Document:

Exhibit 10.10

 

MASTER LEASE AGREEMENT

 

between

 

the OWNERS LISTED ON EXHIBIT A HERETO,

as Lessor

 

and

 

HARMONY LIVING CENTERS LLC, RIVERVIEW VILLAGE, LLC AND
HARMONY OF FRANKLIN, LLC

as Lessee

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I

  	
   

  	
  2

  
	
   

  	
   

  	
   

  
	
  Section 1.01

  	
  Recitals Incorporated/Lease of Properties

  	
  2

  
	
  Section 1.02

  	
  Title and Condition

  	
  2

  
	
  Section 1.03

  	
  Use

  	
  3

  
	
  Section 1.04

  	
  Term

  	
  4

  
	
  Section 1.05

  	
  Options To Extend the Term

  	
  4

  
	
  Section 1.06

  	
  Rent

  	
  4

  
	
  Section 1.07

  	
  Lease Deposit

  	
  6

  
	
  Section 1.08

  	
  Rent Coverage Requirement

  	
  7

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
   

  	
  8

  
	
   

  	
   

  	
   

  
	
  Section 2.01

  	
  Maintenance and Repair

  	
  8

  
	
  Section 2.02

  	
  Alterations, Replacements and Additions

  	
  9

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
   

  	
  9

  
	
   

  	
   

  	
   

  
	
  Section 3.01

  	
  Severable Property

  	
  9

  
	
  Section 3.02

  	
  Removal

  	
  10

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
   

  	
  10

  
	
   

  	
   

  	
   

  
	
  Section 4.01

  	
  Lessee’s Assignment and Subletting

  	
  10

  
	
  Section 4.02

  	
  Transfer or Pledge by Lessor

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
   

  	
  12

  
	
   

  	
   

  	
   

  
	
  Section 5.01

  	
  Absolute Net Lease

  	
  12

  
	
  Section 5.02

  	
  Property Capital Improvement Reserves

  	
  13

  
	
  Section 5.03

  	
  Taxes and Assessments; Compliance With Law

  	
  13

  
	
  Section 5.04

  	
  Liens

  	
  15

  
	
  Section 5.05

  	
  Indemnification

  	
  15

  
	
  Section 5.06

  	
  Permitted Contests

  	
  16

  
	
  Section 5.07

  	
  Environmental Compliance

  	
  17

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
   

  	
  18

  
	
   

  	
   

  	
   

  
	
  Section 6.01

  	
  Condemnation and Casualty

  	
  18

  
	
  Section 6.02

  	
  Insurance

  	
  21

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
   

  	
  23

  
	
   

  	
   

  	
   

  
	
  Section 7.01

  	
  Conditional Limitations; Default Provisions

  	
  23

  
	
  Section 7.02

  	
  Bankruptcy or Insolvency

  	
  27

  
	
  Section 7.03

  	
  Additional Rights of Lessor

  	
  27

  

 

i

 

TABLE OF CONTENTS

(continued)

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
   

  	
  28

  
	
   

  	
   

  	
   

  
	
  Section 8.01

  	
  Notices and Other Instruments

  	
  28

  
	
  Section 8.02

  	
  Estoppel
  Certificates; Financial Information

  	
  29

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX

  	
   

  	
  32

  
	
   

  	
   

  	
   

  
	
  Section 9.01

  	
  No Merger

  	
  32

  
	
  Section 9.02

  	
  Surrender of Possession/Transfer of Operations

  	
  32

  
	
  Section 9.03

  	
  Assumption

  	
  34

  
	
  Section 9.04

  	
  Separability; Binding
  Effect; Governing Law

  	
  34

  
	
  Section 9.05

  	
  Table of Contents and
  Headings; Internal References

  	
  34

  
	
  Section 9.06

  	
  Counterparts

  	
  35

  
	
  Section 9.07

  	
  No Lessor Liability

  	
  35

  
	
  Section 9.08

  	
  Amendments and
  Modifications

  	
  35

  
	
  Section 9.09

  	
  Consent of Lessor

  	
  35

  
	
  Section 9.10

  	
  Quiet Enjoyment

  	
  35

  
	
  Section 9.11

  	
  Holding Over

  	
  36

  
	
  Section 9.12

  	
  Subordination,
  Non-Disturbance and Attornment

  	
  36

  
	
  Section 9.13

  	
  Purchase Rights

  	
  36

  
	
  Section 9.14

  	
  Joint and Several

  	
  36

  
	
  Section 9.15

  	
  Choice of Law

  	
  36

  
	
  Section 9.16

  	
  (Intentionally deleted)

  	
  36

  
	
  Section 9.17

  	
  Waiver of Jury Trial and Arbitration

  	
  37

  
	
  Section 9.18

  	
  Recordation

  	
  37

  
	
  Section 9.19

  	
  Facility Trade Names

  	
  37

  
	
  Section 9.20

  	
  Participation in Medicare or Medicaid Certification
  Actions or Certificate of Need or Licensing Revocation Actions

  	
  37

  
	
  Section 9.21

  	
  Commissions

  	
  38

  
	
  Section 9.22

  	
  Characterization of Rents

  	
  38

  
	
  Section 9.23

  	
  Determination of Days

  	
  38

  
	
  Section 9.24

  	
  Security Interest

  	
  38

  
	
  Section 9.25

  	
  Operating Covenants

  	
  38

  
	
   

  	
   

  	
   

  
	
  EXHIBIT
  A – Owners, Property Descriptions and Addresses

  	
   

  
	
  EXHIBIT A-1

  	
  Legal Descriptions

  	
   

  
	
  EXHIBIT B

  	
  Allocation of Rent Among Properties

  	
   

  
	
  EXHIBIT C

  	
  Memorandum of Lease

  	
   

  
	
  EXHIBIT D

  	
  Purchase Option

  	
   

  
	
  EXHIBIT E

  	
  Intentionally Deleted

  	
   

  
	
  EXHIBIT F

  	
  Average Daily Occupancy Rates as of
  Effective Date

  	
   

  

 

ii

 

MASTER LEASE AGREEMENT

 

THIS MASTER LEASE AGREEMENT
(this “Lease”) dated as of January 9th, 2007 (the “Effective Date”), is
made and entered into between the Owners (as
defined below, which are individually and collectively, Lessor”), and Harmony Living Centers LLC (“HLC”), Riverview
Village, LLC (“RV”) and Harmony of Franklin, LLC (“HOF”),
all Wisconsin limited liability company (HLC, RV and HOF are individually and
collectively, “Lessee”).

 

Preliminary Statement

 

The twenty (20) real
properties subject to this Lease (collectively, the “Properties” and
singularly, a “Property”) are generally described on Exhibit A
hereto, and more particularly described on Exhibit A-1
hereto. The Properties are all assisted living facilities (each, an “ALF”), all
of which Properties together shall comprise a portfolio that will be
administered hereunder by Lessee (the “Portfolio”).  This Lease is intended to set forth terms
applicable to the Portfolio.  Lessee and
its Affiliates (defined in Section 1.03(b) below) shall have
exclusive and sole control over the operation of business conducted at the
Properties and all healthcare and other services provided to residents of the
Properties.  This Lease shall commence
upon the closing of the acquisition of the Properties by Owners pursuant to an
Agreement of Sale between and among Wakefield Capital, LLC (and its assignees
or designees) and RV, HOF and HLC dated as of October 18, 2006, as amended
(the “Sale Agreement”).

 

Recitals

 

WHEREAS, on the Effective Date, Owners
acquired title to the Properties, with the identity of the respective Owner and
the particular Property owned by such Owner set forth on Exhibit A
hereto;

 

WHEREAS, the Owners collectively constitute “Lessor”
for the purposes of this Lease;

 

WHEREAS, Lessor and Lessee desire to enter
into this Lease to govern the administration by Lessee of the Portfolio; and

 

WHEREAS, Lessor and Lessee desire that this
Lease shall be deemed a single lease pursuant to which the Portfolio is leased
as a whole to Lessee;

 

NOW, THEREFORE, Lessee, in order to induce
Lessor to enter into this Lease, to the extent permitted by law:

 

A.            Agrees and
acknowledges, and is forever estopped from asserting to the contrary, that this
Lease is a single lease pursuant to which the collective Properties are demised
as a whole to Lessee;

 

B.            Agrees and
acknowledges, and is forever estopped from asserting to the contrary, that this
Lease does not in any manner make Lessee the partner, joint venturer or agent
of Lessor;

 

1

 

C.            Agrees and
acknowledges, and is forever estopped from asserting to the contrary, that if,
notwithstanding the provisions of this Preliminary Statement and Recitals, this
Lease were to be determined or found to be in any proceeding, action or
arbitration under state or federal bankruptcy, insolvency, debtor-relief or
other Applicable Laws to constitute multiple leases demising multiple
Properties, that such multiple leases could not, by the debtor, trustee, Lessee
or any other party, be selectively or individually assumed or rejected;

 

D.            Forever knowingly
waives and relinquishes any and all rights under or benefits of the provisions
of the United States Bankruptcy Code Section 365 (11 U.S.C. §365), or any
successor or replacement thereof or any analogous state law, to selectively or
individually assume or reject the multiple leases that will be governed and
administered pursuant to this Lease following a determination or finding in the
nature of that described in the foregoing Recital.

 

ARTICLE I

 

Section 1.01         Recitals
Incorporated/Lease of Properties.

 

The foregoing Introduction,
Preliminary Statement, Recitals are hereby incorporated herein as if fully
restated verbatim here as a substantive portion of this Lease.  Upon and subject to the terms and conditions
herein specified, Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Properties, further consisting of:

 

(a)           the parcels of land more
particularly described in Exhibit A
and Exhibit A-1 hereto, and made a
part hereof for all purposes respectively having street addressees as set forth
in such Exhibit A together with
all of Lessor’s right, title and interest, if any, in and to all easements,
rights-of-way, appurtenances and other rights and benefits associated with such
parcels of land and to all public or private streets, roads, avenues, alleys or
passways, open or proposed, on or abutting such parcels of land (collectively,
the “Land”); and

 

(b)           subject to Section 3.01
of this Lease, all of the buildings, structures, fixtures, facilities,
installations and other improvements of every kind and description now or
hereafter in, on, over and under the Land and all plumbing, gas, electrical,
ventilating, lighting and other utility systems, ducts, hot water heaters, oil
burners, domestic water systems, elevators, escalators, canopies, air
conditioning systems and all other building systems and fixtures attached to or
comprising a part of the buildings, including, but not limited to, all other
building systems and fixtures necessary to the operation of the buildings, but
excluding all personal property now or hereafter belonging to Lessee and
Severable Property (collectively, the “Improvements”).

 

Section 1.02         Title and Condition.

 

The Properties are leased to
Lessee in their present condition without representation or warranty by Lessor
and subject to: (i) the existing state of title; and (ii) all
Applicable Laws now or hereafter in effect. 
Lessee has detailed knowledge of, and familiarity with, the Properties
and title to the Properties and has found all of the same satisfactory for all
purposes.  Lessee waives 

 

2

 

any
claim or action against Lessor in respect of the past and present condition of
the Properties. LESSOR LEASES AND WILL LEASE AND LESSEE TAKES AND WILL TAKE THE
PROPERTIES AS IS.

 

Section 1.03         Use.

 

(a)           Lessee may only use and
occupy the Properties solely for the purpose of operating the assisted living
facilities currently located at the Properties, and any other use shall require
Lessor’s prior written consent.  Lessee
covenants that it will obtain and maintain all approvals, licenses and permits
needed to use and operate the Properties for their current use under Applicable
Laws.  Lessee covenants and agrees that
it will operate the Property in accordance with and in a manner consistent with
prudent operating practices for similar facilities, with a standard and level
of care no less than the standard prevailing as a whole at the Properties on
the Effective Date, and that Lessee will maintain its certifications for
reimbursement, if any, and licensure and its accreditation, if compliance with
accreditation standards is required to maintain the operations of the Properties.  Lessee acknowledges that Lessor will have no,
and has never had any, involvement in operations or control of the Properties
or care of the residents.  Lessee shall
furnish, within the time period required by each applicable agency after the
conclusion of any permitted appeals by Lessee, a plan of correction for any
deficiency cited by any regulatory or licensing agency or generated from any
survey or report for any Property, and Lessee shall also simultaneously furnish
or cause to be furnished to Lessor a copy of such plan of correction, and shall
correct or cause to be corrected any deficiency, the curing of which is a
condition of continued licensure or for full participation in any program for
their existing residents or for new residents to be admitted, by the date
required for cure by such agency (plus extensions granted by such agency, and
after the conclusion of any permissible appeals by Lessee).  Lessee further covenants and agrees that
Lessee’s use of the Properties and maintenance, alteration, and operation of
the same, and all parts thereof, shall at all times conform to all Applicable
Laws.

 

(b)           Unless otherwise agreed
to in writing by Lessor (i) Lessee shall cause the Properties to be
managed and operated at all times by Lessee or an Affiliate of Lessee (although
Lessee shall remain liable for its obligations under this Lease notwithstanding
any management by an Affiliate of Lessee, and Lessee shall inform Lessor in
writing prior to delegating any management duties to any Affiliate), (ii) except
with respect to an Affiliate of Lessee, Lessee shall not enter into any
agreement (oral or written) with respect to such management and leasing
activities unless the terms thereof and the proposed manager or leasing agent
have been approved in writing by Lessor, (iii) all such management or
leasing agreements must be in writing, and (iv) all management or leasing
agreements (including but not limited to any such agreements with an Affiliate
of Lessee) must contain provisions to the effect that (A) the obligation
of Lessee to pay management fees is expressly subordinate to its obligation to
pay the Rent, and (B) the manager shall not have the right to collect any
management fees during the continuance of an Event of Default.  For the purposes of this Lease, an “Affiliate”
of a person or entity shall
mean any other person or entity that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or under common control
with, the subject person or entity.  The
term “control” (including the terms “controlling,” “controlled by,” and “under
common control with”) means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or 

 

3

 

the policies of a person or entity, whether through the ownership of at
least 51% of the voting securities or other ownership interest, by contract or
otherwise.

 

(c)           Lessee shall neither
suffer nor permit the Properties or any portion thereof, to be used in such a
manner as to impair Lessor’s (or Lessee’s, as the case may be) title thereto or
to any portion thereof, or may reasonably make possible a claim or claims of
adverse usage or adverse possession by the public, as such, or of implied
dedication of any Property or any portion thereof.  Lessee shall not knowingly use or occupy or
permit any of the Properties to be used or occupied, nor knowingly do or permit
anything to be done in or on any of the Properties, in a manner which would (i) make
void or voidable or cause any insurer to cancel any insurance required by this
Lease, or make it impossible to obtain any such insurance at commercially
reasonable rates, (ii) without Lessor’s consent, make void or voidable,
cancel or cause to be canceled or release any material warranty, guaranty or
indemnity running to the benefit of the Properties or the Lessor, (iii) cause
structural injury to any of the Improvements, or (iv) constitute a public
or private nuisance or waste.

 

Section 1.04         Term.

 

This Lease shall be for an
initial term of ten (10) years beginning as of the Effective Date and
ending at midnight on the last day of the one hundred and twentieth (120th) full calendar month
following the Effective Date (the “Initial Term”).  The time period during which this Lease shall
actually be in effect, including, as applicable, the Initial Term and any
Extended Term as any of the same may be terminated prior to their scheduled
expiration pursuant to the provisions hereof, is sometimes referred to herein
as the “Term” or “Lease Term.”

 

Section 1.05         Options To Extend the Term.

 

Unless an Event of Default
has occurred and is continuing at the time any such option is otherwise
exercised or at the time that the Term would otherwise expire, Lessee shall
have the right and option to extend the Lease Term for two additional periods
of five (5) years each, each commencing at midnight on the day on
which the then existing term of this Lease expires (each, an “Extended Term”,
and the “Term” shall include any validly exercised Extended Term).  In order to validly elect its right to an
Extended Term, Lessee must deliver written notice of such exercise to Lessor no
later than six (6) months and not earlier than nine (9) months prior
to the expiration of the then existing Term (otherwise Lessee’s right to the
Extended Term shall be null and void). 
If Lessee timely and properly exercises its right to an Extended Term,
the Basic Rent due shall be as set forth in Section 1.06(b) below and
all other terms and conditions of this Lease shall be applicable during the
Extended Term (other than that Lessee shall have no further right to extend the
Term beyond the second Extended Term, and shall not have the right to the
second Extended Term if Lessee has not validly exercised its rights to the initial
Extended Term).

 

Section 1.06         Rent.

 

(a)           During the Term, Lessee
shall pay to Lessor as basic rent for the Properties an annual aggregate
amount, payable in equal monthly installments, as set forth on Exhibit B attached hereto (“Basic
Rent”) , which aggregate initial annual amount is equal to $8,000,000.00.

 

4

 

The Basic Rent allocable to each of
the Properties is as set forth on Exhibit B,
as may be revised from time to time.  If
the first or last month of the Term is a partial month, the Basic Rent and any
other sums due under the Lease shall be prorated according to the actual number
of days in such month that this Lease is in effect.  Upon the conclusion of the initial twelve
(12) full calendar months of the Term, and upon each successive consecutive
twelve (12) month period thereafter, the annual Basic Rent shall be increased
to the product of (x) the prior year’s Basic Rent and (y) the
percentage increase (but not decrease) 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+10%) (“CPI”) over the CPI in effect on the preceding adjustment date
(or in effect on the Effective Date, in the case of the first adjustment under
this Section 1.06), provided that the annual increase under this Section 1.06
shall not exceed 2.5% in any event, and, if the method of calculating CPI is
changed at any time during the Lease Term, then the escalator shall be CPI
calculated by the method in effect on the Effective Date, if reasonably
determinable, or, if not reasonably determinable, 2.5% per annum.  Lessee shall pay Basic Rent to Lessor (or to any
Lessor’s Mortgagee, upon Lessor’s request) by wire transfer, in immediately
available funds, as follows:

 

	
   

  	
  Bank:  Bank of America

  
	
   

  	
  ABA Routing #:

  	
  026009593

  
	
   

  	
  Account Number:

  	
  0039 3334 0067

  
	
   

  	
  Account Name:

  	
  Wakefield Capital, LLC

  
	
   

  	
   

  	
  2 Wisconsin Circle

  
	
   

  	
   

  	
  Suite 540

  
	
   

  	
   

  	
  Chevy Chase, MD 20815

  

 

or at such other address or to such other person as Lessor from time to
time may designate.  Lessor shall give
Lessee not less than thirty (30) days’ prior written notice of any change in
the address to which such payments are to be made.  If the party entitled to receive Basic Rent
or such party’s address shall change, Lessee may, until receipt of notice of
such change from the party entitled to receive Basic Rent immediately preceding
such change, continue to pay Basic Rent and additional charges to the party to
which, and in the manner in which, the preceding installment of Basic Rent or
additional charges, as the case may be, was paid.  All installments of Basic Rent shall be paid
in advance on or before the tenth (10th) of each month, except for any Basic
Rent due for the rental of the Properties during the first month of the Term
which shall be payable in advance on or before the Effective Date.  If such payment date is not a business day,
the installment of Basic Rent shall be payable on the next succeeding business
day. Any rental payment made in respect of a period which is less than one
month shall be prorated by multiplying the then applicable monthly rental by a
fraction the numerator of which is the number of days in such month with
respect to which rent is being paid and the denominator of which is the total
number of days in such month.

 

(b)           Basic Rent at the
beginning of any Extended Term shall be equal to the Basic Rent in the
preceding year plus the CPI adjustment set forth in Section 1.06(a) above,
not to exceed 2.5%.  The Basic Rent
during each Extended Term shall be subject to the same annual CPI escalation
(with the same 2.5% limitation) as provided in Section 1.06(a) above.

 

5

 

(c)           In addition to the Basic
Rent, Lessee will pay and discharge as and when the same shall become due and
payable all Impositions and all other amounts, liabilities and obligations
which Lessee assumes or agrees to pay under this Lease.  In the event of any failure on the part of
Lessee to pay any of the items referred to in the previous sentence, Lessee
will also promptly pay and discharge every fine, penalty, interest and cost
which may be added for non-payment or late payment of such items.  Collectively, the items referred to in the
first sentence of this Section 1.06(c) shall also constitute “Rent”
due under this Lease.

 

(d)           If any installment of
Rent, Basic Rent, or other payments owing by Lessee to Lessor under this Lease
shall not be paid when due and such failure continues for ten (10) days
after receipt by Lessee of written notice of such failure from Lessor, Lessee
shall pay Lessor on demand, as an additional charge, a late charge equal to
five percent (5%) of the amount of such late payment as well as interest on the
delinquency equal to the “Late Rate” from the date due until paid.  The “Late Rate” shall be the lower of: (i) that
per annum rate of interest which exceeds by two (2) percentage points the
base rate most recently announced by Citibank, N.A., New York,
New York, as its prime rate or (ii) the maximum rate permitted by
Applicable Laws.

 

(e)           In addition to the Basic Rent set forth above, Lessee
shall pay to Lessor the amount of Two Hundred Nine Thousand Seven Hundred
Fifty-Five and 17/100 Dollars ($209,755.17) as “Additional Basic Rent”, which
shall be payable over the initial nine (9) months of the Term in monthly
amounts of Twenty-Three Thousand Three Hundred Six and 13/100 Dollars
($23,306.13), and shall be paid in the manner set forth above for the payment
of Basic Rent.  Such Additional Basic
Rent shall not be subject to any escalation. 
In the event of any failure to pay Additional Basic Rent, Lessor shall
be entitled to all of the rights and remedies set forth in this Lease for the
non-payment of Rent.

 

Section 1.07         Lease
Deposit.

 

(a)           On the Effective Date,
Lessee must pay to Lessor for deposit into an interest bearing account with a
financial institution selected by Lessor a lease deposit (the “Lease Deposit”)
equal to two (2) months Basic Rent ($1,333,333).  Notwithstanding the foregoing, the amount of
the required Lease Deposit shall increase to an amount equal to three (3) months
Basic Rent should Lessee fail at any time during the Term to comply with the
Rent Coverage Covenant set forth in Section 1.08 below for any two (2) consecutive
fiscal quarters during the Term, and shall be further increased in the event
such failure continues for a third (3rd) consecutive quarter as set forth in Section 1.08;  provided that if Lessee thereafter demonstrates
its compliance with the Rent Coverage Covenant for two (2) succeeding
consecutive fiscal quarters during the Term, Lessor shall reduce the required
amount of the Lease Deposit to an amount equal to two (2) months of the
then Basic Rent except to the extent that such amount has been applied to any
of Lessee’s obligations under this Lease.

 

(b)           The Lease Deposit may be applied by Lessor toward
payment of any unpaid Rent, damages or loss incurred as a result of Lessee’s
failure to fully perform any of its obligations hereunder, without prejudice to
any other Lessor remedy.  In the event
Lessor so applies any portion of the Lease Deposit, Lessee shall immediately
restore the Lease Deposit to its then required amount.  Lessor shall not be deemed a trustee as to
any such Lease Deposit and shall 

 

6

 

have the right to commingle said Lease Deposit with
its own funds.  Lessor shall deposit the
Lease Deposit in an interest-bearing account reasonably selected by Lessor and
Lessee, with interest being for the benefit of Lessee, to be paid to Lessee on
a quarterly basis so long as no default by Lessee then exists under this Lease.

