-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, SEwI8+OyUBukbm0bcbxosmpDajYQMa3n0OcLesd+re3hiFriWxeVn/CSggNn9+SK PKAjNyEh6L3fjLNtBCoPCQ== 0000908737-95-000026.txt : 19950414 0000908737-95-000026.hdr.sgml : 19950414 ACCESSION NUMBER: 0000908737-95-000026 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950331 DATE AS OF CHANGE: 19950405 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTH & RETIREMENT PROPERTIES TRUST CENTRAL INDEX KEY: 0000803649 STANDARD INDUSTRIAL CLASSIFICATION: 6798 IRS NUMBER: 046558834 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09317 FILM NUMBER: 95526358 BUSINESS ADDRESS: STREET 1: 400 CENTRE ST CITY: NEWTON STATE: MA ZIP: 02158 BUSINESS PHONE: 6173323990 MAIL ADDRESS: STREET 1: 400 CENTRE STREET CITY: NEWTON STATE: MA ZIP: 02158 FORMER COMPANY: FORMER CONFORMED NAME: HEALTH & REHABILITATION PROPERTIES TRUST DATE OF NAME CHANGE: 19920703 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the Fiscal Year Ended December 31, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ______ to _____ Commission File Number 1-9317 HEALTH AND RETIREMENT PROPERTIES TRUST (Exact name of registrant as specified in its charter) Maryland 04-6558834 (State or other (I.R.S. Employer jurisdiction Identification No.) of incorporation) 400 Centre Street, Newton, Massachusetts 02158 (Address of principal executive offices) (Zip Code) 617-332-3990 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Common Shares of Beneficial Interest New York Stock Exchange Floating Rate Senior Notes, Series A, Due 1999 New York Stock Exchange Floating Rate Senior Notes, Series B, Due 1999 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock of the registrant held by non-affiliates was $823,402,873 based on the $14.875 closing price per share for such stock on the New York Stock Exchange on March 29, 1994. For purposes of this calculation, 1,013,651 shares held by HRPT Advisors, Inc. (the "Advisor"), a total of 2,777,768 shares held by the Advisor solely in its capacity as voting trustee under certain voting trust agreements, and an aggregate of 33,935 shares held by the trustees and executive officers of the registrant, have been included in the number of shares held by affiliates. Number of the registrant's Common Shares of Beneficial Interest, $.01 par value ("Shares"), outstanding as of March 15, 1995: 59,162,768 . DOCUMENTS INCORPORATED BY REFERENCE Part III of this Annual Report on Form 10-K is incorporated herein by reference from the Company's definitive Proxy Statement for the annual meeting of shareholders currently scheduled to be held on May 16, 1995. THE DECLARATION OF TRUST ESTABLISHING THE COMPANY, DATED OCTOBER 9, 1986, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HEALTH AND RETIREMENT PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF THE TRUST SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE TRUST. ALL PERSONS DEALING WITH THE TRUST, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE TRUST FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. HEALTH AND RETIREMENT PROPERTIES TRUST 1994 FORM 10-K ANNUAL REPORT Table of Contents PART I Page Item 1. Business. . . . . . . . . . . . . . . . . . . 1 Item 2. Properties. . . . . . . . . . . . . . . . . . 24 Item 3. Legal Proceedings . . . . . . . . . . . . . . 26 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . 26 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters . . 26 Item 6. Selected Financial Data . . . . . . . . . . . 28 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . . 28 Item 8. Financial Statements and Supplementary Data. 34 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . 35 PART III To be incorporated by reference from the Company's definitive Proxy Statement for the annual meeting of shareholders currently scheduled to be held on May 16, 1995, which will be filed not later than 120 days after the end of the Company's fiscal year. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . 35 FINANCIAL STATEMENTS AND SCHEDULES . . . . . . . . . . . F-1 PART I Item 1. Business. The Company. Health and Retirement Properties Trust (the "Company") was organized on October 9, 1986 as a Maryland real estate investment trust. The Company primarily invests in nursing homes, retirement complexes and other income producing health care related real estate. The Company's investments, to date, have been principally in nursing homes and other long-term care facilities, assisted living facilities, retirement complexes and facilities that provide subacute services. In March 1995, in a one time transaction, the Company invested $179.4 million in 21 hotel properties managed by an affiliate of Marriott International, Inc. (Marriott). See "Developments since January 1, 1994". The facilities in which the Company has made investments by mortgage, purchase lease or merger transactions shall hereinafter be referred to individually as a "Property" and collectively as "Properties". As of December 31, 1994, the Company owned 80 Properties acquired for an aggregate of $673.1 million and had mortgage investments in 61 Properties aggregating $133.5 million, for total real estate investments of approximately $806.6 million in 141 Properties located in 27 states. The Properties are described in "Business -- Developments Since January 1, 1994" and "Properties".
Number of Total Investment State Properties at December 31, 1994 (in thousands) Arizona............. 5 $ 28,062 California.......... 17 80,005 Colorado............ 11 34,551 Connecticut......... 9 85,036 Florida............. 6 132,951 Georgia............. 5 8,167 Illinois............ 2 39,453 Iowa................ 10 14,729 Kansas.............. 4 8,738 Kentucky............ 2 8,733 Louisiana........... 1 24,376 Maryland............ 1 33,080 Massachusetts....... 5 82,058 Michigan............ 2 9,400 Missouri............ 2 3,235 Nebraska............ 12 17,700 North Carolina...... 9 16,359 Ohio................ 7 25,125 Pennsylvania........ 2 18,409 South Carolina...... 1 901 South Dakota........ 3 7,589 Tennessee........... 1 1,013 Texas............... 7 17,166 Virginia............ 3 57,662 Washington.......... 1 5,193 Wisconsin........... 9 38,672 Wyoming............. 4 8,197 --- -------- Total.......... 141 $806,560
The Company's principal executive offices are located at 400 Centre Street, Newton, Massachusetts 02158, and its telephone number is (617) 332-3990. Investment Policy and Method of Operation. The Company's investment goals are current income for distribution to shareholders, capital growth resulting from appreciation in the residual value of owned Properties, and preservation and protection of shareholders' capital. The Company's income is derived primarily from minimum rent and minimum interest payments under its leases and mortgages and from additional rent and additional interest payments based upon revenue increases at the leased and mortgaged Properties. The Company's day-to-day operations are conducted by HRPT Advisors, Inc., the Company's investment advisor (the "Advisor"). The Advisor originates and presents investment opportunities to the Company's Board of Trustees (the "Trustees"). In evaluating potential investments, the Company considers such factors as: the adequacy of current and anticipated cash flow from the property to meet operational needs and financing obligations and to provide a competitive market return on investment to the Company; the growth, tax and regulatory environments of the community in which the property is located; the quality, experience, and credit worthiness of the property's operator; an appraisal of the property, if available; occupancy and demand for similar facilities in the same or nearby communities; the mix of private and government sponsored patients; the mix of cost-based and charge-based revenues; the construction quality, condition and design of the property; and the geographic area and type of property. The Trustees have established a policy that the Company will not purchase or mortgage finance a facility for an amount which exceeds the appraised value of such facility. Prior to investing in properties, the Company obtains title commitments or policies of title insurance insuring that the Company holds title to or has mortgage interests in such properties, free of material liens and encumbrances. The Company's investments may be structured using leases with minimum and additional rent and escalator provisions, loans with fixed or floating rates, joint ventures and partnerships with affiliated or unaffiliated parties, commitments or options to purchase interests in real estate, mergers or any combination of the foregoing that will best suit the particular investment. In connection with its revolving credit facility, the Company has agreed to obtain bank approval before exceeding certain investment concentrations. Among these are that no more than 40% of its properties be operated by any single tenant or mortgagor, that investment in rehabilitation treatment, acute care and United Kingdom properties not exceed 40%, 15% and 10%, respectively, of total investments and that no new psychiatric care or hotel investments be made. In addition to these restrictions, the Trustees may establish limitations as they deem appropriate from time to time. No limits have been set on the number of properties in which the Company will seek to invest, or on the concentration of investments involving any one facility or geographical area; however, the Trustees consider concentration of investments in determining whether to make new or increase existing investments. The Company's Declaration of Trust (the "Declaration") and operating policies provide that any investment in facilities owned or operated by the Advisor, persons expressly permitted under the Declaration to own more than 8.5% of the Company's shares, or any company affiliated with any of the foregoing must, however, be approved by a majority of the Trustees not affiliated with any of the foregoing (the "Independent Trustees"). The Company has in the past and may in the future consider, from time to time, the acquisition of or merger with other companies engaged in the same business as the Company; however, the Company has no present agreements or understandings concerning any such acquisition or merger. The Company has no intention of investing in the securities of others for the purpose of exercising control. Borrowing Policy. In addition to the use of equity, the Company utilizes short-term and long-term borrowings to finance investments. During 1994, the Company obtained investment grade ratings on its long term debt from Moody's Investor Services ("Moody's"), Standard and Poor's Corporation ("S&P") and Fitch Investor Services, Inc. ("Fitch") in connection with the issuance of $200 million of floating rate notes. The notes were issued in two series. The Series A notes may be called, at the Company's option, beginning in April 1995. The Series B notes, which were issued at a discount, may be called, at the Companys option, beginning in July 1996. The notes bear interest at a spread over LIBOR and mature in July 1999. At December 31, 1994, the Company had a revolving credit facility available to it totalling $170 million. Availability under this revolver was increased to $200 million effective March 15, 1995. As of March 15, 1995, $10 million of this amount was outstanding, and $190 million was available to be drawn. All but $17.6 million of outstanding indebtedness is at variable interest rates determined by formulae based upon the London Interbank Offered Rate ("LIBOR"), prime or some other generally recognized interest rate standard. Fluctuations in interest rates on $200 million of variable rate outstanding term indebtedness have been limited by hedging arrangements so that the maximum average rates payable on the $200 million of indebtedness is 6.85% per annum. The maturities of the hedge agreements range from 1995 through 1998. The Company's borrowing guidelines established by its Trustees and covenants in various debt agreements prohibit the Company from maintaining a debt to equity ratio of greater than 1 to 1. At December 31, 1994, the Company's debt to equity ratio was .36 to 1. The Declaration prohibits the Company from incurring secured and unsecured indebtedness which in the aggregate exceeds 300% of the net assets of the Company, unless approved by a majority of the Independent Trustees. There can be no assurance that debt capital will in the future be available at reasonable rates to fund the Company's operations or growth. -3- Developments Since January 1, 1994. Horizon/Greenery Merger. In February 1994, the merger transaction (the "Horizon/Greenery Merger") between Horizon Healthcare Corporation ("Horizon") and Greenery Rehabilitation Group, Inc. ("Greenery") was consummated. In connection with this merger, the Company sold to Horizon for $28.4 million three facilities that had been leased to Greenery. The Company realized a gain of approximately $4.0 million on the sale of these properties. In addition, Horizon leased seven facilities previously leased to Greenery, on substantially similar terms except the leases were extended through 2005. The Company has also granted Horizon a ten year option to buy the seven leased facilities, at the rate of no more than one facility per consecutive twelve months. Also, the Company leased the three remaining Greenery facilities to a newly formed corporation, Connecticut Subacute Corporation, II ("CSC II"), an affiliate of the Advisor. These facilities are being managed by and the lease payments are guaranteed by Horizon for a term of up to five years. The terms of these lease arrangements are substantially similar to the original lease arrangements with Greenery. On February 11, 1994, in connection with the Horizon-Greenery merger, the Company provided Horizon with $9.4 million first mortgage financing for two facilities. One of the facilities previously was owned by the Company and leased to Greenery. The mortgage notes bear interest at 11.5% per annum and mature December 31, 2000. In January 1995, Horizon exercised its option and purchased one of the seven leased properties from the Company for $24.5 million resulting in a gain of $2.5 million. The Company provided Horizon a 16 year $19.5 million mortgage in connection with this sale in 1995. New Revolving Credit Facility. During 1994 and early 1995, the Company amended its revolving credit facility from a syndicate of banks (the "Credit Facility"). The Credit Facility which allows borrowing of up to $200 million, will mature in 1998, unless extended by the parties. Borrowings on the Credit Facility will bear interest, at the Company's option, at prime or a spread over or LIBOR. May Share Offering. During the second quarter of 1994, the Company sold 12,650,000 Shares in a public offering and received net proceeds of approximately $174 million. The proceeds were used, in part, to prepay $73 million in outstanding indebtedness and, in part, to fund the transactions described below. July Floating Rate Note Offering. In July 1994, the Company issued $200 million floating rate notes in a public offering and received net proceeds after financing costs of approximately $197 million. The notes were issued in two series; Series A issued at par and Series B issued at a discount. The Series A and B notes mature in July 1999, but may be called, at the Company's option, beginning in April 1995 and July 1996, respectively. The notes bear interest at a spread over the three month LIBOR. The proceeds of the note offering were used, in part, to fund the Marriott retirement communities transaction described below. -4- Marriott Retirement Communities Transaction. On September 9, 1994, the Company completed its previously announced transaction with Host Marriott Corporation ("Host Marriott") to acquire 14 retirement communities containing 3,952 residences or beds for $320 million. These communities are triple net leased through December 31, 2013 to a wholly owned subsidiary of Marriott. The leases provide for fixed rent and additional rentals equal to a percentage of annual revenues from operations in excess of base amounts determined on a facility by facility basis. All of the leases are subject to cross default provisions and are guaranteed by Marriott. This transaction was funded from cash on hand, the proceeds of the equity offering discussed above, drawings under the Company's Credit Facility, assumption of $17.6 million of existing debt bearing interest at 7.75% and a portion of the proceeds from a floating rate note offering described above. 1995 Commitments; Hotel Transaction. Since January 1, 1995, the Company has made or committed to make real estate investments in four separate transactions involving 41 healthcare facilities totalling approximately $109 million. Of this amount, approximately $14 million represents mortgage financings and $95 million represents acquisitions of healthcare facilities. In addition, the Company entered into a purchase and lease agreement with a subsidiary of Host Marriott for 21 Courtyard by Marriott hotel properties for approximately $179.4 million, subject to adjustment. The properties have been leased for an initial term of 12 years, with renewal options of an additional 37 years to a subsidiary of Host Marriott, and are being managed by a subsidiary of Marriott International. An amount equal to one year's rent was withheld from the purchase price to secure the tenant's obligations to the Company. The transaction closed in March 1995. Although the Company's investments are no longer exclusively in healthcare, retirement and related properties, the Company's investment in hotel properties does not represent a change in the Company's strategy of focusing on investments in long term care and retirement facilities. Rather, this investment, structured as a triple net lease, will represent only approximately 15% of the Company's portfolio, including the commitments noted above as of March 24, 1995. The facilities are new, having been constructed within the last five years, and occupancy and cash flow coverage are strong. Following the announcement of this investment, Moody's downgraded the Company's debt rating and S&P and Fitch maintained their ratings. The Company believes, despite the negative reaction by Moody's, that this transaction will enhance the security and growth potential of its funds from operations. The Advisor. The Advisor is wholly owned by Gerard M. Martin and Barry M. Portnoy. Messrs. Martin, Portnoy and Mark J. Finkelstein are the directors of the Advisor, Mr. Finkelstein is the President and Chief Executive Officer, David J. Hegarty is the Executive Vice President, Chief Financial Officer and Secretary and John G. Murray is the Treasurer of the Company. Effective April 1, 1995, Mr. Finkelstein will resign to pursue his interests in operating nursing homes and will become president of Subacute Management Corporation of America, Inc. -5- The Company's Board of Trustees has elected David J. Hegarty President, Chief Operating Officer and Secretary, John G. Murray, Executive Vice President and Chief Financial Officer and Ajay Saini, Treasurer. These officers of the Advisor are also officers of the Company. The Advisor provides management services and investment advice to the Company. The Advisor's principal executive offices are located at 400 Centre Street, Newton, Massachusetts 02158, and its telephone number is (617) 332-3990. Employees. As of March 14, 1995, the Company had no employees. The Advisor, which administers the day-to-day operations of the Company, has 9 full-time employees and two active directors. Regulation and Reimbursement; Competition. Compliance with federal, state and local statutes and regulations governing health care facilities is a prerequisite to continuation of health care operations at the Properties. In addition, the health care industry depends significantly upon federal and federal/state programs for revenues and, as a result, is vulnerable to the budgetary policies of both the federal and state governments. Certificate of Need and Licensure. Most states in which the Company has or may invest require certificates of need ("CONs") prior to expansion of beds or services, certain capital expenditures, and in some states, a change in ownership. CON requirements are not uniform throughout the United States. Changes in CON requirements may affect competition, profitability of the Properties and the Company's opportunities for investment in health care facilities. State licensure requirements, including regulations providing that commonly controlled facilities are subject to delicensure if one such facility is delicensed, also affect facilities in which the Company invests. The Company believes that each facility in which it has invested is appropriately licensed. Although each of the facilities may from time to time receive notices of non-compliance with certain standards, and certain facilities in Connecticut and Massachusetts are subject to provisional or probationary licenses, the Company believes that such actions have not, in fiscal year 1994 and through the date hereof, had any material adverse effect on the operations of the Company. Horizon's licenses to operate the Massachusetts facilities leased to it are probationary subject to certain conditions. An increasing number of legislative proposals have been introduced in Congress that would effect major reforms of the health care system. Such proposals include universal health coverage, employer mandated insurance, and a single government health insurance plan. Following the failure of the Clinton administration's proposed Health Security Act or other major health care reform legislation to become law in 1994, legislative proposals for more incremental reforms have also been introduced, such as group health insurance plans for small businesses, health insurance industry reforms, health care anti-fraud legislation, and Medicare and Medicaid reforms and cost containment measures. The Company cannot predict whether any such legislative proposals will be adopted and, if adopted, what effect, if any, such proposals would have on the business of the lessees, the mortgagors or the Company. New regulations adopted by the Health Care Finance Administration governing -6- Medicare and Medicaid nursing facility surveys, certification, and enforcement, are scheduled to be effective on July 1, 1995. The regulations require the states to implement a wide range of enforcement remedies, and penalties for noncompliance with Medicare/Medicaid standards may increase in the future. An adverse determination concerning licensure or eligibility for government reimbursement of any operator could materially adversely affect that operator, its affiliates and the Company. In addition, federal and state civil and criminal anti-fraud and anti-kickback laws and regulations govern financial activities of health care providers and enforcement proceedings have increased. If any operator of the Company's Properties were to fail to comply with such laws or regulations, it, and therefore the Company, could be materially adversely affected unless and until any such property of properties were returned to compliance or the Company were able to re-lease or sell the affected Property or Properties on favorable terms. Reimbursement. Reimbursement for health care services derives principally form the following sources: Medicare, a federal health insurance program for the aged and certain chronically disabled individuals; Medicaid, a medical assistance program for indigent persons operated by individual states with the financial participation of the federal government; health and other insurance plans, including health maintenance organizations; and private funds. These reimbursement sources are generally contingent upon compliance with state CON and licensure regulations and with extensive federal requirements for Medicare and Medicaid participation. Medicaid programs provide significant current revenues of nursing facilities. Medicare is not presently a major source of revenue for the Company's lessees and mortgagors. The Medicaid program is subject to change and affected by state and federal budget shortfalls and funding restrictions which may materially decrease rates of payment or delay payment. There is no assurance that Medicaid or Medicare payments will remain constant or be sufficient to cover costs allocable to Medicare and Medicaid patients. The operators of the Properties appeal reimbursement rates from time to time. The Company cannot predict whether such appeals, if decided adversely, would have any material effect upon the respective financial positions of the operators. Other. Federal law limits Medicare and Medicaid reimbursement for capital costs related to increases in the valuation of capital assets solely as a result of a change of ownership of nursing facilities, and numerous states use more restrictive standards to limit Medicaid reimbursement of capital costs. Effective in October of 1993, Medicare eliminated reimbursement of return on equity capital for Medicare skilled nursing homes. Some state Medicaid programs also do not provide for return on equity capital. In addition, a seller is liable to the Medicare program, and in certain states may also be liable to the Medicaid program, for recaptured depreciation. Such limitations may adversely affect the resale value of some Properties owned or financed by the Company. Effective in October of 1992, DHHS issued final regulations which limit the amount of Medicare reimbursement available to a facility for -7- rental or lease expenses paid after a purchase lease transaction to that amount which would have been reimbursed as capital costs had the provider retained legal title to the facility. Limitations on rental expenses contained in the regulations may adversely affect the financial feasibility of future purchase lease transactions by denying Medicare and Medicaid reimbursement for additional rental expenses. It is not possible to predict the content, scope or impact of future legislation, regulations or changes in reimbursement or insurance coverage policies which might affect the health care industry. Competition. The Company is one of several REITs currently investing primarily in health care related real estate. The REITs compete with one another in that each is continually seeking attractive investment opportunities in health care facilities. The Company also competes with banks, non-bank finance companies, leasing companies and insurance companies. In addition, the Company competes with the operators of its Properties in connection with the expansion of their businesses. Although each of the operators may offer investment opportunities to the Company, each of the operators or its affiliates will, in fact, compete with the Company (as well as with others) for investment opportunities. The operators may own facilities that are not mortgaged or leased to the Company. An operator, or an affiliate thereof, could preferentially place patients or operate special service programs in facilities other than those included among the Properties. Such preferential treatment and/or new programs could adversely affect the revenues derived by the Company under its mortgages and leases. Federal Income Tax Considerations. The Company believes that it is and it intends to be and remain qualified as a real estate investment trust ("REIT") under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). These Code provisions are highly technical and complex. Each shareholder therefore is urged to consult his own tax advisor with respect to the federal income tax and other tax consequences of the purchase, holding and sale of shares of beneficial interest of the Company. The Company has obtained legal opinions that the Company has been organized in conformity with the requirements for qualification as a REIT, has qualified as a REIT for its 1987, 1988, 1989, 1990, 1991, 1992, 1993 and 1994 taxable years, and that its current and anticipated investments and its plan of operation will enable it to continue to meet the requirements for qualification and taxation as a REIT under the Code. Actual qualification of the Company as a REIT, however, will depend upon the Company's continued ability to meet, and its meeting, through actual annual operating results, the various qualification tests imposed under the Code. No assurance can be given that the actual results of the Company's operation for any one taxable year will satisfy such requirements. Taxation of the Company. If the Company qualifies for taxation as a REIT and distributes to its shareholders at least 95% of its "real estate investment trust taxable income", it generally will not be -8- subject to federal corporate income taxes on the amount distributed. However, a REIT is subject to special taxes on the net income derived from "prohibited transactions." In addition, property acquired by the Company as the result of a default or imminent default on a lease or mortgage is classified as "foreclosure property". Certain net income from foreclosure property held by the Company for sale is taxable to it at the highest corporate marginal tax rate then prevailing. Section 856(a) of the Code defines a REIT as a corporation, trust or association: (1) which is managed by one or more trustees or directors; (2) the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest; (3) which would be taxable, but for Sections 856 through 859 of the Code, as a domestic corporation; (4) which is neither a financial institution nor an insurance company subject to certain provisions of the Code; (5) the beneficial ownership of which is held by 100 or more persons; (6) which is not closely held as determined under the personal holding company stock ownership test (as applied with one modification); and (7) which meets certain other tests, described below. Section 856(b) of the Code provides that conditions (1) to (4), inclusive, must be met during the entire taxable year and that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months. By reason of condition (6) above, the Company will fail to qualify as a REIT for a taxable year if at any time during the last half of such year more than 50% in value of its outstanding Shares are owned directly or indirectly by five or fewer individuals. To help maintain conformity with condition (6), the Company's Declaration of Trust (the "Declaration") contains certain provisions restricting share transfers and giving the Board of Trustees power to redeem shares involuntarily. It is the expectation of the Company that it will have at least 100 shareholders during the requisite period for each of its taxable years. There can, however, be no assurance in this connection and, if the Company has fewer than 100 shareholders during the requisite period, condition (5) described above will not be satisfied, and the Company would not qualify as a REIT during such taxable year. For taxable years beginning after 1993, the rule that an entity will fail to qualify as a REIT for a taxable year if at any time during the last half of such year more than 50% in value of its outstanding shares is owned directly or indirectly by five or fewer individuals has been liberalized in the case of a qualified pension trust owning shares in a REIT. Under the new rule, the requirement is applied by treating shares in a REIT held by such a pension trust as held directly by its beneficiaries in proportion to their actuarial interests in the pension trust. Consequently, five or fewer pension trusts could own more than 50% of the interests in an entity without jeopardizing its qualification as a REIT. However, if a REIT is a "pension-held REIT" as defined in the new law, each pension trust holding more than 10% of its shares (by value) generally will be taxable on a portion of the dividends it receives from the REIT, based on the ratio of the REIT's gross income for the year which would be unrelated trade or business income if the REIT were a qualified pension trust to the total gross income of the REIT for the year. A "pension-held REIT" is one in which at least one -9- qualified pension trust holds more than 25% (by value) of the interests by value, or a combination of qualified pension trusts each of which owns more than 10% by value of the REIT together holds more than 50% of the REIT interests by value. To qualify as a REIT for a taxable year under the Code, the Company must elect to be so treated and must meet other requirements, certain of which are summarized below, including percentage tests relating to the sources of its gross income, the nature of the Company's assets, and the distribution of its income to shareholders. The Company has made such election for 1987 (its first full year of operations) and such election, assuming continuing compliance with the qualification tests discussed herein, continues in effect for subsequent years. There are three gross income requirements. First, at least 75% of the Company's gross income (excluding gross income from certain sales of property held primarily for sale) must be derived directly or indirectly from investments relating to real property (including "rents from real property") or mortgages on real property. When the Company receives new capital in exchange for its shares (other than dividend reinvestment amounts) or in a public offering of five-year or longer debt instruments, income attributable to the temporary investment of such new capital in stock or a debt instrument, if received or accrued within one year of the Company's receipt of the new capital, is qualifying income under the 75% test. Second, at least 95% of the Company's gross income (excluding gross income from certain sales of property held primarily for sale) must be derived from such real property investments, dividends, interest, certain payments under interest rate swap or cap agreements, and gain from the sale or disposition of stock, securities, or real property or from any combination of the foregoing. Third, short-term gain from the sale or other disposition of stock or securities, including, without limitation, stock in other REITs, dispositions of interest rate swap or cap agreements, and gain from certain prohibited transactions or other dispositions of real property held for less than four years (apart from involuntary conversions and sales of foreclosure property) must represent less than 30% of the Company's gross income. (This rule does not apply for a year in which the REIT is completely liquidated, as to dispositions occurring after the adoption of a plan of complete liquidation.) For purposes of these rules, income derived from a "shared appreciation provision" is treated as gain recognized on the sale of the property to which it relates. Even though the Company's present mortgages do not contain shared appreciation provisions, the Company may make mortgage loans which include such provisions. The Company temporarily invests working capital in short-term investments, including shares in other REITs. Although the Company will use its best efforts to ensure that its income generated by these investments will be of a type which satisfies the 75% and 95% gross income tests, there can be no assurance in this regard (see discussion above of the "new capital" rule under the 75% test). Moreover, the Company may realize short-term capital gain upon sale or exchange of such investments, and such short-term capital gain would be subject to the limitations imposed by the 30% gross income test. -10- In order to qualify as "rents from real property," the amount of rent received generally must not be determined from the income or profits of any person, but may be based on receipts or sales. The Code also provides that rents will not qualify as "rents from real property," in satisfying the gross income tests, if the REIT owns 10% or more of the tenant, whether directly or under certain attribution rules. The Company intends not to lease property to any party if rents from such property would not so qualify. Application of the 10% ownership rule is, however, dependent upon complex attribution rules provided in the Code and circumstances beyond the control of the Company. Ownership, directly or by attribution, by an unaffiliated third party of more than 10% of the Company's shares and more than 10% of the stock of a lessee would result in lessee rents not qualifying as "rents from real property". The Declaration provides that transfers or purported acquisitions, directly or by attribution, of shares that could result in disqualification of the Company as a REIT are null and void and permits the Trustees to repurchase shares to the extent necessary to maintain the Company's status as a REIT. Nevertheless, there can be no assurance such provisions in the Declaration will be effective to prevent the Company's REIT status from being jeopardized under the 10% rule. Furthermore, there can be no assurance that the Company will be able to monitor and enforce such restrictions, nor will shareholders necessarily be aware of share holdings attributed to them under the attribution rules. In addition, the Company must not manage the property or furnish or render services to the tenants of such property, except through an independent contractor from whom the company derives no income. There is an exception to this rule permitting a REIT to perform certain customary tenant services of the sort which a tax-exempt organization could perform without being considered in receipt of "unrelated business taxable income." If rent attributable to personal property leased in connection with a lease of real property is greater than 15% of the total rent received under the lease, then the portion of rent attributable to such personal property will not qualify as "rents from real property." The portion of rental income treated as attributable to personal property is determined according to the ratio of the tax basis of the personal property to the total tax basis of the property which is rented. If rent payments do not qualify, for the reasons discussed above, as rents from real property for the purposes of Section 856 of the Code, it will be more difficult for the Company to meet the 95% or 75% gross income tests and to qualify as a REIT. Finally, in order to qualify as mortgage interest on real property for purposes of the 75% test, interest must derive from a mortgage loan secured by real property with a fair market value at least equal to the amount of the loan. If the amount of the loan exceeds the fair market value of the real property, the interest will be treated as interest on a mortgage loan in a ratio equal to the ratio of the fair market value of the real property to the total amount of the mortgage loan. If the Company fails to satisfy one or both of the 75% or 95% gross income tests for any taxable year, it may nevertheless qualify as a REIT for such year if its failure to meet such test was due to reasonable -11- cause and not due to willful neglect, it attaches a schedule of the sources of its income to its return, and any incorrect information on the schedule was not due to fraud with intent to evade tax. It is not possible, however, to state whether in all circumstances the Company would be entitled to the benefit of these relief provisions. If these relief provisions apply, a special tax generally equal to 100% is imposed upon the greater of the amount by which the Company failed the 75% test or the 95% test, less an amount which generally reflects the expenses attributable to earning the non-qualified income. At the close of each quarter of the Company's taxable year, it must also satisfy three tests relating to the nature of its assets. First, at least 75% of the value of the Company's total assets must consist of real estate assets (including its allocable share of real estate assets held by joint ventures or partnerships in which the Company participates), cash, cash items and government securities. Second, not more than 25% of the Company's total assets may be represented by securities (other than those includable in the 75% asset class). Finally, of the investments included in the 25% asset class, the value of any one issuer's securities owned by the Company may not exceed 5% of the value of the Company's total assets, and the Company may not own more than 10% of any one issuer's outstanding voting securities. Where a failure to satisfy the 25% asset test results from an acquisition of securities or other property during a quarter, the failure can be cured by disposition of sufficient non-qualifying assets within 30 days after the close of such quarter. The Company intends to maintain adequate records of the value of its assets to maintain compliance with the 25% asset test, and to take such action as may be required to cure any failure to satisfy the test within 30 days after the close of any quarter. The Company, in order to qualify as a REIT, is required to distribute dividends (other than capital gain dividends) to its shareholders in an amount equal to or greater than the excess of (A) the sum of (i) 95% of the Company's "real estate investment trust taxable income" (computed without regard to the dividends paid deduction and the Company's net capital gain) and (ii) 95% of the net income, if any, (after tax) from foreclosure property, over (B) the sum of certain non-cash income (from certain imputed rental income and income from transactions inadvertently failing to qualify as like-king exchanges). These requirements may be waived by the IRS if the REIT establishes that it failed to meet them by reason of distributions previously made to meet the requirements of the 4% excise tax discussed below. To the extent that the Company does not distribute all of its net long-term capital gain and all of its "real estate investment trust taxable income", it will be subject to tax thereon. In addition, the Company will be subject to a 4% excise tax to the extent it fails within a calendar year to make "required distributions" to its shareholders of 85% of its ordinary income and 95% of its capital gain net income plus the excess, if any, of the "grossed up required distribution" for the preceding calendar year over the amount treated as distributed for such preceding calendar year. For this purpose, the term "grossed up required distribution" for any -12- calendar year is the sum of the taxable income of the Company for the calendar year (without regard to the deduction for dividends paid) and all amounts from earlier years that are not treated as having been distributed under the provision. Dividends declared in October, November, or December and paid during the following January will be treated as having been paid and received on December 31. It is possible but highly unlikely, that the Company, from time to time, may not have sufficient cash or other liquid assets to meet the 95% distribution requirements, due to timing differences between the actual receipt of income and actual payment of deductible expenses or dividends on the one hand and the inclusion of such income and deduction of such expenses or dividends in arriving at "real estate investment trust taxable income" of the Company on the other hand. The problem of inadequate cash to make required distributions could also occur as a result of the repayment in cash of principal amounts due on the Company's outstanding debt, particularly in the case of "balloon" repayments or as a result of capital losses on short-term investments of working capital. Therefore, the Company might find it necessary to arrange for short-term, or possibly long-term, borrowing, or new equity financing. If the Company were unable to arrange such borrowing or financing as might be necessary to provide funds for required distributions, its REIT status could be jeopardized. Under certain circumstances, the Company may be able to rectify a failure to meet the distribution requirement for a year by paying "deficiency dividends" to shareholders in a later year, which may be included in the Company's deduction for dividends paid for the earlier year. The Company may be able to avoid being taxed on amounts distributed as deficiency dividends; however, the Company may in certain circumstances remain liable for the 4% excise tax discussed above. The Company is also required to request annually from record holders of certain significant percentages of its shares certain information regarding the ownership of such shares. Under the Declaration, shareholders are required to respond to such requests for information. Federal Income Tax Treatment of Leases. The availability to the Company of, among other things, depreciation deductions with respect to the facilities owned and leased by the Company will depend upon the treatment of the Company as the owner of the facilities and the classification of the leases of the facilities as true leases, rather than as sales or financing arrangements, for Federal income tax purposes. As to the approximately 5% of the leased facilities which constitutes personal property, it is less clear that the Company will be treated as the owner of such personal property and that the leases will be treated as true leases with respect to such property. The Company plans to insure its compliance with the 95% distribution requirement (and the "required distribution" requirement) by making distributions on the assumption that it is not entitled to depreciation deductions for the 5% of the leased facilities which constitute personal property, but to report the amount of income taxable to its shareholders by taking into account such depreciation. -13- Other Issues. In the case of certain sale-leaseback arrangements, the IRS could assert that the Company realized prepaid rental income in the year of purchase to the extent that the value of a leased property exceeds the purchase price paid by the Company for that property. In litigated cases involving sale-leasebacks which have considered this issue, courts have concluded that buyers have realized prepaid rent where both parties acknowledged that the purported purchase price for the property was substantially less than fair market value and the purported rents were substantially less than the fair market rentals. Because of the lack of clear precedent, complete assurance cannot be given that the IRS could not successfully assert the existence of prepaid rental income. Additionally, it should be noted that Code Section 467 (concerning leases with increasing rents) would apply to the leases because many of the leases provide for rents that increase from one period to the next. Section 467 provides that in the case of a so-called "disqualified leaseback agreement," rental income must be accrued at a constant rate. If such constant rent accrual were required, the Company would recognize rental income in excess of cash rents and, as a result, may fail to meet the 95% dividend distribution requirement. "Disqualified leaseback agreements" include leaseback transactions where a principal purpose for providing increasing rent under the agreement is the avoidance of Federal income tax. Because Section 467 directs the Treasury to issue regulations providing that rents will not be treated as increasing for tax avoidance purposes where the increases are based upon a fixed percentage of lessee receipts, the additional rent provisions of the leases should not cause the leases to be "disqualified leaseback agreements". In addition, the legislative history of Section 467 indicates that the Treasury should issue regulations under which leases providing for fluctuations in rents by no more than a reasonable percentage from the average rent payable over the term of the lease will be deemed not motivated by tax avoidance; this legislative history indicated that a standard allowing a 10% fluctuation in rents may be too restrictive for real estate leases. Depreciation of Properties. For tax purposes, the Company's real property generally is depreciated on a straight-line basis over 40 years and personal property owned by the Company generally is depreciated over 12 years. Failure to Qualify. If the Company fails to qualify for taxation as a REIT in any taxable year, and the relief provisions do not apply, the Company will be subject to tax on its taxable income at regular corporate rates (plus any applicable minimum tax). Distributions to shareholders in any year in which the Company fails to qualify will not be deductible by the Company nor will they be required to be made. In such event, to the extent of current and accumulated earnings and profits, all distributions to shareholders will be taxable as ordinary income and, subject to certain limitations in the Code, eligible for the 70% dividends received deduction for corporations. Unless entitled to relief under specific statutory provisions, the Company will also be disqualified from taxation as a REIT for the following four taxable years. It is not possible to state whether in all circumstances the Company would be entitled to statutory relief from such -14- disqualification. Failure to qualify for even one year could result in the Company's incurring substantial indebtedness (to the extent borrowings are feasible) or liquidating substantial investments in order to pay the resulting taxes. Taxation of United States Shareholders--Generally. As long as the Company qualifies as a REIT, distributions (including reinvestments pursuant to the Company's dividend reinvestment plan) made to the Company's shareholders out of current or accumulated earnings and profits will be taken into account by them as ordinary income (which will not be eligible for the 70% dividends received deduction for corporations). Distributions that are designated as capital gain dividends will be taxed as long-term capital gains to the extent they do not exceed the Company's actual net capital gain for the taxable year although corporate shareholders may be required to treat up to 20% of any such capital gain dividend as ordinary income pursuant to Section 291 of the Code. For purposes of computing the Company's earnings and profits, depreciation on real estate is computed on a straight-line basis (over 40 years for property acquired after 1986). Distributions in excess of current or accumulated earnings and profits will not be taxable to a shareholder to the extent that they do not exceed the adjusted basis of the shareholder's shares, but will reduce the basis of the shareholder's shares. To the extent that such distributions exceed the adjusted basis of a shareholder's shares they will be included in income as long-term capital gain (or short-term capital gain if the shares have been held for not more than one year) assuming the shares are a capital asset in the hands of the shareholder. Shareholders may not include in their individual income tax returns any net operating losses or capital losses of the Company. Dividends declared by the Company in October, November or December of a taxable year to shareholders of record on a date in such month, will be deemed to have been received by such shareholders on December 31, provided the Company actually pays such dividends during the following January. The Company has, however, generally declared dividends for the quarter ended December 31 in January of the following year and paid these dividends in the following February. As a result, for tax purposes, the dividend for any calendar year will generally include the dividends for the first three quarters of that year plus the dividend for the fourth quarter of the prior year. For tax purposes, dividends paid in 1987, 1988, 1989, 1990, 1991, 1992, 1993 and 1994 aggregated $1.085, $.840, $1.13, $1.16, $1.22, $1.25, $1.29 and $1.32 respectively, of which $.289, $.065, $.332, $.267, $.104, $.218, $.335 and $.081, respectively, represented a return of capital. A sale of a share will result in recognition of gain or loss to the holder in an amount equal to the difference between the amount realized and its adjusted basis. Such a gain or loss will be capital gain or loss, provided the share is a capital asset in the hands of the seller. In general, any loss upon a sale or exchange of shares by a shareholder who has held such shares for not more than one year (after applying certain rules), will be treated as a long-term capital loss to the extent of distributions from the Company required to be treated by such shareholders as long-term capital gain. -15- Investors (other than certain corporations) who borrow funds to finance their acquisition of Shares in the Company could be limited in the amount of deductions allowed for the interest paid on the indebtedness incurred in such an arrangement. Under Code Section 163(d), interest paid or accrued on indebtedness incurred or continued to purchase or carry property held for investment is generally deductible only to the extent of the taxpayer's net investment income. An investor's net investment income will include the dividend and capital gain dividend distributions he receives from the Company; however, distributions treated as a nontaxable return of the shareholder's basis will not enter into the computation of net investment income. In Revenue Ruling 66-106, the IRS ruled that amounts distributed by a real estate investment trust to a tax-exempt employee's pension trust did not constitute "unrelated business taxable income". Revenue rulings are interpretive in nature and subject to revocation or modification by the IRS. However, based upon Revenue Ruling 66-106 and the analysis therein, the Company has received an opinion of counsel that distributions by the Company to qualified pension plans (including individual retirement accounts) and other tax-exempt entities should not constitute "unrelated business taxable income," except as explained above in the case of a pension trust which holds more than 10% by value of a "pension-held REIT". This Revenue Ruling may not apply if a shareholder has borrowed money to acquire shares. Under Section 469 of the Code, taxpayers (other than certain corporations) generally will not be entitled to deduct losses from so-called passive activities except to the extent of their income from passive activities. For purposes of these rules, distributions received by a shareholder from the Company will not be treated as income from a passive activity and thus will not be available to offset a shareholder's passive activity losses. Tax preference and other items which are treated differently for regular and alternative minimum tax purposes are to be allocated between a REIT and its shareholders under regulations which are to be prescribed. It is likely that these regulations would require tax preference items to be allocated to the Company's shareholders with respect to any accelerated depreciation claimed by the Company, but the Company has not claimed accelerated depreciation with respect to its existing Properties. Special Tax Considerations for Foreign Shareholders The rules governing United States income taxation of nonresident alien individuals, foreign corporations, foreign partnerships, and foreign trusts and estates (collectively, "Non-U.S. Shareholders") are complex, and the following discussion is intended only as a summary of such rules. Prospective Non-U.S. Shareholders should consult with their own tax advisors to determine the impact of Federal, state, and local income -16- tax laws on an investment in the Company, including any reporting requirements. In general, a Non-U.S. Shareholder will be subject to regular United States income tax with respect to its investment in the Company if such investment is "effectively connected" with the Non-U.S. Shareholder's conduct of a trade or business in the United States, or if the Non-U.S. Shareholder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year. A corporate Non-U.S. Shareholder that receives income that is (or is treated as) effectively connected with a U.S. trade or business may also be subject to the branch profits tax under Section 884 of the Code, which is payable in addition to regular United States corporate income tax. The following discussion will apply to Non-U.S. Shareholders whose investment in the Company is not so effectively connected. A distribution by the Company that is not attributable to gain from the sale or exchange by the Company of a United States real property interest and that is not designated by the Company as a capital gain dividend will be treated as an ordinary income dividend to the extent that it is made out of current or accumulated earnings and profits. Generally, unless the dividend is effectively connected with the Non- U.S. Shareholder's conduct of a trade or business, such a dividend will be subject to a United States withholding tax equal to 30% of the gross amount of the dividend unless such withholding is reduced by an applicable tax treaty. A distribution of cash in excess of the Company's earnings and profits will be treated first as a nontaxable return of capital that will reduce a Non-U.S. Shareholder's basis in its shares (but not below zero) and then as gain from the disposition of such shares, the tax treatment of which is described under the rules discussed below with respect to disposition of shares. A distribution in excess of the Company's earnings and profits may be subject to 30% dividend withholding if at the time of the distribution it cannot be determined whether the distribution will be in an amount in excess of the Company's current and accumulated earnings and profits. If its subsequently determined that such distribution is, in fact, in excess of current and accumulated earnings and profits, the Non-U.S. Shareholder may seek a refund from the IRS. The Company expects to withhold United States income tax at the rate of 30% on the gross amount of any such distributions made to a Non-U.S. Shareholder unless (i) a lower tax treaty applies and the required form evidencing eligibility for that reduced rate is filed with the Company or (ii) the Non-U.S. Shareholder files IRS Form 4224 with the Company claiming that the distribution is "effectively connected" income. For any year in which the Company qualifies as a REIT, distributions by the Company that are attributable to gain from the sale or exchange of a United States real property interest will be taxed to a Non-U.S. Shareholder in accordance with the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S. Shareholder as if such distributions were gains "effectively connected" with a United States trade or business. Accordingly, a Non-U.S. Shareholder will be taxed at the normal capital gain rates applicable to a U.S. Shareholder (subject to any applicable alternative minimum tax and a special alternative minimum tax in the -17- case of non-resident alien individuals). Distributions subject to FIRPTA may also be subject to a 30% branch profits tax in the hands of a foreign corporate shareholder that is not entitled to treaty exemption. The Company will be required to withhold from distributions to Non-U.S. Shareholders, and remit to the IRS, 35% of the amount of any distribution that could be designated as capital gain dividends. Tax treaties may reduce the Company's withholding obligations. If the amount of tax withheld by the Company with respect to a distribution to a Non-U.S. Shareholder exceeds the shareholder's United States liability with respect to such distribution, the Non-U.S. Shareholder may file for a refund of such excess from the IRS. It should be noted that the 35% withholding tax rate on capital gain dividends corresponds to the maximum income tax rate applicable to corporations but is higher than the 28% maximum rate on capital gains of individuals. If the Shares fail to constitute a "United States real property interest" within the meaning of FIRPTA, a sale of the Shares by a Non- U.S. Shareholder generally will not be subject to United States taxation unless (i) investment in the Shares is effectively connected with the Non-U.S. Shareholder's United States trade or business, in which case, as discussed above, the Non-U.S. Shareholder would be subject to the same treatment as U.S. Shareholders on such gain or (ii) the Non-U.S. Shareholder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year, in which case the nonresident alien individual will be subject to a 30% tax on the individual's capital gains. The Shares will not constitute a United States real property interest if the Company is a "domestically controlled REIT". A domestically controlled REIT is a REIT in which at all times during a specified testing period less than 50% in value of its shares is held directly or indirectly by Non-U.S. Shareholders. It is currently anticipated that the Company will be a domestically controlled REIT, and therefore that the sale of Shares will not be subject to taxation under FIRPTA. However, because the Shares will be publicly traded, no assurance can be given that the Company will continue to be a domestically controlled REIT. If the Company did not constitute a domestically controlled REIT, whether a Non-U.S. Shareholder's sale of Shares would be subject to tax under FIRPTA as a sale of a United States real property interest would depend on whether the Shares were "regularly traded" (as defined by applicable Treasury Regulations) on an established securities market (e.g., the New York Stock Exchange, on which the Shares are listed) and on the size of the selling shareholder's interest in the Company. If the gain on the sale of the Shares were subject to taxation under FIRPTA, the Non-U.S. Shareholder would be subject to the same treatment as a U.S. Shareholder with respect to such gain (subject to applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals). In any event, a purchaser of Shares from a Non-U.S. Shareholder will not be required under FIRPTA to withhold on the purchase price if the purchased Shares are "regularly traded" on an established securities market or if the Company is a domestically controlled REIT. Otherwise, under FIRPTA, the purchaser of Shares may be required to withhold 10% of the purchase price and to remit such amount to the IRS. -18- Federal Estate Tax Shares owned or treated as owned by an individual who is not a citizen or resident (as defined for United States federal estate tax purposes) of the United States at the time of death will be includible in the individual's gross estate for United States federal estate tax purposes unless an applicable estate tax treaty provides otherwise. Backup Withholding and Information Reporting Requirements The Company must report annually to the IRS and to each Non-U.S. Shareholder the amount of dividends paid to and the tax withheld with respect to such holder. These information reporting requirements apply regardless of whether withholding was reduced or eliminated by an applicable tax treaty. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities in the country in which the Non-U.S. Shareholder resides. United States backup withholding tax (which generally is a withholding tax imposed at the rate of 31% on certain payments to persons that fail to furnish the information required under the United States information reporting requirements) will generally not apply to dividends paid on Shares to a Non-U.S. Shareholder at an address outside the United States. The payment of the proceeds from the disposition of Shares to or through the United States office of a broker will be subject to information reporting and backup withholding at a rate of 31% unless the owner, under penalties of perjury, certifies, among other things, its status as a Non-U.S. Shareholder, or otherwise establishes an exemption. The payment of the proceeds from the disposition of Shares to or through a non-U.S. office of a broker generally will not be subject to backup withholding and information reporting. In the case of proceeds from a disposition of Shares paid to or through a non-U.S. office of a U.S. broker or paid to or through a non-U.S. office of a non-U.S. broker that is (i) a "controlled foreign corporation" for United States federal income tax purposes or (ii) a person 50% or more of whose gross income from all sources for a certain three-year period was effectively connected with a United States trade or business, (a) backup withholding will not apply unless the broker has actual knowledge that the owner is not a Non-U.S. Shareholder, and (b) information reporting will not apply if the broker has documentary evidence in its files that the owner is a Non-U.S. Shareholder (unless the broker has actual knowledge to the contrary). Any amounts withheld under the backup withholding rules from a payment to a Non-U.S. Shareholder will be refunded (or credited against the Non- U.S. Shareholder's United States federal income tax liability, if any), provided that the required information is furnished to the IRS. Other Tax Consequences. The Company and its shareholders may be subject to state or local taxation in various state or local jurisdictions, including those in which it or they transact business or reside. -19- There may be other Federal, state, local or foreign income, or estate and gift, tax considerations applicable to the circumstances of a particular investor. Shareholders should consult their own tax advisors with respect to such matters. ERISA Plans, Keogh Plans and Individual Retirement Accounts General Fiduciary Obligations. Fiduciaries of a pension, profit-sharing or other employee benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974 ("ERISA") ("ERISA Plan") must consider whether their investment in the Company's shares satisfies the diversification requirements of ERISA, whether the investment is prudent in light of possible limitations on the marketability of the shares, whether such fiduciaries have authority to acquire such shares under the appropriate governing instrument and Title I of ERISA, and whether such investment is otherwise consistent with their fiduciary responsibilities. Any ERISA Plan fiduciary should also consider ERISA's prohibition on improper delegation of control over or responsibility for "plan assets." Trustees and other fiduciaries of an ERISA plan may incur personal liability for any loss suffered by the plan on account of a violation of their fiduciary responsibilities. In addition, such fiduciaries may be subject to a civil penalty of up to 20% of any amount recovered by the plan on account of such a violation (the "Fiduciary Penalty"). Also, fiduciaries of any Individual Retirement Account ("IRA"), Keogh Plan or other qualified retirement plan not subject to Title I of ERISA because it does not cover common law employees ("Non-ERISA Plan") should consider that such an IRA or non-ERISA Plan may only make investments that are authorized by the appropriate governing instrument. Fiduciary shareholders should consult their own legal advisers if they have any concern as to whether the investment is inconsistent with any of the foregoing criteria. Prohibited Transactions. Fiduciaries of ERISA Plans and persons making the investment decision for an IRA or other Non-ERISA Plan should also consider the application of the prohibited transaction provisions of ERISA and the Code in making their investment decision. Sales and certain other transactions between an ERISA Plan, IRA, or other Non-ERISA Plan and certain persons related to it are prohibited transactions. The particular facts concerning the sponsorship, operations and other investments of an ERISA Plan, IRA, or other Non-ERISA Plan may cause a wide range of other persons to be treated as disqualified persons or parties in interest with respect to it. A prohibited transaction, in addition to imposing potential personal liability upon fiduciaries of ERISA Plans, may also result in the imposition of an excise tax under the Code or a penalty under ERISA upon the disqualified person or party in interest with respect to the ERISA or Non-ERISA Plan or IRA. If the disqualified person who engages in the transaction is the individual on behalf of whom an IRA is maintained (or his beneficiary), the IRA may lose its tax-exempt status and its assets may be deemed to have been distributed to such individual in a taxable distribution (and no excise tax will be imposed) on account of the prohibited transaction. Fiduciary shareholders should consult their own legal advisers if they have any concern as to whether the investment is a prohibited transaction. -20- Special Fiduciary and Prohibited Transactions Considerations. On November 13, 1986 the Department of Labor ("DOL"), which has certain administrative responsibility over ERISA Plans as well as over IRAs and other Non-ERISA Plans, issued a final regulation defining "plan assets." The regulation generally provides that when an ERISA or non-ERISA Plan or IRA acquires a security that is an equity interest in an entity and that security is neither a "publicly offered security" nor a security issued by an investment company registered under the Investment Company Act of 1940, the ERISA or Non-ERISA Plan's or IRA's assets include both the equity interest and an undivided interest in each of the underlying assets of the entity, unless it is established either that the entity is an operating company or that equity participation in the entity by benefit plan investors is not significant. The regulation defines a publicly offered security as a security that is "widely held," "freely transferable" and either part of a class of securities registered under the Securities Exchange Act of 1934, or sold pursuant to an effective registration statement under the Securities Act of 1933 (provided the securities are registered under the Securities Exchange Act of 1934 within 120 days after the end of the fiscal year of the issuer during which the offering occurred). The Company's shares have been registered under the Securities Exchange Act of 1934. The regulation provides that a security is "widely held" only if it is part of a class of securities that is owned by 100 or more investors independent of the issuer and of one another. However, a security will not fail to be "widely held" because the number of independent investors falls below 100 subsequent to the initial public offering as a result of events beyond the issuer's control. The regulation provides that whether a security is "freely transferable" is a factual question to be determined on the basis of all relevant facts and circumstances. The regulation further provides that, where a security is part of an offering in which the minimum investment is $10,000 or less, certain restrictions ordinarily will not, alone or in combination, affect a finding that such securities are freely transferable. The restrictions on transfer enumerated in the regulation as not affecting that finding include: any restriction on or prohibition against any transfer or assignment which would result in a termination or reclassification of the Company for Federal or state tax purposes, or would otherwise violate any state or Federal law or court order; any requirement that advance notice of a transfer or assignment be given to the Company and any requirement that either the transferor or transferee, or both, execute documentation setting forth representations as to compliance with any restrictions on transfer which are among those enumerated in the regulation as not affecting free transferability, including those described in the preceding clause of this sentence; any administrative procedure which establishes an effective date, or an event prior to which a transfer or assignment will not be effective; and any limitation or restriction on transfer or assignment which is not imposed by the issuer or a person acting on behalf of the issuer. The Company believes that the restrictions imposed under the Declaration on the transfer of shares do not result in the failure of the shares to be "freely transferable." Furthermore, the Company believes that at -21- present there exist no other facts or circumstances limiting the transferability of the shares which are not included among those enumerated as not affecting their free transferability under the regulation, and the Company does not expect or intend to impose in the future (or to permit any person to impose on its behalf) any limitations or restrictions on transfer which would not be among the enumerated permissible limitations or restrictions. However, the final regulation only establishes a presumption in favor of a finding of free transferability, and no guarantee can be given that the DOL or the Treasury Department will not reach a contrary conclusion. Assuming that the shares will be "widely held" and that no other facts and circumstances exist which restrict transferability of the shares, the Company has received an opinion of counsel that the shares should not fail to be "freely transferable" for purposes of the regulation due to the restrictions on transfer of the shares under the Declaration and that under the regulation the shares are publicly offered securities and the assets of the Company will not be deemed to be "plan assets" of any ERISA Plan, IRA or other Non-ERISA Plan that invests in the shares. If the assets of the Company are deemed to be plan assets under ERISA, (i) the prudence standards and other provisions of Part 4 of Title I of ERISA would be applicable to investments made by the Company; (ii) the person or persons having investment discretion over the assets of ERISA Plans which invest in the Company would be liable under the aforementioned Part 4 of Title I of ERISA for investments made by the Company which do not conform to such ERISA standards unless the Advisor registers as an investment adviser under the Investment Advisers Act of 1940 and certain other conditions are satisfied; and (iii) certain transactions that the Company might enter into in the ordinary course of its business and operation might constitute "prohibited transactions" under ERISA and the Code. Item 2. Properties. General. Approximately 77% of the Company's total investments are in nursing homes retirement centers and assisted living centers providing long-term care, 21% of the Company's total investments are in nursing homes with subacute and other specialty rehabilitation services and 2% are in other healthcare facilities. The Company believes that the physical plant of each of the facilities in which it has invested is suitable and adequate for its present and any currently proposed uses. At December 31, 1994, the Company had total real estate investments of approximately $807 million in 141 properties located in 27 states and with approximately 27 different lessees and mortgagors. -22- The following table summarizes certain information about the Properties as of December 31, 1994. All dollar figures are in thousands.
REAL ESTATE OWNED: No. of No. of Investment Minimum Location Facilities Beds/Units Amount Rent/Interest Nursing Homes with Subacute Services Connecticut 4 660 $44,805 $5,709 Louisiana 1 118 24,376 3,065 Massachusetts 5 762 82,058 10,044 Pennsylvania 1 120 15,598 1,951 Long-Term Care and Retirement Facilities Arizona 5 616 28,062 2,404 California 10 1,542 58,874 6,597 Colorado 6 756 20,532 2,570 Connecticut 5 867 40,231 4,803 Florida 5 1,522 131,991 9,986 Illinois 2 593 39,453 2,018 Iowa 10 676 14,678 1,709 Kansas 1 83 2,270 252 Maryland 1 351 33,080 4,054 Missouri 2 215 3,235 498 Ohio 2 400 9,872 1,183 South Dakota 3 381 7,589 914 Texas 1 145 12,411 1,213 Virginia 3 848 57,662 5,817 Washington 1 143 5,193 611 Wisconsin 7 1,026 28,989 3,192 Wyoming 4 295 8,197 920 Other HealthCare Facilities California 1 0 3,927 503 -- ------- --------- ------- Total Real Estate: 80 12,119 $673,083 $70,013 == ====== ======== ======= MORTGAGE INVESTMENTS: Long-Term Care and Retirement Facilities California 6 1,011 $17,204 $1,934 Colorado 5 389 14,019 1,564 Florida 1 58 960 124 Georgia 5 650 8,167 921 Iowa * * 51 207 Kansas 3 346 6,468 686 Kentucky 1 90 1,365 180 Michigan 2 342 9,400 1,081 Nebraska 12 834 17,700 1,835 -23- North Carolina 8 759 13,780 1,613 Ohio* 5 719 15,253 1,667 Pennsylvania 1 120 2,811 313 South Carolina 1 102 901 101 Tennessee 1 78 1,013 123 Texas 6 556 4,755 599 Wisconsin 2 366 9,683 2,005 Other Healthcare Facilities Kentucky 1 94 7,368 2,645 North Carolina 1 64 2,579 882 -- ----- ------ ------ Total Mortgages 61 6,578 $133,477 $18,480 == ===== ======== =======
* Amounts represent or include notes receivable related to improvements to owned property, above. -24- Item 3. Legal Proceedings. The Company may be subject to routine litigation in the ordinary course of business. It is not presently subject to any legal proceedings which would result in material losses to the Company. The Company knows of no proceedings contemplated by governmental authorities relating to the Company. Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of shareholders during the fourth quarter of the year covered by this Form 10-K. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. The Company's Shares are traded on the New York Stock Exchange (symbol: HRP). The following table sets forth for the periods indicated the high and low sale prices for the Shares as reported in the New York Stock Exchange Composite Transactions reports. High Low 1993 First Quarter........... 15 11 3/8 Second Quarter.......... 14 12 Third Quarter........... 15 1/8 12 1/2 Fourth Quarter.......... 16 3/4 14 1994 First Quarter........... 16 3/8 14 3/8 Second Quarter.......... 15 3/8 14 Third Quarter........... 15 3/4 14 1/4 Fourth Quarter.......... 14 7/8 13 The closing price of the Shares on the New York Stock Exchange on March 3, 1995 was $14.50. As of March 3, 1995, there were 3,815 holders of record of the Shares and the Company estimates that as of such date there were in excess of 60,000 beneficial owners of the Shares. Dividends declared with respect to each period for the two most recent fiscal years and the amount of such dividends and the respective annualized rates are set forth in the following table. -25- Annualized Dividend Dividend Per Share Rate 1993 First Quarter...... $.32 $1.28 Second Quarter..... .32 1.28 Third Quarter...... .33 1.32 Fourth Quarter..... .33 1.32 1994 First Quarter...... .33 1.32 Second Quarter..... .33 1.32 Third Quarter...... .33 1.32 Fourth Quarter..... .34 1.36 All dividends declared have been paid. The Company intends to continue to declare and pay future dividends on a quarterly basis. In order to qualify for the beneficial tax treatment accorded to REITs by Sections 856 through 860 of the Code, the Company is required to make distributions to shareholders which annually will be at least 95% of the Company's "real estate investment trust taxable income" (as defined in the Code). All distributions will be made by the Company at the discretion of the Board of Trustees and will depend on the earnings of the Company, funds from operations, the financial condition of the Company and such other factors as the Board of Trustees deems relevant. The Company has in the past distributed, and intends to continue to distribute, substantially all of its "real estate investment trust taxable income" to its shareholders. -26- Item 6. Selected Financial Data. Set forth below are selected financial data for the Company for the periods and dates indicated. This data should be read in conjunction with, and is qualified in its entirety by reference to, the financial statements and accompanying notes included elsewhere in this Form 10-K. Amounts are in thousands, except per Share information.
