or effect 

 

17

during
any period in which any amounts remain outstanding under the terms of the Wells
Fargo Loan Documents;

 

  (i) the
occurrence of a default by Tenant under the Tenant Collateral Documents which
continues beyond the expiration of any applicable cure period set forth therein,
or (ii)
any material
misstatement or omission of fact in any written report, notice or communication
from Tenant or Guarantor to Landlord with respect to Tenant, the Premises or the
Business;

 

  The
failure to perform or comply with the provisions of Sections 6,
16 or
24;

 

  (i) Tenant
or Guarantor shall generally not pay its debts as they become due, or shall
admit in writing its inability to pay its debts generally, or shall make an
assignment of all or substantially all of its property for the benefit of
creditors; or (ii) a
receiver, trustee or liquidator shall be appointed for either Tenant or
Guarantor or any of their property, if within three
(3) business days of such
appointment Tenant does not inform Landlord in writing that Tenant or Guarantor,
as the case may be, intends to cause such appointment to be discharged or such
discharge is not diligently prosecuted to completion within sixty
(60) days after
the date of such appointment; (iii) the
filing by Tenant or Guarantor of a voluntary petition under any federal
bankruptcy or state law to be adjudicated as bankrupt or for any arrangement or
other debtor’s relief; or (iv) the
involuntary filing of such a petition against Tenant or Guarantor by any other
party, unless Tenant within three
(3) business days of such
filing informs Landlord in writing of Tenant’s or Guarantor’s intent to cause
such petition to be dismissed, such dismissal is diligently prosecuted and such
petition is dismissed within ninety
(90) days after
filing; or 

 

  The
failure to perform or comply with any other provision of this Lease not
requiring the payment of money unless (i) within
three
(3) business days of
Tenant’s receipt of a notice of default from Landlord, Tenant gives Landlord
notice of its intent to cure such default; and (ii) Tenant
cures it either (x) within
thirty
(30) days after
such notice from Landlord or (y) if such
default cannot with due diligence be so cured because of the nature of the
default or delays beyond the control of Tenant and cure after such period will
not have a materially adverse effect upon the Premises or the Business, then
such default shall not constitute an Event of Default if Tenant uses its
commercially reasonable efforts to cure such default by promptly commencing and
diligently pursuing such cure to the completion thereof and cures it within
one
hundred twenty (120) days after
such notice from Landlord.

 

  Remedies. Upon
the occurrence of an Event of Default, Landlord may exercise all rights and
remedies under this Lease and the laws of the state where the Facility is
located that are available to a lessor of real and personal property in the
event of a default by its lessee, and as to the Tenant Property, all remedies
granted under the laws of such state to a secured party under its Uniform
Commercial Code. Landlord shall have no duty to mitigate damages unless required
by applicable law and, absent gross negligence or willful misconduct, shall not
be responsible or liable for any failure to relet any of the Premises or to
collect any rent due upon any such reletting. Tenant shall pay Landlord,
immediately upon demand, all expenses 

 

18

incurred
by it in obtaining possession and reletting any of the Premises, including fees,
commissions and costs of attorneys, architects, agents and brokers.

 

General. Without
limiting the foregoing, Landlord shall have the right (but not the obligation)
to do any of the following upon an Event of Default: (a) sue for
the specific performance of any covenant of Tenant as to which it is in breach;
(b) enter
upon any portion of the Premises, terminate this Lease, dispossess Tenant from
the Premises and/or collect money damages by reason of Tenant’s breach,
including the acceleration of all Rent which would have accrued after such
termination and all obligations and liabilities of Tenant under this Lease which
survive the termination of the Term; (c) elect
to leave this Lease in place and sue for Rent and other money damages as the
same come due; (d) (before
or after repossession of the Premises pursuant to clause (b) above and whether
or not this Lease has been terminated) relet any portion of the Premises to such
tenant(s), for such term(s) (which may be greater or less than the remaining
balance of the Term), rent, conditions (which may include concessions or free
rent) and uses as it may determine in its sole discretion and collect and
receive any rents payable by reason of such reletting; and (e) sell any
Tenant Property in a non-judicial foreclosure sale.

 

Receivership. Tenant
acknowledges that a Catastrophic Event of Default will materially and
irreparably impair the value of Landlord’s investment in the Premises.
Therefore, in addition to its other rights and remedies, upon a Catastrophic
Event of Default Landlord shall have the right to petition any appropriate court
for the appointment of a receiver to take possession of the Facility, to manage
the operation of the Premises, to collect and disburse all rents, issues,
profits and income generated thereby and to the extent applicable and possible,
to preserve or replace any affected license or provider certification for the
Premises or to otherwise substitute the licensee or provider thereof (the
“Receivership”). If
Landlord commences the Receivership, the receiver shall be paid a reasonable fee
for its services and all such fees and other expenses of the Receivership shall
be paid in addition to, and not in limitation of, the Rent otherwise due to
Landlord hereunder. Tenant irrevocably consents to the Receivership upon a
Catastrophic Event of Default and thus stipulates to and agrees not to contest
the appointment of a receiver under such circumstances and for such
purposes.

 

Remedies
Cumulative; No Waiver. No
right or remedy herein conferred upon or reserved to Landlord is intended to be
exclusive of any other right or remedy, and each and every right and remedy
shall be cumulative and in addition to any other right or remedy given hereunder
or now or hereafter existing at law or in equity. Any notice or cure period
provided herein shall run concurrently with any provided by applicable law. No
failure of Landlord to insist at any time upon the strict performance of any
provision of this Lease or to exercise any option, right, power or remedy
contained herein shall be construed as a waiver, modification or relinquishment
thereof as to any similar or different breach (future or otherwise) by Tenant.
Landlord’s receipt of any rent or other sum due hereunder (including any late
charge) with knowledge of any breach shall not be deemed a waiver of such
breach, and no waiver by Landlord of any provision of this Lease shall be
effective unless expressed in a writing signed by it. 