 

(c)           At Lessee’s option, the Lease Deposit may be provided
by way of a letter of credit rather than a cash security deposit, the form of
which shall be in a form reasonably acceptable to Lessor and from a financial
institution reasonably acceptable to Lessor. 
Any letter of credit shall be clean, irrevocable and unconditional, and
contain an evergreen provision reasonably acceptable to Lessor.  Lessor may draw on any letter of credit, in
whole or in part at Lessor’s election, without advance notice to Lessee at any
time or from time to time on or after (1) the occurrence of any default
and the expiration of any applicable notice and cure periods, (2) if
Lessee, or anyone in possession of the Properties through Lessee, holds over,
without Lessor’s written consent, after the expiration or earlier termination
of this Lease, (3) Lessor is given notice by the issuer of the letter of
credit that it is terminating the letter of credit and Lessee has not provided
Lessor with a replacement letter of credit within the earlier of (i) ten (10) days
after notice of such termination from Lessor or (ii) five (5) days
prior to the effective date of such termination, (4) the letter of credit
expires on a specified date by its terms and is not renewed or replaced at
least ten (10) days in advance of its expiration date, or (5) to the
extent permitted by law, in the event any bankruptcy, insolvency,
reorganization or any other debtor creditor proceeding is instituted by or
against Lessee.  Lessor’s draw and
application of all or any portion of the proceeds of the letter of credit shall
not impair any other rights or remedies provided under this Lease or under
Applicable Laws and shall not be construed as a payment of liquidated damages

 

(d)           In the event of a Transfer of any Lessor’s estate or
interest in any of the Properties, Lessor shall have the right to transfer the Lease
Deposit to the Transferee (or a portion thereof, in a proportion equal to the
amount that the Basic Rent attributable to the Transferred Property bears to
the overall amount of Basic Rent).  If
the Lease Deposit is in the form of a letter of credit, Lessor shall pay any
transfer or other fees charged by the issuing bank.  Lessor shall thereafter be considered
released by Lessee from all liability for the return of the Lease Deposit (or
portion thereof so transferred).  Lessee
shall look solely to the transferee for the return of the Lease Deposit so
transferred and it is agreed that all of the foregoing shall apply to every
transfer or assignment made of the Lease Deposit to a new Transferee.

 

Section 1.08         Rent
Coverage Requirement.

 

(a)           Lessee must achieve a
Lease Coverage Ratio (i) after deduction of Assumed Management Fees, of
not less than 1.10 to 1.00, and (ii) after deduction of Actual Management
Fees, of not less than 1.00 to 1.00 ((i) and (ii) collectively
referred to as the “Rent Coverage Requirement”).  Within forty-five (45) days of the end of each
fiscal quarter, Lessee shall provide evidence to Lessor of the achievement of
the Rent Coverage Requirement.  Lessee’s
fiscal year begins on January 1st and ends on December 31st.

 

(b)           The Rent Coverage
Requirement shall be tested quarterly during the Term.  In the event of a failure by Lessee to
achieve the Rent Coverage Requirement for two (2) consecutive

 

7

 

fiscal quarters during the Term, Lessee
shall increase the Lease Deposit by one (1) additional month of Basic Rent
so that the Lease Deposit equals three (3) months of Basic Rent as
provided in Section 1.07(a) above (and failure to make such increase
within five (5) business days of receipt of written notice from Lessor
shall be an Event of Default under this Lease). 
In the event that Lessee fails to achieve the Rent Coverage Requirement
for a third (3rd) consecutive fiscal quarter, such failure shall be an Event
of Default under this Lease, although Lessee can cure such Event of Default by,
within thirty (30) days of the expiration of such third (3rd) consecutive fiscal quarter, further
increasing the Lease Deposit by an amount which, if the same had been added to
the Net Operating Income of the Properties on the last day of the period for
which the Lease Coverage Ratio was calculated, would have resulted in the Rent
Coverage Requirement being achieved.  
Provided that there is no other outstanding default under this Lease,
any amounts that Lessee has provided to Lessor under this Section 1.08 in
order to increase the Lease Deposit and that have not been applied to Lessee’s obligations
under this Lease will be released by the Lessor at such time as the Lessee
provides the Lessor with evidence that the Rent Coverage Requirement has been
achieved and maintained for two (2) succeeding consecutive fiscal
quarters.

 

(c)           For the purposes of this
Lease, “Lease Coverage Ratio” shall mean a ratio in which the numerator is the
sum of Net Operating Income of the Properties with respect to the Applicable
Period as set forth in the financial information required to be provided by
Lessee to Lessor under Section 8.02 of this Lease, and the denominator is
the Basic Rent with respect to the Applicable Period.  For the purposes of this Lease, “Net
Operating Income” is defined as all income realized from revenues generated at
or by the Properties less all fixed and variable operating expenses, including
either the Assumed Management Fee or Actual Management Fees (depending on which
coverage is being tested).  Extraordinary
income (as defined by GAAP, non-cash expenses (such as depreciation and
amortization), any interest payments and payments to Lessor under this Lease
shall not be included as operating expenses that reduce income in order to
determine “Net Operating Income”.  For
the purposes of this Lease, “Applicable Period” shall mean the immediately
preceding three (3) month period for the initial measurement of the Lease
Coverage Ratio under this Lease, six (6) month period for the second
measurement of the Lease Coverage Ratio under this Lease, nine (9) month
period for the third measurement of the Lease Coverage Ratio under this Lease,
and a twelve (12) month period for any measurement of the Lease Coverage Ratio
under this Lease thereafter.  “Actual
Management Fees” shall mean management fees paid or incurred (whichever is
greater) by Lessee with respect to management of the Properties, if any.  “Assumed Management Fees” shall mean five
percent (5%) of total patient revenues.

 

ARTICLE II

 

Section 2.01         Maintenance and Repair.

 

Lessee, at its own expense,
will maintain the entirety of the Properties in as good repair, appearance and
condition as would an ordinary, reasonable and prudent landowner (ordinary wear
and tear excepted) and will take all action and will make all structural and
nonstructural, foreseen and unforeseen and ordinary and extraordinary changes
and repairs which an ordinary, reasonable and prudent landowner would make to
keep all parts of the Properties in good repair 

 

8

 

and
condition (ordinary wear and tear excepted), provided however, unless same is
required by Applicable Laws, Lessee shall not be required to maintain the
Properties in a condition better than that existing on the date hereof, nor
make capital improvements to the Properties in amounts that exceed the amounts
funded into the Capital Replacement Account. 
Lessor, and its contractors, subcontractors, servants, employees and
agents, shall have the right to enter upon the Properties with reasonable prior
notice to inspect same to ensure that the Properties are maintained as required
by this Lease.

 

Section 2.02         Alterations, Replacements and Additions.

 

Lessee
may, at its expense, make additions to and alterations of the Improvements, and
construct additional Improvements, provided that (i) the fair market
value, the utility, the square footage or the useful life of the Properties
shall not be lessened thereby to more than a de minimis extent, (ii) such
work shall be completed in a good and workmanlike manner and in compliance with
all Applicable Laws and the requirements of all insurance policies required to
be maintained by Lessee hereunder, (iii) no structural alterations in
excess of $25,000 per Property shall be made to the Improvements or structural
demolitions conducted in connection therewith unless Lessee shall have obtained
Lessor’s written consent, which consent shall not be unreasonably withheld, (iv) no
additions, replacements or alterations, (other than cosmetic, interior or
nonstructural alterations), which cost in excess of $25,000 per Property shall
be made unless prior written consent from Lessor shall have been obtained
(which consent shall not be unreasonably withheld), and (v) no Event of
Default exists.  Cosmetic, interior or
nonstructural alterations (including demolition or construction of interior
demising walls that are non-structural and non load-bearing) that cost $50,000
or less per Property shall not require prior written consent from Lessor.  All additions and alterations of the
Properties, without consideration by Lessor, shall be and remain part of the
Properties (not subject to removal by Lessee upon termination) and the property
of Lessor and shall be subject to this Lease.

 

Section 2.03         Contractors.

 

Lessee shall obtain Lessor’s
prior written approval with respect to any contractor performing any work in
connection with Section 2.01 or 2.02 above in the event that the estimated
cost of such work exceeds $100,000.

 

ARTICLE III

 

Section 3.01         Severable Property.

 

Lessee may, at its expense,
maintain, install, assemble or place on the Properties and remove and
substitute any items of machinery, equipment, furniture, furnishings or other
personal property used or useful in Lessee’s business and trade fixtures,
including but not limited to all apparatus, inventory, fittings, furniture,
furnishings, chattel, materials and supplies located on and used in, or related
to Lessee’s business, including, but not limited to, mainframe computers,
kitchen equipment and telephone and similar systems and articles of personal
property of every kind and nature whatsoever, and any additions, replacements,
accessions and substitutions thereto or therefor, and all proceeds of all of
the foregoing (collectively, the 

 

9

 

“Severable
Property”).  Provided, however, Lessee
shall not remove any Severable Property if the absence of which would
materially hinder the ability to operate any Property for its intended use
(unless Lessee is replacing such item at its expense with another similar item
of equal or better quality), and Lessee shall not damage or impair the value or
integrity of any Property upon any such removal or detachment.

 

Section 3.02         Removal.

 

Lessee hereby grants Lessor
a security interest in the Severable Property in order to secure Lessee’s
obligations under this Lease.  Lessee may
not remove the Severable Property at any time during the Lease Term, except in
the ordinary course of business.  Upon
any termination or expiration of this Lease, any and all of Lessee’s Severable
Property shall be considered abandoned by Lessee and title to same vested in
Lessor, and thereafter may be appropriated, sold, destroyed or otherwise
disposed of by Lessor, without obligation to account therefor.

 

ARTICLE
IV

 

Section 4.01         Lessee’s Assignment and
Subletting.

 

(a)           Lessee may not assign, mortgage, convey, transfer,
hypothecate or otherwise encumber all or any part of Lessee’s interest in this
Lease or sublet the use of all or any part of the Properties, including but not
limited to any sublease for non-residential use (individually and collectively,
an “Assignment”) without obtaining Lessor’s and any Mortgagee’s prior written
consent to same.  Lessee shall deliver
any request for Lessor’s and Mortgagee’s consent to an Assignment at least
thirty (30) days prior to the proposed effective date thereof.

 

(b)           For the initial five (5) years of
the Term, Lessor or any Mortgagee may withhold its consent to any Assignment in
its sole and absolute discretion. 
Following such initial five (5) year period, so long as no default
then exists hereunder, neither Lessor nor any Mortgagee shall unreasonably
withhold, condition or delay its consent to any Assignment, although it shall
be deemed reasonable for Lessor or any Mortgagee to withhold its consent to any
Assignment if (by way of illustration and not limitation):  (i) the business reputation of the proposed assignee, or of the individuals
who will be managing and operating the operations at the Properties, is
unappealing to Lessor in Lessor’s reasonable discretion, (ii) Lessor has
had previous unsatisfactory dealings with such assignee or the individuals who
will be managing and operating the operations at the Properties, (iii) the
proposed assignee or the individuals who will be managing and operating the
operations at the Properties is under any investigation, or involved in any
proceedings, with respect to any other health care facilities which if
adversely determined could cause a suspension or revocation of any license
necessary to operate such facility, or has been involved in any such
investigation or proceeding in the three (3) years preceding such proposed
Assignment, (iv) the creditworthiness, experience or financial stability
of the proposed assignee is unsatisfactory (in Lessor’s reasonable discretion)
in light of the responsibilities involved under this Lease, (v) the actual
use proposed to be conducted in the Properties is other than the use existing
as of the Effective Date, or (vi) the proposed assignee is either a
governmental agency or quasi-governmental instrumentality.

 

10

 

(c)           Any Assignment shall expressly be made subject to the
provisions hereof.  Lessee shall, within
thirty (30) days after the execution of any Assignment, deliver a
conformed copy thereof to Lessor. 
Notwithstanding any Assignment, Lessee shall remain primarily liable to
Lessor for the performance of all covenants of this Lease as an initial
obligor, and not as a guarantor or surety.

 

(d)           If Lessee is a corporation, then the merger,
consolidation or reorganization of such corporation and/or the sale, issuance,
or transfer, cumulatively or in one transaction, of any voting stock, by Lessee
or its stockholders of record of any of them as of the Effective Date, which
results in a change in the voting control of Lessee shall constitute an
Assignment that requires Lessor’s consent under this Lease.  If Lessee, is a joint venture, partnership or
other association, then the merger, consolidation or reorganization of such
joint venture, partnership or other association or the sale, issuance or
transfer, cumulatively or in one transaction, within any two (2) year
period of voting control or of fifty percent (50%) or more of the outstanding
ownership interest in Lessee shall constitute an Assignment that requires
Lessor’s consent under this Lease.  Such
restrictions on voting control shall not be applicable in the event Lessee is
publicly traded.  The sale of all or
substantially all of Lessee’s assets shall also constitute an Assignment under
this Lease.

 

Section 4.02         Transfer or Pledge by
Lessor.

 

Any Lessor shall be free to
sell, transfer or convey (a “Transfer”) their fee interest in the Properties or
any Property or interest therein, subject, however, to the terms of this Section 4.02.  Any Transfer shall relieve the transferor of
all liability and obligation hereunder (to the extent of the interest transferred)
accruing from and after the date of the Transfer and any transferee (“Transferee”)
shall be bound by the terms and provisions of this Lease, but such Transfer
shall not release Lessee from its obligations to Lessor for matters arising
prior to the date of such Transfer.  In
the event that less than all of the Properties subject to this Lease are
transferred by Lessor, then the Transferee of such Properties that are being
conveyed (the “Transferred Properties”), the conveying Lessor and Lessee shall
execute an addendum to this Lease releasing the Transferred Properties from the
terms of this Lease, and Transferee and Lessee shall enter into a new lease
(the “New Lease”) with respect to the Transferred Properties on the same terms
and conditions as this Lease (with all of the terms, conditions, provisions and
financial covenants governing the “Properties” under this Lease then governing
and applicable to the Transferred Properties) other than (i) the Basic
Rent under the New Lease shall be the amount attributable to the Transferred
Properties as set forth on Exhibit B,
as such amount has annually increased pursuant to the terms of this Lease, (ii) the
Lease Deposit shall be a portion of the Lease Deposit then required under this
Lease, equal to the amount that the Basic Rent attributable to the Transferred
Properties bears to the overall Basic Rent owed prior to the Transfer, and (iii) for
the purposes of the requirement set forth in Section 7.01(a)(vi), the
Lessee shall be required to maintain Average Daily Occupancy for the
Transferred Properties at an amount that is at least ninety percent (90%) of
the actual occupancy for the Transferred Properties as of the Effective Date
(as set forth on Exhibit F).  In the event of any Transfer, the “Properties”
for all purposes of this Lease shall no longer include the Transferred
Properties and the Basic Rent under this Lease shall be reduced based on the
amounts set forth on Exhibit B
and the Lease Deposit shall 

 

11

 

be
proportionately reduced based on the amount that the Basic Rent attributable to
the Transferred Properties bears to the overall Basic Rent owed prior to the
transfer.

 

ARTICLE V

 

Section 5.01         Absolute Net Lease.
All Rent payments shall be absolutely net to the Lessor free of taxes,
assessments, utility charges, operating expenses, refurnishings, insurance
premiums or any other charge or expense in connection with the Properties.  Except as otherwise provided herein, all
expenses and charges whether capital or to be expensed, whether for upkeep,
maintenance, repair, refurnishing, refurbishing, restoration, replacement,
insurance premiums, taxes, utilities, and other operating or other charges of a
like nature or otherwise, shall be paid by Lessee.  This Section 5.01 is not in derogation
of the specific provisions of this Lease, but in expansion thereof and as an
indication of the general intentions of the parties hereto.  Any present or future law to the contrary
notwithstanding, this Lease shall not terminate, nor shall Lessee be entitled
to any abatement, suspension, deferment, reduction, setoff, counterclaim, or
defense with respect to any part of the total Rent, nor shall the obligations
of Lessee hereunder be otherwise affected, by reason of:  (1) any defect in the condition,
merchantability, design, construction, quality or fitness for use of the
Properties or any part thereof, or the failure of the Properties to comply with
any Applicable Laws, including any inability to occupy or use any such Properties
by reason of such non-compliance; (2) any damage to, removal, abandonment,
salvage, loss, contamination of or release from, scrapping or destruction of or
any requisition or taking of any portion of the Properties or any part thereof;
(3) any restriction, prevention or curtailment of or interference with the
construction on or any use or any portion of the Properties or any part thereof
including eviction; (4) any defect in title to or rights to any portion of
the Properties or any lien on such title or rights or on any portion of the
Properties; (5) any change, waiver, extension, or indulgence by Lessor or
any Mortgagee; (6) any bankruptcy, insolvency, reorganization,
composition, adjustment, dissolution, liquidation or other like proceedings
relating to Lessor, Lessee or any other person, or any action taken with
respect to this Lease by any trustee or receiver of Lessor, Lessee, or any
other person, or by any court, in any such proceeding; (7) any claim that
Lessee has or might have against any person, including without limitation any
Lessor, any Mortgagee, or any vendors, manufacturer, contractor of or for any
portion of the Properties; (8) any failure on the part of any Lessor to
perform or comply with any of the terms of this Lease or of any other
agreements; (9) any invalidity or unenforceability or illegality or
disaffirmance of this Lease or any provision thereof or hereof against or by
Lessor or Lessee or of any document of instrument executed in connection with
this Lease or by the parties thereto; (10) the impossibility or illegality
of performance by any Lessor or Lessee; (11) any action by any court,
administrative agency or other governmental authority; (12) any other cause or
circumstances whether similar or dissimilar to the foregoing and whether or not
Lessor or Lessee shall have notice of or knowledge of any of the
foregoing.  The obligations of Lessee
under this Lease shall continue to be payable in all events unless such
obligations shall be terminated pursuant to the express provisions of this
Lease.  Lessee shall continue to perform
its obligations under this Lease even if Lessee claims that Lessee has been
damaged by any act or omission of any Lessor. 
Therefore, except as otherwise provided by the express terms of this
Lease, Lessee shall at all times remain obligated to pay Rent under this Lease
without any right of set-off, counterclaim, abatement, deduction, reduction or
defense of any kind.  Lessee’s sole 

 

12

 

right to recover damages or assert claims against Lessor by reason of a
breach or alleged breach of Lessor’s obligations under this Lease shall be to
prove such damages or claims in a separate cause of action against Lessor,
provided that it is understood that Lessee retains and shall be permitted in
such action to assert all claims arising as a result of Lessor’s acts,
omissions or defaults, including but not limited to any claim that Lessor
materially adversely affected Lessee’s use or occupancy of a Property, so long
as Lessee continues to pay Rent and perform its obligations under the Lease as
set forth in this Section 5.01.

 

Section 5.02         Property Capital
Improvement Reserves.

 

Lessee shall make monthly
payments for capital improvements (as defined below) to the Properties in the
amount of $300 for each unit at the Properties per year (the “Capital
Replacement Account”).  The Capital
Replacement Account shall be in the name of Lessor and shall be held in an
interest-bearing account with all interest added to the Capital Replacement
Account.  Lessee shall make detailed
requests for such funds in writing to Lessor (in such detail and with such
information as may be required by any Mortgagee), which funds shall be made
available to Lessee to make capital improvements to the Properties (or to
reimburse Lessee for capital improvements made by Lessee) as reasonably
approved by Lessor.  Within seven (7) business
days following any such request, Lessor shall either approve the request and
make mutually agreeable arrangements for the timely disbursement of the
requested funds or deny the request and provide Lessee with written notice in
reasonable detail specifying Lessor’s reasonable objections.  To the extent that the cost of any particular
capital improvements does not exceed $5,000, or involves the replacement of
items existing on the Properties on the Effective Date and such replacement
involves life-safety issues required to be addressed to remain so that the
Properties remain in compliance with Applicable Laws (a “Permitted Disbursement”),
Lessor shall have no right to reject the request and Lessor shall promptly
authorize the disbursement of such funds to Lessee for the Permitted
Disbursement following Lessee’s request therefor; provided, however, Lessee
recognizes that such Permitted Disbursement will be subject to the requirements
of Lessor’s Mortgagee.  Lessor shall use
commercially reasonable efforts to obtain the prompt consent of such Mortgagee
with respect to any Permitted Disbursement, provided however that Lessor shall
not be required to make any concessions, or incur any obligations or
liabilities, to any Mortgagee or any other person in connection with such
efforts, and Lessor shall not be in default of this Lease (and Lessee shall
have no set-off rights with respect to) for any claim or assertion by Lessee
that Lessor has not expended such efforts.  
As used herein, the term “capital improvement” shall mean any
improvement that is allowed to be capitalized under then current generally
accepted accounting principles.  Any required
amounts that Lessee fails to fund into the Capital Replacement Account shall be
treated the same as nonpayment of “Rent” for all purposes under this
Lease.  Any amounts remaining in the
Capital Replacement Account shall be surrendered to Lessor at the expiration or
termination of this Lease.

 

Section 5.03         Taxes
and Assessments; Compliance With Law.

 

(a)           Lessee shall pay, prior
to delinquency:  (i) all taxes, assessments, levies, fees, water
and sewer rents and charges and all other governmental charges, general and
special, ordinary and extraordinary, foreseen and unforeseen, which are, at any
time prior to or during the 

 

13

 

Term hereof imposed or levied upon or
assessed against or which arise with respect to (A) the Properties, (B) any
Basic Rent, additional rent or other sums payable hereunder, (C) this
Lease or the leasehold estate hereby created or (D) the operation,
possession or use of the Properties; (ii) all gross receipts or similar
taxes (i.e., taxes based upon gross income which fail to take into account
deductions with respect to depreciation, interest, taxes or ordinary and
necessary business expenses, in each case relating to the Properties) imposed
or levied upon, assessed against or measured by any Basic Rent, additional rent
or other sums payable hereunder; (iii) all sales, value added, ad valorem,
use and similar taxes at any time levied, assessed or payable on account of the
leasing, operation, possession or use of the Properties; and (iv) all
charges of utilities, communications and similar services serving the
Properties.  Notwithstanding the
foregoing, Lessee shall not be required to pay any franchise, estate,
inheritance, transfer, income, capital gains or similar tax of or on Lessor
unless such tax is imposed, levied or assessed in substitution for any other
tax, assessment, charge or levy which Lessee is required to pay pursuant to
this Section 5.03(a) or by law; provided, however, that if, at any
time during the Lease Term, the method of taxation shall be such that there
shall be assessed, levied, charged or imposed on Lessor a capital levy or other
tax directly on the rents received therefrom, or upon the value of the
Properties or any present or future improvement or improvements on the
Properties, then all such levies and taxes or the part thereof so measured or
based shall be payable by Lessee, and Lessee shall pay and discharge the same
as herein provided.  If any such
assessment may legally be paid in installments, Lessee may pay such assessment
in installments; in such event, Lessee shall be liable only for installments
which become due and payable with respect to any tax period occurring in whole
or in part during the Lease Term hereof; provided, however, that all amounts referred
to in this Section 5.03(a) for the fiscal or tax year in which the
Lease Term shall expire shall be apportioned so that Lessee shall pay those
portions thereof which correspond with the portion of such year as are within
the Lease Term hereby demised.  If any
Mortgagee requires deposits for payment of real estate taxes or other
Impositions to be made with such Mortgagee, Lessee shall either pay to Lessor
monthly the amounts required and Lessor shall transfer the amounts to such
Mortgagee, or, pursuant to written direction by Lessor, Lessee shall make such
deposits directly with such Mortgagee and provide evidence thereof to
Lessor.  Lessor agrees to use
commercially reasonable efforts to minimize any Mortgagee requirements with
respect to monthly escrows of real estate taxes, insurance or other
Impositions, provided however that Lessor shall not be require to make any
concessions, or incur any obligations or liabilities, to any Mortgagee or any
other person in connection with such efforts, and Lessor shall not be in
default of this Lease (and Lessee shall have no set-off rights with respect to)
any claim or assertion by Lessee that Lessor has not expended such efforts.