Year Ended December 31, 1990 1991 1992 1993 1994 Operating Statement Data: Total revenues........ $32,872 $43,835 $48,735 $56,485 $86,683 Income before gain (loss) on sale of properties and extraordinary items 14,280 22,079 27,243 37,738 57,878 Income before extraordinary items 14,280 22,079 27,243 37,738 51,872 Net income............ 14,280 22,079 27,243 33,417 49,919 Funds from operations(1) 19,467 30,059 36,853 47,578 73,846 Dividends declared.... 18,927 27,179 33,079 44,869 76,317 Per Share: Income before gain (loss) on sale of proeprties and extraordinary items .89 1.01 1.02 1.10 1.10 Income before extraordinary items .89 1.01 1.02 1.10 .98 Net income.......... .89 1.01 1.02 .97 .95 Funds from operations(1) 1.21 1.38 1.38 1.38 1.40 Dividends declared.. 1.17 1.23 1.26 1.30 1.33 Average Shares Outstanding......... 16,088 21,834 26,760 34,407 52,738 Balance Sheet Data: Real estate properties at cost $200,839 $281,766 $337,076 $384,881 $673,083 Real estate mortgages 87,061 31,760 47,173 157,281 133,477 Total assets 290,099 340,718 374,468 527,662 840,206 Total indebtedness 125,500 103,000 138,500 73,000 216,513 Total shareholders' equity 147,760 234,427 228,301 441,135 602,039
(1) Funds from operations does not equal cash flow from operating activities as defined by generally accepted accounting principles and should not be considered an alternative to net income as an indication of the Company's performance or to cash as a measure of liquidity. Funds from operations means income before gain (loss) on sale of properties and extraordinary items plus depreciation and other non-cash items. Dividends in excess of net income generally constitute a return of capital. Item 7. Management's Discussion and Analysis of Financial -27- Condition and Results of Operations. Results of Operations Year Ended December 31, 1994 compared to Year Ended December 31, 1993 Total revenues for the year ended December 31, 1994 were $86.7 million, an increase of $30.2 million or 53% over the year ended December 31, 1993. Rental income increased to $63.9 million from $46.1 million and interest income increased to $22.8 million from $10.4 million. Rental income increased as a result of new purchase and lease investments, primarily a $33.4 million transaction in December 1993 and the $320 million retirement community transaction with Marriott International, Inc. (Marriott) in 1994. The growth in interest income is primarily the result of the full year impact of three loan pool acquisitions in 1993 and a mortgage transaction of $26.6 million in December 1993. Total expenses for 1994 increased to $28.8 million, from $18.7 million, in the comparable 1993 period. The increase of $10.1 million was due primarily to increases in interest of $2.7 million, advisory fees of $1.5 million, and depreciation and amortization of $5.6 million. The increases in advisory fees and depreciation and amortization are directly related to the Company's increased investments whereas interest increased due to both higher interest rates during the second half of 1994 and the issuance of $200 million senior notes in July 1994 in connection with the Marriott transaction. Income before gain (loss) on sale of properties and extraordinary items for 1994 increased to $57.9 million, or $1.10 per share, from $37.7 million, or $1.10 per share, in 1993. Per share amounts remained flat reflecting the issuance of nine million new shares of the Company's stock in December 1993 and 13.3 million new shares in 1994, as well as negative interest arbitrage resulting from unusually high cash balances caused by timing differences between receipt of proceeds from the note offering and the investment of those proceeds in real estate. Income before extraordinary items and net income in 1994 was $51.9 million ($.98 per share) and $49.9 million ($.95 per share), respectively, versus $37.7 million ($1.10 per share) and $33.4 million ($.97 per share), respectively, in 1993. On a per share basis, income before extraordinary items and net income decreased during 1994 primarily as a result of the new share issuances noted above and negative arbitrage noted above and the $10 million provision for the potential loss on the sale of two psychiatric hospitals. These two hospitals are HRP's only investments in the psychiatric industry and the loss is due to the general decline in value of such property. The Company's business plan is to maximize funds from operations rather than net income. The Company's Board of Trustees considers funds from operations, among other factors, when determining dividends to be paid to shareholders. Funds from operations means net income excluding gains or losses from debt restructuring and sales of property, plus depreciation. Cash flow provided by operating activities may not necessarily equal funds from operations as the cash flow of the Company -28- is affected by other factors not included in the funds from operations calculation such as changes in assets and liabilities. Funds from operations for the year ended December 31, 1994, was $73.9 million, or $1.40 per share, versus $47.6 million, or $1.38 per share, in 1993. Funds from operations for 1994 increased $26.3 million or 55% over the prior year. However, funds from operations per share increased only slightly as a result of nine million new shares of the Company's stock issued in December 1993 and 13.3 million new shares issued in 1994 and the negative arbitrage from large cash balances previously discussed. Dividends declared for the years ended December 31, 1994 and 1993 were $1.33 per share and $1.30 per share, respectively. Dividends in excess of net income constitute a return of capital. For 1994, the return of capital portion reported was 6.1% of dividends and 12.6% of dividends was considered a long term capital gain. Cash flow provided by (used for) operating, investing and financing activities were $78.3 million, ($261.8 million) and $229.4 million, respectively, for the year ended December 31, 1994 and $47.2 million, ($175.4 million) and $128.0 million, respectively in 1993. Year Ended December 31, 1993 compared to Year Ended December 31, 1992 Total revenues for the year ended December 31, 1993 were $56.5 million, an increase of $7.8 million or 16% over the year ended December 31, 1992. Rental income increased to $46.1 million from $43.0 million and interest income increased to $10.4 million from $5.7 million. Rental income increased as a result of new purchase lease investments, increases in additional rent, and improvement financings during 1993. The growth in interest income is primarily the result of the acquisition since December 1, 1992, of four pools of performing mortgage loans for $133.7 million with a principal balance at the time of acquisition of approximately $148.2 million. Net income for 1993 increased to $33.4 million, or $.97 per share, from $27.2 million, or $1.02 per share in the comparable 1992 period. The increase in net income of $6.2 million or 23% during the 1993 period was primarily the result of new investments discussed above and a decrease in total expenses of $2.7 million. On a per share basis, net income decreased slightly during 1993 primarily as a result of non- recurring charges related to the early extinguishment of debt. Debt was retired with the proceeds from the issuance of 10.35 million and nine million new shares of the Company's stock during the first and fourth quarters, respectively, of 1993. Total expenses for 1993 were $18.7 million, a decrease of 13% from $21.5 million for the comparable 1992 period. Interest expense decreased $3.2 million as a result of lower average bank borrowings and lower interest rates during the comparable periods. Depreciation and amortization expense remained flat reflecting the fact that the new mortgage investments occurred throughout the year and the significant purchase lease investments occurred near year end. -29- The Company's funds from operations for the years ended December 31, 1993, and 1992 was $47.6 million ($1.38 per share) and $36.9 million ($1.38 per share), respectively. Total funds from operations for 1993 increased $10.7 million or 29% over the prior year. However, on a per share basis, funds from operations remained unchanged, primarily as a result of the 19.4 million new shares of the Company's stock issued in 1993. Dividends declared for the years ended December 31, 1993 and 1992 were $1.30 per share and $1.26 per share, respectively. Dividends in excess of net income constitute a return of capital. For 1993, the return of capital portion was 26% of the dividends. Cash flow provided by (used for) operations, investing and financing activities were $47.2 million, ($175.4 million) and $128.0 million, respectively, for the year ended December 31, 1993, and $42.0 million, ($71.9 million) and $1.9 million, respectively, for the year ended December 31, 1992. Liquidity and Capital Resources Assets increased to $840.2 million as of December 31, 1994, from $527.7 million as of December 31, 1993. The increase of $312.5 million or 59% is primarily attributable to the increases in real estate properties, net, and cash and cash equivalents of $283.7 million and $45.9 million, respectively, net of a decrease in real estate mortgages and notes, net, of $23.8 million. The increase in real estate properties is the net result of the acquisition of 14 retirement communities in connection with the Marriott transaction, and the sale of three properties in connection with the February 11, 1994 merger of Greenery Rehabilitation Group, Inc. (Greenery) into Horizon Healthcare Corporation (Horizon). Cash increased as a result of mortgage prepayments and excess proceeds from the July debt offering. Real estate mortgages and notes, net, decreased principally due to the prepayment of mortgage investments totalling $48.7 million, net of new mortgage financings of $14.5 million. On February 11, 1994, in connection with the Horizon-Greenery merger, the Company sold to Horizon for $28.4 million three facilities that had been leased to Greenery. The Company realized a capital gain of approximately $4.0 million on the sale of these properties. In addition, Horizon has leased seven facilities previously leased to Greenery, on substantially similar terms except the leases were extended through 2005. The Company has granted Horizon a ten year option to buy the seven leased facilities, at the rate of no more than one facility per consecutive twelve months. The Company leased the three remaining Greenery facilities to a newly formed corporation, Connecticut Subacute Corporation, II (CSC II), an affiliate of HRPT Advisors, Inc. (Advisor). These facilities are being managed by and the lease payments are guaranteed by Horizon for a term of up to five years. The terms of these lease arrangements are substantially similar to the original lease arrangements with Greenery. In January 1995 Horizon exercised its option and purchased one of the seven leased properties from the Company for $24.5 million resulting in a capital gain of $2.5 million. The Company provided Horizon a 16 year $19.5 million mortgage in connection with this sale in 1995. -30- On February 11, 1994, in connection with the Horizon-Greenery merger, the Company provided Horizon with $9.4 million first mortgage financing for two facilities. One of the facilities previously was owned by the Company and leased to Greenery. The mortgage notes bear interest at 11.5% per annum and mature December 31, 2000. During 1994 the Company received net proceeds of approximately $182.4 million from the public offering of 13,251,500 shares of beneficial interest (including the underwriter's over-allotment). A portion of the proceeds were used to repay the outstanding balance of $73 million on the Company's revolving credit facility and the remainder was used to fund part of the Marriott transaction. On September 9, 1994, the Company completed its acquisition of 14 retirement communities containing 3,952 residencies or beds for $320 million. These communities are triple net leased through December 31, 2013 to a wholly owned subsidiary of Marriott International Inc. The leases provide for fixed rent and additional rentals equal to a percentage of annual revenues from operations in excess of base amounts determined on a facility by facility basis. All of the leases are subject to cross default provisions and are guaranteed by Marriott. This transaction was funded from cash on hand, the proceeds of an equity offering discussed above, drawings under the Company's revolving credit facility, assumption of $17.6 million of existing debt bearing interest at 7.75% and a portion of the proceeds from a note offering described below. On July 13, 1994, the Company received net proceeds of $197.3 million from the offering of $200 million floating rate senior notes due in 1999. The notes were issued in two series, A and B, which may be called by the Company beginning April 13, 1995 and July 13, 1996, respectively. The weighted average interest rate is LIBOR plus 84 basis points. A portion of these proceeds were used to fund part of the Marriott transaction and to repay $56 million in borrowings under the Company's revolving credit facility. The Company retained the balance to fund future real estate acquisitions. The Company has interest rate cap agreements which provide for maximum weighted average interest rates of approximately 6.85% on its variable rate debt. This senior note offering was drawn under a shelf registration statement for the offering of up to $345 million of debt securities, preferred shares of beneficial interest, common shares of beneficial interest and common share warrants. An additional $145 million of securities may be issued under this registration statement. At December 31, 1994, the Company had $59.8 million of cash and cash equivalents. The Company's $170 million revolving credit facility was undrawn at December 31, 1994. The facility matures in 1997 and bears interest at a spread over LIBOR. As of December 31, 1994, the Company had extended commitments to provide financing totalling approximately $58.1 million. In addition to completing certain of these committed transactions in early 1995 as described below, the Company also entered into several additional commitments. -31- On January 24, 1995, the Company provided first mortgage financing of $11.5 million due in 2007, secured by four assisted living properties and operated by a newly created health care operating company. The borrower has provided a $1 million cash security deposit, to guarantee its obligations to the Company. On January 31, 1995, the Company acquired nine nursing facilities for approximately $32 million. The facilities have been leased to two newly formed corporations which are affiliates of the Company. The purchase price paid was approximately $8.1 million in cash and 1.8 million shares of the Company's common stock. The Company entered into a commitment to purchase and lease 11 nursing properties for $18 million and provide first mortgage financing of $2 million secured by three nursing properties, to a subsidiary of an existing tenant, on terms substantially similar to the Company's existing lease and mortgage agreements with that tenant. The acquisition is expected to close in April 1995. The Company entered into an commitment to purchase and lease 14 nursing properties for approximately $45 million subject to adjustment, located in the United Kingdom, on terms substantially similar to the Company's existing lease agreements. The Company expects to fund this investment by borrowing in British sterling and has recently amended its bank credit facility to permit such borrowings. By borrowing in the same currency as it invests in, the Company believes it can reduce the impact of fluctuations in relative currency values. The acquisition is expected to close in installments beginning in April 1995 with the entire transaction being completed by December 1995. The Company entered into a purchase and lease agreement with Host Marriott Corporation (Host Marriott) for 21 Courtyard by Marriott hotel properties for approximately $179.4 million, subject to adjustment. The properties are leased for an initial term of 12 years, with renewal options of an additional 37 years to a subsidiary of Host Marriott and are managed by a subsidiary of Marriott International. An amount equal to one year's rent was withheld from the purchase price to secure the tenant's obligations to the Company. The transaction closed in March 1995. The Company funded and intends to fund these commitments with a combination of cash on hand, amounts available under its existing credit facilities, proceeds of mortgage prepayments, if any, and/or proceeds of other financings such as the possible issuance of additional securities in connection with the shelf registration statement described above. The Company's investment in hotel properties does not represent a change in the Company's strategy of focusing on investments in long term care and retirement facilities. Rather, this investment, structured as a triple net lease, will represent only approximately 15% of the portfolio upon closing. The facilities are new, having been constructed within the last five years, and occupancy and cash flow coverage are strong. Following the announcement of this investment, Moody's downgraded the Company's debt rating and S&P and Fitch maintained their -32- ratings. The Company believes, despite the negative reaction by Moody's, that this transaction will enhance the security and growth potential of its funds from operations. The Company continues to seek new investments to expand and diversify its portfolio of leased and mortgaged health care, retirement and related real estate. The Company believes that the transactions described above improve the security of its future cash flow and dividends. The Company intends to balance the use of debt and equity in such a manner that the long term cost of funds borrowed to acquire or mortgage finance facilities is appropriately matched, to the extent practicable, with the terms of the investments made with such borrowed funds. As of December 31, 1994, the Company's debt as a percentage of total capitalization was approximately 26%. Impact of Inflation Management believes that the Company is not adversely affected by inflation. In the real estate market, inflation tends to increase the value of the Company's underlying real estate which may be realized at the end of the lessees' fixed terms. In the health care and hotel industries, inflation increases the lessees' and mortgagors' revenues, thereby increasing the Company's additional rent or interest. At December 31, 1994, increases in interest rates on all of the Company's outstanding debt were capped by the use of interest rate cap agreements. The Company has interest rate cap agreements which provide for maximum weighted average interest rates of approximately 6.85% on its variable rate debt. Item 8. Financial Statements and Supplementary Data The financial statements and related notes and report of independent auditors for the Company are included following Part IV, beginning on page F-1, and identified in the index appearing at Item 14(a). The financial statements for Marriott are incorporated by reference to Marriott's Annual Report on Form 10-K for the year ended December 30, 1994, Commission File No. 1-12188. The financial statements and financial statement schedules for Horizon are incorporated by reference to Horizon's Annual Report on Form 10-K for the year ended May 31, 1994, Commission File No. 1-9369 and Horizon's Quarterly Report on Form 10-Q for the quarter ended November 30, 1994, Commission File No. 1-9369. The financial statements and financial statement schedules for Grancare are incorporated by reference to Grancare's Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 0- 19571. Item 9. Changes in and Disagreements on Accounting and Financial Disclosure Not applicable PART III -33- The information in Part III (Items, 10, 11, 12 and 13) is incorporated by reference to the Company's definitive Proxy Statement, which will be filed not later than 120 days after the end of the Company's fiscal year. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) Index to Financial Statements and Financial Statement Schedules HEALTH AND RETIREMENT PROPERTIES TRUST Page Report of Ernst & Young LLP, Independent Auditors F-1 Balance Sheets as of December 31, 1993 and 1994 F-2 Statements of Income for the years ended December 31, 1992, 1993 and 1994 F-3 Statements of Shareholders' Equity for the years ended December 31, 1992, 1993 and 1994 F-4 Statements of Cash Flows for the years ended December 31, 1992, 1993 and 1994 F-5 Notes to Financial Statements F-6 The following financial schedules are included: III -- Real Estate and Accumulated Depreciation F-16 IV -- Mortgage Loans on Real Estate F-18 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. Exhibits: 3.1 - July 1994 Amended and Restated Declaration of Trust (3) 3.2 - Amended and Restated By-Laws (1) 4.1 - Form of Series A Note (2) 4.2 - Form of Series B Note (2) 4.3 - Shawmut Bank, N.A. Indenture dated as of June 1, 1994 (2) 4.4 - Supplemental Shawmut Bank, N.A., Indenture dated as of June 29, 1994 (2) 9.1 - AMS Voting Trust Agreement (9) 9.2 - Amended and Restated AMS Voting Trust Agreement (4) 10.1 - Advisory Agreement, as amended (10)(+) 10.2 - Second Amendment to Advisory Agreement (5)(+) 10.3 - Incentive Share Award Plan (6)(+) 10.4 - Master Lease Document (8) 10.5 - HRPT Shares Pledge Agreement (8) 10.6 - AMS Properties Security Agreement (8) 10.7 - AMS Subordination Agreement (8) -34- 10.8 - AMS Guaranty (8) 10.9 - AMS Pledge Agreement (pledging shares of AMSP) (8) 10.10 - AMS Holding Co. Pledge Agreement (pledging shares of AMS) (7) 10.11 - Amended and Restated Renovation Funding Agreement (7) 10.12 - Amendment to AMS Transaction Documents (7) 10.13 - GCI Master Lease Document (6) 10.14 - Amended and Restated HRP Shares Pledge Agreement (6) 10.15 - Guaranty, Cross-Default and Cross-Collateralization Agreement (6) 10.16 - CSC $8,000,000 Working Capital Promissory Note (6) 10.17 - Marriott Senior Living Services Purchase and Sale Agreement (5) 10.18 - Connecticut Subacute Corporation II Lease Document Waterbury (1) 10.19 - Connecticut Subacute Corporation II Lease Document - Cheshire (1) 10.20 - Connecticut Subacute Corporation II Lease Document - New Haven (1) 10.21 - Vermont Subacute/New Hampshire Subacute Corporation Master Lease Agreement (Chapple) (1) 10.22 - Amended and Restated Agreement and Plan of Reorganization (Chapple) (1) 10.23 - March 1995 Second Amended and Restated Revolving Loan Agreement (1) 10.24 - Purchase Option Agreement (1) 12.1 - Earnings to Fixed Charges (1) 21.1 - Subsidiaries of the Registrant (1) 23.1 - Consent of Ernst & Young (1) 23.2 - Consent of Arthur Andersen LLP (Horizon) (1) 25.1 - Powers of Attorney (1) 27.1 - Financial Data Schedule (1) (+) Management contract or compensatory plan or arrangement (1) Filed herewith. (2) Incorporated by reference to the Company's Registration Statement on Form 8-A dated July 11, 1994. (3) Incorporated by reference to the Company's Current Report on Form 8-K dated July 1, 1994 and amendments thereto. (4) Incorporated by reference to the Company's Registration Statement on Form S-3 dated June 2, 1994. (5) Incorporated by reference to the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1993. (6) Incorporated by reference to the Company's Registration Statement No. 33-55684 on Form S-11 dated December 23, 1992 and amendments thereto. -35- (7) Incorporated by reference to the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1991. (8) Incorporated by reference to the Company's Current Report on Form 8-K dated December 28, 1990 and amendments thereto. (9) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1990 and amendments thereto. (10) Incorporated by reference to the Company's Registration Statement No. 33-16799 on Form S-11 dated August 27, 1987 and amendments thereto. (b) Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of the period covered by this report. -36- REPORT OF INDEPENDENT AUDITORS To the Trustees and Shareholders Health and Retirement Properties Trust We have audited the accompanying balance sheets of Health and Retirement Properties Trust as of December 31, 1994 and 1993, and the related statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1994. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Health and Retirement Properties Trust at December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Boston, Massachusetts February 9, 1995 F-1
HEALTH AND RETIREMENT PROPERTIES TRUST BALANCE SHEETS (Dollars in thousands, except share amounts) December 31, 1993 1994 ASSETS Real estate properties, at cost (including properties leased to affiliates with a cost of $217,947 and $69,545 respectively): Land $ 33,450 $ 63,186 Buildings and improvements 351,361 609,897 -------- -------- 384,811 673,083 Less accumulated depreciation 34,969 39,570 ------- ------- 349,842 633,513 Real estate mortgages and notes, net 157,281 133,477 Cash and cash equivalents 13,887 59,766 Interest and rents receivable 3,039 4,712 Deferred interest and finance costs, net, and other assets 3,613 8,738 -------- -------- $527,662 $840,206 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Bank notes payable $ 73,000 $ - Notes and bonds payable, net - 216,513 Accounts payable and accrued expenses 4,518 16,346 Security deposits 8,300 3,800 Due to affiliate 709 1,508 Commitments Shareholders' equity: Preferred shares of beneficial interest, $.01 par value; 50,000,000 shares authorized, none issued - - Common shares of beneficial interest, $.01 par value; 100,000,000 shares authorized, 44,121,000 shares and 57,385,000 shares issued and outstanding, respectively 441 574 Additional paid-in capital 470,572 652,989 Cumulative net income 118,889 168,808 Dividends (148,767) (220,332) --------- --------- F-2 Total shareholders' equity 441,135 602,039 -------- -------- $527,662 $840,206 ======== ========
See accompanying notes F-3
HEALTH AND RETIREMENT PROPERTIES TRUST STATEMENTS OF INCOME (Amounts in thousands, except per share amounts) Year Ended December 31, 1992 1993 1994 Revenues: Rental income $43,029 $46,069 $63,856 Interest income 5,706 10,416 22,827 ------- ------- ------- Total revenues 48,735 56,485 86,683 ------- ------- ------- Expenses: Interest 9,466 6,217 8,965 Depreciation and amortization 9,076 9,087 14,724 General, administrative and advisory 2,950 3,443 5,116 ------- ------- ------ Total expenses 21,492 18,747 28,805 ------- ------- ------ Income before gain (loss) on sale of properties and extraordinary items 27,243 37,738 57,878 Provision for loss on sale of properties - - (10,000) Gain on sale of properties - - 3,994 ------ ------ ------- Income before extraordinary items 27,243 37,738 51,872 Extraordinary items - early extinguishment of debt - (4,321) (1,953) ------- ------- ------- Net income $27,243 $33,417 $49,919 ======= ======= ======= Weighted average shares outstanding 26,760 34,407 52,738 ====== ======= ======= Per share amounts: Income before gain (loss) on sale of properties and extraordinary items $ 1.02 $ 1.10 $ 1.10 ======= ======= ======= Income before extraordinary items $ 1.02 $ 1.10 $ .98 ======= ======= ======= Net income $ 1.02 $ .97 $ .95 ======= ======= =======
See accompanying notes F-4
HEALTH AND RETIREMENT PROPERTIES TRUST STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in thousands) Additional Cumulative Number of Common Paid-in Net Shares Shares Capital Income Dividends Total Balance at December 31, 1991 26,755,000 $268 $246,378 $58,229 $(70,448) $234,427 Expenses related to the issuance of common shares of beneficial interest - - (15) - - (15) Exercise of stock options 1,000 - 8 - - 8 Stock grants 7,500 - 88 - - 88 Net income - - - 27,243 - 27,243 Dividends($1.26 per share) - - - - ( 33,450) ( 33,450) ---------- ------ --------- -------- -------- -------- Balance at December 31, 1992 26,763,500 268 246,459 85,472 (103,898) 228,301 Redemption of common shares of beneficial interest (2,000,000) (20) ( 20,580) - - (20,600) Issuance of common shares of beneficial beneficial interest 19,350,000 193 244,599 - - 244,792 Stock grants 7,500 - 94 - - 94 Net income - - - 33,417 - 33,417 Dividends ($1.29 per share) - - - - (44,869) (44,869) ---------- ------ --------- -------- -------- -------- Balance at December 31, 1993 44,121,000 441 470,572 118,889 (148,767) 441,135 Issuance of common shares of beneficial interest 13,251,500 133 182,233 - - 182,366 Stock grants 12,500 - 184 - - 184 Net income - - - 49,919 - 49,919 Dividends ($1.32 per share) - - - - (71,565) ( 71,565) ---------- ------ --------- -------- -------- -------- Balance at December 31, F-5 1994 57,385,000 $574 $652,989 $168,808 $(220,332) $602,039 ========== ====== ========= ======== ========= ========
See accompanying notes F-6
HEALTH AND RETIREMENT PROPERTIES TRUST STATEMENTS OF CASH FLOWS (Dollars in thousands) Year Ended December 31, 1992 1993 1994 Cash flows from operating activities: Net income $ 27,243 $ 33,417 $ 49,919 Adjustments to reconcile net income to cash provided by operating activities: Gain on sale of properties - - (3,994) Extraordinary items - 4,321 1,953 Depreciation and amortization 9,076 9,087 14,724 Provision for loss on real estate - - 10,000 Amortization of deferred interest costs 534 700 864 Increase (decrease) in security deposits 4,500 3,800 (4,500) Change in assets and liabilities: (Increase) decrease in interest and rents receivable and other assets 735 (6,156) (3,259) Increase in accounts payable and accrued expenses 1,219 1,554 11,828 Increase (decrease) in due to affiliate (1,343) 506 799 -------- -------- --------- Cash provided by operating activities 41,964 47,229 78,334 -------- -------- --------- Cash flows from investing activities: Real estate acquisitions (52,287) (47,735) (324,554) Investments in mortgage loans (22,049) (143,935) (9,372) Proceeds from repayment of mortgage loans 2,476 16,227 48,762 Proceeds from sale of real estate - - 23,318 -------- -------- --------- Cash used for investing activities (71,860) (175,443) (261,846) -------- -------- --------- Cash flows from financing activities: Proceeds from (cost of) issuance of common shares (7) 244,792 182,366 Proceeds from borrowings 35,500 98,700 333,770 Payments on borrowings - (164,200) (208,000) Deferred finance costs (126) (583) (7,180) Termination costs of debt and interest rate hedging arrangements - (2,843) - Payment related to stock surrender - (3,000) - Dividends paid (33,450) (44,869) (71,565) -------- -------- --------- Cash provided by financing activities 1,917 127,997 229,391 -------- -------- --------- Increase (decrease) in cash (27,979) (217) 45,879 Cash and cash equivalents at beginning of period 42,083 14,104 13,887 -------- -------- --------- Cash and cash equivalents at end of period $ 14,104 $ 13,887 $ 59,766 ======== ======== ========= F-7 Supplemental cash flow information: Interest paid $ 7,330 $ 6,522 $ 5,677 ======= ======== ========= Non-cash investing and financing activities: Exchange of real estate mortgages $ 4,160 $ 17,600 $ - Investment in real estate mortgages - - (5,100) Exchange of common shares - (17,600) - Assumption of bonds payable - - 17,620 Real estate acquisitions (38,160) - (17,620) Sale of real estate - - 5,100 Real estate exchanged 34,000 - - Restricted stock grants 24 53 141
See accompanying notes F-8 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) Note 1. Organization Health and Retirement Properties Trust (formerly known as Health and Rehabilitation Properties Trust), a Maryland real estate investment trust (the Company), was organized on October 9, 1986. The Company invests in income-producing real estate, primarily health care related properties. Note 2. Summary of Significant Accounting Policies Real estate properties and mortgages. Real estate properties and mortgages are recorded at cost. Depreciation is provided for on a straight-line basis over the estimated useful lives ranging up to 40 years. If the estimated net realizable value of an investment is less than the carrying value, an allowance for possible investment loss is established. The determination of net realizable value includes consideration of many factors including income to be earned from the investment, holding costs, estimated selling prices, and prevailing economic conditions. Cash and cash equivalents. Cash, over-night repurchase agreements and short-term investments with maturities of three months or less at date of purchase are carried at cost plus accrued interest. Deferred interest and finance costs. Costs incurred to secure certain borrowings are capitalized and amortized over the terms of their respective loans. Interest rate hedging arrangements. The Company enters into interest rate hedging arrangements to limit the exposure to increasing interest rates with respect to its bank borrowings and notes payable. Their cost is included in interest expense ratably over the terms of the respective agreements. Amounts receivable from hedging arrangements are accrued as an adjustment to interest expense. The unamortized cost of these agreements is included in other assets. Revenue recognition. Rental income from operating leases is recognized on a straight line basis over the life of the lease agreements. Interest income is recognized as earned over the terms of the real estate mortgages. Additional rent and interest revenue is recognized as earned. Net income per share. Net income per share is computed using the weighted average number of shares outstanding during the period. Supplemental earnings per share for the years ended December 31, 1993 and 1994, was $.91 and $.93, respectively, based on the assumption that the issuance of shares in the Company's public offerings during 1993 and 1994, and the related repayment of outstanding bank borrowings, took place at the beginning of each year. F-9 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) Reclassifications. Certain reclassifications have been made to the prior year financial statements to conform with the current year's presentation. Federal income taxes. The Company is a real estate investment trust under the Internal Revenue Code of 1986, as amended. Accordingly, the Company expects not to be subject to federal income taxes on amounts distributed to shareholders provided it distributes at least 95% of its real estate investment trust taxable income and meets certain other requirements for qualifying as a real estate investment trust. Note 3. Real estate properties. The Company's real estate properties are leased pursuant to noncancellable, fixed term operating leases expiring from 1996 to 2013. The leases generally provide for renewal terms at existing rates followed by several market rate renewal terms. Each lease is a triple net lease and generally requires the lessee to pay minimum rent, additional rent based upon increases in net patient revenues and all operating costs associated with the leased property. Additional rent and interest for the years ended December 31, 1992, 1993 and 1994 were $1,809, $2,312, and $2,768, respectively. During 1994, the Company acquired 14 retirement communities, two nursing properties and a medical laboratory building for an aggregate purchase price of approximately $326,350. The 14 retirement communities are leased to a subsidiary of Marriott International, Inc. (together with its subsidiaries, "Marriott") and the lease obligation is guaranteed by Marriott through the year 2013. The obligations of Marriott are cross defaulted, cross guaranteed and cross secured. In the event Marriott's debt rating decreases to below "investment grade", Marriott is required to provide the Company a cash security deposit of approximately $6,911. In addition, during 1994 the Company terminated the leases on thirteen properties. Seven of these properties have been leased to Horizon Healthcare Corporation (Horizon) on substantially similar terms, with the leases extended through 2005, and the Company has granted Horizon a ten year option to buy the seven properties, at the rate of no more than one property per consecutive twelve month period. Three of the properties have been leased to a newly formed corporation, an affiliate of HRPT Advisors, Inc. ("Advisor"), on substantially similar terms. These three properties are being managed by, and the lease payments are guaranteed by, Horizon for a term of up to five years. The three remaining properties were sold for approximately $28,400. The Company realized a gain of approximately $3,994 on the sale. In January, 1995, Horizon purchased one of the seven leased properties from F-10 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) the Company for $24,500 and the Company realized a gain of approximately $2,476. The Company provided Horizon a $19,500 mortgage with a maturity of 2010 in connection with the sale of the property. The various leases and mortgages with another lessee, GranCare, Inc. (together with its subsidiaries, "GranCare") are secured by the pledge to the Company of 1,000,000 shares of the Company's common stock held by Grancare and substantially all the assets of the special operating subsidiaries. All obligations of GranCare are cross defaulted, cross guaranteed and cross secured. The leases, mortgages and note due to the Company by Community Care of America ("CCA") and its subsidiaries are secured by a $3,800 cash security deposit, by a pledge of substantially all the assets of certain of the operating CCA subsidiaries and by a guarantee from the parent corporation. Substantially all of the CCA obligations are cross defaulted, cross guaranteed and cross secured. The future minimum lease payments to be received by the Company during the current terms of the leases as of December 31, 1994, are approximately $70,422 in 1995, $70,397 in 1996, $65,305 in 1997, $65,046 in 1998, $60,640 in 1999 and $636,377 thereafter. Note 4. Real Estate Mortgages and Notes, net December 31, 1993 1994 Mortgage notes receivable, net of discounts of $11,951 and $5,817, respectively, due July 1995 through December 2016 $124,367 $ 92,560 Mortgage note receivable due December 2016 13,600 13,600 Amount due on investment held for sale, net of reserve of $10,000 - 9,947 Mortgage note receivable due December 2000 10,283 9,683 Secured note due December 2016 7,000 7,000 Other secured notes receivable 816 687 Loan to an affiliate 1,215 - $157,281 $133,477 At December 31, 1994, the interest rates on the mortgages range from 6.6% to 13.75%. During 1994, the Company provided two mortgage loans secured by two properties for $9,400. One of these properties was previously owned by the Company. In addition, 23 mortgage loans, secured by 19 properties, F-11 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) with outstanding principal balances aggregating approximately $48,667 were repaid. In the fourth quarter of 1994, the Company agreed to sell its two psychiatric properties to the current operator, with a financial effect of September 1, 1994 ("Sale Date"). The sales price is being determined by a judicially supervised appraisal process and payments made to the Company, subsequent to Sale Date, on this investment, are being classified as interest and principal. Accordingly, at December 31, 1994, the Company has classified these properties as a mortgage receivable and has made a provision for a loss on this investment of approximately $10,000. Note 5. Shareholders' Equity During January 1994 and May 1994, the Company issued 601,500 and 12,650,000 common shares of beneficial interest, respectively, and received net proceeds of approximately $8,301 and $174,065, respectively. In October, 1994, the Company adopted a Shareholders Rights Plan ("Plan") and declared a dividend of one right for each outstanding common share of beneficial interest ("Right"). Each Right entitles the holder to purchase one one-hundredth of a preferred share of beneficial interest, $.01 par value, or in certain circumstances, to receive cash, property, common shares or other securities of the Company, at a purchase price of $50 per one-hundredth of a preferred share, subject to adjustment. Upon the occurrence of certain events the holder of the Right will be entitled to acquire common shares at 50% of the then current market value of the shares. The Rights expire on October 17, 2004 and are redeemable at the Company's option at any time at $.01 per Right. The Company has reserved 1,000,000 shares of the Company's stock, under the terms of the 1992 Incentive Share Award Plan ("Award Plan"). The Award Plan provides for the grant of the Company's stock to selected officers, Trustees and others rendering valuable services to the Company. During 1992, 1993 and 1994, 6,000, 6,000 and 11,000 shares, respectively, were granted to officers of the Company and certain employees of Advisors and 500 shares, annually, were granted to each of the three Independent Trustees, as part of their annual fee. The shares granted to the Trustees vest immediately. The shares granted to others vest over a three year period. At December 31, 1994, 972,500 shares of the Company remain reserved for issuance under the Award Plan. Note 6. Financing Commitments At December 31, 1994, the Company had total commitments aggregating $58,148, of which $8,603 is committed to finance improvements to certain F-12 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) properties leased or mortgaged by the Company. During 1994, the Company funded approximately $11,088 of such improvements. Note 7. Transactions With Affiliates The Company has an agreement with the Advisor whereby the Advisor provides investment, management and administrative services to the Company. The Advisor is owned by Gerard M. Martin and Barry M. Portnoy. Messrs. Martin and Portnoy are directors of Horizon, shareholders of Connecticut Subacute Corporation ("CSC") and Connecticut Subacute Corporation II ("CSCII"), lessees of the Company, and are Managing- Trustees of the Company. The Company has extended a $4,000 line of credit to CSC until June 30, 1995. At December 31, 1994, there were no amounts outstanding under this agreement. Mr. Portnoy is a partner in the law firm which provides legal services to the Company and was a minority shareholder of the owner of Continuing Health Care Corporation, a company which formerly leased or mortgaged properties from the Company. Mr. Martin, until February 1994, was the majority shareholder of Greenery Rehabilitation Group, Inc. ("Greenery"), one of the Company's original sponsors and major tenant. The Advisor is compensated at an annual rate equal to .7% of the Company's real estate investments up to $250 million and .5% of such investments thereafter. The Advisor is entitled to an incentive fee comprised of restricted shares of the Company's common stock based on a formula. Advisory fees for the years ended December 31, 1992, 1993 and 1994 were $2,231, $2,591 and $3,839, respectively. Incentive fees for 1994 were $239 which represents approximately 17,869 common shares. At December 31, 1994, the Advisor owned 996,250 common shares. Amounts resulting from transactions with affiliates included in the accompanying statements of income, shareholders' equity and cash flows are as follows:
F-13 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) Year Ended December 31, 1992 1993 1994 Dividends paid to the Advisor $ 1,245 $ 1,285 $1,315 Dividends paid to Continuing Health and affiliates 2,500 - - Rent from Greenery 17,531 22,527 2,689 Rent and interest income from CSC 929 4,483 4,835 Rent from CSC II - - 3,646 Rent and interest income from Continuing Health and affiliates 10,218 - - Interest expense paid to Greenery 31 270 -
Note 8. Indebtedness December 31, 1993 1994 Term loan payable, repaid in February 1994 $ 33,000 $ - $40,000 revolving line of credit, repaid in February 1994 40,000 - $170,000 unsecured revolving credit facility, due August 1998, interest based on LIBOR - - Senior Notes, Series A due July 1999 at LIBOR plus 1.05% - 75,000 Senior Notes, Series B, due July 1999 at LIBOR plus .72% - 125,000 Revenue Refunding Bonds, Series 1991A, due August 2010 at 7.75% - 13,950 Revenue Refunding Bonds, Series 1991B, due August 2009 at 7.75% - 3,670 -------- --------- 73,000 217,620 Less unamortized discount - (1,107) -------- --------- $ 73,000 $216,513 ======== =========
During 1994, the Company entered into a new revolving credit arrangement, aggregating $170,000, and repaid borrowings then outstanding. In connection with the prepayments, the Company terminated certain interest rate hedge arrangements, wrote off certain deferred costs related to the prepayment and recorded an extraordinary charge of approximately $1,953. In addition, the Company received net proceeds F-14 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) after financing costs of $197,270 from the issuance of $200,000 Series A and Series B Senior Notes, issued at par and at a discount, respectively. The Series A notes may be called, at the Company's option, beginning in April 1995. The Series B notes may be called, at the Company's option, beginning in July 1996. In association with the purchase of the Marriott properties, the Company assumed bonds payable of $17,620. These notes are secured by first mortgage liens on two retirement communities having an aggregate net book value of $67,997 at December 31, 1994, and by a $17,802 letter of credit. At December 31, 1994, the Company had interest rate hedge agreements which cap interest rates on up to $200,000 of borrowings. The maximum average rates payable on such borrowings under these arrangements is 6.85% per annum over the terms of the agreements. The maturities of the hedge agreements range from 1995 through 1998. The required principal payments for the next five years of $200,000 are due in 1999. Note 9. Concentration of credit risk Substantially all of the Company's assets are invested in income producing health care related real estate. At December 31, 1994, the Company's significant lessees and mortgagors are as follows:
Notes, Mortgages and 1994 Real Estate Rent and Mortgage Properties, Net Interest Revenue %of %of Amount Total Amount Total Marriott $321,199 42% $14,762 18% Horizon 123,740 16 15,386 18 GranCare 86,064 11 14,483 17 Other 235,987 31 39,139 47 -------- --- ------- --- $766,990 100% $83,770 100% ======== === ======= ===
Note 10. Fair value of financial instruments. F-15 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) At December 31, 1994, the carrying amounts and fair values of the Company's financial instruments are as follows:
Carrying Amount Fair Value Real estate mortgages and notes $ 133,477 $ 133,850 Cash and cash equivalents 59,766 59,766 Interest rate hedging agreements 3,548 8,381 Notes and bonds payable 216,513 216,045 Security deposits 3,800 3,800 Financing commitments - 58,148 Off-Balance-Sheet item: Letter of credit - 267
Cash and cash equivalents, security deposits and financing commitments approximate fair values. Interest rate hedging agreements are based on quoted market prices. The fair values of notes and bonds payable are based on estimates using discounted cash flow analysis and currently prevailing rates. The fair value of the letter of credit is based on fees currently charged to enter into similar agreements taking into account the remaining term and the counter party's credit standing. F-16 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) Note 11. Selected Quarterly Financial Data (Unaudited) The following is a summary of the unaudited quarterly results of operations of the Company for 1993 and 1994.
1993 First Second Third Fourth Quarter Quarter Quarter Quarter Revenues $12,650 $13,763 $14,727 $15,345 Income before gain (loss) on sale of property and extraordinary items 8,409 9,536 9,739 10,054 Income before extraordinary items 8,409 9,536 9,739 10,054 Extraordinary items (3,392) - - (929) Net income 5,017 9,536 9,739 9,125 Per share data: Income before gain (loss) on sale of property and extraordinary items .27 .27 .28 .28 Income before extraordinary items .27 .27 .28 .28 Net income .16 .27 .28 .26
1994 First Second Third Fourth Quarter Quarter Quarter Quarter Revenues $17,547 $19,916 $23,816 $25,404 Income before gain (loss) on sale of property and extraordinary items 12,650 14,334 15,588 15,306 Income before extraordinary items 16,644 14,334 15,588 5,306 F-17 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) Extraordinary items - (1,953) - - Net income 16,644 12,381 15,588 5,306 Per share data: Income before gain (loss) on sale of property and extraordinary items .28 .28 .27 .27 Income before extraordinary items .37 .28 .27 .09 Net income .37 .24 .27 .09
Note 12. Subsequent Events and Pro Forma Information (Unaudited) On January 24, 1995, the Company provided first mortgage financing of $11,500, due in 2007, secured by four assisted living properties and operated by a newly created health care operating company. The borrower has provided a $1,000 cash security deposit to guarantee its obligations to the Company. In addition, on January 31, 1995, the Company acquired nine nursing facilities for approximately $32,000. The facilities have been leased to a newly formed corporation which is an affiliate of the Company. The purchase price paid was approximately $8,132 in cash and 1,777,768 shares of the Company's common stock. The Company entered into a commitment to purchase and lease 11 nursing properties for $18,000 and provide first mortgage financing of $2,045, secured by three nursing properties, to a subsidiary of an existing tenant, on terms substantially similar to the Company's existing lease and mortgage agreements. The acquisition is expected to close on or about April 1, 1995. The Company has entered into a commitment of approximately $45,000, subject to adjustment, to purchase and lease 14 nursing properties located in the United Kingdom, on terms substantially similar to the Company's existing lease agreements. This investment will be funded in British Sterling. The acquisition is expected to close in installments beginning in April 1995 with the entire transaction completed by December 31, 1995. The Company entered into a purchase and lease agreement with a subsidiary of Host Marriott Corporation ("Host Marriott") for 21 Courtyard by Marriott hotel properties for approximately $179,400, subject to adjustment. The properties will be leased for an initial term of 12 years, with renewal options of an additional 37 years to a subsidiary of Host Marriott, and will be managed by a subsidiary of F-18 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) Marriott International. A portion of the purchase price equal to one year's rent will be withheld by the Company to guarantee the rent obligations to the Company. The acquisition is expected to close in March 1995. The following summarized Pro Forma Statements of Income assume that the 1994 transactions described in Notes 3 and 4, the issuance of the Company's common shares and senior notes during 1994 and the transactions described above had occurred on January 1, 1993, and give effect to the Company's borrowing rates throughout the periods indicated. The summarized Pro Forma Balance Sheet is intended to present the financial position of the Company as if the transactions described in Note 14 had occurred on December 31, 1994. These pro forma statements are not necessarily indicative of the expected results of operations or the Company's financial position for any future period. Differences could result from, but are not F-19 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) limited to, additional property investments, changes in interest rates and changes in the debt and/or equity structure of the Company.
Year Ended December 31, Pro Forma Statements of Income 1993 1994 (Unaudited) Total revenues $105,888 $123,903 Total expenses 42,276 54,308 -------- -------- Net income $ 63,612 $ 69,595 ======== ======== Weighted average shares outstanding (in thousands) 59,163 59,163 ======== ======== Net income per share $ 1.08 $ 1.18 ======== ========
December 31, Pro Forma Balance Sheet 1994 (Unaudited) Real estate properties, net $ 885,802 Real estate mortgages and notes, net 156,575 Other assets 17,686 ---------- Total assets $1,060,063 ========== Indebtednes $ 391,513 Other liabilities 40,254 Shareholders' equity 628,296 ---------- Total liabilities and shareholders' equity $1,060,603 ==========
F-20 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts)
HEALTH AND RETIREMENT PROPERTIES TRUST SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1994 (Dollars in thousands) Costs Capatilized Gross Amount at Subsequent Which Carried at Original Initial Cost to Company to Close of Period Accum. Date Construction Location State Land Building Equipment Acquisition Land Building Equipment Total (1) Deprn (2) Acquired Date YUMA AZ 223 1,984 116 4 223 1,988 116 2,327 148 6/30/92 1984 PHOENIX AZ 655 2,366 159 5 655 2,371 159 3,185 181 6/30/92 1963 YUMA AZ 103 569 35 1 103 570 35 708 43 6/30/92 1984 SCOTTSDALE AZ 979 8,807 0 140 990 8,936 0 9,926 174 5/16/94 1990 SUN CITY AZ 1,174 10,569 0 173 1,189 10,727 0 11,916 173 6/17/94 1990 NEWPORT BEACH CA 1,176 1,584 145 1,223 1,176 2,785 167 4,128 256 12/28/90 1962 SAN DIEGO CA 1,114 964 109 480 1,114 1,402 151 2,667 177 12/28/90 1969 LANCASTER CA 601 1,736 123 1,009 601 2,667 201 3,469 267 12/28/90 1963 FRESNO CA 738 2,411 166 188 738 2,554 211 3,503 320 12/28/90 1968 PALM SPRINGS CA 103 1,196 68 982 103 2,147 99 2,349 183 12/28/90 1969 TARZANA CA 1,277 864 113 806 1,278 1,648 134 3,060 193 12/28/90 1969 THOUSAND OAKS CA 622 2,365 157 310 622 2,647 185 3,454 312 12/28/90 1965 VAN NUYS CA 716 322 56 225 718 503 98 1,319 72 12/28/90 1969 STOCKTON CA 382 2,593 157 4 382 2,597 157 3,136 195 6/30/92 1968 LAGUNA HILLS CA 3,132 28,184 0 473 3,172 28,617 0 31,789 251 9/9/94 1975 COLORADO SPRINGS CO 23 777 0 114 26 888 0 914 7 11/1/94 1960 GRAND JUNCTION CO 136 2,311 272 67 136 2,378 272 2,786 84 12/30/93 1978 GRAND JUNCTION CO 204 3,467 408 135 204 3,602 408 4,214 127 12/30/93 1968 PAONIA CO 115 1,950 229 25 115 1,975 229 2,319 71 12/30/93 1981 LAKEWOOD CO 232 3,566 200 724 232 4,285 205 4,722 473 12/28/90 1972 LITTLETON CO 185 4,782 261 349 185 5,051 341 5,577 606 12/28/90 1965 NEW HAVEN CT 1,681 14,201 752 94 1,681 14,295 752 16,728 1,097 5/11/92 1971 CHESHIRE CT 520 7,110 270 111 520 7,221 270 8,011 1,453 11/1/87 1963 WILLIMANTIC CT 134 3,316 250 479 166 3,763 250 4,179 847 5/15/87 1965 WATERFORD CT 86 4,214 500 453 87 4,667 499 5,253 1,181 5/15/87 1965 KILLINGLY CT 240 4,910 450 460 240 5,371 449 6,060 1,283 5/15/87 1972 BOCA RATON FL 4,404 39,633 0 797 4,474 40,360 0 44,834 754 5/20/94 1994 Ft. MYERS FL 2,349 21,137 0 419 2,385 21,520 0 23,905 233 8/16/94 1984 DEERFIELD BEACH FL 1,664 14,972 0 298 1,690 15,244 0 16,934 287 5/16/94 1986 F-21 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) PALM HARBOR FL 3,327 29,945 0 595 3,379 30,488 0 33,867 544 5/16/94 1992 PORT ST. LUCIE FL 1,223 11,009 0 219 1,242 11,209 0 12,451 221 5/20/94 1993 CLARINDA IA 77 1,300 153 57 77 1,357 153 1,587 47 12/30/93 1968 MEDIAPOLIS IA 94 1,589 187 69 94 1,658 187 1,939 58 12/30/93 1973 MUSCATINE IA 246 4,190 493 170 245 4,362 492 5,099 153 12/30/93 1964 TOLEDO IA 153 2,601 306 131 153 2,732 306 3,191 95 12/30/93 1975 WINTERSET IA 111 1,878 221 103 111 1,981 221 2,313 69 12/30/93 1973 COUNCIL BLUFFS IA 50 467 0 32 50 499 0 549 19 6/4/93 1970 NASHVILLE IL 75 2,424 132 80 75 2,458 178 2,711 301 12/28/90 1964 ARLINTON HEIGHTS IL 3,621 32,587 0 534 3,665 33,077 0 36,742 286 9/9/94 1986 SMITH CENTER KS 111 1,878 221 60 111 1,938 221 2,270 69 12/30/93 1971 SILVER SPRING MD 3,229 29,065 0 786 3,301 29,779 0 33,080 386 7/25/94 1992 TARKIO MO 102 1,734 204 25 102 1,759 204 2,065 63 12/30/93 1970 St. JOSEPH MO 111 1,027 0 32 111 1,059 0 1,170 40 6/4/93 1976 AKRON OH 330 4,970 400 727 330 5,697 400 6,427 1,302 5/15/87 1971 GROVE CITY OH 332 3,081 0 32 332 3,113 0 3,445 119 6/4/93 1965 HURON SD 144 2,945 163 4 144 2,949 163 3,256 218 6/30/92 1968 HURON SD 45 917 51 1 44 919 51 1,014 68 6/30/92 1968 SIOUX FALLS SD 253 2,896 166 4 253 2,900 166 3,319 215 6/30/92 1960 BELLAIRE TX 1,223 11,010 0 178 1,238 11,173 0 12,411 200 5/16/94 1991 CHARLOTTESVILLE VA 2,936 26,422 0 472 2,976 26,854 0 29,830 418 6/17/94 1991 ARLINTON VA 1,859 16,734 0 295 1,885 17,003 0 18,888 249 7/25/94 1992 VIRGINIA BEACH VA 881 7,926 0 137 893 8,051 0 8,944 146 5/16/94 1990 SEATTLE WA 256 4,356 513 68 256 4,424 513 5,193 172 11/1/93 1972 MILWAUKEE WI 277 3,594 289 0 277 3,594 289 4,160 313 3/27/92 1969 CLINTONVILLE WI 49 1,542 83 88 30 1,640 92 1,762 193 12/28/90 1965 MILWAUKEE WI 116 3,260 178 123 116 3,379 182 3,677 397 12/28/90 1960 CLINTONVILLE WI 14 1,610 85 37 14 1,640 92 1,746 195 12/28/90 1960 MADISON WI 144 1,544 89 109 144 1,651 91 1,886 195 12/28/90 1920 WAUKESHA WI 68 3,276 176 1,912 68 5,185 179 5,432 427 12/28/90 1958 BROOKFIELD WI 834 3,615 234 5,643 834 9,258 234 10,326 560 12/28/90 1954 LARAMIE WY 191 3,250 382 76 191 3,326 382 3,899 116 12/30/93 1964 SARATOGA WY 13 1,487 0 126 14 1,612 0 1,626 17 11/1/94 1974 WORLAND WY 132 2,239 264 37 132 2,276 264 2,672 79 12/30/93 1970 Total Long-term Care and Retirement 47,595421,228 9,986 23,510 48,092 443,779 10,448 502,319 19,398 WALLINGFORD CT 557 10,649 394 1,023 557 11,672 394 12,623 2,405 12/23/86 1974 WATERBURY CT 514 9,822 364 523 514 10,345 364 11,223 2,216 12/23/86 1971 FORESTVILLE CT 465 8,905 330 1,233 465 10,138 330 10,933 2,034 12/23/86 1972 WATERBURY CT 1,003 8,522 501 0 1,003 8,522 501 10,026 669 5/11/92 1974 SLIDELL LA 2,323 19,745 1,161 1,147 2,353 20,847 1,176 24,376 2,352 3/1/91 1984 BOSTON MA 2,164 19,836 1,000 1,977 2,163 21,814 1,000 24,977 3,440 5/1/89 1968 WORCESTER MA 1,829 14,186 885 1,869 1,829 16,055 885 18,769 2,991 5/1/88 1970 F-22 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) HYANNIS MA 829 7,048 415 0 829 7,048 415 8,292 553 5/11/92 1972 MIDDLEBORO MA 1,771 14,961 791 0 1,771 14,961 791 17,523 1,154 5/11/92 1975 NORTH ANDOVER MA 1,448 10,435 614 0 1,448 10,435 614 12,497 820 5/11/92 1985 CANONSBURG PA 1,499 12,743 750 606 1,518 13,320 760 15,598 1,508 3/1/91 1985 Total Rehabilitation Hospitals 14,402 136,852 7,205 8,378 14,450145,157 7,230166,837 20,142 SACRAMENTO CA 644 3,206 0 77 644 3,283 0 3,927 30 8/30/94 1984 Total Other 644 3,206 0 77 644 3,283 0 3,927 30 Total Real Estate $62,641$561,286$17,191 $31,965 $63,186$592,219 $17,678$673,083 $39,570 (1) Aggregate cost for federal income tax purposes is approximately $636,427. (2) Depreciation is provided for on buildings and improvements over 40 years, equipment over 12 years.
Real Estate and Accumulated Equipment Depreciation Balance at January 1, 1992 $281,766 $19,209 Additions 56,447 8,122 Adjustments to exchange contract (1,137) (1,137) Balance at December 31, 1992 337,076 26,194 Additions 47,735 8,775 Balance at December 31, 1993 384,811 34,969 Additions 341,610 13,594 Disposals (53,338) (8,993) Balance at December 31, 1994 $673,083 $39,570
F-23 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) HEALTH AND RETIREMENT PROPERTIES TRUST SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE December 31, 1994 (Dollars in thousands)
Principal Amount of Loans Subject Final (1) to Delinquent Interest Maturity Periodic Payment Face Value Carry Value Principal Location Rate Date Terms of Mortgage of Mortgage or Interest - - - ------------------ -------- --------- ----------------- ----------- ----------- ------------- OMAHA, NE 9.000% 11/1/97 Principal & Interest payable 4,163 3,904 - monthly in arrears. $3.9 million due at maturity FARMINGTON, MI 11.500% 12/31/00 Interest only payable monthly 4,300 4,300 - in arrears. $4.1 million due at maturity TORRANCE, CA 10.460% 1/1/97 Principal & Interest payable 5,087 5,087 294 monthly in arrears. $5.0 million due at maturity HOWELL, MI 11.500% 12/31/00 Interest only payable monthly 5,100 5,100 - in arrears. $4.8 million due at maturity CARROLLTON, GA } 9.500% 8/10/95 Principal & Interest payable 5,224 5,152 - CUMMING, GA } monthly in arrears. $5.2 million CEDARTOWN, GA } due at maturity AINSWORTH, NE } ASHLAND, NE } BLUE HILL, NE } 9.000% 12/31/16 Interest only payable monthly 6,796 6,796 CENTRAL CITY, NE } in arrears. $2.0 million due GRETNA, NE } at maturity SUTHERLAND, NE } WAVERLY, NE } MEDINA, OH 6.625% 2/1/98 Principal & Interest payable 6,012 5,633 - monthly in arrears. $6.5 million F-24 due at maturity MILWAUKEE, WI } 13.750% 12/28/00 Principal & Interest payable 8,800 8,800 - PEWAUKEE, WI } monthly in advance. $4.9 million due at maturity CANON CITY, CO } 11.500% 12/31/16 Interest only payable monthly 14,019 14,019 - DELTA, CO } in arrears. $5.4 million due COLORADO SPRINGS,CO } at maturity HICKORY, NC } 9.500% 1995 Principal & Interest payable 19,947 9,947 LOUISVILLE, KY } monthly in arrears (2) 32 MORTGAGES 7.187%-11.25% 3/95-3/01 N/A 62,163 57,053 373 ---------------------------------------- TOTAL $141,611 $125,791 $667 ======================================== (1) Also represents cost for federal income tax purposes. (2) Amounts due on two real estate facilities sold effective 9/1/94. The sale price is being determined by a judicially supervised appraisal process. The write down is due to the general decline in the value of such types of property.
Reconciliation of the carrying amount of mortgage loans at the beginning of the period. Balance at January 1, 1992 $ 31,760 New Mortgage Loans 19,573 Collections of Principal (4,160) -------- Balance at December 31, 1992 47,173 New Mortgage Loans 133,939 Amortization of Discount 965 Collections of Principal (33,827) -------- Balance at December 31, 1993 148,250 New Mortgage Loans 11,772 Reclassification of real estate investment 9,947 Amortization of Discount 4,597 Collections of Principal (48,775) -------- Balance at December 31, 1994 $125,791
F-25 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HEALTH AND RETIREMENT PROPERTIES TRUST By:/S/ David J. Hegarty David J. Hegarty Executive Vice President and Chief Financial Officer Dated: March 30, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, or by their attorney-in-fact, in the capacities and on the dates indicated.
Signature Title Date /s/ Mark J. Finkelstein* President and Chief March 30, 1995 Mark J. Finkelstein Executive Officer /s/ David J. Hegarty* Executive Vice March 30, 1995 David J. Hegarty President and Chief Financial Officer /s/ John L. Harrington* Trustee March 30, 1995 John L. Harrington /s/ Arthur G. Koumantzelis* Trustee March 30, 1995 Arthur G. Koumantzelis /s/ Justinian Manning, C.P.* Trustee March 30, 1995 Rev. Justinian Manning, C.P. /s/ Gerard M. Martin* Trustee March 30, 1995 Gerard M. Martin /s/ Barry M. Portnoy Trustee March 30, 1995 F-26 Barry M. Portnoy *By: /s/ Barry M. Portnoy Barry M. Portnoy Attorney-in-fact /TABLE POWER OF ATTORNEY The undersigned Officers and Trustees of Health and Retirement Properties Trust hereby severally constitue Mark J. Finkelstein, David J. Hegarty, Gerard M. Martin and Barry M. Portnoy, and each of them, to sign for us and in our names in the capacities indicated below, the Annual Report on Form 10-K herewith filed with the Securities and Exchange Commission, and any and all amendments thereto, hereby ratifying and confirming our signatures as they may be signed by our said attorneys to the Annual Report on Form 10-K and any and all amendments to the Annual Report on Form 10-K. Witness our hands and seals on the dates set forth below.
Signature Title Date /s/ MARK J. FINKELSTEIN President and Chief March 30, 1995 Mark J. Finkelstein Executive Officer /s/ DAVID J. HEGARTY Executive Vice March 30, 1995 David J. Hegarty President and Chief Financial Officer /s/ JOHN L. HARRINGTON Trustee March 30, 1995 John L. Harrington /s/ ARTHUR G. KOUMANTZELIS Trustee March 30, 1995 Arthur G. Koumantzelis /s/ REV. JUSTINIAN MANNING Trustee March 30, 1995 Rev. Justinian Manning, C.P. /s/ GERARD M. MARTIN Trustee March 30, 1995 Gerard M. Martin /s/ BARRY M. PORTNOY Trustee March 30, 1995 Barry M. Portnoy
F-28 EX-3.2 2 Exhibit 3.2 HEALTH AND RETIREMENT PROPERTIES TRUST BYLAWS Originally adopted as of October 9, 1986 Amended and Restated as of October 17, 1994 Further Amended as of January 9, 1995 ARTICLE I TRUSTEES Section 1.1 Qualifying Shares Not Required. Trustees need not be Shareholders of Health and Retirement Properties Trust (the "Trust"). Section 1.2 Quorum. A majority of the Trustees shall constitute a quorum subject to the provisions of Section 2.6 of the Trust's Declaration of Trust, as it may be amended from time to time (the "Declaration"). Section 1.3 Number and Term; Election. The number and terms of the Trustees shall be as provided in Section 2.1 of the Declaration. Trustees shall be elected at annual meetings of Shareholders as provided in Section 2.1 of the Declaration. If Trustees are not so elected at an annual meeting or if such meeting is not held, Trustees may be elected at a special meeting of Shareholders. Section 1.4 Place of Meeting. Meetings of the Trustees shall be held at the principal office of the Trust or at such place within or without the State of Maryland as the President shall direct or as is fixed from time to time by resolution of the Trustees. Whenever a place other than the principal office is fixed by the President or by resolution as the place at which future meetings are to be held, written notice thereof shall be sent to all Trustees a reasonable time in advance of any meeting to be held at such place. Section 1.5 Organizational Meeting. Immediately following each Annual Meeting of Shareholders, a regular meeting of the Trustees shall be held for the purpose of organizing, electing officers and transacting other business. Notice of such meetings need not be given. Section 1.6 Regular Meetings. Regular meetings of the Trustees shall be held at the place determined pursuant to Section 1.4 on the dates, if any, established at each organizational meeting of the Trustees and notice of such regular meetings of the Trustees is hereby dispensed with. Section 1.7 Special Meetings. Special meetings of the Trustees may be called at any time by the Chairman or President and shall be called by the Chairman or President upon the written request of three (3) Trustees. Written notice of the time and place of a special meeting shall be given to each Trustee, either personally or by sending a copy thereof by mail or by facsimile or telex, charges prepaid, to the address of the Trustee appearing on the books of the Trust or theretofore given by the Trustee to the Trust for the purpose of notice. In case of personal service, such notice shall be so delivered at least twenty-four (24) hours prior to the time fixed for the meeting. If such notice is mailed, it shall be deposited in the United States mail in the place in which the principal office of the Trust is located at least seventy-two (72) hours prior to the time fixed for the holding of the meeting. If sent by facsimile or telex, it shall be sent at least forty-eight (48) hours prior to the time fixed for the holding of the meeting. If notice is not so given by the Secretary, it may be given in the same manner by the Chairman, President or the Trustees requesting the meeting. Section 1.8 Adjourned Meetings. A quorum of the Trustees may adjourn any Trustees' meeting to meet again at a stated day and hour. In the absence of a quorum, a majority of the Trustees present may adjourn from time to time to meet again at a stated day and hour prior to the time fixed for the next regular meeting of the Trustees. The motion for adjournment shall be lodged with the records of the Trust. Notice of the time and place of an adjourned meeting need not be given to any Trustee present at the adjourned meeting if the time and place is fixed at the meeting adjourned. Section 1.9 Waiver of Notice. The transactions of any meeting of the Trustees, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the Trustees not present signs a written waiver of notice, a consent to the holding of such meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be lodged with the Trust records or made a part of the minutes of the meeting. Section 1.10 Action Without Meeting. Unless specifically otherwise provided in the Declaration, any action required or permitted to be taken by the Trustees may be taken without a meeting if a majority of the Trustees (or a majority of the Independent Trustees as to any action which requires such a majority) shall individually or collectively consent in writing to such action. Such written consent or consents shall be lodged with the records of the Trust and shall have the same force and effect as the affirmative vote of such Trustees at a duly held meeting of the Trustees at which a quorum were present. Section 1.11 Telephone Meetings. The Trustees may meet by means of a telephone conference circuit or similar communications equipment by means of which all persons participating in the meeting shall be able to hear one another and participate therein. Such meeting shall be deemed to have been held at a place designated by the Trustees at the meeting. Participation in a telephone conference meeting shall constitute presence in person at such meeting. Section 1.12 Committee Rules. Unless the Trustees otherwise provide, each committee designated by the Trustees may adopt, amend and repeal rules for the conduct of such committee's business. In the absence of a provision by the Trustees or a provision in the rules of such committee to the contrary, a majority of the entire authorized number of members of such committee shall constitute a quorum for the transaction of business, the vote of a majority of the members present at a meeting at the time of such-vote if a quorum is then present shall be the act of such committee, and in other respects each committee shall conduct its business in the same manner as the Trustees conduct their business pursuant to Article II of the Declaration and this Article I of these Bylaws. -2- ARTICLE II OFFICERS Section 2.1 Enumeration. The officers of the Trust shall be a President, a Secretary, a Treasurer, and such other officers as are elected by the Trustees including, in their discretion, a Chairman, with such duties as are assigned to them by the Trustees. Officers shall be elected by and shall hold office at the pleasure of the Trustees. When the duties do not conflict, any two or more offices, except those of Chairman and/or President and Secretary, may be held by the same person. Section 2.2 Powers and Duties of the Chairman. The Chairman, if there shall be such an officer, shall, if present, preside at all meetings of the Shareholders and the Trustees and may be the chief executive officer of the Trust if the Trustees so elect. Section 2.3 Powers and Duties of the President. Subject to such supervisory powers, if any, as may be given by the Trustees to the Chairman, the President shall, subject to the control of the Trustees and the supervision of the Chairman, have general supervision, direction and control of the business of the Trust and its employees and shall exercise such general powers of management as are usually vested in the office of president of a corporation. In the absence of the Chairman, or if there be none, he shall preside at all meetings of the Shareholders and/or Trustees and, unless the Chairman has been designated as chief executive officer, shall be chief executive officer of the Trust. He shall be, ex officio, a member of all standing committees. Section 2.4 Powers and Duties of Vice-President. Each Vice- President, if any, designated by the Trustees shall be an administrative officer of the Trust and have such duties as are designated by the President or the Trustees. -3- Section 2.5 Duties of the Secretary. The Secretary shall: (a) Minutes. Keep full and complete minutes of the meetings (or actions in lieu thereof) of the Trustees, any committees of the Trustees and the Shareholders and give notice, as required, of all such meetings; (b) Books and Other Records. Maintain custody of and keep the books of account and other records of the Trust except such as are in custody of the Treasurer; . (c) Share Register. Maintain at the principal office of the Trust a share register, showing the ownership and transfers of ownership of all shares of the Trust, unless a transfer agent is employed to maintain and does maintain such a share register; and (d) General Duties. Generally, perform all duties which pertain to his office and which are required by the Trustees. An Assistant Secretary or Secretaries may be appointed to act in the absence of the Secretary. Section 2.6 Duties of the Treasurer. The Treasurer shall perform all duties which pertain to his office and which are required by the Trustees, including without limitation the receipt, deposit and disbursement of funds belonging to the Trust. An Assistant Treasurer or Treasurers may be appointed to act in the absence of the Treasurer. ARTICLE III SHAREHOLDERS Section 3.1 Effect of Quorum. Subject to the provisions of the Declaration, the Shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment notwithstanding the withdrawal of enough Shareholders so that the remaining Shareholders constitute less than a quorum. Section 3.2 Place of Meeting. Meetings of the Shareholders shall be held at the principal office of the Trust or at such place within or without the State of Maryland as is designated by the Trustees or the Chairman or President or by the written consent of a majority of the Shareholders entitled to vote thereat, given either before or after the meeting and filed with the Secretary of the Trust. Section 3.3 Annual Meeting. A regular annual meeting of the Shareholders shall be called by the Chairman or President within six months after the end of each fiscal year, commencing with the fiscal year ending December 31, 1987. -4- Section 3.4 Special Meetings. Special meetings of the Shareholders may be held at any time for any purpose or purposes permitted by the Declaration and shall be called as provided in Section 6.9 of the Declaration. Section 3.5 Notice of Regular or Special Meetings. Written notice specifying the place, day and hour of any regular or special meeting, the purposes of the meeting, and all other matters required by law shall be given to each Shareholder of record entitled to vote, either personally or by sending a copy thereof by mail or telegraph, charges prepaid, to his address appearing on the books of the Trust or theretofore given by him to the Trust for the purpose of notice or, if no address appears or has been given, addressed to the place where the principal office of the Trust is situated. It shall be the duty of the Secretary to give notice of each Annual Meeting of the Shareholders at least fifteen (15) days and not more than sixty (60) days before the date on which it is to be held. Whenever an officer has been duly requested to call a special meeting of Shareholders, it shall be his duty to fix the date and hour thereof, which date shall be not less than twenty (20) days and not more than sixty (60) days after the receipt of such request if the request has been delivered in person or after the date of mailing the request, as the case may be, and to give notice of such special meeting within ten (10) days after receipt of such request. If the date of such special meeting is not so fixed and notice thereof given within ten (10) days after the date of receipt of the request, the date and hour of such meeting may be fixed by the Person or Persons calling or requesting the meeting and notice thereof shall be given by such Person or Persons not less than twenty (20) nor more than sixty (60) days before the date on which the meeting is to be held. Section 3.6 Notice of Adjourned Meetings. It shall not be necessary to give notice of the time and place of any adjourned meeting or of the business to be transacted thereat other than by announcement at the meeting at which such adjournment is taken, except that when a meeting is adjourned for thirty (30) days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. Section 3.7 Proxies. The appointment of a proxy or proxies for any meeting of Shareholders entitled to vote shall be made by an instrument in writing executed by the Shareholder or his duly authorized agent and filed with such officer of the Trust as the Trustees shall have designated for such purpose for verification prior to such meeting. Any proxy relating to the Trust's shares of beneficial interest shall be valid until the expiration date therein or, if no expiration is so indicated, for such period as is permitted pursuant to Maryland law. At a meeting of Shareholders all questions concerning the qualification of voters, the validity of proxies, and the acceptance or rejection of votes, shall be decided by the Secretary of the meeting unless inspectors of election are appointed pursuant to Section 3.10 in which event such inspectors shall pass upon all questions and shall have all other duties specified in said section. -5- Section 3.8 Consent of Absentees. The transactions of any meeting of Shareholders, either annual, special or adjourned, however called and noticed, shall be as valid as though had at a meeting duly held after the regular call and notice if a quorum is present and if, either before or after the meeting, each Shareholder entitled to vote, not present in person or by proxy, signs a written waiver of notice, a consent to the holding of such meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be lodged with the Trust records or made a part of the minutes of the meeting. Section 3.9 Voting Rights. If no date is fixed for the determination of the Shareholders entitled to vote at any meeting of Shareholders, only Persons in whose names Shares entitled to vote stand on the share records of the Trust at the opening of business on the day of any meeting of Shareholders shall be entitled to vote at such meeting. Section 3.10 Advance Notice for Nomination of Trustees. Only persons who are nominated in accordance with the following procedures shall be eligible for election as Trustees of the Trust. Nominations of persons for election to the Board of Trustees may be made (a) by or at the direction of the Board of Trustees (or any duly authorized committee thereof) or (b) by any Shareholder of the Trust (i) who is a Shareholder of record on the date of the giving of the notice provided for in this Section 3.10 and on the record date for the determination of Shareholders entitled to vote upon such nominations and (ii) who complies with the notice procedures set forth in this Section 3.10. In addition to any other applicable requirements, for a nomination to be made by a Shareholder, such Shareholder must have given timely notice thereof in proper written form to the Secretary of the Trust. To be timely, a Shareholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Trust (a) in the case of an annual meeting, not less than seventy (70) days nor more than one hundred-twenty (120) days prior to the anniversary date of the immediately preceding annual meeting; provided, however, that in the event that the meeting is called for a date more than seventy (70) days prior to such anniversary date, notice by the Shareholder in order to be timely must be so received not later than the close of business on the twentieth (20th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs; and (b) in the case of a special meeting of Shareholders called (other than at the request of Shareholders) for the purpose of electing Trustees, not later than the close of business on the twentieth (20th) day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs. -6- To be in proper written form, a Shareholder's notice to the Secretary must set forth (a) as to each person whom the Shareholder proposes to nominate for election as a Trustee (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Trust which are owned beneficially or of record by the person, (iv) any other information relating to the person that would be required to be dis- closed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of Trustees pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder and (v) the consent of each nominee to serve as a Trustee if so elected; and (b) as to the Shareholder giving the notice (i) the name and record address of such Shareholder, (ii) the class or series and number of shares of capital stock of the Trust which are owned beneficially or of record by such Shareholder, (iii) a description of all arrangements or understandings between such Shareholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such Shareholder, (iv) a representation that such Shareholder intends to appear in person or by proxy at the meeting, if there be a meeting, to nominate the persons named in its notice and (v) any other information relating to such Shareholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of Trustees pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a Trustee if elected. No person shall be eligible for election as a Trustee of the Trust unless nominated in accordance with the procedures set forth in this Section 3.10. If the Chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the nomination was defective, and such defective nomination shall be disregarded. Section 3.11 Advance Notice for Transaction of Business. No business may be transacted by the Shareholders at an annual or special meeting, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Trustees (or any duly authorized committee thereof), (b) otherwise properly brought before the Shareholders by or at the direction of the Board of Trustees (or any duly authorized committee thereof) or (c) otherwise properly brought before the Shareholders by any Shareholder of the Trust (i) who is a Shareholder of record on the date of the giving of the notice provided for in this Section 3.11 and on the record date for the determination of Shareholders entitled to vote or express consent -7- therefor and (ii) who complies with the notice procedures set forth in this Section 3.11. In addition to any other applicable requirements, for business to be properly brought before an annual or special meeting by a Shareholder (other than a shareholder proposal included in the Trust's proxy statement pursuant to Rule 14a-8 under the Exchange Act), such Shareholder must have given timely notice thereof in proper written form to the Secretary of the Trust. To be timely, a Shareholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Trust not less than seventy (70) days nor more than one hundred-twenty (120) days prior to the anniversary date of the immediately preceding annual meeting; provided, however, that in the event that the meeting is called for a date more than seventy (70) days prior to such anniversary date, notice by the Shareholder in order to be timely must be so received not later than the close of business on the twentieth (20th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs; and (b) in the case of a special meeting of Shareholders called (other than at the request of Shareholders) for the purpose of transacting business, not later than the close of business on the twentieth (20th) day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs. To be in proper written form, a Shareholder's notice to the Secretary must set forth as to each matter such Shareholder proposes to bring before the Shareholders (i) a brief description of the business desired to be brought before the Shareholders and the reasons therefor, (ii) the name and record address of such Shareholder, (iii) the class or series and number of shares of capital stock of the Trust which are owned beneficially or of record by such Shareholder, (iv) a description of all arrangements or understandings between such Shareholder and any other person or per- sons (including their names) in connection with the proposal of such business by such Shareholder and any material interest of such Shareholder in such business and (v) a representation that such Shareholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. No business shall be conducted by the Shareholders except business brought before them in accordance with the procedures set forth in this Section 3.11; provided, however, that, once business has been properly brought before an annual or special meeting in accordance with such procedures, nothing in this Section 3.11 shall be deemed to preclude discussion by any Shareholder of any such business. If the Chairman of the meeting determines that business was not properly brought before the meeting in accordance with the -8- foregoing procedures, the Chairman shall declare to the meeting that the business was not properly brought before the meeting, and such business shall not be transacted. Section 3.12 Record Date. In order to permit the Trustees to appropriately fix a record date for determining the Shareholders entitled to notice of or to vote at any special meeting of Shareholders or to express consent to any proposal without a meeting in accordance with Section 6.12 of the Declaration, any Shareholder requesting the call of a special meeting or proposing to solicit such consents shall give notice in proper written form to the Secretary of the Trust. To be in proper written form, a Shareholder's notice to the Secretary shall set forth, with respect to nominations of persons for election to the Board of Trustees, those matters required by Section 3.10 of these Bylaws, and with respect to transaction of other business, those matters required by Section 3.11 of these Bylaws. Section 3.13 Action Without Meeting. Whenever the Declaration permits an action by Shareholders without a meeting, in order that the Trust's Shareholders shall have an opportunity to receive and consider the information germane to an informed judgment as to whether to give a written consent, any action to be taken by written consent shall not be effective until, and the Shareholders of the Trust shall be able to give or revoke written consents for, at least sixty (60) days from the date of the commencement of a solicitation (as such term is defined in Rule 14a-l(l) promulgated under the Exchange Act) of consents. For purposes of this Section 3.13, a consent solicitation shall be deemed to have commenced when a proxy statement or information statement containing the information re- quired by law is first furnished to the Trust's Shareholders. Consents shall be valid for a maximum of sixty (60) days after the date of the earliest dated consent delivered to the Trust. ARTICLE IV MISCELLANEOUS Section 4.1 Record Dates and Closing of Transfer Books. Pursuant to the Declaration, the Trustees may fix record dates for specified purposes. If a record date is so fixed, only Shareholders of record on the date so fixed shall be entitled to the rights to which the record date pertains. Section 4.2 Inspection of Bylaws. The Trustees shall keep at the principal office for the transaction of business of the Trust the original or a copy of the Bylaws as amended or otherwise altered to date, certified by the Secretary, which shall be open to inspection by the Shareholders at all reasonable times during office hours. Section 4.3 Control Share Acquisition. Until such time as this Section 4.3 shall be repealed or these Bylaws shall be amended to provide otherwise, in each case in accordance with Article V of these -9- Bylaws, the provisions of Subtitle 7 of Title 3 of the Corporations and Associations Article of the Annotated Code of Maryland (the "Code") shall not apply to "control share acquisitions" of the Trust within the meaning of the Code. ARTICLE V AMENDMENTS Section 5.1 By Trustees. Except for any change for which the Declaration or these Bylaws require approval by more than a majority vote, these Bylaws may be amended or repealed or new or additional Bylaws may be adopted by the vote or written consent of a majority of the Trustees. -10- ARTICLE VI DEFINITIONS Section 6.1 Definitions. All terms defined in the Declaration shall have the same meaning when used in these Bylaws. ARTICLE VII FISCAL YEAR Section 7.1 Fiscal Year. The fiscal year of the Trust shall be the calendar year. -11- TABLE OF CONTENTS ARTICLE I TRUSTEES Section 1.1 Qualifying Shares Not Required . . . . . . . . . 1 Section 1.2 Quorum . . . . . . . . . . . . . . . . . . . . . 1 Section 1.3 Number and Term; Election . . . . . . . . . . . . 1 Section 1.4 Place of Meeting . . . . . . . . . . . . . . . . 1 Section 1.5 Organizational Meeting . . . . . . . . . . . . . 1 Section 1.6 Regular Meetings . . . . . . . . . . . . . . . . 1 Section 1.7 Special Meetings . . . . . . . . . . . . . . . . 1 Section 1.8 Adjourned Meetings . . . . . . . . . . . . . . . 2 Section 1.9 Waiver of Notice . . . . . . . . . . . . . . . . 2 Section 1.10 Action Without Meeting . . . . . . . . . . . . . 2 Section 1.11 Telephone Meetings . . . . . . . . . . . . . . . 2 Section 1.12 Committee Rules . . . . . . . . . . . . . . . . . 2 ARTICLE II OFFICERS Section 2.1 Enumeration . . . . . . . . . . . . . . . . . . . 3 Section 2.2 Powers and Duties of the Chairman . . . . . . . . 3 Section 2.3 Powers and Duties of the President . . . . . . . 3 Section 2.4 Powers and Duties of Vice-President . . . . . . . 3 Section 2.5 Duties of the Secretary . . . . . . . . . . . . . 3 (a) Minutes . . . . . . . . . . . . . . . . . . 4 (b) Books and Other Records . . . . . . . . . . 4 (c) Share Register . . . . . . . . . . . . . . . 4 (d) General Duties . . . . . . . . . . . . . . . 4 Section 2.6 Duties of the Treasurer . . . . . . . . . . . . . 4 ARTICLE III SHAREHOLDERS Section 3.1 Effect of Quorum . . . . . . . . . . . . . . . . 4 Section 3.2 Place of Meeting . . . . . . . . . . . . . . . . 4 Section 3.3 Annual Meeting . . . . . . . . . . . . . . . . . 4 Section 3.4 Special Meetings . . . . . . . . . . . . . . . . 5 Section 3.5 Notice of Regular or Special Meetings . . . . . . 5 Section 3.6 Notice of Adjourned Meetings . . . . . . . . . . 5 Section 3.7 Consent of Absentees . . . . . . . . . . . . . . 6 Section 3.8 Voting Rights . . . . . . . . . . . . . . . . . . 6 Section 3.9 Advance Notice for Nomination of Trustees . . . . . . . . . . . . . . . . . . 6 Section 3.10 Advance Notice for Transaction -ii- of Business . . . . . . . . . . . . . . . . . . 8 Section 3.11 Record Date . . . . . . . . . . . . . . . . . . . 9 Section 3.12 Action Without Meeting . . . . . . . . . . . . . 9 ARTICLE IV MISCELLANEOUS Section 4.1 Record Dates and Closing of Transfer Books . . . . . . . . . . . . . . . . 10 Section 4.2 Inspection of Bylaws . . . . . . . . . . . . . . 10 Section 4.3 Control Share Acquisition . . . . . . . . . . . . 10 ARTICLE V AMENDMENTS Section 5.1 By Trustees . . . . . . . . . . . . . . . . . . . 10 ARTICLE VI DEFINITIONS . . . . . . . . . . 10 Section 6.1 Definitions . . . . . . . . . . . . . . . . . . . 10 ARTICLE VII FISCAL YEAR Section 7.1 Fiscal Year . . . . . . . . . . . . . . . . . . . 11 EX-10.18 3 LEASE AGREEMENT DATED AS OF FEBRUARY 11, 1994, BY AND BETWEEN HEALTH AND REHABILITATION PROPERTIES TRUST, AS LANDLORD, AND CONNECTICUT SUBACUTE CORPORATION II, AS TENANT. TABLE OF CONTENTS ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . 1 1.1 Added Value Percentage . . . . . . . . . . . . . 1 1.2 Additional Rent . . . . . . . . . . . . . . . . 1 1.3 Affiliated Person . . . . . . . . . . . . . . . 1 1.4 Assumed Indebtedness . . . . . . . . . . . . . . 2 1.5 Award . . . . . . . . . . . . . . . . . . . . . 2 1.6 Base Net Patient Revenues . . . . . . . . . . . 2 1.7 Base Rate . . . . . . . . . . . . . . . . . . . 2 1.8 Base Year . . . . . . . . . . . . . . . . . . . 2 1.9 Business Day . . . . . . . . . . . . . . . . . . 2 1.10 Capital Addition . . . . . . . . . . . . . . . . 2 1.11 Capital Additions Cost . . . . . . . . . . . . . 3 1.12 Capital Expenditure . . . . . . . . . . . . . . 3 1.13 Cash Adjustment . . . . . . . . . . . . . . . . 4 1.14 Claims . . . . . . . . . . . . . . . . . . . . . 4 1.15 Code . . . . . . . . . . . . . . . . . . . . . . 4 1.16 Commencement Date . . . . . . . . . . . . . . . 4 1.17 Condemnation . . . . . . . . . . . . . . . . . . 4 1.18 Condemnor . . . . . . . . . . . . . . . . . . . 4 1.19 Consolidated Financials . . . . . . . . . . . . 4 1.20 Control . . . . . . . . . . . . . . . . . . . . 4 1.21 Date of Taking . . . . . . . . . . . . . . . . . 4 1.22 Default . . . . . . . . . . . . . . . . . . . . 5 1.23 Encumbrance . . . . . . . . . . . . . . . . . . 5 1.24 Entity . . . . . . . . . . . . . . . . . . . . . 5 1.25 Environmental Laws . . . . . . . . . . . . . . . 5 1.26 Environmental Notice . . . . . . . . . . . . . . 5 1.27 Environmental Obligation . . . . . . . . . . . . 5 1.28 Event of Default . . . . . . . . . . . . . . . . 5 1.29 Excess Net Patient Revenues . . . . . . . . . . 5 1.30 Extended Terms . . . . . . . . . . . . . . . . . 5 1.31 Facility . . . . . . . . . . . . . . . . . . . . 5 1.32 Facility Mortgage . . . . . . . . . . . . . . . 5 1.33 Facility Mortgagee . . . . . . . . . . . . . . . 5 1.34 Facility Trade Names . . . . . . . . . . . . . . 5 1.35 Fair Market Added Value . . . . . . . . . . . . 6 1.36 Fair Market Rental . . . . . . . . . . . . . . . 6 1.37 Fair Market Value . . . . . . . . . . . . . . . 6 1.38 Fair Market Value Purchase Price . . . . . . . . 6 1.39 Fiscal Year . . . . . . . . . . . . . . . . . . 6 1.40 Fixed Term . . . . . . . . . . . . . . . . . . . 6 1.41 Fixtures . . . . . . . . . . . . . . . . . . . . 6 1.42 Hazardous Substances . . . . . . . . . . . . . . 6 1.43 Immediate Family . . . . . . . . . . . . . . . . 7 1.44 Impositions . . . . . . . . . . . . . . . . . . 7 1.45 Initiating Party . . . . . . . . . . . . . . . . 7 1.46 Insurance Requirements . . . . . . . . . . . . . 7 1.47 Land . . . . . . . . . . . . . . . . . . . . . . 7 1.48 Landlord . . . . . . . . . . . . . . . . . . . . 8 1.49 Landlord Default. . . . . . . . . . . . . . . . . 8 1.50 Lease . . . . . . . . . . . . . . . . . . . . . 8 1.51 Leased Improvements . . . . . . . . . . . . . . 8 1.52 Leased Personal Property . . . . . . . . . . . . 8 1.53 Leased Property . . . . . . . . . . . . . . . . 8 1.54 Legal Requirements . . . . . . . . . . . . . . . 8 1.55 Lending Institution . . . . . . . . . . . . . . 8 1.56 Minimum Rent . . . . . . . . . . . . . . . . . . 8 1.57 Minimum Repurchase Price . . . . . . . . . . . . 8 1.58 Net Patient Revenues . . . . . . . . . . . . . . 9 1.59 Non-Capital Additions . . . . . . . . . . . . . 10 1.60 Officer's Certificate . . . . . . . . . . . . . 10 1.61 Other Leases . . . . . . . . . . . . . . . . . . 10 1.62 Overdue Rate . . . . . . . . . . . . . . . . . . 10 1.63 Parent . . . . . . . . . . . . . . . . . . . . . 10 1.64 Percentage Rent . . . . . . . . . . . . . . . . 10 1.65 Permitted Encumbrances . . . . . . . . . . . . . 10 1.66 Person . . . . . . . . . . . . . . . . . . . . . 10 1.67 Primary Intended Use . . . . . . . . . . . . . . 10 1.68 Qualified Appraiser . . . . . . . . . . . . . . 11 1.69 Records . . . . . . . . . . . . . . . . . . . . 10 1.70 Rent . . . . . . . . . . . . . . . . . . . . . . 10 1.71 Responding Party . . . . . . . . . . . . . . . . 11 1.72 SEC . . . . . . . . . . . . . . . . . . . . . . 11 1.73 State . . . . . . . . . . . . . . . . . . . . . 11 1.74 Subsidiary . . . . . . . . . . . . . . . . . . . 11 1.75 Substitute Properties . . . . . . . . . . . . . 11 1.76 Substitution Date . . . . . . . . . . . . . . . 11 1.77 Successor Landlord . . . . . . . . . . . . . . . 11 1.78 Superior Lease . . . . . . . . . . . . . . . . . 11 1.79 Superior Landlord . . . . . . . . . . . . . . . 11 1.80 Superior Mortgage . . . . . . . . . . . . . . . 11 1.81 Superior Mortgagee . . . . . . . . . . . . . . . 11 1.82 Tenant . . . . . . . . . . . . . . . . . . . . . 11 1.83 Tenant's Personal Property . . . . . . . . . . . 11 1.84 Term . . . . . . . . . . . . . . . . . . . . . . 11 1.85 Test Rate . . . . . . . . . . . . . . . . . . . 12 1.86 Trustees . . . . . . . . . . . . . . . . . . . . 12 1.87 Unavoidable Delays . . . . . . . . . . . . . . . 12 1.88 Unsuitable for Its Primary Intended Use . . . . 12 ARTICLE 2 PREMISES AND TERM . . . . . . . . . . . . . . 12 2.1 Premises . . . . . . . . . . . . . . . . . . . . 12 2.2 Condition of Premises . . . . . . . . . . . . . 13 2.3 Fixed Term . . . . . . . . . . . . . . . . . . . 14 2.4 Extended Terms . . . . . . . . . . . . . . . . . 14 ARTICLE 3 RENT . . . . . . . . . . . . . . . . . . . . . 15 3.1 Rent . . . . . . . . . . . . . . . . . . . . . . 15 3.1.1 Minimum Rent . . . . . . . . . . . . . . 15 3.1.2 Percentage Rent . . . . . . . . . . . . . 