 

19

 

Performance
of Tenant’s Obligations. If
Tenant at any time shall fail to make any payment or perform any act on its part
required to be made or performed under this Lease, then Landlord may, without
waiving or releasing Tenant from any obligations or default hereunder, make such
payment or perform such act for the account and at the expense of Tenant, and
enter upon any portion of the Premises for the purpose of taking all such action
as may be reasonably necessary. No such entry shall be deemed an eviction of
Tenant. All sums so paid by Landlord and all necessary and incidental costs and
expenses (including reasonable attorneys’ fees and expenses) incurred in
connection with the performance of any such act by it, together with interest at
the Agreed Rate from the date of the making of such payment or the incurring of
such costs and expenses, shall be payable by Tenant to Landlord upon Landlord’s
written demand therefor.

 

  Provisions
on Termination.

 

Surrender
of Possession. On the
expiration of the Term or earlier termination or cancellation of this Lease (the
“Termination
Date”),
Tenant shall deliver to Landlord or its designee possession of (a) the
Facility and associated Landlord Personal Property in a neat and clean condition
and in as good a condition as existed at the date of their possession and
occupancy pursuant to this Lease, after taking into consideration and giving
effect to any improvements, renovations or upgrades required to be made by
Tenant as of the commencement of the Term, ordinary wear and tear excepted,
(b) a fully
operational, licensed and, if applicable, certified Business at the Facility but
specifically excluding any
Alterations necessitated by, or imposed in connection with, a change of
ownership inspection survey for the transfer of operation of any portion of the
Premises to Landlord or its designee unless Landlord is able to demonstrate that
such Alterations were previously required by the applicable licensing
authorities to be undertaken by Tenant and Tenant failed to do so, and
(c) all
patient charts and resident records, along with appropriate resident consents if
necessary, and copies of all its books and records relating to the Business and
the Premises, other than Tenant’s corporate financial books and records and
other proprietary materials. Accordingly, Tenant shall not at any time during or
after the Term seek to transfer, surrender, allow to lapse, or grant any
security interest or any other interest in and to the licenses, other than those
interests granted to Landlord under the terms of this Lease (to the extent
permitted by applicable law), permits or certifications relating to any portion
of the Business or the Premises, nor shall Tenant knowingly commit or omit any
act that would jeopardize any the Business or any licensure or certification of
the Premises. Upon request, Tenant shall cooperate fully with Landlord or its
designee in transferring or obtaining all necessary licenses and, if applicable,
certifications for Landlord or its designee, and Tenant shall comply with all
requests for an orderly transfer of the Business, Facility licenses, and, if
applicable, Medicare and Medicaid certifications and possession at the time of
its surrender of the Premises to Landlord or its designee but Tenant shall have
no liability hereunder if, through no fault of Tenant, Landlord or its designee
are unable to secure such licenses and, if applicable, certifications in their
own name. Subject to all applicable laws, Tenant hereby assigns, effective upon
the Termination Date, all rights to operate the Facility to Landlord or its
designee including all required licenses and permits and all rights to apply for
or 

 

20

otherwise
obtain them, and all other nonproprietary Tenant Intangible Property relating to
any portion of the Premises; provided, however, this assignment shall be
ineffective in any State, including the State of Washington, where such an
assignment is prohibited under applicable licensure laws.

 

Removal
of Tenant Personal Property.
Provided that no Event of Default then exists, in connection with the surrender
of the Premises, Tenant may upon at least five
(5) business days prior
notice to Landlord remove from the Premises in a workmanlike manner all Tenant
Personal Property, leaving the Premises in good and presentable condition and
appearance, including repair of any damage caused by such removal; provided that
Landlord shall have the right and option to purchase the Tenant Personal
Property for its then net book value during such five
(5) business day notice
period, in which case Tenant shall so convey the Tenant Personal Property to
Landlord by executing a bill of sale in a form reasonably acceptable to Landlord
and Tenant. If there is any Event of Default then existing, Tenant will not
remove any Tenant Personal Property from the Premises and instead will, on
demand from Landlord, convey it to Landlord for no additional consideration by
executing a bill of sale in a form reasonably required by Landlord. Title to any
Tenant Personal Property which is not removed by Tenant as permitted above upon
the expiration of the Term shall, at Landlord’s election, vest in Landlord;
provided, however, that Landlord may remove and store or dispose at Tenant’s
expense any or all of such Tenant Personal Property which is not so removed by
Tenant without obligation or accounting to Tenant.

 

Management
of Premises.
Commencing on the Termination Date, Landlord or its designee, upon written
notice to Tenant, may elect to assume the responsibilities and obligations for
the management and operation of the Business and Tenant agrees to cooperate
fully to accomplish the transfer of such management and operation without
interrupting the operation of the Business. Subject to the limitations of
applicable law, including any state licensure law which requires the manager of
an alzheimer’s care facility to be licensed or which requires the management
agreement to be approved by the applicable regulatory authorities prior to the
commencement thereof and subject to the parties agreeing on the form of a
management agreement which shall include, at a minimum, an indemnity in favor of
Tenant in form and substance acceptable to Tenant and from an entity acceptable
to Tenant, Tenant agrees that Landlord or its designee may, for a period not to
exceed one hundred eighty (180) days, operate the Business under Tenant’s
licenses and, if applicable, certifications pending the issuance of new licenses
and, if applicable, certifications to Landlord or its designee. During the
period of such management, Tenant shall not knowingly commit any act or fail to
take any action that would jeopardize any licensure or certification, if
applicable, of the Premises, and Tenant shall comply with all reasonable
requests for an orderly transfer of any and all facility and other licenses,
Medicare and Medicaid certifications, if applicable, and possession of the
Premises at the time of any such surrender. 