 

(b)           Lessee shall comply with
and cause the Properties to comply with and shall assume all obligations and
liabilities with respect to (i) all applicable federal state and local
laws, ordinances and regulations and other governmental rules, orders and
determinations presently in effect or hereafter enacted, made or issued,
whether or not presently contemplated as applied to the Properties or the
ownership, operation, use or possession thereof, including but not limited to
with respect to any certification or licensing requirements regarding the
provision of health care services, Medicare or Medicaid (collectively, “Applicable
Laws”), and (ii) all contracts, insurance policies (including, without
limitation, to the extent necessary to prevent cancellation thereof and to
insure full payment of any claims made under such policies), agreements, 

 

14

 

covenants, conditions and restrictions
now or hereafter applicable to the Properties or the ownership, operation, use
or possession thereof (other than covenants, conditions and restrictions
imposed or created by Lessor subsequent to the Effective Date without the
consent of Lessee), including, but not limited to, all such Applicable Laws,
contracts, agreements, covenants, conditions and restrictions which require
structural, unforeseen or extraordinary changes.

 

Section 5.04         Liens.

 

Lessee will remove and
discharge any charge, lien, security interest or encumbrance upon the
Properties or upon any Basic Rent, additional rent or other sums payable
hereunder which arises (other than by act or omission of Lessor), including,
without limitation, all liens which arise out of the possession, use,
occupancy, construction, repair or rebuilding of the Properties or by reason of
labor or materials furnished or claimed to have been furnished to Lessee or for
the Properties.  Lessee may provide a
bond or other security reasonably acceptable to Lessor (but in no event greater
in amount than the amount of such encumbrance) to remove or pay all costs
associated with the removal of any such lien, provided the conditions of Section 5.05
below shall be satisfied.  Nothing
contained in this Lease and no action or inaction by Lessor shall be construed
as giving Lessee any right, power or permission to contract for or permit the
performance of any labor or services or the finishing of any materials or other
property in such fashion as would permit the making of any claim against Lessor
in respect thereof or to make any agreement that may create, or in any way be
the basis for, any right, title, interest, lien, claim or other encumbrance
upon the estate of Lessor in any Property or any portion thereof.

 

Section 5.05         Indemnification.

 

(a)           Except for the gross
negligence, willful misconduct or fraud of any Indemnified Party, Lessee shall
defend all actions against any Lessor and any Mortgagee of Lessor and any
joint-venturer, partner, officer, director, member, employee or shareholder of
the foregoing (collectively, “Indemnified Parties”), with respect to, and shall
pay, protect, indemnify and save harmless the Indemnified Parties from and
against, any and all liabilities, losses, damages, costs, expenses (including,
without limitation, reasonable attorneys’ fees and expenses), causes of action,
suits, claims, demands or judgments of any nature arising from (i) injury
to or death of any person, or damage to or loss of property, on or about the
Properties, or connected with the use, condition or occupancy of any thereof, (ii) violation
by Lessee of this Lease, (iii) use of the Properties, acts or omissions of
Lessee or its agents, contractors, licensees, sublessees or invitees and (iv) any
contest referred to herein.

 

(b)           The rights and
obligations of Lessor and Lessee with respect to claims by Lessor against
Lessee brought pursuant to this Section 5.05 and Section 5.06 shall
be subject to the following conditions:

 

(i)            If Lessor receives notice of the
assertion of any claim in respect of which it intends to make an
indemnification claim under this Section 5.05 or Section 5.06, Lessor
shall promptly provide written notice of such assertion to Lessee.  The notice shall describe in reasonable
detail the nature of the claim and the basis for an indemnification claim under
this Section 5.05 or Section 5.06, and shall be accompanied by all
papers and documents which have 

 

15

 

been served upon Lessor and
such other documents and information as may be appropriate to an understanding
of such claim and the liability of Lessee to indemnify Lessor hereunder.  Except as required by law, the Lessor shall
not answer or otherwise respond to such claim or take any other action which
may prejudice the defense thereof unless and until Lessee has been given the
opportunity to assume the defense thereof as required by this Section 5.05
and refused to do so.

 

(ii)           Upon receipt of an indemnification
notice under this Section 5.05, the Lessee shall have the right, but not
the obligation, to promptly assume and take exclusive control of the defense,
negotiation and/or settlement of such claim; provided, however, that if the
representation of both parties by Lessee would be inappropriate due to actual
or potential differing interests between them, then the Lessee shall not be
obligated to assume such defense, but Lessee shall be obligated to so notify
Lessor within five (5) business days of such decision if Lessee declines
to assume such defense. In the event of an actual, direct conflict of interest
or dispute or during the continuance of an Event of Default, Lessor shall have
the right to select counsel, reasonably acceptable to Lessee, and the cost of
such counsel shall be paid by Lessee. 
The parties acknowledge that, with respect to claims for which insurance
is available, the rights of the parties to select counsel for the defense of
such claims shall be subject to such approval rights as the insurance company
providing coverage may have.

 

(iii)          The party controlling the defense of a
claim shall keep the other party reasonably and timely informed at all stages
of the defense of such claim in such a manner as to allow meaningful and timely
participation by the non-controlling party in its own defense.  The party not controlling the defense of any
claim shall have the right, at its sole cost and expense, to participate in,
but not control, the defense of any such claim. No settlement admitting a party’s
negligence or violation of any Applicable Laws shall be agreed to without the
consent of such party. Each party shall reasonably cooperate with the other in
the defense, negotiation and/or settlement of any such claim.  In connection with any defense of a claim
undertaken by Lessee, Lessor shall provide Lessee, and its counsel, accountants
and other representatives, with reasonable access to relevant books and records
and make available such personnel of Lessor as Lessee may reasonably request.

 

Section 5.06         Permitted
Contests.

 

(a)           After providing advance
written notice to Lessor, Lessee, may contest, by appropriate legal proceedings
conducted with due diligence, any Legal Requirement with which Lessee is
required to comply pursuant to Section 5.03(b) or any Environmental
Law, or the amount or validity or application, in whole or in part, of any tax,
assessment or charge which Lessee is obligated to pay or any lien, encumbrance
or charge, provided that unless Lessee has already paid such tax, assessment or
charge (i) the commencement of such proceedings shall suspend the
enforcement or collection thereof against or from Lessor and against or from
the Properties, (ii) neither the Properties nor any rent therefrom nor any
part thereof or interest therein would be in any danger of being sold,
forfeited, attached or lost, (iii) Lessee shall have furnished such
security, if any, as may be required in the proceedings, and (iv) if such
contest be finally resolved against Lessee, Lessee shall promptly pay the
amount required to be paid, together with all interest and penalties accrued
thereon.  Lessor, shall execute and
deliver to Lessee such authorizations and other documents as reasonably may be
required in any such 

 

16

 

contest.  Notwithstanding any other provision of this
Lease to the contrary, Lessee shall not be in default hereunder in respect to
the compliance with any Legal Requirement with which Lessee is obligated to
comply pursuant to Section 5.03(b), any Environmental Law under Section 5.07,
or in respect to the payment of any tax, assessment or charge which Lessee is
obligated to pay or any lien, encumbrance or charge which Lessee is in good
faith contesting.

 

(b)           Without limiting the
provisions of Sections 5.05 and 5.06(a), so long as no Event of Default exists
and the conditions set forth in Sections 5.05 and 5.06(a) are
satisfied, Lessor hereby irrevocably appoints Lessee as Lessor’s
attorney-in-fact solely for the purpose of prosecuting a contest of any tax,
assessment or charge which Lessee is obligated to pay.  Such appointment is coupled with an
interest.  Notwithstanding the foregoing
appointment, if Lessee determines it to be preferable in prosecution of a
contest of a tax, assessment or charge, upon Lessee’s prior request, Lessor
shall (absent any legal or other prohibition) execute the real estate tax
complaint and/or other documents reasonably needed by Lessee to prosecute the
complaint as to such tax, assessment or charge and return same to Lessee within
a reasonable period of time.  At Lessee’s
request, Lessor shall similarly cooperate to the extent necessary in connection
with other contests.

 

Section 5.07         Environmental
Compliance.

 

(a)           For purposes of this
Lease:

 

(i)            the term “Environmental Laws” shall mean and include the Resource
Conservation and Recovery Act, as amended by the Hazardous and Solid Waste
Amendments of 1984, the Comprehensive Environmental Response, Compensation and
Liability Act, the Hazardous Materials Transportation Act, the Toxic Substances
Control Act, the Federal Insecticide, Fungicide and Rodenticide Act and all
Applicable Laws, as any of the foregoing may have been or may be from time to
time amended, supplemented or supplanted and any and all other Applicable
Laws  now or hereafter existing, relating
to (i) the preservation or regulation of the public health, welfare or
environment, (ii) the regulation or control of toxic or hazardous
substances or materials, or (iii) any wrongful death, personal injury or
property damage that is caused by or related to the growth, proliferation or
reproduction, with any biological organism or portion thereof (living or dead),
including molds or other fungi, bacteria or other microorganisms or any
etiologic agents or materials; and

 

(ii)           the term “Regulated Substance” shall mean and include any, each and
all substances, biological and etiologic agents or materials, including medical
waste, now or hereafter regulated pursuant to any Environmental Laws, including,
but not limited to, any such substance, biological or etiological agent or
material now or hereafter defined as or deemed to be a “regulated substance,” “pesticide,”
“hazardous substance” or “hazardous waste” or included in any similar or like
classification or categorization thereunder.

 

17

 

(b)           Lessee shall:

 

(i)            not cause or
permit any Regulated Substance to be placed, held, located, released,
transported or disposed of on, under, at or from the Properties in violation of
Environmental Laws;

 

(ii)           contain at or
remove from the Properties, or perform any other necessary remedial action
regarding, any Regulated Substance in any way affecting the Properties if, as
and when such containment, removal or other remedial action is required under
any Legal Requirement and shall perform any containment, removal or remediation
involving any Regulated Substance in a way so as to not materially adversely
affect the Properties being in compliance with all Applicable Laws;

 

(iii)          provide Lessor
with written notice (and a copy as may be applicable) of any of the following
within 30 days of receipt thereof:  (A) Lessee’s obtaining
knowledge or notice of any kind of the material presence, or any actual
release, of any Regulated Substance in any way materially adversely affecting
the Properties; (B) Lessee’s receipt or submission, or Lessee’s obtaining
written notice or other communication from or to any federal, state or local
governmental or quasi-governmental authority regarding any Regulated Substance
in any way materially adversely affecting the Properties; or (C) Lessee’s
obtaining knowledge or notice of any kind of the incurrence of any cost or
expense by any federal, state or local governmental or quasi-governmental
authority or any private party in connection with the assessment, monitoring,
containment, removal or remediation of any kind of any Regulated Substance in
any way materially adversely affecting the Properties, or of the filing or
recording of any lien on the Properties or any portion thereof in connection
with any such action or Regulated Substance in any way materially adversely
affecting the Properties.

 

(iv)          Lessee shall
and does hereby indemnify, defend and hold harmless the Indemnified Parties
from and against each and every incurred and potential claim, cause of action,
damage, demand, obligation, fine, laboratory fee, liability, loss, penalty,
imposition, settlement, levy, lien removal, litigation, judgment, proceeding,
disbursement, expense and/or cost (including without limitation the cost of
clean-up), however defined and of whatever kind or nature, known or unknown,
foreseeable or unforeseeable, contingent or otherwise (including, but not
limited to, reasonable attorneys’ fees, consultants’ fees, experts’ fees and
related expenses) incurred in connection with any investigation of site conditions
or clean up required by any federal, state or local governmental agency or
political subdivision because of the presence of any Regulated Substance in,
under or about any of the Property in violation of Applicable Laws and not
caused by Lessor or its agents, contractors or employees.

 

ARTICLE
VI

 

Section 6.01         Condemnation
and Casualty.

 

(a)           General Provisions. 
Except as provided in Section 6.01(b) and (c), Lessee hereby
irrevocably assigns to Lessor any award, compensation or insurance payment to
which Lessee may become entitled by reason of Lessee’s leasehold interest in
the Properties (i) if the use, occupancy or title of the Properties or any
part thereof is taken, requisitioned or sold in, by or on account of any actual
or threatened eminent domain proceeding or other action by any 

 

18

 

person having the power of eminent
domain (“Condemnation”) or (ii) if the Properties or any part thereof is
damaged or destroyed by fire, flood or other casualty (“Casualty”).  All awards, compensations and insurance
payments on account of any Condemnation or Casualty are herein collectively
called “Compensation”.  Lessee may
unilaterally negotiate, prosecute or adjust any claim for any Compensation with
an estimated value of less than 25% of the annual rent payable with respect to
the affected Property or Properties (the “Threshold Amount”), as set forth on Exhibit B.  Lessee must consult with and obtain Lessor’s
consent for the negotiation, prosecution or adjustment of any claim for
Compensation with an estimated value of greater than or equal to the Threshold
Amount.  If the parties are unable to so
agree, then they shall appoint a entity or individual that specializes in such
negotiations who shall negotiate, prosecute and adjust a claim for
Compensation.  Lessor shall be entitled
to participate in any such proceeding, action, negotiation, prosecution, appeal
or adjustment as contemplated herein. 
Notwithstanding anything to the contrary contained in this Article VI,
if permissible under Applicable Laws, any separate Compensation made to Lessee
for its moving and relocation expenses, anticipated loss of business profits,
loss of goodwill or fixtures and equipment paid for by Lessee and which are not
part of the Properties (including, without limitation, the Severable Property)
and such other benefits as may be available to Lessee under Applicable Laws,
shall be paid directly to and shall be retained by Lessee, so long as the
provision of same does not reduce any award to Lessor (and shall not be deemed
to be “Compensation”).  All Compensation
shall be applied pursuant to this Section 6.01, and all such Compensation
(less the reasonable expense of collecting such Compensation) is herein called
the “Net Proceeds.”  Except as
specifically set for herein, all Net Proceeds shall be paid to the Proceeds
Trustee and applied pursuant to this Section 6.01.

 

(b)           Substantial Casualty or Condemnation.  If a Casualty or Condemnation shall, in
Lessee’s good faith judgment, affect all or substantially all of one or more of
the Properties and shall render those Properties unsuitable for restoration for
continued use and occupancy in Lessee’s business and the cost of restoration
exceeds the Threshold Amount, then Lessee may, in its reasonable discretion,
not later than sixty (60) days after the occurrence of the Casualty or
Condemnation, deliver to Lessor (i) notice of its intention (“Notice of
Intention”) to terminate this Lease with respect to the affected Property or
Properties on the next rental payment date which occurs not less than thirty
(30) days after the delivery of such notice (the “Termination Date”) and (ii) a
certificate of an authorized officer of Lessee describing the event giving rise
to such termination and stating that Lessee has determined that such Casualty
or Condemnation has rendered the applicable Property or Properties unsuitable
for restoration for continued use and occupancy in Lessee’s business.  In the event Lessee does not deliver the
Notice of Intention to Lessor, Lessor shall permit so much of the Net Proceeds
as may be necessary to be utilized by Lessee to completely repair or restore
the Properties to its or their condition immediately prior to the Casualty or
Condemnation, subject to the reasonable requirements of any Lessor’s Mortgagee
(including but not limited to the provisions of Section 19 of those
certain Multifamily Mortgage, Assignment of Rents and Security Instruments
granted by Lessor to Red Mortgage Capital, Inc. of even date
herewith).  Rent shall not abate during
such repair or restoration period.  Upon
payment by Lessee of all Basic Rent, additional rent and other sums then due
and payable hereunder to and including the Termination Date, this Lease shall
terminate with respect to the affected Properties on the Termination Date
except with respect to obligations and liabilities of Lessee hereunder, actual
or contingent, which have accrued on or prior to the Termination Date, 

 

19

 

and the Net Proceeds shall belong to
Lessor.  Notwithstanding any termination
hereunder with respect to the Properties affected by Casualty or Condemnation,
the Lease shall remain in full force and effect with respect to the unaffected
Properties subject only to reduction of Basic Rent shown on Exhibit B allocable to such
terminated Properties (as the same may be escalated from time to time).

 

(c)           Less Than Substantial Condemnation or Casualty.  If, after a Condemnation or Casualty, Lessee
does not give or does not have the right to give notice of its intention to
terminate this Lease as provided in Section 6.01(b), then this Lease shall
continue in full force and effect and Lessee shall, at its expense, rebuild,
replace or repair the Properties in conformity with the requirements of this
Lease so as to restore the Properties (in the case of Condemnation, as nearly
as practicable) to the condition, and character thereof immediately prior to
such Casualty or Condemnation; provided that Lessee and Lessor shall use reasonable
efforts to consider modifications which would make the Improvements a more
contemporary or useful design.  If the
cost of any rebuilding, replacement or repair required to be made by Lessee
pursuant to this Section 6.01(c) shall exceed the amount of such Net
Proceeds, the deficiency shall be paid by Lessee.  To the extent the Net Proceeds with respect
to any Casualty or Condemnation are less than the Threshold Amount, the Net
Proceeds shall be paid to Lessee to be used to rebuild, replace or repair the Properties
in a lien free and good and workmanlike manner. 
To the extent the Net Proceeds from any Casualty or Condemnation are
greater than the Threshold Amount, the Net Proceeds shall be paid to the
Proceeds Trustee and prior to any such rebuilding, replacement or repair,
Lessee shall determine the maximum cost thereof (the “Restoration Cost”), which
amount shall be reasonably acceptable to Lessor.  The Restoration Cost shall be paid first out
of Lessee’s own funds to the extent that the Restoration Cost exceeds the Net
Proceeds payable in connection with such occurrence, after which expenditure
Lessee shall be entitled to receive the Net Proceeds from the Proceeds Trustee,
but only against (i) certificates of Lessee delivered to Lessor and the
Proceeds Trustee from time to time but no more often than monthly as such work
of rebuilding, replacement and repair progresses, each such certificate
describing the work for which Lessee is requesting payment and the cost
incurred by Lessee in connection therewith and stating that Lessee has not
theretofore received payment for such work and (ii) such additional
documentation or conditions as Lessor or the Proceeds Trustee may reasonably
require, including, but not limited to, copies of all contracts and
subcontracts relating to restoration, architects’ certifications, title policy
updates and lien waivers or releases. 
Any Net Proceeds remaining after final payment has been made for such
work and after Lessee has been reimbursed for any portions it contributed to the
Restoration Cost with respect to any Casualty shall be paid to Lessee and with
respect to any Condemnation shall be paid to Lessor.  In the event of any Condemnation for which
there has not been a termination under Section 6.01(b), this Lease shall
remain in full effect and Lessee shall be entitled to receive the Net Proceeds
allocable to such Condemnation, except that any portion of the Net Proceeds
allocable to the period after the expiration or termination of the Lease Term
shall be paid to Lessor, and the Basic Rent shown on Exhibit B
as to the affected Property (as the same may be escalated from time to time)
shall be equitably reduced.

 

20

 

Section 6.02         Insurance.

 

(a)           Lessee will maintain
insurance (or shall maintain the effectiveness of any property/casualty
insurance maintained by Lessor) on the Properties of the following character,
and written by companies reasonably acceptable to Lessor authorized to do
insurance business in Wisconsin:

 

(i)            All risk
property coverage in amounts not less than 100% of the actual replacement value
of the improvements, with a replacement cost endorsement sufficient to prevent
Lessee or Lessor from becoming a co-insurer together with an agreed value
endorsement.  Property deductibles shall
be no greater than $50,000.00 per Property, together with coverage for loss or
damage by hurricane and earthquake (to the extent wind-storm or earthquake
zones exist, if at all, in the Portfolio) in the amount of the full replacement
cost, after deductible (notwithstanding anything herein to the contrary, Lessor
retains the right to obtain the insurance set forth in this Section 6.02(a)(i) directly,
in which event Lessee shall reimburse Lessor for any and all of the costs and
expenses of same);

 

(ii)           Commercial
General Liability insurance and professional liability insurance, each
including insurance against assumed or contractual liability including
indemnities under this Lease, on a claims made form with the following minimum
limits:  $1,000,000 each occurrence,
$1,000,000 Personal & Advertising Injury; and $5,000,000 General
Aggregate;

 

(iii)          Business
interruption insurance in an amount sufficient to cover loss of Rents from the
Properties pursuant to this Lease for a period of at least six (6) months;

 

(iv)          Worker’s
compensation insurance to the extent required by Wisconsin law;

 

(v)           During any
period of construction on the Properties, builder’s risk insurance on a
completed value, non-reporting basis for the total cost of such alterations or
improvements, and workers’ compensation insurance as required by Applicable
Laws.  This coverage may be provided by
Lessee’s all risk property insurance pursuant to Section 6.02(a)(i) herein;
and

 

(vi)          Flood (when the
Property is located in whole or in part within a designated flood plain area)
and such other hazards and in such amounts as may be customary for comparable
properties in the area.

 

In addition to the insurance
described above, Lessee shall maintain such additional insurance as may be reasonably
required from time to time by Lessor, any Mortgagee, or required pursuant to
any Applicable Laws.

 

With the exception of
workers’ compensation insurance and business interruption insurance, all such
policies shall name Lessor as an additional insured as its interest may
appear.  If the Properties or any part
thereof shall be damaged or destroyed by Casualty, and if the estimated cost of
rebuilding, replacing or repairing the same shall exceed $50,000, Lessee promptly
shall notify Lessor thereof.