15 3.1.3 Additional Rent . . . . . . . . . . . . . 17 3.2 Late Payment of Rent . . . . . . . . . . . . . . 19 3.3 Net Lease . . . . . . . . . . . . . . . . . . . 19 3.4 No Termination, Abatement, Etc . . . . . . . . . 19 ARTICLE 4 USE OF THE LEASED PROPERTY . . . . . . . . . . 20 4.1 Permitted Use . . . . . . . . . . . . . . . . . 20 4.1.1 Primary Intended Use . . . . . . . . . . 20 4.1.2 Necessary Approvals . . . . . . . . . . . 21 4.1.3 Continuous Operation, Etc . . . . . . . . 21 4.1.4 Lawful Use, Etc . . . . . . . . . . . . . 21 4.2 Compliance with Legal and Insurance Requirements, Instruments, Etc . . . . . . . . 21 4.3 Compliance with Medicaid and Medicare Requirements . . . . . . . . . . . . . . . . . 21 4.4 Environmental Matters . . . . . . . . . . . . . 22 ARTICLE 5 MAINTENANCE AND REPAIRS, ETC . . . . . . . . . 23 5.1 Maintenance and Repair . . . . . . . . . . . . . 23 5.1.1 Tenant's Obligations . . . . . . . . . . 23 5.1.2 Landlord's Obligations . . . . . . . . . 23 5.2 Capital Expenditure Cost Sharing . . . . . . . . 23 5.3 Tenant's Personal Property . . . . . . . . . . . 24 5.4 Yield Up . . . . . . . . . . . . . . . . . . . . 24 5.5 Encroachments, Restrictions, Etc . . . . . . . . 25 ARTICLE 6 CAPITAL ADDITIONS, ETC. . . . . . . . . . . . 25 6.1 Construction of Capital Additions to the Leased Property . . . . . . . . . . . . . . . . . . . 25 6.2 Capital Additions Financed by Tenant . . . . . . 27 6.3 Information Regarding Capital Additions . . . . 29 6.4 Non-Capital Additions . . . . . . . . . . . . . 30 6.5 Salvage . . . . . . . . . . . . . . . . . . . . 30 ARTICLE 7 LIENS . . . . . . . . . . . . . . . . . . . . 30 7.1 Liens . . . . . . . . . . . . . . . . . . . . . 30 7.2 Landlord's Lien . . . . . . . . . . . . . . . . 31 7.3 Mechanic's Liens . . . . . . . . . . . . . . . . 32 ARTICLE 8 PERMITTED CONTESTS . . . . . . . . . . . . . . 32 ARTICLE 9 INSURANCE AND INDEMNIFICATION . . . . . . . . 33 9.1 General Insurance Requirements . . . . . . . . . 33 9.2 Waiver of Subrogation . . . . . . . . . . . . . 34 9.3 Form Satisfactory, Etc . . . . . . . . . . . . . 35 9.4 No Separate Insurance . . . . . . . . . . . . . 36 9.5 Indemnification of Landlord . . . . . . . . . . 36 9.6 Indemnification of Tenant . . . . . . . . . . . 36 ARTICLE 10 CASUALTY . . . . . . . . . . . . . . . . . . 37 10.1 Insurance Proceeds . . . . . . . . . . . . . . . 37 10.2 Reconstruction in the Event of Damage or Destruction . . . . . . . . . . . . . . . . . 37 10.2.1 Material Damage or Destruction of Premises 37 10.2.2 Partial Damage or Destruction . . . . . 38 10.3 Insufficient Insurance Proceeds . . . . . . . . 39 10.4 Disbursement of Proceeds . . . . . . . . . . . . 39 10.5 Tenant's Property . . . . . . . . . . . . . . . 40 10.6 Restoration of Tenant's Property . . . . . . . . 40 10.7 No Abatement of Rent . . . . . . . . . . . . . . 40 10.8 Damage Near End of Term . . . . . . . . . . . . 40 ARTICLE 11 CONDEMNATION . . . . . . . . . . . . . . . . 41 11.1 Total Condemnation . . . . . . . . . . . . . . . 41 11.2 Partial Condemnation . . . . . . . . . . . . . . 41 11.3 Temporary Condemnation . . . . . . . . . . . . . 41 11.4 Tenant's Option . . . . . . . . . . . . . . . . 41 11.5 Allocation of Award . . . . . . . . . . . . . . 42 11.6 Abatement Procedures . . . . . . . . . . . . . . 42 ARTICLE 12 DEFAULTS AND REMEDIES . . . . . . . . . . . . 43 12.1 Events of Default. . . . . . . . . . . . . . . . 43 12.2 Remedies . . . . . . . . . . . . . . . . . . . . 45 12.3 Waiver . . . . . . . . . . . . . . . . . . . . . 47 12.4 Application of Funds . . . . . . . . . . . . . . 47 12.5 Failure to Conduct Business . . . . . . . . . . 47 12.6 Landlord's Right to Cure Tenant's Default . . . 47 12.7 Trade Names . . . . . . . . . . . . . . . . . . 47 ARTICLE 13 HOLDING OVER . . . . . . . . . . . . . . . . 48 ARTICLE 14 LANDLORD'S DEFAULT . . . . . . . . . . . . . 48 ARTICLE 15 PURCHASE OF PREMISES . . . . . . . . . . . . 49 ARTICLE 16 SUBSTITUTION OF PROPERTY FOR THE LEASED PROPERTY 50 16.1 Tenant's Substitution Option . . . . . . . . . . 50 16.2 Landlord's Substitution Option . . . . . . . . . 50 16.3 Substitution Procedures . . . . . . . . . . . . 51 16.4 Conditions to Substitution . . . . . . . . . . . 53 16.5 Conveyance to Tenant . . . . . . . . . . . . . . 54 16.6 Expenses . . . . . . . . . . . . . . . . . . . . 54 ARTICLE 17 SUBLETTING AND ASSIGNMENT . . . . . . . . . . 55 17.1 Subletting and Assignment . . . . . . . . . . . 55 17.2 Required Sublease Provisions . . . . . . . . . . 56 17.3 Sublease Limitation . . . . . . . . . . . . . . 56 17.4 Assignment and Subletting Procedure . . . . . . 56 ARTICLE 18 CERTIFICATES AND FINANCIAL STATEMENTS . . . . 57 18.1 Estoppel Certificates . . . . . . . . . . . . . 57 18.2 Financial Statements . . . . . . . . . . . . . . 57 18.3 General Operations . . . . . . . . . . . . . . . 58 18.3.1 Reimbursement, Licensure, Etc. . . . . . 58 18.3.2 Monthly Reports . . . . . . . . . . . . 59 ARTICLE 19 LANDLORD ACCESS . . . . . . . . . . . . . . . 59 19.1 Landlord's Right to Inspect . . . . . . . . . . 59 19.2 Landlord's Option to Purchase the Tenant's Personal Property; Transfer of Licenses . . . 59 ARTICLE 20 APPRAISAL . . . . . . . . . . . . . . . . . . 60 20.1 Appraisal Procedure . . . . . . . . . . . . . . 60 ARTICLE 21 MORTGAGES . . . . . . . . . . . . . . . . . . 61 21.1 Landlord May Grant Liens . . . . . . . . . . . . 61 21.2 Subordination of Lease . . . . . . . . . . . . . 61 21.3 Notice to Mortgagee and Ground Landlord . . . . 63 ARTICLE 22 INVESTMENT TAX CREDIT . . . . . . . . . . . . 63 22.1 Investment Tax Credit . . . . . . . . . . . . . 63 ARTICLE 23 ADDITIONAL COVENANTS OF TENANT 23.1 Notice of Change of Name, Administrator, Etc. 64 23.2 Notice of Litigation, Potential Event of Default, Etc. . . . . . . . . . . . . . . . . 64 23.3 Management of Leased Property . . . . . . . . . 64 23.4 Distributions, Payments to Affiliated Persons, Etc. . . . . . . . . . . . . . . . . . . . . . 64 ARTICLE 24 MISCELLANEOUS . . . . . . . . . . . . . . . . 65 24.1 No Waiver . . . . . . . . . . . . . . . . . . . 65 24.2 Remedies Cumulative . . . . . . . . . . . . . . 65 24.3 Acceptance of Surrender . . . . . . . . . . . . 65 24.4 No Merger of Title . . . . . . . . . . . . . . . 65 24.5 Conveyance by Landlord . . . . . . . . . . . . . 65 24.6 Quiet Enjoyment . . . . . . . . . . . . . . . . 66 24.7 Landlord's Liability . . . . . . . . . . . . . . 66 24.8 Landlord's Consent . . . . . . . . . . . . . . . 66 24.9 Memorandum of Lease . . . . . . . . . . . . . . 67 24.10 Notices . . . . . . . . . . . . . . . . . . . . 67 24.11 Construction . . . . . . . . . . . . . . . . . . 68 24.12 Governing Law . . . . . . . . . . . . . . . . . 68 EXHIBITS A - Other Leases B - Permitted Encumbrances C - The Land D - Minimum Rent LEASE AGREEMENT THIS LEASE AGREEMENT, dated as of February 11, 1994, is made by and between HEALTH AND REHABILITATION PROPERTIES TRUST, a Maryland real estate investment trust, as landlord ("Landlord"), having its principal office at 400 Centre Street, Newton, Massachusetts, and CONNECTICUT SUBACUTE CORPORATION II, a Delaware corporation, as tenant ("Tenant"), having an office at 400 Centre Street, Newton, Massachusetts 02158. W I T N E S S E T H : WHEREAS, Landlord owns the Leased Property (this and other capitalized terms used and not otherwise defined herein having the meanings ascribed to such terms in Article 1) and Landlord wishes to lease the Leased Property to Tenant and Tenant wishes to lease the Leased Property from Landlord, subject to and upon the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: ARTICLE 1 DEFINITIONS Each reference in this Lease to any of the following terms shall be construed to incorporate the definitions hereinafter set forth and include the plural as well as the singular. All accounting terms not otherwise defined herein shall have the meanings assigned to them in accordance with generally accepted accounting principles. 1.1 "Added Value Percentage" shall have the meaning given such term in Section 6.2(a). 1.2 "Additional Rent" shall have the meaning given such term in Section 3.1.3. 1.3 "Affiliated Person" shall mean, with respect to any Person, (a) in the case of any such Person which is a partnership, any partner in such partnership; (b) in the case of any such Person which is a limited liability company, any member of such company; (c) any other Person which is a Parent, a Subsidiary, or a Subsidiary of a Parent of the Persons referred to in the preceding clauses (a) and (b); (d) any other Person otherwise directly or indirectly controlling or under common control with such Person or one or more of the Persons referred to in the preceding clauses (a), (b) and (c); and (e) any other Person who is a member of the Immediate Family of such Person or any Person referred to in the preceding clauses (a) through (d). 1.4 "Assumed Indebtedness" shall mean any indebtedness or other obligations existing at the time of acquisition of the Leased Property by Landlord secured by a mortgage, deed of trust or other security agreement creating a lien on the Leased Property and assumed by Landlord, and any indebtedness resulting from the refinancing thereof, and/or any subsequent indebtedness resulting from Landlord's financing of, or Landlord's reimbursement of Tenant's financing of, any Capital Additions during the Term, except any indebtedness or other obligations of Tenant not assumed by Landlord prior to or during the Term. 1.5 "Award" shall mean all compensation, sums or other value awarded, paid or received by virtue of a total or partial Condemnation of the Leased Property (after deduction of all reasonable legal fees and other reasonable costs and expenses incurred by Landlord in connection with obtaining any such award). 1.6 "Base Net Patient Revenues" shall mean Net Patient Revenues for the Base Year. 1.7 "Base Rate" shall mean the rate of interest, determined daily and expressed as a percentage, announced by Citibank, N.A., in New York, New York, from time to time, as Citibank, N.A.'s "base rate" or "prime rate", so-called, or, if at any time Citibank, N.A. ceases to announce such a rate, as announced by the largest national or state chartered banking institution other than Citibank, N.A. then having its principal office in New York, New York and announcing such a rate. If at any time neither Citibank, N.A. nor any of the five largest other national or state chartered banking institutions having their principal offices in New York, New York is announcing such a floating rate, "Base Rate" shall mean a rate of interest, determined daily, which is two (2) percentage points above the 14-day moving average closing trading price of 90-day Treasury Bills. 1.8 "Base Year" shall mean the twelve-month period beginning June 1, 1999 and ending May 31, 2000. 1.9 "Business Day" shall mean any day other than Saturday, Sunday, or any other day on which banking institutions in The Commonwealth of Massachusetts or in New York, New York are authorized by law or executive action to close. 1.10 "Capital Addition" shall mean one or more new buildings, or one or more additional structures annexed to any portion of any of the Leased Improvements, or the material expansion of existing improvements, which are constructed on any parcel or portion of the Land during the Term, including, but not limited to, the construction of a new wing or new story, the renovation of existing improvements on the Leased Property in order to provide a functionally new facility needed to provide services not previously offered, or any expansion, construction, renovation or conversion in order to increase the bed capacity of the Facility, to change the purpose for which such beds are utilized or to improve the quality of the Facility. 1.11 "Capital Additions Cost" shall mean the cost of any Capital Addition proposed to be made by Tenant, whether paid for by Tenant or Landlord. Such cost shall include (a) the cost of construction of the -3- Capital Addition, including, site preparation and improvement, materials, labor, supervision, developer and administrative fees, legal fees, and related design, engineering and architectural services, the cost of any fixtures, the cost of construction financing (including, but not limited to, capitalized interest) and other miscellaneous costs approved by Landlord, (b) if agreed to by Landlord in writing, in advance, the cost of any land contiguous to the Leased Property which is to become a part of the Leased Property purchased for the purpose of placing thereon the Capital Addition or any portion thereof or for providing means of access thereto, or parking facilities therefor, including the cost of surveying the same, (c) the cost of insurance, real estate taxes, water and sewage charges and other carrying charges for such Capital Addition during construction, (d) title insurance charges, (e) reasonable attorneys' fees, (f) filing and registration fees and recording taxes, (g) documentary stamp or transfer taxes, and (h) all actual and reasonable costs and expenses of Landlord and any Lending Institution committed to finance the Capital Addition, including, but not limited to, (i) reasonable attorneys' fees, (ii) printing expenses, (iii) filing, registration and recording taxes and fees, (iv) documentary stamp or transfer taxes, (v) title insurance charges and appraisal fees, (vi) rating agency fees, and (vii) loan commitment fees. 1.12 "Capital Expenditure" shall mean any single required improvement, alteration, replacement or repair of the Leased Property, or any part thereof, (a) having a cost in excess of One Hundred Thousand Dollars ($100,000.00) (which amount shall be increased each year of the Lease by the product determined by multiplying such amount by the percentage increase in the Consumer Price Index, Urban Wage Earners and Clerical Workers, All Items, Base 1982-84=100, published by the U.S. Department of Labor, All Cities, or such comparable index published by the U.S. Department of Labor or its successor agency), and (b) having a useful life in excess of the longer of (i) twelve (12) months, or (ii) the remaining period of the Term, except capital improvements necessitated by destruction or Condemnation of the Leased Property, or any portion thereof. 1.13 "Cash Adjustment" shall have the meaning given such term in Section 16.3(d). 1.14 "Claims" shall have the meaning given such term in Article 8. 1.15 "Code" shall mean the Internal Revenue Code of 1986 and, to the extent applicable, the Treasury Regulations promulgated thereunder, each as from time to time amended. 1.16 "Commencement Date" shall mean the date of this Lease. 1.17 "Condemnation" shall mean (a) the exercise of any governmental power, whether by legal proceedings or otherwise, by a Condemnor, (b) a voluntary sale or transfer by Landlord to any Condemnor, either under threat of condemnation or while legal proceedings for condemnation are pending, and (c) a taking or voluntary conveyance of all or part of the Leased Property, or any interest therein, or right accruing thereto or use thereof, as the result or in settlement of any Condemnation or other -4- eminent domain proceeding affecting any portion of the Leased Property, whether or not the same shall have actually been commenced. 1.18 "Condemnor" shall mean any public or quasi-public authority, or private corporation or individual having the power of Condemnation. 1.19 "Consolidated Financials" shall mean, for any Fiscal Year or other accounting period of Tenant and its consolidated Subsidiaries, statements of earnings, retained earnings and changes in financial position for such period and for the period from the beginning of the applicable Fiscal Year to the end of such period and the balance sheet as at the end of such period, together with the notes thereto, all in reasonable detail, and setting forth in comparative form the corresponding figures for the corresponding period in the preceding Fiscal Year, and prepared in accordance with generally accepted accounting principles, consistently applied. 1.20 "Control" and any variations thereof shall mean, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership of voting securities, partnership interests or other equity interests. 1.21 "Date of Taking" shall mean the date the Condemnor has the right to possession of the Leased Property, or any portion thereof, in connection with a Condemnation. 1.22 "Default" shall mean any event, act or omission which with the giving of notice and/or lapse of time could constitute an Event of Default. 1.23 "Encumbrance" shall have the meaning given such term in Section 21.1. 1.24 "Entity" shall mean any corporation, general or limited partnership, limited liability company, stock company or association, joint venture, association, company, trust, bank, trust company, land trust, business trust, any government or agency or political subdivision thereof or any other entity. 1.25 "Environmental Laws" shall mean all applicable Federal, state or local statutes, laws, ordinances, rules and regulations, licensing requirements or conditions, whether now existing or hereafter arising, relating to Hazardous Substances. 1.26 "Environmental Notice" shall have the meaning given such term in Section 4.4. 1.27 "Environmental Obligation" shall mean any cost, expense, loss or damage arising under any Environmental Law or in connection with any Hazardous Substance. 1.28 "Event of Default" shall have the meaning given such term in Section 12.1. -5- 1.29 "Excess Net Patient Revenues" shall mean the amount of Net Patient Revenues for any measuring period in excess of the Base Net Patient Revenues for the equivalent period of the Base Year. 1.30 "Extended Terms" shall have the meaning given such term in Section 2.4. 1.31 "Facility" shall mean the licensed nursing home being operated on the Leased Property. 1.32 "Facility Mortgage" shall mean any mortgage, deed of trust or other security agreement securing any Assumed Indebtedness or any other encumbrance placed upon the Leased Property in accordance with Article 21. 1.33 "Facility Mortgagee" shall mean the holder of any Facility Mortgage. 1.34 "Facility Trade Names" shall mean any of the names under which Tenant operates, or has operated, the Facility at any time during the Term. 1.35 "Fair Market Added Value" shall mean the Fair Market Value of the Leased Property (including all Capital Additions) less the Fair Market Value of the Leased Property determined as if no Capital Additions financed by Tenant had been constructed. 1.36 "Fair Market Rental" shall mean the rental which a willing tenant not compelled to rent would pay a willing landlord not compelled to lease for the use and occupancy of the Leased Property, or applicable portion thereof, on the terms and conditions of this Lease, for the term in question, and determined in accordance with the appraisal procedures set forth in Article 20 or in such other manner as shall be mutually acceptable to Landlord and Tenant. 1.37 "Fair Market Value" shall mean the price that a willing buyer not compelled to buy would pay a willing seller not compelled to sell for the Leased Property, (a) assuming the same is unencumbered by this Lease, (b) determined in accordance with the appraisal procedures set forth in Article 20 or in such other manner as shall be mutually acceptable to Landlord and Tenant, (c) assuming such seller shall pay the closing costs generally paid by a seller of real property in the state in which such property is located and that such buyer shall pay closing costs generally paid by a buyer of real property in the state in which such property is located, and (d) not taking into account any reduction in value resulting from any indebtedness to which such property is subject, except the positive or negative effect on the value of such property attributable to the interest rate, amortization schedule, maturity date, prepayment penalty and other terms and conditions of any lien or encumbrance which is not removed at or prior to the closing of the transaction as to which such Fair Market Value determination is being made. 1.38 "Fair Market Value Purchase Price" shall mean the Fair Market Value of the Leased Property less the Fair Market Added Value. -6- 1.39 "Fiscal Year" shall mean each twelve (12) month period from June 1 to May 31. 1.40 "Fixed Term" shall have the meaning given such term in Section 2.3. 1.41 "Fixtures" shall have the meaning given such term in Section 2.1(d). 1.42 "Hazardous Substances" shall mean hazardous substances (as defined by the Comprehensive Environmental Response, Compensation and Liability Act, as now in effect or as hereafter from time to time amended), hazardous wastes (as defined by the Resource Conservation and Recovery Act, as now in effect or as hereafter from time to time amended), any hazardous waste, hazardous substance, pollutant or contaminant, oils, radioactive materials, asbestos in any form or condition, or any pollutant or contaminant or hazardous, dangerous or toxic chemicals, materials or substances within the meaning of any other applicable Federal, state or local law, regulation, ordinance or requirements relating to or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste, substance or materials, all as now in effect or hereafter from time to time amended. 1.43 "Immediate Family" shall mean, with respect to any Person, his spouse, parents, brothers, sisters, children (natural or adopted), stepchildren, grandchildren, grandparents, parents-in-law, brothers-in-law, sisters-in-law, nephews and nieces. 1.44 "Impositions" shall mean all taxes, assessments, and ad valorem, sales, and use, single business, gross receipts, transaction privilege, rent or similar taxes as the same are imposed on either Landlord or Tenant with respect to the Leased Property and/or the business conducted thereon by Tenant and other charges and impositions (including, but not limited to, fire protection service fees and similar charges) levied, assessed or imposed at any time during the Term by any governmental authority upon or against the Leased Property, or taxes in lieu thereof, and additional types of taxes to supplement real estate taxes due to legal limits imposed thereon. If, at any time during the Term, any tax or excise on rents or other taxes, however described, are levied or assessed against Landlord with respect to the rent reserved hereunder, either wholly or partially in substitution for, or in addition to, real estate taxes assessed or levied on the Leased Property, such tax or excise on rents shall be included in Impositions; provided, however, that Impositions shall not include franchise, estate, inheritance, succession, capital levy, transfer, income or excess profits taxes assessed on Landlord. Impositions shall include any estimated payment, whether voluntary or required, made by Landlord on account of a fiscal tax period for which the actual and final amount of taxes for such period has not been determined by the governmental authority as of the date of any such estimated payment. 1.45 "Initiating Party" shall have the meaning given such term in Section 20.1. -7- 1.46 "Insurance Requirements" shall mean all terms of any insurance policy required by this Lease and all requirements of the issuer of any such policy. 1.47 "Land" shall have the meaning given such term in Section 2.1(a). 1.48 "Landlord" shall have the meaning given such term in the preambles to this Lease. 1.49 "Landlord Default" shall have the meaning given such term in Article 14. 1.50 "Lease" shall mean this Lease Agreement, including Exhibits A through D hereto, as it and they may be amended from time to time as herein provided. 1.51 "Leased Improvements" shall have the meaning given such term in Section 2.1(b). 1.52 "Leased Personal Property" shall have the meaning given such term in Section 2.1(e). 1.53 "Leased Property" shall have the meaning given such term in Section 2.1. 1.54 "Legal Requirements" shall mean all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions, including, but not limited to, Environmental Laws, affecting the Leased Property or the maintenance, construction, use or alteration thereof, whether now or hereafter enacted, including those which may (a) require repairs, modifications or alterations in or to the Leased Property or any portion thereof or (b) in any way adversely affect the use and enjoyment thereof, and all permits, licenses and authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to Tenant (other than encumbrances hereinafter created by Landlord without the consent of Tenant), at any time in force affecting the Leased Property. 1.55 "Lending Institution" shall mean any insurance company, federally insured commercial or savings bank, national banking association, savings and loan association, employees' welfare, pension or retirement fund or system, corporate profit sharing or pension trust, college or university, or real estate investment trust, including any corporation qualified to be treated for federal tax purposes as a real estate investment trust, having a net worth of at least $10,000,000. 1.56 "Minimum Rent" shall mean the amount set forth in Exhibit D. 1.57 "Minimum Repurchase Price" shall mean that portion of the aggregate purchase price of the Leased Property paid by Landlord in cash or in kind, plus the aggregate of unpaid principal balance of all encumbrances against the Leased Property at the time of purchase thereof -8- by Tenant, plus any amounts paid by Landlord to reduce the principal balance of any Assumed Indebtedness, less all proceeds received by Landlord from any refinancing of the Leased Property (after payment of the debt refinanced and net of any costs and expenses incurred in connection with such refinancing, including, without limitation, loan points, commitment fees and commissions) and less the net amount (after deduction of all reasonable legal fees and other costs and expenses, including, without limitation, expert witness fees, incurred by Landlord in connection with obtaining any such award) of all awards received by Landlord from any partial Condemnation of the Leased Property or any portion thereof which are not applied to restoration. 1.58 "Net Patient Revenues" shall mean all revenues received or receivable from or by reason of the operation of the Facility, or any portion thereof, or any other use of the Leased Property, or any portion thereof, including, without limitation, all patient revenues received or receivable for the use of or otherwise by reason of all rooms, beds and other facilities provided, meals served, services performed, space or facilities subleased or goods sold on the Leased Property, or any portion thereof, including, without limitation, and except as provided below, any other arrangements with third parties relating to the possession or use of any portion of any portion of the Leased Property; provided, however, Net Patient Revenues shall not include: (a) revenue from professional fees or charges by physicians and providers (other than Tenant or Tenant's employees) of ancillary services, when and to the extent such charges are paid over to such physicians or providers of ancillary services, or are separately billed and not included in comprehensive fees; (b) nonoperating revenues such as interest income or income from the sale of assets not sold in the ordinary course of business; (c) contractual allowances (relating to any period during the Term) for billings not paid by or received from the appropriate governmental agencies or third party providers; (d) allowances according to generally accepted accounting principles for uncollectible accounts, including credit card accounts and charity care or other administrative discounts; (e) all proper patient billing credits and adjustments according to generally accepted accounting principles relating to health care accounting; (f) federal, state or local sales or excise taxes and any tax based on or measured by such revenues which is added to or made a part of the amount billed to the patient or other recipient of such services or goods, whether included in the billing or stated separately; (g) provider discounts for hospital or other medical facility utilization contracts and credit card discounts; (h) revenues attributable to Capital Additions financed by Tenant as provided in Section 6.2; (i) revenues attributable to services actually provided off the Leased Property, such as home health care; and (j) any amounts actually paid by Tenant for the cost of any federal, state or local governmental programs imposed specially to provide or finance indigent patient care. To the extent the Leased Property or any portion thereof is subleased by Tenant, Net Patient Revenues shall include (x) the Net Patient Revenues generated from the operations conducted on such subleased portion of the Leased Property and (y) the rent received or receivable by Tenant from or under any such sublease to the extent such rent is not based on Net Patient Revenues and, therefore, has not already been included in the calculation of Net Patient Revenues pursuant to clause (x) preceding. -9- 1.59 "Non-Capital Additions" shall have the meaning given such term in Section 6.4. 1.60 "Officer's Certificate" shall mean a certificate signed by the chief financial officer or another officer of Tenant authorized by the board of directors or by-laws of Tenant, or any other Person whose power and authority to act has been so authorized. 1.61 "Other Leases" shall mean the Leases described in Exhibit A, attached hereto and made a part hereof. 1.62 "Overdue Rate" shall mean a rate equal to the lesser of the Base Rate plus two percent (2%) and the maximum rate then permitted under applicable law. 1.63 "Parent" shall mean, with respect to any Person, any Person which owns directly, or indirectly, through one or more Subsidiaries, twenty percent (20%) or more of the voting or beneficial interests in such Person or otherwise Controls such Person. 1.64 "Percentage Rent" shall have the meaning given such term in Section 3.1.2(a). 1.65 "Permitted Encumbrances" shall mean the matters set forth in Exhibit B, attached hereto and made a part hereof. 1.66 "Person" shall mean any individual or Entity, and the heirs, executors, administrators, legal representatives, successors and assigns of such Person where the context so admits. 1.67 "Primary Intended Use" shall have the meaning given such term in Section 4.1.1. 1.68 "Qualified Appraiser" shall mean any disinterested person who is a member in good standing of the American Institute of Real Estate Appraisers or the American Society of Real Estate Counselors (or the successor to either of such organizations) and who has had not less than ten (10) years experience in appraising and valuing, commercial buildings in the State. 1.69 "Records" shall have the meaning given such term in Section 7.2. 1.70 "Rent" shall mean, collectively, the Minimum Rent, Percentage Rent and Additional Rent. 1.71 "Responding Party" shall have the meaning given such term in Section 20.1. 1.72 "SEC" shall mean the Securities and Exchange Commission. 1.73 "State" shall mean the State, Commonwealth, Possession or Territory in which the Leased Property is located. -10- 1.74 "Subsidiary" shall mean, with respect to any Person, any Entity in which such Person shall own, directly or indirectly, through one or more Subsidiaries, twenty percent (20%) or more of the voting or beneficial interests or any other entity Controlled by such Person. 1.75 "Substitute Properties" shall have the meaning given such term in Section 16.1. 1.76 "Substitution Date" shall have the meaning given such term in Section 16.1. 1.77 "Successor Landlord" shall have the meaning given such term in Section 21.2. 1.78 "Superior Lease" shall have the meaning given such term in Section 21.2. 1.79 "Superior Landlord" shall have the meaning given such term in Section 21.2. 1.80 "Superior Mortgage" shall have the meaning given such term in Section 21.2. 1.81 "Superior Mortgagee" shall have the meaning given such term in Section 21.2. 1.82 "Tenant" shall have the meaning given such term in the preambles to this Lease. 1.83 "Tenant's Personal Property" shall mean all motor vehicles and consumable inventory and supplies, furniture, equipment and machinery and all other personal property of Tenant located on the Leased Property or used in Tenant's business on the Leased Property and all modifications, replacements, alterations and additions to the Leased Personal Property installed at the expense of Tenant, other than any items included within the definition of Fixtures or Leased Personal Property and expressly excluding Tenant's accounts receivable. 1.84 "Term" shall mean, collectively, the Fixed Term and any Extended Terms, to the extent properly exercised pursuant to the provisions of Section 2.4, unless sooner terminated pursuant to the provisions of this Lease. 1.85 "Test Rate" shall mean the minimum interest rate necessary to avoid imputation of original issue discount income under Sections 483 or 1272 of the Code or any similar provision. 1.86 "Trustees" shall mean the trustees of Landlord. 1.87 "Unavoidable Delays" shall mean delays due to strikes, lock- outs, inability to procure materials, power failure, acts of God, governmental restrictions, enemy action, civil commotion, fire, unavoidable casualty or other causes beyond the reasonable control of the party responsible for performing an obligation hereunder, but in no event to exceed sixty (60) days so long as the affected party shall use -11- reasonable efforts to alleviate the cause of such delay and thereafter promptly perform such obligation; provided, however, that (x) in no event shall Tenant's obligation to pay the Rent be affected by Unavoidable Delays, and (y) in no event shall lack of funds be deemed a cause beyond the control of either party. 1.88 "Unsuitable for Its Primary Intended Use" shall mean a state or condition of the Facility such that by reason of damage or destruction, or a partial Condemnation, in the good faith judgment of Landlord and Tenant, reasonably exercised, the Facility cannot be operated on a commercially practicable basis for its Primary Intended Use taking into account, among other relevant factors, the number of usable beds, the amount of square footage, or revenues affected by such damage or destruction or partial taking. ARTICLE 2 PREMISES AND TERM 2.1 Premises. Upon and subject to the terms and conditions herein set forth, Landlord leases to Tenant and Tenant leases from Landlord all of the following (collectively, the "Leased Property"): (a) those certain tracts, pieces and parcels of land as more particularly described in Exhibit C, attached hereto and made a part hereof (collectively, the "Land"); (b) all buildings, structures, Fixtures and other improvements of every kind, including, but not limited to, alleyways and connecting tunnels, sidewalks, utility pipes, conduits and lines (on-site and off-site), parking areas and roadways appurtenant to such buildings and structures presently situated upon the Land and Capital Additions financed by Landlord (collectively, the "Leased Improvements"); (c) all easements, rights and appurtenances relating to the Land and the Leased Improvements; (d) all equipment, machinery, fixtures and other items of property, now or hereafter permanently affixed to or incorporated into the Leased Improvements, including, without limitation, all furnaces, boilers, heaters, electrical equipment, heating, plumbing, lighting, ventilating, refrigerating, incineration, air and water pollution control, waste disposal, air-cooling and air- conditioning systems and apparatus, sprinkler systems and fire and theft protection equipment, all of which, to the greatest extent permitted by law, are hereby deemed by the parties hereto to constitute real estate, together with all replacements, modifications, alterations and additions thereto, but specifically excluding all items included within the category of Tenant's Personal Property (collectively, the "Fixtures"); (e) all machinery, equipment, furniture, furnishings, moveable walls or partitions, computers or trade fixtures or other -12- personal property used or useful in Tenant's business on or in the Leased Improvements, and located on or in the Leased Improvements on the Commencement Date, except items, if any, included within the category of Fixtures, but specifically excluding all items included within the category of Tenant's Personal Property (collectively the "Leased Personal Property"); and (f) all existing leases of space (including any security deposits held pursuant thereto), if any, in the Leased Improvements to tenants thereof. 2.2 Condition of Premises. On the Commencement Date, Landlord shall deliver and Tenant shall accept the Leased Property in "as is" condition, subject to the rights of parties in possession, the existing state of title, including all covenants, conditions, restrictions, easements and other matters of record, all applicable Legal Requirements, the lien of financing instruments, mortgages and deeds of trust, and such other matters which would have been disclosed by an inspection of the Leased Property and the record title thereto or by an accurate survey thereof. LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY PART THEREOF, EITHER AS THE FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, WITH RESPECT TO THE LEASED PROPERTY OR ANY PORTION THEREOF IT BEING AGREED THAT ALL SUCH RISKS SHALL BE BORNE BY TENANT. To the extent permitted by law, however, Landlord grants and assigns to Tenant all of Landlord's rights to proceed against any predecessor in title for breaches of warranties or representations or for latent defects in the Leased Property. Landlord shall cooperate with Tenant in the prosecution of any such claims, in Landlord's or Tenant's name, all at Tenant's sole cost and expense. Tenant shall indemnify, and hold harmless Landlord from and against any loss, cost, damage or liability (including attorneys' fees) incurred by Landlord in connection with such cooperation. 2.3 Fixed Term. The initial term of this Lease (the "Fixed Term") shall commence on the date hereof and, unless sooner terminated in accordance with the terms and conditions of this Lease, shall expire on December 31, 1998. 2.4 Extended Terms. Provided no Default or Event of Default shall have occurred and be continuing and Tenant shall simultaneously exercise its right to extend the term of all of the Other Leases, Tenant shall have the right to extend the Fixed Term for two additional periods of ten (10) years each (the "Extended Terms"). Each Extended Term shall commence on the day succeeding the expiration of the Fixed Term or the preceding Extended Term, as the case may be, and shall end on the day immediately preceding the tenth anniversary of the commencement of such Extended Term. All of the terms, covenants and provisions of this Lease shall apply to each such Extended Term, except that (a) the Minimum Rent for the second such Extended Term shall be the greater of (x) the Minimum Rent payable during the first such Extended Term and (y) the Fair Market Rental for the Leased Property determined as of the commencement of such Extended -13- Term, and (b) Tenant shall have no further right to extend the Term beyond the Extended Terms hereinabove provided. If Tenant shall elect to exercise either of the aforesaid options, it shall do so by giving Landlord written notice thereof not later than one (1) year prior to the expiration of the then current term of this Lease (Fixed or Extended, as applicable); it being understood and agreed that time is of the essence with respect to the giving of such notice. If Tenant shall fail to give any such notice, this Lease shall automatically terminate at the end of the term then in effect and Tenant shall have no further option to extend the term of this Lease. If Tenant shall give such notice, the extension of this Lease shall be automatically effected, without the execution of any additional documents. -14- ARTICLE 3 RENT 3.1 Rent. Tenant shall pay to Landlord, by check or wire transfer of immediately available federal funds, as Tenant may elect, without offset, abatement, demand or deduction, Minimum Rent, Percentage Rent and Additional Rent, during the Term, as herein provided. 3.1.1 Minimum Rent. Tenant shall pay Minimum Rent in equal monthly installments, in advance, on the first day of each and every calendar month during the Term. Minimum Rent for any partial month shall be pro-rated on a daily basis. 3.1.2 Percentage Rent. (a) Amount. Commencing June 1, 2000, for each Fiscal Year during the Term, Tenant shall pay to Landlord, as additional rent, percentage rent ("Percentage Rent") in an amount equal to three percent (3%) of Excess Net Patient Revenues for such Fiscal Year. Percentage Rent shall be calculated and paid quarterly in arrears on the basis of cumulative Excess Net Patient Revenues as the last day of each quarter occurring during the applicable Fiscal Year, less the Percentage Rent, if any, previously paid to Landlord for such Fiscal Year. (b) Payment of Percentage Rent. Tenant shall calculate and deliver Percentage Rent to Landlord within forty-five (45) days after the end of each quarter of any Fiscal Year (or, in the case of the final quarter in any Fiscal Year, ninety (90) days thereafter), together with an Officer's Certificate, setting forth the calculation of Percentage Rent for such quarter. (c) Reconciliation of Additional Rent. Within ninety (90) days after the end of each Fiscal Year, Tenant shall deliver to Landlord an Officer's Certificate, together with certified audits with respect to Net Patient Revenues for the Facility and the facilities leased under the Other Leases, in form and substance reasonably satisfactory to Landlord, of Tenant's financial operations prepared by accountants reasonably satisfactory to Landlord, setting forth the Net Patient Revenues and Excess Net Patient Revenues for the immediately preceding Fiscal Year, together with such additional information with respect thereto as Landlord may reasonably request. If the Percentage Rent for any Fiscal Year as shown in the applicable Officer's Certificate and accompanying financial statements is less than the amount previously paid with respect thereto, Landlord shall, at Landlord's option, refund any excess payment to Tenant or grant Tenant a credit against the next due payment of Percentage Rent in the amount of such difference. If the Percentage Rent for any Fiscal Year as shown in the applicable Officer's Certificate exceeds the amount previously paid with respect thereto, Tenant shall pay such excess to Landlord at such time as such Officer's Certificate is delivered. -15- Any difference between the Percentage Rent for any Fiscal Year as shown in such Officer's Certificate and the total amount of quarterly payments for such Fiscal Year previously paid, whether in favor of Landlord or Tenant, shall bear interest at the Base Rate, which interest shall accrue from the close of such Fiscal Year until the amount of such difference shall be paid or otherwise discharged. A final reconciliation of Percentage Rent, taking into account among other relevant adjustments, any contractual allowances which are accrued after the expiration or sooner termination of this Lease, but which related to Net Patient Revenues accrued prior to such termination, and Tenant's good faith best estimate of the amount of any unresolved contractual allowances shall be made not later than two (2) years after such termination and Tenant shall advise Landlord within sixty (60) days after such termination of Tenant's best estimate at that time of the approximate amount of such adjustments, which estimate shall not be binding on Tenant. (d) Confirmation of Percentage Rent. Tenant shall utilize, or cause to be utilized, an accounting system for the conduct of its business at the Leased Property in accordance with its usual and customary practices and in accordance with generally accepted accounting principles, consistently applied, which will accurately record all Net Patient Revenues, and shall employ independent accountants reasonably acceptable to Landlord, and Tenant shall retain, for at least four (4) years after the expiration of each Fiscal Year (and in any event until the final reconciliation described in subparagraph (c) above for such Fiscal Year has been made), reasonably adequate records conforming to such accounting system showing all Net Patient Revenues for such Fiscal Year. Landlord, at its own expense, except as provided below, shall have the right, from time to time by its accountants or representatives, to audit the information set forth in the Officer's Certificate referred to in subparagraph (b) above and, in connection with such audit, to examine Tenant's records with respect thereto (including supporting data and sales and excise tax returns), subject to any prohibitions or limitations on disclosure of any such data under applicable law or regulations, including, without limitation, any duly enacted "Patients' Bill of Rights" or similar legislation and such other limitations as may be necessary to preserve the confidentiality of the Facility-patient relationship and the physician-patient privilege. If any such audit shall disclose a deficiency in the payment of Percentage Rent and either Tenant agrees with the result of such audit or the matter is otherwise determined or compromised, Tenant shall forthwith pay to Landlord the amount of the deficiency, as finally agreed or determined, together with interest thereon at the Base Rate. If any such audit discloses that the Net Patient Revenues actually received by Tenant for any Fiscal Year exceed those reported by Tenant by more than three percent (3%), Tenant shall pay the reasonable cost of such audit. Any proprietary information obtained by Landlord pursuant to the provisions of this section shall be treated as confidential, except such information may be used, subject to appropriate confidentiality safeguards, in any litigation between the parties -16- and Landlord may disclose such information to prospective purchasers or lenders. 3.1.3 Additional Rent. In addition to the Minimum Rent and Percentage Rent, Tenant shall pay and discharge as and when due and payable all other amounts, liabilities, obligations and Impositions which Tenant assumes or agrees to pay under this Lease (collectively, "Additional Rent"), including, but not limited to the following: (a) Impositions. Subject to Article 8, Tenant shall pay, or cause to be paid, all Impositions before any fine, penalty, interest or cost may be added for non-payment, such payments to be made directly to the taxing authorities where feasible, and shall promptly, upon request, furnish to Landlord copies of official receipts or other satisfactory proof evidencing such payments. If any such Imposition may, at the option of the taxpayer, lawfully be paid in installments (whether or not interest shall accrue on the unpaid balance of such Imposition), Tenant may exercise the option to pay the same (and any accrued interest on the unpaid balance of such Imposition) in installments and, in such event, shall pay such installments during the Term as the same become due and before any fine, penalty, premium, further interest or cost may be added thereto. Landlord, at its expense, shall, to the extent required or permitted by applicable law, prepare and file all tax returns in respect of Landlord's net income, gross receipts, sales and use, single business, transaction privilege, rent, ad valorem, franchise taxes and taxes on its capital stock, and Tenant, at its expense, shall, to the extent required or permitted by applicable laws and regulations, prepare and file all other tax returns and reports in respect of any Imposition as may be required by governmental authorities. If any refund shall be due from any taxing authority in respect of any Imposition paid by Tenant, the same shall be paid over to or retained by Tenant if no Default or Event of Default shall have occurred and be continuing. Landlord and Tenant shall, upon request of the other, provide such data as is maintained by the party to whom the request is made with respect to the Leased Property as may be necessary to prepare any required returns and reports. In the event governmental authorities classify any property covered by this Lease as personal property, Tenant shall file all personal property tax returns in such jurisdictions where it may legally so file. Each party shall, to the extent it possesses the same, provide the other, upon request, with cost and depreciation records necessary for filing returns for any property so classified as personal property. Where Landlord is legally required to file personal property tax returns, Landlord shall provide Tenant with copies of assessment notices in sufficient time for Tenant to file a protest. All Impositions assessed against such personal property shall be (irrespective of whether Landlord or Tenant shall file the relevant return) paid by Tenant not later than thirty (30) days prior to the last date on which the same may be made without interest or penalty. If the provisions of any Facility Mortgage requires deposits on account of Impositions to be made with such Facility Mortgagee, provided the Facility Mortgagee has not elected to waive such provision, Tenant shall either pay Landlord the monthly amounts required and Landlord shall transfer -17- such amounts to such Facility Mortgagee or, pursuant to written direction by Landlord, Tenant shall make such deposits directly with such Facility Mortgagee. Landlord shall give prompt written notice to Tenant of all Impositions payable by Tenant hereunder of which Landlord at any time has knowledge; provided, however, Landlord's failure to give any such notice shall in no way diminish Tenant's obligation hereunder to pay such Impositions. Impositions imposed in respect of the tax-fiscal period during which the Term commences and/or terminates shall be prorated between Landlord and Tenant, whether or not such Imposition is imposed before or after such termination. (b) Utility Charges. Tenant shall pay or cause to be paid all charges for electricity, power, gas, oil, water and other utilities used at the Leased Property during the Term. (c) Insurance Premiums. Tenant shall pay or cause to be paid all premiums for the insurance coverage required to be maintained pursuant to Article 9. (d) Other Charges. Tenant shall pay or cause to be paid all other amounts, liabilities and obligations which Tenant assumes or agrees to pay under this Lease. 3.2 Late Payment of Rent. If any installment of Minimum Rent, Percentage Rent or Additional Rent (but only as to those items of Additional Rent which are payable directly to Landlord) shall not be paid when due, Tenant shall pay Landlord, on demand, as Additional Rent, a late charge (to the extent permitted by law) computed, during the first ten (10) days such payment is delinquent at the greater of the Base Rate and eleven and one-half percent (11.5%) per annum and, thereafter, at the Overdue Rate, on the amount of such installment, from the date such installment was due until the date paid. To the extent that Tenant pays any Additional Rent directly to Landlord pursuant to any requirement of this Lease, Tenant shall be relieved of its obligation to pay such Additional Rent to the entity to which they would otherwise be due. In the event of any failure by Tenant to pay any Additional Rent when due, Tenant shall promptly pay and discharge, as Additional Rent, every fine, penalty, interest and cost which may be added for non- payment or late payment of such items. Landlord shall have all legal, equitable and contractual rights, powers and remedies provided either in this Lease or by statute or otherwise in the case of non-payment of the Additional Rent as in the case of non-payment of the Minimum Rent. 3.3 Net Lease. The Rent shall be absolutely net to Landlord, so that this Lease shall yield to Landlord the full amount of the installments of Minimum Rent, Percentage Rent and Additional Rent throughout the Term, subject to any other provisions of this Lease which expressly provide for adjustment or abatement of Rent or other charges. -18- 3.4 No Termination, Abatement, Etc. Except as otherwise specifically provided in this Lease, Tenant, to the maximum extent permitted by law, shall remain bound by this Lease in accordance with its terms and shall neither take any action without the consent of Landlord to modify, surrender or terminate the same, nor seek, nor be entitled to any abatement, deduction, deferment or reduction of the Rent, or set-off against the Rent, nor shall the respective obligations of Landlord and Tenant be otherwise affected by reason of (a) any damage to, or destruction of, the Leased Property or any portion thereof from whatever cause or any Condemnation; (b) the lawful or unlawful prohibition of, or restriction upon Tenant's use of the Leased Property, or any portion thereof, or the interference with such use by any Person or by reason of eviction by paramount title; (c) any claim which Tenant may have against Landlord by reason of any Landlord Default; (d) any bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding up or other proceedings affecting Landlord or any assignee or transferee of Landlord; or (e) for any other cause whether similar or dissimilar to any of the foregoing. Tenant hereby waives all rights arising from any occurrence whatsoever, which may now or hereafter be conferred upon it by law to modify, surrender or terminate this Lease or quit or surrender the Leased Property or any portion thereof or which may entitle Tenant to any abatement, reduction, suspension or deferment of the Rent or other sums payable or other obligations to be performed by Tenant hereunder, except as otherwise specifically provided in this Lease. The obligations of Landlord and Tenant hereunder shall be separate and independent covenants and agreements and the Rent and all other sums payable by Tenant hereunder shall continue to be payable in all events unless the obligations to pay the same shall be terminated pursuant to the express provisions of this Lease. ARTICLE 4 USE OF THE LEASED PROPERTY 4.1 Permitted Use. 4.1.1 Primary Intended Use. Tenant shall continuously use or cause to be used the Leased Property as a nursing home or subacute facility and/or other facility offering any higher level health care services and for such other uses as may be necessary or incidental thereto (the particular use to which the Leased Property is put at any particular time, its "Primary Intended Use"). Tenant shall not use the Leased Property or any portion thereof for other than its Primary Intended Use without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed; provided, however, that such consent shall not be deemed to be unreasonably withheld if, in the reasonable opinion of Landlord, the proposed use will significantly alter the character or purpose or detract from the value or operating efficiency of the Leased Property or significantly impair the revenue-producing capability of the Leased Property or adversely affect the ability of Tenant to comply with this Lease. No use shall be made or permitted to be made of the Leased Property and no acts shall be done thereon which will cause the cancellation of any -19- insurance policy covering the Leased Property or any part thereof, nor shall Tenant sell or otherwise provide to residents or patients therein, or permit to be kept, used or sold in or about the Leased Property, or any portion thereof, any article which may be prohibited by law or by the standard form of fire insurance policies, or any other insurance policies required to be carried hereunder, or fire underwriter's regulations. 4.1.2 Necessary Approvals. Tenant shall proceed with all due diligence and exercise best efforts to obtain and maintain all approvals necessary to use and operate the Leased Property and the Facility for the Primary Intended Use under applicable local, state and federal law and, without limiting the generality of the foregoing, shall use its best efforts to maintain appropriate certifications for reimbursement licensure. 4.1.3 Continuous Operation, Etc. Tenant shall use its best efforts to operate continuously the Leased Property as a provider of health care services in accordance with the Primary Intended Use. Tenant shall not take, or omit to take, any action, the taking or omission of which may materially impair the value or the usefulness of the Leased Property for the Primary Intended Use. 4.1.4 Lawful Use, Etc. Tenant shall not use or suffer or permit the use of the Leased Property and Tenant's Personal Property for any unlawful purpose. Tenant shall not commit or suffer to be committed any waste on the Leased Property or the Facility, nor shall Tenant cause or permit any nuisance thereon or therein. Tenant shall neither suffer nor permit the Leased Property or any portion thereof, including any Capital Addition, whether or not financed by Landlord, or Tenant's Personal Property, to be used in such a manner as might reasonably tend to impair Landlord's (or Tenant's, as the case may be) title thereto or to any portion thereof, or may reasonably make possible any claim for adverse usage or adverse possession by the public, as such, or of implied dedication of the Leased Property or any portion thereof. 4.2 Compliance with Legal and Insurance Requirements, Instruments, Etc. Subject to the provisions of Article 8, Tenant, at its sole expense, shall promptly (i) comply with all Legal Requirements and Insurance Requirements in respect of the use, operation, maintenance, repair, alteration and restoration of the Leased Property and Tenant's Personal Property, and (ii) procure, maintain and comply with all appropriate licenses, certificates of need, permits, provider agreements and other authorizations required for any use of the Leased Property and Tenant's Personal Property then being made, and for the proper erection, installation, operation and maintenance of the Leased Property or any part thereof, including, without limitation, any Capital Additions. 4.3 Compliance with Medicaid and Medicare Requirements. Tenant shall, at its sole cost and expense, make whatever improvements (capital or ordinary) as are required to conform the Leased Property to such standards as may, from time to time, be required by Federal Medicare (Title 18) or Medicaid (Title 19) skilled and/or intermediate care nursing programs, if applicable, or any other applicable programs or legislation, or capital improvements required by any other governmental -20- agency having jurisdiction over the Leased Property as a condition of the continued operation of the Leased Property for the Primary Intended Use. 4.4 Environmental Matters. Tenant shall not store, spill upon, dispose of or transfer to or from the Leased Property any Hazardous Substance, except that Tenant may store, transfer and dispose of Hazardous Substances in compliance with all Environmental Laws. Tenant shall maintain the Leased Property at all times free of any Hazardous Substance (except such Hazardous Substances as are maintained in compliance with all Environmental Laws). Tenant shall promptly: (a) notify Landlord in writing of any change in the nature or extent of such Hazardous Substances maintained, (b) transmit to Landlord a copy of any report which is required to be filed with respect to the Leased Property pursuant to any Environmental Law, (c) transmit to Landlord copies of any citations, orders, notices or other governmental communications received by Tenant or its agents or representatives with respect thereto (collectively, "Environmental Notice"), (d) observe and comply with any and all Environmental Laws relating to the use, maintenance and disposal of Hazardous Substances and all orders or directives from any official, court or agency of competent jurisdiction relating to the use or maintenance or requiring the removal, treatment, containment or other disposition thereof, and (e) pay or otherwise dispose of any fine, charge or Imposition related thereto, unless Tenant shall contest the same in accordance with Article 8. If at any time prior to the termination of this Lease, Hazardous Substances are discovered on the Leased Property, Tenant hereby agrees to take all actions, and to incur any and all expenses, as may be reasonably necessary and as may be required by any municipal, State or Federal agency or other governmental entity or agency having jurisdiction thereof, (a) to clean up and remove from and about the Leased Property all Hazardous Substances thereon, (b) to contain and prevent any further release or threat of release of Hazardous Substances on or about the Leased Property and (c) to eliminate any further release or threat of release of Hazardous Substances on or about the Leased Property. Tenant shall indemnify and hold harmless Landlord and each Facility Mortgagee from and against all liabilities, obligations, claims, damages, penalties, costs and expenses (including, without limitation, reasonable attorney's fees and expenses) imposed upon, incurred by or asserted against any of them by reason of any failure by Tenant or any Person claiming under Tenant to perform or comply with any of the terms of this Section 4.4. -21- ARTICLE 5 MAINTENANCE AND REPAIRS, ETC. 5.1 Maintenance and Repair. 5.1.1 Tenant's Obligations. Tenant shall, at its sole cost and expense, keep the Leased Property and all private roadways, sidewalks and curbs appurtenant thereto (and Tenant's Personal Property) in good order and repair, reasonable wear and tear excepted, (whether or not the need for such repairs occurs as a result of Tenant's use, any prior use, the elements or the age of the Leased Property or Tenant's Personal Property, or any portion thereof), and shall promptly make all necessary and appropriate repairs and replacements thereto of every kind and nature, whether interior or exterior, structural or nonstructural, ordinary or extraordinary, foreseen or unforeseen or arising by reason of a condition existing prior to the commencement of the Term (concealed or otherwise). All repairs shall be at least equivalent in quality to the original work. 5.1.2 Landlord's Obligations. Landlord shall not, under any circumstances, be required to build or rebuild any improvement on the Leased Property, or to make any repairs, replacements, alterations, restorations or renewals of any nature or description to the Leased Property, whether ordinary or extraordinary, structural or non-structural, foreseen or unforeseen, or to make any expenditure whatsoever with respect thereto, in connection with this Lease, or to maintain the Leased Property in any way, except as specifically provided herein. Tenant hereby waives, to the extent permitted by law, the right to make repairs at the expense of Landlord pursuant to any law in effect at the time of the execution of this Lease or hereafter enacted. Landlord shall have the right to give, record and post, as appropriate, notices of nonresponsibility under any mechanic's lien laws now or hereafter existing. 5.2 Capital Expenditure Cost Sharing. Replacement of or major repairs to all structural or mechanical systems shall be undertaken by Tenant, at its sole cost and expense in the exercise of its reasonable business judgment, pursuant to and in accordance with plans and specifications approved in advance by Landlord; provided, however, that if the useful life of any improvement or repair for which a Capital Expenditure is made extends beyond the termination of the Term (other than any early termination resulting from the occurrence of an Event of Default), provided Tenant shall have obtained Landlord's prior written consent with respect to the making thereof, the cost of such replacement or repair shall be apportioned between Landlord and Tenant so that Landlord shall pay for that portion of the useful life of such item occurring on or after such termination date. Landlord shall have no obligation to reimburse Tenant for Landlord's share of the cost of such replacement or repair until the date of the termination of this Lease. Notwithstanding the foregoing, Landlord agrees to make any such payment to Tenant within sixty (60) days after Tenant's written request therefor. -22- 5.3 Tenant's Personal Property. Tenant may (and shall as provided hereinbelow), at its expense, install, affix or assemble or place on any parcels of the Land or in any of the Leased Improvements, any items of Tenant's Personal Property, and Tenant may, subject to the conditions set forth below, remove the same upon the expiration or sooner termination of the Term. Tenant shall provide and maintain during the entire Term all such Tenant's Personal Property as shall be necessary in order to operate the Facility in compliance with all licensure and certification requirements, applicable Legal Requirements and Insurance Requirements and otherwise in accordance with customary practice in the industry for the Primary Intended Use. All of Tenant's Personal Property not removed by Tenant on or prior to the expiration or earlier termination of this Lease shall be considered abandoned by Tenant and may be appropriated, sold, destroyed or otherwise disposed of by Landlord without the necessity of first giving notice thereof to Tenant, without any payment to Tenant and without any obligation to account therefor. Tenant shall, at its expense, restore the Leased Property to the condition required by Section 5.4, including repair of all damage to the Leased Property caused by the removal of Tenant's Personal Property, whether effected by Tenant or Landlord. If Tenant uses any item of tangible personal property (other than motor vehicles) on, or in connection with, the Leased Property which belongs to anyone other than Tenant, Tenant shall use its best efforts to require the agreement permitting such use to provide that Landlord or its designee may assume Tenant's rights under such agreement upon management of the Facility by Landlord or its designee. 5.4 Yield Up. Upon the expiration or sooner termination of this Lease, Tenant shall vacate and surrender the Leased Property to Landlord in the condition in which the Leased Property was on the Commencement Date, except as repaired, rebuilt, restored, altered or added to as permitted or required by the provisions of this Lease, ordinary wear and tear excepted. In addition, upon the expiration or earlier termination of this Lease, Tenant shall, at Landlord's reasonable cost and expense, use its best efforts to transfer to and cooperate with Landlord or Landlord's nominee in connection with the processing of all applications for licenses, operating permits and other governmental authorizations and all contracts, including, contracts with governmental or quasi- governmental entities, which may be necessary for the operation of the Facility. If requested by Landlord, Tenant shall continue to manage the Facility after the termination of this Lease and for so long thereafter as is necessary to obtain all necessary licenses, operating permits and other governmental authorizations, on such reasonable terms (which shall include an agreement to reimburse Tenant for its reasonable out-of- pocket costs and expenses and reasonable administrative costs) as Landlord shall request. 5.5 Encroachments, Restrictions, Etc. If any of the Leased Improvements shall, at any time, encroach upon any property, street or right-of-way adjacent to the Leased Property, or shall violate the agreements or conditions contained in any lawful restrictive covenant or other agreement affecting the Leased Property, or any part thereof, or -23- shall impair the rights of others under any easement or right-of-way to which the Leased Property is subject, upon the request of Landlord or of any person affected by any such encroachment, violation or impairment, Tenant shall, at its sole cost and expense, subject to its right to contest the existence of any encroachment, violation or impairment and in such case, in the event of an adverse final determination, either (a) obtain, in form and substance satisfactory to Landlord, valid and effective waivers or settlements of all claims, liabilities and damages resulting from each such encroachment, violation or impairment, whether the same shall affect Landlord or Tenant, or (b), subject to Landlord's approval (which shall not be unreasonably withheld or delayed), make such changes in the Leased Improvements and take such other actions, as Tenant, in the good faith exercise of its judgment, deems reasonably practicable, to remove such encroachment, and to end such violation or impairment, including, if necessary, the alteration of any of the Leased Improvements and, in any event, take all such actions as may be necessary in order to ensure the continued operation of the Leased Improvements for the Primary Intended Use substantially in the manner and to the extent the Leased Improvements were operated prior to the assertion of such violation, impairment or encroachment. Any such alteration shall be made in conformity with the applicable requirements of this Article 5. Tenant's obligations under this Section 5.5 shall be in addition to and shall in no way discharge or diminish any obligation of any insurer under any policy of title or other insurance and Tenant shall be entitled to a credit for any sums recovered by Landlord under any such policy of title or other insurance. ARTICLE 6 CAPITAL ADDITIONS, ETC. 6.1 Construction of Capital Additions to the Leased Property. Provided no Default or Event of Default shall have occurred and be continuing, Tenant shall have the right, subject to obtaining Landlord's prior written consent (which consent shall not be unreasonably withheld or delayed), upon and subject to the terms and conditions set forth below, to construct or install Capital Additions on the Leased Property. Landlord's consent shall not be deemed to be unreasonably withheld if such Capital Addition will significantly alter the character or purpose or detract from the value or operating efficiency or the revenue-producing capability of the Leased Property, or adversely affect the ability of Tenant to comply with this Lease. Any withholding of consent shall be express and shall be effected within thirty (30) days after receipt by Landlord of such documents or information as Landlord may reasonably require, notice of which requirements shall be sent to Tenant within thirty (30) days after Tenant's request. Failure to give notice of the withholding of such consent within such thirty (30) day period shall be deemed approval. Prior to commencing construction of any Capital Addition, Tenant shall submit to Landlord, in writing, a proposal setting forth, in reasonable detail, any proposed Capital Addition and shall provide Landlord with such plans and specifications, permits, licenses, contracts and other information concerning the proposed Capital Addition as Landlord may reasonably request. Without limiting the generality of the foregoing, such proposal shall indicate -24- the approximate projected cost of constructing such Capital Addition, the use or uses to which it will be put and a good faith estimate of the change, if any, in the Net Patient Revenues that Tenant anticipates will result from such Capital Addition. Prior to commencing construction of any Capital Addition, Tenant shall request in writing that Landlord provide funds to pay for such Capital Addition. If, within sixty (60) days after receipt of such request, Landlord shall not elect to provide such financing on terms reasonably acceptable to Tenant (and, for purposes of this Section 6.1, the failure of Landlord to respond within such 60 day period shall be deemed an election not to provide such funding), the provisions of Section 6.2 shall apply. Landlord's notice of its election to provide such financing shall set forth the terms and conditions of such proposed financing, including the terms of any amendment to this Lease (including, without limitation, an increase in Minimum Rent to compensate Landlord for the additional funds advanced). In no event shall the portion of the projected Capital Additions Cost comprised of land, if any, materials, labor charges and fixtures be less than eighty percent (80%) of the total amount of such cost. Tenant may withdraw its request by written notice to Landlord at any time before Tenant's written acceptance of Landlord's terms and conditions. If Landlord declines to finance a Capital Addition or if Landlord's proposed financing terms are unacceptable to Tenant, Tenant may solicit and negotiate a commitment for such financing from another Person, provided Landlord shall approve all the terms and conditions of such financing (which approval shall not be unreasonably withheld or delayed). If Landlord shall finance the proposed Capital Addition, Tenant shall pay to Landlord, as Additional Rent, all reasonable costs and expenses paid or incurred by Landlord and any Lending Institution which has committed to provide financing for such Capital Addition to Landlord in connection therewith, including, but not limited to, (a) the reasonable attorneys' fees and expenses, (b) all printing expenses, (c) all filing, registration and recording taxes and fees, (d) documentary stamp taxes, (e) title insurance charges, appraisal fees, and rating agency fees, and (f) commitment fees. No Capital Addition shall be made which would tie in or connect any Leased Improvement or any Leased Property with any other improvements on property adjacent to such Leased Property (and not part of the Land) including, without limitation, tie-ins of buildings or other structures or utilities, unless Tenant shall have obtained the prior written approval of Landlord, which approval may be withheld by Landlord in Landlord's sole discretion. Any Capital Additions shall, upon the expiration or sooner termination of this Lease, become the property of Landlord, free and clear of all encumbrances, subject to the provisions of Section 6.2. 6.2 Capital Additions Financed by Tenant. Provided that Tenant has obtained the prior written consent of Landlord in each instance (which approval shall not be unreasonably withheld or delayed), Tenant may arrange for financing for Capital Additions from third party lend- ers; provided, however that (i) the terms and conditions of any such financing shall be subject to the prior approval of Landlord and (ii) any security interests in any property of Tenant, including, without limitation, the Leased Property, shall be expressly and fully subordinated to this Lease and to the interest of Landlord in the Leased -25- Property and to the rights of any Facility Mortgagee. If, pursuant to the provisions of this Lease, Tenant provides or arranges financing with respect to any Capital Addition, this Lease shall be and hereby is amended to provide as follows: (a) Upon completion of any such Capital Addition, Net Patient Revenues attributable to such Capital Addition shall be excluded from Net Patient Revenues of the Leased Property for purposes of calculating Percentage Rent. The Net Patient Revenues attributable to any such Capital Addition shall be deemed to be an amount (the "Added Value Percentage") which bears the same proportion to the total Net Patient Revenues from the entire Leased Property (including all Capital Additions) as the Fair Market Added Value of such Capital Addition bears to the Fair Market Value of the entire Leased Property (including all Capital Additions) immediately after completion of such Capital Addition. The Added Value Percentage for Capital Additions financed by Tenant shall remain in effect until any subsequent Capital Addition financed by Tenant is completed. (b) There shall be no adjustment in the Minimum Rent by reason of any such Capital Addition. (c) Upon the expiration or earlier termination of this Lease (but if this Lease is terminated by reason of an Event of Default, only after Landlord is fully compensated for all damages resulting therefrom), Landlord shall compensate Tenant for all Capital Additions financed by Tenant in any of the following ways determined in Landlord's sole discretion: (i) By purchasing such Capital Additions from Tenant for cash in the amount of the then Fair Market Added Value of such Capital Additions; (ii) By purchasing such Capital Additions from Tenant by delivering to Tenant Landlord's purchase money promissory note in the amount of the Fair Market Added Value, which note shall be due and payable as to both principal and interest on the second anniversary of the making thereof, shall be on then commercially reasonable terms and shall be secured by a mortgage on the Leased Property and such Capital Additions subject to all existing mortgages and encumbrances on the Leased Property and such Capital Additions at the time of such purchase; (iii) By assigning to Tenant the right to receive an amount equal to the Added Value Percentage (determined as of the date of the expiration or earlier termination of this Lease) of all rent and other consideration receivable by Landlord under any re-letting or other disposition of the Leased Property and such Capital Additions, after deducting from such rent all costs and expenses incurred by Landlord in connection with such re-letting or other disposition of the Leased Property and such Capital Additions and all costs and expenses of operating and maintaining the Leased Property and such Capital -26- Additions during the term of any such new lease which are not borne by the tenant thereunder, with the provisions of this Section 6.2(c) to remain in effect until the sale or other final disposition of the Leased Property and such Capital Additions, at which time the Fair Market Added Value of such Capital Addition shall be immediately due and payable, such obligation to be secured by a mortgage on the Leased Property and such Capital Additions, subject to all existing mortgages and encumbrances on the Leased Property at the time of such purchase and assignment; or (iv) By making such other arrangement regarding such compensation as shall be mutually acceptable to Landlord and Tenant. 6.3 Information Regarding Capital Additions. Regardless of the source of financing of any proposed Capital Addition, Tenant shall provide Landlord with such information as Landlord may from time to time reasonably request with respect to such Capital Addition, including, without limitation, the following: (a) Evidence that such Capital Addition will be, and upon completion has been, completed in compliance with the applicable requirements of State and federal law with respect to capital expenditures for nursing facilities; (b) Upon completion of such Capital Addition, a copy of the certificate of occupancy for the Facility updated, if required; (c) Such information, certificates, licenses, permits or other documents necessary to confirm that Tenant will be able to use the Capital Addition upon completion thereof in accordance with the Primary Intended Use, including all required federal, State or local government licenses and approvals; (d) An Officer's Certificate and a certificate from Tenant's architect setting forth, in reasonable detail, the projected (or actual, if available) Capital Additions Cost and invoices and lien waivers from Tenant's contractors for such work; (e) A deed conveying to Landlord title to any land acquired for the purpose of constructing the Capital Addition free and clear of any liens or encumbrances, except those approved by Landlord and, upon completion of the Capital Addition, a final as-built survey thereof reasonably satisfactory to Landlord; (f) Endorsements to any outstanding policy of title insurance covering the Leased Property or commitments therefor, satisfactory in form and substance to Landlord, (i) updating the same without any additional exceptions except as approved by Landlord, and (ii) increasing the coverage thereof by an amount equal to the Fair Market Value of the Capital Addition (except to the extent covered by the owner's policy of title insurance referred to in subparagraph (g) below); -27- (g) If appropriate, (i) an owner's policy of title insurance insuring fee simple title to any land conveyed to Landlord pursuant to subparagraph (e) above, free and clear of all liens and encumbrances, except those approved by Landlord, and (ii) a lender's policy of title insurance, reasonably satisfactory in form and substance to Landlord and the Lending Institution advancing any portion of the Capital Additions Cost; (h) An appraisal of the Leased Property by a Qualified Appraiser, acceptable to Landlord, and an Officer's Certificate stating that the value of the Leased Property upon completion of the Capital Addition exceeds the Fair Market Value thereof prior to the commencement of such Capital Addition by an amount not less than 80% of the Capital Additions Cost; and (i) Prints of architectural and engineering drawings relating to such Capital Addition and such other certificates, documents, opinions of counsel, appraisals, surveys, certified copies of duly adopted resolutions of the board of directors of Tenant authorizing the execution and delivery of any lease amendment or other instruments reasonably required by Landlord and any Lending Institution advancing or reimbursing Tenant for any portion of the Capital Additions Cost. 6.4 Non-Capital Additions. Tenant shall have the right, at Tenant's sole cost and expense, to make additions, modifications or improvements to the Leased Property which are not Capital Additions ("Non-Capital Additions") from time to time as Tenant, in its reasonable discretion, may deem desirable for the Primary Intended Use, provided that such action will not adversely alter the character or purpose or detract from the value, operating efficiency or revenue-producing capability of the Leased Property, or adversely affect the ability of Tenant to comply with the provisions of this Lease. All such Non- Capital Additions shall, upon expiration or earlier termination of this Lease, become the property of Landlord, free and clear of all encumbrances other than Permitted Encumbrances. 6.5 Salvage. All materials which are scrapped or removed in connection with the making of either Capital Additions or repairs required by Article 5 shall be the property of the party paying or providing the financing for such work. ARTICLE 7 LIENS 7.1 Liens. Subject to Article 8, Tenant shall not, directly or indirectly, create or allow to remain and shall promptly discharge, at its expense, any lien, encumbrance, attachment, title retention agreement or claim upon the Leased Property or any attachment, levy, claim or encumbrance in respect of the Rent, other than (a) this Lease, (b) the Permitted Encumbrances, (c) restrictions, liens and other encumbrances which are consented to in writing by Landlord, (d) liens for those taxes of Landlord which Tenant is not required to pay -28- hereunder, (e) subleases permitted by Article 17, (f) liens for Impositions or for sums resulting from noncompliance with Legal Requirements so long as (i) the same are not yet payable, or (ii) are payable without fine or penalty and such liens are being contested in accordance with Article 8, (g) liens of mechanics, laborers, materialmen, suppliers or vendors for sums disputed, provided that (i) the payment of such sums shall not be postponed under any related contract for more than sixty (60) days after the completion of the action giving rise to such lien and a reserve or another appropriate provision as shall be required by law or generally accepted accounting principles shall have been made therefor, and (ii) any such liens are being contested in accordance with Article 8, and (h) any liens which are the responsibility of Landlord pursuant to Article 21. 7.2 Landlord's Lien. In addition to any statutory landlord's lien and in order to secure payment of the Rent and all other sums payable hereunder by Tenant, and to secure payment of any loss, cost or damage which Landlord may suffer by reason of Tenant's breach of this Lease, Tenant hereby grants unto Landlord a security interest in and an express contractual lien upon Tenant's Personal Property (except motor vehicles sold from time to time in the ordinary course of Tenant's operations), and all ledger sheets, files, records, documents and instruments (including, without limitation, computer programs, tapes and related electronic data processing) relating to the operation of the Facility (collectively, the "Records") and all proceeds therefrom; and Tenant's Personal Property shall not be removed from the Leased Property without the Landlord's prior written consent, unless no Default or Event of Default shall have occurred and be continuing. Upon Landlord's request, Tenant shall execute and deliver to Landlord security agreements and financing statements in form sufficient to perfect the security interests of Landlord in Tenant's Personal Property and the proceeds thereof in accordance with the provisions of the applicable laws of the State and otherwise in form and substance reasonably satisfactory to Landlord. Tenant hereby grants Landlord an irrevocable limited power of attorney, coupled with an interest, to execute all such financing statements in Tenant's name, place and stead. The security interest herein granted is in addition to any statutory lien for the Rent. Landlord agrees, at Tenant's request, to execute such documents as Tenant may reasonably require to subordinate the lien granted pursuant to this Section 7.2 in Tenant's Personal Property (but not the Records) to the lien of any Person providing purchase money financing with respect thereto. 7.3 Mechanic's Liens. Except as permitted with respect to Capital Additions, nothing contained in this Lease and no action or inaction by Landlord shall be construed as (a) constituting the consent or request of Landlord, expressed or implied, to any contractor, subcontractor, laborer, materialman or vendor to or for the performance of any labor or services or the furnishing of any materials or other property for the construction, alteration, addition, repair or demolition of or to the Leased Property or any part thereof, or (b) giving Tenant any right, power or permission to contract for or permit the performance of any -29- labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against Landlord in respect thereof or to make any agreement that may create, or in any way be the basis for any right, title, interest, lien, claim or other encumbrance upon the Leased Property, or any portion thereof. ARTICLE 8 PERMITTED CONTESTS Tenant shall have the right to contest the amount or validity of any Imposition, Legal Requirement, Insurance Requirement, lien, attachment, levy, encumbrance, charge or claim (collectively "Claims") by appropriate legal proceedings conducted in good faith and with due diligence, provided that (a) the foregoing shall in no way be construed as relieving, modifying or extending Tenant's obligation to pay any Claims as finally determined or prior to the time the Leased Property may be sold in satisfaction thereof, (b) such contest shall not cause Landlord or Tenant to be in default under any mortgage or deed of trust encumbering the Leased Property or any interest therein or result in or reasonably be expected to result in a lien attaching to the Leased Property, and (c) Tenant shall indemnify and hold harmless Landlord from and against any cost, claim, damage, penalty or expense, including reasonable attorneys' fees, incurred by Landlord in connection therewith or as a result thereof. Upon Landlord's request, Tenant shall either (a) provide a bond or other assurance reasonably satisfactory to Landlord that all Claims which may be assessed against the Leased Property, together with all interest and penalties thereon will be paid, or (b) deposit within the time otherwise required for payment with a bank or trust company, as trustee, as security for the payment of such Claims, an amount sufficient to pay the same, together with interest and penalties in connection therewith and all Claims which may be assessed against or become a Claim against the Leased Property, or any part thereof, in connection with any such contest. Tenant shall furnish Landlord and any Facility Mortgagee with reasonable evidence of such deposit within five (5) days after request therefor. Landlord agrees to join in any such proceedings if required legally to prosecute such contest; provided, however, that Landlord shall not thereby be subjected to any liability therefor (including, for the payment of any costs or expenses in connection therewith). Tenant shall be entitled to any refund of any Claims and such charges and penalties or interest thereon which have been paid by Tenant or paid by Landlord and for which Landlord has been fully reimbursed by Tenant. If Tenant shall fail (a) to pay any Claims when due, (b) to provide security therefor as provided in this Article 8, or (c) to prosecute any such contest diligently and in good faith, Landlord may, upon reasonable notice to Tenant (which notice may be oral and shall not be required if Landlord shall determine the same is not practicable), pay such charges, together with interest and penalties due with respect thereto, and Tenant shall reimburse Landlord therefor, upon demand, as Additional Rent. ARTICLE 9 -30- INSURANCE AND INDEMNIFICATION 9.1 General Insurance Requirements. Tenant shall at all times during the Term and any other time Tenant shall be in possession of the Leased Property, keep the Leased Property, and all property located in or on the Leased Property, including Tenant's Personal Property, insured against the risks in the amounts as follows: (a) Comprehensive general liability insurance, including bodily injury and property damage (on an occurrence basis and in the broadest form available, including without limitation broad form contractual liability, fire legal liability independent contractor's hazard and completed operations coverage) under which Tenant is named as an insured and Landlord and any Facility Mortgagee (and such others as are in privity of estate with Landlord, as set out in a notice from time to time) are named as additional insureds as their interests may appear, in an amount which shall, at the beginning of the Term, be at least equal to $5,000,000 per occurrence in respect of bodily injury and death and $1,000,000 per occurrence in respect of property damage, and which, from time to time during the Term, shall be for such higher limits, if any, as are customarily carried in the area in which the Leased Property is located at property similar to the Leased Property and used for similar purposes; (b) "All-risk" property insurance on a "replacement cost" basis with the usual extended coverage endorsements covering the Leased Property and Tenant's Personal Property; (c) Business interruption and loss of rental under a rental value insurance policy covering risk of loss during the lesser of the first twelve (12) months of reconstruction or the actual reconstruction period necessitated by the occurrence of any of the hazards described in paragraphs (a) and (b) above, in such amounts as may be customary for comparable properties in the area and in an amount sufficient to prevent Landlord or Tenant from becoming a co-insurer; (d) Claims arising out of malpractice in an amount not less than Five Million Dollars ($5,000,000) for each person and for each occurrence with respect to the Leased Property, provided the same is available at rates which are economically practical in relation to the risk covered, as determined by Tenant and approved by Landlord (it being agreed that, in the event the same is not available at rates which are economically practical in relation to the risks covered, Tenant shall provide such malpractice insurance by means of the maintenance of a program of self insurance, which, in accordance with generally accepted accounting principles consistently applied, satisfies the insurance requirements of this paragraph (d) and, in such event, Tenant shall submit to Landlord such records and other evidence thereof as Landlord may from time to time reasonably request to confirm the maintenance of such a program); -31- (e) Flood (if the Leased Property which 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, provided the same is available at rates which are economically practical in relation to the risks covered, as determined by Tenant and approved by Landlord; (f) Worker's compensation insurance coverage for all persons employed by Tenant on the Leased Property with statutory limits and otherwise with limits of and provisions in accordance with the requirements of applicable local, state and federal law; and (g) Such additional insurance as may be reasonably required, from time to time, by Landlord or any Facility Mortgagee. 9.2 Waiver of Subrogation. Landlord and Tenant agree that (insofar as and to the extent that such agreement may be effective without invalidating or making it impossible to secure insurance coverage from responsible insurance companies doing business in the State) with respect to any property loss which is covered by insurance then being carried by Landlord or Tenant or would be covered by insurance if insurance were maintained in accordance with the applicable provisions of this Lease, respectively, the party carrying such insurance and suffering said loss releases the other of and from any and all claims with respect to such loss; and they further agree that their respective insurance companies shall have no right of subrogation against the other on account thereof, even though extra premium may result therefrom. In the event that any extra premium is payable by Tenant as a result of this provision, Landlord shall not be liable for reimbursement to Tenant for such extra premium. 9.3 Form Satisfactory, Etc. All policies of insurance required under this Article 9 shall be written in a form reasonably satisfactory to Landlord and by insurance companies authorized to do business in the State, insurance, which companies shall be reasonably satisfactory to Landlord. All policies of insurance required under this Article 9 shall include no deductible in excess of $250,000 and shall name Landlord and any Facility Mortgagee as additional insureds, as their interests may appear. Losses shall be payable to Landlord or Tenant as provided in Article 10. Any loss adjustment shall require the written consent of Landlord, Tenant and each Facility Mortgagee. Evidence of insurance shall be deposited with Landlord and, if requested, any Facility Mortgagee. If any provisions of any Facility Mortgage requires deposits of premiums for insurance to be made with such Facility Mortgagee, provided that the Facility Mortgagee has not elected to waive such provision, Tenant shall either pay Landlord monthly the amounts required and Landlord shall transfer such amounts to such Facility Mortgagee, or, pursuant to written direction by Landlord, Tenant shall make such deposits directly with such Facility Mortgagee. Tenant shall pay all insurance premiums, and deliver policies or certificates thereof to Landlord prior to their effective date (and, with respect to any renewal policy, ten (10) days prior to the expiration of the existing policy), and in the event Tenant shall fail either to effect such insurance as herein required, to pay the premiums therefor or to deliver such policies or certificates to Landlord at the times required Landlord -32- shall have the right, but not the obligation, to effect such insurance and pay the premiums therefor, which amounts shall be payable to Landlord, upon demand, as Additional Rent, together with interest accrued thereon at the Base Rate from the date such payment is made until the date repaid. All such policies shall provide Landlord (and any Facility Mortgagee, if required by the same) thirty (30) days' prior written notice of any materially alter on, expiration or cancellation of such policy. 9.4 No Separate Insurance. Tenant shall not take out separate insurance, concurrent in form or contributing in the event of loss with that required by this Article 9 or increase the amount of any existing insurance by securing an additional policy or additional policies, unless all parties having an insurable interest in the subject matter of such insurance, including, Landlord and all Facility Mortgagees, are included therein as additional insureds, and the loss is payable under such insurance in the same manner as losses are payable under this Lease. In the event Tenant shall take out any such separate insurance or increase any of the amounts of the then existing insurance, Tenant shall give Landlord prompt written notice thereof. 