 

Holding
Over. If
Tenant shall for any reason remain in possession of any portion of the Premises
after the Termination Date without the consent of Landlord, such possession
shall be a month-to-month tenancy during which time Tenant shall pay as rental
on the first
(1st)
business day of each
month one
and one-half (11⁄2) times the
total of the monthly 

 

21

Minimum
Rent payable with respect to the last Lease Year plus
Additional Rent allocable to the month, all additional charges accruing during
the month and all other sums, if any, payable by Tenant pursuant to this Lease.
Nothing contained herein shall constitute the consent, express or implied, of
Landlord to the holding over of Tenant after the Termination Date, nor shall
anything contained herein be deemed to limit Landlord’s remedies.

 

Survival. All
representations, warranties, covenants and other obligations of Tenant under
this Lease shall survive the Termination Date.

 

  Certain
Landlord Rights.

 

Entry
and Examination of Records.
Landlord and its representatives may enter the Premises at any reasonable time
after reasonable notice to Tenant to inspect the Premises for compliance, to
exhibit the Premises for sale, lease (but, with respect to leasing, only (a)
after the occurrence of an Event of Default or (b) during the last Lease Year of
the Initial Term or any applicable Renewal Term and only if Tenant has not
exercised its option to renew pursuant to Section
2.3 above)
or mortgaging, upon an Event of Default or to post notices of non-responsibility
under any mechanic’s or materialman’s lien law or for any other reason; provided
that no such notice shall be required in the event of an emergency. No such
entry shall unreasonably interfere with residents, patients, patient care or the
Business. During normal business hours, Tenant will permit Landlord and its
representatives, inspectors and consultants to examine all contracts, books and
financial and other records (wherever kept) relating to Tenant’s operations at
the Premises, but specifically excluding the records of residents of the
Facility to the extent such access is prohibited by law, including applicable
State licensure laws and/or the Health Insurance Portability and Accountability
Act of 1996.

 

Grant
Liens. Without
the consent of Tenant, Landlord may from time to time, directly or indirectly,
create or otherwise cause to exist any Lien, title retention agreement or other
encumbrance upon the Premises, or any portion thereof or interest therein
(including this Lease), whether to secure any borrowing or other means of
financing or refinancing or otherwise. Upon the request of Landlord, Tenant
shall subordinate this Lease to the Lien of any such encumbrance so long as such
encumbrance provides that it is subject to the rights of Tenant under this Lease
and that so long as no Event of Default shall exist, Tenant’s occupancy shall
not be disturbed if any Person takes possession of the applicable portion of the
Premises through foreclosure proceeding or otherwise. 

 

Estoppel
Certificates. Each of
Landlord and Tenant shall, at any time upon not less than ten
(10) days prior
written request by the other party, have an authorized representative execute,
acknowledge and deliver to the requesting party or its designee a written
statement certifying (a) that this
Lease, together with any specified modifications, is in full force and effect,
(b) the
dates to which Rent and additional charges have been paid, (c) that
no default by either party exists or specifying any such default and
(d) as to
such other matters as the requesting party may reasonably request.

 

22

 

Conveyance
Release. If
Landlord or any successor owner shall transfer the Premises in accordance with
this Lease, upon the written assumption by any successor owner of the
obligations of Landlord or such prior successor owner hereunder, Landlord or
such prior successor owner shall thereupon be released from all future
liabilities and obligations hereunder arising or accruing from and after the
date of such conveyance or other transfer, which instead shall thereupon be
binding upon the new owner.

 

  Assignment
and Subletting. Without
the prior written consent of Landlord, which may be withheld or conditioned at
its sole discretion, this Lease shall not, nor shall any interest of Tenant
herein, be assigned or encumbered by operation of law, nor shall Tenant
voluntarily or involuntarily assign, mortgage, encumber or hypothecate any
interest in this Lease or sublet any portion of the Premises (except in the
ordinary course of Tenant’s business to occupants of the Facility or their
immediate family members using Tenant’s standard form occupancy lease). Any of
the foregoing acts without such consent shall be void and shall, at Landlord’s
sole option, constitute an Event of Default giving rise to Landlord’s right,
among other things, to terminate this Lease. An assignment of this Lease by
Tenant shall be deemed to include: (a) entering
into a management or similar agreement relating to the operation or control of
any portion of the Premises with any Person other than Jerry Erwin Associates,
Inc. dba JEA Senior Living or a Person that is an Affiliate of Tenant;
(b) any
change (voluntary or involuntary, by operation of law or otherwise, including
the transfer, assignment, sale, hypothecation or other disposition of any equity
interest in Tenant) in the Person that ultimately exert effective Control over
the management of the affairs of Tenant as of the date hereof; provided that any
transfers of Guarantor’s stock on a national stock exchange shall not be deemed
to be an assignment of the Lease so long as no more than twenty-five
percent (25%) of the
voting stock of Guarantor is held by any Person or related group other than (i)
Daniel R.
Baty or an entity or entities owned or Controlled by him, and
(ii) Saratoga
Partners IV, L.P. (“Saratoga”) or an
entity or entities owned or Controlled by Saratoga; or
(c) the
sale or other transfer of all or any portion of any certificate of need, bed
rights or other similar certificate or license relating to the Business or the
Premises. Notwithstanding the foregoing, Tenant may, without Landlord’s prior
written consent, assign this Lease or sublet the Premises or any portion thereof
(i) pending the issuance to Tenant of a license to operate the Facility pursuant
to a sublease in the form approved by Landlord prior to the Effective Date or
(ii) to an Affiliate of Tenant or Guarantor if all of the following are first
satisfied: (w) such
Affiliate fully assumes Tenant’s obligations hereunder; (x) Tenant
remains fully liable hereunder and Guarantor remains fully liable under the
Guaranty of Lease; (y) the use
of the Premises remains unchanged; and (z) Landlord
in its reasonable discretion shall have approved the form and content of all
documents for such assignment or sublease and received an executed counterpart
thereof. In no event shall Tenant sublet any portion of the Premises on any
basis such that the rental to be paid by the sublessee would be based, in whole
or in part, on either the income or profits derived by the business activities
of the sublessee, or any other formula, such that any portion of the sublease
rental received by Landlord would fail to qualify as “rents from real property”
within the meaning of Section 856(d) of the U.S. Internal Revenue Code, or any
similar or successor provision thereto.