 

21

 

(b)           Every such policy
provided pursuant to clause (a)(i), above shall bear a mortgagee endorsement in
favor of any mortgagee(s) or beneficiary(ies) of any Lessor identified by
Lessor (whether one or more, the “Mortgagee”) under any mortgages, deeds of
trust or similar security instruments creating a lien on the interest of Lessor
in the Properties (whether one or more, the “Mortgage”), and any loss under any
such policy shall be payable to the Mortgagee which has a first lien on such
interest (if there is more than one first Mortgagee, then to the trustee for
such Mortgagees) to be held and applied by Mortgagee toward restoration
pursuant to Section 6.01.  If any
Mortgagee requires deposits of insurance to be made with such Mortgagee, Lessee
shall either pay to Lessor monthly the amounts required and Lessor shall
transfer such amounts to such Mortgagee or, pursuant to written direction by
Lessor, Lessee shall make such deposits directly with such Mortgagee. Every
such policy with the exception of workers’ compensation insurance and business
interruption insurance, shall name the Mortgagee as an additional insured as
its interest may appear.  Every policy
referred to in Section 6.02(a) shall provide that it will not be
cancelled or amended except after 30 days’ written notice to Lessor and
the Mortgagee and that it shall not be invalidated by any act or negligence of
Lessor, Lessee or any person or entity having an interest in the Properties,
nor by occupancy or use of the Properties for purposes more hazardous than
permitted by such policy, nor by any foreclosure or other proceedings relating
to the Properties, nor by change in title to or ownership of the
Properties.  The “Proceeds Trustee” shall
be a financial institution selected by Lessor and reasonably approved by Lessee
and may be the Mortgagee.

 

(c)           Lessee shall deliver to
Lessor and Mortgagee (i) upon request copies of the applicable insurance
policies and (ii) original or duplicate certificates of insurance,
reasonably satisfactory to Lessor and Mortgagee evidencing the existence of all
insurance which is required to be maintained by Lessee hereunder and payment of
all premiums therefor, such delivery to be made (A) upon the execution and
delivery hereof and (B) at least fifteen (15) days prior to the
expiration of any such insurance.  Lessee
shall not obtain or carry separate insurance concurrent in form or contributing
in the event of loss with that required by this Section 6.02 unless Lessor
is named additional insureds therein and unless there is a mortgagee
endorsement in favor of Mortgagee with loss payable as provided herein.  Lessee shall immediately notify Lessor
whenever any such separate insurance is obtained and shall deliver to Lessor
and Mortgagee the policies or certificates evidencing the same.

 

(d)           The requirements of this Section 6.02
shall not be construed to negate or modify Lessee’s obligations under Section 5.04.

 

(e)           Anything in this Section 6.02
to the contrary notwithstanding, any insurance which Lessee is required to
obtain pursuant to Section 6.02(a) may be carried by Lessee under a “blanket”
policy or policies covering other properties or liabilities of Lessee or any
Affiliate of Lessee, provided that such “blanket” policy or policies otherwise
comply with the provisions of this Section 6.02 and provided that the
coverage afforded Lessor or a Mortgagee will not be reduced or diminished or
otherwise be different from that which would exist under separate policies
meeting all other requirements of this Lease.

 

(f)            All insurance policies
carried by either party covering the Property shall expressly waive any right
of subrogation on the part of the insurer against the other party.  The parties 

 

22

 

hereto agree that their policies will
include such a waiver clause or endorsement so long as the same is obtainable
without extra cost, and in the event of such an extra charge the other party,
at its election, may request and pay the same, but shall not be obligated to do
so.

 

(g)           Lessee shall pay all
premiums for any insurance required under this Lease directly to the insurance
carrier.  In the event of the failure of
Lessee to effect such insurance in the names herein called for or to pay the premiums
therefor, or to deliver such policies or certificates thereof to Lessor at the
times required, and such failure continues for five (5) days after written
notice to Lessee from Lessor of such failure, and if Lessee does not cure such
failure within such five (5) day period, then Lessor shall be entitled,
but shall have no obligation, to effect such insurance and pay the premiums
therefor, which premiums shall be repayable by Lessee to Lessor upon written
demand therefor, and failure to repay the same shall constitute an Event of
Default hereunder.

 

(h)           Without the prior written
consent of Lessor, Lessee shall not on Lessee’s own initiative or pursuant to
the request or requirement of any third party, take out separate insurance
concurrent in form or contributing in the event of loss with that required in
this Article VI to be furnished by Lessee, or increase the amounts of any
then-existing insurance required under this Article VI by securing an
additional policy or additional policies, unless all parties having an
insurable interest in the subject matter of the insurance, including in all
cases Lessor and all Mortgagees, are included therein as additional insureds
and the loss is payable under said insurance in the same manner as losses are
required to be payable under this Lease. 
Lessee shall immediately notify Lessor of the taking out of any such
separate insurance or of the increasing of any of the amounts of the
then-existing insurance required under this Article VI by securing an
additional policy or additional policies.

 

ARTICLE
VII

 

Section 7.01         Conditional
Limitations; Default Provisions.

 

(a)           Any of the following
occurrences or acts shall constitute an Event of Default under this Lease:

 

(i)            If Lessee shall
(1) fail to pay any Basic Rent, Rent, additional rent or other monetary
sum when due and such failure continues for at least ten (10) days after
Lessee’s receipt of written notice from Lessor of such failure; provided,
however, Lessor shall not be required to provide written notice of any failure
to pay Basic Rent in a timely manner more than once in any twelve (12) month
period before same becomes an immediate Event of Default; or (2) fail to
observe or perform any other provision hereof and such non-monetary failure
shall continue for thirty (30) days after Lessee’s receipt of written
notice from Lessor of such failure (provided that, in the case of any such
failure which cannot be cured by the payment of money and cannot with prompt
diligence and reasonable efforts be cured within such thirty (30) day period,
if Lessee shall commence promptly to cure the failure and thereafter prosecute
the curing thereof with prompt diligence and reasonable efforts, the time
within which such failure may be cured before same shall be an Event of Default
shall be extended for such period as is reasonably 

 

23

 

necessary to complete the
curing thereof with prompt diligence and reasonable efforts, not to exceed one
hundred eighty (180) days);

 

(ii)           If any
representation or warranty of Lessee set forth in this Lease (or of Seller
under the Sale Agreement) shall prove to be incorrect in any material adverse
respect as of the time when made, in a way materially adverse to Lessor and
Lessor shall suffer a material loss or detriment as a result thereof,
including, without limitation, the taking of any action (including, without
limitation, the demise of the Properties to Lessee herein) in reliance upon
such representation or warranty and, in each case, the facts shall not be
conformed to the representation and warranty as soon as practicable in the
circumstances (but in no event to exceed thirty (30) days subject to
reasonable extension provided that Lessee is prosecuting the cure with prompt
diligence and reasonable efforts) and Lessor restored to the position it would
have enjoyed had such representation or warranty been accurate at the time it
was made;

 

(iii)          If Lessee shall
file a petition in bankruptcy or for reorganization or for an arrangement
pursuant to any Applicable Law or shall be adjudicated a bankrupt or become
insolvent or shall make an assignment for the benefit of creditors, or if a
petition proposing the adjudication of Lessee as a bankrupt or its
reorganization pursuant to any Applicable Law shall be filed in any court and
Lessee shall consent to or acquiesce in the filing thereof or such petition
shall not be discharged or denied within 90 days after the filing thereof;

 

(iv)          If a receiver,
trustee or conservator of Lessee or of all or substantially all of the assets
of Lessee or any of the Properties or Lessee’s or estate therein shall be
appointed in any proceeding brought by Lessee, or if any such receiver, trustee
or conservator shall be appointed in any proceeding brought against Lessee and
shall not be discharged within 90 days after such appointment, or if Lessee
shall consent to or acquiesce in such appointment;

 

(v)           If Lessee
transfers the operational control or management of any Property without the
prior written consent of Lessor, or there is an Assignment without the prior
written consent of Lessor, except as expressly permitted in this Lease;

 

(vi)          If the Average
Daily Occupancy for the Properties, on a collective basis,  for any three (3) consecutive calendar
months during the Term is less than ninety percent (90%) of the actual
occupancy at the Properties on October 18, 2006 (as set forth on Exhibit F).  “Average Daily Occupancy” shall mean the
average daily occupancy as determined on a monthly basis, with daily occupancy
meaning a percentage equal to the number of residents residing at the
Properties divided by the number of units at the Properties; provided, however,
Lessee shall be permitted to increase the then amount of the Lease Deposit by
fifty percent (50%) in order to cure any default under this Section 7.01(a)(vi),
unless the Average Daily Occupancy requirement set forth herein remains
unsatisfied for six (6) consecutive calendar months during the Term, in
which event same shall be an Event of Default at Lessor’s election
notwithstanding such increase in the Lease Deposit.  In the event that Lessee increases the Lease
Deposit as set forth in the preceding sentence and subsequently satisfies the
Average Daily Occupancy requirement set forth herein for three (3) consecutive
calendar months, such increased amount shall be returned to Lessee except to
the extent same has been applied to cure any unsatisfied obligation of Lessee
hereunder;

 

24

 

(vii)         If Lessee fails
to satisfy the Rent Coverage Requirement set forth in Section 1.08 and has
not satisfied the cure provisions set forth in Section 1.08 with respect
thereto;

 

(viii)        If any of the
Properties shall have been abandoned and not maintained in the manner required
hereunder for a period of at least seventy-two (72) hours; or

 

(ix)           If Lessee has
any permit, certification or license to operate any Property as a provider of
healthcare services in accordance with its intended use suspended or revoked or
an order is imposed suspending its right to operate or accept residents or
patients;

 

(b)           Upon the occurrence of an
Event of Default specified in Section 7.01(a)(i)(1), Section 7.01(a)(iii),
Section 7.01(a)(iv), Section 7.01(a)(v), Section 7.01(a)(viii) or
Section 7.01(a)(ix), Lessor shall immediately have the right to give
Lessee notice of Lessor’s termination of the Lease Term, with respect to any or
all Property or Properties as the circumstances may warrant (a “Termination
Notice”), in Lessor’s sole discretion. 
With respect to any other Events of Default other than those specified
in the preceding sentence, prior to sending a Termination Notice, Lessor shall
provide Lessee with a notice of the Event of Default, specifically stating that
Lessee has an additional thirty (30) days to cure the Event of Default, failing
which Lessor shall have the right to terminate this Lease with respect to any
or all Property or Properties as the circumstances may warrant in Lessor’s sole
discretion.  In the event that Lessee
fails to cure such Event of Default within such thirty (30) day period, Lessor
shall be entitled to deliver a Termination Notice, with respect to any or all
Property or Properties as the circumstances may warrant in Lessor’s sole
discretion.  Upon the giving of any
Termination Notice, the Lease Term and the estate hereby granted shall expire
and terminate on such date with respect to the portion of the Portfolio for
which Lessor has terminated this Lease, as fully and completely and with the
same effect as if such date were the date herein fixed for the expiration of
the Lease Term, and all rights of Lessee hereunder with respect to such
Properties shall expire and terminate, but Lessee shall remain liable as
hereinafter provided.

 

(c)           Upon the occurrence of an
Event of Default, Lessor shall have the immediate right (in addition to any
other remedies available to Lessor at law or in equity), whether or not the
Lease Term shall have been terminated pursuant to Section 7.01(b), but
subject to and only in accordance with Applicable Laws, to (i) act on behalf
of Lessee as Lessee’s attorney-in-fact and take such action or actions on
behalf of Lessee that, in Lessor’s discretion, are necessary and prudent; (ii) reenter
and repossess any Property or all of the Properties (notwithstanding that an
Event of Default may exist with respect to fewer than all of the Properties)
and the right to remove all persons and property (subject to Section 3.02)
therefrom by summary proceedings, ejectment or any other legal action or in any
lawful manner Lessor determines to be necessary or desirable.  Lessor shall be under no liability by reason
of any such reentry, repossession or removal save for liability arising due to
Lessor’s gross negligence or willful misconduct.  No such reentry, repossession or removal
shall be construed as an election by Lessor to terminate the Lease Term unless
a Termination Notice is given to Lessee pursuant to Section 7.01(b) or
unless such termination is decreed by a court. 
Upon any exercise of these remedies by Lessor, Lessee agrees to reasonably
cooperate with Lessor and, to the extent necessary, enter into an interim
management agreement with an agent of Lessor for the temporary operation of the
Properties.

 

25

 

(d)           At any time or from time
to time after a reentry, repossession or removal pursuant to Section 7.01(c),
whether or not the Lease Term shall have been terminated pursuant to Section 7.01(b),
Lessor may relet a Property or all of the Properties for the account of Lessee,
in the name of Lessee or Lessor or otherwise, and Lessor may collect any rents
payable by reason of such reletting. 
Lessor shall not be liable for any failure to relet a Property or all of
the Properties or for any failure to collect any rent due upon any such
reletting.  Notwithstanding the
foregoing, Lessor agrees to make commercially reasonable efforts to mitigate
its damages under this Lease in the event Lessee actually vacates or advises
Lessor that it is, as of a specified date, to vacate the Properties.  The phrase “commercially reasonable efforts,”
as it relates to Lessor’s duty to attempt to relet the Properties, shall
require Lessor to do only the following: 
(i) notify Lessor’s management company or broker, if any, in
writing of the availability of the Properties for reletting, (ii) post
Lessor’s leasing contact telephone number in an appropriate area of the
Properties, and (iii) show the Properties to any prospective lessee
interested in the Properties and to any prospective lessee specifically
referred to Lessor by Lessee.

 

(e)           Absent a written
agreement to the contrary, no expiration or termination of the Lease Term
pursuant to Section 7.01(b), by operation of law or otherwise, and no
reentry, repossession or removal pursuant to Section 7.01(c) or
otherwise, and no reletting of the Properties pursuant to Section 7.01(d) or
otherwise, shall relieve Lessee of its liabilities and obligations hereunder,
all of which shall survive such expiration, termination, reentry, repossession,
removal or reletting.  In the event of
any termination of this Lease by Lessor with respect to a Property or
Properties, Lessee shall forthwith pay to Lessor all Rent due and payable with
respect to the Property to and including the date of the termination.  After any such termination, Lessee shall
forthwith pay to Lessor, at Lessor’s option as and for liquidated and agreed
current damages for Lessee’s default, the sum of (i) the worth at the time
of award of the unpaid Rent which had been earned at the time of termination, (ii) the
worth at the time of award of the amount by which the unpaid Rent which would
have been earned after termination until the time of award exceeds the fair
market rental value of the Property or Properties, (iii) the worth at the
time of award of the amount by which the unpaid Rent for the balance of the
Term after the time of award exceeds the fair market rental value of the
Property or Properties, and (iv) any other amount necessary to compensate
Lessor for all the detriment proximately caused by Lessee’s failure to perform
its obligations under this Lease.  In
making the above determinations, the “worth at the time of award” shall be
determined using the lowest rate of capitalization (highest present worth)
reasonably applicable at the time of the determination and allowed under
law.  Notwithstanding the foregoing, upon
any Event of Default, Lessor shall have the option not to terminate Lessee’s
right to possession of the Property, in which event Lessee shall be liable for
each installment of the Rent and other sums payable by Lessee to Lessor under
this Lease as the same becomes due and payable, and Lessor may enforce, by
action or otherwise, any other term or covenant of this Lease.

 

(f)            Lessee acknowledges that
one of the rights and remedies available to Lessor under Applicable Laws is to
apply to a court of competent jurisdiction for the appointment of a receiver to
take possession of the Properties, to collect the rents, issues, profits and
income of the Properties and to manage the operation of the Properties. Accordingly,
upon the occurrence of an Event of Default and the lapse of any applicable cure
and notice periods, Lessor shall be entitled, 

 

26

 

as one of its remedies, to seek the
appointment of a receiver for the Portfolio or any portion thereof.  Lessee further acknowledges that the
revocation, suspension or material limitation of a license relating to the
operation of any portion of the Properties for its intended use under the laws
of the State of Wisconsin will materially and irreparably impair the value of
Lessor’s investment in the Properties. 
Therefore, in such event, and in addition to any other right or remedy
of Lessor under this Lease, Lessor may petition any appropriate court for, and
Lessee hereby consents to, the appointment of a receiver to take possession of
the applicable Property, to manage the operation of the applicable Property, to
collect and disburse all rents, issues, profits and income generated thereby
and to preserve or replace to the extent possible any such license or to
otherwise substitute the licensee.  The
receiver shall be entitled to a reasonable fee for its services as a
receiver.  All such fees and other
expenses of the receivership estate shall be added to the monthly Rent due to
Lessor under this Lease.  Subject to
Applicable Laws, Lessee hereby irrevocably stipulates to the appointment of a
receiver under such circumstances and for such purposes and agrees not to
contest such an appointment.

 

Section 7.02         Bankruptcy
or Insolvency.

 

(a)           If Lessee shall become a
debtor in a case filed under Chapter 7 or Chapter 11 of the
Bankruptcy Code and Lessee or Lessee’s trustee shall fail to elect to assume
this Lease within 60 days after the filing of such petition or such
additional time as provided by the court, this Lease shall be deemed to have
been rejected at Lessor’s option. 
Immediately thereupon, Lessor shall be entitled to possession of the
Property or Properties without further obligation to Lessee or Lessee’s
trustee, and this Lease, upon the election of Lessor, shall terminate, but
Lessor’s right to be compensated for damages (including, without limitation,
liquidated damages pursuant to any provision hereof) or the exercise of any
other remedies in any such proceeding shall survive, whether or not this Lease
shall be terminated.

 

(b)           Neither the whole nor any
portion of Lessee’s interest in this Lease or its estate in the Properties
shall pass to any trustee, receiver, conservator, assignee for the benefit of
creditors or any other person or entity, by operation of law or otherwise under
the laws of any state having jurisdiction of the person or property of Lessee,
unless Lessor shall have consented to such transfer.  No acceptance by Lessor of rent or any other
payments from any such trustee, receiver, assignee, person or other entity
shall be deemed to constitute such consent by Lessor nor shall it be deemed a
waiver of Lessor’s right to terminate this Lease for any transfer of Lessee’s
interest under this Lease without such consent.

 

(c)           In the event of an
assignment of Lessee’s interests pursuant to this Section 7.02, the right
of any assignee to extend the Lease Term for any Extended Term.

 

Section 7.03         Additional
Rights of Lessor.

 

(a)           No right or remedy
hereunder shall be exclusive of any other right or remedy, but shall be
cumulative and in addition to any other right or remedy hereunder or now or
hereafter existing.  Failure to insist
upon the strict performance of any provision hereof or to exercise any option,
right, power or remedy contained herein shall not constitute a waiver or
relinquishment thereof for the future. 
Receipt by Lessor of any Basic Rent, additional rent or other sums

 

27

 

payable hereunder with knowledge of
the breach of any provision hereof shall not constitute waiver of such breach,
and no waiver by Lessor or Lessee of any provision hereof shall be deemed to
have been made unless made in writing.

 

(b)           Lessee hereby waives and
surrenders for itself and all those claiming under it, including creditors of
all kinds, (i) any right and privilege which it or any of them may have to
redeem the Properties or to have a continuance of this Lease after termination
of Lessee’s right of occupancy by order or judgment of any court or by any
legal process or writ, or under the terms of this Lease, or after the
termination of the Lease Term as herein provided, (ii) the benefits of any
law which exempts property from liability for debt and (iii) any rights of
redemption or reinstatement available by law or any successor law.

 

(c)           If Lessee fails to make
any payment or to perform any act required to be made or performed under this
Lease, and fails to cure the same within the relevant time periods provided in
this Section 7.01, if any, Lessor, without further notice to or demand
upon Lessee, and without waiving or releasing any obligation of Lessee, and
without waiving or releasing any obligation or default, may (but shall be under
no obligation to) at any time thereafter make such payment or perform such act
for the account and at the expense of Lessee, and may, to the extent permitted
by law, enter upon the Property for such purpose and take all such action
thereon as, in Lessor’s reasonable opinion, may be necessary or appropriate
therefor.  No such entry shall be deemed
an eviction of Lessee.  All sums so paid
by Lessor and all costs and expenses (including, without limitation, reasonable
attorneys’ fees and expenses) so incurred, together with a late charge thereon
(to the extent permitted by law) at the Late Rate from the date on which such
sums or expenses are paid or incurred by Lessor, shall be paid by Lessee to
Lessor on demand.  The obligations of
Lessee and rights of Lessor contained in this Article shall survive the
expiration or earlier termination of this Lease.

 

ARTICLE VIII

 

Section 8.01         Notices and Other Instruments.

 

All notices, offers,
consents and other instruments given pursuant to this Lease shall be in writing
and shall be validly given when hand delivered or sent by a courier or express
service guaranteeing overnight delivery, addressed as follows:

 

	
  If to Lessor:

  	
   

  	
  c/o Wakefield Capital, LLC

  
	
   

  	
   

  	
  2 Wisconsin Circle

  
	
   

  	
   

  	
  Suite 540

  
	
   

  	
   

  	
  Chevy Chase, Maryland 20815

  
	
   

  	
   

  	
  Attn: Sean P. Murphy

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Powell Goldstein LLP

  
	
   

  	
   

  	
  901 New York Avenue, NW

  
	
   

  	
   

  	
  Third Floor

  
	
   

  	
   

  	
  Washington, DC 20001-4413

  
	
   

  	
   

  	
  Attn: Adam W. Walsh, Esq.

  

 

28

 

	
  If to Lessee:

  	
   

  	
  Harmony Living Centers LLC

  
	
   

  	
   

  	
  N94 W17900 Appleton Avenue

  
	
   

  	
   

  	
  Suite 101

  
	
   

  	
   

  	
  Menomonee Falls, WI 53051

  
	
   

  	
   

  	
  Attn: Michael Smith

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Quarles & Brady LLP

  
	
   

  	
   

  	
  411 East Wisconsin Avenue

  
	
   

  	
   

  	
  Milwaukee, Wisconsin 53202

  
	
   

  	
   

  	
  Tele: (414) 277-5131

  
	
   

  	
   

  	
  Fax: (414) 978-8630

  
	
   

  	
   

  	
  Attn: Michael D. Zeka, Esq.

  

 

Lessor and Lessee each may
from time to time specify, by giving 15 days’ notice to each other party, (i) any
other address in the United States as its address for purposes of this
Lease and (ii) any other person or entity in the United States that
is to receive copies of notices, offers, consents and other instruments
hereunder.  Notices given in accordance
with this Section 8.01 shall be deemed delivered on the day after they are
sent.

 

Section 8.02         Estoppel
Certificates; Financial Information.

 

(a)           Lessee will, upon
15 business days’ written notice at the request of Lessor, execute,
acknowledge and deliver to Lessor a certificate of Lessee, stating that this
Lease is unmodified and in full force and effect (or, if there have been
modifications, that this Lease is in full force and effect as modified, and
setting forth such modifications) and stating the dates to which Basic Rent,
additional rent and other sums payable hereunder have been paid and either
stating that to the knowledge of Lessee no default exists hereunder or
specifying each such default of which Lessee has knowledge and whether or not
Lessee is still occupying and operating the Properties and such other
information as Lessor shall reasonably request. 
Any such certificate may be relied upon by any actual or prospective
Mortgagee or purchaser of the Properties. 
Lessor will, upon 15 business days’ written notice at the request
of Lessee, execute, acknowledge and deliver to Lessee a certificate of Lessor,
stating that this Lease is unmodified and in full force and effect (or, if
there have been modifications, that this Lease is in full force and effect as
modified, and setting forth such modifications) and the dates to which Basic
Rent, additional rent and other sums payable hereunder have been paid, and
either stating that to the knowledge of Lessor no default exists hereunder or
specifying each such default of which Lessor has knowledge.  Any such certificate may be relied upon by
Lessee or any actual or prospective assignee or sublessee of the Properties.