9.5 Indemnification of Landlord. Tenant shall indemnify and hold harmless Landlord from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, reasonable attorneys' fees), to the maximum extent permitted by law, imposed upon or incurred by or asserted against Landlord by reason of: (a) any accident, injury to or death of persons or loss of or damage to property occurring on or about the Leased Property or adjoining sidewalks, including, without limitation, any claims of malpractice, (b) any past, present or future use, misuse, non-use, condition, management, maintenance or repair by Tenant or anyone claiming under Tenant of the Leased Property or Tenant's Personal Property or any litigation, proceeding or claim by governmental entities or other third parties to which Landlord is made a party or participant related to the Leased Property or Tenant's Personal Property or such use, misuse, non-use, condition, management, maintenance, or repair thereof including, failure to perform obligations (other than Condemnation proceedings) to which Landlord is made a party, (c) any Impositions (which are the obligations of Tenant to pay pursuant to the applicable provisions of this Lease), and (d) any failure on the part of Tenant or anyone claiming under Tenant to perform or comply with any of the terms of this Lease. Tenant shall pay all amounts payable under this Section 9.5 within ten (10) days after demand therefor, and if not timely paid, such amounts shall bear interest at the overdue rate from the date of determination to the date of payment. Tenant, at its expense, shall contest, resist and defend any such claim, action or proceeding asserted or instituted against Landlord or may compromise or otherwise dispose of the same as Tenant sees fit. 9.6 Indemnification of Tenant. Landlord shall indemnify and hold harmless Tenant from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses imposed upon or incurred by or asserted against Tenant as a result of the gross negligence or willful misconduct of Landlord. -33- ARTICLE 10 CASUALTY 10.1 Insurance Proceeds. All proceeds payable by reason of any loss or damage to the Leased Property and insured under any policy of insurance required by Article 9 shall be paid to Landlord and held in trust by Landlord in an interest-bearing account (subject to the provisions of Section 10.2) and shall be paid out by Landlord from time to time for the reasonable costs of reconstruction or repair of the Leased Property necessitated by damage or destruction. Any excess proceeds of insurance remaining after the completion of the restoration shall be paid to Tenant. In the event neither Landlord nor Tenant is required or elects to restore the Leased Property and this Lease is terminated without purchase or substitution by Tenant pursuant to Section 10.2, all insurance proceeds therefrom shall be retained by Landlord. All salvage resulting from any risk covered by insurance shall belong to Landlord, except any salvage related to Capital Additions paid for by Tenant or Tenant's Personal Property shall belong to Tenant. 10.2 Reconstruction in the Event of Damage or Destruction. 10.2.1 Material Damage or Destruction of Premises. Except as provided in Section 10.8, if, during the Term, the Leased Property shall be totally or partially damaged or destroyed by fire or other casualty and the Facility is thereby rendered Unsuitable for Its Primary Intended Use, Tenant shall, at Tenant's option, exercisable by written notice to Landlord within thirty (30) days after the date of such damage or destruction, elect either (a) to restore the Facility to substantially the same condition as existed immediately before such damage or destruction, or (b) to offer (i) to purchase the Leased Property from Landlord for a purchase price equal to the greater of the Minimum Repurchase Price or the Fair Market Value Purchase Price of the Leased Property immediately prior to such damage or destruction, or (ii) to substitute a new property for the Leased Property in accordance with the provisions of Article 16. Failure of Tenant to give Landlord written notice of any such election within such 30-day period shall be deemed an election by Tenant to restore the Facility. In the event Tenant shall proceed in accordance with clause (b) preceding and Landlord does not accept Tenant's offer to purchase the Leased Property or substitute another property for the Leased Property within thirty (30) days after receipt of Tenant's notice thereof, Tenant may either (a) withdraw such offer and proceed promptly to restore the Facility to substantially the same conditions as existed immediately before the damage or destruction, or (b) terminate this Lease without further liability hereunder and Landlord shall be entitled to retain the insurance proceeds. In the event Tenant shall acquire the Leased Property or substitute a new property therefor, the insurance proceeds payable on account of such damage shall be paid to Tenant. 10.2.2 Partial Damage or Destruction. Except as provided in Section 10.8, if, during the Term, all or any portion of the Leased Property shall be totally or partially destroyed by fire or other casualty and the Facility is not thereby rendered Unsuitable for its -34- Primary Intended Use, Tenant shall promptly restore the Facility to substantially the same condition as existed immediately before such damage or destruction; provided, however, that if Tenant cannot, using diligent efforts, obtain all government approvals, including building permits, licenses, conditional use permits and certificates of need, necessary to perform all required repair and restoration and to operate the Facility for its Primary Intended Use in substantially the same manner as existed immediately prior to such damage or destruction within one hundred eighty (180) days after the date of such fire or casualty, Tenant shall, within thirty (30) days thereafter elect, by written notice to Landlord, either (a) to substitute a new property or properties for the Leased Property in accordance with the provisions of Article 16, or (b) purchase the Leased Property for a purchase price equal to the greater of the then Minimum Repurchase Price or the Fair Market Value Purchase Price of the Leased Property immediately prior to such damage or destruction. Failure of Tenant to give such notice within such period shall be deemed an election by Tenant to purchase the Leased Property. Within thirty (30) days after receipt of Tenant's notice, Landlord shall give Tenant written notice as to whether Landlord accepts such offer. Failure of Landlord to give such notice shall be deemed an election by Landlord to accept Tenant's offer. If Landlord shall reject such offer, Tenant shall elect, by written notice to Landlord, given within thirty (30) days thereafter, either (a) to withdraw such offer, in which event this Lease shall remain in full force and effect with and Tenant shall proceed to restore the Facility as soon as reasonably practicable to substantially the same condition as existed immediately before such damage or destruction, or (b) terminate this Lease. Failure of Tenant to give such notice within such period shall be deemed an election by Tenant to restore the Leased Property. In the event Landlord shall accept Tenant's offer to purchase the Leased Property, this Lease shall terminate with respect thereto upon payment of the purchase price. In the event Landlord shall accept Tenant's offer to substitute a new property or properties, this Lease shall be deemed modified to substitute such new property for the Leased Property (effective as of the date of such substitution pursuant to Article 16) and all insurance proceeds pertaining to the Leased Property shall be paid to Tenant. Landlord and Tenant shall promptly execute appropriate instruments to confirm the foregoing, although the failure to do so shall not affect this Lease. 10.3 Insufficient Insurance Proceeds. If the cost of the repair or restoration exceeds the amount of insurance proceeds received by Landlord pursuant to Article 9, Tenant shall contribute any excess amounts needed to complete such restoration. Such difference shall be paid by Tenant to Landlord and held by Landlord in trust in an interest bearing account, together with any other insurance proceeds, for application to the cost of repair and restoration in accordance with Section 10.4. 10.4 Disbursement of Proceeds. In the event Tenant is required to restore the Leased Property pursuant to Sections 10.1 or 10.2, Tenant shall, at its sole cost and expense, commence promptly and continue diligently to perform, or cause to be performed, the repair and restora- tion of the Leased Property so as to restore the Leased Property in full -35- compliance with all Legal Requirements and otherwise in compliance with any other applicable provisions of this Lease, so that the Leased Property shall be at least equal in value and general utility to its general utility and value immediately prior to such damage or destruction. Subject to the terms hereof, Landlord shall advance the insurance proceeds (other than proceeds of business interruption insurance which shall be advanced as provided below) and the amounts paid to it pursuant to Section 10.3 to Tenant regularly during the repair and restoration period so as to permit payment for the cost of such restoration and repair. Any such advances shall be for not less than $50,000 (or such lesser amount as equals the entire balance of the repair and restoration costs) and Tenant shall submit to Landlord a written requisition and substantiation therefor on AIA Forms G702 and G703 (or on such other form or forms as may be acceptable to Landlord). Landlord may, at its option, condition advancement of such insurance proceeds and other amounts on (i) the absence of any Default or Event of Default, (ii) its approval of plans and specifications of an architect satisfactory to Landlord (which approval shall not be unreasonably with- held or delayed), (iii) general contractors' estimates, (iv) architect's certificates, (v) unconditional lien waivers of general contractors, (vi) evidence of approval by all governmental authorities and other regulatory bodies whose approval is required and (vii) such other certificates as Landlord may, from time to time, reasonably require. Provided no Default or Event of Default has occurred and is continuing, on the first day of each calendar month during which proceeds of business interruption insurance are disbursed to Landlord under the policy of business interruption insurance maintained pursuant to Article 9, Landlord shall disburse proceeds of business interruption insurance received by it to Tenant upon notice from Tenant accompanied by a certification from Tenant that such moneys will be used for costs or expenses of owning or operating the Leased Property. Landlord's obligation to disburse insurance proceeds under this Article 10 shall be subject to the release of such proceeds by any Facility Mortgagee. 10.5 Tenant's Property. All insurance proceeds payable by reason of any loss of or damage to any of Tenant's Personal Property or Capital Additions financed by Tenant shall be paid to Tenant and Tenant shall hold such proceeds in trust to pay the cost of repairing or replacing damaged Tenant's Personal Property or Capital Additions paid for or financed by Tenant. 10.6 Restoration of Tenant's Property. If Tenant shall be required or elect to restore the Facility as hereinabove provided, Tenant shall either (a) restore all alterations and improvements made by Tenant, Tenant's Personal Property and all Capital Additions paid for or financed by Tenant, or (b) replace such alterations and improvements, Tenant's Personal Property, and/or Capital Additions with improvements or items of the same or better quality and utility in the operation of the Facility. 10.7 No Abatement of Rent. Unless this Lease shall be terminated as herein provided, during the first twelve (12) months of any period required for repair or restoration, this Lease shall remain in full -36- force and effect and Tenant's obligation to make rental payments and to pay all other charges required by this Lease shall remain unabated during the Term notwithstanding any damage affecting the Leased Property. Thereafter, payments of Minimum Rent shall be adjusted in the manner provided in Section 11.6. If any fire or other casualty impairs the revenue producing capacity of the Facility, projected Net Patient Revenues attributable to the Facility shall be determined by Landlord in its reasonable discretion. 10.8 Damage Near End of Term. Notwithstanding any provisions of this Article 10 to the contrary, if (a) damage to or destruction of the Facility occurs during the last twelve (12) months of the Term, (b) Tenant has not elected to extend the Term, (c) no Default or Event of Default shall have occurred and be continuing, and (d) such damage or destruction cannot be fully repaired and restored within one hundred eighty (180) days immediately following the date of loss, Tenant shall have the right to terminate this Lease by the giving of written notice thereof to Landlord within thirty (30) days after the date of casualty. Failure of Tenant to give such notice within such 30-day period shall be a waiver of Tenant's right to terminate this Lease pursuant to this section. ARTICLE 11 CONDEMNATION 11.1 Total Condemnation. If the whole of the Leased Property shall be taken by Condemnation, this Lease shall terminate as of the Date of Taking. In the event a Condemnation of less than the whole of the Leased Property renders the Leased Property Unsuitable for Its Primary Intended Use, Tenant and Landlord shall each have the option, by written notice to the other, given at any time prior to the date title vests in a third party, to terminate this Lease as of the Date of Taking, whereupon this Lease shall terminate as of such date. 11.2 Partial Condemnation. In the event of a Condemnation of less than the whole of the Leased Property such that Leased Property is still suitable for its Primary Intended Use, or if neither Tenant nor Landlord shall terminate this Lease as provided in Section 11.1, Tenant, at its sole cost and expense, shall, with all reasonable dispatch, restore the untaken portion of the Leased Improvements so that such Leased Improvements shall constitute a complete architectural unit of the same general character and condition (as nearly as may be possible under the circumstances) as the Leased Improvements existing immediately prior to such Condemnation. Landlord shall, subject to and in accordance with the applicable provisions of Section 10.4, contribute to the cost of restoration that part of its Award allocable to such restoration. In such event, the Minimum Rent shall be permanently reduced as set forth in Section 11.6. 11.3 Temporary Condemnation. In the event of any temporary Condemnation of all or any part of the Leased Property or Tenant's interest under this Lease, this Lease shall continue in full force and effect and Tenant shall continue to pay, in the manner and on the terms -37- herein specified, the full amount of the Rent. To the extent reasonably practicable, Tenant shall continue to perform and observe all of the other terms and conditions thereof, on the part of Tenant to be performed and observed. The entire amount of any Award made for such temporary Taking or Condemnation allocable to the Term, whether paid by way of damages, rent or otherwise, shall be paid to Tenant. Tenant shall, upon the termination of any such period of temporary Condemnation, at its sole cost and expense (but only to the extent of the Award payable to Tenant), restore the Leased Property as nearly as may be reasonably possible, to the condition that existed immediately prior to such Condemnation, unless such period of temporary use or occupancy shall extend beyond the expiration of the Term, in which case Tenant shall not be required to make such restoration. 11.4 Tenant's Option. In the event of the termination of this Lease as provided in Section 11.1, Tenant shall have the right, exercisable by written notice to Landlord given within thirty (30) days after receipt by Tenant of notice of Condemnation, to elect (a) to acquire the Leased Property from Landlord for a purchase price equal to the greater of its Minimum Repurchase Price or the Fair Market Value Purchase Price of the Leased Property immediately prior to such Condemnation, in which event, upon the closing of such acquisition, Tenant shall have the right to receive the entire Award, or (b) to substitute a new property therefor in accordance with the provisions of Article 16, in which event Tenant shall receive the entire Award. Failure of Tenant to give such notice within such 30-day period shall be deemed a waiver of Tenant's rights pursuant to this Section 11.4. In the event Landlord shall, by written notice to Tenant given within thirty (30) days after receipt of Tenant's election notice, reject Tenant's offer so to purchase or substitute, Tenant shall restore the Leased Property to substantially the same condition as existed immediately before such Condemnation in accordance with the applicable provisions of this Lease and, in such event, Landlord shall, subject to and in accordance with the applicable provisions of Section 10.4, contribute to the cost of restoration that part of its Award allocable to such restoration. 11.5 Allocation of Award. Except as provided in the second sentence of this Section 11.5, the total Award shall be solely the property of and payable to Landlord. Any portion of the Award made for the taking of Tenant's leasehold interest in the Leased Property, Capital Additions paid for or financed by Tenant, loss of business at the Leased Property during the remainder of the Term, the taking of Tenant's Personal Property, or Tenant's removal and relocation expenses shall be the sole property of and payable to Tenant. In any Condemnation proceedings, Landlord and Tenant shall each seek its own Award in conformity herewith, at its own expense. 11.6 Abatement Procedures. In the event of a partial Condemnation as described in Section 11.2, this Lease shall not terminate, but the Minimum Rent shall be abated and Base Net Patient Revenues shall be reduced in the manner and to the extent that is fair, just and equitable to both Tenant and Landlord, taking into consideration, among other relevant factors, the number of usable beds, the amount of square footage, or the revenues affected by such partial or temporary taking or -38- damage or destruction. If Landlord and Tenant are unable to agree upon the amount of such abatement within thirty (30) days after such Condemnation or damage, the matter may be submitted by either party to a court of competent jurisdiction for resolution or, if the parties so agree, the matter may be submitted by the parties for resolution by arbitration in accordance with the rules of the American Arbitration Association. ARTICLE 12 DEFAULTS AND REMEDIES 12.1 Events of Default. The occurrence of any one or more of the following events shall constitute an "Event of Default" under this Lease: (a) Should Tenant fail to make any payment of the Rent or any other sum payable hereunder when due and such failure shall continue for ten (10) days after written notice thereof; (b) Should Tenant fail to observe or perform any other term, covenant or condition of this Lease and such failure shall continue for thirty (30) days after written notice thereof; provided, however, if such failure cannot with due diligence be cured within such thirty (30) day period, an Event of Default shall not be deemed to have occurred for such additional period (not to exceed 120 days in the aggregate) required to cure the same so long as Tenant commences sure cure within such thirty (30) day period and thereafter diligently prosecutes such cure to completion; (c) Should Tenant: (i) admit in writing its inability, or be unable, to pay its debts generally as they become due; (ii) file a petition in bankruptcy or a petition to take advantage of any insolvency law; (iii) make a general assignment for the benefit of its creditors; (iv) consent to the appointment of a receiver of itself or of the whole or any substantial part of its property; or (v) file a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state thereof; (d) Should Tenant be adjudicated a bankrupt or have an order for relief thereunder entered against it or a court of competent jurisdiction shall enter an order or decree appointing a receiver of Tenant or of the whole or substantially all of its property, or approving a petition filed against Tenant seeking reorganization or arrangement of Tenant under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state thereof, and such judgment, order or decree shall not be vacated or set aside within sixty (60) days from the date of entry thereof; (e) Should Tenant be liquidated or dissolved, or shall begin proceedings toward such liquidation or dissolution, or, in any -39- manner, permit the sale or divestiture of substantially all of its assets; (f) Should the estate or interest of Tenant in the Leased Property or any part thereof shall be levied upon or attached in any proceeding and the same shall not be vacated or discharged within thirty (30) days after commencement thereof (unless Tenant shall be contesting such lien or attachment in accordance with Article 8); (g) Except as a result of damage, destruction, strikes, lock- outs or a partial or complete Condemnation, should Tenant voluntarily cease operations on the Leased Property for a period in excess of thirty (30) days; or (h) Should any representation or warranty of Tenant contained in this Lease or any certificate or document delivered in connection herewith be untrue when made or at any time during the Term in any material respect which materially and adversely affects Landlord, and the same shall not be cured within ninety (90) days after written notice thereof. Upon the occurrence of any Event of Default, Landlord and the agents and servants of Landlord lawfully may, in addition to and not in derogation of any remedies for any preceding breach of covenant, immediately or at any time thereafter, without demand or notice and with or without process of law (forcibly, if necessary), enter into and upon the Leased Property or any part thereof in the name of the whole or mail a notice of termination addressed to Tenant, and repossess the same and expel Tenant and those claiming through or under Tenant and remove its and their effects (forcibly, if necessary), without being deemed guilty of any manner of trespass and without prejudice to any remedies which might otherwise be used for arrears of rent or prior breach of covenant, and, upon such entry or mailing as aforesaid, this Lease shall terminate, Tenant hereby waiving all statutory rights to the Leased Property (including, without limitation, rights of redemption, if any, to the extent such rights may be lawfully waived) and Landlord, without notice to Tenant, may store Tenant's effects, and those of any person claiming through or under Tenant, at Tenant's sole expense and risk, and, if Landlord so elects, may sell such effects at public auction or private sale and apply the net proceeds to the payment of all sums due to Landlord from Tenant, if any, and pay over the balance, if any, to Tenant. Upon the occurrence of an Event of Default, Landlord may, in addition to any other remedies provided herein, enter upon the Leased Property and take possession of any and all of Tenant's Personal Property and the Records (subject to any prohibitions or limitations to disclosure of any such data as described in Section 3.1.2(d)) on the Leased Property, without liability for trespass or conversion (Tenant hereby waiving any right to notice or hearing prior to such taking of possession by Landlord) and sell the same at public or private sale, after giving Tenant reasonable notice of the time and place of any public or private sale, at which sale Landlord or its assigns may purchase all or any portion of such Personal Property unless otherwise -40- prohibited by law. Unless otherwise provided by law, and without intending to exclude any other manner of giving Tenant reasonable notice, the requirement of reasonable notice shall be met if such notice is given in the manner prescribed in this Lease at least ten (10) days before the day of sale. The proceeds from any such disposition, less all expenses incurred in connection with the taking of possession, holding and selling of such property (including, reasonable attorneys' fees) shall be deducted from the proceeds of such sale. Any surplus shall be paid to Tenant or as otherwise required by law and Tenant shall pay any deficiency to Landlord, as Additional Rent, upon demand. 12.2 Remedies. In the event of any termination pursuant to Section 12.1, Tenant shall pay the Rent and other charges payable hereunder up to the time of such termination and, thereafter, Tenant, until the end of what would have been the Term of this Lease in the absence of such termination, and whether or not the Leased Property, or any portion thereof, shall have been re-let, shall be liable to Landlord for, and shall pay to Landlord, as current damages, the Rent and other charges which would be payable hereunder for the remainder of the Term had such termination not occurred, less the net proceeds, if any, of any reletting of the Leased Property, after deducting all expenses in connection with such re-letting, including, without limitation, all repossession costs, brokerage commissions, legal expenses, attorneys' fees, advertising, expenses of employees, alteration costs and expenses of preparation for such reletting. Tenant shall pay such current damages to Landlord monthly on the days on which the Minimum Rent would have been payable hereunder if this Lease had not been terminated. Percentage Rent for the purposes of this Section 12.2 shall be deemed to be a sum equal to the amount of the Percentage Rent (determined on an annualized basis) payable for the Fiscal Year immediately preceding the Fiscal Year in which the termination, re-entry or repossession takes place. If, however, such termination, re-entry or repossession occurs during the first full Fiscal Year after the Base Year, the Percentage Rent shall be an amount reasonably determined by Landlord. At any time after such termination, whether or not Landlord shall have collected any such current damages, as liquidated final damages and in lieu of all such current damages beyond the date of such demand, at Landlord's election, Tenant shall pay to Landlord either (a) an amount equal to the excess, if any, of the Rent and other charges which would be payable hereunder from the date of such demand (assuming that, for the purposes of this paragraph, annual payments by Tenant on account of Impositions would be the same as payments required for the immediately preceding twelve calendar months, or if less than twelve calendar months have expired since the Commencement Date, the payments required for such lesser period projected to an annual amount and Percentage Rent shall be determined in the manner set forth above) for what would be the then unexpired term of this Lease if the same remained in effect, over the Fair Market Rental for the same period, or (b) an amount equal to the lesser of (i) the Rent and other charges that would have been payable for the balance of the Term had it not been terminated, or (ii) the aggregate of the Minimum Rent, Percentage Rent and other charges accrued in the twelve (12) months ended next prior to such termination (without reduction for any free rent or other concession or abatement). In the event this Lease is so terminated prior the expiration of the first full -41- year of the Term, the liquidated damages which Landlord may elect to recover pursuant to clause (b) (ii) of this paragraph shall be calculated as if such termination had occurred on the first anniversary of the Commencement Date. Nothing contained in this Lease shall, however, limit or prejudice the right of Landlord to prove and obtain in proceedings for bankruptcy or insolvency an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount be greater than, equal to, or less than the amount of the loss or damages referred to above. In case of any Event of Default, re-entry, expiration and dispossession by summary proceedings or otherwise, Landlord may (a) relet the Leased Property or any part or parts thereof, either in the name of Landlord or otherwise, for a term or terms which may at Landlord's option, be equal to, less than or exceed the period which would otherwise have constituted the balance of the Term and may grant concessions or free rent to the extent that Landlord considers advisable and necessary to relet the same, and (b) may make such reasonable alterations, repairs and decorations in the Leased Property as Landlord, in its sole judgment, considers advisable and necessary for the purpose of reletting the Leased Property; and the making of such alterations, repairs and decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Landlord shall in no event be liable in any way whatsoever for failure to relet the Leased Property, or any portion thereof, or, in the event that the Leased Property is relet, for failure to collect the rent under such reletting. To the fullest extent permitted by law, Tenant hereby expressly waives any and all rights of redemption granted under any present or future laws in the event of Tenant being evicted or dispossessed, or in the event of Landlord obtaining possession of the Leased Property, by reason of the violation by Tenant of any of the covenants and conditions of this Lease. 12.3 Waiver. If this Lease is terminated pursuant to Section 12.1 or 12.2, Tenant waives, to the extent permitted by law, (a) any right to a trial by jury in the event of summary proceedings to enforce the remedies set forth in this Article 12, and (b) the benefit of any laws now or hereafter in force exempting property from liability for rent or for debt. 12.4 Application of Funds. Any payments received by Landlord under any of the provisions of this Lease during the existence or continuance of any Event of Default (and any payment made to Landlord rather than Tenant due to the existence of an Event of Default) shall be applied to Tenant's obligations in such order as Landlord may determine or as may be prescribed by the laws of the State. 12.5 Failure to Conduct Business. For the purpose of determining rental loss damages or Percentage Rent, in the event Tenant shall fail to conduct its business at the Leased Property for its Primary Intended Use, exact damages or the amount of Percentage Rent being unascertainable, the Percentage Rent for such period shall be deemed to by an amount reasonably determined by Landlord. -42- 12.6 Landlord's Right to Cure Tenant's Default. If an Event of Default shall have occurred and be continuing, Landlord, after written notice to Tenant (provided that no such notice shall be required if Landlord shall reasonably determine immediate action is necessary to protect person or property), without waiving or releasing any obligation of Tenant, and without waiving or releasing any Event of Default, may (but shall not be obligated to), at any time thereafter, make such payment or perform such act for the account and at the expense of Tenant, and may, to the extent permitted by law, enter upon the Leased Property, or any portion thereof, for such purpose and take all such action thereon as, in Landlord's opinion, may be necessary or appropriate therefor, including, the management of the Facility by Landlord or its designee, and Tenant hereby irrevocably appoints, in the event of such election by Landlord, Landlord or its designee as manager of the Facility and its attorney in fact for such purpose, irrevocably and coupled with an interest, in the name, place and stead of Tenant. All costs and expenses (including, without limitation, reasonable attorneys' fees) incurred by Landlord in connection therewith, together with interest thereon (to the extent permitted by law) at the Overdue Rate from the date such sums are paid by Landlord until repaid, shall be paid by Tenant to Landlord, on demand. 12.7 Trade Names. If this Lease is terminated for any reason, Landlord shall, upon the request of Tenant, cause the name of the business conducted upon the Leased Property to be changed to a name other than a Facility Trade Name or any approximation or abbreviation thereof and sufficiently dissimilar to such name as to be unlikely to cause confusion with such name; provided, however, that Tenant shall not thereafter use a Facility Trade Name in the same market in which the Facility is located in connection with any business that competes with the Facility. ARTICLE 13 HOLDING OVER Any holding over by Tenant after the expiration of the Term shall be treated as a daily tenancy at sufferance at a rate equal to two (2) times the Minimum Rent and Percentage Rent then in effect plus Additional Rent and other charges herein provided (prorated on a daily basis). Tenant shall also pay to Landlord all damages, direct and/or consequential (foreseeable and unforeseeable), sustained by reason of any such holding over. Otherwise, such holding over shall be on the terms and conditions set forth in this Lease, to the extent applicable. ARTICLE 14 LANDLORD'S DEFAULT If Landlord shall default in the performance or observance of any of its covenants or obligations set forth in this Lease and such default shall continue for a period of thirty (30) days after written notice -43- thereof, or such additional period as may be reasonably required to correct the same (except if such default shall constitute an immediate threat to life or property, five (5) Business Days) Tenant may declare the occurrence of a "Landlord Default" by a second notice to Landlord. Thereafter, Tenant may forthwith cure the same and, subject to the provisions of the following paragraph, invoice Landlord for costs and expenses (including reasonable attorneys' fees and court costs) incurred by Tenant in curing the same, together with interest from the date Landlord receives Tenant's invoice, at a rate equal to the Base Rate. Tenant shall have no right to terminate this Lease for any default by Landlord hereunder and no right, for any such default, to offset or counterclaim against any rent or other charges due hereunder. -44- If Landlord shall in good faith dispute the occurrence of any Landlord Default and Landlord, before the expiration of the applicable cure period, shall give written notice thereof to Tenant, setting forth, in reasonable detail, the basis therefor, no Landlord Default shall be deemed to have occurred and Landlord shall have no obligation with respect thereto until final adverse determination thereof. If Tenant and Landlord shall fail, in good faith, to resolve the dispute within five (5) days after Landlord's notice of dispute, either may submit the matter to arbitration for resolution in accordance with the commercial arbitration rules of the American Arbitration Association. Such arbitration shall be final and binding on Landlord and Tenant and judgment thereon may be entered into any court of competent jurisdiction. Within five (5) days after submission to arbitration, Landlord and Tenant shall submit all information required for such arbitration and shall take all other actions required for such arbitration to proceed and the arbitrators shall be instructed to render a determination as soon as possible and in any event not later than thirty (30) days after submission. ARTICLE 15 PURCHASE OF PREMISES In the event Tenant shall purchase the Leased Property from Landlord pursuant to any of the terms of this Lease, Landlord shall, upon receipt from Tenant of the applicable purchase price, together with full payment of any unpaid Rent and other charges due and payable with respect to any period ending on or before the date of the purchase, deliver to Tenant a title insurance policy, together with an appropriate deed or other instruments, conveying the entire interest of Landlord in and to the Leased Property to Tenant, free and clear of all encumbrances other than (a) those Tenant has agreed hereunder to pay or discharge, (b) those liens, if any, which Tenant has agreed in writing to accept and take title subject to, (c) the Permitted Encumbrances, and (d) any other encumbrances permitted to be imposed on the Leased Property (x) pursuant to the terms of this Lease or (y) otherwise permitted to be imposed under the provisions of Section 21.1 which are assumable at no cost to Tenant or to which Tenant may take subject without cost to Tenant. The difference between the applicable purchase price and the total of the encumbrances assumed or taken subject to shall be paid in cash to Landlord or as Landlord may direct, in federal or other immediately available funds. The closing of any such sale shall be contingent upon and subject to Tenant's obtaining all required governmental consents and approvals for such transfer and if such sale shall fail to be consummated by reason of the inability of Tenant to obtain all such approvals and consents, any options to extend the Term of this Lease which otherwise would have expired during the escrow period of such proposed sale shall be deemed to remain in effect for 30 days after termination thereof. All expenses of such conveyance, including, without limitation, the cost of title examination or standard coverage title insurance, usually paid by a purchaser of real property in the State shall be paid by Tenant; all expenses of such conveyance usually paid by a seller of real property in the State shall be paid by Landlord. -45- ARTICLE 16 SUBSTITUTION OF PROPERTY FOR THE LEASED PROPERTY 16.1 Tenant's Substitution Option. Provided (a) in the good faith judgment of Tenant, the Leased Property shall become Unsuitable for its Primary Intended Use, (b) no Default or Event of Default shall have occurred and be continuing, and (c) not less than one (1) year shall remain in the Term, Tenant shall have the right, subject to the conditions set forth in this Article 16, upon not less than thirty (30) days prior written notice to Landlord, to substitute one or more properties (collectively, the "Substitute Properties" or individually, "Substitute Property") on the date specified in such notice (the "Substitution Date"); provided, however, that if Tenant is required by court order or administrative action to divest or otherwise dispose of the Leased Property in less than thirty (30) days and Tenant shall have given Landlord prior written notice of the filing of such court or administrative action and kept Landlord reasonably apprised of the status thereof, the time period shall be shortened appropriately to meet the reasonable needs of Tenant, but in no event less than ten (10) Business Days after the receipt by Landlord of such notice. Such notice shall include (a) an Officer's Certificate, setting forth in reasonable detail the reason(s) for the substitution and the proposed Substitution Date, and (b) designate not less than two properties (or groups of properties), each of which properties (or groups of properties) shall provide Landlord with a yield (i.e., annual return on its equity in such property) substantially equivalent to Landlord's yield from the Leased Property at the time of such proposed substitution (or in the case of substitution because of damage or destruction, the yield immediately prior to such damage or destruction) and as reasonably projected over the remaining Term of this Lease. 16.2 Landlord's Substitution Option. If Tenant shall have voluntarily or involuntarily discontinued use of the Leased Property for its business operations for a period in excess of one year, Landlord shall have the right, exercisable by thirty (30) days prior written notice to Tenant, to require Tenant to substitute a Substitute Property for the Leased Property, (in which event, Tenant shall comply with the applicable provisions of Section 16.1 within thirty (30) days thereafter). 16.3 Substitution Procedures. (a) If either Landlord or Tenant shall initiate a substitution pursuant to Section 16.1 or 16.2, Landlord shall have a period of thirty (30) days within which to review the designated properties and such additional information and either accept or reject the Substitute Properties so presented, unless Tenant is required by a court order or administrative action to divest or otherwise dispose of the Leased Property within a shorter time period, in which case the time period shall be shortened appropriately to meet the reasonable needs of Tenant, but in no event shall such period be less than five (5) Business Days after Landlord's actual receipt of Tenant's notice (subject to further extension for any period of time in which Landlord is not timely provided with the information provided for -46- in this Section 16.3 and Section 16.4 below). Landlord and Tenant shall use good faith efforts to agree on a Substitute Property. (b) In the event that, on or before the expiration of the applicable time period for Landlord's review, Landlord has rejected both of the Substitute Properties so presented, Tenant shall, for a period of sixty (60) days after the expiration of such period, have the right to terminate this Lease, by the giving of written notice thereof to Landlord, accompanied by an offer to purchase the Leased Property on the date set forth in such notice, but in no event less than ninety (90) days thereafter, for a purchase price equal to the greater of the then Fair Market Value Purchase Price or the Minimum Repurchase Price, and, subject to the provisions of Article 15, this Lease shall terminate on such purchase date. (c) Landlord shall not unreasonably withhold its consent to an offer by Tenant to substitute a property as set forth in this Article provided (i) Landlord shall determine the Substitute Property shall provide Landlord with a yield substantially equivalent to Landlord's yield from the Leased Property immediately before such substitution or such damage or destruction, as the case may be, and as projected over the remainder of the Term, and (ii) the delivery of an opinion of counsel for Landlord confirming that (w) the substitution of the Substitute Property for the Leased Property will qualify as an exchange solely of property of a like-kind under Section 1031 of the Code, in which, generally, except for "boot", no gain or loss will be recognized by Landlord, (x) the substitution will not result in ordinary recapture income to Landlord pursuant to Section 1250(d)(4) of the Code or any other provision of the Code, (y) the substitution will result in income, if any, to Landlord of a type described in Section 856(c)(2) or (3) of the Code and will not result in income of the types described in Section 856(c)(4) of the Code or result in the tax imposed under Section 857(b)(6) of the Code, and (z) the substitution, together with all other substitutions made or requested by Tenant or an Affiliated Person pursuant to the Other Leases or other transfers of all or any portion of the Leased Property or properties leased under the Other Leases, during the relevant time period, will not jeopardize the qualification of Landlord as a real estate investment trust under Sections 856-860 of the Code. (d) In the event that the then Fair Market Value of the Substitute Property or group of Substitute Properties minus the encumbrances assumed by Landlord, or as to which Landlord will take the Substitute Property or group of Substitute Properties subject, as of the Substitution Date is greater than the then Fair Market Value of the Leased Property minus the encumbrances assumed by Tenant, or as to which the Tenant will take the Leased Property subject, as of the Substitution Date (or in the case of damage or destruction, the Fair Market Value immediately prior to such damage or destruction), Landlord shall pay to Tenant an amount equal to the difference, subject to the limitation set forth below; in the event that such value of the Substitute Property or group of Substitute Properties is less than such value of the Leased Property, Tenant shall pay to Landlord an amount equal to the -47- difference, subject to the limitation set forth below; provided, however, neither Landlord nor Tenant shall be obligated to consummate such substitution if such party would be required to make a payment (the "Cash Adjustment") to the other in excess of an amount equal to five percent (5%) of the Fair Market Value of the Leased Property. (e) The Rent for such Substitute Property shall, in all respects, provide Landlord with a yield (i.e., annual return on its equity in such property) substantially equivalent to Landlord's yield from the Leased Property at the time of such substitution (or in the case of substitution because of damage or destruction the yield immediately prior to such damage or destruction) and as reasonably projected over the remaining Term, taking into account the Cash Adjustment paid or received by Landlord and any other relevant factors, as reasonably determined by Landlord. (f) The Minimum Repurchase Price of the Substitute Property shall be an amount equal to the Minimum Repurchase Price of the Leased Property (i) increased by any Cash Adjustment paid by Landlord pursuant to Paragraph (d) above, or (ii) decreased by any Cash Adjustment paid by Tenant pursuant to paragraph (d) above. 16.4 Conditions to Substitution. On the Substitution Date, the Substitute Property shall become the Leased Property hereunder, upon delivery by Tenant to Landlord of the following: (a) An Officer's Certificate certifying that (i) the Substitute Property has been accepted by Tenant for all purposes of this Lease and there has been no material damage to the improvements located thereon, nor is any Condemnation pending or threatened with respect thereto; (ii) all appropriate permits, licenses and certificates (including, but not limited to, a permanent, unconditional certificate of occupancy and all certificates of need, licenses and provider agreements) which are necessary to permit the use of the Substitute Property in accordance with the provisions of this Lease have been obtained and are in full force and effect; (iii) under applicable zoning and use laws, ordinances, rules and regulations, the Substitute Property may be used for the purposes contemplated by this Lease and all necessary subdivision approvals, if any, have been obtained; (iv) there are no mechanics' or materialmen's liens outstanding or threatened to the knowledge of Tenant against the Substitute Property arising out of or in connection with the construction of the improvements thereon, other than those being contested by Tenant pursuant to Article 8; (v) to the best knowledge of Tenant, there exists no Default or Event of Default, and no defense, offset or claim with respect to any sums payable by Tenant hereunder; and (vi) any exceptions to Landlord's title to the Substitute Property do not materially interfere with the intended use of the Substitute Property by Tenant; (b) A deed with full warranties or assignment of a leasehold estate with full warranties (as applicable) conveying to Landlord -48- title to the Substitute Property free and clear of any liens or encumbrances, except those approved by Landlord; (c) an amendment duly executed, acknowledged and delivered by Tenant, in form and substance satisfactory to Landlord, amending this Lease to correct the legal description of the Land and make such other changes herein as may be necessary or appropriate under the circumstances; (d) counterparts of a standard owner's or lessee's (as applicable) policy of title insurance covering the Substitute Property (or a valid, binding, unconditional commitment therefor), dated as of the Substitution Date, in current form and including mechanics' and materialmen's lien coverage, issued to Landlord by a title insurance company and in the form reasonably satisfactory to Landlord, which policy shall (i) insure (x) Landlord's fee title or leasehold estate to the Substitute Property, subject to no liens or encumbrances except those approved by Landlord and (y) that any restrictions affecting the Substitute Property have not been violated; (ii) be in an amount at least equal to the Fair Market Value of the Substitute Property; and (iii) contain such affirmative coverage endorsements as Landlord shall reasonably request; (e) certificates of insurance with respect to the Substitute Property fulfilling the requirements of Article 9; (f) current appraisals or other evidence satisfactory to Landlord, in its sole discretion, as to the then current Fair Market Values and the projected residual values of such Substitute Property and the Leased Property as to which such substitution is being made; (g) all available revenue data relating to the Substitute Property for the period from the date of opening for business of the Facility on such Substitute Property to the date of Tenant's most recent Fiscal Year end, or for the most recent three (3) years, whichever is less; and (h) such other certificates, documents, opinions of counsel and other instruments as may be reasonably required by Landlord. 16.5 Conveyance to Tenant. On the Substitution Date, Landlord shall convey the Leased Property to Tenant in accordance with the provisions of Article 15 (except as to payment of any expenses in connection therewith which shall be governed by Section 16.6) upon either (a) payment in cash therefor or (b) conveyance to Landlord of the Substitute Property, as appropriate. 16.6 Expenses. Tenant shall pay or cause to be paid, on demand, all reasonable costs and expenses paid or incurred by Landlord in connection with the substitution and conveyance of the Leased Property and Substitute Property, including, but not limited to, (a) reasonable fees and expenses of counsel, (b) all printing expenses, (c) the amount of filing, registration and recording taxes and fees, (d) the cost of -49- preparing and recording, if appropriate, a release of the Leased Property from the lien of any mortgage, (e) brokers' fees and commissions, (f) documentary stamp and transfer taxes, (g) title insurance charges and premiums, and (h) escrow fees. ARTICLE 17 SUBLETTING AND ASSIGNMENT 17.1 Subletting and Assignment. Except as hereinafter provided, Tenant shall not assign, mortgage, pledge, hypothecate, encumber or otherwise transfer this Lease or sublease (which term shall be deemed to include the granting of concessions and licenses and the like) all or any part of the Leased Property or suffer or permit this Lease or the leasehold estate hereby created or any other rights arising under this Lease to be assigned, transferred, mortgaged, pledged, hypothecated or encumbered, in whole or in part, whether voluntarily, involuntarily or by operation of law, or permit the use or occupancy of the Leased Property by anyone other than Tenant, or the Leased Property to be offered or advertised for assignment or subletting except as hereinafter provided. For purposes of this Section 17.1, an assignment of this Lease shall be deemed to include any transaction pursuant to which Tenant is merged or consolidated with another entity or pursuant to which all or substantially all of Tenant's assets are transferred to any other entity, as if such or transaction were an assignment of this Lease. If this Lease is assigned or if the Leased Property or any part thereof are sublet (or occupied by anybody other than Tenant and its employees) Landlord, after default by Tenant hereunder, may collect the rents from such assignee, subtenant or occupant, as the case may be, and apply the net amount collected to the Rent herein reserved, but no such collection shall be deemed a waiver of the provisions set forth in the first paragraph of this Section 17.1, the acceptance by Landlord of such assignee, subtenant or occupant, as the case may be, as a tenant, or a release of Tenant from the future performance by Tenant of its covenants, agreements or obligations contained in this Lease. No subletting or assignment shall in any way impair the continuing primary liability of Tenant hereunder, and no consent to any subletting or assignment in a particular instance shall be deemed to be a waiver of the obligation to obtain the Landlord's written approval in the case of any other subletting or assignment. No assignment, subletting or occupancy shall affect the Primary Intended Use. Any subletting, assignment or other transfer of Tenant's interest in this Lease in contravention of this Section 17.1 shall be voidable at Landlord's option. If the rent and other sums (including, without limitation, the reasonable value of any services performed by any assignee or subtenant in consideration of such assignment or sublease) either initially or over the term of any assignment or sublease, payable by such assignee or subtenant on account of an assignment or sublease exceed the Rent called for hereunder with respect to the space assigned or sublet, Tenant shall -50- pay to Landlord as Additional Rent one hundred percent (100%) of such excess net of the costs and expenses incurred by Tenant in procuring such sublease payable monthly at the time for payment Minimum Rent. 17.2 Required Sublease Provisions. Any sublease of all or any portion of the Leased Property shall provide that it is subject and subordinate to this Lease and to the matters to which this Lease is or shall be subject or subordinate, and that in the event of termination of this Lease or reentry or dispossession of Tenant by Landlord under this Lease, Landlord may, at its option, take over all of the right, title and interest of Tenant, as sublessor under such sublease, and such subtenant shall, at Landlord's option, attorn to Landlord pursuant to the then executory provisions of such sublease, except that neither Landlord nor any Facility Mortgagee, as holder of a mortgage or as Landlord under this Lease, if such mortgagee succeeds to that position, shall (a) be liable for any act or omission of Tenant under such sublease, (b) be subject to any credit, counterclaim, offset or defense which theretofore accrued to such subtenant against Tenant, (c) be bound by any previous modification of such sublease or by any previous prepayment of more than one (1) month's rent, (d) be bound by any covenant of Tenant to undertake or complete any construction of the Leased Property or any portion thereof, (e) be required to account for any security deposit of the subtenant other than any security deposit actually delivered to Landlord by Tenant, (f) be bound by any obligation to make any payment to such subtenant or grant any credits, except for services, repairs, maintenance and restoration provided for under the sublease to be performed after the date of such attornment, (g) be responsible for any monies owing by Tenant to the credit of such Subtenant, or (h) be required to remove any person occupying the Leased Property or any part thereof; and such sublease shall provide that the subtenant thereunder shall, at the request of Landlord, execute a suitable instrument in confirmation of such agreement to attorn. The provisions of this paragraph shall not be deemed a waiver of the provisions set forth in the first paragraph of Section 17.1. 17.3 Sublease Limitation. Anything contained in this Lease to the contrary notwithstanding, Tenant shall not sublet the Leased Property on any basis such that the rental to be paid by the sublessee thereunder would be based, in whole or in part, on either (a) the income or profits derived by the business activities of the sublessee, or (b) any other formula such that any portion of the sublease rental would fail to qualify as "rents from real property" within the meaning of Section 856(d) of the Code, or any similar or successor provision thereto. 17.4 Assignment and Subletting Procedure. Anything contained in this Lease to the contrary notwithstanding, if Tenant wishes to enter into a sublease with respect to any portion of the Leased Property or an assignment of this Lease, Tenant shall give Landlord notice of such intent, which notice ("Tenant's Notice") shall state, in the event of a proposed sublease, the location and amount of area intended to be covered by such sublease and the term of the proposed sublease, the proposed effective date of such sublease or assignment, and the identity of such proposed subtenant or assignee and such other information with respect thereto as Landlord may reasonably require. Landlord shall not unreasonably withhold its consent to any proposed assignment or sublease -51- provided Tenant shall deliver to Landlord a written instrument, in form and substance reasonably satisfactory to Landlord, pursuant to which such assignee agrees directly with Landlord to be bound by all the terms of this Lease and to be jointly and severally liable with Tenant for all of Tenant's obligations under this Lease. ARTICLE 18 CERTIFICATES AND FINANCIAL STATEMENTS 18.1 Estoppel Certificates. At any time and from time to time, upon not less than twenty (20) days prior written notice by Landlord, Tenant shall furnish to Landlord an Officer's Certificate certifying that this Lease is unmodified and in full force and effect (or that this Lease is in full force and effect as modified and setting forth the modifications), the date to which the Rent has been paid, that, to the best of Tenant's knowledge and belief after making due inquiry, Tenant is not in default in the performance or observance of any of the terms of this Lease and that no event exists which with the giving of notice, lapse of time, or both, would constitute a default hereunder, or if Tenant shall be in default or any such event shall exist, specifying in reasonable detail all such defaults or events, and the steps being taken to remedy the same, and such additional information as Landlord may reasonably request. Any such certificate furnished pursuant to this section may be relied upon by Landlord and any prospective purchaser or mortgagee of the Leased Property. 18.2 Financial Statements. Tenant shall furnish the following statements to Landlord: (a) Within forty-five (45) days after each of the first three quarters of each Fiscal Year, the most recent Consolidated Financials of Tenant, together with an Officer's Certificate certifying to the accuracy of such Consolidated Financials; (b) Within one hundred twenty (120) days after the end of each Fiscal Year, the most recent Consolidated Financials of Tenant for such year, certified by an independent certified public accountant satisfactory to Landlord; (c) Promptly after the sending or filing thereof, copies of all reports which Tenant sends to its security holders generally, and copies of all periodic reports which Tenant files with the SEC or any stock exchange on which its shares are listed or traded; (d) Promptly after the delivery thereof to Tenant, or its management, a copy of any management letter or written report prepared by Tenant's certified public accountants with respect to the financial condition, operations, business or prospects of Tenant; (e) At any time and from time to time upon not less than twenty (20) days notice from Landlord, any Consolidated Financials or any other financial reporting information required to be filed -52- by Landlord with any securities and exchange commission, the SEC or any successor agency, or any other governmental authority, or required pursuant to any order issued by any court governmental authority or arbitrator in any litigation to which Landlord is a party, for purposes of compliance therewith; and (f) With reasonable promptness, such other information as to the financial condition and affairs of Tenant as Landlord may reasonably request. 18.3 General Operations. Tenant covenants and agrees to furnish to Landlord: 18.3.1 Reimbursement, Licensure etc. Within thirty (30) days after receipt or modification thereof, copies of (a) All licenses authorizing Tenant to operate the Facility for its Primary Intended Use; (b) All Medicare and Medicaid certifications, together with provider agreements and all material correspondence relating thereto with respect to the Facility (excluding, however, correspondence which may be subject to any attorney-client privilege); (c) A Nursing Home Administrator License for the individuals employed in such capacity with respect to the Facility; (d) All reports of surveys, statements of deficiencies, plans of correction, and all material correspondence relating thereto, including, without limitation, all reports and material correspondence concerning compliance with or enforcement of licensure, Medicare/Medicaid, and accreditation requirements, including physical environment and Life Safety Code survey reports (excluding, however, correspondence which may be subject to any attorney-client privilege); and (e) With reasonable promptness, such other confirmation as to the Licensure and Medicare and Medicaid participation of Tenant as Landlord may reasonably request from time to time. 18.3.2 Monthly Reports. Tenant shall prepare and furnish to Landlord for the Leased Property, within thirty (30) days after the end of each calendar month during the term of this Agreement, a monthly report, such report to include a balance sheet, a current month and year to date income statement, showing each item of actual and projected income and expense, prepared on an accrual basis and a current month and year to date cash flow statement, reflecting the operating results of the Facility; a statement of Net Patient Revenues for such month; and such additional information as the Company may from time to time reasonably require. -53- ARTICLE 19 LANDLORD ACCESS 19.1 Landlord's Right to Inspect. Tenant shall permit Landlord and its authorized representatives to inspect the Leased Property during usual business hours, and to do and make such repairs as Landlord is permitted or required to make pursuant to the terms of this Lease, subject to any security, health, safety or patient or business confidentiality requirements of Tenant or any governmental agency or Insurance Requirement relating to the Leased Property or imposed by law. 19.2 Landlord's Option to Purchase the Tenant's Personal Property; Transfer of Licenses. Effective on not less than ninety (90) days' prior notice given at any time within one hundred eighty (180) days after the expiration of the Term (or such shorter period as shall be appropriate if this Lease is terminated prior to its expiration date), Landlord shall have the option to purchase all (but not less than all) of Tenant's Personal Property (except motor vehicles), if any, at the expiration or termination of this Lease, for an amount equal to the then net market value thereof (current replacement cost as determined by appraisal less accumulated depreciation on Tenant's books pertaining thereto), subject to, and with appropriate price adjustments for, all equipment leases, conditional sale contracts, UCC-1 financing statements and other encumbrances to which such Personal Property is subject; provided, however, Landlord shall not have the right to purchase any Facility Trade Name or logo. ARTICLE 20 APPRAISAL 20.1 Appraisal Procedure. In the event that it becomes necessary to determine the Fair Market Value, Fair Market Value Purchase Price or Fair Market Rental of the Leased Property or a Substitute Property for any purpose of this Lease, the party required or permitted to give notice of such required determination (the "Initiating Party") shall include in such notice the name of a designated Qualified Appraiser (hereinafter defined) on its behalf. Within 10 days after notice, the party receiving such notice (the "Responding Party") shall, by written notice to the other, appoint a second Qualified Appraiser. If the Responding Party shall fail, neglect or refuse within said ten-day period to designate another appraiser willing so to act, the appraiser designated by the Initiating Party shall designate the second Qualified Appraiser within ten (10) days thereafter. The two appraisers so designated shall meet within ten (10) days after the second appraiser is designated, and, if within ten (10) days after the second appraiser is designated, the two appraisers do not agree upon the Fair Market Value, Fair Market Value Purchase Price or Fair Market Rental, as the case may be, of the applicable property as of the relevant date, the two appraisers shall designate a third Qualified Appraiser, within ten (10) days thereafter. In the event that the two appraisers are unable to agree upon the appointment of a third Qualified Appraiser within such ten (10) day period, either Landlord or Tenant, on behalf of both, may -54- then request appointment of such appraiser the then president of the American Arbitration Association. In the event of a failure, refusal or inability of any appraiser to act, a new appraiser shall be appointed in his stead, which appointment shall be made in the same manner as hereinabove provided for the appointment of such appraiser so failing, refusing or being unable to act. In the event that all appraisers cannot agree upon such value ten (10) days as aforesaid, each appraiser shall submit his appraisal of such value to the other two appraisers in writing, and such value shall be determined by calculating the average of the two numerically closest (or, if the values are equidistant, all three) values determined by the three appraisers. The costs, other than counsel fees, of such appraisal shall be borne equally by the parties. Upon determining such value, the appraisers shall promptly notify Landlord and Tenant in writing of such determination. If any party shall fail to appear at the hearings appointed by the appraisers, the appraisers may act in the absence of such party. The determination of the board of appraisers (or the single additional Qualified Appraiser, as appropriate) made in accordance with the foregoing provisions shall be final and binding upon the parties, such determination may be entered as an award in arbitration in a court of competent jurisdiction, and judgment thereon may be entered. ARTICLE 21 MORTGAGES 21.1 Landlord May Grant Liens. Without the consent of Tenant, Landlord may, subject to the terms and conditions set forth in this Section 21.1, from time to time, directly or indirectly, create or otherwise cause to exist any lien, encumbrance or title retention agreement ("Encumbrance") upon the Leased Property, or any portion thereof or interest therein, whether to secure any borrowing or other means of financing or refinancing. Any such Encumbrance, other than one the proceeds of which are used to finance construction of a Capital Addition pursuant to the provisions of Sections 6.1 and 6.3, shall include the right to prepay (whether or not subject to a prepayment penalty) and shall provide (subject to Section 21.2) that it is subject to the rights of Tenant under this Lease. 21.2 Subordination of Lease. Subject to Section 21.1 and the last paragraph of this Section 21.2, this Lease, and all rights of Tenant hereunder, are and shall be subject and subordinate to any ground or master lease, and all renewals, extensions, modifications and replacements thereof, and to all mortgages and deeds of trust, which may now or hereafter affect the Leased Property or any improvements thereon and/or any of such leases, whether or not such mortgages or deeds of trust shall also cover other lands and/or buildings and/or leases, to each and every advance made or hereafter to be made under such mortgages and deeds of trust, and to all renewals, modifications, replacements and extensions of such leases and such mortgages and deeds of trust and all consolidations of such mortgages and deeds of trust. This section shall -55- be self-operative and no further instrument of subordination shall be required. In confirmation of such subordination, Tenant shall promptly execute, acknowledge and deliver any instrument that Landlord, the lessor under any such lease or the holder of any such mortgage or the trustee or beneficiary of any deed of trust or any of their respective successors in interest may reasonably request to evidence such subordination. Any lease to which this Lease is, at the time referred to, subject and subordinate is herein called "Superior Lease" and the lessor of a Superior Lease or its successor in interest at the time referred to, is herein called "Superior Landlord" and any mortgage or deed of trust to which this Lease is, at the time referred to, subject and subordinate, is herein called "Superior Mortgage" and the holder, trustee or beneficiary of a Superior Mortgage is herein called "Superior Mortgagee". If any Superior Landlord or Superior Mortgagee or the nominee or designee of any Superior Landlord or Superior Mortgagee shall succeed to the rights of Landlord under this Lease, whether through possession or foreclosure action or delivery of a new lease or deed, or otherwise, then at the request of such party so succeeding to Landlord's rights (herein called "Successor Landlord") and upon such Successor Landlord's written agreement to accept Tenant's attornment, Tenant shall attorn to and recognize such Successor Landlord as Tenant's landlord under this Lease and shall promptly execute and deliver any instrument that such Successor Landlord may reasonably request to evidence such attornment. Upon such attornment, this Lease shall continue in full force and effect as a direct lease between the Successor Landlord and Tenant upon all of the terms, conditions and covenants as are set forth in this Lease, except that the Successor Landlord (unless formerly the landlord under this Lease or its nominee or designee) shall not be (a) liable in any way to Tenant for any act or omission, neglect or default on the part of Landlord under this Lease, (b) responsible for any monies owing by or on deposit with Landlord to the credit of Tenant, (c) subject to any counterclaim or setoff which theretofore accrued to Tenant against Landlord, (d) bound by any modification of this Lease subsequent to such Superior Lease or Mortgage, or by any previous prepayment of Minimum Rent or Percentage Rent for more than one (1) month, which was not approved in writing by the Superior Landlord or the Superior Mortgagee thereto, (e) liable to the Tenant beyond the Successor Landlord's interest in the Leased Property and the rents, income, receipts, revenues, issues and profits issuing from the Leased Property, (f) responsible for the performance of any work to be done by the Landlord under this Lease to render the Leased Property ready for occupancy by Tenant, or (g) required to remove any person occupying the Leased Property or any part thereof, except if such person claims by, through or under the Successor Landlord. Tenant agrees at any time and from time to time to execute a suitable instrument in confirmation of Tenant's agreement to attorn, as aforesaid. Tenant's obligation to subordinate this Lease and Tenant's rights hereunder to any Superior Mortgage or Superior Lease shall be conditioned upon Landlord obtaining from any Superior Mortgagee or Superior Landlord, an agreement which shall be executed by Tenant and such Superior Mortgagee or Superior Landlord which shall provide in substance that so long as no Event of Default exists as would entitle -56- Landlord or any such Superior Mortgagee or Superior Landlord to terminate this Lease or would cause, without any further action of Landlord or such Superior Mortgagee or Superior Landlord, the termination of this Lease or would entitle Landlord or such Superior Mortgagee or Superior Landlord to dispossess Tenant, this Lease shall not be terminated, nor shall Tenant's use, possession or enjoyment of the Leased Property, in accordance with the terms and provisions of this Lease, be interfered with, nor shall the leasehold estate granted by this Lease be affected in any other manner, in any foreclosure or any action or proceeding instituted under or in connection with such Superior Mortgage or Superior Lease, or in the event such Superior Mortgagee or Superior Landlord takes possession of the Leased Property pursuant to any provisions of such Superior Mortgage or Superior Lease, unless Landlord or such Superior Mortgagee or Superior Landlord would have had such right of termination pursuant to this Lease. Such agreement shall be in form customarily used by the holder of any such Superior Mortgage or Superior Lease. 21.3 Notice to Mortgagee and Ground Landlord. Subsequent to the receipt by Tenant of notice from any person, firm or other entity that it is a Facility Mortgagee, or that it is the ground lessor under a lease with Landlord, as ground lessee, which includes the Leased Property as part of the demised premises, no notice from Tenant to Landlord shall be effective unless and until a copy of the same is given to such Facility Mortgagee or ground lessor and the curing of any of Landlord's defaults by such Facility Mortgagee or ground lessor shall be treated as performance by Landlord. ARTICLE 22 INVESTMENT TAX CREDIT 22.1 Investment Tax Credit. Landlord agrees to elect, in accordance with Section 48(d) of the Code, to treat Tenant as having purchased all such eligible property in the Leased Property as may be designated by Tenant in order that Tenant may obtain the benefit of the credit, if any, allowed or allowable with respect thereto under Section 38 of the Code. Landlord makes no representation or warranty with respect to the availability of the credit to Tenant or the efficacy of such election. Landlord's sole responsibility in this regard shall be to execute such documents as are reasonably required to effect the election, which documents Tenant shall prepare, at Tenant's sole cost and expense, and to provide Tenant with such information as may be reasonably requested by Tenant in connection therewith. In addition, Landlord agrees it and its assignees will not claim the credit provided by Section 38 of the Code for any property included in the Leased Property. -57- ARTICLE 23 ADDITIONAL COVENANTS OF TENANT 23.1 Notice of Change of Name, Administrator, Etc. Tenant shall give prompt notice to Landlord of any change in (a) the name (operating or otherwise) of Tenant or the Facility, (b) the individual licensed as administrator of the Facility, (1) the number of beds in any bed category for which the Facility is licensed or the number of beds in any bed category available for use at the Facility (except for changes in the number of certified distinct part beds made for reimbursement maximization purposes), and (d) the patient and/or child care services that are offered at the Facility. 23.2 Notice of Litigation, Potential Event of Default, Etc. Tenant shall give prompt notice to Landlord of any litigation or any administrative proceeding to which it may hereafter become a party which involves a potential liability equal to or greater than $250,000, or which may otherwise result in any material adverse change in the business, operations, property, prospects, results of operation or condition, financial or other, of Tenant. Forthwith upon Tenant obtaining knowledge of any Default or Event of Default, or any event or condition that would be required to be disclosed in a current report filed by Tenant on Form 8-K or in Part II of a quarterly report on Form 10-Q if Tenant were required to file such reports under the Securities Exchange Act of 1934, as amended, Tenant shall give Landlord notice thereof, which notice shall set forth in reasonable detail the nature and period of existence thereof and what action Tenant has taken or is taking or proposes to take with respect thereto. 23.3 Management of Leased Property. Tenant shall not enter into any management or similar agreement in respect of the Leased Property without the express prior written consent of Landlord. 23.4 Distributions, Payments to Affiliated Persons, Etc. Tenant will not declare, order, pay or make, directly or indirectly, any distribution or any payment to any Affiliated Person as to Tenant (including payments in the ordinary course of business and payment pursuant to management agreements with any such Affiliated Person) or set apart any sum or property therefor, or agree to do so, if, at the time of such proposed action, or immediately after giving effect thereto, any event or condition shall exist which constitutes a Default or an Event of Default. ARTICLE 24 MISCELLANEOUS 24.1 No Waiver. No failure by Landlord or Tenant to insist upon the strict performance of any term hereof or to exercise any right, power or remedy consequent upon a breach thereof, and no acceptance of full or partial payment of rent during the continuance of any such -58- breach, shall constitute a waiver of any such breach or of any such term. To the extent permitted by law, no waiver of any breach shall affect or alter this Lease, which shall continue in full force and effect with respect to any other then existing or subsequent breach. 24.2 Remedies Cumulative. To the extent permitted by law, each legal, equitable or contractual right, power and remedy of Landlord, now or hereafter provided either in this Lease or by statute or otherwise, shall be cumulative and concurrent and shall be in addition to every other right, power and remedy and the exercise or beginning of the exercise by Landlord or Tenant of any one or more of such rights, powers and remedies shall not preclude the simultaneous or subsequent exercise by Landlord or Tenant of any or all of such other rights, powers and remedies. 24.3 Acceptance of Surrender. No surrender to Landlord of this Lease or of the Leased Property or any part thereof, or of any interest therein, shall be valid or effective unless agreed to and accepted in writing by Landlord and no act by Landlord or any representative or agent of Landlord, other than such a written acceptance by Landlord, shall constitute an acceptance of any such surrender. 24.4 No Merger of Title. There shall be no merger of this Lease or of the leasehold estate created hereby by reason of the fact that the same person, firm, corporation or other entity may acquire, own or hold, directly or indirectly (a) this Lease or the leasehold estate created hereby or any interest in this Lease or such leasehold estate and (b) the fee estate or ground landlord's interest in the Leased Property. 24.5 Conveyance by Landlord. If Landlord or any successor owner of the Leased Property shall convey the Leased Property in accordance with the terms hereof other than as security for a debt, and the grantee or transferee of the Leased Property shall expressly assume all obligations of Landlord hereunder arising or accruing from and after the date of such conveyance or transfer and shall be reasonably capable of performing the obligations of Landlord hereunder, Landlord or such successor owner, as the case may be, shall thereupon be released from all future liabilities and obligations of Landlord under this Lease arising or accruing from and after the date of such conveyance or other transfer as to the Leased Property and all such future liabilities and obligations shall thereupon be binding upon the new owner. 24.6 Quiet Enjoyment. So long as Tenant shall pay the Rent as the same becomes due and shall substantially comply with all of the terms of this Lease and perform its obligations hereunder, Tenant shall peaceably and quietly have, hold and enjoy the Leased Property for the Term hereof, free of any claim or other action by Landlord or anyone claiming by, through or under Landlord, but subject to all liens and encumbrances of record as of the date hereof or hereafter consented to by Tenant. Except as otherwise provided in this Lease, no failure by Landlord to comply with the foregoing covenant shall give Tenant any right to cancel or terminate this Lease or abate, reduce or make a deduction from or offset against the Rent or any other sum payable under this Lease, or to fail to perform any other obligation of Tenant hereunder. Notwithstanding the foregoing, Tenant shall have the right, by separate -59- and independent action to pursue any claim it may have against Landlord as a result of a breach by Landlord of the covenant of quiet enjoyment contained in this Section. 24.7 Landlord's Liability. THE DECLARATION OF TRUST ESTABLISHING LANDLORD, DATED OCTOBER 9, 1986, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HEALTH AND REHABILITATION PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF LANDLORD SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, LANDLORD. ALL PERSONS DEALING WITH LANDLORD, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF LANDLORD FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. Tenant, its successors and assigns, shall not assert nor seek to enforce any claim for breach of this Lease against any of Landlord's assets other than Landlord's interest in the Leased Property and in the rents, issues and profits thereof, and Tenant agrees to look solely to such interest for the satisfaction of any liability or claim against Landlord under this Lease, it being specifically agreed that in no event whatsoever shall Landlord (which term shall include, without limitation, any general or limited partner, trustees, beneficiaries, officers, directors, or stockholders of Landlord) ever be personally liable for any such liability. In no event shall Landlord ever be liable to Tenant for any indirect or consequential damages. 24.8 Landlord's Consent. Where provisions are made in this Lease for Landlord's consent and Landlord shall fail or refuse to give such consent, Tenant shall not be entitled to any damages for any withholding by Landlord of its consent, it being intended that Tenant's sole remedy shall be an action for specific performance or injunction, and that such remedy shall be available only in those cases where Landlord has expressly agreed in writing not to unreasonably withhold its consent. 24.9 Memorandum of Lease. Neither Landlord nor Tenant shall record this Lease. However, Landlord and Tenant shall promptly, upon the request of either, enter into a short form memorandum of this Lease, in form suitable for recording under the laws of the State in which reference to this Lease, and all options contained herein, shall be made. Tenant shall pay all costs and expenses of recording such memorandum of this Lease. 24.10 Notices. (a) Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Lease shall be deemed adequately given if in writing and the same shall be delivered either in hand, by telecopier with written acknowledgment of receipt, or by mail or Federal Express or similar expedited commercial carrier, addressed to the recipient of the notice, postpaid and registered or certified with return receipt requested (if by mail), or with all freight charges prepaid (if by Federal Express or similar carrier). -60- (b) All notices required or permitted to be sent hereunder shall be deemed to have been given for all purposes of this Lease upon the date of acknowledged receipt, in the case of a notice by telecopier, and, in all other cases, upon the date of receipt or refusal, except that whenever under this Lease a notice is either received on a day which is not a Business Day or is required to be delivered on or before a specific day which is not a Business Day, the day of receipt or required delivery shall automatically be extended to the next Business Day. (c) All such notices shall be addressed, if to Landlord to: Health and Rehabilitation Properties Trust 400 Centre Street Newton, Massachusetts 02158 Attn: Mr. David J. Hegarty [Telecopier No. (617) 332-2261] with a copy to: Sullivan & Worcester One Post Office Square Boston, Massachusetts 02109 Attn: Lena G. Goldberg, Esq. [Telecopier No. (617) 338-2880] if to Tenant to: Connecticut Subacute Corporation II 400 Centre Street Newton, Massachusetts 02158 Attn: Mr. Mark Finklestein [Telecopier No. (617) 332-2261] with a copy to: Sullivan & Worcester One Post Office Square Boston, Massachusetts 02109 Attn: Lena G. Goldberg, Esq. [Telecopier No. (617) 338-2880] (d) By notice given as herein provided, the parties hereto and their respective successor 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 within the United States of America. 24.11 Construction. Anything contained in this Lease to the contrary notwithstanding, all claims against, and liabilities of, Tenant or Landlord arising prior to any date of termination of this Lease shall -61- survive such termination. If any term or provision of this Lease or any application thereof shall be invalid or unenforceable, the remainder of this Lease and any other application of such term or provisions shall not be affected thereby. If any late charges or any interest rate provided for in any provision of this Lease are based upon a rate in excess of the maximum rate permitted by applicable law, the parties agree that such charges shall be fixed at the maximum permissible rate. Neither this Lease nor any provision hereof may be changed, waived, discharged or terminated except by an instrument in writing signed by the party to be charged. All the terms and provisions of this Lease shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. The headings in this Lease are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. This Lease represents the entire agreement among the parties and amends and restates the Original Leases in their entirety. This Lease may not be amended or modified in any respect except by the written agreement of Landlord and Tenant. 24.12 Governing Law. This Lease shall be interpreted, construed, applied and enforced in accordance with the laws of the State applicable to contracts between residents of the State which are to be performed entirely within the State, regardless of (i) where this Lease is executed or delivered; or (ii) where any payment or other performance required by this Lease is made or required to be made; or (iii) where any breach of any provision of this Lease occurs, or any cause of action otherwise accrues; or (iv) where any action or other proceeding is instituted or pending; or (v) the nationality, citizenship, domicile, principle place of business, or jurisdiction of organization or domestication of any party; or (vi) whether the laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction other than the State; or (vii) any combination of the foregoing. To the maximum extent permitted by applicable law, any action to enforce, arising out of, or relating in any way to, any of the provisions of this Lease may be brought and prosecuted in such court or courts located in the State as is provided by law; and the parties consent to the jurisdiction of said court or courts located in the State and to service of process by registered mail, return receipt requested, or by any other manner provided by law. IN WITNESS WHEREOF, the parties have executed this Lease, as a sealed instrument, as of the date first above written. LANDLORD: HEALTH AND REHABILITATION PROPERTIES TRUST By: John G. Murray Its: Treasurer TENANT: -62- CONNECTICUT SUBACUTE CORPORATION II By: Barry M. Portnoy Its: Secretary EXHIBIT A Other Leases [See attached copy.] EXHIBIT B Permitted Encumbrances [See attached copy.] EXHIBIT C The Land [See attached copy.] EXHIBIT D Minimum Rent [See attached copy.] EX-10.19 4 LEASE AGREEMENT DATED AS OF FEBRUARY 11, 1994, BY AND BETWEEN HEALTH AND REHABILITATION PROPERTIES TRUST, AS LANDLORD, AND CONNECTICUT SUBACUTE CORPORATION II, AS TENANT. TABLE OF CONTENTS ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . 1 1.1 Added Value Percentage . . . . . . . . . . . . . 1 1.2 Additional Rent . . . . . . . . . . . . . . . . 1 1.3 Affiliated Person . . . . . . . . . . . . . . . 1 1.4 Assumed Indebtedness . . . . . . . . . . . . . . 2 1.5 Award . . . . . . . . . . . . . . . . . . . . . 2 1.6 Base Net Patient Revenues . . . . . . . . . . . 2 1.7 Base Rate . . . . . . . . . . . . . . . . . . . 2 1.8 Base Year . . . . . . . . . . . . . . . . . . . 2 1.9 Business Day . . . . . . . . . . . . . . . . . . 2 1.10 Capital Addition . . . . . . . . . . . . . . . . 2 1.11 Capital Additions Cost . . . . . . . . . . . . . 3 1.12 Capital Expenditure . . . . . . . . . . . . . . 3 1.13 Cash Adjustment . . . . . . . . . . . . . . . . 4 1.14 Claims . . . . . . . . . . . . . . . . . . . . . 4 1.15 Code . . . . . . . . . . . . . . . . . . . . . . 4 1.16 Commencement Date . . . . . . . . . . . . . . . 4 1.17 Condemnation . . . . . . . . . . . . . . . . . . 4 1.18 Condemnor . . . . . . . . . . . . . . . . . . . 4 1.19 Consolidated Financials . . . . . . . . . . . . 4 1.20 Control . . . . . . . . . . . . . . . . . . . . 4 1.21 Date of Taking . . . . . . . . . . . . . . . . . 4 1.22 Default . . . . . . . . . . . . . . . . . . . . 5 1.23 Encumbrance . . . . . . . . . . . . . . . . . . 5 1.24 Entity . . . . . . . . . . . . . . . . . . . . . 5 1.25 Environmental Laws . . . . . . . . . . . . . . . 5 1.26 Environmental Notice . . . . . . . . . . . . . . 5 1.27 Environmental Obligation . . . . . . . . . . . . 5 1.28 Event of Default . . . . . . . . . . . . . . . . 5 1.29 Excess Net Patient Revenues . . . . . . . . . . 5 1.30 Extended Terms . . . . . . . . . . . . . . . . . 5 1.31 Facility . . . . . . . . . . . . . . . . . . . . 5 1.32 Facility Mortgage . . . . . . . . . . . . . . . 5 1.33 Facility Mortgagee . . . . . . . . . . . . . . . 5 1.34 Facility Trade Names . . . . . . . . . . . . . . 5 1.35 Fair Market Added Value . . . . . . . . . . . . 6 1.36 Fair Market Rental . . . . . . . . . . . . . . . 6 1.37 Fair Market Value . . . . . . . . . . . . . . . 6 1.38 Fair Market Value Purchase Price . . . . . . . . 6 1.39 Fiscal Year . . . . . . . . . . . . . . . . . . 6 1.40 Fixed Term . . . . . . . . . . . . . . . . . . . 6 1.41 Fixtures . . . . . . . . . . . . . . . . . . . . 6 1.42 Hazardous Substances . . . . . . . . . . . . . . 6 1.43 Immediate Family . . . . . . . . . . . . . . . . 7 1.44 Impositions . . . . . . . . . . . . . . . . . . 7 1.45 Initiating Party . . . . . . . . . . . . . . . . 7 1.46 Insurance Requirements . . . . . . . . . . . . . 7 1.47 Land . . . . . . . . . . . . . . . . . . . . . . 7 1.48 Landlord . . . . . . . . . . . . . . . . . . . . 8 1.49 Landlord Default. . . . . . . . . . . . . . . . . 8 1.50 Lease . . . . . . . . . . . . . . . . . . . . . 8 1.51 Leased Improvements . . . . . . . . . . . . . . 8 1.52 Leased Personal Property . . . . . . . . . . . . 8 1.53 Leased Property . . . . . . . . . . . . . . . . 8 1.54 Legal Requirements . . . . . . . . . . . . . . . 8 1.55 Lending Institution . . . . . . . . . . . . . . 8 1.56 Minimum Rent . . . . . . . . . . . . . . . . . . 8 1.57 Minimum Repurchase Price . . . . . . . . . . . . 8 1.58 Net Patient Revenues . . . . . . . . . . . . . . 9 1.59 Non-Capital Additions . . . . . . . . . . . . . 10 1.60 Officer's Certificate . . . . . . . . . . . . . 10 1.61 Other Leases . . . . . . . . . . . . . . . . . . 10 1.62 Overdue Rate . . . . . . . . . . . . . . . . . . 10 1.63 Parent . . . . . . . . . . . . . . . . . . . . . 10 1.64 Percentage Rent . . . . . . . . . . . . . . . . 10 1.65 Permitted Encumbrances . . . . . . . . . . . . . 10 1.66 Person . . . . . . . . . . . . . . . . . . . . . 10 1.67 Primary Intended Use . . . . . . . . . . . . . . 10 1.68 Qualified Appraiser . . . . . . . . . . . . . . 11 1.69 Records . . . . . . . . . . . . . . . . . . . . 10 1.70 Rent . . . . . . . . . . . . . . . . . . . . . . 10 1.71 Responding Party . . . . . . . . . . . . . . . . 11 1.72 SEC . . . . . . . . . . . . . . . . . . . . . . 11 1.73 State . . . . . . . . . . . . . . . . . . . . . 11 1.74 Subsidiary . . . . . . . . . . . . . . . . . . . 11 1.75 Substitute Properties . . . . . . . . . . . . . 11 1.76 Substitution Date . . . . . . . . . . . . . . . 11 1.77 Successor Landlord . . . . . . . . . . . . . . . 11 1.78 Superior Lease . . . . . . . . . . . . . . . . . 11 1.79 Superior Landlord . . . . . . . . . . . . . . . 11 1.80 Superior Mortgage . . . . . . . . . . . . . . . 11 1.81 Superior Mortgagee . . . . . . . . . . . . . . . 11 1.82 Tenant . . . . . . . . . . . . . . . . . . . . . 11 1.83 Tenant's Personal Property . . . . . . . . . . . 11 1.84 Term . . . . . . . . . . . . . . . . . . . . . . 11 1.85 Test Rate . . . . . . . . . . . . . . . . . . . 12 1.86 Trustees . . . . . . . . . . . . . . . . . . . . 12 1.87 Unavoidable Delays . . . . . . . . . . . . . . . 12 1.88 Unsuitable for Its Primary Intended Use . . . . 12 ARTICLE 2 PREMISES AND TERM . . . . . . . . . . . . . . 12 2.1 Premises . . . . . . . . . . . . . . . . . . . . 12 2.2 Condition of Premises . . . . . . . . . . . . . 13 2.3 Fixed Term . . . . . . . . . . . . . . . . . . . 14 2.4 Extended Terms . . . . . . . . . . . . . . . . . 14 ARTICLE 3 RENT . . . . . . . . . . . . . . . . . . . . . 15 3.1 Rent . . . . . . . . . . . . . . . . . . . . . . 15 3.1.1 Minimum Rent . . . . . . . . . . . . . . 15 3.1.2 Percentage Rent . . . . . . . . . . . . . 15 3.1.3 Additional Rent . . . . . . . . . . . . . 17 3.2 Late Payment of Rent . . . . . . . . . . . . . . 19 3.3 Net Lease . . . . . . . . . . . . . . . . . . . 19 3.4 No Termination, Abatement, Etc . . . . . . . . . 19 ARTICLE 4 USE OF THE LEASED PROPERTY . . . . . . . . . . 20 4.1 Permitted Use . . . . . . . . . . . . . . . . . 20 4.1.1 Primary Intended Use . . . . . . . . . . 20 4.1.2 Necessary Approvals . . . . . . . . . . . 21 4.1.3 Continuous Operation, Etc . . . . . . . . 21 4.1.4 Lawful Use, Etc . . . . . . . . . . . . . 21 4.2 Compliance with Legal and Insurance Requirements, Instruments, Etc . . . . . . . . 21 4.3 Compliance with Medicaid and Medicare Requirements . . . . . . . . . . . . . . . . . 21 4.4 Environmental Matters . . . . . . . . . . . . . 22 ARTICLE 5 MAINTENANCE AND REPAIRS, ETC . . . . . . . . . 23 5.1 Maintenance and Repair . . . . . . . . . . . . . 23 5.1.1 Tenant's Obligations . . . . . . . . . . 23 5.1.2 Landlord's Obligations . . . . . . . . . 23 5.2 Capital Expenditure Cost Sharing . . . . . . . . 23 5.3 Tenant's Personal Property . . . . . . . . . . . 24 5.4 Yield Up . . . . . . . . . . . . . . . . . . . . 24 5.5 Encroachments, Restrictions, Etc . . . . . . . . 25 ARTICLE 6 CAPITAL ADDITIONS, ETC. . . . . . . . . . . . 25 6.1 Construction of Capital Additions to the Leased Property . . . . . . . . . . . . . . . . . . . 25 6.2 Capital Additions Financed by Tenant . . . . . . 27 6.3 Information Regarding Capital Additions . . . . 29 6.4 Non-Capital Additions . . . . . . . . . . . . . 30 6.5 Salvage . . . . . . . . . . . . . . . . . . . . 30 ARTICLE 7 LIENS . . . . . . . . . . . . . . . . . . . . 30 7.1 Liens . . . . . . . . . . . . . . . . . . . . . 30 7.2 Landlord's Lien . . . . . . . . . . . . . . . . 31 7.3 Mechanic's Liens . . . . . . . . . . . . . . . . 32 ARTICLE 8 PERMITTED CONTESTS . . . . . . . . . . . . . . 32 ARTICLE 9 INSURANCE AND INDEMNIFICATION . . . . . . . . 33 9.1 General Insurance Requirements . . . . . . . . . 33 9.2 Waiver of Subrogation . . . . . . . . . . . . . 34 9.3 Form Satisfactory, Etc . . . . . . . . . . . . . 35 9.4 No Separate Insurance . . . . . . . . . . . . . 36 9.5 Indemnification of Landlord . . . . . . . . . . 36 9.6 Indemnification of Tenant . . . . . . . . . . . 36 ARTICLE 10 CASUALTY . . . . . . . . . . . . . . . . . . 37 10.1 Insurance Proceeds . . . . . . . . . . . . . . . 37 10.2 Reconstruction in the Event of Damage or Destruction . . . . . . . . . . . . . . . . . 37 10.2.1 Material Damage or Destruction of Premises 37 10.2.2 Partial Damage or Destruction . . . . . 38 10.3 Insufficient Insurance Proceeds . . . . . . . . 39 10.4 Disbursement of Proceeds . . . . . . . . . . . . 39 10.5 Tenant's Property . . . . . . . . . . . . . . . 40 10.6 Restoration of Tenant's Property . . . . . . . . 40 10.7 No Abatement of Rent . . . . . . . . . . . . . . 40 10.8 Damage Near End of Term . . . . . . . . . . . . 40 ARTICLE 11 CONDEMNATION . . . . . . . . . . . . . . . . 41 11.1 Total Condemnation . . . . . . . . . . . . . . . 41 11.2 Partial Condemnation . . . . . . . . . . . . . . 41 11.3 Temporary Condemnation . . . . . . . . . . . . . 41 11.4 Tenant's Option . . . . . . . . . . . . . . . . 41 11.5 Allocation of Award . . . . . . . . . . . . . . 42 11.6 Abatement Procedures . . . . . . . . . . . . . . 42 ARTICLE 12 DEFAULTS AND REMEDIES . . . . . . . . . . . . 