 

23

 

  Damage
by Fire or Other Casualty. Tenant
shall promptly notify Landlord of any damage or destruction of any portion of
the Premises and diligently repair or reconstruct the Premises to a like or
better condition than existed prior to such damage or destruction in accordance
with Section
8.4. Any net
insurance proceeds payable with respect to the casualty shall be paid directly
to Landlord and, if an Event of Default has not occurred hereunder, used for the
repair or
reconstruction of the Premises
pursuant to Landlord’s disbursement requirements. If such proceeds are
insufficient, Tenant shall provide the required additional funds; if they are
more than sufficient, the surplus shall belong and be paid to Tenant. Except as
otherwise specifically set forth in this Section 17, Tenant shall not have any
right under this Lease, and hereby waives all rights under applicable law, to
abate, reduce or offset rent by reason of any damage or destruction of any
portion of the Premises by reason of an insured or uninsured casualty. In the
event any such damage or destruction occurs during the last six (6) months of
the Initial Term or applicable Renewal Term, to the extent of fifty percent
(50%) or more of the replacement value of the Facility, Tenant may, at Tenant’s
option to be evidenced by notice in writing given to Landlord within thirty (30)
days after the occurrence of such damage or destruction, elect to pay to
Landlord any available insurance proceeds, including, without limitation,
business interruption insurance proceeds described in Section 5.7, in which
event this Lease shall terminate; provided,
however, that if
the available insurance proceeds are insufficient to cover the cost of the
repair or reconstruction of the Facility, Tenant shall remain obligated to pay
the additional cost to repair or reconstruct the Facility. 

 

  Condemnation. Except
as provided to the contrary in this Section 18, this
Lease shall not terminate and shall remain in full force and effect in the event
of a taking or condemnation of the Premises, or any portion thereof, and Tenant
hereby waives all rights under applicable law to abate, reduce or offset rent by
reason of such taking. If during the Term all or substantially all (a
“Complete
Taking”) or a
smaller portion (a “Partial
Taking”) of the
Facility is taken or condemned by any competent public or quasi-public
authority, then (a) in the
case of a Complete Taking, Tenant may at its election made within thirty
(30) days of the
effective date of such Taking, terminate this Lease, or (b) in the
case of a Partial Taking, the Rent shall be abated to the same extent as the
resulting diminution in Fair Market Value of the portion of the Premises taken.
The award payable upon a Complete Taking shall be allocated (i) as
provided by the taking authority, (ii) in
the absence thereof, as agreed by the parties, or (iii) failing
such agreement within thirty(30)
days after
the effective date of such Taking, pursuant to the appraisal procedure described
in Exhibit C. The
resulting diminution in Fair Market Value on the effective date of a Partial
Taking shall be as established pursuant to Exhibit C.
Landlord alone shall be entitled to receive and retain any award for a Partial
Taking other than the portion specifically allocated to Tenant’s Personal
Property or the value of Tenant’s leasehold interest hereunder.

 

  Indemnification. Tenant
agrees to protect, indemnify, defend and save harmless Landlord, its directors,
officers, shareholders, agents and employees from and against any and all
foreseeable or unforeseeable liability, expense, loss, cost, deficiency, fine,
penalty or damage (including consequential or punitive damages) of any kind or
nature, including 

 

24

reasonable
attorneys’ fees, from any suits, claims or demands, on account of any matter or
thing, action or failure to act arising out of or in connection with this Lease,
the Premises or the operations of Tenant on the Premises, including (a) the
breach by Tenant of any of its representations, warranties, covenants or other
obligations hereunder which is not cured within any applicable cure period
provided for herein, (b) any
Protest, (c) all known
and unknown Environmental Activities on the Premises, Hazardous Materials Claims
or violations by Tenant of a Hazardous Materials Law with respect to the
Premises, and (d) upon
or following the Termination Date, any liability assessed or asserted by, any
governmental agency or Medicare or Medicaid as a result of or arising out of or
in connection with this Lease or Tenant’s occupancy of the Premises (including
any overpayment to Medicare, Medicaid or any other third-party payor); but
specifically excluding any such liability, expense, loss, cost, deficiency,
fine, penalty or damages arising (i) under
clauses (a) or (c) from the gross negligence or willful misconduct of Landlord,
and (ii) under
clause (d) with respect to any Alterations necessitated by, or imposed in
connection with, a change of ownership inspection survey for the transfer of
operation of the Premises to Landlord or its designee unless Landlord is able to
demonstrate that such Alterations were previously required by the applicable
licensing authorities to be undertaken by Tenant and Tenant failed to do so.
Upon receiving knowledge of any suit, claim or demand asserted by a third party
that Landlord believes is covered by this indemnity, it shall give Tenant notice
of the matter and Tenant shall promptly assume the defense thereof with counsel
reasonably acceptable to Landlord. If Tenant does not timely elect to defend the
matter, then Landlord shall have the right to assume the defense thereof with
its own counsel at Tenant’s expense.