 

(b)           Upon an Event of Default,
Lessor and its agents and designees may enter upon and examine the Properties
and examine the records and books of account and discuss the finances and
business with the officers of the Lessee at reasonable times during normal
business hours and on reasonable advance written notice, and subject to
Applicable Laws.  Lessee shall provide
the requesting party with copies of any information to which such party would be
entitled in the course of a personal visit to the extent permitted by
Applicable Laws.  Except in 

 

29

 

the event of emergency, Lessee may
designate an employee to accompany Lessor, its agents and designees on such
examinations.  Lessee will provide, upon
Lessor’s request, all information regarding the Properties, including, but not
limited to, a current list of residents, an operating statement reflecting all
income and all operating expenses for the Properties to the extent permitted by
Applicable Laws.  Lessor and its agents
and designees may enter upon and examine the Properties and show the Properties
to prospective Mortgagees and/or purchasers at reasonable times during normal
business hours and on reasonable advance written notice and subject to
Applicable Laws.

 

(c)           In addition to Lessee’s
other financial and business operations reporting requirements, Lessee shall
deliver to Lessor and to any Mortgagee or purchaser designated by Lessor the
following information:

 

(i)            within ninety
(90) days after the end of each fiscal year of Lessee, an audited financial
statement, including a balance sheet of Lessee and its consolidated Affiliates
or subsidiaries as at the end of such year, a statement of profits and losses
of Lessee for such year, and a statement of cash flows of Lessee for such year,
setting forth in each case, in comparative form, the corresponding figures for
the preceding fiscal year in reasonable detail and scope and certified by
qualified independent certified public accountants selected by Lessee;

 

(ii)           within twenty
(20) days after the end of each of the fiscal quarters of Lessee a balance
sheet of Lessee as at the end of such quarter, statements of profits and losses
of Lessee for such quarter and a statement of cash flows of Lessee for such
quarter, setting forth in each case, in comparative form, the corresponding
figures for the similar quarter of the preceding year, in reasonable detail and
scope, and certified to be true and complete (subject to year-end
reconciliation) by a financial officer of Lessee having knowledge thereof, the
foregoing financial statements all being prepared in accordance with generally
accepted accounting principles, consistently applied.  Together with each delivery of quarterly
financial information hereunder, Lessee will deliver to Lessor its calculation
of the Lease Coverage Ratio required by Section 1.08(c) of this
Lease;

 

(iii)          within twenty
(20) days after the end of each month, monthly financial reports for the
Properties with detailed statements of income, a balance sheet for the
Properties and aged accounts receivable, detailed operational statistics
regarding occupancy rates, patient mix and patient rates by type for the
Properties, and a summary income statement in the templated format to be provided
by Lessor;

 

(iv)          upon request, a
copy of each cost report filed  with
the appropriate government agency for the Properties, if any;

 

(v)           within fifteen
(15) days of filing, a copy of each cost report filed with the appropriate
governmental agency for the Properties, and of each progress report filed with
the State certificate of need authority;

 

30

 

(vi)          within twenty
(20) days of receipt thereof, copies of surveys performed by the appropriate
governmental agencies for licensing or certification purposes, and any plan of
correction as approved by the State of Wisconsin for the Properties;

 

(vii)         within five (5) days
of receipt of notice thereof, notice to Lessor of any action, proposal or
investigation by any agency or entity, or complaint to such agency or entity,
(any of which is called a “Proceeding”), known to Lessee, the result of which
Proceeding could be to (i) revoke or suspend or terminate or modify in a
way adverse to Lessee, or fail to renew or fully continue in effect, any
license or certificate or operating authority pursuant to which Lessee carries
on any part of the intended use of the Properties, or (ii) suspend,
terminate, adversely modify, or fail to renew or fully continue in effect any cost
reimbursement or cost sharing program by any state or federal governmental
agency, including but not limited to Medicaid or Medicare or any successor or
substitute therefor, or seek return of or reimbursement for any funds
previously, advanced or paid pursuant to any such program, or (iii) impose
any bed hold, limitation on patient admission or similar restriction on any
Property, or (iv) prosecute any party with respect to the operation of any
activity on the Properties or enjoin any party or seek any civil penalty in
excess of Five Thousand Dollars ($5,000.00) in respect thereof;

 

(viii)        as soon as it
is prepared in each year of the Term, a capital and operating budget for each
of the Properties for that and the following year in the templated format to be
provided by Lessor;

 

(ix)           with reasonable
promptness, such other information respecting the financial condition and
affairs of Lessee and the Properties as Lessor may reasonably request from time
to time including, without limitation, any such other information as may be
available to the administrator of the Property to the extent permitted by
Applicable Laws; and

 

(x)            at times
reasonably required by Lessor, and upon request as appropriate, audited
year-end information and unaudited quarterly financial information concerning
the Properties and Lessee as Lessor may require for inclusion in any
registration statement filed under the Securities Act of 1933 or any periodic
or current report filed under the Securities Exchange Act of 1934 or any
successor laws.

 

(d)           Lessee specifically
agrees that Lessor and its Affiliates may include financial information and
such information concerning the nature and operation of the Properties which
does not violate the confidentiality of the Property-patient relationship, the
physician-patient privilege and other privileged and restricted matters under
Applicable Laws, in offering memoranda or prospectus, or similar publications
in connection with syndications or public or private offerings of Lessor or any
of its Affiliates’ securities or interests (including those of any successor to
any of same), and any other reporting requirements under Applicable Laws.  Lessee agrees to provide such other
reasonable information necessary with respect to Lessee and the Property to
facilitate a public or private offering or to satisfy Securities Exchange
Commission or other regulatory disclosure requirements.  Lessor shall provide to Lessee a copy of any
information prepared by Lessor to so be published or filed and Lessee shall
have ten (10) days after receipt of such information to notify Lessor of
any corrections and matters which shall not be disclosed.

 

31

 

ARTICLE IX

 

Section 9.01         No Merger.

 

There shall be no merger of
this Lease or of the leasehold estate hereby created with the fee estate in the
Properties by reason of the fact that the same person acquires any portion or
interest, or holds any portion or interest, directly or indirectly, of this
Lease, the leasehold estate hereby created, any interest herein or in such
leasehold estate, the fee estate in any Property or the Properties, any
interest in such fee estate, or interest in any business entity comprising
Lessor

 

Section 9.02         Surrender
of Possession/Transfer of Operations.

 

(a)           Lessee shall, on or before the last day
of the Term, or upon earlier termination of this Lease (except for terminations
as the result of Casualty or Condemnation): 
(1) surrender to Lessor the Properties (including obtaining all
Severable Property and all patient charts and resident records from the party
in possession of such records (subject to Applicable Laws), along with
appropriate patient and resident consents if necessary, and inventories and
supplies at normal operating levels) in good condition and repair, ordinary
wear and tear excepted, (b) upon Lessor’s written request, shall to the
greatest extent permitted by law, transfer to Lessor or its designees or
assigns, or ensure that the proper party transfers to Lessor or its designees
the following: (i) all federal, state or municipal licenses,
certifications, certificates, approvals, permits, variances, waivers, provider
agreements and other authorizations certificates which relate to the operation
of the healthcare business at the Properties, except for the right to the use
of Lessee’s name; and (ii) the names of the facilities comprising the
Properties as then known to the general public, (c) prepare and file all
notices required by Applicable Laws in connection with such termination, and (d) execute
an Exit Operations Transfer Agreement (the “Exit Agreement”).  In the
event Lessee fails or refuses to transfer or to assist in the proper party’s
transfer of any such license, certification, approval, permit, variance,
waiver, provider agreement, other authorization or trade name, this provision
shall constitute an act of assignment by Lessee to Lessor or its assigns
without the necessity of any further written instrument.

 

(b)           In the event of a
termination or expiration of the Lease for any reason, Lessor (or an agent
appointed by Lessor) shall have the option of taking over the operation of the
healthcare business at the Properties or to have the operation of the business
taken over by a designee, without assuming any of Lessee’s liability or obligations.  Lessor shall give Lessee written notice of
Lessor’s intent to exercise the right set forth above, in which event, upon the
approval of the appropriate Wisconsin and federal health care agencies of the
change of ownership, Lessee shall immediately turn over possession and control
of the healthcare business at the Properties without any further action having
to be taken on the part of Lessor.

 

(c)           Pending a transfer of the
operational control of any Property to Lessor or its nominee at the expiration
or termination of this Lease or a portion thereof, Lessee covenants as follows:

 

(i)            Lessee will not
effect any changes in salaries (other than normal merit raises and the
pre-announced wage increases of which Lessor has knowledge) or employment 

 

32

 

agreements, if any, without
the advance written consent of Lessor other than customary raises to
non-officers at regular review dates; and will not hire any additional
employees except in good faith in the ordinary course of business.

 

(ii)           Lessee will
provide all necessary information requested by Lessor or its nominee for the
preparation and filing of any and all necessary applications or notifications
of any federal or state governmental authority having jurisdiction over a
change in the operational control of such Property, and Lessee will use its
reasonable efforts to cause the operating healthcare license to be transferred
to Lessor or to Lessor’s nominee.

 

(iii)          Lessee shall
use its reasonable efforts to keep the business and organization of such
Property intact and to preserve for Lessor or its nominee the goodwill of the
suppliers, distributors, residents and others having business relations with
Lessee with respect to each such Property.

 

(iv)          Lessee shall engage
only in transactions or other activities with respect to such Property which
are in the ordinary course of its business and shall perform all maintenance
and repairs reasonably necessary to keep such Property in satisfactory
operating condition and repair, and shall maintain the supplies and foodstuffs
at levels which are consistent and in compliance with all health care
regulations, and shall not sell or remove any personal property except in the
ordinary course of business.

 

(v)           Lessee agrees
to fully cooperate with Lessor or its nominee in supplying any and all
information that may be reasonably required to effect an orderly transfer of
such Property.

 

(vi)          Lessee shall
provide Lessor or its nominee with full and complete information of the employees
of such Property and shall reimburse Lessor or its nominee for all outstanding
accrued employee benefits, including accrued vacation, sick and holiday pay
calculated on a true accrual basis, including all earned and a prorated portion
of all unearned benefits.

 

(vii)         To more fully  preserve and protect Lessor’s rights under
this Section 9.02, Lessee does hereby make, constitute and appoint Lessor
and any Mortgagee as its true and lawful attorney-in-fact, for it and in its
name, place and stead to execute and deliver all such instruments and
documents, and to do all such other acts and things, as Lessor or any Mortgagee
may reasonably deem to be necessary or desirable to protect and preserve the
rights granted under this Section 9.02, including, without limitation, the
preparation, execution and filing with the Board of Health of the State of
Wisconsin or other appropriate agency of the State of Wisconsin or department
any and all required “Letters of Responsibility” or similar documents.  Lessee further hereby grants to Lessor and
any Mortgagee the full power and authority to appoint one or more substitutes
to perform any of the acts that Lessor is authorized to perform under this Section 9.02,
with a right to revoke such appointment of substitution at Lessor’s or any
Mortgagee’s pleasure.  The power of
attorney granted pursuant to this Section is coupled with an interest and
therefore is irrevocable.  Any person
dealing with Lessor or any Mortgagee may rely upon the representation of Lessor
or Mortgagee relating to any authority granted by this power of 

 

33

 

attorney, including the
intended scope of the authority, and may accept the written certificate of
Lessor or any Mortgagee that this power of attorney is in full force and
effect.  Photographic or other facsimile
reproductions of this executed Lease may be made and delivered by Lessor or any
Mortgagee, and may be relied upon by any person to the same extent as though the
copy were an original.  Anyone who acts
in reliance upon any representation or certificate of Lessor or any Mortgagee,
or upon a reproduction of this Lease, shall not be liable for permitting Lessor
or any Mortgagee to perform any act pursuant to this power of attorney.

 

The obligations of Lessee
under this Section 9.02 shall be limited to Lessee using reasonable
efforts to cause the foregoing to be completed, without unreasonable expense to
Lessee and only subject to Applicable Laws.

 

Section 9.03         Assumption.

 

In the event of a
consolidation of Lessee with one or more persons or the sale or other
disposition of all or substantially all of the assets of Lessee to one or more
persons (subject to Lessor’s prior written consent unless otherwise expressly
set forth in this Lease), Lessee shall cause the surviving entity or transferee
of assets, as the case may be, to deliver to Lessor, and any assignee of any
interest of Lessor, an acknowledged instrument assuming all obligations,
covenants and responsibilities of Lessee hereunder.

 

Section 9.04         Separability; Binding Effect; Governing Law.

 

Each provision hereof shall
be separate and independent, and the breach of any provision shall not
discharge or relieve any obligations hereunder. 
Each provision hereof shall be valid and shall be enforceable to the
extent not prohibited by law.  If any
provision hereof or the application thereof to any person or circumstance shall
to any extent be invalid or unenforceable, the remaining provisions hereof, or
the application of such provision to persons or circumstances other than those
as to which it is invalid or unenforceable, shall not be affected thereby.  All provisions contained in this Lease shall
be binding upon, inure to the benefit of and be enforceable by the successors
and assigns of Lessor to the same extent as if each such successor and assign
were named as a party hereto.  All
provisions contained in this Lease shall be binding upon the successors and
assigns of Lessee and shall inure to the benefit of and be enforceable by the
permitted successors and assigns of Lessee in each case to the same extent as
if each successor and assign were named as a party hereto.

 

Section 9.05         Table of Contents and Headings; Internal References.

 

The table of contents and
the headings of the various Sections and exhibits of this Lease have been
inserted for reference only and shall not to any extent have the effect of
modifying the express terms and provisions of this Lease.  Unless stated to the contrary, any references
to any Section, subsection, Exhibit and the like contained herein are to
the respective Section, subsection, Exhibit and the like of this Lease.

 

34

 

Section 9.06         Counterparts.

 

This Lease may be executed
in two or more counterparts and shall be deemed to have become effective when
and only when one or more of such counterparts shall have been executed by or
on behalf of each of the parties hereto (although it shall not be necessary
that any single counterpart be executed by or on behalf of each of the parties
hereto, and all such counterparts shall be deemed to constitute but one and the
same instrument) and shall have been delivered by each of the parties to the
other.

 

Section 9.07         No Lessor Liability.

 

Notwithstanding anything to
the contrary provided in this Lease, it is specifically understood and agreed,
such agreement being a material consideration for the execution of this Lease
by Lessor, that there shall be absolutely no personal liability on the part of
any partner, director, member, officer, employee or shareholder of any Lessor
(or any of its Affiliates, including partners, members, officers, employees,
directors or shareholders of any such Affiliates), its successors or assigns
with respect to any of the terms, covenants and conditions of this Lease, and
any liability on the part of any respective Lessor shall be limited solely to
such respective Lessor’s interests in the Property owned by such Lessor, such
exculpation of liability to be absolute and without any exception
whatsoever.  Lessee acknowledges that it
possesses sole responsibility for, and any liability resulting from, the
operation of the Properties and/or the services to be rendered to the residents
of the Properties.  Lessor is expressly
relying upon Lessee’s expertise in the management and operation of assisted
living facilities and Lessee acknowledges that Lessor will have no involvement
whatsoever in Lessee’s operation and management of the Properties and the
provision of services to residents of the Properties.

 

Section 9.08         Amendments and Modifications.

 

Except as expressly provided
herein, this Lease may not be modified or terminated except by a writing signed
by Lessor and Lessee.

 

Section 9.09         Consent of Lessor.

 

Except as specifically set
forth in this Lease, all consents and approvals to be granted by Lessor shall
not be unreasonably withheld, conditioned or delayed.  Lessee’s sole remedy against Lessor for the
failure to grant any consent shall be to seek injunctive relief.  In no circumstance will Lessee be entitled to
damages with respect to the failure to grant any consent or approval

 

Section 9.10         Quiet Enjoyment.

 

Lessor agrees that, subject
to the rights of Lessor under Article VII of this Lease, Lessee shall hold
and enjoy the Properties during the term of this Lease, free from any hindrance
or interference from Lessor or any party claiming by, through or under
Lessor.  During the Term of this Lease,
Lessor shall not grant easements, change zoning or enter into any binding
restrictions to affect or encumber the Properties which could adversely affect
the operations of Lessee at the Properties without the prior written consent of
Lessee.

 

35

 

Section 9.11         Holding Over.

 

If Lessee remains in
possession of the Properties, or any part thereof, after the expiration or
other termination of the Lease Term or any Extended Term, without Lessor’s
express written consent, Lessee shall be guilty of an unlawful detention of the
Properties and shall be liable to Lessor for damages for use of and Property or
the Properties during the period of such unlawful detention at a rate equal to
125% of the Basic Rent and 100% of all other amounts which would be payable
during the Term hereof.  In the event of
such unlawful detention, Lessee shall indemnify and hold Lessor harmless from
and against any and all claims, suits, proceedings, losses, damages,
liabilities, costs and expenses, including, without limitation, attorneys’ fees
and disbursements, asserted against or incurred by Lessor, as a result of such
unlawful detention.  Notwithstanding the
foregoing, Lessor shall be entitled to such other remedies and damages provided
under this Lease or at law or in equity.

 

Section 9.12         Subordination, Non-Disturbance and Attornment.

 

Notwithstanding anything to
the contrary in this Lease, this Lease and Lessee’s interest hereunder shall be
subject, subordinate and inferior to any mortgage or other security instrument
granted or entered into by Lessor in connection with any loan or loans by which
Lessor acquired any Property or the Properties, and any mortgage or other
security instrument hereafter placed upon any Property or the Properties by
Lessor, and to any and all advances made or to be made thereunder, to the
interest thereon, and all renewals, replacements and extensions thereof,
provided that any such mortgage (or a separate subordination, non-disturbance
and attornment agreement (“SNDA” or “Subordination, Non-Disturbance and
Attornment Agreement”), entered into between Lessee and the Mortgagee in whose
favor such mortgage was granted) shall provide for the recognition of this
Lease and all Lessee’s rights hereunder unless and until an Event of Default
exists.  Lessor shall be free to obtain
or refinance any loan secured by any or all of the Properties, and in such
event, Lessee shall execute any and all documents that such Mortgagee
reasonably required in connection with such financing, including any SNDA so
long as the same do not materially adversely affect any right, benefit or
privilege of Lessee under this Lease or increase Lessee’s obligations under
this Lease

 

Section 9.13         Purchase Rights.

 

The extent of Lessee’s
rights to purchase the Properties are set forth in Exhibit D
hereto.

 

Section 9.14         Joint and Several.

 

HLC shall be jointly and
severally liable for any and all obligations and liabilities of Lessee arising
under or in connection with this Lease. 
RV shall only be liable for the portion of such obligations attributable
to the Riverview Village facility, and HOF shall only be liable for the portion
of such obligations attributable to the Brenwood Park facility.

 

Section 9.15         Choice of Law.

 

This Lease shall be
construed in accordance with the laws of the State of Wisconsin.

 

Section 9.16         (Intentionally deleted).

 

36

 

Section 9.17         Waiver  of Jury
Trial and Arbitration.

 

THE PARTIES HEREBY
IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.  Any controversy or claim between
the parties arising out of or relating to this Agreement which cannot be
resolved by agreement of the parties upon written demand of either party to the
other, shall be exclusively settled by binding arbitration before a panel of
three (3) arbitrators in Milwaukee, Wisconsin, in accordance with the rules then
in effect of the American Arbitration Association (“AAA”), except that the
arbitrators shall apply Wisconsin law (without regard to its choice of law or
conflict of law principles) with respect to all substantive matters in the
arbitration proceedings.  Each party
shall select a arbitrator from the list of approved AAA arbitrators in
Wisconsin and such arbitrators shall select a third arbitrator.  The arbitrators may, in their discretion,
award the prevailing party reasonable attorney’s fees and expenses, costs, or
disbursements incurred by the prevailing party in the arbitration.  The parties agree that punitive, treble, or
any other like style of multiple damages shall not be awarded under any
circumstances.  The parties further agree
to consider themselves bound by, and shall pay the costs and fees of
arbitration in accordance with, any award made by the arbitrator, and that a judgment
on the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof.

 

Section 9.18         Recordation.

 

Lessee shall be permitted to
record a Memorandum of this Lease in the form of attached Exhibit C.

 

Section 9.19         Facility
Trade Names.

 

If this Lease is terminated in
any respect as a result of Lessee’s default, Lessor shall be permitted to use
the name(s) under which the Property has done business during the Term
(the “Facility Trade Names”).  Lessee
shall not after any termination use any Facility Trade Name in the same market
in which the applicable Property is located in connection with any business
that competes with such Property.

 

Section 9.20         Participation
in Medicare or Medicaid Certification Actions or Certificate of Need or
Licensing Revocation Actions.

 

Lessor shall have the right,
at Lessee’s sole cost and expense and with counsel chosen by Lessor, to join
and participate in, as a party if it so elects, any legal proceedings or
actions initiated involving any notice of noncompliance with conditions of participation
under Title 18 or 19 of the Social Security Act, or citations for violations of
regulations, standards and requirements issued by the State of Wisconsin, or
any legal proceeding or action to revoke any certificate of need or license
necessary to the use of any Property.

 

37

 

Section 9.21         Commissions.

 

Lessee represents and
warrants to Lessor that no real estate commission, finder’s fee or the like is
due and owing to any person in connection with this Lease (other than as
expressly set forth in the Sale Agreement). 
Lessee agrees to save, indemnify and hold Lessor harmless from and
against any and all claims, liabilities or obligations for brokerage, finder’s
fees or the like in connection with this Lease or the transactions contemplated
hereby, asserted by any person on the basis of any statement or act alleged to
have been made or taken by Lessee. 
Lessor agrees to save, indemnify and hold Lessee harmless from and
against any and all claims, liabilities or obligations for brokerage, finder’s
fees or the like in connection with this Lease or the transactions contemplated
hereby, asserted by any person on the basis of any statement or act alleged to
have been made or taken by Lessor.

 

Section 9.22         Characterization of Rents.

 

Anything contained in this
Lease to the contrary notwithstanding no portion of the Rent or any other
amount to be paid to Lessor hereunder shall be based, in whole or in part, on
either (i) the income or profits derived by the business activities of the
Lessee or any of its Affiliates, or (ii) any other formula such that any
portion of any amount received by Lessor would fall to qualify as “rents from
real property” within the meaning of Section 856(d) of the Internal
Revenue Code, or any similar or successor provision thereto.  The parties agree that this Section 9.22
shall not be deemed waived or modified by implication, but may be waived or
modified only by an instrument in writing explicitly referring to this Section by
number.

 

Section 9.23         Determination of Days.