43 12.1 Events of Default. . . . . . . . . . . . . . . . 43 12.2 Remedies . . . . . . . . . . . . . . . . . . . . 45 12.3 Waiver . . . . . . . . . . . . . . . . . . . . . 47 12.4 Application of Funds . . . . . . . . . . . . . . 47 12.5 Failure to Conduct Business . . . . . . . . . . 47 12.6 Landlord's Right to Cure Tenant's Default . . . 47 12.7 Trade Names . . . . . . . . . . . . . . . . . . 47 ARTICLE 13 HOLDING OVER . . . . . . . . . . . . . . . . 48 ARTICLE 14 LANDLORD'S DEFAULT . . . . . . . . . . . . . 48 ARTICLE 15 PURCHASE OF PREMISES . . . . . . . . . . . . 49 ARTICLE 16 SUBSTITUTION OF PROPERTY FOR THE LEASED PROPERTY 50 16.1 Tenant's Substitution Option . . . . . . . . . . 50 16.2 Landlord's Substitution Option . . . . . . . . . 50 16.3 Substitution Procedures . . . . . . . . . . . . 51 16.4 Conditions to Substitution . . . . . . . . . . . 53 16.5 Conveyance to Tenant . . . . . . . . . . . . . . 54 16.6 Expenses . . . . . . . . . . . . . . . . . . . . 54 ARTICLE 17 SUBLETTING AND ASSIGNMENT . . . . . . . . . . 55 17.1 Subletting and Assignment . . . . . . . . . . . 55 17.2 Required Sublease Provisions . . . . . . . . . . 56 17.3 Sublease Limitation . . . . . . . . . . . . . . 56 17.4 Assignment and Subletting Procedure . . . . . . 56 ARTICLE 18 CERTIFICATES AND FINANCIAL STATEMENTS . . . . 57 18.1 Estoppel Certificates . . . . . . . . . . . . . 57 18.2 Financial Statements . . . . . . . . . . . . . . 57 18.3 General Operations . . . . . . . . . . . . . . . 58 18.3.1 Reimbursement, Licensure, Etc. . . . . . 58 18.3.2 Monthly Reports . . . . . . . . . . . . 59 ARTICLE 19 LANDLORD ACCESS . . . . . . . . . . . . . . . 59 19.1 Landlord's Right to Inspect . . . . . . . . . . 59 19.2 Landlord's Option to Purchase the Tenant's Personal Property; Transfer of Licenses . . . 59 ARTICLE 20 APPRAISAL . . . . . . . . . . . . . . . . . . 60 20.1 Appraisal Procedure . . . . . . . . . . . . . . 60 ARTICLE 21 MORTGAGES . . . . . . . . . . . . . . . . . . 61 21.1 Landlord May Grant Liens . . . . . . . . . . . . 61 21.2 Subordination of Lease . . . . . . . . . . . . . 61 21.3 Notice to Mortgagee and Ground Landlord . . . . 63 ARTICLE 22 INVESTMENT TAX CREDIT . . . . . . . . . . . . 63 22.1 Investment Tax Credit . . . . . . . . . . . . . 63 ARTICLE 23 ADDITIONAL COVENANTS OF TENANT 23.1 Notice of Change of Name, Administrator, Etc. 64 23.2 Notice of Litigation, Potential Event of Default, Etc. . . . . . . . . . . . . . . . . 64 23.3 Management of Leased Property . . . . . . . . . 64 23.4 Distributions, Payments to Affiliated Persons, Etc. . . . . . . . . . . . . . . . . . . . . . 64 ARTICLE 24 MISCELLANEOUS . . . . . . . . . . . . . . . . 65 24.1 No Waiver . . . . . . . . . . . . . . . . . . . 65 24.2 Remedies Cumulative . . . . . . . . . . . . . . 65 24.3 Acceptance of Surrender . . . . . . . . . . . . 65 24.4 No Merger of Title . . . . . . . . . . . . . . . 65 24.5 Conveyance by Landlord . . . . . . . . . . . . . 65 24.6 Quiet Enjoyment . . . . . . . . . . . . . . . . 66 24.7 Landlord's Liability . . . . . . . . . . . . . . 66 24.8 Landlord's Consent . . . . . . . . . . . . . . . 66 24.9 Memorandum of Lease . . . . . . . . . . . . . . 67 24.10 Notices . . . . . . . . . . . . . . . . . . . . 67 24.11 Construction . . . . . . . . . . . . . . . . . . 68 24.12 Governing Law . . . . . . . . . . . . . . . . . 68 EXHIBITS A - Other Leases B - Permitted Encumbrances C - The Land D - Minimum Rent LEASE AGREEMENT THIS LEASE AGREEMENT, dated as of February 11, 1994, is made by and between HEALTH AND REHABILITATION PROPERTIES TRUST, a Maryland real estate investment trust, as landlord ("Landlord"), having its principal office at 400 Centre Street, Newton, Massachusetts, and CONNECTICUT SUBACUTE CORPORATION II, a Delaware corporation, as tenant ("Tenant"), having an office at 400 Centre Street, Newton, Massachusetts 02158. W I T N E S S E T H : WHEREAS, Landlord owns the Leased Property (this and other capitalized terms used and not otherwise defined herein having the meanings ascribed to such terms in Article 1) and Landlord wishes to lease the Leased Property to Tenant and Tenant wishes to lease the Leased Property from Landlord, subject to and upon the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: ARTICLE 1 DEFINITIONS Each reference in this Lease to any of the following terms shall be construed to incorporate the definitions hereinafter set forth and include the plural as well as the singular. All accounting terms not otherwise defined herein shall have the meanings assigned to them in accordance with generally accepted accounting principles. 1.1 "Added Value Percentage" shall have the meaning given such term in Section 6.2(a). 1.2 "Additional Rent" shall have the meaning given such term in Section 3.1.3. 1.3 "Affiliated Person" shall mean, with respect to any Person, (a) in the case of any such Person which is a partnership, any partner in such partnership; (b) in the case of any such Person which is a limited liability company, any member of such company; (c) any other Person which is a Parent, a Subsidiary, or a Subsidiary of a Parent of the Persons referred to in the preceding clauses (a) and (b); (d) any other Person otherwise directly or indirectly controlling or under common control with such Person or one or more of the Persons referred to in the preceding clauses (a), (b) and (c); and (e) any other Person who is a member of the Immediate Family of such Person or any Person referred to in the preceding clauses (a) through (d). 1.4 "Assumed Indebtedness" shall mean any indebtedness or other obligations existing at the time of acquisition of the Leased Property by Landlord secured by a mortgage, deed of trust or other security agreement creating a lien on the Leased Property and assumed by Landlord, and any indebtedness resulting from the refinancing thereof, and/or any subsequent indebtedness resulting from Landlord's financing of, or Landlord's reimbursement of Tenant's financing of, any Capital Additions during the Term, except any indebtedness or other obligations of Tenant not assumed by Landlord prior to or during the Term. 1.5 "Award" shall mean all compensation, sums or other value awarded, paid or received by virtue of a total or partial Condemnation of the Leased Property (after deduction of all reasonable legal fees and other reasonable costs and expenses incurred by Landlord in connection with obtaining any such award). 1.6 "Base Net Patient Revenues" shall mean Net Patient Revenues for the Base Year. 1.7 "Base Rate" shall mean the rate of interest, determined daily and expressed as a percentage, announced by Citibank, N.A., in New York, New York, from time to time, as Citibank, N.A.'s "base rate" or "prime rate", so-called, or, if at any time Citibank, N.A. ceases to announce such a rate, as announced by the largest national or state chartered banking institution other than Citibank, N.A. then having its principal office in New York, New York and announcing such a rate. If at any time neither Citibank, N.A. nor any of the five largest other national or state chartered banking institutions having their principal offices in New York, New York is announcing such a floating rate, "Base Rate" shall mean a rate of interest, determined daily, which is two (2) percentage points above the 14-day moving average closing trading price of 90-day Treasury Bills. 1.8 "Base Year" shall mean the twelve-month period beginning June 1, 1999 and ending May 31, 2000. 1.9 "Business Day" shall mean any day other than Saturday, Sunday, or any other day on which banking institutions in The Commonwealth of Massachusetts or in New York, New York are authorized by law or executive action to close. 1.10 "Capital Addition" shall mean one or more new buildings, or one or more additional structures annexed to any portion of any of the Leased Improvements, or the material expansion of existing improvements, which are constructed on any parcel or portion of the Land during the Term, including, but not limited to, the construction of a new wing or new story, the renovation of existing improvements on the Leased Property in order to provide a functionally new facility needed to provide services not previously offered, or any expansion, construction, renovation or conversion in order to increase the bed capacity of the Facility, to change the purpose for which such beds are utilized or to improve the quality of the Facility. 1.11 "Capital Additions Cost" shall mean the cost of any Capital Addition proposed to be made by Tenant, whether paid for by Tenant or Landlord. Such cost shall include (a) the cost of construction of the -3- Capital Addition, including, site preparation and improvement, materials, labor, supervision, developer and administrative fees, legal fees, and related design, engineering and architectural services, the cost of any fixtures, the cost of construction financing (including, but not limited to, capitalized interest) and other miscellaneous costs approved by Landlord, (b) if agreed to by Landlord in writing, in advance, the cost of any land contiguous to the Leased Property which is to become a part of the Leased Property purchased for the purpose of placing thereon the Capital Addition or any portion thereof or for providing means of access thereto, or parking facilities therefor, including the cost of surveying the same, (c) the cost of insurance, real estate taxes, water and sewage charges and other carrying charges for such Capital Addition during construction, (d) title insurance charges, (e) reasonable attorneys' fees, (f) filing and registration fees and recording taxes, (g) documentary stamp or transfer taxes, and (h) all actual and reasonable costs and expenses of Landlord and any Lending Institution committed to finance the Capital Addition, including, but not limited to, (i) reasonable attorneys' fees, (ii) printing expenses, (iii) filing, registration and recording taxes and fees, (iv) documentary stamp or transfer taxes, (v) title insurance charges and appraisal fees, (vi) rating agency fees, and (vii) loan commitment fees. 1.12 "Capital Expenditure" shall mean any single required improvement, alteration, replacement or repair of the Leased Property, or any part thereof, (a) having a cost in excess of One Hundred Thousand Dollars ($100,000.00) (which amount shall be increased each year of the Lease by the product determined by multiplying such amount by the percentage increase in the Consumer Price Index, Urban Wage Earners and Clerical Workers, All Items, Base 1982-84=100, published by the U.S. Department of Labor, All Cities, or such comparable index published by the U.S. Department of Labor or its successor agency), and (b) having a useful life in excess of the longer of (i) twelve (12) months, or (ii) the remaining period of the Term, except capital improvements necessitated by destruction or Condemnation of the Leased Property, or any portion thereof. 1.13 "Cash Adjustment" shall have the meaning given such term in Section 16.3(d). 1.14 "Claims" shall have the meaning given such term in Article 8. 1.15 "Code" shall mean the Internal Revenue Code of 1986 and, to the extent applicable, the Treasury Regulations promulgated thereunder, each as from time to time amended. 1.16 "Commencement Date" shall mean the date of this Lease. 1.17 "Condemnation" shall mean (a) the exercise of any governmental power, whether by legal proceedings or otherwise, by a Condemnor, (b) a voluntary sale or transfer by Landlord to any Condemnor, either under threat of condemnation or while legal proceedings for condemnation are pending, and (c) a taking or voluntary conveyance of all or part of the Leased Property, or any interest therein, or right accruing thereto or use thereof, as the result or in settlement of any Condemnation or other -4- eminent domain proceeding affecting any portion of the Leased Property, whether or not the same shall have actually been commenced. 1.18 "Condemnor" shall mean any public or quasi-public authority, or private corporation or individual having the power of Condemnation. 1.19 "Consolidated Financials" shall mean, for any Fiscal Year or other accounting period of Tenant and its consolidated Subsidiaries, statements of earnings, retained earnings and changes in financial position for such period and for the period from the beginning of the applicable Fiscal Year to the end of such period and the balance sheet as at the end of such period, together with the notes thereto, all in reasonable detail, and setting forth in comparative form the corresponding figures for the corresponding period in the preceding Fiscal Year, and prepared in accordance with generally accepted accounting principles, consistently applied. 1.20 "Control" and any variations thereof shall mean, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership of voting securities, partnership interests or other equity interests. 1.21 "Date of Taking" shall mean the date the Condemnor has the right to possession of the Leased Property, or any portion thereof, in connection with a Condemnation. 1.22 "Default" shall mean any event, act or omission which with the giving of notice and/or lapse of time could constitute an Event of Default. 1.23 "Encumbrance" shall have the meaning given such term in Section 21.1. 1.24 "Entity" shall mean any corporation, general or limited partnership, limited liability company, stock company or association, joint venture, association, company, trust, bank, trust company, land trust, business trust, any government or agency or political subdivision thereof or any other entity. 1.25 "Environmental Laws" shall mean all applicable Federal, state or local statutes, laws, ordinances, rules and regulations, licensing requirements or conditions, whether now existing or hereafter arising, relating to Hazardous Substances. 1.26 "Environmental Notice" shall have the meaning given such term in Section 4.4. 1.27 "Environmental Obligation" shall mean any cost, expense, loss or damage arising under any Environmental Law or in connection with any Hazardous Substance. 1.28 "Event of Default" shall have the meaning given such term in Section 12.1. -5- 1.29 "Excess Net Patient Revenues" shall mean the amount of Net Patient Revenues for any measuring period in excess of the Base Net Patient Revenues for the equivalent period of the Base Year. 1.30 "Extended Terms" shall have the meaning given such term in Section 2.4. 1.31 "Facility" shall mean the licensed nursing home being operated on the Leased Property. 1.32 "Facility Mortgage" shall mean any mortgage, deed of trust or other security agreement securing any Assumed Indebtedness or any other encumbrance placed upon the Leased Property in accordance with Article 21. 1.33 "Facility Mortgagee" shall mean the holder of any Facility Mortgage. 1.34 "Facility Trade Names" shall mean any of the names under which Tenant operates, or has operated, the Facility at any time during the Term. 1.35 "Fair Market Added Value" shall mean the Fair Market Value of the Leased Property (including all Capital Additions) less the Fair Market Value of the Leased Property determined as if no Capital Additions financed by Tenant had been constructed. 1.36 "Fair Market Rental" shall mean the rental which a willing tenant not compelled to rent would pay a willing landlord not compelled to lease for the use and occupancy of the Leased Property, or applicable portion thereof, on the terms and conditions of this Lease, for the term in question, and determined in accordance with the appraisal procedures set forth in Article 20 or in such other manner as shall be mutually acceptable to Landlord and Tenant. 1.37 "Fair Market Value" shall mean the price that a willing buyer not compelled to buy would pay a willing seller not compelled to sell for the Leased Property, (a) assuming the same is unencumbered by this Lease, (b) determined in accordance with the appraisal procedures set forth in Article 20 or in such other manner as shall be mutually acceptable to Landlord and Tenant, (c) assuming such seller shall pay the closing costs generally paid by a seller of real property in the state in which such property is located and that such buyer shall pay closing costs generally paid by a buyer of real property in the state in which such property is located, and (d) not taking into account any reduction in value resulting from any indebtedness to which such property is subject, except the positive or negative effect on the value of such property attributable to the interest rate, amortization schedule, maturity date, prepayment penalty and other terms and conditions of any lien or encumbrance which is not removed at or prior to the closing of the transaction as to which such Fair Market Value determination is being made. 1.38 "Fair Market Value Purchase Price" shall mean the Fair Market Value of the Leased Property less the Fair Market Added Value. -6- 1.39 "Fiscal Year" shall mean each twelve (12) month period from June 1 to May 31. 1.40 "Fixed Term" shall have the meaning given such term in Section 2.3. 1.41 "Fixtures" shall have the meaning given such term in Section 2.1(d). 1.42 "Hazardous Substances" shall mean hazardous substances (as defined by the Comprehensive Environmental Response, Compensation and Liability Act, as now in effect or as hereafter from time to time amended), hazardous wastes (as defined by the Resource Conservation and Recovery Act, as now in effect or as hereafter from time to time amended), any hazardous waste, hazardous substance, pollutant or contaminant, oils, radioactive materials, asbestos in any form or condition, or any pollutant or contaminant or hazardous, dangerous or toxic chemicals, materials or substances within the meaning of any other applicable Federal, state or local law, regulation, ordinance or requirements relating to or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste, substance or materials, all as now in effect or hereafter from time to time amended. 1.43 "Immediate Family" shall mean, with respect to any Person, his spouse, parents, brothers, sisters, children (natural or adopted), stepchildren, grandchildren, grandparents, parents-in-law, brothers-in-law, sisters-in-law, nephews and nieces. 1.44 "Impositions" shall mean all taxes, assessments, and ad valorem, sales, and use, single business, gross receipts, transaction privilege, rent or similar taxes as the same are imposed on either Landlord or Tenant with respect to the Leased Property and/or the business conducted thereon by Tenant and other charges and impositions (including, but not limited to, fire protection service fees and similar charges) levied, assessed or imposed at any time during the Term by any governmental authority upon or against the Leased Property, or taxes in lieu thereof, and additional types of taxes to supplement real estate taxes due to legal limits imposed thereon. If, at any time during the Term, any tax or excise on rents or other taxes, however described, are levied or assessed against Landlord with respect to the rent reserved hereunder, either wholly or partially in substitution for, or in addition to, real estate taxes assessed or levied on the Leased Property, such tax or excise on rents shall be included in Impositions; provided, however, that Impositions shall not include franchise, estate, inheritance, succession, capital levy, transfer, income or excess profits taxes assessed on Landlord. Impositions shall include any estimated payment, whether voluntary or required, made by Landlord on account of a fiscal tax period for which the actual and final amount of taxes for such period has not been determined by the governmental authority as of the date of any such estimated payment. 1.45 "Initiating Party" shall have the meaning given such term in Section 20.1. -7- 1.46 "Insurance Requirements" shall mean all terms of any insurance policy required by this Lease and all requirements of the issuer of any such policy. 1.47 "Land" shall have the meaning given such term in Section 2.1(a). 1.48 "Landlord" shall have the meaning given such term in the preambles to this Lease. 1.49 "Landlord Default" shall have the meaning given such term in Article 14. 1.50 "Lease" shall mean this Lease Agreement, including Exhibits A through D hereto, as it and they may be amended from time to time as herein provided. 1.51 "Leased Improvements" shall have the meaning given such term in Section 2.1(b). 1.52 "Leased Personal Property" shall have the meaning given such term in Section 2.1(e). 1.53 "Leased Property" shall have the meaning given such term in Section 2.1. 1.54 "Legal Requirements" shall mean all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions, including, but not limited to, Environmental Laws, affecting the Leased Property or the maintenance, construction, use or alteration thereof, whether now or hereafter enacted, including those which may (a) require repairs, modifications or alterations in or to the Leased Property or any portion thereof or (b) in any way adversely affect the use and enjoyment thereof, and all permits, licenses and authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to Tenant (other than encumbrances hereinafter created by Landlord without the consent of Tenant), at any time in force affecting the Leased Property. 1.55 "Lending Institution" shall mean any insurance company, federally insured commercial or savings bank, national banking association, savings and loan association, employees' welfare, pension or retirement fund or system, corporate profit sharing or pension trust, college or university, or real estate investment trust, including any corporation qualified to be treated for federal tax purposes as a real estate investment trust, having a net worth of at least $10,000,000. 1.56 "Minimum Rent" shall mean the amount set forth in Exhibit D. 1.57 "Minimum Repurchase Price" shall mean that portion of the aggregate purchase price of the Leased Property paid by Landlord in cash or in kind, plus the aggregate of unpaid principal balance of all encumbrances against the Leased Property at the time of purchase thereof -8- by Tenant, plus any amounts paid by Landlord to reduce the principal balance of any Assumed Indebtedness, less all proceeds received by Landlord from any refinancing of the Leased Property (after payment of the debt refinanced and net of any costs and expenses incurred in connection with such refinancing, including, without limitation, loan points, commitment fees and commissions) and less the net amount (after deduction of all reasonable legal fees and other costs and expenses, including, without limitation, expert witness fees, incurred by Landlord in connection with obtaining any such award) of all awards received by Landlord from any partial Condemnation of the Leased Property or any portion thereof which are not applied to restoration. 1.58 "Net Patient Revenues" shall mean all revenues received or receivable from or by reason of the operation of the Facility, or any portion thereof, or any other use of the Leased Property, or any portion thereof, including, without limitation, all patient revenues received or receivable for the use of or otherwise by reason of all rooms, beds and other facilities provided, meals served, services performed, space or facilities subleased or goods sold on the Leased Property, or any portion thereof, including, without limitation, and except as provided below, any other arrangements with third parties relating to the possession or use of any portion of any portion of the Leased Property; provided, however, Net Patient Revenues shall not include: (a) revenue from professional fees or charges by physicians and providers (other than Tenant or Tenant's employees) of ancillary services, when and to the extent such charges are paid over to such physicians or providers of ancillary services, or are separately billed and not included in comprehensive fees; (b) nonoperating revenues such as interest income or income from the sale of assets not sold in the ordinary course of business; (c) contractual allowances (relating to any period during the Term) for billings not paid by or received from the appropriate governmental agencies or third party providers; (d) allowances according to generally accepted accounting principles for uncollectible accounts, including credit card accounts and charity care or other administrative discounts; (e) all proper patient billing credits and adjustments according to generally accepted accounting principles relating to health care accounting; (f) federal, state or local sales or excise taxes and any tax based on or measured by such revenues which is added to or made a part of the amount billed to the patient or other recipient of such services or goods, whether included in the billing or stated separately; (g) provider discounts for hospital or other medical facility utilization contracts and credit card discounts; (h) revenues attributable to Capital Additions financed by Tenant as provided in Section 6.2; (i) revenues attributable to services actually provided off the Leased Property, such as home health care; and (j) any amounts actually paid by Tenant for the cost of any federal, state or local governmental programs imposed specially to provide or finance indigent patient care. To the extent the Leased Property or any portion thereof is subleased by Tenant, Net Patient Revenues shall include (x) the Net Patient Revenues generated from the operations conducted on such subleased portion of the Leased Property and (y) the rent received or receivable by Tenant from or under any such sublease to the extent such rent is not based on Net Patient Revenues and, therefore, has not already been included in the calculation of Net Patient Revenues pursuant to clause (x) preceding. -9- 1.59 "Non-Capital Additions" shall have the meaning given such term in Section 6.4. 1.60 "Officer's Certificate" shall mean a certificate signed by the chief financial officer or another officer of Tenant authorized by the board of directors or by-laws of Tenant, or any other Person whose power and authority to act has been so authorized. 1.61 "Other Leases" shall mean the Leases described in Exhibit A, attached hereto and made a part hereof. 1.62 "Overdue Rate" shall mean a rate equal to the lesser of the Base Rate plus two percent (2%) and the maximum rate then permitted under applicable law. 1.63 "Parent" shall mean, with respect to any Person, any Person which owns directly, or indirectly, through one or more Subsidiaries, twenty percent (20%) or more of the voting or beneficial interests in such Person or otherwise Controls such Person. 1.64 "Percentage Rent" shall have the meaning given such term in Section 3.1.2(a). 1.65 "Permitted Encumbrances" shall mean the matters set forth in Exhibit B, attached hereto and made a part hereof. 1.66 "Person" shall mean any individual or Entity, and the heirs, executors, administrators, legal representatives, successors and assigns of such Person where the context so admits. 1.67 "Primary Intended Use" shall have the meaning given such term in Section 4.1.1. 1.68 "Qualified Appraiser" shall mean any disinterested person who is a member in good standing of the American Institute of Real Estate Appraisers or the American Society of Real Estate Counselors (or the successor to either of such organizations) and who has had not less than ten (10) years experience in appraising and valuing, commercial buildings in the State. 1.69 "Records" shall have the meaning given such term in Section 7.2. 1.70 "Rent" shall mean, collectively, the Minimum Rent, Percentage Rent and Additional Rent. 1.71 "Responding Party" shall have the meaning given such term in Section 20.1. 1.72 "SEC" shall mean the Securities and Exchange Commission. 1.73 "State" shall mean the State, Commonwealth, Possession or Territory in which the Leased Property is located. -10- 1.74 "Subsidiary" shall mean, with respect to any Person, any Entity in which such Person shall own, directly or indirectly, through one or more Subsidiaries, twenty percent (20%) or more of the voting or beneficial interests or any other entity Controlled by such Person. 1.75 "Substitute Properties" shall have the meaning given such term in Section 16.1. 1.76 "Substitution Date" shall have the meaning given such term in Section 16.1. 1.77 "Successor Landlord" shall have the meaning given such term in Section 21.2. 1.78 "Superior Lease" shall have the meaning given such term in Section 21.2. 1.79 "Superior Landlord" shall have the meaning given such term in Section 21.2. 1.80 "Superior Mortgage" shall have the meaning given such term in Section 21.2. 1.81 "Superior Mortgagee" shall have the meaning given such term in Section 21.2. 1.82 "Tenant" shall have the meaning given such term in the preambles to this Lease. 1.83 "Tenant's Personal Property" shall mean all motor vehicles and consumable inventory and supplies, furniture, equipment and machinery and all other personal property of Tenant located on the Leased Property or used in Tenant's business on the Leased Property and all modifications, replacements, alterations and additions to the Leased Personal Property installed at the expense of Tenant, other than any items included within the definition of Fixtures or Leased Personal Property and expressly excluding Tenant's accounts receivable. 1.84 "Term" shall mean, collectively, the Fixed Term and any Extended Terms, to the extent properly exercised pursuant to the provisions of Section 2.4, unless sooner terminated pursuant to the provisions of this Lease. 1.85 "Test Rate" shall mean the minimum interest rate necessary to avoid imputation of original issue discount income under Sections 483 or 1272 of the Code or any similar provision. 1.86 "Trustees" shall mean the trustees of Landlord. 1.87 "Unavoidable Delays" shall mean delays due to strikes, lock- outs, inability to procure materials, power failure, acts of God, governmental restrictions, enemy action, civil commotion, fire, unavoidable casualty or other causes beyond the reasonable control of the party responsible for performing an obligation hereunder, but in no event to exceed sixty (60) days so long as the affected party shall use -11- reasonable efforts to alleviate the cause of such delay and thereafter promptly perform such obligation; provided, however, that (x) in no event shall Tenant's obligation to pay the Rent be affected by Unavoidable Delays, and (y) in no event shall lack of funds be deemed a cause beyond the control of either party. 1.88 "Unsuitable for Its Primary Intended Use" shall mean a state or condition of the Facility such that by reason of damage or destruction, or a partial Condemnation, in the good faith judgment of Landlord and Tenant, reasonably exercised, the Facility cannot be operated on a commercially practicable basis for its Primary Intended Use taking into account, among other relevant factors, the number of usable beds, the amount of square footage, or revenues affected by such damage or destruction or partial taking. ARTICLE 2 PREMISES AND TERM 2.1 Premises. Upon and subject to the terms and conditions herein set forth, Landlord leases to Tenant and Tenant leases from Landlord all of the following (collectively, the "Leased Property"): (a) those certain tracts, pieces and parcels of land as more particularly described in Exhibit C, attached hereto and made a part hereof (collectively, the "Land"); (b) all buildings, structures, Fixtures and other improvements of every kind, including, but not limited to, alleyways and connecting tunnels, sidewalks, utility pipes, conduits and lines (on-site and off-site), parking areas and roadways appurtenant to such buildings and structures presently situated upon the Land and Capital Additions financed by Landlord (collectively, the "Leased Improvements"); (c) all easements, rights and appurtenances relating to the Land and the Leased Improvements; (d) all equipment, machinery, fixtures and other items of property, now or hereafter permanently affixed to or incorporated into the Leased Improvements, including, without limitation, all furnaces, boilers, heaters, electrical equipment, heating, plumbing, lighting, ventilating, refrigerating, incineration, air and water pollution control, waste disposal, air-cooling and air- conditioning systems and apparatus, sprinkler systems and fire and theft protection equipment, all of which, to the greatest extent permitted by law, are hereby deemed by the parties hereto to constitute real estate, together with all replacements, modifications, alterations and additions thereto, but specifically excluding all items included within the category of Tenant's Personal Property (collectively, the "Fixtures"); (e) all machinery, equipment, furniture, furnishings, moveable walls or partitions, computers or trade fixtures or other -12- personal property used or useful in Tenant's business on or in the Leased Improvements, and located on or in the Leased Improvements on the Commencement Date, except items, if any, included within the category of Fixtures, but specifically excluding all items included within the category of Tenant's Personal Property (collectively the "Leased Personal Property"); and (f) all existing leases of space (including any security deposits held pursuant thereto), if any, in the Leased Improvements to tenants thereof. 2.2 Condition of Premises. On the Commencement Date, Landlord shall deliver and Tenant shall accept the Leased Property in "as is" condition, subject to the rights of parties in possession, the existing state of title, including all covenants, conditions, restrictions, easements and other matters of record, all applicable Legal Requirements, the lien of financing instruments, mortgages and deeds of trust, and such other matters which would have been disclosed by an inspection of the Leased Property and the record title thereto or by an accurate survey thereof. LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY PART THEREOF, EITHER AS THE FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, WITH RESPECT TO THE LEASED PROPERTY OR ANY PORTION THEREOF IT BEING AGREED THAT ALL SUCH RISKS SHALL BE BORNE BY TENANT. To the extent permitted by law, however, Landlord grants and assigns to Tenant all of Landlord's rights to proceed against any predecessor in title for breaches of warranties or representations or for latent defects in the Leased Property. Landlord shall cooperate with Tenant in the prosecution of any such claims, in Landlord's or Tenant's name, all at Tenant's sole cost and expense. Tenant shall indemnify, and hold harmless Landlord from and against any loss, cost, damage or liability (including attorneys' fees) incurred by Landlord in connection with such cooperation. 2.3 Fixed Term. The initial term of this Lease (the "Fixed Term") shall commence on the date hereof and, unless sooner terminated in accordance with the terms and conditions of this Lease, shall expire on December 31, 1998. 2.4 Extended Terms. Provided no Default or Event of Default shall have occurred and be continuing and Tenant shall simultaneously exercise its right to extend the term of all of the Other Leases, Tenant shall have the right to extend the Fixed Term for two additional periods of ten (10) years each (the "Extended Terms"). Each Extended Term shall commence on the day succeeding the expiration of the Fixed Term or the preceding Extended Term, as the case may be, and shall end on the day immediately preceding the tenth anniversary of the commencement of such Extended Term. All of the terms, covenants and provisions of this Lease shall apply to each such Extended Term, except that (a) the Minimum Rent for the second such Extended Term shall be the greater of (x) the Minimum Rent payable during the first such Extended Term and (y) the Fair Market Rental for the Leased Property determined as of the commencement of such Extended -13- Term, and (b) Tenant shall have no further right to extend the Term beyond the Extended Terms hereinabove provided. If Tenant shall elect to exercise either of the aforesaid options, it shall do so by giving Landlord written notice thereof not later than one (1) year prior to the expiration of the then current term of this Lease (Fixed or Extended, as applicable); it being understood and agreed that time is of the essence with respect to the giving of such notice. If Tenant shall fail to give any such notice, this Lease shall automatically terminate at the end of the term then in effect and Tenant shall have no further option to extend the term of this Lease. If Tenant shall give such notice, the extension of this Lease shall be automatically effected, without the execution of any additional documents. -14- ARTICLE 3 RENT 3.1 Rent. Tenant shall pay to Landlord, by check or wire transfer of immediately available federal funds, as Tenant may elect, without offset, abatement, demand or deduction, Minimum Rent, Percentage Rent and Additional Rent, during the Term, as herein provided. 3.1.1 Minimum Rent. Tenant shall pay Minimum Rent in equal monthly installments, in advance, on the first day of each and every calendar month during the Term. Minimum Rent for any partial month shall be pro-rated on a daily basis. 3.1.2 Percentage Rent. (a) Amount. Commencing June 1, 2000, for each Fiscal Year during the Term, Tenant shall pay to Landlord, as additional rent, percentage rent ("Percentage Rent") in an amount equal to three percent (3%) of Excess Net Patient Revenues for such Fiscal Year. Percentage Rent shall be calculated and paid quarterly in arrears on the basis of cumulative Excess Net Patient Revenues as the last day of each quarter occurring during the applicable Fiscal Year, less the Percentage Rent, if any, previously paid to Landlord for such Fiscal Year. (b) Payment of Percentage Rent. Tenant shall calculate and deliver Percentage Rent to Landlord within forty-five (45) days after the end of each quarter of any Fiscal Year (or, in the case of the final quarter in any Fiscal Year, ninety (90) days thereafter), together with an Officer's Certificate, setting forth the calculation of Percentage Rent for such quarter. (c) Reconciliation of Additional Rent. Within ninety (90) days after the end of each Fiscal Year, Tenant shall deliver to Landlord an Officer's Certificate, together with certified audits with respect to Net Patient Revenues for the Facility and the facilities leased under the Other Leases, in form and substance reasonably satisfactory to Landlord, of Tenant's financial operations prepared by accountants reasonably satisfactory to Landlord, setting forth the Net Patient Revenues and Excess Net Patient Revenues for the immediately preceding Fiscal Year, together with such additional information with respect thereto as Landlord may reasonably request. If the Percentage Rent for any Fiscal Year as shown in the applicable Officer's Certificate and accompanying financial statements is less than the amount previously paid with respect thereto, Landlord shall, at Landlord's option, refund any excess payment to Tenant or grant Tenant a credit against the next due payment of Percentage Rent in the amount of such difference. If the Percentage Rent for any Fiscal Year as shown in the applicable Officer's Certificate exceeds the amount previously paid with respect thereto, Tenant shall pay such excess to Landlord at such time as such Officer's Certificate is delivered. -15- Any difference between the Percentage Rent for any Fiscal Year as shown in such Officer's Certificate and the total amount of quarterly payments for such Fiscal Year previously paid, whether in favor of Landlord or Tenant, shall bear interest at the Base Rate, which interest shall accrue from the close of such Fiscal Year until the amount of such difference shall be paid or otherwise discharged. A final reconciliation of Percentage Rent, taking into account among other relevant adjustments, any contractual allowances which are accrued after the expiration or sooner termination of this Lease, but which related to Net Patient Revenues accrued prior to such termination, and Tenant's good faith best estimate of the amount of any unresolved contractual allowances shall be made not later than two (2) years after such termination and Tenant shall advise Landlord within sixty (60) days after such termination of Tenant's best estimate at that time of the approximate amount of such adjustments, which estimate shall not be binding on Tenant. (d) Confirmation of Percentage Rent. Tenant shall utilize, or cause to be utilized, an accounting system for the conduct of its business at the Leased Property in accordance with its usual and customary practices and in accordance with generally accepted accounting principles, consistently applied, which will accurately record all Net Patient Revenues, and shall employ independent accountants reasonably acceptable to Landlord, and Tenant shall retain, for at least four (4) years after the expiration of each Fiscal Year (and in any event until the final reconciliation described in subparagraph (c) above for such Fiscal Year has been made), reasonably adequate records conforming to such accounting system showing all Net Patient Revenues for such Fiscal Year. Landlord, at its own expense, except as provided below, shall have the right, from time to time by its accountants or representatives, to audit the information set forth in the Officer's Certificate referred to in subparagraph (b) above and, in connection with such audit, to examine Tenant's records with respect thereto (including supporting data and sales and excise tax returns), subject to any prohibitions or limitations on disclosure of any such data under applicable law or regulations, including, without limitation, any duly enacted "Patients' Bill of Rights" or similar legislation and such other limitations as may be necessary to preserve the confidentiality of the Facility-patient relationship and the physician-patient privilege. If any such audit shall disclose a deficiency in the payment of Percentage Rent and either Tenant agrees with the result of such audit or the matter is otherwise determined or compromised, Tenant shall forthwith pay to Landlord the amount of the deficiency, as finally agreed or determined, together with interest thereon at the Base Rate. If any such audit discloses that the Net Patient Revenues actually received by Tenant for any Fiscal Year exceed those reported by Tenant by more than three percent (3%), Tenant shall pay the reasonable cost of such audit. Any proprietary information obtained by Landlord pursuant to the provisions of this section shall be treated as confidential, except such information may be used, subject to appropriate confidentiality safeguards, in any litigation between the parties -16- and Landlord may disclose such information to prospective purchasers or lenders. 3.1.3 Additional Rent. In addition to the Minimum Rent and Percentage Rent, Tenant shall pay and discharge as and when due and payable all other amounts, liabilities, obligations and Impositions which Tenant assumes or agrees to pay under this Lease (collectively, "Additional Rent"), including, but not limited to the following: (a) Impositions. Subject to Article 8, Tenant shall pay, or cause to be paid, all Impositions before any fine, penalty, interest or cost may be added for non-payment, such payments to be made directly to the taxing authorities where feasible, and shall promptly, upon request, furnish to Landlord copies of official receipts or other satisfactory proof evidencing such payments. If any such Imposition may, at the option of the taxpayer, lawfully be paid in installments (whether or not interest shall accrue on the unpaid balance of such Imposition), Tenant may exercise the option to pay the same (and any accrued interest on the unpaid balance of such Imposition) in installments and, in such event, shall pay such installments during the Term as the same become due and before any fine, penalty, premium, further interest or cost may be added thereto. Landlord, at its expense, shall, to the extent required or permitted by applicable law, prepare and file all tax returns in respect of Landlord's net income, gross receipts, sales and use, single business, transaction privilege, rent, ad valorem, franchise taxes and taxes on its capital stock, and Tenant, at its expense, shall, to the extent required or permitted by applicable laws and regulations, prepare and file all other tax returns and reports in respect of any Imposition as may be required by governmental authorities. If any refund shall be due from any taxing authority in respect of any Imposition paid by Tenant, the same shall be paid over to or retained by Tenant if no Default or Event of Default shall have occurred and be continuing. Landlord and Tenant shall, upon request of the other, provide such data as is maintained by the party to whom the request is made with respect to the Leased Property as may be necessary to prepare any required returns and reports. In the event governmental authorities classify any property covered by this Lease as personal property, Tenant shall file all personal property tax returns in such jurisdictions where it may legally so file. Each party shall, to the extent it possesses the same, provide the other, upon request, with cost and depreciation records necessary for filing returns for any property so classified as personal property. Where Landlord is legally required to file personal property tax returns, Landlord shall provide Tenant with copies of assessment notices in sufficient time for Tenant to file a protest. All Impositions assessed against such personal property shall be (irrespective of whether Landlord or Tenant shall file the relevant return) paid by Tenant not later than thirty (30) days prior to the last date on which the same may be made without interest or penalty. If the provisions of any Facility Mortgage requires deposits on account of Impositions to be made with such Facility Mortgagee, provided the Facility Mortgagee has not elected to waive such provision, Tenant shall either pay Landlord the monthly amounts required and Landlord shall transfer -17- such amounts to such Facility Mortgagee or, pursuant to written direction by Landlord, Tenant shall make such deposits directly with such Facility Mortgagee. Landlord shall give prompt written notice to Tenant of all Impositions payable by Tenant hereunder of which Landlord at any time has knowledge; provided, however, Landlord's failure to give any such notice shall in no way diminish Tenant's obligation hereunder to pay such Impositions. Impositions imposed in respect of the tax-fiscal period during which the Term commences and/or terminates shall be prorated between Landlord and Tenant, whether or not such Imposition is imposed before or after such termination. (b) Utility Charges. Tenant shall pay or cause to be paid all charges for electricity, power, gas, oil, water and other utilities used at the Leased Property during the Term. (c) Insurance Premiums. Tenant shall pay or cause to be paid all premiums for the insurance coverage required to be maintained pursuant to Article 9. (d) Other Charges. Tenant shall pay or cause to be paid all other amounts, liabilities and obligations which Tenant assumes or agrees to pay under this Lease. 3.2 Late Payment of Rent. If any installment of Minimum Rent, Percentage Rent or Additional Rent (but only as to those items of Additional Rent which are payable directly to Landlord) shall not be paid when due, Tenant shall pay Landlord, on demand, as Additional Rent, a late charge (to the extent permitted by law) computed, during the first ten (10) days such payment is delinquent at the greater of the Base Rate and eleven and one-half percent (11.5%) per annum and, thereafter, at the Overdue Rate, on the amount of such installment, from the date such installment was due until the date paid. To the extent that Tenant pays any Additional Rent directly to Landlord pursuant to any requirement of this Lease, Tenant shall be relieved of its obligation to pay such Additional Rent to the entity to which they would otherwise be due. In the event of any failure by Tenant to pay any Additional Rent when due, Tenant shall promptly pay and discharge, as Additional Rent, every fine, penalty, interest and cost which may be added for non- payment or late payment of such items. Landlord shall have all legal, equitable and contractual rights, powers and remedies provided either in this Lease or by statute or otherwise in the case of non-payment of the Additional Rent as in the case of non-payment of the Minimum Rent. 3.3 Net Lease. The Rent shall be absolutely net to Landlord, so that this Lease shall yield to Landlord the full amount of the installments of Minimum Rent, Percentage Rent and Additional Rent throughout the Term, subject to any other provisions of this Lease which expressly provide for adjustment or abatement of Rent or other charges. -18- 3.4 No Termination, Abatement, Etc. Except as otherwise specifically provided in this Lease, Tenant, to the maximum extent permitted by law, shall remain bound by this Lease in accordance with its terms and shall neither take any action without the consent of Landlord to modify, surrender or terminate the same, nor seek, nor be entitled to any abatement, deduction, deferment or reduction of the Rent, or set-off against the Rent, nor shall the respective obligations of Landlord and Tenant be otherwise affected by reason of (a) any damage to, or destruction of, the Leased Property or any portion thereof from whatever cause or any Condemnation; (b) the lawful or unlawful prohibition of, or restriction upon Tenant's use of the Leased Property, or any portion thereof, or the interference with such use by any Person or by reason of eviction by paramount title; (c) any claim which Tenant may have against Landlord by reason of any Landlord Default; (d) any bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding up or other proceedings affecting Landlord or any assignee or transferee of Landlord; or (e) for any other cause whether similar or dissimilar to any of the foregoing. Tenant hereby waives all rights arising from any occurrence whatsoever, which may now or hereafter be conferred upon it by law to modify, surrender or terminate this Lease or quit or surrender the Leased Property or any portion thereof or which may entitle Tenant to any abatement, reduction, suspension or deferment of the Rent or other sums payable or other obligations to be performed by Tenant hereunder, except as otherwise specifically provided in this Lease. The obligations of Landlord and Tenant hereunder shall be separate and independent covenants and agreements and the Rent and all other sums payable by Tenant hereunder shall continue to be payable in all events unless the obligations to pay the same shall be terminated pursuant to the express provisions of this Lease. ARTICLE 4 USE OF THE LEASED PROPERTY 4.1 Permitted Use. 4.1.1 Primary Intended Use. Tenant shall continuously use or cause to be used the Leased Property as a nursing home or subacute facility and/or other facility offering any higher level health care services and for such other uses as may be necessary or incidental thereto (the particular use to which the Leased Property is put at any particular time, its "Primary Intended Use"). Tenant shall not use the Leased Property or any portion thereof for other than its Primary Intended Use without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed; provided, however, that such consent shall not be deemed to be unreasonably withheld if, in the reasonable opinion of Landlord, the proposed use will significantly alter the character or purpose or detract from the value or operating efficiency of the Leased Property or significantly impair the revenue-producing capability of the Leased Property or adversely affect the ability of Tenant to comply with this Lease. No use shall be made or permitted to be made of the Leased Property and no acts shall be done thereon which will cause the cancellation of any -19- insurance policy covering the Leased Property or any part thereof, nor shall Tenant sell or otherwise provide to residents or patients therein, or permit to be kept, used or sold in or about the Leased Property, or any portion thereof, any article which may be prohibited by law or by the standard form of fire insurance policies, or any other insurance policies required to be carried hereunder, or fire underwriter's regulations. 4.1.2 Necessary Approvals. Tenant shall proceed with all due diligence and exercise best efforts to obtain and maintain all approvals necessary to use and operate the Leased Property and the Facility for the Primary Intended Use under applicable local, state and federal law and, without limiting the generality of the foregoing, shall use its best efforts to maintain appropriate certifications for reimbursement licensure. 4.1.3 Continuous Operation, Etc. Tenant shall use its best efforts to operate continuously the Leased Property as a provider of health care services in accordance with the Primary Intended Use. Tenant shall not take, or omit to take, any action, the taking or omission of which may materially impair the value or the usefulness of the Leased Property for the Primary Intended Use. 4.1.4 Lawful Use, Etc. Tenant shall not use or suffer or permit the use of the Leased Property and Tenant's Personal Property for any unlawful purpose. Tenant shall not commit or suffer to be committed any waste on the Leased Property or the Facility, nor shall Tenant cause or permit any nuisance thereon or therein. Tenant shall neither suffer nor permit the Leased Property or any portion thereof, including any Capital Addition, whether or not financed by Landlord, or Tenant's Personal Property, to be used in such a manner as might reasonably tend to impair Landlord's (or Tenant's, as the case may be) title thereto or to any portion thereof, or may reasonably make possible any claim for adverse usage or adverse possession by the public, as such, or of implied dedication of the Leased Property or any portion thereof. 4.2 Compliance with Legal and Insurance Requirements, Instruments, Etc. Subject to the provisions of Article 8, Tenant, at its sole expense, shall promptly (i) comply with all Legal Requirements and Insurance Requirements in respect of the use, operation, maintenance, repair, alteration and restoration of the Leased Property and Tenant's Personal Property, and (ii) procure, maintain and comply with all appropriate licenses, certificates of need, permits, provider agreements and other authorizations required for any use of the Leased Property and Tenant's Personal Property then being made, and for the proper erection, installation, operation and maintenance of the Leased Property or any part thereof, including, without limitation, any Capital Additions. 4.3 Compliance with Medicaid and Medicare Requirements. Tenant shall, at its sole cost and expense, make whatever improvements (capital or ordinary) as are required to conform the Leased Property to such standards as may, from time to time, be required by Federal Medicare (Title 18) or Medicaid (Title 19) skilled and/or intermediate care nursing programs, if applicable, or any other applicable programs or legislation, or capital improvements required by any other governmental -20- agency having jurisdiction over the Leased Property as a condition of the continued operation of the Leased Property for the Primary Intended Use. 4.4 Environmental Matters. Tenant shall not store, spill upon, dispose of or transfer to or from the Leased Property any Hazardous Substance, except that Tenant may store, transfer and dispose of Hazardous Substances in compliance with all Environmental Laws. Tenant shall maintain the Leased Property at all times free of any Hazardous Substance (except such Hazardous Substances as are maintained in compliance with all Environmental Laws). Tenant shall promptly: (a) notify Landlord in writing of any change in the nature or extent of such Hazardous Substances maintained, (b) transmit to Landlord a copy of any report which is required to be filed with respect to the Leased Property pursuant to any Environmental Law, (c) transmit to Landlord copies of any citations, orders, notices or other governmental communications received by Tenant or its agents or representatives with respect thereto (collectively, "Environmental Notice"), (d) observe and comply with any and all Environmental Laws relating to the use, maintenance and disposal of Hazardous Substances and all orders or directives from any official, court or agency of competent jurisdiction relating to the use or maintenance or requiring the removal, treatment, containment or other disposition thereof, and (e) pay or otherwise dispose of any fine, charge or Imposition related thereto, unless Tenant shall contest the same in accordance with Article 8. If at any time prior to the termination of this Lease, Hazardous Substances are discovered on the Leased Property, Tenant hereby agrees to take all actions, and to incur any and all expenses, as may be reasonably necessary and as may be required by any municipal, State or Federal agency or other governmental entity or agency having jurisdiction thereof, (a) to clean up and remove from and about the Leased Property all Hazardous Substances thereon, (b) to contain and prevent any further release or threat of release of Hazardous Substances on or about the Leased Property and (c) to eliminate any further release or threat of release of Hazardous Substances on or about the Leased Property. Tenant shall indemnify and hold harmless Landlord and each Facility Mortgagee from and against all liabilities, obligations, claims, damages, penalties, costs and expenses (including, without limitation, reasonable attorney's fees and expenses) imposed upon, incurred by or asserted against any of them by reason of any failure by Tenant or any Person claiming under Tenant to perform or comply with any of the terms of this Section 4.4. -21- ARTICLE 5 MAINTENANCE AND REPAIRS, ETC. 5.1 Maintenance and Repair. 5.1.1 Tenant's Obligations. Tenant shall, at its sole cost and expense, keep the Leased Property and all private roadways, sidewalks and curbs appurtenant thereto (and Tenant's Personal Property) in good order and repair, reasonable wear and tear excepted, (whether or not the need for such repairs occurs as a result of Tenant's use, any prior use, the elements or the age of the Leased Property or Tenant's Personal Property, or any portion thereof), and shall promptly make all necessary and appropriate repairs and replacements thereto of every kind and nature, whether interior or exterior, structural or nonstructural, ordinary or extraordinary, foreseen or unforeseen or arising by reason of a condition existing prior to the commencement of the Term (concealed or otherwise). All repairs shall be at least equivalent in quality to the original work. 5.1.2 Landlord's Obligations. Landlord shall not, under any circumstances, be required to build or rebuild any improvement on the Leased Property, or to make any repairs, replacements, alterations, restorations or renewals of any nature or description to the Leased Property, whether ordinary or extraordinary, structural or non-structural, foreseen or unforeseen, or to make any expenditure whatsoever with respect thereto, in connection with this Lease, or to maintain the Leased Property in any way, except as specifically provided herein. Tenant hereby waives, to the extent permitted by law, the right to make repairs at the expense of Landlord pursuant to any law in effect at the time of the execution of this Lease or hereafter enacted. Landlord shall have the right to give, record and post, as appropriate, notices of nonresponsibility under any mechanic's lien laws now or hereafter existing. 5.2 Capital Expenditure Cost Sharing. Replacement of or major repairs to all structural or mechanical systems shall be undertaken by Tenant, at its sole cost and expense in the exercise of its reasonable business judgment, pursuant to and in accordance with plans and specifications approved in advance by Landlord; provided, however, that if the useful life of any improvement or repair for which a Capital Expenditure is made extends beyond the termination of the Term (other than any early termination resulting from the occurrence of an Event of Default), provided Tenant shall have obtained Landlord's prior written consent with respect to the making thereof, the cost of such replacement or repair shall be apportioned between Landlord and Tenant so that Landlord shall pay for that portion of the useful life of such item occurring on or after such termination date. Landlord shall have no obligation to reimburse Tenant for Landlord's share of the cost of such replacement or repair until the date of the termination of this Lease. Notwithstanding the foregoing, Landlord agrees to make any such payment to Tenant within sixty (60) days after Tenant's written request therefor. -22- 5.3 Tenant's Personal Property. Tenant may (and shall as provided hereinbelow), at its expense, install, affix or assemble or place on any parcels of the Land or in any of the Leased Improvements, any items of Tenant's Personal Property, and Tenant may, subject to the conditions set forth below, remove the same upon the expiration or sooner termination of the Term. Tenant shall provide and maintain during the entire Term all such Tenant's Personal Property as shall be necessary in order to operate the Facility in compliance with all licensure and certification requirements, applicable Legal Requirements and Insurance Requirements and otherwise in accordance with customary practice in the industry for the Primary Intended Use. All of Tenant's Personal Property not removed by Tenant on or prior to the expiration or earlier termination of this Lease shall be considered abandoned by Tenant and may be appropriated, sold, destroyed or otherwise disposed of by Landlord without the necessity of first giving notice thereof to Tenant, without any payment to Tenant and without any obligation to account therefor. Tenant shall, at its expense, restore the Leased Property to the condition required by Section 5.4, including repair of all damage to the Leased Property caused by the removal of Tenant's Personal Property, whether effected by Tenant or Landlord. If Tenant uses any item of tangible personal property (other than motor vehicles) on, or in connection with, the Leased Property which belongs to anyone other than Tenant, Tenant shall use its best efforts to require the agreement permitting such use to provide that Landlord or its designee may assume Tenant's rights under such agreement upon management of the Facility by Landlord or its designee. 5.4 Yield Up. Upon the expiration or sooner termination of this Lease, Tenant shall vacate and surrender the Leased Property to Landlord in the condition in which the Leased Property was on the Commencement Date, except as repaired, rebuilt, restored, altered or added to as permitted or required by the provisions of this Lease, ordinary wear and tear excepted. In addition, upon the expiration or earlier termination of this Lease, Tenant shall, at Landlord's reasonable cost and expense, use its best efforts to transfer to and cooperate with Landlord or Landlord's nominee in connection with the processing of all applications for licenses, operating permits and other governmental authorizations and all contracts, including, contracts with governmental or quasi- governmental entities, which may be necessary for the operation of the Facility. If requested by Landlord, Tenant shall continue to manage the Facility after the termination of this Lease and for so long thereafter as is necessary to obtain all necessary licenses, operating permits and other governmental authorizations, on such reasonable terms (which shall include an agreement to reimburse Tenant for its reasonable out-of- pocket costs and expenses and reasonable administrative costs) as Landlord shall request. 5.5 Encroachments, Restrictions, Etc. If any of the Leased Improvements shall, at any time, encroach upon any property, street or right-of-way adjacent to the Leased Property, or shall violate the agreements or conditions contained in any lawful restrictive covenant or other agreement affecting the Leased Property, or any part thereof, or -23- shall impair the rights of others under any easement or right-of-way to which the Leased Property is subject, upon the request of Landlord or of any person affected by any such encroachment, violation or impairment, Tenant shall, at its sole cost and expense, subject to its right to contest the existence of any encroachment, violation or impairment and in such case, in the event of an adverse final determination, either (a) obtain, in form and substance satisfactory to Landlord, valid and effective waivers or settlements of all claims, liabilities and damages resulting from each such encroachment, violation or impairment, whether the same shall affect Landlord or Tenant, or (b), subject to Landlord's approval (which shall not be unreasonably withheld or delayed), make such changes in the Leased Improvements and take such other actions, as Tenant, in the good faith exercise of its judgment, deems reasonably practicable, to remove such encroachment, and to end such violation or impairment, including, if necessary, the alteration of any of the Leased Improvements and, in any event, take all such actions as may be necessary in order to ensure the continued operation of the Leased Improvements for the Primary Intended Use substantially in the manner and to the extent the Leased Improvements were operated prior to the assertion of such violation, impairment or encroachment. Any such alteration shall be made in conformity with the applicable requirements of this Article 5. Tenant's obligations under this Section 5.5 shall be in addition to and shall in no way discharge or diminish any obligation of any insurer under any policy of title or other insurance and Tenant shall be entitled to a credit for any sums recovered by Landlord under any such policy of title or other insurance. ARTICLE 6 CAPITAL ADDITIONS, ETC. 6.1 Construction of Capital Additions to the Leased Property. Provided no Default or Event of Default shall have occurred and be continuing, Tenant shall have the right, subject to obtaining Landlord's prior written consent (which consent shall not be unreasonably withheld or delayed), upon and subject to the terms and conditions set forth below, to construct or install Capital Additions on the Leased Property. Landlord's consent shall not be deemed to be unreasonably withheld if such Capital Addition will significantly alter the character or purpose or detract from the value or operating efficiency or the revenue-producing capability of the Leased Property, or adversely affect the ability of Tenant to comply with this Lease. Any withholding of consent shall be express and shall be effected within thirty (30) days after receipt by Landlord of such documents or information as Landlord may reasonably require, notice of which requirements shall be sent to Tenant within thirty (30) days after Tenant's request. Failure to give notice of the withholding of such consent within such thirty (30) day period shall be deemed approval. Prior to commencing construction of any Capital Addition, Tenant shall submit to Landlord, in writing, a proposal setting forth, in reasonable detail, any proposed Capital Addition and shall provide Landlord with such plans and specifications, permits, licenses, contracts and other information concerning the proposed Capital Addition as Landlord may reasonably request. Without limiting the generality of the foregoing, such proposal shall indicate -24- the approximate projected cost of constructing such Capital Addition, the use or uses to which it will be put and a good faith estimate of the change, if any, in the Net Patient Revenues that Tenant anticipates will result from such Capital Addition. Prior to commencing construction of any Capital Addition, Tenant shall request in writing that Landlord provide funds to pay for such Capital Addition. If, within sixty (60) days after receipt of such request, Landlord shall not elect to provide such financing on terms reasonably acceptable to Tenant (and, for purposes of this Section 6.1, the failure of Landlord to respond within such 60 day period shall be deemed an election not to provide such funding), the provisions of Section 6.2 shall apply. Landlord's notice of its election to provide such financing shall set forth the terms and conditions of such proposed financing, including the terms of any amendment to this Lease (including, without limitation, an increase in Minimum Rent to compensate Landlord for the additional funds advanced). In no event shall the portion of the projected Capital Additions Cost comprised of land, if any, materials, labor charges and fixtures be less than eighty percent (80%) of the total amount of such cost. Tenant may withdraw its request by written notice to Landlord at any time before Tenant's written acceptance of Landlord's terms and conditions. If Landlord declines to finance a Capital Addition or if Landlord's proposed financing terms are unacceptable to Tenant, Tenant may solicit and negotiate a commitment for such financing from another Person, provided Landlord shall approve all the terms and conditions of such financing (which approval shall not be unreasonably withheld or delayed). If Landlord shall finance the proposed Capital Addition, Tenant shall pay to Landlord, as Additional Rent, all reasonable costs and expenses paid or incurred by Landlord and any Lending Institution which has committed to provide financing for such Capital Addition to Landlord in connection therewith, including, but not limited to, (a) the reasonable attorneys' fees and expenses, (b) all printing expenses, (c) all filing, registration and recording taxes and fees, (d) documentary stamp taxes, (e) title insurance charges, appraisal fees, and rating agency fees, and (f) commitment fees. No Capital Addition shall be made which would tie in or connect any Leased Improvement or any Leased Property with any other improvements on property adjacent to such Leased Property (and not part of the Land) including, without limitation, tie-ins of buildings or other structures or utilities, unless Tenant shall have obtained the prior written approval of Landlord, which approval may be withheld by Landlord in Landlord's sole discretion. Any Capital Additions shall, upon the expiration or sooner termination of this Lease, become the property of Landlord, free and clear of all encumbrances, subject to the provisions of Section 6.2. 6.2 Capital Additions Financed by Tenant. Provided that Tenant has obtained the prior written consent of Landlord in each instance (which approval shall not be unreasonably withheld or delayed), Tenant may arrange for financing for Capital Additions from third party lend- ers; provided, however that (i) the terms and conditions of any such financing shall be subject to the prior approval of Landlord and (ii) any security interests in any property of Tenant, including, without limitation, the Leased Property, shall be expressly and fully subordinated to this Lease and to the interest of Landlord in the Leased -25- Property and to the rights of any Facility Mortgagee. If, pursuant to the provisions of this Lease, Tenant provides or arranges financing with respect to any Capital Addition, this Lease shall be and hereby is amended to provide as follows: (a) Upon completion of any such Capital Addition, Net Patient Revenues attributable to such Capital Addition shall be excluded from Net Patient Revenues of the Leased Property for purposes of calculating Percentage Rent. The Net Patient Revenues attributable to any such Capital Addition shall be deemed to be an amount (the "Added Value Percentage") which bears the same proportion to the total Net Patient Revenues from the entire Leased Property (including all Capital Additions) as the Fair Market Added Value of such Capital Addition bears to the Fair Market Value of the entire Leased Property (including all Capital Additions) immediately after completion of such Capital Addition. The Added Value Percentage for Capital Additions financed by Tenant shall remain in effect until any subsequent Capital Addition financed by Tenant is completed. (b) There shall be no adjustment in the Minimum Rent by reason of any such Capital Addition. (c) Upon the expiration or earlier termination of this Lease (but if this Lease is terminated by reason of an Event of Default, only after Landlord is fully compensated for all damages resulting therefrom), Landlord shall compensate Tenant for all Capital Additions financed by Tenant in any of the following ways determined in Landlord's sole discretion: (i) By purchasing such Capital Additions from Tenant for cash in the amount of the then Fair Market Added Value of such Capital Additions; (ii) By purchasing such Capital Additions from Tenant by delivering to Tenant Landlord's purchase money promissory note in the amount of the Fair Market Added Value, which note shall be due and payable as to both principal and interest on the second anniversary of the making thereof, shall be on then commercially reasonable terms and shall be secured by a mortgage on the Leased Property and such Capital Additions subject to all existing mortgages and encumbrances on the Leased Property and such Capital Additions at the time of such purchase; (iii) By assigning to Tenant the right to receive an amount equal to the Added Value Percentage (determined as of the date of the expiration or earlier termination of this Lease) of all rent and other consideration receivable by Landlord under any re-letting or other disposition of the Leased Property and such Capital Additions, after deducting from such rent all costs and expenses incurred by Landlord in connection with such re-letting or other disposition of the Leased Property and such Capital Additions and all costs and expenses of operating and maintaining the Leased Property and such Capital -26- Additions during the term of any such new lease which are not borne by the tenant thereunder, with the provisions of this Section 6.2(c) to remain in effect until the sale or other final disposition of the Leased Property and such Capital Additions, at which time the Fair Market Added Value of such Capital Addition shall be immediately due and payable, such obligation to be secured by a mortgage on the Leased Property and such Capital Additions, subject to all existing mortgages and encumbrances on the Leased Property at the time of such purchase and assignment; or (iv) By making such other arrangement regarding such compensation as shall be mutually acceptable to Landlord and Tenant. 6.3 Information Regarding Capital Additions. Regardless of the source of financing of any proposed Capital Addition, Tenant shall provide Landlord with such information as Landlord may from time to time reasonably request with respect to such Capital Addition, including, without limitation, the following: (a) Evidence that such Capital Addition will be, and upon completion has been, completed in compliance with the applicable requirements of State and federal law with respect to capital expenditures for nursing facilities; (b) Upon completion of such Capital Addition, a copy of the certificate of occupancy for the Facility updated, if required; (c) Such information, certificates, licenses, permits or other documents necessary to confirm that Tenant will be able to use the Capital Addition upon completion thereof in accordance with the Primary Intended Use, including all required federal, State or local government licenses and approvals; (d) An Officer's Certificate and a certificate from Tenant's architect setting forth, in reasonable detail, the projected (or actual, if available) Capital Additions Cost and invoices and lien waivers from Tenant's contractors for such work; (e) A deed conveying to Landlord title to any land acquired for the purpose of constructing the Capital Addition free and clear of any liens or encumbrances, except those approved by Landlord and, upon completion of the Capital Addition, a final as-built survey thereof reasonably satisfactory to Landlord; (f) Endorsements to any outstanding policy of title insurance covering the Leased Property or commitments therefor, satisfactory in form and substance to Landlord, (i) updating the same without any additional exceptions except as approved by Landlord, and (ii) increasing the coverage thereof by an amount equal to the Fair Market Value of the Capital Addition (except to the extent covered by the owner's policy of title insurance referred to in subparagraph (g) below); -27- (g) If appropriate, (i) an owner's policy of title insurance insuring fee simple title to any land conveyed to Landlord pursuant to subparagraph (e) above, free and clear of all liens and encumbrances, except those approved by Landlord, and (ii) a lender's policy of title insurance, reasonably satisfactory in form and substance to Landlord and the Lending Institution advancing any portion of the Capital Additions Cost; (h) An appraisal of the Leased Property by a Qualified Appraiser, acceptable to Landlord, and an Officer's Certificate stating that the value of the Leased Property upon completion of the Capital Addition exceeds the Fair Market Value thereof prior to the commencement of such Capital Addition by an amount not less than 80% of the Capital Additions Cost; and (i) Prints of architectural and engineering drawings relating to such Capital Addition and such other certificates, documents, opinions of counsel, appraisals, surveys, certified copies of duly adopted resolutions of the board of directors of Tenant authorizing the execution and delivery of any lease amendment or other instruments reasonably required by Landlord and any Lending Institution advancing or reimbursing Tenant for any portion of the Capital Additions Cost. 6.4 Non-Capital Additions. Tenant shall have the right, at Tenant's sole cost and expense, to make additions, modifications or improvements to the Leased Property which are not Capital Additions ("Non-Capital Additions") from time to time as Tenant, in its reasonable discretion, may deem desirable for the Primary Intended Use, provided that such action will not adversely alter the character or purpose or detract from the value, operating efficiency or revenue-producing capability of the Leased Property, or adversely affect the ability of Tenant to comply with the provisions of this Lease. All such Non- Capital Additions shall, upon expiration or earlier termination of this Lease, become the property of Landlord, free and clear of all encumbrances other than Permitted Encumbrances. 6.5 Salvage. All materials which are scrapped or removed in connection with the making of either Capital Additions or repairs required by Article 5 shall be the property of the party paying or providing the financing for such work. ARTICLE 7 LIENS 7.1 Liens. Subject to Article 8, Tenant shall not, directly or indirectly, create or allow to remain and shall promptly discharge, at its expense, any lien, encumbrance, attachment, title retention agreement or claim upon the Leased Property or any attachment, levy, claim or encumbrance in respect of the Rent, other than (a) this Lease, (b) the Permitted Encumbrances, (c) restrictions, liens and other encumbrances which are consented to in writing by Landlord, (d) liens for those taxes of Landlord which Tenant is not required to pay -28- hereunder, (e) subleases permitted by Article 17, (f) liens for Impositions or for sums resulting from noncompliance with Legal Requirements so long as (i) the same are not yet payable, or (ii) are payable without fine or penalty and such liens are being contested in accordance with Article 8, (g) liens of mechanics, laborers, materialmen, suppliers or vendors for sums disputed, provided that (i) the payment of such sums shall not be postponed under any related contract for more than sixty (60) days after the completion of the action giving rise to such lien and a reserve or another appropriate provision as shall be required by law or generally accepted accounting principles shall have been made therefor, and (ii) any such liens are being contested in accordance with Article 8, and (h) any liens which are the responsibility of Landlord pursuant to Article 21. 7.2 Landlord's Lien. In addition to any statutory landlord's lien and in order to secure payment of the Rent and all other sums payable hereunder by Tenant, and to secure payment of any loss, cost or damage which Landlord may suffer by reason of Tenant's breach of this Lease, Tenant hereby grants unto Landlord a security interest in and an express contractual lien upon Tenant's Personal Property (except motor vehicles sold from time to time in the ordinary course of Tenant's operations), and all ledger sheets, files, records, documents and instruments (including, without limitation, computer programs, tapes and related electronic data processing) relating to the operation of the Facility (collectively, the "Records") and all proceeds therefrom; and Tenant's Personal Property shall not be removed from the Leased Property without the Landlord's prior written consent, unless no Default or Event of Default shall have occurred and be continuing. Upon Landlord's request, Tenant shall execute and deliver to Landlord security agreements and financing statements in form sufficient to perfect the security interests of Landlord in Tenant's Personal Property and the proceeds thereof in accordance with the provisions of the applicable laws of the State and otherwise in form and substance reasonably satisfactory to Landlord. Tenant hereby grants Landlord an irrevocable limited power of attorney, coupled with an interest, to execute all such financing statements in Tenant's name, place and stead. The security interest herein granted is in addition to any statutory lien for the Rent. Landlord agrees, at Tenant's request, to execute such documents as Tenant may reasonably require to subordinate the lien granted pursuant to this Section 7.2 in Tenant's Personal Property (but not the Records) to the lien of any Person providing purchase money financing with respect thereto. 7.3 Mechanic's Liens. Except as permitted with respect to Capital Additions, nothing contained in this Lease and no action or inaction by Landlord shall be construed as (a) constituting the consent or request of Landlord, expressed or implied, to any contractor, subcontractor, laborer, materialman or vendor to or for the performance of any labor or services or the furnishing of any materials or other property for the construction, alteration, addition, repair or demolition of or to the Leased Property or any part thereof, or (b) giving Tenant any right, power or permission to contract for or permit the performance of any -29- labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against Landlord in respect thereof or to make any agreement that may create, or in any way be the basis for any right, title, interest, lien, claim or other encumbrance upon the Leased Property, or any portion thereof. ARTICLE 8 PERMITTED CONTESTS Tenant shall have the right to contest the amount or validity of any Imposition, Legal Requirement, Insurance Requirement, lien, attachment, levy, encumbrance, charge or claim (collectively "Claims") by appropriate legal proceedings conducted in good faith and with due diligence, provided that (a) the foregoing shall in no way be construed as relieving, modifying or extending Tenant's obligation to pay any Claims as finally determined or prior to the time the Leased Property may be sold in satisfaction thereof, (b) such contest shall not cause Landlord or Tenant to be in default under any mortgage or deed of trust encumbering the Leased Property or any interest therein or result in or reasonably be expected to result in a lien attaching to the Leased Property, and (c) Tenant shall indemnify and hold harmless Landlord from and against any cost, claim, damage, penalty or expense, including reasonable attorneys' fees, incurred by Landlord in connection therewith or as a result thereof. Upon Landlord's request, Tenant shall either (a) provide a bond or other assurance reasonably satisfactory to Landlord that all Claims which may be assessed against the Leased Property, together with all interest and penalties thereon will be paid, or (b) deposit within the time otherwise required for payment with a bank or trust company, as trustee, as security for the payment of such Claims, an amount sufficient to pay the same, together with interest and penalties in connection therewith and all Claims which may be assessed against or become a Claim against the Leased Property, or any part thereof, in connection with any such contest. Tenant shall furnish Landlord and any Facility Mortgagee with reasonable evidence of such deposit within five (5) days after request therefor. Landlord agrees to join in any such proceedings if required legally to prosecute such contest; provided, however, that Landlord shall not thereby be subjected to any liability therefor (including, for the payment of any costs or expenses in connection therewith). Tenant shall be entitled to any refund of any Claims and such charges and penalties or interest thereon which have been paid by Tenant or paid by Landlord and for which Landlord has been fully reimbursed by Tenant. If Tenant shall fail (a) to pay any Claims when due, (b) to provide security therefor as provided in this Article 8, or (c) to prosecute any such contest diligently and in good faith, Landlord may, upon reasonable notice to Tenant (which notice may be oral and shall not be required if Landlord shall determine the same is not practicable), pay such charges, together with interest and penalties due with respect thereto, and Tenant shall reimburse Landlord therefor, upon demand, as Additional Rent. ARTICLE 9 -30- INSURANCE AND INDEMNIFICATION 9.1 General Insurance Requirements. Tenant shall at all times during the Term and any other time Tenant shall be in possession of the Leased Property, keep the Leased Property, and all property located in or on the Leased Property, including Tenant's Personal Property, insured against the risks in the amounts as follows: (a) Comprehensive general liability insurance, including bodily injury and property damage (on an occurrence basis and in the broadest form available, including without limitation broad form contractual liability, fire legal liability independent contractor's hazard and completed operations coverage) under which Tenant is named as an insured and Landlord and any Facility Mortgagee (and such others as are in privity of estate with Landlord, as set out in a notice from time to time) are named as additional insureds as their interests may appear, in an amount which shall, at the beginning of the Term, be at least equal to $5,000,000 per occurrence in respect of bodily injury and death and $1,000,000 per occurrence in respect of property damage, and which, from time to time during the Term, shall be for such higher limits, if any, as are customarily carried in the area in which the Leased Property is located at property similar to the Leased Property and used for similar purposes; (b) "All-risk" property insurance on a "replacement cost" basis with the usual extended coverage endorsements covering the Leased Property and Tenant's Personal Property; (c) Business interruption and loss of rental under a rental value insurance policy covering risk of loss during the lesser of the first twelve (12) months of reconstruction or the actual reconstruction period necessitated by the occurrence of any of the hazards described in paragraphs (a) and (b) above, in such amounts as may be customary for comparable properties in the area and in an amount sufficient to prevent Landlord or Tenant from becoming a co-insurer; (d) Claims arising out of malpractice in an amount not less than Five Million Dollars ($5,000,000) for each person and for each occurrence with respect to the Leased Property, provided the same is available at rates which are economically practical in relation to the risk covered, as determined by Tenant and approved by Landlord (it being agreed that, in the event the same is not available at rates which are economically practical in relation to the risks covered, Tenant shall provide such malpractice insurance by means of the maintenance of a program of self insurance, which, in accordance with generally accepted accounting principles consistently applied, satisfies the insurance requirements of this paragraph (d) and, in such event, Tenant shall submit to Landlord such records and other evidence thereof as Landlord may from time to time reasonably request to confirm the maintenance of such a program); -31- (e) Flood (if the Leased Property which 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, provided the same is available at rates which are economically practical in relation to the risks covered, as determined by Tenant and approved by Landlord; (f) Worker's compensation insurance coverage for all persons employed by Tenant on the Leased Property with statutory limits and otherwise with limits of and provisions in accordance with the requirements of applicable local, state and federal law; and (g) Such additional insurance as may be reasonably required, from time to time, by Landlord or any Facility Mortgagee. 9.2 Waiver of Subrogation. Landlord and Tenant agree that (insofar as and to the extent that such agreement may be effective without invalidating or making it impossible to secure insurance coverage from responsible insurance companies doing business in the State) with respect to any property loss which is covered by insurance then being carried by Landlord or Tenant or would be covered by insurance if insurance were maintained in accordance with the applicable provisions of this Lease, respectively, the party carrying such insurance and suffering said loss releases the other of and from any and all claims with respect to such loss; and they further agree that their respective insurance companies shall have no right of subrogation against the other on account thereof, even though extra premium may result therefrom. In the event that any extra premium is payable by Tenant as a result of this provision, Landlord shall not be liable for reimbursement to Tenant for such extra premium. 9.3 Form Satisfactory, Etc. All policies of insurance required under this Article 9 shall be written in a form reasonably satisfactory to Landlord and by insurance companies authorized to do business in the State, insurance, which companies shall be reasonably satisfactory to Landlord. All policies of insurance required under this Article 9 shall include no deductible in excess of $250,000 and shall name Landlord and any Facility Mortgagee as additional insureds, as their interests may appear. Losses shall be payable to Landlord or Tenant as provided in Article 10. Any loss adjustment shall require the written consent of Landlord, Tenant and each Facility Mortgagee. Evidence of insurance shall be deposited with Landlord and, if requested, any Facility Mortgagee. If any provisions of any Facility Mortgage requires deposits of premiums for insurance to be made with such Facility Mortgagee, provided that the Facility Mortgagee has not elected to waive such provision, Tenant shall either pay Landlord monthly the amounts required and Landlord shall transfer such amounts to such Facility Mortgagee, or, pursuant to written direction by Landlord, Tenant shall make such deposits directly with such Facility Mortgagee. Tenant shall pay all insurance premiums, and deliver policies or certificates thereof to Landlord prior to their effective date (and, with respect to any renewal policy, ten (10) days prior to the expiration of the existing policy), and in the event Tenant shall fail either to effect such insurance as herein required, to pay the premiums therefor or to deliver such policies or certificates to Landlord at the times required Landlord -32- shall have the right, but not the obligation, to effect such insurance and pay the premiums therefor, which amounts shall be payable to Landlord, upon demand, as Additional Rent, together with interest accrued thereon at the Base Rate from the date such payment is made until the date repaid. All such policies shall provide Landlord (and any Facility Mortgagee, if required by the same) thirty (30) days' prior written notice of any materially alter on, expiration or cancellation of such policy. 9.4 No Separate Insurance. Tenant shall not take out separate insurance, concurrent in form or contributing in the event of loss with that required by this Article 9 or increase the amount of any existing insurance by securing an additional policy or additional policies, unless all parties having an insurable interest in the subject matter of such insurance, including, Landlord and all Facility Mortgagees, are included therein as additional insureds, and the loss is payable under such insurance in the same manner as losses are payable under this Lease. In the event Tenant shall take out any such separate insurance or increase any of the amounts of the then existing insurance, Tenant shall give Landlord prompt written notice thereof. 9.5 Indemnification of Landlord. Tenant shall indemnify and hold harmless Landlord from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, reasonable attorneys' fees), to the maximum extent permitted by law, imposed upon or incurred by or asserted against Landlord by reason of: (a) any accident, injury to or death of persons or loss of or damage to property occurring on or about the Leased Property or adjoining sidewalks, including, without limitation, any claims of malpractice, (b) any past, present or future use, misuse, non-use, condition, management, maintenance or repair by Tenant or anyone claiming under Tenant of the Leased Property or Tenant's Personal Property or any litigation, proceeding or claim by governmental entities or other third parties to which Landlord is made a party or participant related to the Leased Property or Tenant's Personal Property or such use, misuse, non-use, condition, management, maintenance, or repair thereof including, failure to perform obligations (other than Condemnation proceedings) to which Landlord is made a party, (c) any Impositions (which are the obligations of Tenant to pay pursuant to the applicable provisions of this Lease), and (d) any failure on the part of Tenant or anyone claiming under Tenant to perform or comply with any of the terms of this Lease. Tenant shall pay all amounts payable under this Section 9.5 within ten (10) days after demand therefor, and if not timely paid, such amounts shall bear interest at the overdue rate from the date of determination to the date of payment. Tenant, at its expense, shall contest, resist and defend any such claim, action or proceeding asserted or instituted against Landlord or may compromise or otherwise dispose of the same as Tenant sees fit. 9.6 Indemnification of Tenant. Landlord shall indemnify and hold harmless Tenant from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses imposed upon or incurred by or asserted against Tenant as a result of the gross negligence or willful misconduct of Landlord. -33- ARTICLE 10 CASUALTY 10.1 Insurance Proceeds. All proceeds payable by reason of any loss or damage to the Leased Property and insured under any policy of insurance required by Article 9 shall be paid to Landlord and held in trust by Landlord in an interest-bearing account (subject to the provisions of Section 10.2) and shall be paid out by Landlord from time to time for the reasonable costs of reconstruction or repair of the Leased Property necessitated by damage or destruction. Any excess proceeds of insurance remaining after the completion of the restoration shall be paid to Tenant. In the event neither Landlord nor Tenant is required or elects to restore the Leased Property and this Lease is terminated without purchase or substitution by Tenant pursuant to Section 10.2, all insurance proceeds therefrom shall be retained by Landlord. All salvage resulting from any risk covered by insurance shall belong to Landlord, except any salvage related to Capital Additions paid for by Tenant or Tenant's Personal Property shall belong to Tenant. 10.2 Reconstruction in the Event of Damage or Destruction. 