 

  Disputes. If any
party brings any action to interpret or enforce this Lease, or for damages for
any alleged breach, the prevailing party shall be entitled to reasonable
attorneys’ fees and costs as awarded by the court in addition to all other
recovery, damages and costs. EACH
PARTY HEREBY WAIVES ANY RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM BROUGHT BY EITHER PARTY AGAINST THE OTHER IN CONNECTION WITH ANY
MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE,
INCLUDING THE RELATIONSHIP OF THE PARTIES, TENANT’S USE AND OCCUPANCY OF THE
PREMISES, OR ANY CLAIM OF INJURY OR DAMAGE RELATING TO THE FOREGOING OR THE
ENFORCEMENT OF ANY REMEDY. 

 

  Notices. All
notices and demands, certificates, requests, consents, approvals and other
similar instruments under this Lease shall be in writing and sent by personal
delivery, U. S. certified or registered mail (return receipt requested, postage
prepaid) or FedEx or similar generally recognized overnight carrier regularly
providing proof of delivery, addressed as follows: 

 

If to
Tenant:  c/o
Emeritus Corporation

3131
Elliott Avenue, Suite 500

Seattle,
Washington 98121

Attention:
Raymond R. Brandstrom, CFO

Fax No.:
(206) 301-4500

 

25

 

With a
copy to: The
Nathanson Group PLLC

1520
Fourth Street, Sixth Floor

Seattle,
Washington 98101

Attention:
Randi Nathanson, Esq.

Fax No.:
(206) 623-1738

 

If to
Landlord:  c/o
Nationwide Health Properties, Inc.

610
Newport Center Drive, Suite 1150

Newport
Beach, California 92660

Attention:
President and General Counsel

Fax No.:
(949) 759-6876

 

With a
copy to: Sherry
Meyerhoff Hanson & Crance LLP

610
Newport Center Drive, Suite 1200

Newport
Beach, California 92660

Attention:
Kevin L. Sherry, Esq.

Fax No.:
(949) 719-1212

 

 

A party
may designate a different address by notice as provided above. Any notice or
other instrument so delivered (whether accepted or refused) shall be deemed to
have been given and received on the date of delivery established by U.S. Post
Office return receipt or the carrier’s proof of delivery or, if not so
delivered, upon its receipt. Delivery to any officer, general partner or
principal of a party shall be deemed delivery to such party. Notice to any one
co-Tenant shall be deemed notice to all co-Tenants.

 

  Miscellaneous. Since
each party has been represented by counsel and this Lease has been freely and
fairly negotiated, all provisions shall be interpreted according to their fair
meaning and shall not be strictly construed against any party. While nothing
contained in this Lease should be deemed or construed to constitute an extension
of credit by Landlord to Tenant, if a portion of any payment made to Landlord is
deemed to violate any applicable laws regarding usury, such portion shall be
held by Landlord to pay the future obligations of Tenant as such obligations
arise and if Tenant discharges and performs all obligations hereunder, such
funds will be reimbursed (without interest) to Tenant on the Termination Date.
If any part of this Lease shall be determined to be invalid or unenforceable,
the remainder shall nevertheless continue in full force and effect. Time is of
the essence, and whenever action must be taken (including the giving of notice
or the delivery of documents) hereunder during a certain period of time or by a
particular date that ends or occurs on a Saturday, Sunday or federal holiday,
then such period or date shall be extended until the immediately following
business day. Whenever the words “including”, “include” or “includes” are used
in this Lease, they shall be interpreted in a non-exclusive manner as though the
words “without limitation” immediately followed. Whenever the words day or days
are used in this Lease, they shall mean “calendar day” or “calendar days” unless
expressly provided to the contrary. The titles and headings in this Lease

 

26

are for
convenience of reference only and shall not in any way affect the meaning or
construction of any provision. Unless otherwise expressly provided, references
to any “Section” mean a section of this Lease (including all subsections), to
any “Exhibit” or “Schedule” mean an exhibit or schedule attached hereto or to
“Medicare” or “Medicaid” include any successor program. If more than one Person
is Tenant hereunder, their liability and obligations hereunder shall be joint
and several. Promptly upon the request of either party and at its expense, the
parties shall prepare, enter into and record a suitable short form memorandum of
this Lease. This Lease (a) contains
the entire agreement of the parties as to the subject matter hereof and
supersedes all prior or contemporaneous verbal or written agreements or
understandings, (b) may
be executed in several counterparts, each of which shall be deemed an original,
but all of which shall constitute one and the same document, (c) may
only be amended by a writing executed by the parties, (d) shall
inure to the benefit of and be binding upon the successors and permitted assigns
of the parties, (e) shall
be governed by and construed and enforced in accordance with the internal laws
of the State of California, without regard to the conflict of laws rules
thereof, provided that the law of the State in which the Facility is located
(the “Situs
State”) shall
govern procedures for enforcing, in the respective Situs State, provisional and
other remedies directly related to the Facility and related personal property as
may be required pursuant to the law of such Situs State, including without
limitation the appointment of a receiver; and, further provided that the law of
the Situs State also applies to the extent, but only to the extent, necessary to
create, perfect and foreclose the security interests and liens created under
this Lease, and (f) incorporates
by this reference any Exhibits and Schedules attached hereto.

 

  Collateral
for Other Leases. Upon
the occurrence of the Alterra Event, any cash or
letters of credit held by Landlord as a security deposit or collateral pursuant
to this Lease shall also be held by Landlord as additional security for the
obligations due to Landlord or its Affiliates under the terms of any and all
leases between Alterra or its Affiliate, as tenant, and Landlord or its
Affiliate, as landlord;
provided,
however, that
the foregoing provision shall be of no force or effect during any period in
which any amounts remain outstanding under the terms of the Wells Fargo Loan
Documents.