 

Whenever under the terms of
this Lease the expiration of a time period for performance falls on a day that
is not a business day, such time for performance shall be extended to the next
business day; for the purposes of this Lease, a “business day” shall be any day
other than a Saturday, Sunday, any federal government holiday or any day in
which banks in the State of Maryland or State of Wisconsin are generally
closed.

 

Section 9.24         Security Interest.

 

In order to secure Lessee’s
obligations under this Lease, Lessee hereby grants Lessor a security interest
in certain additional property of Lessee pursuant to the terms of those certain
Subordination, Assignment and Security Agreements of even date herewith by and
between Lessor, Lessee and Red Mortgage Capital, Inc.

 

Section 9.25         Operating
Covenants.

 

(a)           Lessee acknowledges that
as of the date of this Lease, Lessee and the Property are not certified to
participate in any Medicaid assisted living waiver program (“Program”), and
will not submit any request to participate in the Program without Lessor’s
prior written consent The foregoing shall not be deemed to prohibit Lessee’s
continuing participation in any state, county or municipal sponsored programs,
or successors thereto, in which Lessee participated on the Effective Date,
provided, however, Lessee certifies, represents and warrants that there has not
been and there is currently not pending or threatened any claim, penalty,
investigation or other 

 

38

 

action by or on behalf of any court or
administrative or other governmental body against Lessee resulting from a
failure to comply with the conditions of participation in such programs, or any
other laws or regulations involving governmental reimbursement, and the
occurrence of any of same during the term of the Lease shall be an Event of
Default hereunder.

 

(b)           Lessee further covenants
and agrees that it shall limit the use and occupancy of the Property to
residents that meet the standards for independent living or assisted living,
and that it shall not provide or contract for inpatient skilled nursing care at
the Property.  The foregoing shall not be
deemed prohibit Lessee from fulfilling its regulatory and contractual
responsibilities of permitting residents to directly contract with third party
home health, therapy, ancillary service or hospice providers for services not
provided by Lessee.  Lessee shall provide
kitchens, separate bathrooms, and areas for eating, sitting and sleeping in
each independent living or assisted living unit or at a minimum, central
bathing facilities for Alzheimer’s/dementia care, as are provided as of the
date of this Lease Lessee shall provide other facilities and services normally
associated with independent living or assisted living units, including, without
limitation, (i) central dining services providing up to three meals per
day, (ii) periodic housekeeping, (iii) laundry services, (iv) customary
transportation services, and (v) social activities.

 

(c)           Lessee shall not lease or
holds available for lease to commercial tenants non-residential space (i.e.,
space other than the units, dining areas, activity rooms, lobby, parlors,
kitchen, mailroom, marketing/management offices) exceeding ten percent (10%) of
the net rental area of any Property; or,

 

(d)           Lessee shall not take any
action or permits to exist any condition that causes the any of the Property to
be no longer classified as housing for older persons pursuant to the Fair
Housing Amendments Act of 1988 and the Housing for Older Persons Act of 1995.

 

[Signatures on following page]

 

39

 

IN WITNESS WHEREOF, the
parties hereto have caused this Lease to be executed as of the date first above
written.

 

	
   

  	
   

  
	
   

  	
  LESSOR:

  
	
   

  	
   

  
	
   

  	
  [ALL OWNERS LISTED ON A-1]

  
	
   

  	
   

  
	
   

  	
  By:  Wakefield Capital, LLC, a Delaware limited
  liability company, their sole member

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:  Tim O’Brien

  
	
   

  	
  Title:  Authorized Officer

  
	
   

  	
   

  
	
   

  	
  LESSEE:

  
	
   

  	
   

  
	
   

  	
  HARMONY LIVING CENTERS LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:  Guy W. Smith

  
	
   

  	
  Title:  Managing Member

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HARMONY OF FRANKLIN, LLC

  
	
   

  	
   

  
	
   

  	
  By: Harmony Living Centers LLC, a Wisconsin limited liability
  company, its managing member

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:  Guy W. Smith

  
	
   

  	
  Title:  Managing Member

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  RIVERVIEW VILLAGE, LLC

  
	
   

  	
   

  
	
   

  	
  By: Harmony Living Centers LLC, a Wisconsin limited liability
  company, its managing member

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:  Guy W. Smith

  
	
   

  	
  Title:  Managing Member

  

 

40

 

EXHIBIT A

OWNERS, DESCRIPTIONS AND ADDRESSES

 

	
  Name of Facility

  	
   

  	
  Address

  	
   

  	
  Owner

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Riverview
  Village”

  	
   

  	
  W176
  N9430 River Crest Drive, Menomonee Falls WI 53051 

  	
   

  	
  WC-Riverview
  Village LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Sheboygan”

  	
   

  	
  3315
  and 3319 Superior Drive, Sheboygan WI 53081

  	
   

  	
  WC-Sheboygan
  LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Stoughton”

  	
   

  	
  2321
  Jackson Street, Stoughton WI 53589

  	
   

  	
  WC-Stoughton
  LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Manitowoc”

  	
   

  	
  2115
  Cappaert Road, Manitowoc WI 54220

  	
   

  	
  WC-Manitowoc
  LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Two
  Rivers”

  	
   

  	
  4606
  Mishicot Road, Two Rivers WI 54241

  	
   

  	
  WC-Two
  Rivers LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Racine”

  	
   

  	
  8500
  and 8600 Corporate Drive, Racine WI 53406

  	
   

  	
  WC-Racine
  LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Madison”

  	
   

  	
  705
  Ziegler Road, Madison WI 53714

  	
   

  	
  WC-Ziegler
  Road LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Kenosha”

  	
   

  	
  3109
  30th Avenue, Kenosha WI 53144

  	
   

  	
  WC-Kenosha
  LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Denmark”

  	
   

  	
  346
  Scandinavian Court, Denmark WI 54208

  	
   

  	
  WC-Denmark
  LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Terrace
  Court”

  	
   

  	
  3312
  and 3402 Terrace Court, Wausau WI 54401

  	
   

  	
  WC-Terrace
  Court LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Green
  Bay”

  	
   

  	
  1450
  S. Military Avenue, Green Bay WI 54304

  	
   

  	
  WC-Green
  Bay LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “McFarland”

  	
   

  	
  5206
  Paulson Court, McFarland WI 53558

  	
   

  	
  WC-McFarland
  LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Wisconsin
  Rapids”

  	
   

  	
  2230
  14th Street, South and 2230 James Court, Wisconsin
  Rapids WI 54494

  	
   

  	
  WC-Wisconsin
  Rapids LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Stevens
  Point”

  	
   

  	
  1800
  Bluebell Lane and 1801 Lilac Lane, Stevens Point WI 54481

  	
   

  	
  WC-Stevens
  Point LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Brenwood
  Park”

  	
   

  	
  9535
  West Loomis Road, Franklin WI 53132

  	
   

  	
  WC-Franklin
  LLC

  

 

A-1

 

EXHIBIT A-1

 

PROPERTY LEGAL DESCRIPTIONS

 

A-1-1

 

EXHIBIT B

 

ALLOCATION OF RENT AMONG PROPERTIES

 

	
  Facility Name

  	
   

  	
  Annual Aggregate Basic

  Rent

  	
   

  	
  Monthly Basic Rent

  	
   

  
	
  Sheboygan

  	
   

  	
  $

  	
  920,000.00

  	
   

  	
  $

  	
  76,666.67

  	
   

  
	
  Stoughton

  	
   

  	
  $

  	
  208,000.00

  	
   

  	
  $

  	
  17,333.33

  	
   

  
	
  Manitowac

  	
   

  	
  $

  	
  483,861.68

  	
   

  	
  $

  	
  40,321.81

  	
   

  
	
  Two
  Rivers

  	
   

  	
  $

  	
  296,929.92

  	
   

  	
  $

  	
  24,744.16

  	
   

  
	
  Racine

  	
   

  	
  $

  	
  960,000.00

  	
   

  	
  $

  	
  80,000.00

  	
   

  
	
  Madison

  	
   

  	
  $

  	
  456,000.00

  	
   

  	
  $

  	
  38,000.00

  	
   

  
	
  Kenosha

  	
   

  	
  $

  	
  416,000.00

  	
   

  	
  $

  	
  34,666.67

  	
   

  
	
  Denmark

  	
   

  	
  $

  	
  144,000.00

  	
   

  	
  $

  	
  12,000.00

  	
   

  
	
  Terrace
  Court

  	
   

  	
  $

  	
  848,000.00

  	
   

  	
  $

  	
  70,666.67

  	
   

  
	
  Green
  Bay

  	
   

  	
  $

  	
  380,808.40

  	
   

  	
  $

  	
  31,734.03

  	
   

  
	
  McFarland

  	
   

  	
  $

  	
  419,344.80

  	
   

  	
  $

  	
  34,945.40

  	
   

  
	
  Wisconsin
  Rapids

  	
   

  	
  $

  	
  248,000.00

  	
   

  	
  $

  	
  20,666.67

  	
   

  
	
  Stevens
  Point

  	
   

  	
  $

  	
  1,096,000.00

  	
   

  	
  $

  	
  91,333.33

  	
   

  
	
  Riverview

  	
   

  	
  $

  	
  603,055.20

  	
   

  	
  $

  	
  50,254.60

  	
   

  
	
  Franklin

  	
   

  	
  $

  	
  520,000.00

  	
   

  	
  $

  	
  43,333.33

  	
   

  
	
  Total

  	
   

  	
  $

  	
  8,000,000.00

  	
   

  	
  $

  	
  666,666.67

  	
   

  

 

B-1

 

EXHIBIT C

 

Memorandum of Lease

 

 

	
   

  	
   

  	
  MEMORANDUM OF LEASE

  
	
   

  	
   

  	
   

  
	
  Document Number

  	
   

  	
  Document Title

  

 

 

KNOW ALL MEN BY THESE
PRESENTS that on the        day of
January, 2007, those Owners listed on attached Exhibit A (“Landlord”)
and HARMONY LIVING CENTERS LLC, RIVERVIEW VILLAGE, LLC
and HARMONY OF FRANKLIN, LLC (“Tenant”)
entered into a Lease for several properties including those premises described
on attached Exhibit B (the “Premises”).

 

The initial term of the
Lease will commence on January        ,
2007 and terminate ten (10) years thereafter. Tenant has two (2) options
to extend the term of the Lease for successive periods of five (5) years
each.  The Lease further grants Tenant
the option to purchase the Premises upon the expiration of the Lease.

 

This Memorandum of Lease
shall be recorded in the office of the Register of Deeds for the County shown
on Exhibit B for the sole purpose of providing notice of the
existence and the general terms of the Lease.

 

 

	
  Recording Area

  	
   

  
	
   

  	
   

  
	
  Name and Return Address

  	
   

  
	
   

  	
   

  
	
  Michael D. Zeka, Esq. 

  Quarles & Brady LLP

  411 E. Wisconsin Avenue

  Milwaukee, WI 53202-4497

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Parcel Identification Number 
  (PIN)

  	
   

  

 

IN WITNESS WHEREOF, the
undersigned have executed this Memorandum as of the date first above written.

 

	
   

  	
  LANDLORD:

  
	
   

  	
   

  
	
   

  	
  WAKEFIELD CAPITAL, LLC, a Delaware
  limited liability company, as the Sole Member of Landlord 

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  

 

C-1

 

	
   

  	
  TENANT:

  
	
   

  	
   

  
	
   

  	
  HARMONY LIVING CENTERS LLC, a Wisconsin
  limited liability company, for itself and as Managing Member of Riverview
  Village, LLC and Harmony of Franklin, LLC 

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Guy W. Smith, Managing Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  STATE OF

  	
   

  	
  )

  	
   

  	
   

  
	
   

  	
  )

  	
  ss.

  	
   

  
	
  COUNTY OF

  	
   

  	
  )

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
								

 

I
HEREBY CERTIFY that on this        day
of January, 2007, before me, a Notary Public for the state and county
aforesaid, personally appeared                                       
,
                              
of Wakefield Capital, LLC, known to me or satisfactorily proved to be the
person whose name is subscribed to the foregoing instrument.

 

IN WITNESS WHEREOF, I have
set my hand and Notarial Seal the day and year first above written.

 

 

	
   

  	
   

  
	
   

  	
  Notary Public, State of

  	
   

  
	
   

  	
  My Commission expires:

  	
   

  
				

 

C-2

 

	
  STATE OF WISCONSIN

  	
  )

  	
   

  	
   

  
	
   

  	
  )

  	
  ss.

  	
   

  
	
  COUNTY OF MILWAUKEE

  	
  )

  	
   

  	
   

  

 

I
HEREBY CERTIFY that on this      day of January,
2007, before me, a Notary Public for the state and county aforesaid, personally
appeared Guy W. Smith, Managing Member of Harmony Living Centers LLC, known to
me or satisfactorily proved to be the person whose name is subscribed to the
foregoing instrument.

 

IN WITNESS WHEREOF, I have
set my hand and Notarial Seal the day and year first above written.

 

 

	
   

  	
   

  
	
   

  	
  Notary Public, State of Wisconsin

  
	
   

  	
  My Commission expires:

  	
   

  

 

 

	
  This instrument was drafted by:

  	
   

  
	
  Michael D. Zeka, Esq.

  	
   

  
	
  Quarles & Brady LLP

  	
   

  
	
  411 E. Wisconsin Avenue

  	
   

  
	
  Milwaukee, WI  53202-4497

  	
   

  

 

C-3

 

EXHIBIT D

 

Purchase Option

 

For so long as this Lease
remains in full force and effect and so long as no default by Lessee then
exists under the Lease, Lessee shall have the following rights with respect to
the Properties as are set forth in this Exhibit D.  This Exhibit D
shall be deemed a part of the Lease, and shall be governed by and subject to
the terms of the Lease.  Capitalized
terms not defined in this Exhibit D
shall have the meanings ascribed to such terms in the Lease.

 

1.             Purchase Option

 

1.1           Upon the expiration of the
Term (including any Extended Term),  Lessee shall have
the right to purchase all of the Properties then subject to the Lease for the
greater of (i) $100,000,000.00 (or, if less than all of the Properties
originally purchased pursuant to the Sale Agreement remain subject to the Lease
at the expiration of the Term, such amount shall be the allocable portion of
the Purchase Price paid pursuant to the Sale Agreement that was allocable to
the Properties that remain subject to the Lease) or (ii) the then fair
market value of the Properties as determined by appraisal as set forth in Section 1.4
below (such greater amount being the “Purchase Price”).  The aforementioned right of Lessee is
hereinafter referred to as the “Purchase Option”.  The Purchase Option is subject to the terms
and conditions hereinafter set forth in this Exhibit D.

 

1.2           In order to validly elect
the Purchase Option, Lessee must deliver written notice of such exercise to
Lessor no later than six (6) months prior to the expiration of the Term
and not earlier than nine (9) months prior to the expiration of the
Term.  Failure to deliver such written
notice shall render the Purchase Option null and void.  The election by Lessee of the Purchase Option
shall be irrevocable.

 

1.3           For the
purposes of the Purchase Option, the fair market value of the Properties shall
be determined as a single valuation as set forth in this Exhibit D.  Any appraisers shall be instructed to prepare
an appraisal of the Properties in accordance with the following instructions:

 

The Properties are to be valued upon the
three conventional approaches to estimate value known as the Income, Sales
Comparison and Cost Approaches.  Once the
approaches are completed, the appraiser correlates the individual approaches
into a final value conclusion.

 

The three approaches to estimate value are
summarized as follows:

 

Income Approach:  This valuation approach recognizes that the
value of the operating tangible and intangible assets can be 

 

D-1

 

represented by the expected economic
viability of the business giving returns on and of the assets.

 

Sales Comparison Approach:  This valuation approach is based upon the
principle of substitution.  When a
facility is replaceable in the market, the market approach assumes that value
tends to be set at the price of acquiring an equally desirable substitute
facility.  Since healthcare market
conditions change and frequently are subject to regulatory and financing
environments, adjustments need to be considered.  These adjustments also consider the operating
differences such as services and demographics.

 

Cost Approach:  This valuation approach estimates the value
of the tangible and intangible assets. 
Value is represented by the market value of the land plus the
depreciated reproduction cost of all improvements and equipment.

 

1.4           For the purposes of the
Purchase Option, fair market value shall be determined in accordance with the
following procedures:

 

(i)            The parties shall select an
appraiser by mutual written agreement, who shall determine the fair market
value and the amount thereof shall be binding and conclusive upon Lessor and
Lessee.

 

(ii)           If, within a reasonable time
after Lessee’s exercise of the Purchase Option (not to exceed thirty (30)
days), the parties fail to mutually select such a single appraiser to determine
fair market value, or if the agreed-upon appraiser fails to determine the fair
market value within forty-five (45) days of after Lessee’s exercise of the
Purchase Option, either party may select an appraiser and notify the other
party in writing of the name, address and qualifications of such
appraiser.  Within ten (10) days
following receipt of notice of the appraiser selected by a party, the other
party shall select an appraiser and notify the other party of the name, address
and qualifications of such appraiser (failing which the determination of the
initial selected appraiser shall be binding). 
Such two appraisers shall endeavor, within no more than twenty (20) days
from the selection of the second appraiser, to agree upon the fair market value
based on a written appraisal made by each of them.  If such two (2) appraisers shall agree
upon a fair market value within such twenty (20) day time period, the amount of
such fair market value as so agreed shall be binding and conclusive upon Lessor
and Lessee.

 

(iii)          If such two (2) appraisers
shall be unable to agree upon a fair market rental value within twenty (20)
days after the selection of the second appraiser, then such appraisers shall
advise Lessor and Lessee of their respective determination of the fair market
rental value and such appraisers shall, within ten (10) days thereafter,
mutually select a third (3rd) appraiser to make the determination of fair
market value. The selection of the third (3rd) appraiser and the amount of the
fair market value determined by such appraiser shall be binding and conclusive
upon Lessor and Lessee.

 

D-2

 

(iv)          If such two (2) appraisers
shall be unable to agree upon the designation of a third (3rd) appraiser within
ten (10) days after the expiration of the twenty (20) day period referred
to in clause (iii) above, or if such third (3rd) appraiser does not make a
determination of fair market value within twenty (20) days after his selection,
then the fair market value shall be the average of the determination of the
fair market value made by each of the appraisers selected by Lessor and
Lessee.  Such average shall be binding
and conclusive upon Lessor and Lessee.

 

(v)           All appraisers selected or
appointed pursuant to this section shall (A) be independent qualified MAI
appraisers, (B) have no right, power or authority to alter or modify the
provisions of this Lease or this Exhibit D,
(C) be registered in Wisconsin if Wisconsin provides for or requires such
registration and (D) have at least five (5) years experience in the
appraisal and valuation of assisted living facilities.  The cost of the appraisal procedure described
in this Exhibit D shall be borne
by Lessor and Lessee equally.

 

1.5           Upon the determination of
fair market value as set forth above, Lessee shall deposit five percent (5%) of
the Purchase Price as a non-refundable deposit with an escrow agent mutually
acceptable to the parties. Lessor and Lessee shall close on the conveyance of
the Properties pursuant to the Purchase Option within sixty (60) days of the
determination of fair market value pursuant to Section 1.4, which
conveyance shall be on an as-is basis without representation or warranty from
Lessor. Any failure of Lessee to close (other than as a result of Lessor’s
refusal to close) within such 60 day period shall render the Purchase Option
null and void.  In addition to the
Purchase Price,  Lessee shall pay all
closing costs and expenses in connection with the transfer of the Properties to
Lessee (other than attorneys’ fees of Lessor), including but not limited
to all real property conveyance or transfer fees or deed stamps; title
search fees, title insurance commitment fees, and title insurance premiums;
 survey fees; environmental assessment fees; and fees of any escrow agent.

 

D-3

 

EXHIBIT E

 

Intentionally Deleted

 

E-1

 

EXHIBIT F

 

Average Daily Occupancy Rates as of Effective Date

 

F-1Exhibit 10.11

 

AMENDED AND RESTATED

MASTER MANAGEMENT

AGREEMENT

 

THIS AMENDED AND RESTATED MASTER MANAGEMENT
AGREEMENT (this “Agreement”) is made as of June 3rd, 2009 by and among
Midwest Care Holdco TRS I LLC, a Delaware limited liability company (“Holdco”),
the eighteen limited liability companies listed in and identified on Schedule I
to this Agreement (each, a “GNC Tenant” and collectively, the “GNC Tenants”),
and Good Neighbor Care Centers, LLC (“Manager”), an Oregon limited liability company.

 

RECITALS

 

A.                                   Sixteen limited liability companies
wholly owned by Holdco (each, a “Holdco SPE” and collectively, the “Holdco SPEs”)
and the GNC Tenants lease from subsidiaries of Wakefield Capital, LLC the
senior care facility properties described on Exhibit A (each, a “Facility”
and collectively, the “Facilities”) pursuant to certain lease agreements (each,
a “Lease”) in the form attached hereto as Exhibit B;

 

B.                                     A
Management Agreement between a Holdco SPE or a GNC Tenant, on the one hand, and
Manager, on the other, has been entered into with respect to each Facility (the
“Management Agreements”) in the form attached hereto as Exhibit E;

 

C.                                  It is the intention of the parties hereto
that the rights and obligations set forth in this Agreement shall have priority
with respect to the terms of the Management Agreements and the terms of this
Agreement shall prevail to the extent of any inconsistency between this
Agreement and any Management Agreement.

 

AGREEMENT

 

NOW, THEREFORE, in
consideration of the foregoing and the mutual promises and covenants herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:

 

1.                                      General.

 

1.1                                     Definitions. The following terms shall have
the meanings indicated or referred to below, inclusive of their singular and
plural forms, except where the context requires otherwise. Initially
capitalized terms used and not otherwise defined herein shall have the meanings
given to such terms in the Management Agreements. Unless the context otherwise
requires, all references herein to “years” or “months” shall mean “calendar
years” or “calendar months.”

 

“Adjusted Net Operating Income” or “ANOI”
shall mean the aggregate Gross Revenues for all Facilities, as adjusted for Bad
Debts, refunds of Resident payments, other cash adjustments and other reserves
in accordance with United States generally accepted accounting principles, less
the aggregate Facility Expenses for all Facilities, less the aggregate Base
Management Fees for all Facilities and less the aggregate Capex Reserve for all
Facilities. ANOI 

 

 

shall
be measured quarterly as soon as practicable in accordance with the Management
Agreements and in any event within twenty (20) days of the end of each quarter.

 

“Additional Incentive Management Fee” shall have the
meaning ascribed to such term in Section 4.2.

 

“Affiliate” shall have the meaning ascribed to such
term in the Management Agreements.

 

“Agreed Adjustment” shall have the meaning ascribed
to such term in Section 5.1 hereof.

 

“Approved Budgets” shall mean the budgets approved
by Tenant for the operation of a Facility as further described in the
Management Agreements.

 

“Annual Operating Budget” shall have the meaning
ascribed to such term in the Management Agreements.

 

“Assisted Living” means housing facilities for
seniors who seek housing with supporting care and services including assistance
with activities of daily living (such as bathing, eating, dressing and
monitoring medications), Alzheimer’s care and other services such as
housekeeping, meals and activities.