10.2.1 Material Damage or Destruction of Premises. Except as provided in Section 10.8, if, during the Term, the Leased Property shall be totally or partially damaged or destroyed by fire or other casualty and the Facility is thereby rendered Unsuitable for Its Primary Intended Use, Tenant shall, at Tenant's option, exercisable by written notice to Landlord within thirty (30) days after the date of such damage or destruction, elect either (a) to restore the Facility to substantially the same condition as existed immediately before such damage or destruction, or (b) to offer (i) to purchase the Leased Property from Landlord for a purchase price equal to the greater of the Minimum Repurchase Price or the Fair Market Value Purchase Price of the Leased Property immediately prior to such damage or destruction, or (ii) to substitute a new property for the Leased Property in accordance with the provisions of Article 16. Failure of Tenant to give Landlord written notice of any such election within such 30-day period shall be deemed an election by Tenant to restore the Facility. In the event Tenant shall proceed in accordance with clause (b) preceding and Landlord does not accept Tenant's offer to purchase the Leased Property or substitute another property for the Leased Property within thirty (30) days after receipt of Tenant's notice thereof, Tenant may either (a) withdraw such offer and proceed promptly to restore the Facility to substantially the same conditions as existed immediately before the damage or destruction, or (b) terminate this Lease without further liability hereunder and Landlord shall be entitled to retain the insurance proceeds. In the event Tenant shall acquire the Leased Property or substitute a new property therefor, the insurance proceeds payable on account of such damage shall be paid to Tenant. 10.2.2 Partial Damage or Destruction. Except as provided in Section 10.8, if, during the Term, all or any portion of the Leased Property shall be totally or partially destroyed by fire or other casualty and the Facility is not thereby rendered Unsuitable for its -34- Primary Intended Use, Tenant shall promptly restore the Facility to substantially the same condition as existed immediately before such damage or destruction; provided, however, that if Tenant cannot, using diligent efforts, obtain all government approvals, including building permits, licenses, conditional use permits and certificates of need, necessary to perform all required repair and restoration and to operate the Facility for its Primary Intended Use in substantially the same manner as existed immediately prior to such damage or destruction within one hundred eighty (180) days after the date of such fire or casualty, Tenant shall, within thirty (30) days thereafter elect, by written notice to Landlord, either (a) to substitute a new property or properties for the Leased Property in accordance with the provisions of Article 16, or (b) purchase the Leased Property for a purchase price equal to the greater of the then Minimum Repurchase Price or the Fair Market Value Purchase Price of the Leased Property immediately prior to such damage or destruction. Failure of Tenant to give such notice within such period shall be deemed an election by Tenant to purchase the Leased Property. Within thirty (30) days after receipt of Tenant's notice, Landlord shall give Tenant written notice as to whether Landlord accepts such offer. Failure of Landlord to give such notice shall be deemed an election by Landlord to accept Tenant's offer. If Landlord shall reject such offer, Tenant shall elect, by written notice to Landlord, given within thirty (30) days thereafter, either (a) to withdraw such offer, in which event this Lease shall remain in full force and effect with and Tenant shall proceed to restore the Facility as soon as reasonably practicable to substantially the same condition as existed immediately before such damage or destruction, or (b) terminate this Lease. Failure of Tenant to give such notice within such period shall be deemed an election by Tenant to restore the Leased Property. In the event Landlord shall accept Tenant's offer to purchase the Leased Property, this Lease shall terminate with respect thereto upon payment of the purchase price. In the event Landlord shall accept Tenant's offer to substitute a new property or properties, this Lease shall be deemed modified to substitute such new property for the Leased Property (effective as of the date of such substitution pursuant to Article 16) and all insurance proceeds pertaining to the Leased Property shall be paid to Tenant. Landlord and Tenant shall promptly execute appropriate instruments to confirm the foregoing, although the failure to do so shall not affect this Lease. 10.3 Insufficient Insurance Proceeds. If the cost of the repair or restoration exceeds the amount of insurance proceeds received by Landlord pursuant to Article 9, Tenant shall contribute any excess amounts needed to complete such restoration. Such difference shall be paid by Tenant to Landlord and held by Landlord in trust in an interest bearing account, together with any other insurance proceeds, for application to the cost of repair and restoration in accordance with Section 10.4. 10.4 Disbursement of Proceeds. In the event Tenant is required to restore the Leased Property pursuant to Sections 10.1 or 10.2, Tenant shall, at its sole cost and expense, commence promptly and continue diligently to perform, or cause to be performed, the repair and restora- tion of the Leased Property so as to restore the Leased Property in full -35- compliance with all Legal Requirements and otherwise in compliance with any other applicable provisions of this Lease, so that the Leased Property shall be at least equal in value and general utility to its general utility and value immediately prior to such damage or destruction. Subject to the terms hereof, Landlord shall advance the insurance proceeds (other than proceeds of business interruption insurance which shall be advanced as provided below) and the amounts paid to it pursuant to Section 10.3 to Tenant regularly during the repair and restoration period so as to permit payment for the cost of such restoration and repair. Any such advances shall be for not less than $50,000 (or such lesser amount as equals the entire balance of the repair and restoration costs) and Tenant shall submit to Landlord a written requisition and substantiation therefor on AIA Forms G702 and G703 (or on such other form or forms as may be acceptable to Landlord). Landlord may, at its option, condition advancement of such insurance proceeds and other amounts on (i) the absence of any Default or Event of Default, (ii) its approval of plans and specifications of an architect satisfactory to Landlord (which approval shall not be unreasonably with- held or delayed), (iii) general contractors' estimates, (iv) architect's certificates, (v) unconditional lien waivers of general contractors, (vi) evidence of approval by all governmental authorities and other regulatory bodies whose approval is required and (vii) such other certificates as Landlord may, from time to time, reasonably require. Provided no Default or Event of Default has occurred and is continuing, on the first day of each calendar month during which proceeds of business interruption insurance are disbursed to Landlord under the policy of business interruption insurance maintained pursuant to Article 9, Landlord shall disburse proceeds of business interruption insurance received by it to Tenant upon notice from Tenant accompanied by a certification from Tenant that such moneys will be used for costs or expenses of owning or operating the Leased Property. Landlord's obligation to disburse insurance proceeds under this Article 10 shall be subject to the release of such proceeds by any Facility Mortgagee. 10.5 Tenant's Property. All insurance proceeds payable by reason of any loss of or damage to any of Tenant's Personal Property or Capital Additions financed by Tenant shall be paid to Tenant and Tenant shall hold such proceeds in trust to pay the cost of repairing or replacing damaged Tenant's Personal Property or Capital Additions paid for or financed by Tenant. 10.6 Restoration of Tenant's Property. If Tenant shall be required or elect to restore the Facility as hereinabove provided, Tenant shall either (a) restore all alterations and improvements made by Tenant, Tenant's Personal Property and all Capital Additions paid for or financed by Tenant, or (b) replace such alterations and improvements, Tenant's Personal Property, and/or Capital Additions with improvements or items of the same or better quality and utility in the operation of the Facility. 10.7 No Abatement of Rent. Unless this Lease shall be terminated as herein provided, during the first twelve (12) months of any period required for repair or restoration, this Lease shall remain in full -36- force and effect and Tenant's obligation to make rental payments and to pay all other charges required by this Lease shall remain unabated during the Term notwithstanding any damage affecting the Leased Property. Thereafter, payments of Minimum Rent shall be adjusted in the manner provided in Section 11.6. If any fire or other casualty impairs the revenue producing capacity of the Facility, projected Net Patient Revenues attributable to the Facility shall be determined by Landlord in its reasonable discretion. 10.8 Damage Near End of Term. Notwithstanding any provisions of this Article 10 to the contrary, if (a) damage to or destruction of the Facility occurs during the last twelve (12) months of the Term, (b) Tenant has not elected to extend the Term, (c) no Default or Event of Default shall have occurred and be continuing, and (d) such damage or destruction cannot be fully repaired and restored within one hundred eighty (180) days immediately following the date of loss, Tenant shall have the right to terminate this Lease by the giving of written notice thereof to Landlord within thirty (30) days after the date of casualty. Failure of Tenant to give such notice within such 30-day period shall be a waiver of Tenant's right to terminate this Lease pursuant to this section. ARTICLE 11 CONDEMNATION 11.1 Total Condemnation. If the whole of the Leased Property shall be taken by Condemnation, this Lease shall terminate as of the Date of Taking. In the event a Condemnation of less than the whole of the Leased Property renders the Leased Property Unsuitable for Its Primary Intended Use, Tenant and Landlord shall each have the option, by written notice to the other, given at any time prior to the date title vests in a third party, to terminate this Lease as of the Date of Taking, whereupon this Lease shall terminate as of such date. 11.2 Partial Condemnation. In the event of a Condemnation of less than the whole of the Leased Property such that Leased Property is still suitable for its Primary Intended Use, or if neither Tenant nor Landlord shall terminate this Lease as provided in Section 11.1, Tenant, at its sole cost and expense, shall, with all reasonable dispatch, restore the untaken portion of the Leased Improvements so that such Leased Improvements shall constitute a complete architectural unit of the same general character and condition (as nearly as may be possible under the circumstances) as the Leased Improvements existing immediately prior to such Condemnation. Landlord shall, subject to and in accordance with the applicable provisions of Section 10.4, contribute to the cost of restoration that part of its Award allocable to such restoration. In such event, the Minimum Rent shall be permanently reduced as set forth in Section 11.6. 11.3 Temporary Condemnation. In the event of any temporary Condemnation of all or any part of the Leased Property or Tenant's interest under this Lease, this Lease shall continue in full force and effect and Tenant shall continue to pay, in the manner and on the terms -37- herein specified, the full amount of the Rent. To the extent reasonably practicable, Tenant shall continue to perform and observe all of the other terms and conditions thereof, on the part of Tenant to be performed and observed. The entire amount of any Award made for such temporary Taking or Condemnation allocable to the Term, whether paid by way of damages, rent or otherwise, shall be paid to Tenant. Tenant shall, upon the termination of any such period of temporary Condemnation, at its sole cost and expense (but only to the extent of the Award payable to Tenant), restore the Leased Property as nearly as may be reasonably possible, to the condition that existed immediately prior to such Condemnation, unless such period of temporary use or occupancy shall extend beyond the expiration of the Term, in which case Tenant shall not be required to make such restoration. 11.4 Tenant's Option. In the event of the termination of this Lease as provided in Section 11.1, Tenant shall have the right, exercisable by written notice to Landlord given within thirty (30) days after receipt by Tenant of notice of Condemnation, to elect (a) to acquire the Leased Property from Landlord for a purchase price equal to the greater of its Minimum Repurchase Price or the Fair Market Value Purchase Price of the Leased Property immediately prior to such Condemnation, in which event, upon the closing of such acquisition, Tenant shall have the right to receive the entire Award, or (b) to substitute a new property therefor in accordance with the provisions of Article 16, in which event Tenant shall receive the entire Award. Failure of Tenant to give such notice within such 30-day period shall be deemed a waiver of Tenant's rights pursuant to this Section 11.4. In the event Landlord shall, by written notice to Tenant given within thirty (30) days after receipt of Tenant's election notice, reject Tenant's offer so to purchase or substitute, Tenant shall restore the Leased Property to substantially the same condition as existed immediately before such Condemnation in accordance with the applicable provisions of this Lease and, in such event, Landlord shall, subject to and in accordance with the applicable provisions of Section 10.4, contribute to the cost of restoration that part of its Award allocable to such restoration. 11.5 Allocation of Award. Except as provided in the second sentence of this Section 11.5, the total Award shall be solely the property of and payable to Landlord. Any portion of the Award made for the taking of Tenant's leasehold interest in the Leased Property, Capital Additions paid for or financed by Tenant, loss of business at the Leased Property during the remainder of the Term, the taking of Tenant's Personal Property, or Tenant's removal and relocation expenses shall be the sole property of and payable to Tenant. In any Condemnation proceedings, Landlord and Tenant shall each seek its own Award in conformity herewith, at its own expense. 11.6 Abatement Procedures. In the event of a partial Condemnation as described in Section 11.2, this Lease shall not terminate, but the Minimum Rent shall be abated and Base Net Patient Revenues shall be reduced in the manner and to the extent that is fair, just and equitable to both Tenant and Landlord, taking into consideration, among other relevant factors, the number of usable beds, the amount of square footage, or the revenues affected by such partial or temporary taking or -38- damage or destruction. If Landlord and Tenant are unable to agree upon the amount of such abatement within thirty (30) days after such Condemnation or damage, the matter may be submitted by either party to a court of competent jurisdiction for resolution or, if the parties so agree, the matter may be submitted by the parties for resolution by arbitration in accordance with the rules of the American Arbitration Association. ARTICLE 12 DEFAULTS AND REMEDIES 12.1 Events of Default. The occurrence of any one or more of the following events shall constitute an "Event of Default" under this Lease: (a) Should Tenant fail to make any payment of the Rent or any other sum payable hereunder when due and such failure shall continue for ten (10) days after written notice thereof; (b) Should Tenant fail to observe or perform any other term, covenant or condition of this Lease and such failure shall continue for thirty (30) days after written notice thereof; provided, however, if such failure cannot with due diligence be cured within such thirty (30) day period, an Event of Default shall not be deemed to have occurred for such additional period (not to exceed 120 days in the aggregate) required to cure the same so long as Tenant commences sure cure within such thirty (30) day period and thereafter diligently prosecutes such cure to completion; (c) Should Tenant: (i) admit in writing its inability, or be unable, to pay its debts generally as they become due; (ii) file a petition in bankruptcy or a petition to take advantage of any insolvency law; (iii) make a general assignment for the benefit of its creditors; (iv) consent to the appointment of a receiver of itself or of the whole or any substantial part of its property; or (v) file a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state thereof; (d) Should Tenant be adjudicated a bankrupt or have an order for relief thereunder entered against it or a court of competent jurisdiction shall enter an order or decree appointing a receiver of Tenant or of the whole or substantially all of its property, or approving a petition filed against Tenant seeking reorganization or arrangement of Tenant under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state thereof, and such judgment, order or decree shall not be vacated or set aside within sixty (60) days from the date of entry thereof; (e) Should Tenant be liquidated or dissolved, or shall begin proceedings toward such liquidation or dissolution, or, in any -39- manner, permit the sale or divestiture of substantially all of its assets; (f) Should the estate or interest of Tenant in the Leased Property or any part thereof shall be levied upon or attached in any proceeding and the same shall not be vacated or discharged within thirty (30) days after commencement thereof (unless Tenant shall be contesting such lien or attachment in accordance with Article 8); (g) Except as a result of damage, destruction, strikes, lock- outs or a partial or complete Condemnation, should Tenant voluntarily cease operations on the Leased Property for a period in excess of thirty (30) days; or (h) Should any representation or warranty of Tenant contained in this Lease or any certificate or document delivered in connection herewith be untrue when made or at any time during the Term in any material respect which materially and adversely affects Landlord, and the same shall not be cured within ninety (90) days after written notice thereof. Upon the occurrence of any Event of Default, Landlord and the agents and servants of Landlord lawfully may, in addition to and not in derogation of any remedies for any preceding breach of covenant, immediately or at any time thereafter, without demand or notice and with or without process of law (forcibly, if necessary), enter into and upon the Leased Property or any part thereof in the name of the whole or mail a notice of termination addressed to Tenant, and repossess the same and expel Tenant and those claiming through or under Tenant and remove its and their effects (forcibly, if necessary), without being deemed guilty of any manner of trespass and without prejudice to any remedies which might otherwise be used for arrears of rent or prior breach of covenant, and, upon such entry or mailing as aforesaid, this Lease shall terminate, Tenant hereby waiving all statutory rights to the Leased Property (including, without limitation, rights of redemption, if any, to the extent such rights may be lawfully waived) and Landlord, without notice to Tenant, may store Tenant's effects, and those of any person claiming through or under Tenant, at Tenant's sole expense and risk, and, if Landlord so elects, may sell such effects at public auction or private sale and apply the net proceeds to the payment of all sums due to Landlord from Tenant, if any, and pay over the balance, if any, to Tenant. Upon the occurrence of an Event of Default, Landlord may, in addition to any other remedies provided herein, enter upon the Leased Property and take possession of any and all of Tenant's Personal Property and the Records (subject to any prohibitions or limitations to disclosure of any such data as described in Section 3.1.2(d)) on the Leased Property, without liability for trespass or conversion (Tenant hereby waiving any right to notice or hearing prior to such taking of possession by Landlord) and sell the same at public or private sale, after giving Tenant reasonable notice of the time and place of any public or private sale, at which sale Landlord or its assigns may purchase all or any portion of such Personal Property unless otherwise -40- prohibited by law. Unless otherwise provided by law, and without intending to exclude any other manner of giving Tenant reasonable notice, the requirement of reasonable notice shall be met if such notice is given in the manner prescribed in this Lease at least ten (10) days before the day of sale. The proceeds from any such disposition, less all expenses incurred in connection with the taking of possession, holding and selling of such property (including, reasonable attorneys' fees) shall be deducted from the proceeds of such sale. Any surplus shall be paid to Tenant or as otherwise required by law and Tenant shall pay any deficiency to Landlord, as Additional Rent, upon demand. 12.2 Remedies. In the event of any termination pursuant to Section 12.1, Tenant shall pay the Rent and other charges payable hereunder up to the time of such termination and, thereafter, Tenant, until the end of what would have been the Term of this Lease in the absence of such termination, and whether or not the Leased Property, or any portion thereof, shall have been re-let, shall be liable to Landlord for, and shall pay to Landlord, as current damages, the Rent and other charges which would be payable hereunder for the remainder of the Term had such termination not occurred, less the net proceeds, if any, of any reletting of the Leased Property, after deducting all expenses in connection with such re-letting, including, without limitation, all repossession costs, brokerage commissions, legal expenses, attorneys' fees, advertising, expenses of employees, alteration costs and expenses of preparation for such reletting. Tenant shall pay such current damages to Landlord monthly on the days on which the Minimum Rent would have been payable hereunder if this Lease had not been terminated. Percentage Rent for the purposes of this Section 12.2 shall be deemed to be a sum equal to the amount of the Percentage Rent (determined on an annualized basis) payable for the Fiscal Year immediately preceding the Fiscal Year in which the termination, re-entry or repossession takes place. If, however, such termination, re-entry or repossession occurs during the first full Fiscal Year after the Base Year, the Percentage Rent shall be an amount reasonably determined by Landlord. At any time after such termination, whether or not Landlord shall have collected any such current damages, as liquidated final damages and in lieu of all such current damages beyond the date of such demand, at Landlord's election, Tenant shall pay to Landlord either (a) an amount equal to the excess, if any, of the Rent and other charges which would be payable hereunder from the date of such demand (assuming that, for the purposes of this paragraph, annual payments by Tenant on account of Impositions would be the same as payments required for the immediately preceding twelve calendar months, or if less than twelve calendar months have expired since the Commencement Date, the payments required for such lesser period projected to an annual amount and Percentage Rent shall be determined in the manner set forth above) for what would be the then unexpired term of this Lease if the same remained in effect, over the Fair Market Rental for the same period, or (b) an amount equal to the lesser of (i) the Rent and other charges that would have been payable for the balance of the Term had it not been terminated, or (ii) the aggregate of the Minimum Rent, Percentage Rent and other charges accrued in the twelve (12) months ended next prior to such termination (without reduction for any free rent or other concession or abatement). In the event this Lease is so terminated prior the expiration of the first full -41- year of the Term, the liquidated damages which Landlord may elect to recover pursuant to clause (b) (ii) of this paragraph shall be calculated as if such termination had occurred on the first anniversary of the Commencement Date. Nothing contained in this Lease shall, however, limit or prejudice the right of Landlord to prove and obtain in proceedings for bankruptcy or insolvency an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount be greater than, equal to, or less than the amount of the loss or damages referred to above. In case of any Event of Default, re-entry, expiration and dispossession by summary proceedings or otherwise, Landlord may (a) relet the Leased Property or any part or parts thereof, either in the name of Landlord or otherwise, for a term or terms which may at Landlord's option, be equal to, less than or exceed the period which would otherwise have constituted the balance of the Term and may grant concessions or free rent to the extent that Landlord considers advisable and necessary to relet the same, and (b) may make such reasonable alterations, repairs and decorations in the Leased Property as Landlord, in its sole judgment, considers advisable and necessary for the purpose of reletting the Leased Property; and the making of such alterations, repairs and decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Landlord shall in no event be liable in any way whatsoever for failure to relet the Leased Property, or any portion thereof, or, in the event that the Leased Property is relet, for failure to collect the rent under such reletting. To the fullest extent permitted by law, Tenant hereby expressly waives any and all rights of redemption granted under any present or future laws in the event of Tenant being evicted or dispossessed, or in the event of Landlord obtaining possession of the Leased Property, by reason of the violation by Tenant of any of the covenants and conditions of this Lease. 12.3 Waiver. If this Lease is terminated pursuant to Section 12.1 or 12.2, Tenant waives, to the extent permitted by law, (a) any right to a trial by jury in the event of summary proceedings to enforce the remedies set forth in this Article 12, and (b) the benefit of any laws now or hereafter in force exempting property from liability for rent or for debt. 12.4 Application of Funds. Any payments received by Landlord under any of the provisions of this Lease during the existence or continuance of any Event of Default (and any payment made to Landlord rather than Tenant due to the existence of an Event of Default) shall be applied to Tenant's obligations in such order as Landlord may determine or as may be prescribed by the laws of the State. 12.5 Failure to Conduct Business. For the purpose of determining rental loss damages or Percentage Rent, in the event Tenant shall fail to conduct its business at the Leased Property for its Primary Intended Use, exact damages or the amount of Percentage Rent being unascertainable, the Percentage Rent for such period shall be deemed to by an amount reasonably determined by Landlord. -42- 12.6 Landlord's Right to Cure Tenant's Default. If an Event of Default shall have occurred and be continuing, Landlord, after written notice to Tenant (provided that no such notice shall be required if Landlord shall reasonably determine immediate action is necessary to protect person or property), without waiving or releasing any obligation of Tenant, and without waiving or releasing any Event of Default, may (but shall not be obligated to), at any time thereafter, make such payment or perform such act for the account and at the expense of Tenant, and may, to the extent permitted by law, enter upon the Leased Property, or any portion thereof, for such purpose and take all such action thereon as, in Landlord's opinion, may be necessary or appropriate therefor, including, the management of the Facility by Landlord or its designee, and Tenant hereby irrevocably appoints, in the event of such election by Landlord, Landlord or its designee as manager of the Facility and its attorney in fact for such purpose, irrevocably and coupled with an interest, in the name, place and stead of Tenant. All costs and expenses (including, without limitation, reasonable attorneys' fees) incurred by Landlord in connection therewith, together with interest thereon (to the extent permitted by law) at the Overdue Rate from the date such sums are paid by Landlord until repaid, shall be paid by Tenant to Landlord, on demand. 12.7 Trade Names. If this Lease is terminated for any reason, Landlord shall, upon the request of Tenant, cause the name of the business conducted upon the Leased Property to be changed to a name other than a Facility Trade Name or any approximation or abbreviation thereof and sufficiently dissimilar to such name as to be unlikely to cause confusion with such name; provided, however, that Tenant shall not thereafter use a Facility Trade Name in the same market in which the Facility is located in connection with any business that competes with the Facility. ARTICLE 13 HOLDING OVER Any holding over by Tenant after the expiration of the Term shall be treated as a daily tenancy at sufferance at a rate equal to two (2) times the Minimum Rent and Percentage Rent then in effect plus Additional Rent and other charges herein provided (prorated on a daily basis). Tenant shall also pay to Landlord all damages, direct and/or consequential (foreseeable and unforeseeable), sustained by reason of any such holding over. Otherwise, such holding over shall be on the terms and conditions set forth in this Lease, to the extent applicable. ARTICLE 14 LANDLORD'S DEFAULT If Landlord shall default in the performance or observance of any of its covenants or obligations set forth in this Lease and such default shall continue for a period of thirty (30) days after written notice -43- thereof, or such additional period as may be reasonably required to correct the same (except if such default shall constitute an immediate threat to life or property, five (5) Business Days) Tenant may declare the occurrence of a "Landlord Default" by a second notice to Landlord. Thereafter, Tenant may forthwith cure the same and, subject to the provisions of the following paragraph, invoice Landlord for costs and expenses (including reasonable attorneys' fees and court costs) incurred by Tenant in curing the same, together with interest from the date Landlord receives Tenant's invoice, at a rate equal to the Base Rate. Tenant shall have no right to terminate this Lease for any default by Landlord hereunder and no right, for any such default, to offset or counterclaim against any rent or other charges due hereunder. -44- If Landlord shall in good faith dispute the occurrence of any Landlord Default and Landlord, before the expiration of the applicable cure period, shall give written notice thereof to Tenant, setting forth, in reasonable detail, the basis therefor, no Landlord Default shall be deemed to have occurred and Landlord shall have no obligation with respect thereto until final adverse determination thereof. If Tenant and Landlord shall fail, in good faith, to resolve the dispute within five (5) days after Landlord's notice of dispute, either may submit the matter to arbitration for resolution in accordance with the commercial arbitration rules of the American Arbitration Association. Such arbitration shall be final and binding on Landlord and Tenant and judgment thereon may be entered into any court of competent jurisdiction. Within five (5) days after submission to arbitration, Landlord and Tenant shall submit all information required for such arbitration and shall take all other actions required for such arbitration to proceed and the arbitrators shall be instructed to render a determination as soon as possible and in any event not later than thirty (30) days after submission. ARTICLE 15 PURCHASE OF PREMISES In the event Tenant shall purchase the Leased Property from Landlord pursuant to any of the terms of this Lease, Landlord shall, upon receipt from Tenant of the applicable purchase price, together with full payment of any unpaid Rent and other charges due and payable with respect to any period ending on or before the date of the purchase, deliver to Tenant a title insurance policy, together with an appropriate deed or other instruments, conveying the entire interest of Landlord in and to the Leased Property to Tenant, free and clear of all encumbrances other than (a) those Tenant has agreed hereunder to pay or discharge, (b) those liens, if any, which Tenant has agreed in writing to accept and take title subject to, (c) the Permitted Encumbrances, and (d) any other encumbrances permitted to be imposed on the Leased Property (x) pursuant to the terms of this Lease or (y) otherwise permitted to be imposed under the provisions of Section 21.1 which are assumable at no cost to Tenant or to which Tenant may take subject without cost to Tenant. The difference between the applicable purchase price and the total of the encumbrances assumed or taken subject to shall be paid in cash to Landlord or as Landlord may direct, in federal or other immediately available funds. The closing of any such sale shall be contingent upon and subject to Tenant's obtaining all required governmental consents and approvals for such transfer and if such sale shall fail to be consummated by reason of the inability of Tenant to obtain all such approvals and consents, any options to extend the Term of this Lease which otherwise would have expired during the escrow period of such proposed sale shall be deemed to remain in effect for 30 days after termination thereof. All expenses of such conveyance, including, without limitation, the cost of title examination or standard coverage title insurance, usually paid by a purchaser of real property in the State shall be paid by Tenant; all expenses of such conveyance usually paid by a seller of real property in the State shall be paid by Landlord. -45- ARTICLE 16 SUBSTITUTION OF PROPERTY FOR THE LEASED PROPERTY 16.1 Tenant's Substitution Option. Provided (a) in the good faith judgment of Tenant, the Leased Property shall become Unsuitable for its Primary Intended Use, (b) no Default or Event of Default shall have occurred and be continuing, and (c) not less than one (1) year shall remain in the Term, Tenant shall have the right, subject to the conditions set forth in this Article 16, upon not less than thirty (30) days prior written notice to Landlord, to substitute one or more properties (collectively, the "Substitute Properties" or individually, "Substitute Property") on the date specified in such notice (the "Substitution Date"); provided, however, that if Tenant is required by court order or administrative action to divest or otherwise dispose of the Leased Property in less than thirty (30) days and Tenant shall have given Landlord prior written notice of the filing of such court or administrative action and kept Landlord reasonably apprised of the status thereof, the time period shall be shortened appropriately to meet the reasonable needs of Tenant, but in no event less than ten (10) Business Days after the receipt by Landlord of such notice. Such notice shall include (a) an Officer's Certificate, setting forth in reasonable detail the reason(s) for the substitution and the proposed Substitution Date, and (b) designate not less than two properties (or groups of properties), each of which properties (or groups of properties) shall provide Landlord with a yield (i.e., annual return on its equity in such property) substantially equivalent to Landlord's yield from the Leased Property at the time of such proposed substitution (or in the case of substitution because of damage or destruction, the yield immediately prior to such damage or destruction) and as reasonably projected over the remaining Term of this Lease. 16.2 Landlord's Substitution Option. If Tenant shall have voluntarily or involuntarily discontinued use of the Leased Property for its business operations for a period in excess of one year, Landlord shall have the right, exercisable by thirty (30) days prior written notice to Tenant, to require Tenant to substitute a Substitute Property for the Leased Property, (in which event, Tenant shall comply with the applicable provisions of Section 16.1 within thirty (30) days thereafter). 16.3 Substitution Procedures. (a) If either Landlord or Tenant shall initiate a substitution pursuant to Section 16.1 or 16.2, Landlord shall have a period of thirty (30) days within which to review the designated properties and such additional information and either accept or reject the Substitute Properties so presented, unless Tenant is required by a court order or administrative action to divest or otherwise dispose of the Leased Property within a shorter time period, in which case the time period shall be shortened appropriately to meet the reasonable needs of Tenant, but in no event shall such period be less than five (5) Business Days after Landlord's actual receipt of Tenant's notice (subject to further extension for any period of time in which Landlord is not timely provided with the information provided for -46- in this Section 16.3 and Section 16.4 below). Landlord and Tenant shall use good faith efforts to agree on a Substitute Property. (b) In the event that, on or before the expiration of the applicable time period for Landlord's review, Landlord has rejected both of the Substitute Properties so presented, Tenant shall, for a period of sixty (60) days after the expiration of such period, have the right to terminate this Lease, by the giving of written notice thereof to Landlord, accompanied by an offer to purchase the Leased Property on the date set forth in such notice, but in no event less than ninety (90) days thereafter, for a purchase price equal to the greater of the then Fair Market Value Purchase Price or the Minimum Repurchase Price, and, subject to the provisions of Article 15, this Lease shall terminate on such purchase date. (c) Landlord shall not unreasonably withhold its consent to an offer by Tenant to substitute a property as set forth in this Article provided (i) Landlord shall determine the Substitute Property shall provide Landlord with a yield substantially equivalent to Landlord's yield from the Leased Property immediately before such substitution or such damage or destruction, as the case may be, and as projected over the remainder of the Term, and (ii) the delivery of an opinion of counsel for Landlord confirming that (w) the substitution of the Substitute Property for the Leased Property will qualify as an exchange solely of property of a like-kind under Section 1031 of the Code, in which, generally, except for "boot", no gain or loss will be recognized by Landlord, (x) the substitution will not result in ordinary recapture income to Landlord pursuant to Section 1250(d)(4) of the Code or any other provision of the Code, (y) the substitution will result in income, if any, to Landlord of a type described in Section 856(c)(2) or (3) of the Code and will not result in income of the types described in Section 856(c)(4) of the Code or result in the tax imposed under Section 857(b)(6) of the Code, and (z) the substitution, together with all other substitutions made or requested by Tenant or an Affiliated Person pursuant to the Other Leases or other transfers of all or any portion of the Leased Property or properties leased under the Other Leases, during the relevant time period, will not jeopardize the qualification of Landlord as a real estate investment trust under Sections 856-860 of the Code. (d) In the event that the then Fair Market Value of the Substitute Property or group of Substitute Properties minus the encumbrances assumed by Landlord, or as to which Landlord will take the Substitute Property or group of Substitute Properties subject, as of the Substitution Date is greater than the then Fair Market Value of the Leased Property minus the encumbrances assumed by Tenant, or as to which the Tenant will take the Leased Property subject, as of the Substitution Date (or in the case of damage or destruction, the Fair Market Value immediately prior to such damage or destruction), Landlord shall pay to Tenant an amount equal to the difference, subject to the limitation set forth below; in the event that such value of the Substitute Property or group of Substitute Properties is less than such value of the Leased Property, Tenant shall pay to Landlord an amount equal to the -47- difference, subject to the limitation set forth below; provided, however, neither Landlord nor Tenant shall be obligated to consummate such substitution if such party would be required to make a payment (the "Cash Adjustment") to the other in excess of an amount equal to five percent (5%) of the Fair Market Value of the Leased Property. (e) The Rent for such Substitute Property shall, in all respects, provide Landlord with a yield (i.e., annual return on its equity in such property) substantially equivalent to Landlord's yield from the Leased Property at the time of such substitution (or in the case of substitution because of damage or destruction the yield immediately prior to such damage or destruction) and as reasonably projected over the remaining Term, taking into account the Cash Adjustment paid or received by Landlord and any other relevant factors, as reasonably determined by Landlord. (f) The Minimum Repurchase Price of the Substitute Property shall be an amount equal to the Minimum Repurchase Price of the Leased Property (i) increased by any Cash Adjustment paid by Landlord pursuant to Paragraph (d) above, or (ii) decreased by any Cash Adjustment paid by Tenant pursuant to paragraph (d) above. 16.4 Conditions to Substitution. On the Substitution Date, the Substitute Property shall become the Leased Property hereunder, upon delivery by Tenant to Landlord of the following: (a) An Officer's Certificate certifying that (i) the Substitute Property has been accepted by Tenant for all purposes of this Lease and there has been no material damage to the improvements located thereon, nor is any Condemnation pending or threatened with respect thereto; (ii) all appropriate permits, licenses and certificates (including, but not limited to, a permanent, unconditional certificate of occupancy and all certificates of need, licenses and provider agreements) which are necessary to permit the use of the Substitute Property in accordance with the provisions of this Lease have been obtained and are in full force and effect; (iii) under applicable zoning and use laws, ordinances, rules and regulations, the Substitute Property may be used for the purposes contemplated by this Lease and all necessary subdivision approvals, if any, have been obtained; (iv) there are no mechanics' or materialmen's liens outstanding or threatened to the knowledge of Tenant against the Substitute Property arising out of or in connection with the construction of the improvements thereon, other than those being contested by Tenant pursuant to Article 8; (v) to the best knowledge of Tenant, there exists no Default or Event of Default, and no defense, offset or claim with respect to any sums payable by Tenant hereunder; and (vi) any exceptions to Landlord's title to the Substitute Property do not materially interfere with the intended use of the Substitute Property by Tenant; (b) A deed with full warranties or assignment of a leasehold estate with full warranties (as applicable) conveying to Landlord -48- title to the Substitute Property free and clear of any liens or encumbrances, except those approved by Landlord; (c) an amendment duly executed, acknowledged and delivered by Tenant, in form and substance satisfactory to Landlord, amending this Lease to correct the legal description of the Land and make such other changes herein as may be necessary or appropriate under the circumstances; (d) counterparts of a standard owner's or lessee's (as applicable) policy of title insurance covering the Substitute Property (or a valid, binding, unconditional commitment therefor), dated as of the Substitution Date, in current form and including mechanics' and materialmen's lien coverage, issued to Landlord by a title insurance company and in the form reasonably satisfactory to Landlord, which policy shall (i) insure (x) Landlord's fee title or leasehold estate to the Substitute Property, subject to no liens or encumbrances except those approved by Landlord and (y) that any restrictions affecting the Substitute Property have not been violated; (ii) be in an amount at least equal to the Fair Market Value of the Substitute Property; and (iii) contain such affirmative coverage endorsements as Landlord shall reasonably request; (e) certificates of insurance with respect to the Substitute Property fulfilling the requirements of Article 9; (f) current appraisals or other evidence satisfactory to Landlord, in its sole discretion, as to the then current Fair Market Values and the projected residual values of such Substitute Property and the Leased Property as to which such substitution is being made; (g) all available revenue data relating to the Substitute Property for the period from the date of opening for business of the Facility on such Substitute Property to the date of Tenant's most recent Fiscal Year end, or for the most recent three (3) years, whichever is less; and (h) such other certificates, documents, opinions of counsel and other instruments as may be reasonably required by Landlord. 16.5 Conveyance to Tenant. On the Substitution Date, Landlord shall convey the Leased Property to Tenant in accordance with the provisions of Article 15 (except as to payment of any expenses in connection therewith which shall be governed by Section 16.6) upon either (a) payment in cash therefor or (b) conveyance to Landlord of the Substitute Property, as appropriate. 16.6 Expenses. Tenant shall pay or cause to be paid, on demand, all reasonable costs and expenses paid or incurred by Landlord in connection with the substitution and conveyance of the Leased Property and Substitute Property, including, but not limited to, (a) reasonable fees and expenses of counsel, (b) all printing expenses, (c) the amount of filing, registration and recording taxes and fees, (d) the cost of -49- preparing and recording, if appropriate, a release of the Leased Property from the lien of any mortgage, (e) brokers' fees and commissions, (f) documentary stamp and transfer taxes, (g) title insurance charges and premiums, and (h) escrow fees. ARTICLE 17 SUBLETTING AND ASSIGNMENT 17.1 Subletting and Assignment. Except as hereinafter provided, Tenant shall not assign, mortgage, pledge, hypothecate, encumber or otherwise transfer this Lease or sublease (which term shall be deemed to include the granting of concessions and licenses and the like) all or any part of the Leased Property or suffer or permit this Lease or the leasehold estate hereby created or any other rights arising under this Lease to be assigned, transferred, mortgaged, pledged, hypothecated or encumbered, in whole or in part, whether voluntarily, involuntarily or by operation of law, or permit the use or occupancy of the Leased Property by anyone other than Tenant, or the Leased Property to be offered or advertised for assignment or subletting except as hereinafter provided. For purposes of this Section 17.1, an assignment of this Lease shall be deemed to include any transaction pursuant to which Tenant is merged or consolidated with another entity or pursuant to which all or substantially all of Tenant's assets are transferred to any other entity, as if such or transaction were an assignment of this Lease. If this Lease is assigned or if the Leased Property or any part thereof are sublet (or occupied by anybody other than Tenant and its employees) Landlord, after default by Tenant hereunder, may collect the rents from such assignee, subtenant or occupant, as the case may be, and apply the net amount collected to the Rent herein reserved, but no such collection shall be deemed a waiver of the provisions set forth in the first paragraph of this Section 17.1, the acceptance by Landlord of such assignee, subtenant or occupant, as the case may be, as a tenant, or a release of Tenant from the future performance by Tenant of its covenants, agreements or obligations contained in this Lease. No subletting or assignment shall in any way impair the continuing primary liability of Tenant hereunder, and no consent to any subletting or assignment in a particular instance shall be deemed to be a waiver of the obligation to obtain the Landlord's written approval in the case of any other subletting or assignment. No assignment, subletting or occupancy shall affect the Primary Intended Use. Any subletting, assignment or other transfer of Tenant's interest in this Lease in contravention of this Section 17.1 shall be voidable at Landlord's option. If the rent and other sums (including, without limitation, the reasonable value of any services performed by any assignee or subtenant in consideration of such assignment or sublease) either initially or over the term of any assignment or sublease, payable by such assignee or subtenant on account of an assignment or sublease exceed the Rent called for hereunder with respect to the space assigned or sublet, Tenant shall -50- pay to Landlord as Additional Rent one hundred percent (100%) of such excess net of the costs and expenses incurred by Tenant in procuring such sublease payable monthly at the time for payment Minimum Rent. 17.2 Required Sublease Provisions. Any sublease of all or any portion of the Leased Property shall provide that it is subject and subordinate to this Lease and to the matters to which this Lease is or shall be subject or subordinate, and that in the event of termination of this Lease or reentry or dispossession of Tenant by Landlord under this Lease, Landlord may, at its option, take over all of the right, title and interest of Tenant, as sublessor under such sublease, and such subtenant shall, at Landlord's option, attorn to Landlord pursuant to the then executory provisions of such sublease, except that neither Landlord nor any Facility Mortgagee, as holder of a mortgage or as Landlord under this Lease, if such mortgagee succeeds to that position, shall (a) be liable for any act or omission of Tenant under such sublease, (b) be subject to any credit, counterclaim, offset or defense which theretofore accrued to such subtenant against Tenant, (c) be bound by any previous modification of such sublease or by any previous prepayment of more than one (1) month's rent, (d) be bound by any covenant of Tenant to undertake or complete any construction of the Leased Property or any portion thereof, (e) be required to account for any security deposit of the subtenant other than any security deposit actually delivered to Landlord by Tenant, (f) be bound by any obligation to make any payment to such subtenant or grant any credits, except for services, repairs, maintenance and restoration provided for under the sublease to be performed after the date of such attornment, (g) be responsible for any monies owing by Tenant to the credit of such Subtenant, or (h) be required to remove any person occupying the Leased Property or any part thereof; and such sublease shall provide that the subtenant thereunder shall, at the request of Landlord, execute a suitable instrument in confirmation of such agreement to attorn. The provisions of this paragraph shall not be deemed a waiver of the provisions set forth in the first paragraph of Section 17.1. 17.3 Sublease Limitation. Anything contained in this Lease to the contrary notwithstanding, Tenant shall not sublet the Leased Property on any basis such that the rental to be paid by the sublessee thereunder would be based, in whole or in part, on either (a) the income or profits derived by the business activities of the sublessee, or (b) any other formula such that any portion of the sublease rental would fail to qualify as "rents from real property" within the meaning of Section 856(d) of the Code, or any similar or successor provision thereto. 17.4 Assignment and Subletting Procedure. Anything contained in this Lease to the contrary notwithstanding, if Tenant wishes to enter into a sublease with respect to any portion of the Leased Property or an assignment of this Lease, Tenant shall give Landlord notice of such intent, which notice ("Tenant's Notice") shall state, in the event of a proposed sublease, the location and amount of area intended to be covered by such sublease and the term of the proposed sublease, the proposed effective date of such sublease or assignment, and the identity of such proposed subtenant or assignee and such other information with respect thereto as Landlord may reasonably require. Landlord shall not unreasonably withhold its consent to any proposed assignment or sublease -51- provided Tenant shall deliver to Landlord a written instrument, in form and substance reasonably satisfactory to Landlord, pursuant to which such assignee agrees directly with Landlord to be bound by all the terms of this Lease and to be jointly and severally liable with Tenant for all of Tenant's obligations under this Lease. ARTICLE 18 CERTIFICATES AND FINANCIAL STATEMENTS 18.1 Estoppel Certificates. At any time and from time to time, upon not less than twenty (20) days prior written notice by Landlord, Tenant shall furnish to Landlord an Officer's Certificate certifying that this Lease is unmodified and in full force and effect (or that this Lease is in full force and effect as modified and setting forth the modifications), the date to which the Rent has been paid, that, to the best of Tenant's knowledge and belief after making due inquiry, Tenant is not in default in the performance or observance of any of the terms of this Lease and that no event exists which with the giving of notice, lapse of time, or both, would constitute a default hereunder, or if Tenant shall be in default or any such event shall exist, specifying in reasonable detail all such defaults or events, and the steps being taken to remedy the same, and such additional information as Landlord may reasonably request. Any such certificate furnished pursuant to this section may be relied upon by Landlord and any prospective purchaser or mortgagee of the Leased Property. 18.2 Financial Statements. Tenant shall furnish the following statements to Landlord: (a) Within forty-five (45) days after each of the first three quarters of each Fiscal Year, the most recent Consolidated Financials of Tenant, together with an Officer's Certificate certifying to the accuracy of such Consolidated Financials; (b) Within one hundred twenty (120) days after the end of each Fiscal Year, the most recent Consolidated Financials of Tenant for such year, certified by an independent certified public accountant satisfactory to Landlord; (c) Promptly after the sending or filing thereof, copies of all reports which Tenant sends to its security holders generally, and copies of all periodic reports which Tenant files with the SEC or any stock exchange on which its shares are listed or traded; (d) Promptly after the delivery thereof to Tenant, or its management, a copy of any management letter or written report prepared by Tenant's certified public accountants with respect to the financial condition, operations, business or prospects of Tenant; (e) At any time and from time to time upon not less than twenty (20) days notice from Landlord, any Consolidated Financials or any other financial reporting information required to be filed -52- by Landlord with any securities and exchange commission, the SEC or any successor agency, or any other governmental authority, or required pursuant to any order issued by any court governmental authority or arbitrator in any litigation to which Landlord is a party, for purposes of compliance therewith; and (f) With reasonable promptness, such other information as to the financial condition and affairs of Tenant as Landlord may reasonably request. 18.3 General Operations. Tenant covenants and agrees to furnish to Landlord: 18.3.1 Reimbursement, Licensure etc. Within thirty (30) days after receipt or modification thereof, copies of (a) All licenses authorizing Tenant to operate the Facility for its Primary Intended Use; (b) All Medicare and Medicaid certifications, together with provider agreements and all material correspondence relating thereto with respect to the Facility (excluding, however, correspondence which may be subject to any attorney-client privilege); (c) A Nursing Home Administrator License for the individuals employed in such capacity with respect to the Facility; (d) All reports of surveys, statements of deficiencies, plans of correction, and all material correspondence relating thereto, including, without limitation, all reports and material correspondence concerning compliance with or enforcement of licensure, Medicare/Medicaid, and accreditation requirements, including physical environment and Life Safety Code survey reports (excluding, however, correspondence which may be subject to any attorney-client privilege); and (e) With reasonable promptness, such other confirmation as to the Licensure and Medicare and Medicaid participation of Tenant as Landlord may reasonably request from time to time. 18.3.2 Monthly Reports. Tenant shall prepare and furnish to Landlord for the Leased Property, within thirty (30) days after the end of each calendar month during the term of this Agreement, a monthly report, such report to include a balance sheet, a current month and year to date income statement, showing each item of actual and projected income and expense, prepared on an accrual basis and a current month and year to date cash flow statement, reflecting the operating results of the Facility; a statement of Net Patient Revenues for such month; and such additional information as the Company may from time to time reasonably require. -53- ARTICLE 19 LANDLORD ACCESS 19.1 Landlord's Right to Inspect. Tenant shall permit Landlord and its authorized representatives to inspect the Leased Property during usual business hours, and to do and make such repairs as Landlord is permitted or required to make pursuant to the terms of this Lease, subject to any security, health, safety or patient or business confidentiality requirements of Tenant or any governmental agency or Insurance Requirement relating to the Leased Property or imposed by law. 19.2 Landlord's Option to Purchase the Tenant's Personal Property; Transfer of Licenses. Effective on not less than ninety (90) days' prior notice given at any time within one hundred eighty (180) days after the expiration of the Term (or such shorter period as shall be appropriate if this Lease is terminated prior to its expiration date), Landlord shall have the option to purchase all (but not less than all) of Tenant's Personal Property (except motor vehicles), if any, at the expiration or termination of this Lease, for an amount equal to the then net market value thereof (current replacement cost as determined by appraisal less accumulated depreciation on Tenant's books pertaining thereto), subject to, and with appropriate price adjustments for, all equipment leases, conditional sale contracts, UCC-1 financing statements and other encumbrances to which such Personal Property is subject; provided, however, Landlord shall not have the right to purchase any Facility Trade Name or logo. ARTICLE 20 APPRAISAL 20.1 Appraisal Procedure. In the event that it becomes necessary to determine the Fair Market Value, Fair Market Value Purchase Price or Fair Market Rental of the Leased Property or a Substitute Property for any purpose of this Lease, the party required or permitted to give notice of such required determination (the "Initiating Party") shall include in such notice the name of a designated Qualified Appraiser (hereinafter defined) on its behalf. Within 10 days after notice, the party receiving such notice (the "Responding Party") shall, by written notice to the other, appoint a second Qualified Appraiser. If the Responding Party shall fail, neglect or refuse within said ten-day period to designate another appraiser willing so to act, the appraiser designated by the Initiating Party shall designate the second Qualified Appraiser within ten (10) days thereafter. The two appraisers so designated shall meet within ten (10) days after the second appraiser is designated, and, if within ten (10) days after the second appraiser is designated, the two appraisers do not agree upon the Fair Market Value, Fair Market Value Purchase Price or Fair Market Rental, as the case may be, of the applicable property as of the relevant date, the two appraisers shall designate a third Qualified Appraiser, within ten (10) days thereafter. In the event that the two appraisers are unable to agree upon the appointment of a third Qualified Appraiser within such ten (10) day period, either Landlord or Tenant, on behalf of both, may -54- then request appointment of such appraiser the then president of the American Arbitration Association. In the event of a failure, refusal or inability of any appraiser to act, a new appraiser shall be appointed in his stead, which appointment shall be made in the same manner as hereinabove provided for the appointment of such appraiser so failing, refusing or being unable to act. In the event that all appraisers cannot agree upon such value ten (10) days as aforesaid, each appraiser shall submit his appraisal of such value to the other two appraisers in writing, and such value shall be determined by calculating the average of the two numerically closest (or, if the values are equidistant, all three) values determined by the three appraisers. The costs, other than counsel fees, of such appraisal shall be borne equally by the parties. Upon determining such value, the appraisers shall promptly notify Landlord and Tenant in writing of such determination. If any party shall fail to appear at the hearings appointed by the appraisers, the appraisers may act in the absence of such party. The determination of the board of appraisers (or the single additional Qualified Appraiser, as appropriate) made in accordance with the foregoing provisions shall be final and binding upon the parties, such determination may be entered as an award in arbitration in a court of competent jurisdiction, and judgment thereon may be entered. ARTICLE 21 MORTGAGES 21.1 Landlord May Grant Liens. Without the consent of Tenant, Landlord may, subject to the terms and conditions set forth in this Section 21.1, from time to time, directly or indirectly, create or otherwise cause to exist any lien, encumbrance or title retention agreement ("Encumbrance") upon the Leased Property, or any portion thereof or interest therein, whether to secure any borrowing or other means of financing or refinancing. Any such Encumbrance, other than one the proceeds of which are used to finance construction of a Capital Addition pursuant to the provisions of Sections 6.1 and 6.3, shall include the right to prepay (whether or not subject to a prepayment penalty) and shall provide (subject to Section 21.2) that it is subject to the rights of Tenant under this Lease. 21.2 Subordination of Lease. Subject to Section 21.1 and the last paragraph of this Section 21.2, this Lease, and all rights of Tenant hereunder, are and shall be subject and subordinate to any ground or master lease, and all renewals, extensions, modifications and replacements thereof, and to all mortgages and deeds of trust, which may now or hereafter affect the Leased Property or any improvements thereon and/or any of such leases, whether or not such mortgages or deeds of trust shall also cover other lands and/or buildings and/or leases, to each and every advance made or hereafter to be made under such mortgages and deeds of trust, and to all renewals, modifications, replacements and extensions of such leases and such mortgages and deeds of trust and all consolidations of such mortgages and deeds of trust. This section shall -55- be self-operative and no further instrument of subordination shall be required. In confirmation of such subordination, Tenant shall promptly execute, acknowledge and deliver any instrument that Landlord, the lessor under any such lease or the holder of any such mortgage or the trustee or beneficiary of any deed of trust or any of their respective successors in interest may reasonably request to evidence such subordination. Any lease to which this Lease is, at the time referred to, subject and subordinate is herein called "Superior Lease" and the lessor of a Superior Lease or its successor in interest at the time referred to, is herein called "Superior Landlord" and any mortgage or deed of trust to which this Lease is, at the time referred to, subject and subordinate, is herein called "Superior Mortgage" and the holder, trustee or beneficiary of a Superior Mortgage is herein called "Superior Mortgagee". If any Superior Landlord or Superior Mortgagee or the nominee or designee of any Superior Landlord or Superior Mortgagee shall succeed to the rights of Landlord under this Lease, whether through possession or foreclosure action or delivery of a new lease or deed, or otherwise, then at the request of such party so succeeding to Landlord's rights (herein called "Successor Landlord") and upon such Successor Landlord's written agreement to accept Tenant's attornment, Tenant shall attorn to and recognize such Successor Landlord as Tenant's landlord under this Lease and shall promptly execute and deliver any instrument that such Successor Landlord may reasonably request to evidence such attornment. Upon such attornment, this Lease shall continue in full force and effect as a direct lease between the Successor Landlord and Tenant upon all of the terms, conditions and covenants as are set forth in this Lease, except that the Successor Landlord (unless formerly the landlord under this Lease or its nominee or designee) shall not be (a) liable in any way to Tenant for any act or omission, neglect or default on the part of Landlord under this Lease, (b) responsible for any monies owing by or on deposit with Landlord to the credit of Tenant, (c) subject to any counterclaim or setoff which theretofore accrued to Tenant against Landlord, (d) bound by any modification of this Lease subsequent to such Superior Lease or Mortgage, or by any previous prepayment of Minimum Rent or Percentage Rent for more than one (1) month, which was not approved in writing by the Superior Landlord or the Superior Mortgagee thereto, (e) liable to the Tenant beyond the Successor Landlord's interest in the Leased Property and the rents, income, receipts, revenues, issues and profits issuing from the Leased Property, (f) responsible for the performance of any work to be done by the Landlord under this Lease to render the Leased Property ready for occupancy by Tenant, or (g) required to remove any person occupying the Leased Property or any part thereof, except if such person claims by, through or under the Successor Landlord. Tenant agrees at any time and from time to time to execute a suitable instrument in confirmation of Tenant's agreement to attorn, as aforesaid. Tenant's obligation to subordinate this Lease and Tenant's rights hereunder to any Superior Mortgage or Superior Lease shall be conditioned upon Landlord obtaining from any Superior Mortgagee or Superior Landlord, an agreement which shall be executed by Tenant and such Superior Mortgagee or Superior Landlord which shall provide in substance that so long as no Event of Default exists as would entitle -56- Landlord or any such Superior Mortgagee or Superior Landlord to terminate this Lease or would cause, without any further action of Landlord or such Superior Mortgagee or Superior Landlord, the termination of this Lease or would entitle Landlord or such Superior Mortgagee or Superior Landlord to dispossess Tenant, this Lease shall not be terminated, nor shall Tenant's use, possession or enjoyment of the Leased Property, in accordance with the terms and provisions of this Lease, be interfered with, nor shall the leasehold estate granted by this Lease be affected in any other manner, in any foreclosure or any action or proceeding instituted under or in connection with such Superior Mortgage or Superior Lease, or in the event such Superior Mortgagee or Superior Landlord takes possession of the Leased Property pursuant to any provisions of such Superior Mortgage or Superior Lease, unless Landlord or such Superior Mortgagee or Superior Landlord would have had such right of termination pursuant to this Lease. Such agreement shall be in form customarily used by the holder of any such Superior Mortgage or Superior Lease. 21.3 Notice to Mortgagee and Ground Landlord. Subsequent to the receipt by Tenant of notice from any person, firm or other entity that it is a Facility Mortgagee, or that it is the ground lessor under a lease with Landlord, as ground lessee, which includes the Leased Property as part of the demised premises, no notice from Tenant to Landlord shall be effective unless and until a copy of the same is given to such Facility Mortgagee or ground lessor and the curing of any of Landlord's defaults by such Facility Mortgagee or ground lessor shall be treated as performance by Landlord. ARTICLE 22 INVESTMENT TAX CREDIT 22.1 Investment Tax Credit. Landlord agrees to elect, in accordance with Section 48(d) of the Code, to treat Tenant as having purchased all such eligible property in the Leased Property as may be designated by Tenant in order that Tenant may obtain the benefit of the credit, if any, allowed or allowable with respect thereto under Section 38 of the Code. Landlord makes no representation or warranty with respect to the availability of the credit to Tenant or the efficacy of such election. Landlord's sole responsibility in this regard shall be to execute such documents as are reasonably required to effect the election, which documents Tenant shall prepare, at Tenant's sole cost and expense, and to provide Tenant with such information as may be reasonably requested by Tenant in connection therewith. In addition, Landlord agrees it and its assignees will not claim the credit provided by Section 38 of the Code for any property included in the Leased Property. -57- ARTICLE 23 ADDITIONAL COVENANTS OF TENANT 23.1 Notice of Change of Name, Administrator, Etc. Tenant shall give prompt notice to Landlord of any change in (a) the name (operating or otherwise) of Tenant or the Facility, (b) the individual licensed as administrator of the Facility, (1) the number of beds in any bed category for which the Facility is licensed or the number of beds in any bed category available for use at the Facility (except for changes in the number of certified distinct part beds made for reimbursement maximization purposes), and (d) the patient and/or child care services that are offered at the Facility. 23.2 Notice of Litigation, Potential Event of Default, Etc. Tenant shall give prompt notice to Landlord of any litigation or any administrative proceeding to which it may hereafter become a party which involves a potential liability equal to or greater than $250,000, or which may otherwise result in any material adverse change in the business, operations, property, prospects, results of operation or condition, financial or other, of Tenant. Forthwith upon Tenant obtaining knowledge of any Default or Event of Default, or any event or condition that would be required to be disclosed in a current report filed by Tenant on Form 8-K or in Part II of a quarterly report on Form 10-Q if Tenant were required to file such reports under the Securities Exchange Act of 1934, as amended, Tenant shall give Landlord notice thereof, which notice shall set forth in reasonable detail the nature and period of existence thereof and what action Tenant has taken or is taking or proposes to take with respect thereto. 23.3 Management of Leased Property. Tenant shall not enter into any management or similar agreement in respect of the Leased Property without the express prior written consent of Landlord. 23.4 Distributions, Payments to Affiliated Persons, Etc. Tenant will not declare, order, pay or make, directly or indirectly, any distribution or any payment to any Affiliated Person as to Tenant (including payments in the ordinary course of business and payment pursuant to management agreements with any such Affiliated Person) or set apart any sum or property therefor, or agree to do so, if, at the time of such proposed action, or immediately after giving effect thereto, any event or condition shall exist which constitutes a Default or an Event of Default. ARTICLE 24 MISCELLANEOUS 24.1 No Waiver. No failure by Landlord or Tenant to insist upon the strict performance of any term hereof or to exercise any right, power or remedy consequent upon a breach thereof, and no acceptance of full or partial payment of rent during the continuance of any such -58- breach, shall constitute a waiver of any such breach or of any such term. To the extent permitted by law, no waiver of any breach shall affect or alter this Lease, which shall continue in full force and effect with respect to any other then existing or subsequent breach. 24.2 Remedies Cumulative. To the extent permitted by law, each legal, equitable or contractual right, power and remedy of Landlord, now or hereafter provided either in this Lease or by statute or otherwise, shall be cumulative and concurrent and shall be in addition to every other right, power and remedy and the exercise or beginning of the exercise by Landlord or Tenant of any one or more of such rights, powers and remedies shall not preclude the simultaneous or subsequent exercise by Landlord or Tenant of any or all of such other rights, powers and remedies. 24.3 Acceptance of Surrender. No surrender to Landlord of this Lease or of the Leased Property or any part thereof, or of any interest therein, shall be valid or effective unless agreed to and accepted in writing by Landlord and no act by Landlord or any representative or agent of Landlord, other than such a written acceptance by Landlord, shall constitute an acceptance of any such surrender. 24.4 No Merger of Title. There shall be no merger of this Lease or of the leasehold estate created hereby by reason of the fact that the same person, firm, corporation or other entity may acquire, own or hold, directly or indirectly (a) this Lease or the leasehold estate created hereby or any interest in this Lease or such leasehold estate and (b) the fee estate or ground landlord's interest in the Leased Property. 24.5 Conveyance by Landlord. If Landlord or any successor owner of the Leased Property shall convey the Leased Property in accordance with the terms hereof other than as security for a debt, and the grantee or transferee of the Leased Property shall expressly assume all obligations of Landlord hereunder arising or accruing from and after the date of such conveyance or transfer and shall be reasonably capable of performing the obligations of Landlord hereunder, Landlord or such successor owner, as the case may be, shall thereupon be released from all future liabilities and obligations of Landlord under this Lease arising or accruing from and after the date of such conveyance or other transfer as to the Leased Property and all such future liabilities and obligations shall thereupon be binding upon the new owner. 24.6 Quiet Enjoyment. So long as Tenant shall pay the Rent as the same becomes due and shall substantially comply with all of the terms of this Lease and perform its obligations hereunder, Tenant shall peaceably and quietly have, hold and enjoy the Leased Property for the Term hereof, free of any claim or other action by Landlord or anyone claiming by, through or under Landlord, but subject to all liens and encumbrances of record as of the date hereof or hereafter consented to by Tenant. Except as otherwise provided in this Lease, no failure by Landlord to comply with the foregoing covenant shall give Tenant any right to cancel or terminate this Lease or abate, reduce or make a deduction from or offset against the Rent or any other sum payable under this Lease, or to fail to perform any other obligation of Tenant hereunder. Notwithstanding the foregoing, Tenant shall have the right, by separate -59- and independent action to pursue any claim it may have against Landlord as a result of a breach by Landlord of the covenant of quiet enjoyment contained in this Section. 24.7 Landlord's Liability. THE DECLARATION OF TRUST ESTABLISHING LANDLORD, DATED OCTOBER 9, 1986, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HEALTH AND REHABILITATION PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF LANDLORD SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, LANDLORD. ALL PERSONS DEALING WITH LANDLORD, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF LANDLORD FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. Tenant, its successors and assigns, shall not assert nor seek to enforce any claim for breach of this Lease against any of Landlord's assets other than Landlord's interest in the Leased Property and in the rents, issues and profits thereof, and Tenant agrees to look solely to such interest for the satisfaction of any liability or claim against Landlord under this Lease, it being specifically agreed that in no event whatsoever shall Landlord (which term shall include, without limitation, any general or limited partner, trustees, beneficiaries, officers, directors, or stockholders of Landlord) ever be personally liable for any such liability. In no event shall Landlord ever be liable to Tenant for any indirect or consequential damages. 24.8 Landlord's Consent. Where provisions are made in this Lease for Landlord's consent and Landlord shall fail or refuse to give such consent, Tenant shall not be entitled to any damages for any withholding by Landlord of its consent, it being intended that Tenant's sole remedy shall be an action for specific performance or injunction, and that such remedy shall be available only in those cases where Landlord has expressly agreed in writing not to unreasonably withhold its consent. 24.9 Memorandum of Lease. Neither Landlord nor Tenant shall record this Lease. However, Landlord and Tenant shall promptly, upon the request of either, enter into a short form memorandum of this Lease, in form suitable for recording under the laws of the State in which reference to this Lease, and all options contained herein, shall be made. Tenant shall pay all costs and expenses of recording such memorandum of this Lease. 24.10 Notices. (a) Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Lease shall be deemed adequately given if in writing and the same shall be delivered either in hand, by telecopier with written acknowledgment of receipt, or by mail or Federal Express or similar expedited commercial carrier, addressed to the recipient of the notice, postpaid and registered or certified with return receipt requested (if by mail), or with all freight charges prepaid (if by Federal Express or similar carrier). -60- (b) All notices required or permitted to be sent hereunder shall be deemed to have been given for all purposes of this Lease upon the date of acknowledged receipt, in the case of a notice by telecopier, and, in all other cases, upon the date of receipt or refusal, except that whenever under this Lease a notice is either received on a day which is not a Business Day or is required to be delivered on or before a specific day which is not a Business Day, the day of receipt or required delivery shall automatically be extended to the next Business Day. (c) All such notices shall be addressed, if to Landlord to: Health and Rehabilitation Properties Trust 400 Centre Street Newton, Massachusetts 02158 Attn: Mr. David J. Hegarty [Telecopier No. (617) 332-2261] with a copy to: Sullivan & Worcester One Post Office Square Boston, Massachusetts 02109 Attn: Lena G. Goldberg, Esq. [Telecopier No. (617) 338-2880] if to Tenant to: Connecticut Subacute Corporation II 400 Centre Street Newton, Massachusetts 02158 Attn: Mr. Mark Finklestein [Telecopier No. (617) 332-2261] with a copy to: Sullivan & Worcester One Post Office Square Boston, Massachusetts 02109 Attn: Lena G. Goldberg, Esq. [Telecopier No. (617) 338-2880] (d) By notice given as herein provided, the parties hereto and their respective successor 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 within the United States of America. 24.11 Construction. Anything contained in this Lease to the contrary notwithstanding, all claims against, and liabilities of, Tenant or Landlord arising prior to any date of termination of this Lease shall -61- survive such termination. If any term or provision of this Lease or any application thereof shall be invalid or unenforceable, the remainder of this Lease and any other application of such term or provisions shall not be affected thereby. If any late charges or any interest rate provided for in any provision of this Lease are based upon a rate in excess of the maximum rate permitted by applicable law, the parties agree that such charges shall be fixed at the maximum permissible rate. Neither this Lease nor any provision hereof may be changed, waived, discharged or terminated except by an instrument in writing signed by the party to be charged. All the terms and provisions of this Lease shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. The headings in this Lease are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. This Lease represents the entire agreement among the parties and amends and restates the Original Leases in their entirety. This Lease may not be amended or modified in any respect except by the written agreement of Landlord and Tenant. 24.12 Governing Law. This Lease shall be interpreted, construed, applied and enforced in accordance with the laws of the State applicable to contracts between residents of the State which are to be performed entirely within the State, regardless of (i) where this Lease is executed or delivered; or (ii) where any payment or other performance required by this Lease is made or required to be made; or (iii) where any breach of any provision of this Lease occurs, or any cause of action otherwise accrues; or (iv) where any action or other proceeding is instituted or pending; or (v) the nationality, citizenship, domicile, principle place of business, or jurisdiction of organization or domestication of any party; or (vi) whether the laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction other than the State; or (vii) any combination of the foregoing. To the maximum extent permitted by applicable law, any action to enforce, arising out of, or relating in any way to, any of the provisions of this Lease may be brought and prosecuted in such court or courts located in the State as is provided by law; and the parties consent to the jurisdiction of said court or courts located in the State and to service of process by registered mail, return receipt requested, or by any other manner provided by law. IN WITNESS WHEREOF, the parties have executed this Lease, as a sealed instrument, as of the date first above written. LANDLORD: HEALTH AND REHABILITATION PROPERTIES TRUST By: John G. Murray Its: Treasurer TENANT: -62- CONNECTICUT SUBACUTE CORPORATION II By: Barry M. Portnoy Its: Secretary EXHIBIT A Other Leases [See attached copy.] EXHIBIT B Permitted Encumbrances [See attached copy.] EXHIBIT C The Land [See attached copy.] EXHIBIT D Minimum Rent [See attached copy.] EX-10.20 5 LEASE AGREEMENT DATED AS OF FEBRUARY 11, 1994, BY AND BETWEEN HEALTH AND REHABILITATION PROPERTIES TRUST, AS LANDLORD, AND CONNECTICUT SUBACUTE CORPORATION II, AS TENANT. TABLE OF CONTENTS ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . 1 1.1 Added Value Percentage . . . . . . . . . . . . . 1 1.2 Additional Rent . . . . . . . . . . . . . . . . 1 1.3 Affiliated Person . . . . . . . . . . . . . . . 1 1.4 Assumed Indebtedness . . . . . . . . . . . . . . 2 1.5 Award . . . . . . . . . . . . . . . . . . . . . 2 1.6 Base Net Patient Revenues . . . . . . . . . . . 2 1.7 Base Rate . . . . . . . . . . . . . . . . . . . 2 1.8 Base Year . . . . . . . . . . . . . . . . . . . 2 1.9 Business Day . . . . . . . . . . . . . . . . . . 2 1.10 Capital Addition . . . . . . . . . . . . . . . . 2 1.11 Capital Additions Cost . . . . . . . . . . . . . 3 1.12 Capital Expenditure . . . . . . . . . . . . . . 3 1.13 Cash Adjustment . . . . . . . . . . . . . . . . 4 1.14 Claims . . . . . . . . . . . . . . . . . . . . . 4 1.15 Code . . . . . . . . . . . . . . . . . . . . . . 4 1.16 Commencement Date . . . . . . . . . . . . . . . 4 1.17 Condemnation . . . . . . . . . . . . . . . . . . 4 1.18 Condemnor . . . . . . . . . . . . . . . . . . . 4 1.19 Consolidated Financials . . . . . . . . . . . . 4 1.20 Control . . . . . . . . . . . . . . . . . . . . 4 1.21 Date of Taking . . . . . . . . . . . . . . . . . 4 1.22 Default . . . . . . . . . . . . . . . . . . . . 5 1.23 Encumbrance . . . . . . . . . . . . . . . . . . 5 1.24 Entity . . . . . . . . . . . . . . . . . . . . . 5 1.25 Environmental Laws . . . . . . . . . . . . . . . 5 1.26 Environmental Notice . . . . . . . . . . . . . . 5 1.27 Environmental Obligation . . . . . . . . . . . . 5 1.28 Event of Default . . . . . . . . . . . . . . . . 5 1.29 Excess Net Patient Revenues . . . . . . . . . . 5 1.30 Extended Terms . . . . . . . . . . . . . . . . . 5 1.31 Facility . . . . . . . . . . . . . . . . . . . . 5 1.32 Facility Mortgage . . . . . . . . . . . . . . . 5 1.33 Facility Mortgagee . . . . . . . . . . . . . . . 5 1.34 Facility Trade Names . . . . . . . . . . . . . . 5 1.35 Fair Market Added Value . . . . . . . . . . . . 6 1.36 Fair Market Rental . . . . . . . . . . . . . . . 6 1.37 Fair Market Value . . . . . . . . . . . . . . . 6 1.38 Fair Market Value Purchase Price . . . . . . . . 6 1.39 Fiscal Year . . . . . . . . . . . . . . . . . . 6 1.40 Fixed Term . . . . . . . . . . . . . . . . . . . 6 1.41 Fixtures . . . . . . . . . . . . . . . . . . . . 6 1.42 Hazardous Substances . . . . . . . . . . . . . . 6 1.43 Immediate Family . . . . . . . . . . . . . . . . 7 1.44 Impositions . . . . . . . . . . . . . . . . . . 7 1.45 Initiating Party . . . . . . . . . . . . . . . . 7 1.46 Insurance Requirements . . . . . . . . . . . . . 7 1.47 Land . . . . . . . . . . . . . . . . . . . . . . 7 1.48 Landlord . . . . . . . . . . . . . . . . . . . . 8 1.49 Landlord Default. . . . . . . . . . . . . . . . . 8 1.50 Lease . . . . . . . . . . . . . . . . . . . . . 8 1.51 Leased Improvements . . . . . . . . . . . . . . 8 1.52 Leased Personal Property . . . . . . . . . . . . 8 1.53 Leased Property . . . . . . . . . . . . . . . . 8 1.54 Legal Requirements . . . . . . . . . . . . . . . 8 1.55 Lending Institution . . . . . . . . . . . . . . 8 1.56 Minimum Rent . . . . . . . . . . . . . . . . . . 8 1.57 Minimum Repurchase Price . . . . . . . . . . . . 8 1.58 Net Patient Revenues . . . . . . . . . . . . . . 9 1.59 Non-Capital Additions . . . . . . . . . . . . . 10 1.60 Officer's Certificate . . . . . . . . . . . . . 10 1.61 Other Leases . . . . . . . . . . . . . . . . . . 10 1.62 Overdue Rate . . . . . . . . . . . . . . . . . . 10 1.63 Parent . . . . . . . . . . . . . . . . . . . . . 10 1.64 Percentage Rent . . . . . . . . . . . . . . . . 10 1.65 Permitted Encumbrances . . . . . . . . . . . . . 10 1.66 Person . . . . . . . . . . . . . . . . . . . . . 10 1.67 Primary Intended Use . . . . . . . . . . . . . . 10 1.68 Qualified Appraiser . . . . . . . . . . . . . . 11 1.69 Records . . . . . . . . . . . . . . . . . . . . 10 1.70 Rent . . . . . . . . . . . . . . . . . . . . . . 10 1.71 Responding Party . . . . . . . . . . . . . . . . 11 1.72 SEC . . . . . . . . . . . . . . . . . . . . . . 11 1.73 State . . . . . . . . . . . . . . . . . . . . . 11 1.74 Subsidiary . . . . . . . . . . . . . . . . . . . 11 1.75 Substitute Properties . . . . . . . . . . . . . 11 1.76 Substitution Date . . . . . . . . . . . . . . . 11 1.77 Successor Landlord . . . . . . . . . . . . . . . 11 1.78 Superior Lease . . . . . . . . . . . . . . . . . 11 1.79 Superior Landlord . . . . . . . . . . . . . . . 11 1.80 Superior Mortgage . . . . . . . . . . . . . . . 11 1.81 Superior Mortgagee . . . . . . . . . . . . . . . 11 1.82 Tenant . . . . . . . . . . . . . . . . . . . . . 11 1.83 Tenant's Personal Property . . . . . . . . . . . 11 1.84 Term . . . . . . . . . . . . . . . . . . . . . . 11 1.85 Test Rate . . . . . . . . . . . . . . . . . . . 12 1.86 Trustees . . . . . . . . . . . . . . . . . . . . 12 1.87 Unavoidable Delays . . . . . . . . . . . . . . . 12 1.88 Unsuitable for Its Primary Intended Use . . . . 12 ARTICLE 2 PREMISES AND TERM . . . . . . . . . . . . . . 12 2.1 Premises . . . . . . . . . . . . . . . . . . . . 12 2.2 Condition of Premises . . . . . . . . . . . . . 13 2.3 Fixed Term . . . . . . . . . . . . . . . . . . . 14 2.4 Extended Terms . . . . . . . . . . . . . . . . . 14 ARTICLE 3 RENT . . . . . . . . . . . . . . . . . . . . . 15 3.1 Rent . . . . . . . . . . . . . . . . . . . . . . 15 3.1.1 Minimum Rent . . . . . . . . . . . . . . 15 3.1.2 Percentage Rent . . . . . . . . . . . . . 15 3.1.3 Additional Rent . . . . . . . . . . . . . 17 3.2 Late Payment of Rent . . . . . . . . . . . . . . 19 3.3 Net Lease . . . . . . . . . . . . . . . . . . . 19 3.4 No Termination, Abatement, Etc . . . . . . . . . 19 ARTICLE 4 USE OF THE LEASED PROPERTY . . . . . . . . . . 20 4.1 Permitted Use . . . . . . . . . . . . . . . . . 20 4.1.1 Primary Intended Use . . . . . . . . . . 20 4.1.2 Necessary Approvals . . . . . . . . . . . 21 4.1.3 Continuous Operation, Etc . . . . . . . . 21 4.1.4 Lawful Use, Etc . . . . . . . . . . . . . 21 4.2 Compliance with Legal and Insurance Requirements, Instruments, Etc . . . . . . . . 21 4.3 Compliance with Medicaid and Medicare Requirements . . . . . . . . . . . . . . . . . 21 4.4 Environmental Matters . . . . . . . . . . . . . 22 ARTICLE 5 MAINTENANCE AND REPAIRS, ETC . . . . . . . . . 23 5.1 Maintenance and Repair . . . . . . . . . . . . . 23 5.1.1 Tenant's Obligations . . . . . . . . . . 23 5.1.2 Landlord's Obligations . . . . . . . . . 23 5.2 Capital Expenditure Cost Sharing . . . . . . . . 23 5.3 Tenant's Personal Property . . . . . . . . . . . 24 5.4 Yield Up . . . . . . . . . . . . . . . . . . . . 24 5.5 Encroachments, Restrictions, Etc . . . . . . . . 25 ARTICLE 6 CAPITAL ADDITIONS, ETC. . . . . . . . . . . . 25 6.1 Construction of Capital Additions to the Leased Property . . . . . . . . . . . . . . . . . . . 25 6.2 Capital Additions Financed by Tenant . . . . . . 27 6.3 Information Regarding Capital Additions . . . . 29 6.4 Non-Capital Additions . . . . . . . . . . . . . 30 6.5 Salvage . . . . . . . . . . . . . . . . . . . . 30 ARTICLE 7 LIENS . . . . . . . . . . . . . . . . . . . . 30 7.1 Liens . . . . . . . . . . . . . . . . . . . . . 30 7.2 Landlord's Lien . . . . . . . . . . . . . . . . 31 7.3 Mechanic's Liens . . . . . . . . . . . . . . . . 32 ARTICLE 8 PERMITTED CONTESTS . . . . . . . . . . . . . . 32 ARTICLE 9 INSURANCE AND INDEMNIFICATION . . . . . . . . 33 9.1 General Insurance Requirements . . . . . . . . . 33 9.2 Waiver of Subrogation . . . . . . . . . . . . . 34 9.3 Form Satisfactory, Etc . . . . . . . . . . . . . 35 9.4 No Separate Insurance . . . . . . . . . . . . . 36 9.5 Indemnification of Landlord . . . . . . . . . . 36 9.6 Indemnification of Tenant . . . . . . . . . . . 36 ARTICLE 10 CASUALTY . . . . . . . . . . . . . . . . . . 37 10.1 Insurance Proceeds . . . . . . . . . . . . . . . 37 10.2 Reconstruction in the Event of Damage or Destruction . . . . . . . . . . . . . . . . . 37 10.2.1 Material Damage or Destruction of Premises 37 10.2.2 Partial Damage or Destruction . . . . . 38 10.3 Insufficient Insurance Proceeds . . . . . . . . 39 10.4 Disbursement of Proceeds . . . . . . . . . . . . 39 10.5 Tenant's Property . . . . . . . . . . . . . . . 40 10.6 Restoration of Tenant's Property . . . . . . . . 40 10.7 No Abatement of Rent . . . . . . . . . . . . . . 40 10.8 Damage Near End of Term . . . . . . . . . . . . 40 ARTICLE 11 CONDEMNATION . . . . . . . . . . . . . . . . 41 11.1 Total Condemnation . . . . . . . . . . . . . . . 41 11.2 Partial Condemnation . . . . . . . . . . . . . . 41 11.3 Temporary Condemnation . . . . . . . . . . . . . 41 11.4 Tenant's Option . . . . . . . . . . . . . . . . 41 11.5 Allocation of Award . . . . . . . . . . . . . . 42 11.6 Abatement Procedures . . . . . . . . . . . . . . 42 ARTICLE 12 DEFAULTS AND REMEDIES . . . . . . . . . . . . 43 12.1 Events of Default. . . . . . . . . . . . . . . . 43 12.2 Remedies . . . . . . . . . . . . . . . . . . . . 45 12.3 Waiver . . . . . . . . . . . . . . . . . . . . . 47 12.4 Application of Funds . . . . . . . . . . . . . . 47 12.5 Failure to Conduct Business . . . . . . . . . . 47 12.6 Landlord's Right to Cure Tenant's Default . . . 47 12.7 Trade Names . . . . . . . . . . . . . . . . . . 47 ARTICLE 13 HOLDING OVER . . . . . . . . . . . . . . . . 48 ARTICLE 14 LANDLORD'S DEFAULT . . . . . . . . . . . . . 48 ARTICLE 15 PURCHASE OF PREMISES . . . . . . . . . . . . 49 ARTICLE 16 SUBSTITUTION OF PROPERTY FOR THE LEASED PROPERTY 50 16.1 Tenant's Substitution Option . . . . . . . . . . 50 16.2 Landlord's Substitution Option . . . . . . . . . 50 16.3 Substitution Procedures . . . . . . . . . . . . 51 16.4 Conditions to Substitution . . . . . . . . . . . 53 16.5 Conveyance to Tenant . . . . . . . . . . . . . . 54 16.6 Expenses . . . . . . . . . . . . . . . . . . . . 54 ARTICLE 17 SUBLETTING AND ASSIGNMENT . . . . . . . . . . 55 17.1 Subletting and Assignment . . . . . . . . . . . 55 17.2 Required Sublease Provisions . . . . . . . . . . 56 17.3 Sublease Limitation . . . . . . . . . . . . . . 56 17.4 Assignment and Subletting Procedure . . . . . . 56 ARTICLE 18 CERTIFICATES AND FINANCIAL STATEMENTS . . . . 57 18.1 Estoppel Certificates . . . . . . . . . . . . . 57 18.2 Financial Statements . . . . . . . . . . . . . . 57 18.3 General Operations . . . . . . . . . . . . . . . 58 18.3.1 Reimbursement, Licensure, Etc. . . . . . 58 18.3.2 Monthly Reports . . . . . . . . . . . . 59 ARTICLE 19 LANDLORD ACCESS . . . . . . . . . . . . . . . 59 19.1 Landlord's Right to Inspect . . . . . . . . . . 59 19.2 Landlord's Option to Purchase the Tenant's Personal Property; Transfer of Licenses . . . 59 ARTICLE 20 APPRAISAL . . . . . . . . . . . . . . . . . . 60 20.1 Appraisal Procedure . . . . . . . . . . . . . . 60 ARTICLE 21 MORTGAGES . . . . . . . . . . . . . . . . . . 61 21.1 Landlord May Grant Liens . . . . . . . . . . . . 61 21.2 Subordination of Lease . . . . . . . . . . . . . 61 21.3 Notice to Mortgagee and Ground Landlord . . . . 63 ARTICLE 22 INVESTMENT TAX CREDIT . . . . . . . . . . . . 63 22.1 Investment Tax Credit . . . . . . . . . . . . . 63 ARTICLE 23 ADDITIONAL COVENANTS OF TENANT 23.1 Notice of Change of Name, Administrator, Etc. 64 23.2 Notice of Litigation, Potential Event of Default, Etc. . . . . . . . . . . . . . . . . 64 23.3 Management of Leased Property . . . . . . . . . 64 23.4 Distributions, Payments to Affiliated Persons, Etc. . . . . . . . . . . . . . . . . . . . . . 64 ARTICLE 24 MISCELLANEOUS . . . . . . . . . . . . . . . . 65 24.1 No Waiver . . . . . . . . . . . . . . . . . . . 65 24.2 Remedies Cumulative . . . . . . . . . . . . . . 65 24.3 Acceptance of Surrender . . . . . . . . . . . . 65 24.4 No Merger of Title . . . . . . . . . . . . . . . 65 24.5 Conveyance by Landlord . . . . . . . . . . . . . 65 24.6 Quiet Enjoyment . . . . . . . . . . . . . . . . 66 24.7 Landlord's Liability . . . . . . . . . . . . . . 66 24.8 Landlord's Consent . . . . . . . . . . . . . . . 66 24.9 Memorandum of Lease . . . . . . . . . . . . . . 67 24.10 Notices . . . . . . . . . . . . . . . . . . . . 67 24.11 Construction . . . . . . . . . . . . . . . . . . 68 24.12 Governing Law . . . . . . . . . . . . . . . . . 