 

  Leverage
Covenant. At all
times during the term of this Lease, the ratio of Guarantor’s total liabilities
(minus deferred gain on sale of communities) to Guarantor’s total assets, in
each case determined in conformity with generally accepted accounting
principles, consistently applied, shall not be equal to or greater than 1.6 to
1. 

 

 

[SIGNATURE
PAGE TO FOLLOW]

 

1 As
adjusted annually for increases in the CPI since the commencement of the tenth
(10th) Lease
Year.

27

IN
WITNESS WHEREOF, this
Lease has been executed by Tenant and Landlord as of the Effective
Date.

 

TENANT:

 

ESC
IV, LP,

a
Washington limited partnership (doing business in the State of Texas as Texas -
ESC IV, L.P.) 

BY: ESC G.P.
II, Inc.,

a
Washington corporation,

its
General Partner 

 

By: /s/_William
M. Shorten_________________________________

 

Name: William
M. Shorten____________________________________

 

Title: Director
of Real Estate Finance___________________________

 

 

 

LANDLORD:

 

QR
LUBBOCK TEXAS PROPERTIES, L.P.,

a Texas
limited partnership

 

BY: QR
LUBBOCK GP, LLC,

a Texas
limited liability company,

its
general partner

By: Nationwide
Health Properties, Inc.,

a
Maryland corporation,

its sole
member

By: /s/
Donald D. Bradley     

Name: Donald
D. Bradley     

Title: Chief
Investment Officer Senior Vice President 

 

 

 

28

EXHIBIT
A

 

LEGAL
DESCRIPTION

 

 

See
attached;

 

includes
all improvements thereon and all appurtenances thereto.

 

METES AND
BOUNDS DESCRIPTION for the plat limits of Tract A, south Bay Addition to the
City of Lubbock, Lubbock County, Texas, a replat of a portion of Tract A,
Monterey Center Addition to the City of Lubbock, Lubbock County, Texas,
according to the map, plat and/or dedication deed thereof recorded in Volume
5686, Page 206, of the Real Property Records of Lubbock County, and refiled in
Volume 5698, Page 244 of the Real Property Records of Lubbock County, Texas,
being further described as follows:

BEGINNING
at a 1/2" rod found in the West right-of-way line of Elgin Avenue and the East
line of Tract A, Monterey Center Addition which bears North 283.19 feet from the
most Easterly Southeast corner of Tract A, Monterey Center
Addition;

THENCE N.
89°58'50"
W. a
distance of 285.94 feet to a 1/2"
rod with
cap found at the Southwest corner of this tract;

THENCE
North a distance of 381.51 feet to a 1/2" rod with
cap found at the Northwest corner of this tract;

THENCE S.
89°58'50"
E. a
distance of 285.94 feet a 1/2"
rod with
cap set in the West right-of-way line of Elgin Avenue and the East line Tract A,
Monterey Center Addition at the Northeast corner of this tract;

THENCE
South, along said West right-of-way line, and the East line of Tract A, a
distance of 381.51 feet to the Point of Beginning.

Contains:
109,089 - sq. ft. - 2.504 acres.

 

EXHIBIT
B

 

LANDLORD
PERSONAL PROPERTY

 

 

includes
any such personal property replaced by Tenant

 

or
required by the state in which the Facility is located

 

or by any
other governmental entity to operate the Facility.

 

ALL OF
THE PERSONAL PROPERTY CONVEYED TO LANDLORD PURSUANT TO THE BILL OF SALE
DELIVERED TO LANDLORD CONCURRENTLY WITH LANDLORD’S ACQUISITION OF THE
PREMISES.

 

EXHIBIT
C

 

FAIR
MARKET VALUE

 

 

“Fair
Market Value” means
the fair market value of the Premises or applicable portion thereof on a
specified date as agreed to by the parties, or failing such agreement within
ten
(10) of such
date, as established pursuant the following appraisal process. Each party shall
within ten
(10) days after
written demand by the other select one MAI Appraiser to participate in the
determination of Fair Market Value. For all purposes under this Lease, the Fair
Market Value shall be the fair market value of the Premises or applicable
portion thereof unencumbered by this Lease. Within ten
(10) days of such
selection, the MAI Appraisers so selected by the parties shall select a third
(3rd) MAI
Appraiser. The three (3) selected MAI Appraisers shall each determine the Fair
Market Value of the Premises or applicable portion thereof within thirty days of
the selection of the third appraiser. To the extent consistent with sound
appraisal practices as then existing at the time of any such appraisal, and if
requested by Landlord, such appraisal shall be made on a basis consistent with
the basis on which the Premises or applicable portion thereof were appraised at
the time of their acquisition by Landlord. Tenant shall pay the fees and
expenses of any MAI Appraiser retained pursuant to this Exhibit.

 

If either
party fails to select a MAI Appraiser within the time period set forth in the
foregoing paragraph, the MAI Appraiser selected by the other party shall alone
determine the fair market value of the Premises or applicable portion thereof in
accordance with the provisions of this Exhibit and the Fair Market Value so
determined shall be binding upon the parties. If the MAI Appraisers selected by
the parties are unable to agree upon a third (3rd) MAI
Appraiser within the time period set forth in the foregoing paragraph, either
party shall have the right to apply at Tenant’s expense to the presiding judge
of the court of original trial jurisdiction in the county in which the Premises
or applicable portion thereof are located to name the third (3rd) MAI
Appraiser.