 

“Bad Debt” shall have the meaning ascribed to such
term in the Management Agreements.

 

“Base Management Fee” shall have the meaning
ascribed to such term in Section 3.

 

“Business Day” shall have the meaning ascribed to
such term in the Management Agreements.

 

“Capex Reserve” shall have the meaning
ascribed to such term in the Management Agreements.

 

“Capital Budget” shall have the meaning ascribed to
such term in the Management Agreements.

 

“Cause” shall mean termination related to any act of
dishonesty, gross negligence, fraud, embezzlement, or bad faith, any violation
of fiduciary duties, or any indictment or conviction for a felony.

 

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

 

“Compensation Uses” shall have the meaning ascribed
to such term in Section 5.4.

 

“EBITDAR” shall mean earnings before interest,
taxes, depreciation, amortization and rent, calculated in accordance with
United States generally accepted accounting principles.

 

“Estimated Base Management Fee” shall have the
meaning ascribed to such term in Section 5.1.

 

 

“Facilities” shall have the meaning ascribed thereto
in Recital A.

 

“Facility Expenses” shall have the meaning ascribed
to such term in the Management Agreements.

 

“FF&E” shall have the meaning ascribed to such
term in the Management Agreements.

 

“Force Majeure” shall have the meaning ascribed to
such term in the Management Agreements.

 

“GNC Tenant” shall have the meaning ascribed thereto
in the Preamble.

 

“Gross Revenues” shall have the meaning ascribed to
such term in the Management Agreements.

 

“Incentive Management Fee” shall have the meaning
ascribed to such term in Section 4.1.

 

“Independent Living” means senior housing facilities
designed to meet the needs of seniors who choose to live in an environment
surrounded by their peers where they receive services such as housekeeping,
meals and activities, but are not reliant on assistance with activities of
daily living such as bathing, eating and dressing (although some residents may
contract out for those services).

 

“Key Man” shall have the meaning ascribed to such
term in Section 11.1.

 

“Holdco” shall have the meaning ascribed to such
term in the Preamble.

 

“Holdco SPE” shall have the meaning ascribed to such
term in Recital A and shall also include any other limited liability company
wholly owned by Holdco that enters into or takes assignment of a Management
Agreement.

 

“Hurdle” shall have the meaning ascribed to such
term in Section 4.1.

 

“Legal Requirements” shall have the meaning ascribed
to such term in the Management Agreements.

 

“License” shall have the meaning ascribed to such
term in Section 7.5.

 

“Management Agreements” shall have the meaning
ascribed to such term in Recital B and includes any amendments, supplements,
restatements or replacements thereof.

 

“Management Fee” shall have the meaning ascribed to
such term in the Management Agreements.

 

“Manager” shall mean Good Neighbor Care
Centers, LLC.

 

“Manager’s Standards” shall have the meaning
ascribed to such term in the Management Agreements.

 

 

“National Vendor Contracts” shall have the meaning
ascribed to such term in the Management Agreements.

 

“Obligations” mean the obligations and covenants to
perform of any Manager hereunder or under a Management Agreement.

 

“Person” means an individual, sole proprietorship,
partnership, limited partnership, unincorporated association, unincorporated
syndicate, unincorporated organization, trust, body corporate, joint venture,
co-ownership, and a natural person in his or her capacity as a trustee,
executor, administrator or other legal representative.

 

“Residents” shall have the meaning ascribed to such term in Section 2.1(b).

 

“Sale Transaction” shall mean the sale of all or
substantially all of the Facilities.

 

“Senior Living Facility” means a senior housing
facility, and, for certainty, without limitation, includes Skilled Nursing,
Assisted Living and Independent Living facilities.

 

“Skilled Nursing” means senior housing facilities that
meet the needs of seniors who require a substantial level of skilled nursing
services or who are receiving rehabilitative services following an adverse
event such as a broken hip or stroke.

 

“Tenant” means Holdco, each Holdco SPE, and each GNC
Tenant, individually or collectively as the context requires; provided that
each GNC Tenant will cease to be treated as a “Tenant” effective as of the date
it assigns its Lease to a subsidiary of Holdco.

 

“Term” means the term of each Management Agreement,
being one (1) year, renewable at the end of each year unless either party
provides written notice no less than sixty (60) days prior to the end of the
initial term or any extension, unless sooner terminated pursuant to the terms
of the applicable Management Agreement or this Agreement and, for greater
certainty, this Agreement shall be automatically amended so as to no longer
apply to any Management Agreement that is no longer in effect or that has been
terminated; provided that for the avoidance of
doubt, this Agreement shall automatically terminate at any time that all of the
Management Agreements are no longer in effect.

 

“Termination Date” shall mean with respect to any
Management Agreement, the date of termination of such Management Agreement
specified in any notice of termination given by Tenant to Manager pursuant to
the exercise thereby of the termination right  hereunder.

 

“Travel Budget” shall have the meaning ascribed to
such term in Section 12.1.

 

2.                                             Performance

 

2.1                                              Goals. The operation and management of the
Facilities is delegated to the Manager pursuant to the Management Agreement,
and Tenant relied on Manager’s experience and expertise in making that
delegation.  The joint goals of the
parties hereto are for the Manager to:

 

 

(a)                                  Establish and maintain programs to promote
the most effective and profitable utilization
of each Facility’s services;

 

(b)                                 Provide quality services to individuals
residing at each Facility (the “Residents”) in a manner complying with the actual Resident agreements in
use at the Facility, the Manager’s Standards and the Approved Budget, and
create a form resident agreement for future use at the Facilities;

 

(c)                                  Establish appropriate marketing programs and
maintain excellence and first-class operation for each Facility, all in accordance
with this Agreement, the applicable Management Agreement, the Manager’s
Standards and the Approved Budget;

 

(d)                                 Maintain well trained, adequately supervised,
quality staff, in sufficient number, at each Facility in a manner consistent
with this Agreement, the applicable Management Agreement, the Manager’s
Standards and the Approved Budget;

 

(e)                                  Operate each Facility prudently, on a sound
financial basis and in a manner consistent
with this Agreement, the applicable Management Agreement, the Manager’s
Standards and the Approved Budget;

 

(f)                                    Establish and maintain a sound financial
accounting system for each Facility;

 

(g)                                 Institute and maintain adequate internal
fiscal controls through proper budgeting, accounting procedures, and timely financial reporting in a manner
consistent with this Agreement, the applicable Management Agreement and the
Approved Budget;

 

(h)                                 Prevent loss of Gross Revenues for each
Facility and institute and maintain sound billing and collection procedures and methods;

 

(i)                                     Maintain and increase Gross Revenues at each
Facility;

 

(j)                                     Conform operations at each Facility to, and
comply with, all applicable Legal Requirements,
this Agreement and the Manager’s Standards, including without limitation, those
pertaining to licensing, and take all steps necessary to ensure that any
and all licenses, permits, and certificates necessary for the
ownership, use and operation of each Facility as a Senior Living Facility is
maintained at all times, without interruption; and

 

(k)                                  Take such other steps as are necessary to
provide high quality care to the Residents,
consistent with this Agreement, the Manager’s Standards and as otherwise
requested by Tenant, all consistent with the applicable Approved Budget.

 

2.2                                       Standard of Care. Manager will discharge its duties under
each Management Agreement in good faith, and will exercise, with respect to all
services provided under or pursuant to this Agreement or any Management
Agreement, a standard of care, skill, prudence and diligence under the
circumstances then prevailing as would be expected of a prudent manager who has
a high level of experience and expertise with respect to such matters and at or
above the Manager’s Standards and in no event with less care, skill, prudence
or diligence as the Manager would customarily utilize in the conduct of its
business, and as is 

 

 

necessary
for the maintenance of any license or permit required for the applicable
Facility and compliance with all Legal Requirements and the Manager’s
Standards.

 

3.                                   Base Management Fee.

 

3.1                                      Manager shall be paid an annual fee by the
Tenant (the “Base Management Fee”)
equal to five percent (5.0%) of aggregate Gross Revenues, adjusted for Bad
Debt, refunds of Resident payments, other cash adjustments and other reserves
in accordance with United States generally accepted accounting principles.  The Base Management Fee shall be calculated
separately for the Holdco SPEs, on the one hand, and the GNC Tenants, on the
other, and the Holdco SPEs and GNC Tenants shall be liable only for their proportionate
share (based on relative Gross Revenues) of the Base Management Fee.

 

4.                                      Incentive Management Fee.

 

4.1                                      Manager shall be paid an annual incentive fee
by the Tenant (the “Incentive
Management Fee”) equal to twenty percent (20%) of the excess, if any, of actual
ANOI for such year for all Facilities managed by Manager (excluding the
Incentive Management Fees for purposes of calculating ANOI) over $20.5 million
(the “Hurdle”).  The Hurdle will be
increased for each year after 2009 by 2.50% per year, compounded annually.  Any such Incentive Management Fee shall be
allocated amongst the Facilities in a manner determined appropriate by Holdco
and Manager, both acting reasonably; provided that the Incentive Management Fee
shall be calculated separately for the Holdco SPEs, on the one hand, and the
GNC Tenants, on the other, and the Holdco SPEs and GNC Tenants shall be liable
only for their proportionate share (based on relative ANOI) of the Incentive
Management Fee.  To the extent that after
the date hereof (i) Tenant and Manager enter into additional Management
Agreements or (ii) Tenant incurs capital expenses (A) for expansion
of a Facility or (B) in excess of $350 per unit per year, increased by
2.50% annually, at a Facility, the Hurdle will be adjusted, as appropriate,
pursuant to written agreement of the parties.

 

4.2                                    In the event of a Sale Transaction, the
Manager shall be paid an additional incentive fee (the “Additional Incentive
Management Fee”) in an amount equal to ten percent (10%) of the excess of (i) the
fair market value of the consideration received by Wakefield Capital, LLC
and/or its Affiliates pursuant to the Sale Transaction over (ii) $275
million (which amount shall be increased by five percent (5%) per year for each
year after the 2009 calendar year) (the “Incentive Threshold”);
provided, however, that with respect to
a Sale Transaction involving the sale of all or substantially all of the
facilities of Wakefield Capital, LLC, such portion of the consideration
received that is allocable to the Facilities (which shall be determined jointly
by Wakefield Capital, LLC and the buyer and which determination shall be
binding on the Manager, Holdco and the GNC Tenants) shall be deemed to be
consideration received by Wakefield Capital, LLC and/or its Affiliates pursuant
to a Sale Transaction for purposes of calculating the Additional Incentive
Management Fee.  Notwithstanding the
foregoing, the Incentive Threshold shall be adjusted for each Management Agreement
as provided herein.  To the extent that after the date hereof (i) Tenant
and Manager enter into additional Management Agreements (other than Management Agreements assigned by GNC Tenants to
Holdco SPEs) or (ii) Tenant incurs capital expenses (A) for expansion
of a Facility or (B) in excess of $350 per unit per year at a Facility,
the Incentive Threshold will be adjusted, as appropriate, pursuant to 

 

 

written
agreement of the parties.   If a Management Agreement is terminated, the
Incentive Threshold shall be decreased by the amount allocated for such
Facility as set forth on Exhibit C. 
The Incentive Threshold shall not be adjusted for any Management
Agreements terminated within sixty (60) day of the closing date of the Sales
Transaction unless such termination is for Cause.  The Manager agrees that
thirty-five percent (35%) of the Additional Incentive Management Fee shall be
paid as compensation to Manager’s management and employees, and/or the management and employees of Manager
located at or otherwise assigned to the Facilities.

 

5.                                         Calculation and Payment of
Management Fee and Incentive Management Fee

 

5.1                                         An estimate of the Base Management Fee (the “Estimated
Based Management Fee”) will be paid by Tenant to Manager within five (5) days
of the beginning of each calendar month and shall be credited against Tenant’s
obligation to pay the Base Management Fee pursuant to Section 3.1.  For purposes of calculating the Estimated
Base Management Fee paid during January 2009 through April 2009, the
amount of Gross Revenues, adjusted for Bad Debt, refunds of Resident payments,
other cash adjustments and other reserves in accordance with United States
generally accepted accounting principles, for such month shall be assumed to be
$5,022,946.   Following April 2009
and until such time as Holdco and Manger agree upon the Agreed Adjustment (as
defined below), for purposes of calculating the Estimated Base Management Fee
for the second calendar quarter of 2009, the amount of Gross Revenues, adjusted for Bad Debt, refunds of Resident
payments, other cash adjustments and other reserves in accordance with United
States generally accepted accounting principles, for any month shall be
assumed to be the average of the actual Gross Revenues, adjusted for Bad Debt, refunds of Resident payments, other cash
adjustments and other reserves in accordance with United States generally
accepted accounting principles, for the first three months of 2009.  Following the end of the second calendar
quarter of 2009, Holdco and Manager shall agree upon an adjustment for Bad
Debt, refunds of Resident payments, other cash adjustments and other reserves
(the “Agreed Adjustment”), and the Estimated Base Management Fees paid in each
month following such agreement shall be based on the Gross Revenues for the
most recent month for which the actual Gross Revenues have been determined and
shall be reduced by the Agreed Adjustment. 
Notwithstanding the payment of an Estimated Base Management Fee, the
amount of Base Management Fee owed by Tenant to Manager with respect to any
month will be based on the actual Gross Revenues, adjusted for Bad Debt, refunds of Resident payments, other cash
adjustments and other reserves in accordance with United States generally
accepted accounting principles, for such month, and the overpayment or
underpayment of the Base Management Fees as a result of the payment of
Estimated Base Management Fees with respect to any month will be addressed
through the true-up provisions of Section 5.3.

 

5.2                                         ANOI for all Facilities will be measured by
the Manager quarterly within twenty (20) days following the end of each
calendar quarter; and the Incentive Management Fee, if any, will be paid by
Tenant to Manager on the tenth (10th) day of the following calendar month.

 

5.3                                         Within twenty-five (25) days following each
calendar quarter in each calendar year (including the fourth such quarter),
Manager shall verify the determinations of 

 

 

ANOI
and Gross Revenues, adjusted for Bad Debt, refunds of Resident payments, other
cash adjustments and other reserves in accordance with United States generally
accepted accounting principles, with respect to all Facilities for the entire
calendar year to date. If the Base Management Fee (including Estimated Base
Management Fees) and/or Incentive Management Fee payments made to Manager on a
monthly or quarterly basis, as applicable, exceed (or are less than) the
year-to-date monthly Base Management Fee and/or quarterly Incentive Management
Fee to which Manager is entitled, then (i) Manager will reimburse Tenant
(or Tenant will pay Manager) for such excess (or deficiency) within ten (10) Business
Days of the determination of the actual Base Management Fee and/or Incentive
Management Fee, but not later than forty (40) days following the end of the
applicable calendar quarter, or (ii) at Holdco’s option, future payments
of the Base Management Fee (including Estimated Base Management Fees) and/or
Incentive Management Fee will be reduced to the extent of such excess.  In
the event Holdco or its auditors determines that the Manager’s calculation of
Gross Revenues or ANOI for any calendar year was incorrect (as a result of an
audit pursuant to Section 6.2 hereof or otherwise) and the Base Management
Fee and/or Incentive Management Fee paid for such period exceeded (or was less
than) the correct amount for such calendar year, then (i) the Manager will
reimburse Tenant (or Tenant will pay Manager) such excess (or deficiency)
of Base Management Fee and/or Incentive Management Fee within twenty (20)
Business Days of the determination of the actual Base Management Fee and/or
Incentive Management Fee or (ii) at Holdco’s option, future payments of
the Base Management Fee (including Estimated Base Management Fees) and/or
Incentive Management Fee will be reduced to the extent of such excess.

 

5.4                                         The Incentive Management Fee will be used
primarily to provide incentive compensation to Manager’s management and
employees who are involved in the day-to-day management of the Manager either
in the Manager’s home office in Eugene, Oregon or at or in the Facilities,
and/or management and employees of Manager located at or otherwise assigned to the Facilities, therefore Manager agrees
that any Incentive Management Fee earned in a given year will be allocated as
follows:

 

(a)                                          The first $500,000:  75% to compensate Manager’s management
and/or employees, and management and
employees of Manager located at or otherwise assigned to the Facilities (the “Compensation
Uses”), with the remainder of such first $500,000 unrestricted;

 

(b)                                         From $500,000 to $1,000,000:  50% to the Compensation Uses, with the
remainder of such amount from $500,000 to $1,000,000 unrestricted; and

 

(c)                                          Above $1,000,000:  Unrestricted.

 

5.5                                         The Tenant’s
obligation to pay the Base Management Fee and the Incentive Management Fee to
the Manager is subordinate to the Tenant’s obligation under each  Lease to pay “Rent” (as defined in each
Lease).

 

6.                                   Representations of Manager (Internal Controls)

 

6.1                                   The Manager will at all times maintain
appropriate and proper accounting systems,
books of account and records on a Facility-by-Facility basis and as to all transactions 

 

 

entered
into in the performance of its obligations under the Management Agreements. The
Manager will maintain appropriate internal controls in connection with its
duties, obligations and services provided under the Management Agreements and,
at the request of Holdco, will provide appropriate documentation with respect
to the nature of, and existence, of such internal controls and procedures.
Without in any way limiting the foregoing, the Manager will also maintain on a
Facility-by-Facility basis and a portfolio-wide basis appropriate business
interruption and disaster recovery controls, procedures and systems. Each
Tenant will have the right, at such Tenant’s expense, at reasonable times to
inspect the Facilities and the books and records maintained by the Manager or
to cause an inspection to be made and to make copies of or extracts from the
books of account and records. In addition, the Manager will provide promptly to
any Tenant copies of any electronic and computer records and disks that may be
requested by any Tenant from time to time. The Manager will, in addition to the applicable Approved
Budget and accounting information specified in the Management Agreements,
supply, at any Tenant’s request, such Tenant with such additional information
required by such Tenant, at such Tenant’s expense. The Manager agrees that, as
and when required by any Tenant in order to permit it and its management to
comply with Legal Requirements, the Manager will cooperate with, and assist,
any Tenant in respect of the foregoing. In that regard, Manager will supply, on
request, such written representations by the Manager to the best of its
knowledge and belief as such Tenant may request in connection with internal
controls or procedures, including without limitation: (i) the absence of significant
deficiencies or material weaknesses in the design or operation of such internal
controls which could adversely affect the financial information provided by the
Manager to such Tenant; (ii) the absence, in any context, of material
changes to, or violations of, such internal controls or procedures; and (iii) the
absence of any fraud, whether or not material, that involves management or any
employees of the Manager who have a significant role in the Manager’s internal
controls. At any time should the Manager become aware of items described in
(i), (ii) and (iii) above, the Manager will notify the applicable
Tenant immediately. All books, records, reports or other papers maintained by
the Manager in connection with its duties, obligations and services provided
under this Agreement or the Management Agreements will be maintained by the
Manager, and shall not be destroyed, within six (6) years of making thereof without the prior
written approval of the Tenant.

 

6.2                                   If any of the reports required by this Section 6
are not furnished on a timely
basis, and Manager does not provide the same within ten (10) Business Days
after notice from Tenant thereof, Tenant shall have the right, at Manager’s expense,
to cause the books and records of Manager relating to the Facility to be
audited; provided that the foregoing right shall be in addition to, and not in
lieu of, any other right or remedy available to Tenant under this Agreement or
the Management Agreements. Manager shall promptly correct all accounting method
deficiencies and errors disclosed by Tenant’s audits and shall timely inform
Tenant of all corrective actions taken. Except as set forth above, Tenant’s
audit shall be at Tenant’s expense unless an error on the part of Manager or
its accountant is discovered which affects Tenant adversely and is equal to or
greater than five percent (5%) of the greater of gross Facility Expenses or
Gross Revenues for the most recent twelve (12) month period, in which case
Manager shall bear the reasonable cost of the audit.

 

6.3                                      Manager hereby covenants and agrees to
co-operate with and assist Tenant in order to enable Tenant and its owners to
prepare their respective financial statements.

 

 

7.                                       Representations and Warranties of
Manager.

 

7.1                                       Manager is a limited liability company, duly organized and validly existing under the laws of the State of Oregon, and, to the extent necessary, duly licensed
and qualified to do business and to manage a Facility in each of the states in
which a Facility is located, with the full power and authority and legal right
to carry on its business in the manner and in the locations in which such
business has been and is now being conducted by it, to execute and deliver this
Agreement and each Management Agreement and to perform its obligations
hereunder and thereunder.

 

7.2                                        Except to the extent related to consents of
lenders of Holdco and its Affiliates and the consent of any state regulatory
authorities, to the actual knowledge of the Board of Directors of Manager,  no consent of any third party is required as
a condition to the entering into of this Agreement by Manager and each Management Agreement other than such
consent as has been previously obtained.

 

7.3                                          Manager has authorized the execution and
delivery of this Agreement and
each Management Agreement and this Agreement and each Management Agreement
constitutes the valid and binding obligation and agreement of Manager,
enforceable in accordance with its terms (subject to the effect on
enforceability of lender consent and/or state regulatory compliance,
bankruptcy, insolvency or creditor’s rights generally, and to limitations
imposed by general principles of equity).

 

7.4                                           Except to the extent related to consents of
lenders of Holdco and its Affiliates and the consent of any state regulatory
authorities, to the actual knowledge of the Board of Directors of Manager,
neither the execution and delivery of this Agreement and each Management Agreement, nor compliance with the
terms and provisions hereof or thereof, will result in any breach of the terms,
conditions or provisions of, or conflict with or constitute a default under, or
result in the creation of any lien, charge or encumbrance upon any Facility or
the assets of Manager pursuant to the terms of, any indenture, mortgage, deed of trust, note, evidence of
indebtedness, agreement or other instrument to which Manager or any Affiliate
thereof may be party or by which it or they or any of its or their properties
or assets may be bound, or violate any provision of law, or any applicable
order, writ, injunction, judgment or decree of any court, or any order or other
public regulation of any governmental commission, bureau or administrative
agency.

 

7.5                                 Manager and/or each GNC Tenant, as applicable,
holds all necessary permissions, consents, approvals, licenses, authorizations,
registrations or validations of, or filing with, notice to, or exemptions
by, any governmental agency, commission, board or public authority 
(collectively, “License”)  required to operate lawfully each Facility, and
all such licenses are in full force and effect as of the date of this
Agreement.  Manager shall provide a list
of all necessary Licenses to Holdco within ten (10) business days of the
date of this Agreement.