68 EXHIBITS A - Other Leases B - Permitted Encumbrances C - The Land D - Minimum Rent LEASE AGREEMENT THIS LEASE AGREEMENT, dated as of February 11, 1994, is made by and between HEALTH AND REHABILITATION PROPERTIES TRUST, a Maryland real estate investment trust, as landlord ("Landlord"), having its principal office at 400 Centre Street, Newton, Massachusetts, and CONNECTICUT SUBACUTE CORPORATION II, a Delaware corporation, as tenant ("Tenant"), having an office at 400 Centre Street, Newton, Massachusetts 02158. W I T N E S S E T H : WHEREAS, Landlord owns the Leased Property (this and other capitalized terms used and not otherwise defined herein having the meanings ascribed to such terms in Article 1) and Landlord wishes to lease the Leased Property to Tenant and Tenant wishes to lease the Leased Property from Landlord, subject to and upon the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: ARTICLE 1 DEFINITIONS Each reference in this Lease to any of the following terms shall be construed to incorporate the definitions hereinafter set forth and include the plural as well as the singular. All accounting terms not otherwise defined herein shall have the meanings assigned to them in accordance with generally accepted accounting principles. 1.1 "Added Value Percentage" shall have the meaning given such term in Section 6.2(a). 1.2 "Additional Rent" shall have the meaning given such term in Section 3.1.3. 1.3 "Affiliated Person" shall mean, with respect to any Person, (a) in the case of any such Person which is a partnership, any partner in such partnership; (b) in the case of any such Person which is a limited liability company, any member of such company; (c) any other Person which is a Parent, a Subsidiary, or a Subsidiary of a Parent of the Persons referred to in the preceding clauses (a) and (b); (d) any other Person otherwise directly or indirectly controlling or under common control with such Person or one or more of the Persons referred to in the preceding clauses (a), (b) and (c); and (e) any other Person who is a member of the Immediate Family of such Person or any Person referred to in the preceding clauses (a) through (d). 1.4 "Assumed Indebtedness" shall mean any indebtedness or other obligations existing at the time of acquisition of the Leased Property by Landlord secured by a mortgage, deed of trust or other security agreement creating a lien on the Leased Property and assumed by Landlord, and any indebtedness resulting from the refinancing thereof, and/or any subsequent indebtedness resulting from Landlord's financing of, or Landlord's reimbursement of Tenant's financing of, any Capital Additions during the Term, except any indebtedness or other obligations of Tenant not assumed by Landlord prior to or during the Term. 1.5 "Award" shall mean all compensation, sums or other value awarded, paid or received by virtue of a total or partial Condemnation of the Leased Property (after deduction of all reasonable legal fees and other reasonable costs and expenses incurred by Landlord in connection with obtaining any such award). 1.6 "Base Net Patient Revenues" shall mean Net Patient Revenues for the Base Year. 1.7 "Base Rate" shall mean the rate of interest, determined daily and expressed as a percentage, announced by Citibank, N.A., in New York, New York, from time to time, as Citibank, N.A.'s "base rate" or "prime rate", so-called, or, if at any time Citibank, N.A. ceases to announce such a rate, as announced by the largest national or state chartered banking institution other than Citibank, N.A. then having its principal office in New York, New York and announcing such a rate. If at any time neither Citibank, N.A. nor any of the five largest other national or state chartered banking institutions having their principal offices in New York, New York is announcing such a floating rate, "Base Rate" shall mean a rate of interest, determined daily, which is two (2) percentage points above the 14-day moving average closing trading price of 90-day Treasury Bills. 1.8 "Base Year" shall mean the twelve-month period beginning June 1, 1999 and ending May 31, 2000. 1.9 "Business Day" shall mean any day other than Saturday, Sunday, or any other day on which banking institutions in The Commonwealth of Massachusetts or in New York, New York are authorized by law or executive action to close. 1.10 "Capital Addition" shall mean one or more new buildings, or one or more additional structures annexed to any portion of any of the Leased Improvements, or the material expansion of existing improvements, which are constructed on any parcel or portion of the Land during the Term, including, but not limited to, the construction of a new wing or new story, the renovation of existing improvements on the Leased Property in order to provide a functionally new facility needed to provide services not previously offered, or any expansion, construction, renovation or conversion in order to increase the bed capacity of the Facility, to change the purpose for which such beds are utilized or to improve the quality of the Facility. 1.11 "Capital Additions Cost" shall mean the cost of any Capital Addition proposed to be made by Tenant, whether paid for by Tenant or Landlord. Such cost shall include (a) the cost of construction of the -3- Capital Addition, including, site preparation and improvement, materials, labor, supervision, developer and administrative fees, legal fees, and related design, engineering and architectural services, the cost of any fixtures, the cost of construction financing (including, but not limited to, capitalized interest) and other miscellaneous costs approved by Landlord, (b) if agreed to by Landlord in writing, in advance, the cost of any land contiguous to the Leased Property which is to become a part of the Leased Property purchased for the purpose of placing thereon the Capital Addition or any portion thereof or for providing means of access thereto, or parking facilities therefor, including the cost of surveying the same, (c) the cost of insurance, real estate taxes, water and sewage charges and other carrying charges for such Capital Addition during construction, (d) title insurance charges, (e) reasonable attorneys' fees, (f) filing and registration fees and recording taxes, (g) documentary stamp or transfer taxes, and (h) all actual and reasonable costs and expenses of Landlord and any Lending Institution committed to finance the Capital Addition, including, but not limited to, (i) reasonable attorneys' fees, (ii) printing expenses, (iii) filing, registration and recording taxes and fees, (iv) documentary stamp or transfer taxes, (v) title insurance charges and appraisal fees, (vi) rating agency fees, and (vii) loan commitment fees. 1.12 "Capital Expenditure" shall mean any single required improvement, alteration, replacement or repair of the Leased Property, or any part thereof, (a) having a cost in excess of One Hundred Thousand Dollars ($100,000.00) (which amount shall be increased each year of the Lease by the product determined by multiplying such amount by the percentage increase in the Consumer Price Index, Urban Wage Earners and Clerical Workers, All Items, Base 1982-84=100, published by the U.S. Department of Labor, All Cities, or such comparable index published by the U.S. Department of Labor or its successor agency), and (b) having a useful life in excess of the longer of (i) twelve (12) months, or (ii) the remaining period of the Term, except capital improvements necessitated by destruction or Condemnation of the Leased Property, or any portion thereof. 1.13 "Cash Adjustment" shall have the meaning given such term in Section 16.3(d). 1.14 "Claims" shall have the meaning given such term in Article 8. 1.15 "Code" shall mean the Internal Revenue Code of 1986 and, to the extent applicable, the Treasury Regulations promulgated thereunder, each as from time to time amended. 1.16 "Commencement Date" shall mean the date of this Lease. 1.17 "Condemnation" shall mean (a) the exercise of any governmental power, whether by legal proceedings or otherwise, by a Condemnor, (b) a voluntary sale or transfer by Landlord to any Condemnor, either under threat of condemnation or while legal proceedings for condemnation are pending, and (c) a taking or voluntary conveyance of all or part of the Leased Property, or any interest therein, or right accruing thereto or use thereof, as the result or in settlement of any Condemnation or other -4- eminent domain proceeding affecting any portion of the Leased Property, whether or not the same shall have actually been commenced. 1.18 "Condemnor" shall mean any public or quasi-public authority, or private corporation or individual having the power of Condemnation. 1.19 "Consolidated Financials" shall mean, for any Fiscal Year or other accounting period of Tenant and its consolidated Subsidiaries, statements of earnings, retained earnings and changes in financial position for such period and for the period from the beginning of the applicable Fiscal Year to the end of such period and the balance sheet as at the end of such period, together with the notes thereto, all in reasonable detail, and setting forth in comparative form the corresponding figures for the corresponding period in the preceding Fiscal Year, and prepared in accordance with generally accepted accounting principles, consistently applied. 1.20 "Control" and any variations thereof shall mean, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership of voting securities, partnership interests or other equity interests. 1.21 "Date of Taking" shall mean the date the Condemnor has the right to possession of the Leased Property, or any portion thereof, in connection with a Condemnation. 1.22 "Default" shall mean any event, act or omission which with the giving of notice and/or lapse of time could constitute an Event of Default. 1.23 "Encumbrance" shall have the meaning given such term in Section 21.1. 1.24 "Entity" shall mean any corporation, general or limited partnership, limited liability company, stock company or association, joint venture, association, company, trust, bank, trust company, land trust, business trust, any government or agency or political subdivision thereof or any other entity. 1.25 "Environmental Laws" shall mean all applicable Federal, state or local statutes, laws, ordinances, rules and regulations, licensing requirements or conditions, whether now existing or hereafter arising, relating to Hazardous Substances. 1.26 "Environmental Notice" shall have the meaning given such term in Section 4.4. 1.27 "Environmental Obligation" shall mean any cost, expense, loss or damage arising under any Environmental Law or in connection with any Hazardous Substance. 1.28 "Event of Default" shall have the meaning given such term in Section 12.1. -5- 1.29 "Excess Net Patient Revenues" shall mean the amount of Net Patient Revenues for any measuring period in excess of the Base Net Patient Revenues for the equivalent period of the Base Year. 1.30 "Extended Terms" shall have the meaning given such term in Section 2.4. 1.31 "Facility" shall mean the licensed nursing home being operated on the Leased Property. 1.32 "Facility Mortgage" shall mean any mortgage, deed of trust or other security agreement securing any Assumed Indebtedness or any other encumbrance placed upon the Leased Property in accordance with Article 21. 1.33 "Facility Mortgagee" shall mean the holder of any Facility Mortgage. 1.34 "Facility Trade Names" shall mean any of the names under which Tenant operates, or has operated, the Facility at any time during the Term. 1.35 "Fair Market Added Value" shall mean the Fair Market Value of the Leased Property (including all Capital Additions) less the Fair Market Value of the Leased Property determined as if no Capital Additions financed by Tenant had been constructed. 1.36 "Fair Market Rental" shall mean the rental which a willing tenant not compelled to rent would pay a willing landlord not compelled to lease for the use and occupancy of the Leased Property, or applicable portion thereof, on the terms and conditions of this Lease, for the term in question, and determined in accordance with the appraisal procedures set forth in Article 20 or in such other manner as shall be mutually acceptable to Landlord and Tenant. 1.37 "Fair Market Value" shall mean the price that a willing buyer not compelled to buy would pay a willing seller not compelled to sell for the Leased Property, (a) assuming the same is unencumbered by this Lease, (b) determined in accordance with the appraisal procedures set forth in Article 20 or in such other manner as shall be mutually acceptable to Landlord and Tenant, (c) assuming such seller shall pay the closing costs generally paid by a seller of real property in the state in which such property is located and that such buyer shall pay closing costs generally paid by a buyer of real property in the state in which such property is located, and (d) not taking into account any reduction in value resulting from any indebtedness to which such property is subject, except the positive or negative effect on the value of such property attributable to the interest rate, amortization schedule, maturity date, prepayment penalty and other terms and conditions of any lien or encumbrance which is not removed at or prior to the closing of the transaction as to which such Fair Market Value determination is being made. 1.38 "Fair Market Value Purchase Price" shall mean the Fair Market Value of the Leased Property less the Fair Market Added Value. -6- 1.39 "Fiscal Year" shall mean each twelve (12) month period from June 1 to May 31. 1.40 "Fixed Term" shall have the meaning given such term in Section 2.3. 1.41 "Fixtures" shall have the meaning given such term in Section 2.1(d). 1.42 "Hazardous Substances" shall mean hazardous substances (as defined by the Comprehensive Environmental Response, Compensation and Liability Act, as now in effect or as hereafter from time to time amended), hazardous wastes (as defined by the Resource Conservation and Recovery Act, as now in effect or as hereafter from time to time amended), any hazardous waste, hazardous substance, pollutant or contaminant, oils, radioactive materials, asbestos in any form or condition, or any pollutant or contaminant or hazardous, dangerous or toxic chemicals, materials or substances within the meaning of any other applicable Federal, state or local law, regulation, ordinance or requirements relating to or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste, substance or materials, all as now in effect or hereafter from time to time amended. 1.43 "Immediate Family" shall mean, with respect to any Person, his spouse, parents, brothers, sisters, children (natural or adopted), stepchildren, grandchildren, grandparents, parents-in-law, brothers-in-law, sisters-in-law, nephews and nieces. 1.44 "Impositions" shall mean all taxes, assessments, and ad valorem, sales, and use, single business, gross receipts, transaction privilege, rent or similar taxes as the same are imposed on either Landlord or Tenant with respect to the Leased Property and/or the business conducted thereon by Tenant and other charges and impositions (including, but not limited to, fire protection service fees and similar charges) levied, assessed or imposed at any time during the Term by any governmental authority upon or against the Leased Property, or taxes in lieu thereof, and additional types of taxes to supplement real estate taxes due to legal limits imposed thereon. If, at any time during the Term, any tax or excise on rents or other taxes, however described, are levied or assessed against Landlord with respect to the rent reserved hereunder, either wholly or partially in substitution for, or in addition to, real estate taxes assessed or levied on the Leased Property, such tax or excise on rents shall be included in Impositions; provided, however, that Impositions shall not include franchise, estate, inheritance, succession, capital levy, transfer, income or excess profits taxes assessed on Landlord. Impositions shall include any estimated payment, whether voluntary or required, made by Landlord on account of a fiscal tax period for which the actual and final amount of taxes for such period has not been determined by the governmental authority as of the date of any such estimated payment. 1.45 "Initiating Party" shall have the meaning given such term in Section 20.1. -7- 1.46 "Insurance Requirements" shall mean all terms of any insurance policy required by this Lease and all requirements of the issuer of any such policy. 1.47 "Land" shall have the meaning given such term in Section 2.1(a). 1.48 "Landlord" shall have the meaning given such term in the preambles to this Lease. 1.49 "Landlord Default" shall have the meaning given such term in Article 14. 1.50 "Lease" shall mean this Lease Agreement, including Exhibits A through D hereto, as it and they may be amended from time to time as herein provided. 1.51 "Leased Improvements" shall have the meaning given such term in Section 2.1(b). 1.52 "Leased Personal Property" shall have the meaning given such term in Section 2.1(e). 1.53 "Leased Property" shall have the meaning given such term in Section 2.1. 1.54 "Legal Requirements" shall mean all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions, including, but not limited to, Environmental Laws, affecting the Leased Property or the maintenance, construction, use or alteration thereof, whether now or hereafter enacted, including those which may (a) require repairs, modifications or alterations in or to the Leased Property or any portion thereof or (b) in any way adversely affect the use and enjoyment thereof, and all permits, licenses and authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to Tenant (other than encumbrances hereinafter created by Landlord without the consent of Tenant), at any time in force affecting the Leased Property. 1.55 "Lending Institution" shall mean any insurance company, federally insured commercial or savings bank, national banking association, savings and loan association, employees' welfare, pension or retirement fund or system, corporate profit sharing or pension trust, college or university, or real estate investment trust, including any corporation qualified to be treated for federal tax purposes as a real estate investment trust, having a net worth of at least $10,000,000. 1.56 "Minimum Rent" shall mean the amount set forth in Exhibit D. 1.57 "Minimum Repurchase Price" shall mean that portion of the aggregate purchase price of the Leased Property paid by Landlord in cash or in kind, plus the aggregate of unpaid principal balance of all encumbrances against the Leased Property at the time of purchase thereof -8- by Tenant, plus any amounts paid by Landlord to reduce the principal balance of any Assumed Indebtedness, less all proceeds received by Landlord from any refinancing of the Leased Property (after payment of the debt refinanced and net of any costs and expenses incurred in connection with such refinancing, including, without limitation, loan points, commitment fees and commissions) and less the net amount (after deduction of all reasonable legal fees and other costs and expenses, including, without limitation, expert witness fees, incurred by Landlord in connection with obtaining any such award) of all awards received by Landlord from any partial Condemnation of the Leased Property or any portion thereof which are not applied to restoration. 1.58 "Net Patient Revenues" shall mean all revenues received or receivable from or by reason of the operation of the Facility, or any portion thereof, or any other use of the Leased Property, or any portion thereof, including, without limitation, all patient revenues received or receivable for the use of or otherwise by reason of all rooms, beds and other facilities provided, meals served, services performed, space or facilities subleased or goods sold on the Leased Property, or any portion thereof, including, without limitation, and except as provided below, any other arrangements with third parties relating to the possession or use of any portion of any portion of the Leased Property; provided, however, Net Patient Revenues shall not include: (a) revenue from professional fees or charges by physicians and providers (other than Tenant or Tenant's employees) of ancillary services, when and to the extent such charges are paid over to such physicians or providers of ancillary services, or are separately billed and not included in comprehensive fees; (b) nonoperating revenues such as interest income or income from the sale of assets not sold in the ordinary course of business; (c) contractual allowances (relating to any period during the Term) for billings not paid by or received from the appropriate governmental agencies or third party providers; (d) allowances according to generally accepted accounting principles for uncollectible accounts, including credit card accounts and charity care or other administrative discounts; (e) all proper patient billing credits and adjustments according to generally accepted accounting principles relating to health care accounting; (f) federal, state or local sales or excise taxes and any tax based on or measured by such revenues which is added to or made a part of the amount billed to the patient or other recipient of such services or goods, whether included in the billing or stated separately; (g) provider discounts for hospital or other medical facility utilization contracts and credit card discounts; (h) revenues attributable to Capital Additions financed by Tenant as provided in Section 6.2; (i) revenues attributable to services actually provided off the Leased Property, such as home health care; and (j) any amounts actually paid by Tenant for the cost of any federal, state or local governmental programs imposed specially to provide or finance indigent patient care. To the extent the Leased Property or any portion thereof is subleased by Tenant, Net Patient Revenues shall include (x) the Net Patient Revenues generated from the operations conducted on such subleased portion of the Leased Property and (y) the rent received or receivable by Tenant from or under any such sublease to the extent such rent is not based on Net Patient Revenues and, therefore, has not already been included in the calculation of Net Patient Revenues pursuant to clause (x) preceding. -9- 1.59 "Non-Capital Additions" shall have the meaning given such term in Section 6.4. 1.60 "Officer's Certificate" shall mean a certificate signed by the chief financial officer or another officer of Tenant authorized by the board of directors or by-laws of Tenant, or any other Person whose power and authority to act has been so authorized. 1.61 "Other Leases" shall mean the Leases described in Exhibit A, attached hereto and made a part hereof. 1.62 "Overdue Rate" shall mean a rate equal to the lesser of the Base Rate plus two percent (2%) and the maximum rate then permitted under applicable law. 1.63 "Parent" shall mean, with respect to any Person, any Person which owns directly, or indirectly, through one or more Subsidiaries, twenty percent (20%) or more of the voting or beneficial interests in such Person or otherwise Controls such Person. 1.64 "Percentage Rent" shall have the meaning given such term in Section 3.1.2(a). 1.65 "Permitted Encumbrances" shall mean the matters set forth in Exhibit B, attached hereto and made a part hereof. 1.66 "Person" shall mean any individual or Entity, and the heirs, executors, administrators, legal representatives, successors and assigns of such Person where the context so admits. 1.67 "Primary Intended Use" shall have the meaning given such term in Section 4.1.1. 1.68 "Qualified Appraiser" shall mean any disinterested person who is a member in good standing of the American Institute of Real Estate Appraisers or the American Society of Real Estate Counselors (or the successor to either of such organizations) and who has had not less than ten (10) years experience in appraising and valuing, commercial buildings in the State. 1.69 "Records" shall have the meaning given such term in Section 7.2. 1.70 "Rent" shall mean, collectively, the Minimum Rent, Percentage Rent and Additional Rent. 1.71 "Responding Party" shall have the meaning given such term in Section 20.1. 1.72 "SEC" shall mean the Securities and Exchange Commission. 1.73 "State" shall mean the State, Commonwealth, Possession or Territory in which the Leased Property is located. -10- 1.74 "Subsidiary" shall mean, with respect to any Person, any Entity in which such Person shall own, directly or indirectly, through one or more Subsidiaries, twenty percent (20%) or more of the voting or beneficial interests or any other entity Controlled by such Person. 1.75 "Substitute Properties" shall have the meaning given such term in Section 16.1. 1.76 "Substitution Date" shall have the meaning given such term in Section 16.1. 1.77 "Successor Landlord" shall have the meaning given such term in Section 21.2. 1.78 "Superior Lease" shall have the meaning given such term in Section 21.2. 1.79 "Superior Landlord" shall have the meaning given such term in Section 21.2. 1.80 "Superior Mortgage" shall have the meaning given such term in Section 21.2. 1.81 "Superior Mortgagee" shall have the meaning given such term in Section 21.2. 1.82 "Tenant" shall have the meaning given such term in the preambles to this Lease. 1.83 "Tenant's Personal Property" shall mean all motor vehicles and consumable inventory and supplies, furniture, equipment and machinery and all other personal property of Tenant located on the Leased Property or used in Tenant's business on the Leased Property and all modifications, replacements, alterations and additions to the Leased Personal Property installed at the expense of Tenant, other than any items included within the definition of Fixtures or Leased Personal Property and expressly excluding Tenant's accounts receivable. 1.84 "Term" shall mean, collectively, the Fixed Term and any Extended Terms, to the extent properly exercised pursuant to the provisions of Section 2.4, unless sooner terminated pursuant to the provisions of this Lease. 1.85 "Test Rate" shall mean the minimum interest rate necessary to avoid imputation of original issue discount income under Sections 483 or 1272 of the Code or any similar provision. 1.86 "Trustees" shall mean the trustees of Landlord. 1.87 "Unavoidable Delays" shall mean delays due to strikes, lock- outs, inability to procure materials, power failure, acts of God, governmental restrictions, enemy action, civil commotion, fire, unavoidable casualty or other causes beyond the reasonable control of the party responsible for performing an obligation hereunder, but in no event to exceed sixty (60) days so long as the affected party shall use -11- reasonable efforts to alleviate the cause of such delay and thereafter promptly perform such obligation; provided, however, that (x) in no event shall Tenant's obligation to pay the Rent be affected by Unavoidable Delays, and (y) in no event shall lack of funds be deemed a cause beyond the control of either party. 1.88 "Unsuitable for Its Primary Intended Use" shall mean a state or condition of the Facility such that by reason of damage or destruction, or a partial Condemnation, in the good faith judgment of Landlord and Tenant, reasonably exercised, the Facility cannot be operated on a commercially practicable basis for its Primary Intended Use taking into account, among other relevant factors, the number of usable beds, the amount of square footage, or revenues affected by such damage or destruction or partial taking. ARTICLE 2 PREMISES AND TERM 2.1 Premises. Upon and subject to the terms and conditions herein set forth, Landlord leases to Tenant and Tenant leases from Landlord all of the following (collectively, the "Leased Property"): (a) those certain tracts, pieces and parcels of land as more particularly described in Exhibit C, attached hereto and made a part hereof (collectively, the "Land"); (b) all buildings, structures, Fixtures and other improvements of every kind, including, but not limited to, alleyways and connecting tunnels, sidewalks, utility pipes, conduits and lines (on-site and off-site), parking areas and roadways appurtenant to such buildings and structures presently situated upon the Land and Capital Additions financed by Landlord (collectively, the "Leased Improvements"); (c) all easements, rights and appurtenances relating to the Land and the Leased Improvements; (d) all equipment, machinery, fixtures and other items of property, now or hereafter permanently affixed to or incorporated into the Leased Improvements, including, without limitation, all furnaces, boilers, heaters, electrical equipment, heating, plumbing, lighting, ventilating, refrigerating, incineration, air and water pollution control, waste disposal, air-cooling and air- conditioning systems and apparatus, sprinkler systems and fire and theft protection equipment, all of which, to the greatest extent permitted by law, are hereby deemed by the parties hereto to constitute real estate, together with all replacements, modifications, alterations and additions thereto, but specifically excluding all items included within the category of Tenant's Personal Property (collectively, the "Fixtures"); (e) all machinery, equipment, furniture, furnishings, moveable walls or partitions, computers or trade fixtures or other -12- personal property used or useful in Tenant's business on or in the Leased Improvements, and located on or in the Leased Improvements on the Commencement Date, except items, if any, included within the category of Fixtures, but specifically excluding all items included within the category of Tenant's Personal Property (collectively the "Leased Personal Property"); and (f) all existing leases of space (including any security deposits held pursuant thereto), if any, in the Leased Improvements to tenants thereof. 2.2 Condition of Premises. On the Commencement Date, Landlord shall deliver and Tenant shall accept the Leased Property in "as is" condition, subject to the rights of parties in possession, the existing state of title, including all covenants, conditions, restrictions, easements and other matters of record, all applicable Legal Requirements, the lien of financing instruments, mortgages and deeds of trust, and such other matters which would have been disclosed by an inspection of the Leased Property and the record title thereto or by an accurate survey thereof. LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY PART THEREOF, EITHER AS THE FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, WITH RESPECT TO THE LEASED PROPERTY OR ANY PORTION THEREOF IT BEING AGREED THAT ALL SUCH RISKS SHALL BE BORNE BY TENANT. To the extent permitted by law, however, Landlord grants and assigns to Tenant all of Landlord's rights to proceed against any predecessor in title for breaches of warranties or representations or for latent defects in the Leased Property. Landlord shall cooperate with Tenant in the prosecution of any such claims, in Landlord's or Tenant's name, all at Tenant's sole cost and expense. Tenant shall indemnify, and hold harmless Landlord from and against any loss, cost, damage or liability (including attorneys' fees) incurred by Landlord in connection with such cooperation. 2.3 Fixed Term. The initial term of this Lease (the "Fixed Term") shall commence on the date hereof and, unless sooner terminated in accordance with the terms and conditions of this Lease, shall expire on December 31, 1998. 2.4 Extended Terms. Provided no Default or Event of Default shall have occurred and be continuing and Tenant shall simultaneously exercise its right to extend the term of all of the Other Leases, Tenant shall have the right to extend the Fixed Term for two additional periods of ten (10) years each (the "Extended Terms"). Each Extended Term shall commence on the day succeeding the expiration of the Fixed Term or the preceding Extended Term, as the case may be, and shall end on the day immediately preceding the tenth anniversary of the commencement of such Extended Term. All of the terms, covenants and provisions of this Lease shall apply to each such Extended Term, except that (a) the Minimum Rent for the second such Extended Term shall be the greater of (x) the Minimum Rent payable during the first such Extended Term and (y) the Fair Market Rental for the Leased Property determined as of the commencement of such Extended -13- Term, and (b) Tenant shall have no further right to extend the Term beyond the Extended Terms hereinabove provided. If Tenant shall elect to exercise either of the aforesaid options, it shall do so by giving Landlord written notice thereof not later than one (1) year prior to the expiration of the then current term of this Lease (Fixed or Extended, as applicable); it being understood and agreed that time is of the essence with respect to the giving of such notice. If Tenant shall fail to give any such notice, this Lease shall automatically terminate at the end of the term then in effect and Tenant shall have no further option to extend the term of this Lease. If Tenant shall give such notice, the extension of this Lease shall be automatically effected, without the execution of any additional documents. -14- ARTICLE 3 RENT 3.1 Rent. Tenant shall pay to Landlord, by check or wire transfer of immediately available federal funds, as Tenant may elect, without offset, abatement, demand or deduction, Minimum Rent, Percentage Rent and Additional Rent, during the Term, as herein provided. 3.1.1 Minimum Rent. Tenant shall pay Minimum Rent in equal monthly installments, in advance, on the first day of each and every calendar month during the Term. Minimum Rent for any partial month shall be pro-rated on a daily basis. 3.1.2 Percentage Rent. (a) Amount. Commencing June 1, 2000, for each Fiscal Year during the Term, Tenant shall pay to Landlord, as additional rent, percentage rent ("Percentage Rent") in an amount equal to three percent (3%) of Excess Net Patient Revenues for such Fiscal Year. Percentage Rent shall be calculated and paid quarterly in arrears on the basis of cumulative Excess Net Patient Revenues as the last day of each quarter occurring during the applicable Fiscal Year, less the Percentage Rent, if any, previously paid to Landlord for such Fiscal Year. (b) Payment of Percentage Rent. Tenant shall calculate and deliver Percentage Rent to Landlord within forty-five (45) days after the end of each quarter of any Fiscal Year (or, in the case of the final quarter in any Fiscal Year, ninety (90) days thereafter), together with an Officer's Certificate, setting forth the calculation of Percentage Rent for such quarter. (c) Reconciliation of Additional Rent. Within ninety (90) days after the end of each Fiscal Year, Tenant shall deliver to Landlord an Officer's Certificate, together with certified audits with respect to Net Patient Revenues for the Facility and the facilities leased under the Other Leases, in form and substance reasonably satisfactory to Landlord, of Tenant's financial operations prepared by accountants reasonably satisfactory to Landlord, setting forth the Net Patient Revenues and Excess Net Patient Revenues for the immediately preceding Fiscal Year, together with such additional information with respect thereto as Landlord may reasonably request. If the Percentage Rent for any Fiscal Year as shown in the applicable Officer's Certificate and accompanying financial statements is less than the amount previously paid with respect thereto, Landlord shall, at Landlord's option, refund any excess payment to Tenant or grant Tenant a credit against the next due payment of Percentage Rent in the amount of such difference. If the Percentage Rent for any Fiscal Year as shown in the applicable Officer's Certificate exceeds the amount previously paid with respect thereto, Tenant shall pay such excess to Landlord at such time as such Officer's Certificate is delivered. -15- Any difference between the Percentage Rent for any Fiscal Year as shown in such Officer's Certificate and the total amount of quarterly payments for such Fiscal Year previously paid, whether in favor of Landlord or Tenant, shall bear interest at the Base Rate, which interest shall accrue from the close of such Fiscal Year until the amount of such difference shall be paid or otherwise discharged. A final reconciliation of Percentage Rent, taking into account among other relevant adjustments, any contractual allowances which are accrued after the expiration or sooner termination of this Lease, but which related to Net Patient Revenues accrued prior to such termination, and Tenant's good faith best estimate of the amount of any unresolved contractual allowances shall be made not later than two (2) years after such termination and Tenant shall advise Landlord within sixty (60) days after such termination of Tenant's best estimate at that time of the approximate amount of such adjustments, which estimate shall not be binding on Tenant. (d) Confirmation of Percentage Rent. Tenant shall utilize, or cause to be utilized, an accounting system for the conduct of its business at the Leased Property in accordance with its usual and customary practices and in accordance with generally accepted accounting principles, consistently applied, which will accurately record all Net Patient Revenues, and shall employ independent accountants reasonably acceptable to Landlord, and Tenant shall retain, for at least four (4) years after the expiration of each Fiscal Year (and in any event until the final reconciliation described in subparagraph (c) above for such Fiscal Year has been made), reasonably adequate records conforming to such accounting system showing all Net Patient Revenues for such Fiscal Year. Landlord, at its own expense, except as provided below, shall have the right, from time to time by its accountants or representatives, to audit the information set forth in the Officer's Certificate referred to in subparagraph (b) above and, in connection with such audit, to examine Tenant's records with respect thereto (including supporting data and sales and excise tax returns), subject to any prohibitions or limitations on disclosure of any such data under applicable law or regulations, including, without limitation, any duly enacted "Patients' Bill of Rights" or similar legislation and such other limitations as may be necessary to preserve the confidentiality of the Facility-patient relationship and the physician-patient privilege. If any such audit shall disclose a deficiency in the payment of Percentage Rent and either Tenant agrees with the result of such audit or the matter is otherwise determined or compromised, Tenant shall forthwith pay to Landlord the amount of the deficiency, as finally agreed or determined, together with interest thereon at the Base Rate. If any such audit discloses that the Net Patient Revenues actually received by Tenant for any Fiscal Year exceed those reported by Tenant by more than three percent (3%), Tenant shall pay the reasonable cost of such audit. Any proprietary information obtained by Landlord pursuant to the provisions of this section shall be treated as confidential, except such information may be used, subject to appropriate confidentiality safeguards, in any litigation between the parties -16- and Landlord may disclose such information to prospective purchasers or lenders. 3.1.3 Additional Rent. In addition to the Minimum Rent and Percentage Rent, Tenant shall pay and discharge as and when due and payable all other amounts, liabilities, obligations and Impositions which Tenant assumes or agrees to pay under this Lease (collectively, "Additional Rent"), including, but not limited to the following: (a) Impositions. Subject to Article 8, Tenant shall pay, or cause to be paid, all Impositions before any fine, penalty, interest or cost may be added for non-payment, such payments to be made directly to the taxing authorities where feasible, and shall promptly, upon request, furnish to Landlord copies of official receipts or other satisfactory proof evidencing such payments. If any such Imposition may, at the option of the taxpayer, lawfully be paid in installments (whether or not interest shall accrue on the unpaid balance of such Imposition), Tenant may exercise the option to pay the same (and any accrued interest on the unpaid balance of such Imposition) in installments and, in such event, shall pay such installments during the Term as the same become due and before any fine, penalty, premium, further interest or cost may be added thereto. Landlord, at its expense, shall, to the extent required or permitted by applicable law, prepare and file all tax returns in respect of Landlord's net income, gross receipts, sales and use, single business, transaction privilege, rent, ad valorem, franchise taxes and taxes on its capital stock, and Tenant, at its expense, shall, to the extent required or permitted by applicable laws and regulations, prepare and file all other tax returns and reports in respect of any Imposition as may be required by governmental authorities. If any refund shall be due from any taxing authority in respect of any Imposition paid by Tenant, the same shall be paid over to or retained by Tenant if no Default or Event of Default shall have occurred and be continuing. Landlord and Tenant shall, upon request of the other, provide such data as is maintained by the party to whom the request is made with respect to the Leased Property as may be necessary to prepare any required returns and reports. In the event governmental authorities classify any property covered by this Lease as personal property, Tenant shall file all personal property tax returns in such jurisdictions where it may legally so file. Each party shall, to the extent it possesses the same, provide the other, upon request, with cost and depreciation records necessary for filing returns for any property so classified as personal property. Where Landlord is legally required to file personal property tax returns, Landlord shall provide Tenant with copies of assessment notices in sufficient time for Tenant to file a protest. All Impositions assessed against such personal property shall be (irrespective of whether Landlord or Tenant shall file the relevant return) paid by Tenant not later than thirty (30) days prior to the last date on which the same may be made without interest or penalty. If the provisions of any Facility Mortgage requires deposits on account of Impositions to be made with such Facility Mortgagee, provided the Facility Mortgagee has not elected to waive such provision, Tenant shall either pay Landlord the monthly amounts required and Landlord shall transfer -17- such amounts to such Facility Mortgagee or, pursuant to written direction by Landlord, Tenant shall make such deposits directly with such Facility Mortgagee. Landlord shall give prompt written notice to Tenant of all Impositions payable by Tenant hereunder of which Landlord at any time has knowledge; provided, however, Landlord's failure to give any such notice shall in no way diminish Tenant's obligation hereunder to pay such Impositions. Impositions imposed in respect of the tax-fiscal period during which the Term commences and/or terminates shall be prorated between Landlord and Tenant, whether or not such Imposition is imposed before or after such termination. (b) Utility Charges. Tenant shall pay or cause to be paid all charges for electricity, power, gas, oil, water and other utilities used at the Leased Property during the Term. (c) Insurance Premiums. Tenant shall pay or cause to be paid all premiums for the insurance coverage required to be maintained pursuant to Article 9. (d) Other Charges. Tenant shall pay or cause to be paid all other amounts, liabilities and obligations which Tenant assumes or agrees to pay under this Lease. 3.2 Late Payment of Rent. If any installment of Minimum Rent, Percentage Rent or Additional Rent (but only as to those items of Additional Rent which are payable directly to Landlord) shall not be paid when due, Tenant shall pay Landlord, on demand, as Additional Rent, a late charge (to the extent permitted by law) computed, during the first ten (10) days such payment is delinquent at the greater of the Base Rate and eleven and one-half percent (11.5%) per annum and, thereafter, at the Overdue Rate, on the amount of such installment, from the date such installment was due until the date paid. To the extent that Tenant pays any Additional Rent directly to Landlord pursuant to any requirement of this Lease, Tenant shall be relieved of its obligation to pay such Additional Rent to the entity to which they would otherwise be due. In the event of any failure by Tenant to pay any Additional Rent when due, Tenant shall promptly pay and discharge, as Additional Rent, every fine, penalty, interest and cost which may be added for non- payment or late payment of such items. Landlord shall have all legal, equitable and contractual rights, powers and remedies provided either in this Lease or by statute or otherwise in the case of non-payment of the Additional Rent as in the case of non-payment of the Minimum Rent. 3.3 Net Lease. The Rent shall be absolutely net to Landlord, so that this Lease shall yield to Landlord the full amount of the installments of Minimum Rent, Percentage Rent and Additional Rent throughout the Term, subject to any other provisions of this Lease which expressly provide for adjustment or abatement of Rent or other charges. -18- 3.4 No Termination, Abatement, Etc. Except as otherwise specifically provided in this Lease, Tenant, to the maximum extent permitted by law, shall remain bound by this Lease in accordance with its terms and shall neither take any action without the consent of Landlord to modify, surrender or terminate the same, nor seek, nor be entitled to any abatement, deduction, deferment or reduction of the Rent, or set-off against the Rent, nor shall the respective obligations of Landlord and Tenant be otherwise affected by reason of (a) any damage to, or destruction of, the Leased Property or any portion thereof from whatever cause or any Condemnation; (b) the lawful or unlawful prohibition of, or restriction upon Tenant's use of the Leased Property, or any portion thereof, or the interference with such use by any Person or by reason of eviction by paramount title; (c) any claim which Tenant may have against Landlord by reason of any Landlord Default; (d) any bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding up or other proceedings affecting Landlord or any assignee or transferee of Landlord; or (e) for any other cause whether similar or dissimilar to any of the foregoing. Tenant hereby waives all rights arising from any occurrence whatsoever, which may now or hereafter be conferred upon it by law to modify, surrender or terminate this Lease or quit or surrender the Leased Property or any portion thereof or which may entitle Tenant to any abatement, reduction, suspension or deferment of the Rent or other sums payable or other obligations to be performed by Tenant hereunder, except as otherwise specifically provided in this Lease. The obligations of Landlord and Tenant hereunder shall be separate and independent covenants and agreements and the Rent and all other sums payable by Tenant hereunder shall continue to be payable in all events unless the obligations to pay the same shall be terminated pursuant to the express provisions of this Lease. ARTICLE 4 USE OF THE LEASED PROPERTY 4.1 Permitted Use. 4.1.1 Primary Intended Use. Tenant shall continuously use or cause to be used the Leased Property as a nursing home or subacute facility and/or other facility offering any higher level health care services and for such other uses as may be necessary or incidental thereto (the particular use to which the Leased Property is put at any particular time, its "Primary Intended Use"). Tenant shall not use the Leased Property or any portion thereof for other than its Primary Intended Use without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed; provided, however, that such consent shall not be deemed to be unreasonably withheld if, in the reasonable opinion of Landlord, the proposed use will significantly alter the character or purpose or detract from the value or operating efficiency of the Leased Property or significantly impair the revenue-producing capability of the Leased Property or adversely affect the ability of Tenant to comply with this Lease. No use shall be made or permitted to be made of the Leased Property and no acts shall be done thereon which will cause the cancellation of any -19- insurance policy covering the Leased Property or any part thereof, nor shall Tenant sell or otherwise provide to residents or patients therein, or permit to be kept, used or sold in or about the Leased Property, or any portion thereof, any article which may be prohibited by law or by the standard form of fire insurance policies, or any other insurance policies required to be carried hereunder, or fire underwriter's regulations. 4.1.2 Necessary Approvals. Tenant shall proceed with all due diligence and exercise best efforts to obtain and maintain all approvals necessary to use and operate the Leased Property and the Facility for the Primary Intended Use under applicable local, state and federal law and, without limiting the generality of the foregoing, shall use its best efforts to maintain appropriate certifications for reimbursement licensure. 4.1.3 Continuous Operation, Etc. Tenant shall use its best efforts to operate continuously the Leased Property as a provider of health care services in accordance with the Primary Intended Use. Tenant shall not take, or omit to take, any action, the taking or omission of which may materially impair the value or the usefulness of the Leased Property for the Primary Intended Use. 4.1.4 Lawful Use, Etc. Tenant shall not use or suffer or permit the use of the Leased Property and Tenant's Personal Property for any unlawful purpose. Tenant shall not commit or suffer to be committed any waste on the Leased Property or the Facility, nor shall Tenant cause or permit any nuisance thereon or therein. Tenant shall neither suffer nor permit the Leased Property or any portion thereof, including any Capital Addition, whether or not financed by Landlord, or Tenant's Personal Property, to be used in such a manner as might reasonably tend to impair Landlord's (or Tenant's, as the case may be) title thereto or to any portion thereof, or may reasonably make possible any claim for adverse usage or adverse possession by the public, as such, or of implied dedication of the Leased Property or any portion thereof. 4.2 Compliance with Legal and Insurance Requirements, Instruments, Etc. Subject to the provisions of Article 8, Tenant, at its sole expense, shall promptly (i) comply with all Legal Requirements and Insurance Requirements in respect of the use, operation, maintenance, repair, alteration and restoration of the Leased Property and Tenant's Personal Property, and (ii) procure, maintain and comply with all appropriate licenses, certificates of need, permits, provider agreements and other authorizations required for any use of the Leased Property and Tenant's Personal Property then being made, and for the proper erection, installation, operation and maintenance of the Leased Property or any part thereof, including, without limitation, any Capital Additions. 4.3 Compliance with Medicaid and Medicare Requirements. Tenant shall, at its sole cost and expense, make whatever improvements (capital or ordinary) as are required to conform the Leased Property to such standards as may, from time to time, be required by Federal Medicare (Title 18) or Medicaid (Title 19) skilled and/or intermediate care nursing programs, if applicable, or any other applicable programs or legislation, or capital improvements required by any other governmental -20- agency having jurisdiction over the Leased Property as a condition of the continued operation of the Leased Property for the Primary Intended Use. 4.4 Environmental Matters. Tenant shall not store, spill upon, dispose of or transfer to or from the Leased Property any Hazardous Substance, except that Tenant may store, transfer and dispose of Hazardous Substances in compliance with all Environmental Laws. Tenant shall maintain the Leased Property at all times free of any Hazardous Substance (except such Hazardous Substances as are maintained in compliance with all Environmental Laws). Tenant shall promptly: (a) notify Landlord in writing of any change in the nature or extent of such Hazardous Substances maintained, (b) transmit to Landlord a copy of any report which is required to be filed with respect to the Leased Property pursuant to any Environmental Law, (c) transmit to Landlord copies of any citations, orders, notices or other governmental communications received by Tenant or its agents or representatives with respect thereto (collectively, "Environmental Notice"), (d) observe and comply with any and all Environmental Laws relating to the use, maintenance and disposal of Hazardous Substances and all orders or directives from any official, court or agency of competent jurisdiction relating to the use or maintenance or requiring the removal, treatment, containment or other disposition thereof, and (e) pay or otherwise dispose of any fine, charge or Imposition related thereto, unless Tenant shall contest the same in accordance with Article 8. If at any time prior to the termination of this Lease, Hazardous Substances are discovered on the Leased Property, Tenant hereby agrees to take all actions, and to incur any and all expenses, as may be reasonably necessary and as may be required by any municipal, State or Federal agency or other governmental entity or agency having jurisdiction thereof, (a) to clean up and remove from and about the Leased Property all Hazardous Substances thereon, (b) to contain and prevent any further release or threat of release of Hazardous Substances on or about the Leased Property and (c) to eliminate any further release or threat of release of Hazardous Substances on or about the Leased Property. Tenant shall indemnify and hold harmless Landlord and each Facility Mortgagee from and against all liabilities, obligations, claims, damages, penalties, costs and expenses (including, without limitation, reasonable attorney's fees and expenses) imposed upon, incurred by or asserted against any of them by reason of any failure by Tenant or any Person claiming under Tenant to perform or comply with any of the terms of this Section 4.4. -21- ARTICLE 5 MAINTENANCE AND REPAIRS, ETC. 5.1 Maintenance and Repair. 5.1.1 Tenant's Obligations. Tenant shall, at its sole cost and expense, keep the Leased Property and all private roadways, sidewalks and curbs appurtenant thereto (and Tenant's Personal Property) in good order and repair, reasonable wear and tear excepted, (whether or not the need for such repairs occurs as a result of Tenant's use, any prior use, the elements or the age of the Leased Property or Tenant's Personal Property, or any portion thereof), and shall promptly make all necessary and appropriate repairs and replacements thereto of every kind and nature, whether interior or exterior, structural or nonstructural, ordinary or extraordinary, foreseen or unforeseen or arising by reason of a condition existing prior to the commencement of the Term (concealed or otherwise). All repairs shall be at least equivalent in quality to the original work. 5.1.2 Landlord's Obligations. Landlord shall not, under any circumstances, be required to build or rebuild any improvement on the Leased Property, or to make any repairs, replacements, alterations, restorations or renewals of any nature or description to the Leased Property, whether ordinary or extraordinary, structural or non-structural, foreseen or unforeseen, or to make any expenditure whatsoever with respect thereto, in connection with this Lease, or to maintain the Leased Property in any way, except as specifically provided herein. Tenant hereby waives, to the extent permitted by law, the right to make repairs at the expense of Landlord pursuant to any law in effect at the time of the execution of this Lease or hereafter enacted. Landlord shall have the right to give, record and post, as appropriate, notices of nonresponsibility under any mechanic's lien laws now or hereafter existing. 5.2 Capital Expenditure Cost Sharing. Replacement of or major repairs to all structural or mechanical systems shall be undertaken by Tenant, at its sole cost and expense in the exercise of its reasonable business judgment, pursuant to and in accordance with plans and specifications approved in advance by Landlord; provided, however, that if the useful life of any improvement or repair for which a Capital Expenditure is made extends beyond the termination of the Term (other than any early termination resulting from the occurrence of an Event of Default), provided Tenant shall have obtained Landlord's prior written consent with respect to the making thereof, the cost of such replacement or repair shall be apportioned between Landlord and Tenant so that Landlord shall pay for that portion of the useful life of such item occurring on or after such termination date. Landlord shall have no obligation to reimburse Tenant for Landlord's share of the cost of such replacement or repair until the date of the termination of this Lease. Notwithstanding the foregoing, Landlord agrees to make any such payment to Tenant within sixty (60) days after Tenant's written request therefor. -22- 5.3 Tenant's Personal Property. Tenant may (and shall as provided hereinbelow), at its expense, install, affix or assemble or place on any parcels of the Land or in any of the Leased Improvements, any items of Tenant's Personal Property, and Tenant may, subject to the conditions set forth below, remove the same upon the expiration or sooner termination of the Term. Tenant shall provide and maintain during the entire Term all such Tenant's Personal Property as shall be necessary in order to operate the Facility in compliance with all licensure and certification requirements, applicable Legal Requirements and Insurance Requirements and otherwise in accordance with customary practice in the industry for the Primary Intended Use. All of Tenant's Personal Property not removed by Tenant on or prior to the expiration or earlier termination of this Lease shall be considered abandoned by Tenant and may be appropriated, sold, destroyed or otherwise disposed of by Landlord without the necessity of first giving notice thereof to Tenant, without any payment to Tenant and without any obligation to account therefor. Tenant shall, at its expense, restore the Leased Property to the condition required by Section 5.4, including repair of all damage to the Leased Property caused by the removal of Tenant's Personal Property, whether effected by Tenant or Landlord. If Tenant uses any item of tangible personal property (other than motor vehicles) on, or in connection with, the Leased Property which belongs to anyone other than Tenant, Tenant shall use its best efforts to require the agreement permitting such use to provide that Landlord or its designee may assume Tenant's rights under such agreement upon management of the Facility by Landlord or its designee. 5.4 Yield Up. Upon the expiration or sooner termination of this Lease, Tenant shall vacate and surrender the Leased Property to Landlord in the condition in which the Leased Property was on the Commencement Date, except as repaired, rebuilt, restored, altered or added to as permitted or required by the provisions of this Lease, ordinary wear and tear excepted. In addition, upon the expiration or earlier termination of this Lease, Tenant shall, at Landlord's reasonable cost and expense, use its best efforts to transfer to and cooperate with Landlord or Landlord's nominee in connection with the processing of all applications for licenses, operating permits and other governmental authorizations and all contracts, including, contracts with governmental or quasi- governmental entities, which may be necessary for the operation of the Facility. If requested by Landlord, Tenant shall continue to manage the Facility after the termination of this Lease and for so long thereafter as is necessary to obtain all necessary licenses, operating permits and other governmental authorizations, on such reasonable terms (which shall include an agreement to reimburse Tenant for its reasonable out-of- pocket costs and expenses and reasonable administrative costs) as Landlord shall request. 5.5 Encroachments, Restrictions, Etc. If any of the Leased Improvements shall, at any time, encroach upon any property, street or right-of-way adjacent to the Leased Property, or shall violate the agreements or conditions contained in any lawful restrictive covenant or other agreement affecting the Leased Property, or any part thereof, or -23- shall impair the rights of others under any easement or right-of-way to which the Leased Property is subject, upon the request of Landlord or of any person affected by any such encroachment, violation or impairment, Tenant shall, at its sole cost and expense, subject to its right to contest the existence of any encroachment, violation or impairment and in such case, in the event of an adverse final determination, either (a) obtain, in form and substance satisfactory to Landlord, valid and effective waivers or settlements of all claims, liabilities and damages resulting from each such encroachment, violation or impairment, whether the same shall affect Landlord or Tenant, or (b), subject to Landlord's approval (which shall not be unreasonably withheld or delayed), make such changes in the Leased Improvements and take such other actions, as Tenant, in the good faith exercise of its judgment, deems reasonably practicable, to remove such encroachment, and to end such violation or impairment, including, if necessary, the alteration of any of the Leased Improvements and, in any event, take all such actions as may be necessary in order to ensure the continued operation of the Leased Improvements for the Primary Intended Use substantially in the manner and to the extent the Leased Improvements were operated prior to the assertion of such violation, impairment or encroachment. Any such alteration shall be made in conformity with the applicable requirements of this Article 5. Tenant's obligations under this Section 5.5 shall be in addition to and shall in no way discharge or diminish any obligation of any insurer under any policy of title or other insurance and Tenant shall be entitled to a credit for any sums recovered by Landlord under any such policy of title or other insurance. ARTICLE 6 CAPITAL ADDITIONS, ETC. 6.1 Construction of Capital Additions to the Leased Property. Provided no Default or Event of Default shall have occurred and be continuing, Tenant shall have the right, subject to obtaining Landlord's prior written consent (which consent shall not be unreasonably withheld or delayed), upon and subject to the terms and conditions set forth below, to construct or install Capital Additions on the Leased Property. Landlord's consent shall not be deemed to be unreasonably withheld if such Capital Addition will significantly alter the character or purpose or detract from the value or operating efficiency or the revenue-producing capability of the Leased Property, or adversely affect the ability of Tenant to comply with this Lease. Any withholding of consent shall be express and shall be effected within thirty (30) days after receipt by Landlord of such documents or information as Landlord may reasonably require, notice of which requirements shall be sent to Tenant within thirty (30) days after Tenant's request. Failure to give notice of the withholding of such consent within such thirty (30) day period shall be deemed approval. Prior to commencing construction of any Capital Addition, Tenant shall submit to Landlord, in writing, a proposal setting forth, in reasonable detail, any proposed Capital Addition and shall provide Landlord with such plans and specifications, permits, licenses, contracts and other information concerning the proposed Capital Addition as Landlord may reasonably request. Without limiting the generality of the foregoing, such proposal shall indicate -24- the approximate projected cost of constructing such Capital Addition, the use or uses to which it will be put and a good faith estimate of the change, if any, in the Net Patient Revenues that Tenant anticipates will result from such Capital Addition. Prior to commencing construction of any Capital Addition, Tenant shall request in writing that Landlord provide funds to pay for such Capital Addition. If, within sixty (60) days after receipt of such request, Landlord shall not elect to provide such financing on terms reasonably acceptable to Tenant (and, for purposes of this Section 6.1, the failure of Landlord to respond within such 60 day period shall be deemed an election not to provide such funding), the provisions of Section 6.2 shall apply. Landlord's notice of its election to provide such financing shall set forth the terms and conditions of such proposed financing, including the terms of any amendment to this Lease (including, without limitation, an increase in Minimum Rent to compensate Landlord for the additional funds advanced). In no event shall the portion of the projected Capital Additions Cost comprised of land, if any, materials, labor charges and fixtures be less than eighty percent (80%) of the total amount of such cost. Tenant may withdraw its request by written notice to Landlord at any time before Tenant's written acceptance of Landlord's terms and conditions. If Landlord declines to finance a Capital Addition or if Landlord's proposed financing terms are unacceptable to Tenant, Tenant may solicit and negotiate a commitment for such financing from another Person, provided Landlord shall approve all the terms and conditions of such financing (which approval shall not be unreasonably withheld or delayed). If Landlord shall finance the proposed Capital Addition, Tenant shall pay to Landlord, as Additional Rent, all reasonable costs and expenses paid or incurred by Landlord and any Lending Institution which has committed to provide financing for such Capital Addition to Landlord in connection therewith, including, but not limited to, (a) the reasonable attorneys' fees and expenses, (b) all printing expenses, (c) all filing, registration and recording taxes and fees, (d) documentary stamp taxes, (e) title insurance charges, appraisal fees, and rating agency fees, and (f) commitment fees. No Capital Addition shall be made which would tie in or connect any Leased Improvement or any Leased Property with any other improvements on property adjacent to such Leased Property (and not part of the Land) including, without limitation, tie-ins of buildings or other structures or utilities, unless Tenant shall have obtained the prior written approval of Landlord, which approval may be withheld by Landlord in Landlord's sole discretion. Any Capital Additions shall, upon the expiration or sooner termination of this Lease, become the property of Landlord, free and clear of all encumbrances, subject to the provisions of Section 6.2. 6.2 Capital Additions Financed by Tenant. Provided that Tenant has obtained the prior written consent of Landlord in each instance (which approval shall not be unreasonably withheld or delayed), Tenant may arrange for financing for Capital Additions from third party lend- ers; provided, however that (i) the terms and conditions of any such financing shall be subject to the prior approval of Landlord and (ii) any security interests in any property of Tenant, including, without limitation, the Leased Property, shall be expressly and fully subordinated to this Lease and to the interest of Landlord in the Leased -25- Property and to the rights of any Facility Mortgagee. If, pursuant to the provisions of this Lease, Tenant provides or arranges financing with respect to any Capital Addition, this Lease shall be and hereby is amended to provide as follows: (a) Upon completion of any such Capital Addition, Net Patient Revenues attributable to such Capital Addition shall be excluded from Net Patient Revenues of the Leased Property for purposes of calculating Percentage Rent. The Net Patient Revenues attributable to any such Capital Addition shall be deemed to be an amount (the "Added Value Percentage") which bears the same proportion to the total Net Patient Revenues from the entire Leased Property (including all Capital Additions) as the Fair Market Added Value of such Capital Addition bears to the Fair Market Value of the entire Leased Property (including all Capital Additions) immediately after completion of such Capital Addition. The Added Value Percentage for Capital Additions financed by Tenant shall remain in effect until any subsequent Capital Addition financed by Tenant is completed. (b) There shall be no adjustment in the Minimum Rent by reason of any such Capital Addition. (c) Upon the expiration or earlier termination of this Lease (but if this Lease is terminated by reason of an Event of Default, only after Landlord is fully compensated for all damages resulting therefrom), Landlord shall compensate Tenant for all Capital Additions financed by Tenant in any of the following ways determined in Landlord's sole discretion: (i) By purchasing such Capital Additions from Tenant for cash in the amount of the then Fair Market Added Value of such Capital Additions; (ii) By purchasing such Capital Additions from Tenant by delivering to Tenant Landlord's purchase money promissory note in the amount of the Fair Market Added Value, which note shall be due and payable as to both principal and interest on the second anniversary of the making thereof, shall be on then commercially reasonable terms and shall be secured by a mortgage on the Leased Property and such Capital Additions subject to all existing mortgages and encumbrances on the Leased Property and such Capital Additions at the time of such purchase; (iii) By assigning to Tenant the right to receive an amount equal to the Added Value Percentage (determined as of the date of the expiration or earlier termination of this Lease) of all rent and other consideration receivable by Landlord under any re-letting or other disposition of the Leased Property and such Capital Additions, after deducting from such rent all costs and expenses incurred by Landlord in connection with such re-letting or other disposition of the Leased Property and such Capital Additions and all costs and expenses of operating and maintaining the Leased Property and such Capital -26- Additions during the term of any such new lease which are not borne by the tenant thereunder, with the provisions of this Section 6.2(c) to remain in effect until the sale or other final disposition of the Leased Property and such Capital Additions, at which time the Fair Market Added Value of such Capital Addition shall be immediately due and payable, such obligation to be secured by a mortgage on the Leased Property and such Capital Additions, subject to all existing mortgages and encumbrances on the Leased Property at the time of such purchase and assignment; or (iv) By making such other arrangement regarding such compensation as shall be mutually acceptable to Landlord and Tenant. 6.3 Information Regarding Capital Additions. Regardless of the source of financing of any proposed Capital Addition, Tenant shall provide Landlord with such information as Landlord may from time to time reasonably request with respect to such Capital Addition, including, without limitation, the following: (a) Evidence that such Capital Addition will be, and upon completion has been, completed in compliance with the applicable requirements of State and federal law with respect to capital expenditures for nursing facilities; (b) Upon completion of such Capital Addition, a copy of the certificate of occupancy for the Facility updated, if required; (c) Such information, certificates, licenses, permits or other documents necessary to confirm that Tenant will be able to use the Capital Addition upon completion thereof in accordance with the Primary Intended Use, including all required federal, State or local government licenses and approvals; (d) An Officer's Certificate and a certificate from Tenant's architect setting forth, in reasonable detail, the projected (or actual, if available) Capital Additions Cost and invoices and lien waivers from Tenant's contractors for such work; (e) A deed conveying to Landlord title to any land acquired for the purpose of constructing the Capital Addition free and clear of any liens or encumbrances, except those approved by Landlord and, upon completion of the Capital Addition, a final as-built survey thereof reasonably satisfactory to Landlord; (f) Endorsements to any outstanding policy of title insurance covering the Leased Property or commitments therefor, satisfactory in form and substance to Landlord, (i) updating the same without any additional exceptions except as approved by Landlord, and (ii) increasing the coverage thereof by an amount equal to the Fair Market Value of the Capital Addition (except to the extent covered by the owner's policy of title insurance referred to in subparagraph (g) below); -27- (g) If appropriate, (i) an owner's policy of title insurance insuring fee simple title to any land conveyed to Landlord pursuant to subparagraph (e) above, free and clear of all liens and encumbrances, except those approved by Landlord, and (ii) a lender's policy of title insurance, reasonably satisfactory in form and substance to Landlord and the Lending Institution advancing any portion of the Capital Additions Cost; (h) An appraisal of the Leased Property by a Qualified Appraiser, acceptable to Landlord, and an Officer's Certificate stating that the value of the Leased Property upon completion of the Capital Addition exceeds the Fair Market Value thereof prior to the commencement of such Capital Addition by an amount not less than 80% of the Capital Additions Cost; and (i) Prints of architectural and engineering drawings relating to such Capital Addition and such other certificates, documents, opinions of counsel, appraisals, surveys, certified copies of duly adopted resolutions of the board of directors of Tenant authorizing the execution and delivery of any lease amendment or other instruments reasonably required by Landlord and any Lending Institution advancing or reimbursing Tenant for any portion of the Capital Additions Cost. 6.4 Non-Capital Additions. Tenant shall have the right, at Tenant's sole cost and expense, to make additions, modifications or improvements to the Leased Property which are not Capital Additions ("Non-Capital Additions") from time to time as Tenant, in its reasonable discretion, may deem desirable for the Primary Intended Use, provided that such action will not adversely alter the character or purpose or detract from the value, operating efficiency or revenue-producing capability of the Leased Property, or adversely affect the ability of Tenant to comply with the provisions of this Lease. All such Non- Capital Additions shall, upon expiration or earlier termination of this Lease, become the property of Landlord, free and clear of all encumbrances other than Permitted Encumbrances. 6.5 Salvage. All materials which are scrapped or removed in connection with the making of either Capital Additions or repairs required by Article 5 shall be the property of the party paying or providing the financing for such work. ARTICLE 7 LIENS 7.1 Liens. Subject to Article 8, Tenant shall not, directly or indirectly, create or allow to remain and shall promptly discharge, at its expense, any lien, encumbrance, attachment, title retention agreement or claim upon the Leased Property or any attachment, levy, claim or encumbrance in respect of the Rent, other than (a) this Lease, (b) the Permitted Encumbrances, (c) restrictions, liens and other encumbrances which are consented to in writing by Landlord, (d) liens for those taxes of Landlord which Tenant is not required to pay -28- hereunder, (e) subleases permitted by Article 17, (f) liens for Impositions or for sums resulting from noncompliance with Legal Requirements so long as (i) the same are not yet payable, or (ii) are payable without fine or penalty and such liens are being contested in accordance with Article 8, (g) liens of mechanics, laborers, materialmen, suppliers or vendors for sums disputed, provided that (i) the payment of such sums shall not be postponed under any related contract for more than sixty (60) days after the completion of the action giving rise to such lien and a reserve or another appropriate provision as shall be required by law or generally accepted accounting principles shall have been made therefor, and (ii) any such liens are being contested in accordance with Article 8, and (h) any liens which are the responsibility of Landlord pursuant to Article 21. 7.2 Landlord's Lien. In addition to any statutory landlord's lien and in order to secure payment of the Rent and all other sums payable hereunder by Tenant, and to secure payment of any loss, cost or damage which Landlord may suffer by reason of Tenant's breach of this Lease, Tenant hereby grants unto Landlord a security interest in and an express contractual lien upon Tenant's Personal Property (except motor vehicles sold from time to time in the ordinary course of Tenant's operations), and all ledger sheets, files, records, documents and instruments (including, without limitation, computer programs, tapes and related electronic data processing) relating to the operation of the Facility (collectively, the "Records") and all proceeds therefrom; and Tenant's Personal Property shall not be removed from the Leased Property without the Landlord's prior written consent, unless no Default or Event of Default shall have occurred and be continuing. Upon Landlord's request, Tenant shall execute and deliver to Landlord security agreements and financing statements in form sufficient to perfect the security interests of Landlord in Tenant's Personal Property and the proceeds thereof in accordance with the provisions of the applicable laws of the State and otherwise in form and substance reasonably satisfactory to Landlord. Tenant hereby grants Landlord an irrevocable limited power of attorney, coupled with an interest, to execute all such financing statements in Tenant's name, place and stead. The security interest herein granted is in addition to any statutory lien for the Rent. Landlord agrees, at Tenant's request, to execute such documents as Tenant may reasonably require to subordinate the lien granted pursuant to this Section 7.2 in Tenant's Personal Property (but not the Records) to the lien of any Person providing purchase money financing with respect thereto. 7.3 Mechanic's Liens. Except as permitted with respect to Capital Additions, nothing contained in this Lease and no action or inaction by Landlord shall be construed as (a) constituting the consent or request of Landlord, expressed or implied, to any contractor, subcontractor, laborer, materialman or vendor to or for the performance of any labor or services or the furnishing of any materials or other property for the construction, alteration, addition, repair or demolition of or to the Leased Property or any part thereof, or (b) giving Tenant any right, power or permission to contract for or permit the performance of any -29- labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against Landlord in respect thereof or to make any agreement that may create, or in any way be the basis for any right, title, interest, lien, claim or other encumbrance upon the Leased Property, or any portion thereof. ARTICLE 8 PERMITTED CONTESTS Tenant shall have the right to contest the amount or validity of any Imposition, Legal Requirement, Insurance Requirement, lien, attachment, levy, encumbrance, charge or claim (collectively "Claims") by appropriate legal proceedings conducted in good faith and with due diligence, provided that (a) the foregoing shall in no way be construed as relieving, modifying or extending Tenant's obligation to pay any Claims as finally determined or prior to the time the Leased Property may be sold in satisfaction thereof, (b) such contest shall not cause Landlord or Tenant to be in default under any mortgage or deed of trust encumbering the Leased Property or any interest therein or result in or reasonably be expected to result in a lien attaching to the Leased Property, and (c) Tenant shall indemnify and hold harmless Landlord from and against any cost, claim, damage, penalty or expense, including reasonable attorneys' fees, incurred by Landlord in connection therewith or as a result thereof. Upon Landlord's request, Tenant shall either (a) provide a bond or other assurance reasonably satisfactory to Landlord that all Claims which may be assessed against the Leased Property, together with all interest and penalties thereon will be paid, or (b) deposit within the time otherwise required for payment with a bank or trust company, as trustee, as security for the payment of such Claims, an amount sufficient to pay the same, together with interest and penalties in connection therewith and all Claims which may be assessed against or become a Claim against the Leased Property, or any part thereof, in connection with any such contest. Tenant shall furnish Landlord and any Facility Mortgagee with reasonable evidence of such deposit within five (5) days after request therefor. Landlord agrees to join in any such proceedings if required legally to prosecute such contest; provided, however, that Landlord shall not thereby be subjected to any liability therefor (including, for the payment of any costs or expenses in connection therewith). Tenant shall be entitled to any refund of any Claims and such charges and penalties or interest thereon which have been paid by Tenant or paid by Landlord and for which Landlord has been fully reimbursed by Tenant. If Tenant shall fail (a) to pay any Claims when due, (b) to provide security therefor as provided in this Article 8, or (c) to prosecute any such contest diligently and in good faith, Landlord may, upon reasonable notice to Tenant (which notice may be oral and shall not be required if Landlord shall determine the same is not practicable), pay such charges, together with interest and penalties due with respect thereto, and Tenant shall reimburse Landlord therefor, upon demand, as Additional Rent. ARTICLE 9 -30- INSURANCE AND INDEMNIFICATION 9.1 General Insurance Requirements. Tenant shall at all times during the Term and any other time Tenant shall be in possession of the Leased Property, keep the Leased Property, and all property located in or on the Leased Property, including Tenant's Personal Property, insured against the risks in the amounts as follows: (a) Comprehensive general liability insurance, including bodily injury and property damage (on an occurrence basis and in the broadest form available, including without limitation broad form contractual liability, fire legal liability independent contractor's hazard and completed operations coverage) under which Tenant is named as an insured and Landlord and any Facility Mortgagee (and such others as are in privity of estate with Landlord, as set out in a notice from time to time) are named as additional insureds as their interests may appear, in an amount which shall, at the beginning of the Term, be at least equal to $5,000,000 per occurrence in respect of bodily injury and death and $1,000,000 per occurrence in respect of property damage, and which, from time to time during the Term, shall be for such higher limits, if any, as are customarily carried in the area in which the Leased Property is located at property similar to the Leased Property and used for similar purposes; (b) "All-risk" property insurance on a "replacement cost" basis with the usual extended coverage endorsements covering the Leased Property and Tenant's Personal Property; (c) Business interruption and loss of rental under a rental value insurance policy covering risk of loss during the lesser of the first twelve (12) months of reconstruction or the actual reconstruction period necessitated by the occurrence of any of the hazards described in paragraphs (a) and (b) above, in such amounts as may be customary for comparable properties in the area and in an amount sufficient to prevent Landlord or Tenant from becoming a co-insurer; (d) Claims arising out of malpractice in an amount not less than Five Million Dollars ($5,000,000) for each person and for each occurrence with respect to the Leased Property, provided the same is available at rates which are economically practical in relation to the risk covered, as determined by Tenant and approved by Landlord (it being agreed that, in the event the same is not available at rates which are economically practical in relation to the risks covered, Tenant shall provide such malpractice insurance by means of the maintenance of a program of self insurance, which, in accordance with generally accepted accounting principles consistently applied, satisfies the insurance requirements of this paragraph (d) and, in such event, Tenant shall submit to Landlord such records and other evidence thereof as Landlord may from time to time reasonably request to confirm the maintenance of such a program); -31- (e) Flood (if the Leased Property which 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, provided the same is available at rates which are economically practical in relation to the risks covered, as determined by Tenant and approved by Landlord; (f) Worker's compensation insurance coverage for all persons employed by Tenant on the Leased Property with statutory limits and otherwise with limits of and provisions in accordance with the requirements of applicable local, state and federal law; and (g) Such additional insurance as may be reasonably required, from time to time, by Landlord or any Facility Mortgagee. 9.2 Waiver of Subrogation. Landlord and Tenant agree that (insofar as and to the extent that such agreement may be effective without invalidating or making it impossible to secure insurance coverage from responsible insurance companies doing business in the State) with respect to any property loss which is covered by insurance then being carried by Landlord or Tenant or would be covered by insurance if insurance were maintained in accordance with the applicable provisions of this Lease, respectively, the party carrying such insurance and suffering said loss releases the other of and from any and all claims with respect to such loss; and they further agree that their respective insurance companies shall have no right of subrogation against the other on account thereof, even though extra premium may result therefrom. In the event that any extra premium is payable by Tenant as a result of this provision, Landlord shall not be liable for reimbursement to Tenant for such extra premium. 9.3 Form Satisfactory, Etc. All policies of insurance required under this Article 9 shall be written in a form reasonably satisfactory to Landlord and by insurance companies authorized to do business in the State, insurance, which companies shall be reasonably satisfactory to Landlord. All policies of insurance required under this Article 9 shall include no deductible in excess of $250,000 and shall name Landlord and any Facility Mortgagee as additional insureds, as their interests may appear. Losses shall be payable to Landlord or Tenant as provided in Article 10. Any loss adjustment shall require the written consent of Landlord, Tenant and each Facility Mortgagee. Evidence of insurance shall be deposited with Landlord and, if requested, any Facility Mortgagee. If any provisions of any Facility Mortgage requires deposits of premiums for insurance to be made with such Facility Mortgagee, provided that the Facility Mortgagee has not elected to waive such provision, Tenant shall either pay Landlord monthly the amounts required and Landlord shall transfer such amounts to such Facility Mortgagee, or, pursuant to written direction by Landlord, Tenant shall make such deposits directly with such Facility Mortgagee. Tenant shall pay all insurance premiums, and deliver policies or certificates thereof to Landlord prior to their effective date (and, with respect to any renewal policy, ten (10) days prior to the expiration of the existing policy), and in the event Tenant shall fail either to effect such insurance as herein required, to pay the premiums therefor or to deliver such policies or certificates to Landlord at the times required Landlord -32- shall have the right, but not the obligation, to effect such insurance and pay the premiums therefor, which amounts shall be payable to Landlord, upon demand, as Additional Rent, together with interest accrued thereon at the Base Rate from the date such payment is made until the date repaid. All such policies shall provide Landlord (and any Facility Mortgagee, if required by the same) thirty (30) days' prior written notice of any materially alter on, expiration or cancellation of such policy. 9.4 No Separate Insurance. Tenant shall not take out separate insurance, concurrent in form or contributing in the event of loss with that required by this Article 9 or increase the amount of any existing insurance by securing an additional policy or additional policies, unless all parties having an insurable interest in the subject matter of such insurance, including, Landlord and all Facility Mortgagees, are included therein as additional insureds, and the loss is payable under such insurance in the same manner as losses are payable under this Lease. In the event Tenant shall take out any such separate insurance or increase any of the amounts of the then existing insurance, Tenant shall give Landlord prompt written notice thereof. 9.5 Indemnification of Landlord. Tenant shall indemnify and hold harmless Landlord from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, reasonable attorneys' fees), to the maximum extent permitted by law, imposed upon or incurred by or asserted against Landlord by reason of: (a) any accident, injury to or death of persons or loss of or damage to property occurring on or about the Leased Property or adjoining sidewalks, including, without limitation, any claims of malpractice, (b) any past, present or future use, misuse, non-use, condition, management, maintenance or repair by Tenant or anyone claiming under Tenant of the Leased Property or Tenant's Personal Property or any litigation, proceeding or claim by governmental entities or other third parties to which Landlord is made a party or participant related to the Leased Property or Tenant's Personal Property or such use, misuse, non-use, condition, management, maintenance, or repair thereof including, failure to perform obligations (other than Condemnation proceedings) to which Landlord is made a party, (c) any Impositions (which are the obligations of Tenant to pay pursuant to the applicable provisions of this Lease), and (d) any failure on the part of Tenant or anyone claiming under Tenant to perform or comply with any of the terms of this Lease. Tenant shall pay all amounts payable under this Section 9.5 within ten (10) days after demand therefor, and if not timely paid, such amounts shall bear interest at the overdue rate from the date of determination to the date of payment. Tenant, at its expense, shall contest, resist and defend any such claim, action or proceeding asserted or instituted against Landlord or may compromise or otherwise dispose of the same as Tenant sees fit. 9.6 Indemnification of Tenant. Landlord shall indemnify and hold harmless Tenant from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses imposed upon or incurred by or asserted against Tenant as a result of the gross negligence or willful misconduct of Landlord. -33- ARTICLE 10 CASUALTY 10.1 Insurance Proceeds. All proceeds payable by reason of any loss or damage to the Leased Property and insured under any policy of insurance required by Article 9 shall be paid to Landlord and held in trust by Landlord in an interest-bearing account (subject to the provisions of Section 10.2) and shall be paid out by Landlord from time to time for the reasonable costs of reconstruction or repair of the Leased Property necessitated by damage or destruction. Any excess proceeds of insurance remaining after the completion of the restoration shall be paid to Tenant. In the event neither Landlord nor Tenant is required or elects to restore the Leased Property and this Lease is terminated without purchase or substitution by Tenant pursuant to Section 10.2, all insurance proceeds therefrom shall be retained by Landlord. All salvage resulting from any risk covered by insurance shall belong to Landlord, except any salvage related to Capital Additions paid for by Tenant or Tenant's Personal Property shall belong to Tenant. 10.2 Reconstruction in the Event of Damage or Destruction. 10.2.1 Material Damage or Destruction of Premises. Except as provided in Section 10.8, if, during the Term, the Leased Property shall be totally or partially damaged or destroyed by fire or other casualty and the Facility is thereby rendered Unsuitable for Its Primary Intended Use, Tenant shall, at Tenant's option, exercisable by written notice to Landlord within thirty (30) days after the date of such damage or destruction, elect either (a) to restore the Facility to substantially the same condition as existed immediately before such damage or destruction, or (b) to offer (i) to purchase the Leased Property from Landlord for a purchase price equal to the greater of the Minimum Repurchase Price or the Fair Market Value Purchase Price of the Leased Property immediately prior to such damage or destruction, or (ii) to substitute a new property for the Leased Property in accordance with the provisions of Article 16. Failure of Tenant to give Landlord written notice of any such election within such 30-day period shall be deemed an election by Tenant to restore the Facility. In the event Tenant shall proceed in accordance with clause (b) preceding and Landlord does not accept Tenant's offer to purchase the Leased Property or substitute another property for the Leased Property within thirty (30) days after receipt of Tenant's notice thereof, Tenant may either (a) withdraw such offer and proceed promptly to restore the Facility to substantially the same conditions as existed immediately before the damage or destruction, or (b) terminate this Lease without further liability hereunder and Landlord shall be entitled to retain the insurance proceeds. In the event Tenant shall acquire the Leased Property or substitute a new property therefor, the insurance proceeds payable on account of such damage shall be paid to Tenant. 10.2.2 Partial Damage or Destruction. Except as provided in Section 10.8, if, during the Term, all or any portion of the Leased Property shall be totally or partially destroyed by fire or other casualty and the Facility is not thereby rendered Unsuitable for its -34- Primary Intended Use, Tenant shall promptly restore the Facility to substantially the same condition as existed immediately before such damage or destruction; provided, however, that if Tenant cannot, using diligent efforts, obtain all government approvals, including building permits, licenses, conditional use permits and certificates of need, necessary to perform all required repair and restoration and to operate the Facility for its Primary Intended Use in substantially the same manner as existed immediately prior to such damage or destruction within one hundred eighty (180) days after the date of such fire or casualty, Tenant shall, within thirty (30) days thereafter elect, by written notice to Landlord, either (a) to substitute a new property or properties for the Leased Property in accordance with the provisions of Article 16, or (b) purchase the Leased Property for a purchase price equal to the greater of the then Minimum Repurchase Price or the Fair Market Value Purchase Price of the Leased Property immediately prior to such damage or destruction. Failure of Tenant to give such notice within such period shall be deemed an election by Tenant to purchase the Leased Property. Within thirty (30) days after receipt of Tenant's notice, Landlord shall give Tenant written notice as to whether Landlord accepts such offer. Failure of Landlord to give such notice shall be deemed an election by Landlord to accept Tenant's offer. If Landlord shall reject such offer, Tenant shall elect, by written notice to Landlord, given within thirty (30) days thereafter, either (a) to withdraw such offer, in which event this Lease shall remain in full force and effect with and Tenant shall proceed to restore the Facility as soon as reasonably practicable to substantially the same condition as existed immediately before such damage or destruction, or (b) terminate this Lease. Failure of Tenant to give such notice within such period shall be deemed an election by Tenant to restore the Leased Property. In the event Landlord shall accept Tenant's offer to purchase the Leased Property, this Lease shall terminate with respect thereto upon payment of the purchase price. In the event Landlord shall accept Tenant's offer to substitute a new property or properties, this Lease shall be deemed modified to substitute such new property for the Leased Property (effective as of the date of such substitution pursuant to Article 16) and all insurance proceeds pertaining to the Leased Property shall be paid to Tenant. Landlord and Tenant shall promptly execute appropriate instruments to confirm the foregoing, although the failure to do so shall not affect this Lease. 