 

Within
five(5)
days after
completion of the third (3rd) MAI
Appraiser’s appraisal, all three (3) MAI Appraisers shall meet and a majority of
the MAI Appraisers shall attempt to determine the fair market value of the
Premises or applicable portion thereof. If a majority are unable to determine
the fair market value at such meeting, the three (3) appraisals shall be added
together and their total divided by three (3). The resulting quotient shall be
the Fair Market Value. If, however, either or both of the low appraisal or the
high appraisal are more than ten
percent (10%) lower or
higher than the middle appraisal, any such lower or higher appraisal shall be
disregarded. If only one (1) appraisal is disregarded, the remaining two (2)
appraisals shall be added together and their total divided by two (2), and the
resulting quotient shall be such Fair Market Value. If both the lower appraisal
and higher appraisal are disregarded as provided herein, the middle appraisal
shall be such Fair Market Value. In any event, the result of the foregoing
appraisal process shall be final and binding.

 

“MAI
Appraiser” shall
mean an appraiser licensed or otherwise qualified to do business in the state
where the Premises is located and who has substantial experience in performing
appraisals of facilities similar to the Premises or applicable portion thereof
and is certified as a member of the American Institute of Real Estate Appraisers
or certified as a SRPA by the Society of Real Estate Appraisers, or, if such
organizations no longer exist or certify appraisers, such successor organization
or such other organization as is approved by Landlord.

 

 

 

EXHIBIT
D

CERTAIN
DEFINITIONS

 

For
purposes of this Lease, the following terms and words shall have the specified
meanings:

 

ENVIRONMENTAL
DEFINITIONS

 

“Environmental
Activities” shall
mean the use, generation, transportation, handling, discharge, production,
treatment, storage, release or disposal of any Hazardous Materials at any time
to or from the Premises or located on or present on or under any portion of the
Premises. 

 

“Hazardous
Materials” shall
mean (a) any
petroleum products and/or by-products (including any fraction thereof),
flammable substances, explosives, radioactive materials, hazardous or toxic
wastes, substances or materials, known carcinogens or any other materials,
contaminants or pollutants which pose a hazard to the Premises or to Persons on
or about the Premises or cause any portion of the Premises to be in violation of
any Hazardous Materials Laws; (b) asbestos
in any form which is friable; (c) urea
formaldehyde in foam insulation or any other form; (d) transformers
or other equipment which contain dielectric fluid containing levels of
polychlorinated biphenyls in excess of fifty (50) parts per million or any other
more restrictive standard then prevailing; (e) medical
wastes and biohazards; (f) radon
gas; and (g) any other
chemical, material or substance, exposure to which is prohibited, limited or
regulated by any governmental authority or may or could pose a hazard to the
health and safety of the occupants of the Premises or the owners and/or
occupants of property adjacent to or surrounding the Premises, including,
without limitation, any materials or substances that are listed in the United
States Department of Transportation Hazardous Materials Table (49 CFR 172.101)
as amended from time to time.

 

“Hazardous
Materials Claims” shall
mean any and all enforcement, clean-up, removal or other governmental or
regulatory actions or orders threatened, instituted or completed pursuant to any
Hazardous Material Laws, together with all claims made or threatened by any
third party against the Premises, Landlord or Tenant relating to damage,
contribution, cost recovery compensation, loss or injury resulting from any
Hazardous Materials.

 

“Hazardous
Materials Laws” shall
mean any laws, ordinances, regulations, rules, orders, guidelines or policies
relating to the environment, health and safety, Environmental Activities,
Hazardous Materials, air and water quality, waste disposal and other
environmental matters. 

 

OTHER
DEFINITIONS

 

“Affiliate” shall
mean with respect to any Person, any other Person which Controls, is Controlled
by or is under common Control with the first Person; provided,
however, a
Person shall not be deemed or construed to constitute an Affiliate of another
Person solely as a result of the common ownership or Control of such Persons by
Daniel R. Baty.

 

“Control” shall
mean, as applied to any Person, the possession, directly or indirectly, of the
power to direct the management and policies of that Person, whether through
ownership, voting control, by contract or otherwise (excluding any contract that
gives a Person the right to control or manage the assets of another Person, but
not the power to direct the management and policies of such
Person).

 

“Person” shall
mean any individual, partnership, association, corporation, limited liability
company or other entity.

 

 

“CC&R’s” shall
mean covenants, conditions and restrictions or similar use, maintenance or
ownership obligations encumbering or binding upon the real property comprising
the Facility.

 

 

EXHIBIT
E

 

FINANCIAL,
MANAGEMENT AND REGULATORY REPORTS

 

	
       

      REPORT

       
	
       

      DUE
      DATE

       

	
       

      Monthly
      financial reports concerning the Business at the
      Facility 

       

       

      consisting
      of: 

       

      (1) a
      balance sheet; 

      (2) a
      reasonably detailed income statement showing, among other things, Gross
      Revenues; 

      (3) total
      patient days; 

      (4) occupancy;
      and 

      (5) payor
      mix.

       
	
       

      Thirty
      (30) days
      after the end of each calendar month

       

	
       

      Quarterly
      consolidated or combined financial statements 

       

       

      of
      Guarantor

       
	
       

      Forty-Five
      (45) days after
      the end of each of the first three quarters of the fiscal year of
      Guarantor

       

	
       

      Annual
      consolidated or combined financial statements 

       

       

      of
      Guarantor audited by a reputable certified public accounting
      firm.

       
	
       

      Ninety
      (90) days
      after the fiscal year end of Guarantor

       

	
       

      Regulatory
      reports with respect to the Facility,
      as follows: 

       

      (1) all
      federal, state and local licensing and reimbursement certification
      surveys, inspection and other reports received by Tenant as to any portion
      of the Premises and any portion of the Business, including state
      department of health licensing surveys;

      (2) Medicare
      and Medicaid certification surveys; and 

      (3) life
      safety code reports.