 

7.6                                 During the term of any of the Management
Agreements, Manager shall qualify as an “eligible independent contractor”
as defined in Section 856(d)(9) of the Code.  To that end, during the term of any of the
Management Agreements:

 

 

(a)           Manager shall not own,
directly or indirectly (within the meaning of Section 856(d)(5) of
the Code), more than 35% of the shares of NRFC Sub-REIT Corp. or Inland
American Real Estate Trust, Inc.;

 

(b)           if Manager is a
corporation for federal income tax purposes, no more than 35% of the total
combined voting power of its outstanding stock (or 35% of the total shares of
all classes of its outstanding stock) or, if it is not a corporation for
federal income tax purposes, no more than 35% of the ownership interest in its
assets or net profits is owned, directly or indirectly, by one or more Persons
owning 35% or more of the outstanding stock of NRFC Sub-REIT Corp.
or Inland American Real Estate Trust, Inc.; and

 

(c)           Manager shall be (or shall,
within the meaning of Section 856(d)(9)(F), be related to a person (a “Related
Operator”) that is) actively engaged in the trade or business of operating “qualified
health care properties” (defined below) for a person who is not a “related
person” within the meaning of Section 856(d)(9)(F) of the Code with
respect to NRFC Sub-REIT Corp., Inland American Real Estate Trust, Inc. or
Tenant (“Unrelated Persons”).  In order
to meet this requirement, Manager agrees that for each calendar year it (i) shall
derive at least 10% of both its revenue and profit from operating “qualified
health care properties” for Unrelated Persons and (ii) shall comply with
any regulations or other administrative guidance under Section 856(d)(9) of
the Code with respect to the amount of health care management business with
Unrelated Persons that is necessary to qualify as an “eligible independent
contractor” with the meaning of such Code Section.  For purposes of the calculation called for by
clause (i) of the immediately preceding sentence, the Manager may
consolidate the operations of any Related Operators.

 

A “qualified health care property” is defined
in Section 856(e)(6)(D)(i) of the Code and means any real property
(including interests therein), and any personal property incident to such real
property, which (I) is a health care facility or (II) is necessary or
incidental to the use of a health care facility.  A “health care facility” means a hospital,
nursing facility, assisted living facility, congregate care facility, qualified
continuing care facility (as defined in Section 7872(g)(4) of the
Code), or other licensed facility which extends medical or nursing or ancillary
services to patients and which is operated by a provider of such services which
was eligible for participation in the medicare program under Title XVIII of the
Social Security Act with respect to such facility.  Any breach by Manager of the provisions of
this Section 7.6 shall be an Event of Default under each Management
Agreement.

 

7.7           Manager shall not agree to
any amendment of any of the terms of the Management Agreements entered into
with a GNC Tenant without Holdco’s prior written consent.

 

8.            Representations
and Warranties of Tenant.

 

8.1            Each Tenant is a limited liability
company duly organized and validly existing under the laws of the State of
Delaware, Oregon or California, with full power and authority and legal right,
through its trustees, to carry on its business in the manner and in the
locations in which such business has been and is now being conducted by it, to execute
and deliver this Agreement and to perform its obligations hereunder.

 

 

8.2            Tenant and its Affiliates are in material
compliance with all third party agreements.

 

8.3            Tenant has authorized the execution and
delivery of this Agreement and this Agreement constitutes the valid and binding
obligation and agreement of Tenant, enforceable in accordance with its terms
(subject to the effect of bankruptcy, insolvency or creditor’s rights
generally, and to limitations imposed by general principals of equity).

 

8.4             Neither the execution and delivery of
this Agreement, nor compliance with the terms and provisions hereof, will
result in any breach of the terms, conditions or provisions of, or conflict
with or constitute a default under, or result in the creation of any lien,
charge or encumbrance upon the property or assets of Tenant pursuant to the
terms of any indenture, mortgage, deed of trust, note, evidence of
indebtedness, agreement or other instrument to which Tenant or any Affiliate
thereof may be party or by which it or they or any of its or their properties
or assets may be bound, or violate any provision of law, or any applicable
order, writ, injunction, judgment or decree of any court, or any order or other
public regulation of any governmental commission, bureau or administrative
agency.

 

8.5             No order, permission,
consent, approval, license, authorization, registration or validation of, or
filing with, or exemption by, any governmental agency, commission, board or
public authority is required to authorize, or is required in connection with
the execution, delivery and performance by Tenant of this Agreement or the
taking of any action thereby contemplated, which has not been obtained.

 

8.6           No GNC Tenant shall agree to
any amendment of any of the terms of the Management Agreements to which it is a
party without Holdco’s prior written consent.

 

9.            Exclusivity of Manager

 

9.1           Except for properties listed
on Exhibit D hereof, Manager, each Affiliate and
subsidiary of the Manager and each Key Man is prohibited from (i) expanding its senior living management
activities for parties other than Holdco and its Affiliates or (ii) providing or
expanding its provision of back office or other support services to other
managers of senior living facilities without the written consent of Holdco, which consent shall
not be unreasonably withheld.

 

9.2           The consent requirement in Section 9.1
will no longer apply after the assets managed by Manager for Tenant achieve a
trailing six month annualized EBITDAR for all of the Facilities of  $21,300,000, increased annually by 2.50% and
as adjusted for any new Facilities; provided however, that if any rolling three
month period annualized EBITDAR for all of the Facilities after such time falls
below $20,300,000, increased annually by 2.50% and as adjusted for any new
facilities, the consent requirement in Section 9.1 will be automatically reinstated
without notice.

 

9.3           Holdco and Manager will
establish a “New Business Advisory Committee” to make recommendations regarding
expansion plans for Manager’s management business including criteria for
evaluating new management assignments and examining new

 

 

potential
management assignments for Manager.  The “New
Business Advisory Committee” will consist of five members, three appointed by
Manager and two appointed by Holdco.

 

10.          Approvals

 

10.1         Holdco will have approval
over the following significant items relating to the Facilities:

 

(a)   National Vendor Contracts;

 

(b)   Contracts with a multi-year
term and contracts involving an annual commitment of $50,000 or more;

 

(c)   Employee benefit plans;

 

(d)   Approved Budget;

 

(e)   Unplanned capital
expenditures of more than $10,000 per item or $25,000 in aggregate for a
facility; and

 

(f)    Any fees paid to, or
contracts entered into with, an Affiliate of Manager.

 

11.          Key Man Provisions

 

11.1         Holdco must be notified in
writing sixty (60) days in advance of the termination or hiring of one or more
of the following individuals or positions (each a “Key Man”), except in
the event of termination for Cause, in which case Tenant shall be provided with
reasonable advance notice of such termination:

 

(a)   Doug Sproul;

 

(b)   Kacy Kang;

 

(c)   Sean Nelson;

 

(d)   Don Rath;

 

(e)   Manager’s Chief Financial
Officer; and

 

(f)    Any officer reporting
directly to the Chief Executive Officer or Board of Directors of Manager.

 

11.2         Manager will promptly notify
Holdco should any Key Man resign or separate from Manager.

 

11.3         Manager’s management team as
of the date hereof is shown on Exhibit F, hereof.

 

 

12.          Travel Budget

 

12.1         Manager shall by November 1
of each year deliver to Holdco for Holdco’s approval, a draft
travel budget for the next calendar year that includes scheduled visits to
Facilities by certain employees of Manager and other policies restricting the
manner in which travel costs are incurred. 
The travel budget as proposed shall be considered by Tenant and, in
consultation between Holdco and Manager, the travel budget for the Facilities
for the ensuing calendar year will be prepared by the Manager with the final
contents of the travel budget to be determined mutually by Manager and Holdco
(the “Travel Budget”).

 

12.2         For calendar year 2009,  Holdco agrees to pay Manager the sum of
$12,500 per month to subsidize the cost of travel by operating personnel
employed by Manager in providing services under this, and related, agreements
to Facilities.  Manager will provide a
quarterly summary accounting of the travel expenses.  Such summary will identify the employee that
traveled, the properties reviewed during the period and the expenses incurred
during the period.  The parties agree
that this payment is intended to subsidize the travel of key Manager management
personnel to provide oversight and support of operations for the facilities listed
in Exhibit A.  From time to time, the
parties will review the amount, level of travel and other aspects of the
activities covered in this section 12.2. 
The accounting report provided to Tenant will include the following
elements:

 

·                  Name of Employee Traveling

 

·                  Title of Employee Traveling

 

·                  Home Office of Employee
Traveling

 

·                  Facility(ies) Visited

 

·                  Date of Visit

 

·                  Summary of Business Purpose
of Visit

 

·                  Travel Segments

 

·                  Expenses incurred by
category

 

After March 30, 2009
the parties will review the actual expenditures incurred by Manager relative to
the subsidy provided in this Section 12.2. 
Tenant, at its sole discretion, may increase the amount of the monthly
subsidy.

 

12.3         Tenant agrees to reimburse
Manager monthly for certain travel expenses incurred by Manager in accordance
with the approved Travel Budget.

 

13.          Miscellaneous.

 

13.1 Notices.

 

 

Any and all notices,
demands, consents, approvals, offers, elections and other communications
required or permitted under this Agreement (collectively, “notices”) shall be
governed by the notice provisions set forth in the Management Agreements;
provided, however, all such notices shall be addressed:

 

(a) to Holdco:

 

Wakefield Capital, LLC

c/o Midwest Care Holdco TRS I LLC

2 Wisconsin Circle, Suite 540

Chevy Chase, Maryland 20815

Tele: (301) 941 -1 690

Fax: (301) 941-1661

Attention: Sean P. Murphy

 

(b) to any Holdco
SPE :

 

Wakefield Capital, LLC

c/o [Insert Name of Holdco SPE]

2 Wisconsin Circle, Suite 540

Chevy Chase, Maryland 20815

Tele: (301) 941 -1 690

Fax: (301) 941-1661

Attention: Sean P. Murphy

 

(c) to any GNC Tenant:

 

The Wilkinson Corporation

c/o [Insert Name of GNC Tenant]

402 East Yakima Avenue, 15th Floor

Yakima, Washington 98901

Attention: Lonnie P. Gienger,
President & CEO

Tele: (509) 965-4240

Fax: (509) 965-8535

 

(d) to Manager:

 

Good Neighbor Care Centers, LLC

78 Centennial Loop

Eugene, OR 97401

Attention: P. Kacy Kang

Tele:  (541) 747-3373

Fax:   (541) 747-0673

 

With a copy to:

 

The Wilkinson Corporation

 

 

c/o [Insert Name of GNC Tenant]

402 East Yakima Avenue, 15th Floor

Yakima, Washington 98901

Attention: Lonnie P. Gienger,
President & CEO

Tele: (509) 965-4240

Fax: (509) 965-8535

 

(e) to Wakefield:

 

Wakefield Capital, LLC

2 Wisconsin Circle, Suite 540

Chevy Chase, Maryland 20815

Tele: (301) 941 -1 690

Fax: (301) 941-1661

Attention: Sean P. Murphy

 

By notice given as herein
provided, the parties hereto and their respective successors and assigns shall
have the right from time to time and at any time during the term of this
Agreement to change their respective addresses effective upon receipt by the
other parties of such notice and each shall have the right to specify as its
address any other address.

 

13.2           Amendments. This Agreement
may be amended only with the written approval of the parties hereto.

 

13.3           Interpretation. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Delaware without regard to the principles of
conflicts of law. Any dispute arising in connection with this Agreement shall
be resolved in a court of competent jurisdiction, and each party hereby submits
to the jurisdiction of that court. Each party hereby waives its right to trial
by jury in connection with any dispute between any of the parties to this
Agreement arising out of this Agreement or the rights or obligations of the
parties hereunder. The titles of the Articles and Sections in this Agreement
are for convenience only and shall not be considered in construing this
Agreement. Pronouns used herein shall be construed to refer to the masculine,
feminine, neuter, singular and plural as  the identity of the
individual or entity referred to may require. No provision of this Agreement
shall be interpreted as bestowing any rights whatsoever upon any third party. A
cross reference to another section shall be deemed to be to such section of
this Agreement, unless explicitly stated otherwise.

 

13.4         Counterparts. 
This Agreement may be executed in multiple  counterparts,
each of which shall be deemed an original.

 

13.5         Severability. If any
provision of this Agreement is determined to be unenforceable for any reason,
it shall be adjusted rather than voided, if possible, to achieve the intent of
the parties. In any event, all other provisions shall be deemed valid and
enforceable to the greatest possible extent.

 

13.6           Binding on Successors. The
rights and obligations of the parties under this

 

 

Agreement shall bind their respective successors and
assigns and shall enure to the benefit of their successors and permitted
assigns. This Agreement may not be assigned by Manager.

 

13.7           Confidentiality. The
provisions as to confidentiality in the Management Agreements shall apply to
the parties hereto as if such provisions were expressly set forth herein.

 

13.8           Time is of the Essence. Time
is of the essence with respect to all time or notice deadlines set forth
herein; provided, however, this provision shall not affect the rights of any
defaulting party hereunder to cure such default within the time periods (if
any) explicitly set forth herein, if and as so permitted pursuant to the terms
of this Agreement.

 

EXECUTED as of the date first above written.

 

[SIGNATURE PAGES TO FOLLOW]

 

 

IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first set forth above.

 

HOLDCO I:                                                                                   MIDWEST CARE
HODLCO TRS I LLC, a Delaware limited liability company

 

	
   

  	
  By:

  	
  MIDWEST
  CARE HOLDINGS LLC, a Delaware limited liability company and its Managing
  Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: Timothy O’Brien

  
	
   

  	
   

  	
  Title: Executive Vice President

  

 

 

GNC TENANTS:

 

RICHMAN
GARDENS, LLC, a California limited liability company

SUNFLOWER
GARDENS, LLC, a California limited liability company

VALLEY
VIEW GARDENS, LLC, a California limited liability company

FULLERTON
GARDENS, LLC, a California limited liability company

ANGELWOOD
ASSISTED LIVING & MEMORY CARE, LLC, a Delaware limited liability
company

CARRIAGE
COURT MEMPHIS, LLC, a Delaware limited liability company

COTTAGE
LANDING, LLC, a Delaware limited liability company

COUNTRYWOOD
ASSISTED LIVING & MEMORY CARE, LLC, a Delaware limited liability
company

ELKWOOD
SENIOR LIVING CENTER, LLC, a Delaware limited liability company

GRANVILLE
ASSISTED LIVING, LLC, a Delaware limited liability company

OAKWOOD
ASSISTED LIVING & MEMORY CARE, LLC, a Delaware limited liability
company

TIMBERWOOD
SENIOR LIVING, LLC, a Delaware limited liability company

WEATHERWOOD
ASSISTED LIVING & MEMORY CARE, LLC, a Delaware limited liability
company

CARRIAGE
COURT GROVE CITY, LLC, a Delaware limited liability company

CARRIAGE
COURT KENWOOD, LLC, a Delaware limited liability company

CARRIAGE
COURT LANCASTER, LLC, a Delaware limited liability company

CARRIAGE
COURT MARYSVILLE, LLC, a Delaware limited liability company

CARRIAGE
COURT WASHINGTON COURTHOUSE, LLC, a Delaware limited liability company

 

 

	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Russell Wilkinson

  
	
   

  	
   

  	
   

  	
  Authorized Representative of each of the foregoing limited liability
  companies

  

 

 

MANAGER:                                                                             GOOD NEIGHBOR
CARE CENTERS, LLC, an Oregon limited liability company

 

	
   

  	
  By:

  	
   

  
	
   

  	
  Name: Russell L. Wilkinson

  
	
   

  	
  Its: Authorized Person

  

 

 

EXHIBIT A

 

DESCRIPTION OF FACILITIES

 

	
  Facility
  Name

  	
   

  	
  Address

  
	
  Fullerton
  Gardens

  	
   

  	
  1510 E. Commonwealth

  Fullerton, CA

  
	
   

  	
   

  	
   

  
	
  Sunflower
  Gardens

  	
   

  	
  3730 S. Greenville St.

  Santa Ana, CA

  
	
   

  	
   

  	
   

  
	
  Richman
  Gardens

  	
   

  	
  317 N. Richman Ave.

  Fullerton, CA

  
	
   

  	
   

  	
   

  
	
  Valley
  View Gardens

  	
   

  	
  11848 Valley View St.

  Garden Grove, CA

  
	
   

  	
   

  	
   

  
	
  Brookstone
  Estates of Effingham

  	
   

  	
  1101 North Maple St.

  Effingham, IL

  
	
   

  	
   

  	
   

  
	
  Brookstone
  Estates of Olney

  	
   

  	
  1110 N. East St.

  Olney, IL

  
	
   

  	
   

  	
   

  
	
  Brookstone
  Estates of Fairfield

  	
   

  	
  315 N. Market St.

  Fairfield, IL

  
	
   

  	
   

  	
   

  
	
  Brookstone
  Mattoon North

  	
   

  	
  1920 Brookstone Ln.

  Mattoon, IL

  
	
   

  	
   

  	
   

  
	
  Brookstone
  Estates of Rantoul

  	
   

  	
  300 Twin Lakes

  Rantoul, IL

  
	
   

  	
   

  	
   

  
	
  Brookstone
  Mattoon South

  	
   

  	
  2008 S. 9th Street

  Mattoon, IL

  
	
   

  	
   

  	
   

  
	
  Brookstone
  Estates of Charleston

  	
   

  	
  300 Lincoln Hwy Rd.

  Charleston, IL

  
	
   

  	
   

  	
   

  
	
  Cottage
  Landing

  	
   

  	
  150 Cottage Lane

  Carrollton, GA

  
	
   

  	
   

  	
   

  
	
  Brookstone
  Suites of Effingham

  	
   

  	
  505 W. Temple Ave.

  Effingham, IL

  
	
   

  	
   

  	
   

  
	
  Brookstone
  Estates of Paris

  	
   

  	
  146 Brookstone Ln.

  Paris, IL

  

 

 

	
  Brookstone
  Estates of Vandalia

  	
   

  	
  1607 W. Fillmore

  Vandalia, IL

  
	
   

  	
   

  	
   

  
	
  Emerald
  Glen

  	
   

  	
  1301 North East St.

  Olney, IL

  
	
   

  	
   

  	
   

  
	
  Countrywood Assisted
  Living and Memory Care

  	
   

  	
  1604 South 13th Street

  Kingfisher, OK

  
	
   

  	
   

  	
   

  
	
  Timberwood Senior Living

  	
   

  	
  5020 SE 44th St.

  Oklahoma City, OK

  
	
   

  	
   

  	
   

  
	
  Carriage Court of Kenwood

  	
   

  	
  4650 E. Galbraith Rd.

  Cincinnati, OH

  
	
   

  	
   

  	
   

  
	
  Granville Villa of LaVista

  	
   

  	
  8507
  Granville Parkway

  LaVista, NE

  
	
   

  	
   

  	
   

  
	
  Grand Victorian of
  Sycamore

  	
   

  	
  1440 Somonauk St.

  Sycamore, IL

  
	
   

  	
   

  	
   

  
	
  Grand Victorian of
  Rockford

  	
   

  	
  3495 McFarland Road

  Rockford, IL

  
	
   

  	
   

  	
   

  
	
  Carriage Court of Memphis

  	
   

  	
  1645 W. Massey Road

  Memphis, TN

  
	
   

  	
   

  	
   

  
	
  Oakwood Assisted Living &
  Memory Care

  	
   

  	
  2305 Lingleville Highway

  Stephenville, TX

  
	
   

  	
   

  	
   

  
	
  Elkwood Assisted Living &
  Memory Care

  	
   

  	
  1000 Elkwood Blvd.

  Elk City, OK

  
	
   

  	
   

  	
   

  
	
  Weatherwood Assisted
  Living & Memory Care

  	
   

  	
  3601 Main St.

  Weatherford, OK

  
	
   

  	
   

  	
   

  
	
  Angelwood Assisted Living &
  Memory Care

  	
   

  	
  3200 West Hayes

  Clinton, OK

  
	
   

  	
   

  	
   

  
	
  The Glenwood

  	
   

  	
  1101 North Monroe St.

  Robinson, IL

  
	
   

  	
   

  	
   

  
	
  Brookstone Estates of
  Tuscola

  	
   

  	
  1106 E. North Line St.

  Tuscola, IL

  
	
   

  	
   

  	
   

  
	
  Brookstone
  Estates of Harrisburg

  	
   

  	
  165 Ron Morse Drive

  Harrisburg, IL

  

 

 

	
  Carriage
  Court of Marysville

  	
   

  	
  717 South Walnut Street

  Marysville, OH

  
	
   

  	
   

  	
   

  
	
  Carriage
  Court of Lancaster

  	
   

  	
  800 Becks Knob Road

  Lancaster, OH

  
	
   

  	
   

  	
   

  
	
  Carriage
  Court of Grove City

  	
   

  	
  2320 Sonora Drive

  Grove City, OH

  
	
   

  	
   

  	
   

  
	
  Carriage
  Court of Washington Court House

  	
   

  	
  500 N. Glen Avenue

  Washington Court House, OH

  

 

 

EXHIBIT B

 

FORM OF LEASE

 

 

EXHIBIT C

 

INCENTIVE THRESHOLD PURCHASE PRICE ALLOCATION

 

 

EXHIBIT D

 

SCHEDULE OF DEVELOPMENT FACILITIES

 

1.               Grand Victorian of
Washington

100 Good Neighbor Place

Washington, IL 61571

 

2.               Grand Victorian of Pekin

2700 S. 14th St.

Pekin, IL 61554

 

3.               MSC of Port Royal

1901 N. Paris Avenue

Port Royal, SC 29935

 

 

EXHIBIT E

 

FORM OF MANAGEMENT AGREEMENT

 

 

EXHIBIT F

 

MANAGER’S MANAGEMENT TEAM

 

1.               Doug Sproul, Senior Advisor

 

2.               Kacy Kang, President &
Chief Operating Officer

 

3.               Don Rath, Chief
Administrative Officer

 

4.               Lonnie Gienger, Chief
Executive Officer

 

 

SCHEDULE I

 

RICHMAN
GARDENS, LLC, a California limited liability company

SUNFLOWER
GARDENS, LLC, a California limited liability company

VALLEY
VIEW GARDENS, LLC, a California limited liability company

FULLERTON
GARDENS, LLC, a California limited liability company

ANGELWOOD
ASSISTED LIVING & MEMORY CARE, LLC, a Delaware limited liability
company

CARRIAGE
COURT MEMPHIS, LLC, a Delaware limited liability company

COTTAGE
LANDING, LLC, a Delaware limited liability company

COUNTRYWOOD
ASSISTED LIVING & MEMORY CARE, LLC, a Delaware limited liability
company

ELKWOOD
SENIOR LIVING CENTER, LLC, a Delaware limited liability company

GRANVILLE
ASSISTED LIVING, LLC, a Delaware limited liability company

OAKWOOD
ASSISTED LIVING & MEMORY CARE, LLC, a Delaware limited liability
company

TIMBERWOOD
SENIOR LIVING, LLC, a Delaware limited liability company

WEATHERWOOD
ASSISTED LIVING & MEMORY CARE, LLC, a Delaware limited liability
company

CARRIAGE
COURT GROVE CITY, LLC, a Delaware limited liability company

CARRIAGE
COURT KENWOOD, LLC, a Delaware limited liability company

CARRIAGE
COURT LANCASTER, LLC, a Delaware limited liability company

CARRIAGE
COURT MARYSVILLE, LLC, a Delaware limited liability company

CARRIAGE
COURT WASHINGTON COURTHOUSE, LLC, a Delaware limited liability company

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00171-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00171-of-00352.parquet"}]]