       
	
       

      Ten
      (10) business days
      after receipt

       

	
       

      Reports
      of regulatory violations,

       

       

      by
      written notice of the following:

       

      (1) any
      violation of any federal, state or local licensing or reimbursement
      certification statute or regulation, including Medicare or
      Medicaid;

      (2) any
      suspension, termination or restriction placed upon Tenant or any portion
      of the Premises, the operation of any portion of the Business or the
      ability to admit residents or patients; or 

      (3) any
      violation of any other permit, approval or certification in connection
      with any portion of the Premises or any portion of the Business, by any
      federal, state or local authority, including Medicare or
      Medicaid.

       
	
       

      Five
      (5) business days after
      receipt

       

	
       

      Annual
      operating budget 

       

       

      covering
      the operations of the Facility and the Business conducted thereon for the
      forthcoming fiscal year.

       
	
       

      Thirty
      (30) days after
      the beginning of each fiscal year

       

 

 

EXHIBIT
F

 

SCHEDULE
OF RELATED FACILITIES

 

 

	
      Facility
      Name
	
      Location
	
      Lease
      Commencement Date

	
      Beckett
      Meadows
	
      Austin,
      TX
	
      April
      1, 2004

	
      Charleston
      Gardens
	
      Charleston,
      W. VA
	
      April
      1, 2004

	
      Kingsley
      Place-Shreveport
	
      Shreveport,
      LA
	
      April
      1, 2004

	
      Silverleaf
      Manor
	
      Meridian,
      MS
	
      April
      1, 2004

	
      Pines
      of Goldsboro
	
      Goldsboro,
      NC
	
      April
      1, 2004

	
      Loyalton
      of Rockford
	
      Rockford,
      IL
	
      April
      1, 2004

	
      Creekside
	
      Plano,
      TX
	
      April
      1, 2004

	
      Heritage
      Hills
	
      Columbus,
      GA
	
      April
      1, 2004

	
      Oak
      Hollow
	
      Bedford,
      TX
	
      April
      1, 2004

	
      Pine
      Meadow
	
      Hattiesburg,
      MS
	
      April
      1, 2004

	
      Pinehurst
	
      Tyler,
      TX
	
      April
      1, 2004

	
      Stonebridge
	
      Dallas,
      TX
	
      April
      1, 2004

	
      Austin
      Gardens
	
      Lodi,
      CA
	
      April
      1, 2004

	
      Desert
      Springs
	
      El
      Paso, TX
	
      April
      1, 2004

	
      Loyalton
      of Folsom
	
      Folsom,
      CA
	
      April
      1, 2004

	
      The
      Lakes
	
      Fort
      Myers, FL
	
      April
      1, 2004

	
      Canterbury
      Woods
	
      Attleboro,
      MA
	
      April
      1, 2004

	
      Autumn
      Ridge
	
      Herculaneum,
      MO
	
      June
      1, 2004

	
      Manor
      at Essington
	
      Joliet,
      IL
	
      October
      1, 2004

	
      Loyalton
      of Cape May
	
      Cape
      May, NJ
	
      October
      22, 2004

	
      Richland
      Gardens
	
      Richland,
      WA
	
      March
      1, 2005

	
      Clare
      Bridge
	
      Corona,
      CA
	
      October
      1, 2004

 

 

 

 

 

 

EXHIBIT
G 

 

SCHEDULE
OF MANDATORY REPAIRS

NONE

 

 

 

 

 

SCHEDULE
1 

EXCEPTIONS
TO INSURANCE REQUIREMENTS

1. Contrary
to the requirements of Section 6.1, Tenant provides its general and professional
liability insurance through a captive insurance company domiciled in Hawaii and
known as National Orion Insurance Company (“NOI”). NOI is not
rated.

2. Contrary
to the requirements of Section 6.1, the general and professional liability
insurance maintained by Tenant is on a claims made basis, not an occurrence
basis.

3. Contrary
to the requirements of Section 6.1(a), damage to vehicles owned or leased by
Tenant as well as damage to third party vehicles caused by Tenant is not covered
by Tenant’s property insurance. Coverage for damage to third party vehicles may
be available under certain circumstances under (i) the NOI policy, (ii) a
personal auto policy purchased by an employee of Tenant for their own vehicle
when used for company business or (iii) the Emeritus auto policy, which acts as
an excess layer over an employee personal policy. 

4. Contrary
to the requirements in Sections 6.1(b), (c) and (g), the general and
professional liability insurance maintained by Tenant is subject to a $1 million
per claim and $2 million in the aggregate self insured retention amount and to a
$ 4 million per claim and $4,800,000 aggregate limit on coverage.

5. In Texas,
Tenant has exercised its right under State law to opt out of the Workers
Compensation system and instead to offer its employee an ERISA defined benefit
plan which complies with the requirements of Texas law.

6. Coverage
for damages due to boiler and pressure vessels bursting or exploding is covered
by Tenant’s property insurance policy. However, the property insurance does not
cover bodily injury or death resulting therefrom. Instead such claims would be
covered under the general liability insurance policy provided by NOI.

7. In
addition to the exceptions noted in Section 4, above, the deductible under
Tenant’s property insurance for earthquake coverage is 5% of Total Insured
Values with a $100,000 minimum in California, Hawaii and Alaska and a $100,000
minimum in all other states. The deductible for storm and wind damage
is 2% of
Total Insured Values or a minimum of $100,000 in Tier 1 counties and all of
Florida. The deductible for flood damage is 5% or $1,000,000 if the location is
in Zone A or V. For all other flood damage the deductible is 5% or $100,000. All
other property claims are subject to $50,000 deductible.

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