10.3 Insufficient Insurance Proceeds. If the cost of the repair or restoration exceeds the amount of insurance proceeds received by Landlord pursuant to Article 9, Tenant shall contribute any excess amounts needed to complete such restoration. Such difference shall be paid by Tenant to Landlord and held by Landlord in trust in an interest bearing account, together with any other insurance proceeds, for application to the cost of repair and restoration in accordance with Section 10.4. 10.4 Disbursement of Proceeds. In the event Tenant is required to restore the Leased Property pursuant to Sections 10.1 or 10.2, Tenant shall, at its sole cost and expense, commence promptly and continue diligently to perform, or cause to be performed, the repair and restora- tion of the Leased Property so as to restore the Leased Property in full -35- compliance with all Legal Requirements and otherwise in compliance with any other applicable provisions of this Lease, so that the Leased Property shall be at least equal in value and general utility to its general utility and value immediately prior to such damage or destruction. Subject to the terms hereof, Landlord shall advance the insurance proceeds (other than proceeds of business interruption insurance which shall be advanced as provided below) and the amounts paid to it pursuant to Section 10.3 to Tenant regularly during the repair and restoration period so as to permit payment for the cost of such restoration and repair. Any such advances shall be for not less than $50,000 (or such lesser amount as equals the entire balance of the repair and restoration costs) and Tenant shall submit to Landlord a written requisition and substantiation therefor on AIA Forms G702 and G703 (or on such other form or forms as may be acceptable to Landlord). Landlord may, at its option, condition advancement of such insurance proceeds and other amounts on (i) the absence of any Default or Event of Default, (ii) its approval of plans and specifications of an architect satisfactory to Landlord (which approval shall not be unreasonably with- held or delayed), (iii) general contractors' estimates, (iv) architect's certificates, (v) unconditional lien waivers of general contractors, (vi) evidence of approval by all governmental authorities and other regulatory bodies whose approval is required and (vii) such other certificates as Landlord may, from time to time, reasonably require. Provided no Default or Event of Default has occurred and is continuing, on the first day of each calendar month during which proceeds of business interruption insurance are disbursed to Landlord under the policy of business interruption insurance maintained pursuant to Article 9, Landlord shall disburse proceeds of business interruption insurance received by it to Tenant upon notice from Tenant accompanied by a certification from Tenant that such moneys will be used for costs or expenses of owning or operating the Leased Property. Landlord's obligation to disburse insurance proceeds under this Article 10 shall be subject to the release of such proceeds by any Facility Mortgagee. 10.5 Tenant's Property. All insurance proceeds payable by reason of any loss of or damage to any of Tenant's Personal Property or Capital Additions financed by Tenant shall be paid to Tenant and Tenant shall hold such proceeds in trust to pay the cost of repairing or replacing damaged Tenant's Personal Property or Capital Additions paid for or financed by Tenant. 10.6 Restoration of Tenant's Property. If Tenant shall be required or elect to restore the Facility as hereinabove provided, Tenant shall either (a) restore all alterations and improvements made by Tenant, Tenant's Personal Property and all Capital Additions paid for or financed by Tenant, or (b) replace such alterations and improvements, Tenant's Personal Property, and/or Capital Additions with improvements or items of the same or better quality and utility in the operation of the Facility. 10.7 No Abatement of Rent. Unless this Lease shall be terminated as herein provided, during the first twelve (12) months of any period required for repair or restoration, this Lease shall remain in full -36- force and effect and Tenant's obligation to make rental payments and to pay all other charges required by this Lease shall remain unabated during the Term notwithstanding any damage affecting the Leased Property. Thereafter, payments of Minimum Rent shall be adjusted in the manner provided in Section 11.6. If any fire or other casualty impairs the revenue producing capacity of the Facility, projected Net Patient Revenues attributable to the Facility shall be determined by Landlord in its reasonable discretion. 10.8 Damage Near End of Term. Notwithstanding any provisions of this Article 10 to the contrary, if (a) damage to or destruction of the Facility occurs during the last twelve (12) months of the Term, (b) Tenant has not elected to extend the Term, (c) no Default or Event of Default shall have occurred and be continuing, and (d) such damage or destruction cannot be fully repaired and restored within one hundred eighty (180) days immediately following the date of loss, Tenant shall have the right to terminate this Lease by the giving of written notice thereof to Landlord within thirty (30) days after the date of casualty. Failure of Tenant to give such notice within such 30-day period shall be a waiver of Tenant's right to terminate this Lease pursuant to this section. ARTICLE 11 CONDEMNATION 11.1 Total Condemnation. If the whole of the Leased Property shall be taken by Condemnation, this Lease shall terminate as of the Date of Taking. In the event a Condemnation of less than the whole of the Leased Property renders the Leased Property Unsuitable for Its Primary Intended Use, Tenant and Landlord shall each have the option, by written notice to the other, given at any time prior to the date title vests in a third party, to terminate this Lease as of the Date of Taking, whereupon this Lease shall terminate as of such date. 11.2 Partial Condemnation. In the event of a Condemnation of less than the whole of the Leased Property such that Leased Property is still suitable for its Primary Intended Use, or if neither Tenant nor Landlord shall terminate this Lease as provided in Section 11.1, Tenant, at its sole cost and expense, shall, with all reasonable dispatch, restore the untaken portion of the Leased Improvements so that such Leased Improvements shall constitute a complete architectural unit of the same general character and condition (as nearly as may be possible under the circumstances) as the Leased Improvements existing immediately prior to such Condemnation. Landlord shall, subject to and in accordance with the applicable provisions of Section 10.4, contribute to the cost of restoration that part of its Award allocable to such restoration. In such event, the Minimum Rent shall be permanently reduced as set forth in Section 11.6. 11.3 Temporary Condemnation. In the event of any temporary Condemnation of all or any part of the Leased Property or Tenant's interest under this Lease, this Lease shall continue in full force and effect and Tenant shall continue to pay, in the manner and on the terms -37- herein specified, the full amount of the Rent. To the extent reasonably practicable, Tenant shall continue to perform and observe all of the other terms and conditions thereof, on the part of Tenant to be performed and observed. The entire amount of any Award made for such temporary Taking or Condemnation allocable to the Term, whether paid by way of damages, rent or otherwise, shall be paid to Tenant. Tenant shall, upon the termination of any such period of temporary Condemnation, at its sole cost and expense (but only to the extent of the Award payable to Tenant), restore the Leased Property as nearly as may be reasonably possible, to the condition that existed immediately prior to such Condemnation, unless such period of temporary use or occupancy shall extend beyond the expiration of the Term, in which case Tenant shall not be required to make such restoration. 11.4 Tenant's Option. In the event of the termination of this Lease as provided in Section 11.1, Tenant shall have the right, exercisable by written notice to Landlord given within thirty (30) days after receipt by Tenant of notice of Condemnation, to elect (a) to acquire the Leased Property from Landlord for a purchase price equal to the greater of its Minimum Repurchase Price or the Fair Market Value Purchase Price of the Leased Property immediately prior to such Condemnation, in which event, upon the closing of such acquisition, Tenant shall have the right to receive the entire Award, or (b) to substitute a new property therefor in accordance with the provisions of Article 16, in which event Tenant shall receive the entire Award. Failure of Tenant to give such notice within such 30-day period shall be deemed a waiver of Tenant's rights pursuant to this Section 11.4. In the event Landlord shall, by written notice to Tenant given within thirty (30) days after receipt of Tenant's election notice, reject Tenant's offer so to purchase or substitute, Tenant shall restore the Leased Property to substantially the same condition as existed immediately before such Condemnation in accordance with the applicable provisions of this Lease and, in such event, Landlord shall, subject to and in accordance with the applicable provisions of Section 10.4, contribute to the cost of restoration that part of its Award allocable to such restoration. 11.5 Allocation of Award. Except as provided in the second sentence of this Section 11.5, the total Award shall be solely the property of and payable to Landlord. Any portion of the Award made for the taking of Tenant's leasehold interest in the Leased Property, Capital Additions paid for or financed by Tenant, loss of business at the Leased Property during the remainder of the Term, the taking of Tenant's Personal Property, or Tenant's removal and relocation expenses shall be the sole property of and payable to Tenant. In any Condemnation proceedings, Landlord and Tenant shall each seek its own Award in conformity herewith, at its own expense. 11.6 Abatement Procedures. In the event of a partial Condemnation as described in Section 11.2, this Lease shall not terminate, but the Minimum Rent shall be abated and Base Net Patient Revenues shall be reduced in the manner and to the extent that is fair, just and equitable to both Tenant and Landlord, taking into consideration, among other relevant factors, the number of usable beds, the amount of square footage, or the revenues affected by such partial or temporary taking or -38- damage or destruction. If Landlord and Tenant are unable to agree upon the amount of such abatement within thirty (30) days after such Condemnation or damage, the matter may be submitted by either party to a court of competent jurisdiction for resolution or, if the parties so agree, the matter may be submitted by the parties for resolution by arbitration in accordance with the rules of the American Arbitration Association. ARTICLE 12 DEFAULTS AND REMEDIES 12.1 Events of Default. The occurrence of any one or more of the following events shall constitute an "Event of Default" under this Lease: (a) Should Tenant fail to make any payment of the Rent or any other sum payable hereunder when due and such failure shall continue for ten (10) days after written notice thereof; (b) Should Tenant fail to observe or perform any other term, covenant or condition of this Lease and such failure shall continue for thirty (30) days after written notice thereof; provided, however, if such failure cannot with due diligence be cured within such thirty (30) day period, an Event of Default shall not be deemed to have occurred for such additional period (not to exceed 120 days in the aggregate) required to cure the same so long as Tenant commences sure cure within such thirty (30) day period and thereafter diligently prosecutes such cure to completion; (c) Should Tenant: (i) admit in writing its inability, or be unable, to pay its debts generally as they become due; (ii) file a petition in bankruptcy or a petition to take advantage of any insolvency law; (iii) make a general assignment for the benefit of its creditors; (iv) consent to the appointment of a receiver of itself or of the whole or any substantial part of its property; or (v) file a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state thereof; (d) Should Tenant be adjudicated a bankrupt or have an order for relief thereunder entered against it or a court of competent jurisdiction shall enter an order or decree appointing a receiver of Tenant or of the whole or substantially all of its property, or approving a petition filed against Tenant seeking reorganization or arrangement of Tenant under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state thereof, and such judgment, order or decree shall not be vacated or set aside within sixty (60) days from the date of entry thereof; (e) Should Tenant be liquidated or dissolved, or shall begin proceedings toward such liquidation or dissolution, or, in any -39- manner, permit the sale or divestiture of substantially all of its assets; (f) Should the estate or interest of Tenant in the Leased Property or any part thereof shall be levied upon or attached in any proceeding and the same shall not be vacated or discharged within thirty (30) days after commencement thereof (unless Tenant shall be contesting such lien or attachment in accordance with Article 8); (g) Except as a result of damage, destruction, strikes, lock- outs or a partial or complete Condemnation, should Tenant voluntarily cease operations on the Leased Property for a period in excess of thirty (30) days; or (h) Should any representation or warranty of Tenant contained in this Lease or any certificate or document delivered in connection herewith be untrue when made or at any time during the Term in any material respect which materially and adversely affects Landlord, and the same shall not be cured within ninety (90) days after written notice thereof. Upon the occurrence of any Event of Default, Landlord and the agents and servants of Landlord lawfully may, in addition to and not in derogation of any remedies for any preceding breach of covenant, immediately or at any time thereafter, without demand or notice and with or without process of law (forcibly, if necessary), enter into and upon the Leased Property or any part thereof in the name of the whole or mail a notice of termination addressed to Tenant, and repossess the same and expel Tenant and those claiming through or under Tenant and remove its and their effects (forcibly, if necessary), without being deemed guilty of any manner of trespass and without prejudice to any remedies which might otherwise be used for arrears of rent or prior breach of covenant, and, upon such entry or mailing as aforesaid, this Lease shall terminate, Tenant hereby waiving all statutory rights to the Leased Property (including, without limitation, rights of redemption, if any, to the extent such rights may be lawfully waived) and Landlord, without notice to Tenant, may store Tenant's effects, and those of any person claiming through or under Tenant, at Tenant's sole expense and risk, and, if Landlord so elects, may sell such effects at public auction or private sale and apply the net proceeds to the payment of all sums due to Landlord from Tenant, if any, and pay over the balance, if any, to Tenant. Upon the occurrence of an Event of Default, Landlord may, in addition to any other remedies provided herein, enter upon the Leased Property and take possession of any and all of Tenant's Personal Property and the Records (subject to any prohibitions or limitations to disclosure of any such data as described in Section 3.1.2(d)) on the Leased Property, without liability for trespass or conversion (Tenant hereby waiving any right to notice or hearing prior to such taking of possession by Landlord) and sell the same at public or private sale, after giving Tenant reasonable notice of the time and place of any public or private sale, at which sale Landlord or its assigns may purchase all or any portion of such Personal Property unless otherwise -40- prohibited by law. Unless otherwise provided by law, and without intending to exclude any other manner of giving Tenant reasonable notice, the requirement of reasonable notice shall be met if such notice is given in the manner prescribed in this Lease at least ten (10) days before the day of sale. The proceeds from any such disposition, less all expenses incurred in connection with the taking of possession, holding and selling of such property (including, reasonable attorneys' fees) shall be deducted from the proceeds of such sale. Any surplus shall be paid to Tenant or as otherwise required by law and Tenant shall pay any deficiency to Landlord, as Additional Rent, upon demand. 12.2 Remedies. In the event of any termination pursuant to Section 12.1, Tenant shall pay the Rent and other charges payable hereunder up to the time of such termination and, thereafter, Tenant, until the end of what would have been the Term of this Lease in the absence of such termination, and whether or not the Leased Property, or any portion thereof, shall have been re-let, shall be liable to Landlord for, and shall pay to Landlord, as current damages, the Rent and other charges which would be payable hereunder for the remainder of the Term had such termination not occurred, less the net proceeds, if any, of any reletting of the Leased Property, after deducting all expenses in connection with such re-letting, including, without limitation, all repossession costs, brokerage commissions, legal expenses, attorneys' fees, advertising, expenses of employees, alteration costs and expenses of preparation for such reletting. Tenant shall pay such current damages to Landlord monthly on the days on which the Minimum Rent would have been payable hereunder if this Lease had not been terminated. Percentage Rent for the purposes of this Section 12.2 shall be deemed to be a sum equal to the amount of the Percentage Rent (determined on an annualized basis) payable for the Fiscal Year immediately preceding the Fiscal Year in which the termination, re-entry or repossession takes place. If, however, such termination, re-entry or repossession occurs during the first full Fiscal Year after the Base Year, the Percentage Rent shall be an amount reasonably determined by Landlord. At any time after such termination, whether or not Landlord shall have collected any such current damages, as liquidated final damages and in lieu of all such current damages beyond the date of such demand, at Landlord's election, Tenant shall pay to Landlord either (a) an amount equal to the excess, if any, of the Rent and other charges which would be payable hereunder from the date of such demand (assuming that, for the purposes of this paragraph, annual payments by Tenant on account of Impositions would be the same as payments required for the immediately preceding twelve calendar months, or if less than twelve calendar months have expired since the Commencement Date, the payments required for such lesser period projected to an annual amount and Percentage Rent shall be determined in the manner set forth above) for what would be the then unexpired term of this Lease if the same remained in effect, over the Fair Market Rental for the same period, or (b) an amount equal to the lesser of (i) the Rent and other charges that would have been payable for the balance of the Term had it not been terminated, or (ii) the aggregate of the Minimum Rent, Percentage Rent and other charges accrued in the twelve (12) months ended next prior to such termination (without reduction for any free rent or other concession or abatement). In the event this Lease is so terminated prior the expiration of the first full -41- year of the Term, the liquidated damages which Landlord may elect to recover pursuant to clause (b) (ii) of this paragraph shall be calculated as if such termination had occurred on the first anniversary of the Commencement Date. Nothing contained in this Lease shall, however, limit or prejudice the right of Landlord to prove and obtain in proceedings for bankruptcy or insolvency an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount be greater than, equal to, or less than the amount of the loss or damages referred to above. In case of any Event of Default, re-entry, expiration and dispossession by summary proceedings or otherwise, Landlord may (a) relet the Leased Property or any part or parts thereof, either in the name of Landlord or otherwise, for a term or terms which may at Landlord's option, be equal to, less than or exceed the period which would otherwise have constituted the balance of the Term and may grant concessions or free rent to the extent that Landlord considers advisable and necessary to relet the same, and (b) may make such reasonable alterations, repairs and decorations in the Leased Property as Landlord, in its sole judgment, considers advisable and necessary for the purpose of reletting the Leased Property; and the making of such alterations, repairs and decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Landlord shall in no event be liable in any way whatsoever for failure to relet the Leased Property, or any portion thereof, or, in the event that the Leased Property is relet, for failure to collect the rent under such reletting. To the fullest extent permitted by law, Tenant hereby expressly waives any and all rights of redemption granted under any present or future laws in the event of Tenant being evicted or dispossessed, or in the event of Landlord obtaining possession of the Leased Property, by reason of the violation by Tenant of any of the covenants and conditions of this Lease. 12.3 Waiver. If this Lease is terminated pursuant to Section 12.1 or 12.2, Tenant waives, to the extent permitted by law, (a) any right to a trial by jury in the event of summary proceedings to enforce the remedies set forth in this Article 12, and (b) the benefit of any laws now or hereafter in force exempting property from liability for rent or for debt. 12.4 Application of Funds. Any payments received by Landlord under any of the provisions of this Lease during the existence or continuance of any Event of Default (and any payment made to Landlord rather than Tenant due to the existence of an Event of Default) shall be applied to Tenant's obligations in such order as Landlord may determine or as may be prescribed by the laws of the State. 12.5 Failure to Conduct Business. For the purpose of determining rental loss damages or Percentage Rent, in the event Tenant shall fail to conduct its business at the Leased Property for its Primary Intended Use, exact damages or the amount of Percentage Rent being unascertainable, the Percentage Rent for such period shall be deemed to by an amount reasonably determined by Landlord. -42- 12.6 Landlord's Right to Cure Tenant's Default. If an Event of Default shall have occurred and be continuing, Landlord, after written notice to Tenant (provided that no such notice shall be required if Landlord shall reasonably determine immediate action is necessary to protect person or property), without waiving or releasing any obligation of Tenant, and without waiving or releasing any Event of Default, may (but shall not be obligated to), at any time thereafter, make such payment or perform such act for the account and at the expense of Tenant, and may, to the extent permitted by law, enter upon the Leased Property, or any portion thereof, for such purpose and take all such action thereon as, in Landlord's opinion, may be necessary or appropriate therefor, including, the management of the Facility by Landlord or its designee, and Tenant hereby irrevocably appoints, in the event of such election by Landlord, Landlord or its designee as manager of the Facility and its attorney in fact for such purpose, irrevocably and coupled with an interest, in the name, place and stead of Tenant. All costs and expenses (including, without limitation, reasonable attorneys' fees) incurred by Landlord in connection therewith, together with interest thereon (to the extent permitted by law) at the Overdue Rate from the date such sums are paid by Landlord until repaid, shall be paid by Tenant to Landlord, on demand. 12.7 Trade Names. If this Lease is terminated for any reason, Landlord shall, upon the request of Tenant, cause the name of the business conducted upon the Leased Property to be changed to a name other than a Facility Trade Name or any approximation or abbreviation thereof and sufficiently dissimilar to such name as to be unlikely to cause confusion with such name; provided, however, that Tenant shall not thereafter use a Facility Trade Name in the same market in which the Facility is located in connection with any business that competes with the Facility. ARTICLE 13 HOLDING OVER Any holding over by Tenant after the expiration of the Term shall be treated as a daily tenancy at sufferance at a rate equal to two (2) times the Minimum Rent and Percentage Rent then in effect plus Additional Rent and other charges herein provided (prorated on a daily basis). Tenant shall also pay to Landlord all damages, direct and/or consequential (foreseeable and unforeseeable), sustained by reason of any such holding over. Otherwise, such holding over shall be on the terms and conditions set forth in this Lease, to the extent applicable. ARTICLE 14 LANDLORD'S DEFAULT If Landlord shall default in the performance or observance of any of its covenants or obligations set forth in this Lease and such default shall continue for a period of thirty (30) days after written notice -43- thereof, or such additional period as may be reasonably required to correct the same (except if such default shall constitute an immediate threat to life or property, five (5) Business Days) Tenant may declare the occurrence of a "Landlord Default" by a second notice to Landlord. Thereafter, Tenant may forthwith cure the same and, subject to the provisions of the following paragraph, invoice Landlord for costs and expenses (including reasonable attorneys' fees and court costs) incurred by Tenant in curing the same, together with interest from the date Landlord receives Tenant's invoice, at a rate equal to the Base Rate. Tenant shall have no right to terminate this Lease for any default by Landlord hereunder and no right, for any such default, to offset or counterclaim against any rent or other charges due hereunder. -44- If Landlord shall in good faith dispute the occurrence of any Landlord Default and Landlord, before the expiration of the applicable cure period, shall give written notice thereof to Tenant, setting forth, in reasonable detail, the basis therefor, no Landlord Default shall be deemed to have occurred and Landlord shall have no obligation with respect thereto until final adverse determination thereof. If Tenant and Landlord shall fail, in good faith, to resolve the dispute within five (5) days after Landlord's notice of dispute, either may submit the matter to arbitration for resolution in accordance with the commercial arbitration rules of the American Arbitration Association. Such arbitration shall be final and binding on Landlord and Tenant and judgment thereon may be entered into any court of competent jurisdiction. Within five (5) days after submission to arbitration, Landlord and Tenant shall submit all information required for such arbitration and shall take all other actions required for such arbitration to proceed and the arbitrators shall be instructed to render a determination as soon as possible and in any event not later than thirty (30) days after submission. ARTICLE 15 PURCHASE OF PREMISES In the event Tenant shall purchase the Leased Property from Landlord pursuant to any of the terms of this Lease, Landlord shall, upon receipt from Tenant of the applicable purchase price, together with full payment of any unpaid Rent and other charges due and payable with respect to any period ending on or before the date of the purchase, deliver to Tenant a title insurance policy, together with an appropriate deed or other instruments, conveying the entire interest of Landlord in and to the Leased Property to Tenant, free and clear of all encumbrances other than (a) those Tenant has agreed hereunder to pay or discharge, (b) those liens, if any, which Tenant has agreed in writing to accept and take title subject to, (c) the Permitted Encumbrances, and (d) any other encumbrances permitted to be imposed on the Leased Property (x) pursuant to the terms of this Lease or (y) otherwise permitted to be imposed under the provisions of Section 21.1 which are assumable at no cost to Tenant or to which Tenant may take subject without cost to Tenant. The difference between the applicable purchase price and the total of the encumbrances assumed or taken subject to shall be paid in cash to Landlord or as Landlord may direct, in federal or other immediately available funds. The closing of any such sale shall be contingent upon and subject to Tenant's obtaining all required governmental consents and approvals for such transfer and if such sale shall fail to be consummated by reason of the inability of Tenant to obtain all such approvals and consents, any options to extend the Term of this Lease which otherwise would have expired during the escrow period of such proposed sale shall be deemed to remain in effect for 30 days after termination thereof. All expenses of such conveyance, including, without limitation, the cost of title examination or standard coverage title insurance, usually paid by a purchaser of real property in the State shall be paid by Tenant; all expenses of such conveyance usually paid by a seller of real property in the State shall be paid by Landlord. -45- ARTICLE 16 SUBSTITUTION OF PROPERTY FOR THE LEASED PROPERTY 16.1 Tenant's Substitution Option. Provided (a) in the good faith judgment of Tenant, the Leased Property shall become Unsuitable for its Primary Intended Use, (b) no Default or Event of Default shall have occurred and be continuing, and (c) not less than one (1) year shall remain in the Term, Tenant shall have the right, subject to the conditions set forth in this Article 16, upon not less than thirty (30) days prior written notice to Landlord, to substitute one or more properties (collectively, the "Substitute Properties" or individually, "Substitute Property") on the date specified in such notice (the "Substitution Date"); provided, however, that if Tenant is required by court order or administrative action to divest or otherwise dispose of the Leased Property in less than thirty (30) days and Tenant shall have given Landlord prior written notice of the filing of such court or administrative action and kept Landlord reasonably apprised of the status thereof, the time period shall be shortened appropriately to meet the reasonable needs of Tenant, but in no event less than ten (10) Business Days after the receipt by Landlord of such notice. Such notice shall include (a) an Officer's Certificate, setting forth in reasonable detail the reason(s) for the substitution and the proposed Substitution Date, and (b) designate not less than two properties (or groups of properties), each of which properties (or groups of properties) shall provide Landlord with a yield (i.e., annual return on its equity in such property) substantially equivalent to Landlord's yield from the Leased Property at the time of such proposed substitution (or in the case of substitution because of damage or destruction, the yield immediately prior to such damage or destruction) and as reasonably projected over the remaining Term of this Lease. 16.2 Landlord's Substitution Option. If Tenant shall have voluntarily or involuntarily discontinued use of the Leased Property for its business operations for a period in excess of one year, Landlord shall have the right, exercisable by thirty (30) days prior written notice to Tenant, to require Tenant to substitute a Substitute Property for the Leased Property, (in which event, Tenant shall comply with the applicable provisions of Section 16.1 within thirty (30) days thereafter). 16.3 Substitution Procedures. (a) If either Landlord or Tenant shall initiate a substitution pursuant to Section 16.1 or 16.2, Landlord shall have a period of thirty (30) days within which to review the designated properties and such additional information and either accept or reject the Substitute Properties so presented, unless Tenant is required by a court order or administrative action to divest or otherwise dispose of the Leased Property within a shorter time period, in which case the time period shall be shortened appropriately to meet the reasonable needs of Tenant, but in no event shall such period be less than five (5) Business Days after Landlord's actual receipt of Tenant's notice (subject to further extension for any period of time in which Landlord is not timely provided with the information provided for -46- in this Section 16.3 and Section 16.4 below). Landlord and Tenant shall use good faith efforts to agree on a Substitute Property. (b) In the event that, on or before the expiration of the applicable time period for Landlord's review, Landlord has rejected both of the Substitute Properties so presented, Tenant shall, for a period of sixty (60) days after the expiration of such period, have the right to terminate this Lease, by the giving of written notice thereof to Landlord, accompanied by an offer to purchase the Leased Property on the date set forth in such notice, but in no event less than ninety (90) days thereafter, for a purchase price equal to the greater of the then Fair Market Value Purchase Price or the Minimum Repurchase Price, and, subject to the provisions of Article 15, this Lease shall terminate on such purchase date. (c) Landlord shall not unreasonably withhold its consent to an offer by Tenant to substitute a property as set forth in this Article provided (i) Landlord shall determine the Substitute Property shall provide Landlord with a yield substantially equivalent to Landlord's yield from the Leased Property immediately before such substitution or such damage or destruction, as the case may be, and as projected over the remainder of the Term, and (ii) the delivery of an opinion of counsel for Landlord confirming that (w) the substitution of the Substitute Property for the Leased Property will qualify as an exchange solely of property of a like-kind under Section 1031 of the Code, in which, generally, except for "boot", no gain or loss will be recognized by Landlord, (x) the substitution will not result in ordinary recapture income to Landlord pursuant to Section 1250(d)(4) of the Code or any other provision of the Code, (y) the substitution will result in income, if any, to Landlord of a type described in Section 856(c)(2) or (3) of the Code and will not result in income of the types described in Section 856(c)(4) of the Code or result in the tax imposed under Section 857(b)(6) of the Code, and (z) the substitution, together with all other substitutions made or requested by Tenant or an Affiliated Person pursuant to the Other Leases or other transfers of all or any portion of the Leased Property or properties leased under the Other Leases, during the relevant time period, will not jeopardize the qualification of Landlord as a real estate investment trust under Sections 856-860 of the Code. (d) In the event that the then Fair Market Value of the Substitute Property or group of Substitute Properties minus the encumbrances assumed by Landlord, or as to which Landlord will take the Substitute Property or group of Substitute Properties subject, as of the Substitution Date is greater than the then Fair Market Value of the Leased Property minus the encumbrances assumed by Tenant, or as to which the Tenant will take the Leased Property subject, as of the Substitution Date (or in the case of damage or destruction, the Fair Market Value immediately prior to such damage or destruction), Landlord shall pay to Tenant an amount equal to the difference, subject to the limitation set forth below; in the event that such value of the Substitute Property or group of Substitute Properties is less than such value of the Leased Property, Tenant shall pay to Landlord an amount equal to the -47- difference, subject to the limitation set forth below; provided, however, neither Landlord nor Tenant shall be obligated to consummate such substitution if such party would be required to make a payment (the "Cash Adjustment") to the other in excess of an amount equal to five percent (5%) of the Fair Market Value of the Leased Property. (e) The Rent for such Substitute Property shall, in all respects, provide Landlord with a yield (i.e., annual return on its equity in such property) substantially equivalent to Landlord's yield from the Leased Property at the time of such substitution (or in the case of substitution because of damage or destruction the yield immediately prior to such damage or destruction) and as reasonably projected over the remaining Term, taking into account the Cash Adjustment paid or received by Landlord and any other relevant factors, as reasonably determined by Landlord. (f) The Minimum Repurchase Price of the Substitute Property shall be an amount equal to the Minimum Repurchase Price of the Leased Property (i) increased by any Cash Adjustment paid by Landlord pursuant to Paragraph (d) above, or (ii) decreased by any Cash Adjustment paid by Tenant pursuant to paragraph (d) above. 16.4 Conditions to Substitution. On the Substitution Date, the Substitute Property shall become the Leased Property hereunder, upon delivery by Tenant to Landlord of the following: (a) An Officer's Certificate certifying that (i) the Substitute Property has been accepted by Tenant for all purposes of this Lease and there has been no material damage to the improvements located thereon, nor is any Condemnation pending or threatened with respect thereto; (ii) all appropriate permits, licenses and certificates (including, but not limited to, a permanent, unconditional certificate of occupancy and all certificates of need, licenses and provider agreements) which are necessary to permit the use of the Substitute Property in accordance with the provisions of this Lease have been obtained and are in full force and effect; (iii) under applicable zoning and use laws, ordinances, rules and regulations, the Substitute Property may be used for the purposes contemplated by this Lease and all necessary subdivision approvals, if any, have been obtained; (iv) there are no mechanics' or materialmen's liens outstanding or threatened to the knowledge of Tenant against the Substitute Property arising out of or in connection with the construction of the improvements thereon, other than those being contested by Tenant pursuant to Article 8; (v) to the best knowledge of Tenant, there exists no Default or Event of Default, and no defense, offset or claim with respect to any sums payable by Tenant hereunder; and (vi) any exceptions to Landlord's title to the Substitute Property do not materially interfere with the intended use of the Substitute Property by Tenant; (b) A deed with full warranties or assignment of a leasehold estate with full warranties (as applicable) conveying to Landlord -48- title to the Substitute Property free and clear of any liens or encumbrances, except those approved by Landlord; (c) an amendment duly executed, acknowledged and delivered by Tenant, in form and substance satisfactory to Landlord, amending this Lease to correct the legal description of the Land and make such other changes herein as may be necessary or appropriate under the circumstances; (d) counterparts of a standard owner's or lessee's (as applicable) policy of title insurance covering the Substitute Property (or a valid, binding, unconditional commitment therefor), dated as of the Substitution Date, in current form and including mechanics' and materialmen's lien coverage, issued to Landlord by a title insurance company and in the form reasonably satisfactory to Landlord, which policy shall (i) insure (x) Landlord's fee title or leasehold estate to the Substitute Property, subject to no liens or encumbrances except those approved by Landlord and (y) that any restrictions affecting the Substitute Property have not been violated; (ii) be in an amount at least equal to the Fair Market Value of the Substitute Property; and (iii) contain such affirmative coverage endorsements as Landlord shall reasonably request; (e) certificates of insurance with respect to the Substitute Property fulfilling the requirements of Article 9; (f) current appraisals or other evidence satisfactory to Landlord, in its sole discretion, as to the then current Fair Market Values and the projected residual values of such Substitute Property and the Leased Property as to which such substitution is being made; (g) all available revenue data relating to the Substitute Property for the period from the date of opening for business of the Facility on such Substitute Property to the date of Tenant's most recent Fiscal Year end, or for the most recent three (3) years, whichever is less; and (h) such other certificates, documents, opinions of counsel and other instruments as may be reasonably required by Landlord. 16.5 Conveyance to Tenant. On the Substitution Date, Landlord shall convey the Leased Property to Tenant in accordance with the provisions of Article 15 (except as to payment of any expenses in connection therewith which shall be governed by Section 16.6) upon either (a) payment in cash therefor or (b) conveyance to Landlord of the Substitute Property, as appropriate. 16.6 Expenses. Tenant shall pay or cause to be paid, on demand, all reasonable costs and expenses paid or incurred by Landlord in connection with the substitution and conveyance of the Leased Property and Substitute Property, including, but not limited to, (a) reasonable fees and expenses of counsel, (b) all printing expenses, (c) the amount of filing, registration and recording taxes and fees, (d) the cost of -49- preparing and recording, if appropriate, a release of the Leased Property from the lien of any mortgage, (e) brokers' fees and commissions, (f) documentary stamp and transfer taxes, (g) title insurance charges and premiums, and (h) escrow fees. ARTICLE 17 SUBLETTING AND ASSIGNMENT 17.1 Subletting and Assignment. Except as hereinafter provided, Tenant shall not assign, mortgage, pledge, hypothecate, encumber or otherwise transfer this Lease or sublease (which term shall be deemed to include the granting of concessions and licenses and the like) all or any part of the Leased Property or suffer or permit this Lease or the leasehold estate hereby created or any other rights arising under this Lease to be assigned, transferred, mortgaged, pledged, hypothecated or encumbered, in whole or in part, whether voluntarily, involuntarily or by operation of law, or permit the use or occupancy of the Leased Property by anyone other than Tenant, or the Leased Property to be offered or advertised for assignment or subletting except as hereinafter provided. For purposes of this Section 17.1, an assignment of this Lease shall be deemed to include any transaction pursuant to which Tenant is merged or consolidated with another entity or pursuant to which all or substantially all of Tenant's assets are transferred to any other entity, as if such or transaction were an assignment of this Lease. If this Lease is assigned or if the Leased Property or any part thereof are sublet (or occupied by anybody other than Tenant and its employees) Landlord, after default by Tenant hereunder, may collect the rents from such assignee, subtenant or occupant, as the case may be, and apply the net amount collected to the Rent herein reserved, but no such collection shall be deemed a waiver of the provisions set forth in the first paragraph of this Section 17.1, the acceptance by Landlord of such assignee, subtenant or occupant, as the case may be, as a tenant, or a release of Tenant from the future performance by Tenant of its covenants, agreements or obligations contained in this Lease. No subletting or assignment shall in any way impair the continuing primary liability of Tenant hereunder, and no consent to any subletting or assignment in a particular instance shall be deemed to be a waiver of the obligation to obtain the Landlord's written approval in the case of any other subletting or assignment. No assignment, subletting or occupancy shall affect the Primary Intended Use. Any subletting, assignment or other transfer of Tenant's interest in this Lease in contravention of this Section 17.1 shall be voidable at Landlord's option. If the rent and other sums (including, without limitation, the reasonable value of any services performed by any assignee or subtenant in consideration of such assignment or sublease) either initially or over the term of any assignment or sublease, payable by such assignee or subtenant on account of an assignment or sublease exceed the Rent called for hereunder with respect to the space assigned or sublet, Tenant shall -50- pay to Landlord as Additional Rent one hundred percent (100%) of such excess net of the costs and expenses incurred by Tenant in procuring such sublease payable monthly at the time for payment Minimum Rent. 17.2 Required Sublease Provisions. Any sublease of all or any portion of the Leased Property shall provide that it is subject and subordinate to this Lease and to the matters to which this Lease is or shall be subject or subordinate, and that in the event of termination of this Lease or reentry or dispossession of Tenant by Landlord under this Lease, Landlord may, at its option, take over all of the right, title and interest of Tenant, as sublessor under such sublease, and such subtenant shall, at Landlord's option, attorn to Landlord pursuant to the then executory provisions of such sublease, except that neither Landlord nor any Facility Mortgagee, as holder of a mortgage or as Landlord under this Lease, if such mortgagee succeeds to that position, shall (a) be liable for any act or omission of Tenant under such sublease, (b) be subject to any credit, counterclaim, offset or defense which theretofore accrued to such subtenant against Tenant, (c) be bound by any previous modification of such sublease or by any previous prepayment of more than one (1) month's rent, (d) be bound by any covenant of Tenant to undertake or complete any construction of the Leased Property or any portion thereof, (e) be required to account for any security deposit of the subtenant other than any security deposit actually delivered to Landlord by Tenant, (f) be bound by any obligation to make any payment to such subtenant or grant any credits, except for services, repairs, maintenance and restoration provided for under the sublease to be performed after the date of such attornment, (g) be responsible for any monies owing by Tenant to the credit of such Subtenant, or (h) be required to remove any person occupying the Leased Property or any part thereof; and such sublease shall provide that the subtenant thereunder shall, at the request of Landlord, execute a suitable instrument in confirmation of such agreement to attorn. The provisions of this paragraph shall not be deemed a waiver of the provisions set forth in the first paragraph of Section 17.1. 17.3 Sublease Limitation. Anything contained in this Lease to the contrary notwithstanding, Tenant shall not sublet the Leased Property on any basis such that the rental to be paid by the sublessee thereunder would be based, in whole or in part, on either (a) the income or profits derived by the business activities of the sublessee, or (b) any other formula such that any portion of the sublease rental would fail to qualify as "rents from real property" within the meaning of Section 856(d) of the Code, or any similar or successor provision thereto. 17.4 Assignment and Subletting Procedure. Anything contained in this Lease to the contrary notwithstanding, if Tenant wishes to enter into a sublease with respect to any portion of the Leased Property or an assignment of this Lease, Tenant shall give Landlord notice of such intent, which notice ("Tenant's Notice") shall state, in the event of a proposed sublease, the location and amount of area intended to be covered by such sublease and the term of the proposed sublease, the proposed effective date of such sublease or assignment, and the identity of such proposed subtenant or assignee and such other information with respect thereto as Landlord may reasonably require. Landlord shall not unreasonably withhold its consent to any proposed assignment or sublease -51- provided Tenant shall deliver to Landlord a written instrument, in form and substance reasonably satisfactory to Landlord, pursuant to which such assignee agrees directly with Landlord to be bound by all the terms of this Lease and to be jointly and severally liable with Tenant for all of Tenant's obligations under this Lease. ARTICLE 18 CERTIFICATES AND FINANCIAL STATEMENTS 18.1 Estoppel Certificates. At any time and from time to time, upon not less than twenty (20) days prior written notice by Landlord, Tenant shall furnish to Landlord an Officer's Certificate certifying that this Lease is unmodified and in full force and effect (or that this Lease is in full force and effect as modified and setting forth the modifications), the date to which the Rent has been paid, that, to the best of Tenant's knowledge and belief after making due inquiry, Tenant is not in default in the performance or observance of any of the terms of this Lease and that no event exists which with the giving of notice, lapse of time, or both, would constitute a default hereunder, or if Tenant shall be in default or any such event shall exist, specifying in reasonable detail all such defaults or events, and the steps being taken to remedy the same, and such additional information as Landlord may reasonably request. Any such certificate furnished pursuant to this section may be relied upon by Landlord and any prospective purchaser or mortgagee of the Leased Property. 18.2 Financial Statements. Tenant shall furnish the following statements to Landlord: (a) Within forty-five (45) days after each of the first three quarters of each Fiscal Year, the most recent Consolidated Financials of Tenant, together with an Officer's Certificate certifying to the accuracy of such Consolidated Financials; (b) Within one hundred twenty (120) days after the end of each Fiscal Year, the most recent Consolidated Financials of Tenant for such year, certified by an independent certified public accountant satisfactory to Landlord; (c) Promptly after the sending or filing thereof, copies of all reports which Tenant sends to its security holders generally, and copies of all periodic reports which Tenant files with the SEC or any stock exchange on which its shares are listed or traded; (d) Promptly after the delivery thereof to Tenant, or its management, a copy of any management letter or written report prepared by Tenant's certified public accountants with respect to the financial condition, operations, business or prospects of Tenant; (e) At any time and from time to time upon not less than twenty (20) days notice from Landlord, any Consolidated Financials or any other financial reporting information required to be filed -52- by Landlord with any securities and exchange commission, the SEC or any successor agency, or any other governmental authority, or required pursuant to any order issued by any court governmental authority or arbitrator in any litigation to which Landlord is a party, for purposes of compliance therewith; and (f) With reasonable promptness, such other information as to the financial condition and affairs of Tenant as Landlord may reasonably request. 18.3 General Operations. Tenant covenants and agrees to furnish to Landlord: 18.3.1 Reimbursement, Licensure etc. Within thirty (30) days after receipt or modification thereof, copies of (a) All licenses authorizing Tenant to operate the Facility for its Primary Intended Use; (b) All Medicare and Medicaid certifications, together with provider agreements and all material correspondence relating thereto with respect to the Facility (excluding, however, correspondence which may be subject to any attorney-client privilege); (c) A Nursing Home Administrator License for the individuals employed in such capacity with respect to the Facility; (d) All reports of surveys, statements of deficiencies, plans of correction, and all material correspondence relating thereto, including, without limitation, all reports and material correspondence concerning compliance with or enforcement of licensure, Medicare/Medicaid, and accreditation requirements, including physical environment and Life Safety Code survey reports (excluding, however, correspondence which may be subject to any attorney-client privilege); and (e) With reasonable promptness, such other confirmation as to the Licensure and Medicare and Medicaid participation of Tenant as Landlord may reasonably request from time to time. 18.3.2 Monthly Reports. Tenant shall prepare and furnish to Landlord for the Leased Property, within thirty (30) days after the end of each calendar month during the term of this Agreement, a monthly report, such report to include a balance sheet, a current month and year to date income statement, showing each item of actual and projected income and expense, prepared on an accrual basis and a current month and year to date cash flow statement, reflecting the operating results of the Facility; a statement of Net Patient Revenues for such month; and such additional information as the Company may from time to time reasonably require. -53- ARTICLE 19 LANDLORD ACCESS 19.1 Landlord's Right to Inspect. Tenant shall permit Landlord and its authorized representatives to inspect the Leased Property during usual business hours, and to do and make such repairs as Landlord is permitted or required to make pursuant to the terms of this Lease, subject to any security, health, safety or patient or business confidentiality requirements of Tenant or any governmental agency or Insurance Requirement relating to the Leased Property or imposed by law. 19.2 Landlord's Option to Purchase the Tenant's Personal Property; Transfer of Licenses. Effective on not less than ninety (90) days' prior notice given at any time within one hundred eighty (180) days after the expiration of the Term (or such shorter period as shall be appropriate if this Lease is terminated prior to its expiration date), Landlord shall have the option to purchase all (but not less than all) of Tenant's Personal Property (except motor vehicles), if any, at the expiration or termination of this Lease, for an amount equal to the then net market value thereof (current replacement cost as determined by appraisal less accumulated depreciation on Tenant's books pertaining thereto), subject to, and with appropriate price adjustments for, all equipment leases, conditional sale contracts, UCC-1 financing statements and other encumbrances to which such Personal Property is subject; provided, however, Landlord shall not have the right to purchase any Facility Trade Name or logo. ARTICLE 20 APPRAISAL 20.1 Appraisal Procedure. In the event that it becomes necessary to determine the Fair Market Value, Fair Market Value Purchase Price or Fair Market Rental of the Leased Property or a Substitute Property for any purpose of this Lease, the party required or permitted to give notice of such required determination (the "Initiating Party") shall include in such notice the name of a designated Qualified Appraiser (hereinafter defined) on its behalf. Within 10 days after notice, the party receiving such notice (the "Responding Party") shall, by written notice to the other, appoint a second Qualified Appraiser. If the Responding Party shall fail, neglect or refuse within said ten-day period to designate another appraiser willing so to act, the appraiser designated by the Initiating Party shall designate the second Qualified Appraiser within ten (10) days thereafter. The two appraisers so designated shall meet within ten (10) days after the second appraiser is designated, and, if within ten (10) days after the second appraiser is designated, the two appraisers do not agree upon the Fair Market Value, Fair Market Value Purchase Price or Fair Market Rental, as the case may be, of the applicable property as of the relevant date, the two appraisers shall designate a third Qualified Appraiser, within ten (10) days thereafter. In the event that the two appraisers are unable to agree upon the appointment of a third Qualified Appraiser within such ten (10) day period, either Landlord or Tenant, on behalf of both, may -54- then request appointment of such appraiser the then president of the American Arbitration Association. In the event of a failure, refusal or inability of any appraiser to act, a new appraiser shall be appointed in his stead, which appointment shall be made in the same manner as hereinabove provided for the appointment of such appraiser so failing, refusing or being unable to act. In the event that all appraisers cannot agree upon such value ten (10) days as aforesaid, each appraiser shall submit his appraisal of such value to the other two appraisers in writing, and such value shall be determined by calculating the average of the two numerically closest (or, if the values are equidistant, all three) values determined by the three appraisers. The costs, other than counsel fees, of such appraisal shall be borne equally by the parties. Upon determining such value, the appraisers shall promptly notify Landlord and Tenant in writing of such determination. If any party shall fail to appear at the hearings appointed by the appraisers, the appraisers may act in the absence of such party. The determination of the board of appraisers (or the single additional Qualified Appraiser, as appropriate) made in accordance with the foregoing provisions shall be final and binding upon the parties, such determination may be entered as an award in arbitration in a court of competent jurisdiction, and judgment thereon may be entered. ARTICLE 21 MORTGAGES 21.1 Landlord May Grant Liens. Without the consent of Tenant, Landlord may, subject to the terms and conditions set forth in this Section 21.1, from time to time, directly or indirectly, create or otherwise cause to exist any lien, encumbrance or title retention agreement ("Encumbrance") upon the Leased Property, or any portion thereof or interest therein, whether to secure any borrowing or other means of financing or refinancing. Any such Encumbrance, other than one the proceeds of which are used to finance construction of a Capital Addition pursuant to the provisions of Sections 6.1 and 6.3, shall include the right to prepay (whether or not subject to a prepayment penalty) and shall provide (subject to Section 21.2) that it is subject to the rights of Tenant under this Lease. 21.2 Subordination of Lease. Subject to Section 21.1 and the last paragraph of this Section 21.2, this Lease, and all rights of Tenant hereunder, are and shall be subject and subordinate to any ground or master lease, and all renewals, extensions, modifications and replacements thereof, and to all mortgages and deeds of trust, which may now or hereafter affect the Leased Property or any improvements thereon and/or any of such leases, whether or not such mortgages or deeds of trust shall also cover other lands and/or buildings and/or leases, to each and every advance made or hereafter to be made under such mortgages and deeds of trust, and to all renewals, modifications, replacements and extensions of such leases and such mortgages and deeds of trust and all consolidations of such mortgages and deeds of trust. This section shall -55- be self-operative and no further instrument of subordination shall be required. In confirmation of such subordination, Tenant shall promptly execute, acknowledge and deliver any instrument that Landlord, the lessor under any such lease or the holder of any such mortgage or the trustee or beneficiary of any deed of trust or any of their respective successors in interest may reasonably request to evidence such subordination. Any lease to which this Lease is, at the time referred to, subject and subordinate is herein called "Superior Lease" and the lessor of a Superior Lease or its successor in interest at the time referred to, is herein called "Superior Landlord" and any mortgage or deed of trust to which this Lease is, at the time referred to, subject and subordinate, is herein called "Superior Mortgage" and the holder, trustee or beneficiary of a Superior Mortgage is herein called "Superior Mortgagee". If any Superior Landlord or Superior Mortgagee or the nominee or designee of any Superior Landlord or Superior Mortgagee shall succeed to the rights of Landlord under this Lease, whether through possession or foreclosure action or delivery of a new lease or deed, or otherwise, then at the request of such party so succeeding to Landlord's rights (herein called "Successor Landlord") and upon such Successor Landlord's written agreement to accept Tenant's attornment, Tenant shall attorn to and recognize such Successor Landlord as Tenant's landlord under this Lease and shall promptly execute and deliver any instrument that such Successor Landlord may reasonably request to evidence such attornment. Upon such attornment, this Lease shall continue in full force and effect as a direct lease between the Successor Landlord and Tenant upon all of the terms, conditions and covenants as are set forth in this Lease, except that the Successor Landlord (unless formerly the landlord under this Lease or its nominee or designee) shall not be (a) liable in any way to Tenant for any act or omission, neglect or default on the part of Landlord under this Lease, (b) responsible for any monies owing by or on deposit with Landlord to the credit of Tenant, (c) subject to any counterclaim or setoff which theretofore accrued to Tenant against Landlord, (d) bound by any modification of this Lease subsequent to such Superior Lease or Mortgage, or by any previous prepayment of Minimum Rent or Percentage Rent for more than one (1) month, which was not approved in writing by the Superior Landlord or the Superior Mortgagee thereto, (e) liable to the Tenant beyond the Successor Landlord's interest in the Leased Property and the rents, income, receipts, revenues, issues and profits issuing from the Leased Property, (f) responsible for the performance of any work to be done by the Landlord under this Lease to render the Leased Property ready for occupancy by Tenant, or (g) required to remove any person occupying the Leased Property or any part thereof, except if such person claims by, through or under the Successor Landlord. Tenant agrees at any time and from time to time to execute a suitable instrument in confirmation of Tenant's agreement to attorn, as aforesaid. Tenant's obligation to subordinate this Lease and Tenant's rights hereunder to any Superior Mortgage or Superior Lease shall be conditioned upon Landlord obtaining from any Superior Mortgagee or Superior Landlord, an agreement which shall be executed by Tenant and such Superior Mortgagee or Superior Landlord which shall provide in substance that so long as no Event of Default exists as would entitle -56- Landlord or any such Superior Mortgagee or Superior Landlord to terminate this Lease or would cause, without any further action of Landlord or such Superior Mortgagee or Superior Landlord, the termination of this Lease or would entitle Landlord or such Superior Mortgagee or Superior Landlord to dispossess Tenant, this Lease shall not be terminated, nor shall Tenant's use, possession or enjoyment of the Leased Property, in accordance with the terms and provisions of this Lease, be interfered with, nor shall the leasehold estate granted by this Lease be affected in any other manner, in any foreclosure or any action or proceeding instituted under or in connection with such Superior Mortgage or Superior Lease, or in the event such Superior Mortgagee or Superior Landlord takes possession of the Leased Property pursuant to any provisions of such Superior Mortgage or Superior Lease, unless Landlord or such Superior Mortgagee or Superior Landlord would have had such right of termination pursuant to this Lease. Such agreement shall be in form customarily used by the holder of any such Superior Mortgage or Superior Lease. 21.3 Notice to Mortgagee and Ground Landlord. Subsequent to the receipt by Tenant of notice from any person, firm or other entity that it is a Facility Mortgagee, or that it is the ground lessor under a lease with Landlord, as ground lessee, which includes the Leased Property as part of the demised premises, no notice from Tenant to Landlord shall be effective unless and until a copy of the same is given to such Facility Mortgagee or ground lessor and the curing of any of Landlord's defaults by such Facility Mortgagee or ground lessor shall be treated as performance by Landlord. ARTICLE 22 INVESTMENT TAX CREDIT 22.1 Investment Tax Credit. Landlord agrees to elect, in accordance with Section 48(d) of the Code, to treat Tenant as having purchased all such eligible property in the Leased Property as may be designated by Tenant in order that Tenant may obtain the benefit of the credit, if any, allowed or allowable with respect thereto under Section 38 of the Code. Landlord makes no representation or warranty with respect to the availability of the credit to Tenant or the efficacy of such election. Landlord's sole responsibility in this regard shall be to execute such documents as are reasonably required to effect the election, which documents Tenant shall prepare, at Tenant's sole cost and expense, and to provide Tenant with such information as may be reasonably requested by Tenant in connection therewith. In addition, Landlord agrees it and its assignees will not claim the credit provided by Section 38 of the Code for any property included in the Leased Property. -57- ARTICLE 23 ADDITIONAL COVENANTS OF TENANT 23.1 Notice of Change of Name, Administrator, Etc. Tenant shall give prompt notice to Landlord of any change in (a) the name (operating or otherwise) of Tenant or the Facility, (b) the individual licensed as administrator of the Facility, (1) the number of beds in any bed category for which the Facility is licensed or the number of beds in any bed category available for use at the Facility (except for changes in the number of certified distinct part beds made for reimbursement maximization purposes), and (d) the patient and/or child care services that are offered at the Facility. 23.2 Notice of Litigation, Potential Event of Default, Etc. Tenant shall give prompt notice to Landlord of any litigation or any administrative proceeding to which it may hereafter become a party which involves a potential liability equal to or greater than $250,000, or which may otherwise result in any material adverse change in the business, operations, property, prospects, results of operation or condition, financial or other, of Tenant. Forthwith upon Tenant obtaining knowledge of any Default or Event of Default, or any event or condition that would be required to be disclosed in a current report filed by Tenant on Form 8-K or in Part II of a quarterly report on Form 10-Q if Tenant were required to file such reports under the Securities Exchange Act of 1934, as amended, Tenant shall give Landlord notice thereof, which notice shall set forth in reasonable detail the nature and period of existence thereof and what action Tenant has taken or is taking or proposes to take with respect thereto. 23.3 Management of Leased Property. Tenant shall not enter into any management or similar agreement in respect of the Leased Property without the express prior written consent of Landlord. 23.4 Distributions, Payments to Affiliated Persons, Etc. Tenant will not declare, order, pay or make, directly or indirectly, any distribution or any payment to any Affiliated Person as to Tenant (including payments in the ordinary course of business and payment pursuant to management agreements with any such Affiliated Person) or set apart any sum or property therefor, or agree to do so, if, at the time of such proposed action, or immediately after giving effect thereto, any event or condition shall exist which constitutes a Default or an Event of Default. ARTICLE 24 MISCELLANEOUS 24.1 No Waiver. No failure by Landlord or Tenant to insist upon the strict performance of any term hereof or to exercise any right, power or remedy consequent upon a breach thereof, and no acceptance of full or partial payment of rent during the continuance of any such -58- breach, shall constitute a waiver of any such breach or of any such term. To the extent permitted by law, no waiver of any breach shall affect or alter this Lease, which shall continue in full force and effect with respect to any other then existing or subsequent breach. 24.2 Remedies Cumulative. To the extent permitted by law, each legal, equitable or contractual right, power and remedy of Landlord, now or hereafter provided either in this Lease or by statute or otherwise, shall be cumulative and concurrent and shall be in addition to every other right, power and remedy and the exercise or beginning of the exercise by Landlord or Tenant of any one or more of such rights, powers and remedies shall not preclude the simultaneous or subsequent exercise by Landlord or Tenant of any or all of such other rights, powers and remedies. 24.3 Acceptance of Surrender. No surrender to Landlord of this Lease or of the Leased Property or any part thereof, or of any interest therein, shall be valid or effective unless agreed to and accepted in writing by Landlord and no act by Landlord or any representative or agent of Landlord, other than such a written acceptance by Landlord, shall constitute an acceptance of any such surrender. 24.4 No Merger of Title. There shall be no merger of this Lease or of the leasehold estate created hereby by reason of the fact that the same person, firm, corporation or other entity may acquire, own or hold, directly or indirectly (a) this Lease or the leasehold estate created hereby or any interest in this Lease or such leasehold estate and (b) the fee estate or ground landlord's interest in the Leased Property. 24.5 Conveyance by Landlord. If Landlord or any successor owner of the Leased Property shall convey the Leased Property in accordance with the terms hereof other than as security for a debt, and the grantee or transferee of the Leased Property shall expressly assume all obligations of Landlord hereunder arising or accruing from and after the date of such conveyance or transfer and shall be reasonably capable of performing the obligations of Landlord hereunder, Landlord or such successor owner, as the case may be, shall thereupon be released from all future liabilities and obligations of Landlord under this Lease arising or accruing from and after the date of such conveyance or other transfer as to the Leased Property and all such future liabilities and obligations shall thereupon be binding upon the new owner. 24.6 Quiet Enjoyment. So long as Tenant shall pay the Rent as the same becomes due and shall substantially comply with all of the terms of this Lease and perform its obligations hereunder, Tenant shall peaceably and quietly have, hold and enjoy the Leased Property for the Term hereof, free of any claim or other action by Landlord or anyone claiming by, through or under Landlord, but subject to all liens and encumbrances of record as of the date hereof or hereafter consented to by Tenant. Except as otherwise provided in this Lease, no failure by Landlord to comply with the foregoing covenant shall give Tenant any right to cancel or terminate this Lease or abate, reduce or make a deduction from or offset against the Rent or any other sum payable under this Lease, or to fail to perform any other obligation of Tenant hereunder. Notwithstanding the foregoing, Tenant shall have the right, by separate -59- and independent action to pursue any claim it may have against Landlord as a result of a breach by Landlord of the covenant of quiet enjoyment contained in this Section. 24.7 Landlord's Liability. THE DECLARATION OF TRUST ESTABLISHING LANDLORD, DATED OCTOBER 9, 1986, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HEALTH AND REHABILITATION PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF LANDLORD SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, LANDLORD. ALL PERSONS DEALING WITH LANDLORD, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF LANDLORD FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. Tenant, its successors and assigns, shall not assert nor seek to enforce any claim for breach of this Lease against any of Landlord's assets other than Landlord's interest in the Leased Property and in the rents, issues and profits thereof, and Tenant agrees to look solely to such interest for the satisfaction of any liability or claim against Landlord under this Lease, it being specifically agreed that in no event whatsoever shall Landlord (which term shall include, without limitation, any general or limited partner, trustees, beneficiaries, officers, directors, or stockholders of Landlord) ever be personally liable for any such liability. In no event shall Landlord ever be liable to Tenant for any indirect or consequential damages. 24.8 Landlord's Consent. Where provisions are made in this Lease for Landlord's consent and Landlord shall fail or refuse to give such consent, Tenant shall not be entitled to any damages for any withholding by Landlord of its consent, it being intended that Tenant's sole remedy shall be an action for specific performance or injunction, and that such remedy shall be available only in those cases where Landlord has expressly agreed in writing not to unreasonably withhold its consent. 24.9 Memorandum of Lease. Neither Landlord nor Tenant shall record this Lease. However, Landlord and Tenant shall promptly, upon the request of either, enter into a short form memorandum of this Lease, in form suitable for recording under the laws of the State in which reference to this Lease, and all options contained herein, shall be made. Tenant shall pay all costs and expenses of recording such memorandum of this Lease. 24.10 Notices. (a) Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Lease shall be deemed adequately given if in writing and the same shall be delivered either in hand, by telecopier with written acknowledgment of receipt, or by mail or Federal Express or similar expedited commercial carrier, addressed to the recipient of the notice, postpaid and registered or certified with return receipt requested (if by mail), or with all freight charges prepaid (if by Federal Express or similar carrier). -60- (b) All notices required or permitted to be sent hereunder shall be deemed to have been given for all purposes of this Lease upon the date of acknowledged receipt, in the case of a notice by telecopier, and, in all other cases, upon the date of receipt or refusal, except that whenever under this Lease a notice is either received on a day which is not a Business Day or is required to be delivered on or before a specific day which is not a Business Day, the day of receipt or required delivery shall automatically be extended to the next Business Day. (c) All such notices shall be addressed, if to Landlord to: Health and Rehabilitation Properties Trust 400 Centre Street Newton, Massachusetts 02158 Attn: Mr. David J. Hegarty [Telecopier No. (617) 332-2261] with a copy to: Sullivan & Worcester One Post Office Square Boston, Massachusetts 02109 Attn: Lena G. Goldberg, Esq. [Telecopier No. (617) 338-2880] if to Tenant to: Connecticut Subacute Corporation II 400 Centre Street Newton, Massachusetts 02158 Attn: Mr. Mark Finklestein [Telecopier No. (617) 332-2261] with a copy to: Sullivan & Worcester One Post Office Square Boston, Massachusetts 02109 Attn: Lena G. Goldberg, Esq. [Telecopier No. (617) 338-2880] (d) By notice given as herein provided, the parties hereto and their respective successor 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 within the United States of America. 24.11 Construction. Anything contained in this Lease to the contrary notwithstanding, all claims against, and liabilities of, Tenant or Landlord arising prior to any date of termination of this Lease shall -61- survive such termination. If any term or provision of this Lease or any application thereof shall be invalid or unenforceable, the remainder of this Lease and any other application of such term or provisions shall not be affected thereby. If any late charges or any interest rate provided for in any provision of this Lease are based upon a rate in excess of the maximum rate permitted by applicable law, the parties agree that such charges shall be fixed at the maximum permissible rate. Neither this Lease nor any provision hereof may be changed, waived, discharged or terminated except by an instrument in writing signed by the party to be charged. All the terms and provisions of this Lease shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. The headings in this Lease are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. This Lease represents the entire agreement among the parties and amends and restates the Original Leases in their entirety. This Lease may not be amended or modified in any respect except by the written agreement of Landlord and Tenant. 24.12 Governing Law. This Lease shall be interpreted, construed, applied and enforced in accordance with the laws of the State applicable to contracts between residents of the State which are to be performed entirely within the State, regardless of (i) where this Lease is executed or delivered; or (ii) where any payment or other performance required by this Lease is made or required to be made; or (iii) where any breach of any provision of this Lease occurs, or any cause of action otherwise accrues; or (iv) where any action or other proceeding is instituted or pending; or (v) the nationality, citizenship, domicile, principle place of business, or jurisdiction of organization or domestication of any party; or (vi) whether the laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction other than the State; or (vii) any combination of the foregoing. To the maximum extent permitted by applicable law, any action to enforce, arising out of, or relating in any way to, any of the provisions of this Lease may be brought and prosecuted in such court or courts located in the State as is provided by law; and the parties consent to the jurisdiction of said court or courts located in the State and to service of process by registered mail, return receipt requested, or by any other manner provided by law. IN WITNESS WHEREOF, the parties have executed this Lease, as a sealed instrument, as of the date first above written. LANDLORD: HEALTH AND REHABILITATION PROPERTIES TRUST By: John G. Murray Its: Treasurer TENANT: -62- CONNECTICUT SUBACUTE CORPORATION II By: Barry M. Portnoy Its: Secretary EXHIBIT A Other Leases [See attached copy.] EXHIBIT B Permitted Encumbrances [See attached copy.] EXHIBIT C The Land [See attached copy.] EXHIBIT D Minimum Rent [See attached copy.] EX-10.21 6 Exhibit 10.21 MASTER LEASE AGREEMENT DATED AS OF JANUARY __, 1995 BY AND BETWEEN HEALTH AND RETIREMENT PROPERTIES TRUST, AS LANDLORD, AND VERMONT SUBACUTE CORPORATION AND NEW HAMPSHIRE SUBACUTE CORPORATION, AS TENANTS TABLE OF CONTENTS ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . 1 1.1 "Additional Rent" . . . . . . . . . . . . . . . . . . . 1 1.2 "Additional Charges" . . . . . . . . . . . . . . . . . 2 1.3 "Additional Properties . . . . . . . . . . . . . . . . . 2 1.4 "Adjusted Purchase Price" . . . . . . . . . . . . . . . 2 1.5 "Affiliated Person" . . . . . . . . . . . . . . . . . . 2 1.6 "Agreement" . . . . . . . . . . . . . . . . . . . . . . 2 1.7 "Applicable Laws" . . . . . . . . . . . . . . . . . . . 2 1.8 "Award" . . . . . . . . . . . . . . . . . . . . . . . . 3 1.10 "Base Net Patient Revenues" . . . . . . . . . . . . . . 3 1.11 "Business Day" . . . . . . . . . . . . . . . . . . . . 3 1.12 "Capital Addition" . . . . . . . . . . . . . . . . . . 4 1.13 "Capital Additions Cost" . . . . . . . . . . . . . . . 4 1.14 "Change in Control" . . . . . . . . . . . . . . . . . . 4 1.15 "Code" . . . . . . . . . . . . . . . . . . . . . . . . 5 1.16 "Collective Leased Properties" . . . . . . . . . . . . 5 1.17 "Commencement Date" . . . . . . . . . . . . . . . . . . 5 1.18 "Condemnation" . . . . . . . . . . . . . . . . . . . . 5 1.19 "Condemnor" . . . . . . . . . . . . . . . . . . . . . . 5 1.21 "Declaration . . . . . . . . . . . . . . . . . . . . . . 5 1.22 "Default" . . . . . . . . . . . . . . . . . . . . . . . 5 1.23 "Distribution" . . . . . . . . . . . . . . . . . . . . 5 1.24 "Encumbrance" . . . . . . . . . . . . . . . . . . . . . 6 1.25 "Entity . . . . . . . . . . . . . . . . . . . . . . . . 6 1.26 "Environment" . . . . . . . . . . . . . . . . . . . . . 6 1.27 "Environmental Obligation" . . . . . . . . . . . . . . 6 1.28 "Environmental Notice" . . . . . . . . . . . . . . . . 6 1.29 "Environmental Report" . . . . . . . . . . . . . . . . 6 1.30 "Event of Default" . . . . . . . . . . . . . . . . . . 6 1.31 "Excess Net Patient Revenues" . . . . . . . . . . . . . 6 1.32 "Extended Terms" . . . . . . . . . . . . . . . . . . . 6 1.33 "Facility" . . . . . . . . . . . . . . . . . . . . . . 6 1.34 "Facility Mortgage" . . . . . . . . . . . . . . . . . . 6 1.35 "Facility Mortgagee" . . . . . . . . . . . . . . . . . 6 1.36 "Facility Trade Name" . . . . . . . . . . . . . . . . . 6 1.37 "Fair Market Added Value" . . . . . . . . . . . . . . . 7 1.39 "Fair Market Rental" . . . . . . . . . . . . . . . . . 7 1.40 "Fair Market Value" . . . . . . . . . . . . . . . . . . 7 1.41 "Fair Market Value Purchase Price" . . . . . . . . . . 7 1.42 "Financial Officer's Certificate" . . . . . . . . . . . 7 1.43 "Financials" . . . . . . . . . . . . . . . . . . . . . 7 1.44 "Fiscal Year" . . . . . . . . . . . . . . . . . . . . . 8 1.45 "Fixed Term" . . . . . . . . . . . . . . . . . . . . . 8 1.46 "Fixtures" . . . . . . . . . . . . . . . . . . . . . . 8 1.47 "GAAP" . . . . . . . . . . . . . . . . . . . . . . . . 8 1.48 "Government Agencies . . . . . . . . . . . . . . . . . . 8 1.49 "Guarantor" . . . . . . . . . . . . . . . . . . . . . . 8 1.50 "Guaranty" . . . . . . . . . . . . . . . . . . . . . . 8 1.51 "Hazardous Substances" . . . . . . . . . . . . . . . . 8 1.52 "Immediate Family . . . . . . . . . . . . . . . . . . . 9 1.53 "Impositions" . . . . . . . . . . . . . . . . . . . . . 9 -ii- 1.54 "Incidental Documents" . . . . . . . . . . . . . . . . 10 1.55 "Indebtedness" . . . . . . . . . . . . . . . . . . . . 10 1.56 "Independent Trustees" . . . . . . . . . . . . . . . . 10 1.57 "Insurance Requirements" . . . . . . . . . . . . . . . 10 1.58 "Investment" . . . . . . . . . . . . . . . . . . . . . 10 1.59 "Land" . . . . . . . . . . . . . . . . . . . . . . . . 11 1.60 "Landlord" . . . . . . . . . . . . . . . . . . . . . . 11 1.61 "Lease Year" . . . . . . . . . . . . . . . . . . . . . 11 1.62 "Leased Improvements" . . . . . . . . . . . . . . . . . 11 1.63 "Leased Personal Property" . . . . . . . . . . . . . . 11 1.64 "Leased Property" . . . . . . . . . . . . . . . . . . . 11 1.65 "Legal Requirements" . . . . . . . . . . . . . . . . . 11 1.66 "Lending Institution" . . . . . . . . . . . . . . . . . 11 1.67 "Lien" . . . . . . . . . . . . . . . . . . . . . . . . 12 1.68 "Management Agreement" . . . . . . . . . . . . . . . . 12 1.69 "Manager" . . . . . . . . . . . . . . . . . . . . . . . 12 1.70 "Market Area . . . . . . . . . . . . . . . . . . . . . . 12 1.71 "Minimum Rent" . . . . . . . . . . . . . . . . . . . . 12 1.72 "Net Patient Revenues" . . . . . . . . . . . . . . . . 12 1.73 "New Hampshire Leased Property . . . . . . . . . . . . . 13 1.74 "New Hampshire Subacute . . . . . . . . . . . . . . . . 13 1.75 "Notice" . . . . . . . . . . . . . . . . . . . . . . . 13 1.76 "Nursing Home Administrator License . . . . . . . . . . 13 1.77 "Officer's Certificate" . . . . . . . . . . . . . . . . 13 1.78 "Option Purchase Price . . . . . . . . . . . . . . . . . 13 1.79 "Overdue Rate" . . . . . . . . . . . . . . . . . . . . 13 1.80 "Parent . . . . . . . . . . . . . . . . . . . . . . . . 13 1.81 "Permitted Encumbrances" . . . . . . . . . . . . . . . 13 1.82 "Person" . . . . . . . . . . . . . . . . . . . . . . . 14 1.83 "Pledge and Security Agreement . . . . . . . . . . . . . 14 1.84 "Purchase Agreement . . . . . . . . . . . . . . . . . . 14 1.85 "Primary Intended Use" . . . . . . . . . . . . . . . . 14 1.86 "Qualified Appraiser . . . . . . . . . . . . . . . . . . 14 1.87 "Records" . . . . . . . . . . . . . . . . . . . . . . . 14 1.88 "Regulated Medical Wastes . . . . . . . . . . . . . . . 14 1.89 "Rent" . . . . . . . . . . . . . . . . . . . . . . . . 14 1.90 "SEC" . . . . . . . . . . . . . . . . . . . . . . . . . 14 1.91 "State" . . . . . . . . . . . . . . . . . . . . . . . . 14 1.92 "Stock Pledge Agreement" . . . . . . . . . . . . . . . 15 1.93 "Subordinated Creditor" . . . . . . . . . . . . . . . . 15 1.94 "Subordination Agreement" . . . . . . . . . . . . . . . 15 1.95 "Subsidiary" . . . . . . . . . . . . . . . . . . . . . 15 1.96 "Tangible Net Worth" . . . . . . . . . . . . . . . . . 15 1.97 "Tenant" . . . . . . . . . . . . . . . . . . . . . . . 15 1.98 "Tenant's Capital Additions" . . . . . . . . . . . . . 15 1.99 "Tenant's Personal Property" . . . . . . . . . . . . . 15 1.100 "Term" . . . . . . . . . . . . . . . . . . . . . . . . 16 1.101 "Trustees" . . . . . . . . . . . . . . . . . . . . . . 16 1.102 "Unsuitable for Its Primary Intended Use" . . . . . . 16 1.103 "Vermont Subacute . . . . . . . . . . . . . . . . . . . 16 1.104 "Work" . . . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE 2 COLLECTIVE LEASED PROPERTIES AND TERM . . . . . . . 16 2.1 Collective Leased Properties . . . . . . . . . . . . . . 16 -iii- 2.2 Condition of Collective Leased Properties . . . . . . . . 17 2.3 Fixed Term . . . . . . . . . . . . . . . . . . . . . . . 18 2.4 Extended Term . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE 3 RENT . . . . . . . . . . . . . . . . . . . . . . . . 19 3.1 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.1.1 Minimum Rent . . . . . . . . . . . . . . . . . . . 19 3.1.2 Additional Rent . . . . . . . . . . . . . . . . . 19 3.1.3 Additional Charges . . . . . . . . . . . . . . . . 22 3.2 Late Payment of Rent . . . . . . . . . . . . . . . . . . 24 3.3 Net Lease . . . . . . . . . . . . . . . . . . . . . . . . 24 3.4 No Termination, Abatement, Etc. . . . . . . . . . . . . . 24 ARTICLE 4 USE OF THE COLLECTIVE LEASED PROPERTIES . . . . . . 25 4.1 Permitted Use . . . . . . . . . . . . . . . . . . . . . . 25 4.1.1 Primary Intended Use . . . . . . . . . . . . . . . 25 4.1.2 Necessary Approvals . . . . . . . . . . . . . . . 26 4.1.3 Lawful Use, Etc. . . . . . . . . . . . . . . . . . 26 4.2 Compliance with Legal and Insurance Requirements, Etc. . . . . . . . . . . . . . . . . . . 27 4.3 Compliance with Medicaid and Medicare Requirements . . . . . . . . . . . . . . . . . . . . . 27 4.4 Environmental Matters . . . . . . . . . . . . . . . . . . 27 4.4.1 Restriction on Use, Etc. . . . . . . . . . . . . . 27 4.4.2 Environment Report . . . . . . . . . . . . . . . . 28 4.4.4 Survival . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE 5 MAINTENANCE AND REPAIRS . . . . . . . . . . . . . . 30 5.1 Maintenance and Repair . . . . . . . . . . . . . . . . . 30 5.1.1 Tenant's Obligations . . . . . . . . . . . . . . . 30 5.1.2 Landlord's Obligations . . . . . . . . . . . . . . 31 5.1.3 Nonresponsibility of Landlord; No Mechanics Liens . . . . . . . . . . . . . . . . . . . . . . 31 5.2 Tenant's Personal Property . . . . . . . . . . . . . . . 32 5.3 Yield Up . . . . . . . . . . . . . . . . . . . . . . . . 32 5.4 Encroachments, Restrictions, Etc. . . . . . . . . . . . . 33 5.5 Landlord to Grant Easements, Etc. . . . . . . . . . . . . 34 ARTICLE 6 CAPITAL ADDITIONS, ETC. . . . . . . . . . . . . . . 34 6.1 Construction of Capital Additions to the Leased Property . . . . . . . . . . . . . . . . . . . . 34 6.2 Capital Additions Financed or Paid For by Tenant . . . . 35 6.2.1 Financing of Capital Additions . . . . . . . . . . 35 6.2.2 Purchase by Landlord . . . . . . . . . . . . . . . 35 6.3 Capital Additions Financed by Landlord . . . . . . . . . 37 6.4 Non-Capital Additions . . . . . . . . . . . . . . . . . . 38 6.5 Salvage . . . . . . . . . . . . . . . . . . . . . . . . . 39 ARTICLE 7 LIENS . . . . . . . . . . . . . . . . . . . . . . . 39 7.1 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . 39 -iv- 7.2 Landlord's Lien . . . . . . . . . . . . . . . . . . . . . 39 ARTICLE 8 PERMITTED CONTESTS . . . . . . . . . . . . . . . . . 40 ARTICLE 9 INSURANCE AND INDEMNIFICATION . . . . . . . . . . . 41 9.1 General Insurance Requirements . . . . . . . . . . . . . 41 9.2 Replacement Cost . . . . . . . . . . . . . . . . . . . . 42 9.3 Waiver of Subrogation . . . . . . . . . . . . . . . . . . 43 9.4 Form Satisfactory, Etc . . . . . . . . . . . . . . . . . 43 9.5 Blanket Policy . . . . . . . . . . . . . . . . . . . . . 44 9.6 No Separate Insurance . . . . . . . . . . . . . . . . . . 44 9.7 Indemnification of Landlord . . . . . . . . . . . . . . . 44 ARTICLE 10 CASUALTY . . . . . . . . . . . . . . . . . . . . . . 45 10.1 Insurance Proceeds . . . . . . . . . . . . . . . . . . . 45 10.2 Damage or Destruction . . . . . . . . . . . . . . . . . 45 10.2.1 Damage or Destruction of Leased Property . . . . 45 10.2.2 Partial Damage or Destruction . . . . . . . . . . 46 10.2.3 Insufficient Insurance Proceeds . . . . . . . . . 46 10.2.4 Disbursement of Proceeds . . . . . . . . . . . . 46 10.3 Damage Near End of Term . . . . . . . . . . . . . . . . 48 10.4 Tenant's Property . . . . . . . . . . . . . . . . . . . 48 10.5 Restoration of Tenant's Property . . . . . . . . . . . . 48 10.6 No Abatement of Rent . . . . . . . . . . . . . . . . . . 48 10.7 Termination of Option to Purchase . . . . . . . . . . . 49 10.8 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 49 ARTICLE 11 CONDEMNATION . . . . . . . . . . . . . . . . . . . . 49 11.1 Total Condemnation, Etc . . . . . . . . . . . . . . . . 49 11.2 Partial Condemnation . . . . . . . . . . . . . . . . . . 49 11.3 Abatement of Rent . . . . . . . . . . . . . . . . . . . 50 11.4 Temporary Condemnation . . . . . . . . . . . . . . . . . 51 11.5 Allocation of Award . . . . . . . . . . . . . . . . . . 51 11.6 Termination of Rights of Option to Purchase. . . . . . . 51 ARTICLE 12 DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . 52 12.1 Events of Default . . . . . . . . . . . . . . . . . . . 52 12.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . 55 12.3 Tenant's Waiver . . . . . . . . . . . . . . . . . . . . 57 12.4 Application of Funds . . . . . . . . . . . . . . . . . . 58 12.5 Landlord's Right to Cure Tenant's Default . . . . . . . 58 12.6 Trade Names . . . . . . . . . . . . . . . . . . . . . . 58 ARTICLE 13 HOLDING OVER . . . . . . . . . . . . . . . . . . . . 59 ARTICLE 14 LANDLORD'S DEFAULT . . . . . . . . . . . . . . . . . 59 ARTICLE 15 PURCHASE OF LEASED PROPERTY . . . . . . . . . . . . 60 ARTICLE 16 SUBLETTING AND ASSIGNMENT . . . . . . . . . . . . . 60 16.1 Subletting and Assignment . . . . . . . . . . . . . . . 60 -v- 16.2 Required Sublease Provisions . . . . . . . . . . . . . . 61 16.3 Permitted Sublease . . . . . . . . . . . . . . . . . . . 62 16.4 Sublease Limitation . . . . . . . . . . . . . . . . . . 63 ARTICLE 17 ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . 63 17.1 Estoppel Certificates . . . . . . . . . . . . . . . . . 63 17.2 Financial Statements . . . . . . . . . . . . . . . . . . 63 17.3 General Operations . . . . . . . . . . . . . . . . . . . 65 17.3.1 Reimbursement, Licensure, Etc . . . . . . . . . . 65 17.3.2 Annual Budgets . . . . . . . . . . . . . . . . . 65 ARTICLE 18 LANDLORD'S RIGHT TO INSPECT . . . . . . . . . . . . 66 ARTICLE 19 APPRAISAL . . . . . . . . . . . . . . . . . . . . . 66 19.1 Appraisal Procedure . . . . . . . . . . . . . . . . . . 66 19.2 Landlord's Right to Appraisal . . . . . . . . . . . . . 68 ARTICLE 20 OPTION TO PURCHASE . . . . . . . . . . . . . . . . . 68 20.1 Landlord's Option to Purchase Tenant's Personal Property; Transfer of Licenses . . . . . . . 68 20.2 Tenant's Option to Purchase the Leased Property . . . . 69 20.3 First Refusal to Purchase . . . . . . . . . . . . . . . 69 ARTICLE 21 FACILITY MORTGAGES . . . . . . . . . . . . . . . . . 71 21.1 Landlord May Grant Liens . . . . . . . . . . . . . . . . 71 21.2 Subordination of Lease . . . . . . . . . . . . . . . . . 71 21.3 Notice to Mortgagee and Ground Landlord . . . . . . . . 72 ARTICLE 22 ADDITIONAL COVENANTS OF TENANT . . . . . . . . . . . 73 22.1 Prompt Payment of Indebtedness . . . . . . . . . . . . 73 22.2 Conduct of Business . . . . . . . . . . . . . . . . . . 73 22.3 Maintenance of Accounts and Records . . . . . . . . . . 73 22.4 Notice of Change of Name, Administrator, Etc . . . . . 73 22.5 Notice of Litigation, Potential Event of Default, Etc. . . . . . . . . . . . . . . . . . . 74 22.6 Indebtedness of Tenant . . . . . . . . . . . . . . . . 74 22.7 Distributions, Payments to Affiliated Persons, Etc . . . . . . . . . . . . . . . . . . . . 75 22.8 Investments . . . . . . . . . . . . . . . . . . . . . . 75 22.9 Prohibited Transactions . . . . . . . . . . . . . . . . 76 22.10 Management of Collective Leased Properties . . . . . . 76 22.11 Liens and Encumbrances . . . . . . . . . . . . . . . . 77 22.12 Merger; Sale of Assets; Etc . . . . . . . . . . . . . . 77 22.13 Guaranties . . . . . . . . . . . . . . . . . . . . . . 77 ARTICLE 23 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . 78 23.1 Limitation on Payment of Rent . . . . . . . . . . . . . 78 23.2 No Waiver . . . . . . . . . . . . . . . . . . . . . . . 78 -vi- 23.3 Remedies Cumulative . . . . . . . . . . . . . . . . . . 78 23.4 Severability . . . . . . . . . . . . . . . . . . . . . 78 23.5 Acceptance of Surrender . . . . . . . . . . . . . . . . 79 23.6 No Merger of Title . . . . . . . . . . . . . . . . . . 79 23.7 Conveyance by Landlord . . . . . . . . . . . . . . . . 79 23.8 Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . 79 23.9 NON-LIABILITY OF TRUSTEES . . . . . . . . . . . . . . . 80 23.10 Landlord's Consent of Trustees . . . . . . . . . . . . 80 23.11 Memorandum of Lease . . . . . . . . . . . . . . . . . . 80 23.12 Notices . . . . . . . . . . . . . . . . . . . . . . . . 80 23.13 Construction . . . . . . . . . . . . . . . . . . . . . 81 23.14 Counterparts; Headings . . . . . . . . . . . . . . . . 82 23.15 Landlord Financing. . . . . . . . . . . . . . . . . . . 82 23.16 Applicable Law, Etc . . . . . . . . . . . . . . . . . . 82 23.17 Allocation of Minimum Rent . . . . . . . . . . . . . . 83 23.18 Additional Leased Properties. . . . . . . . . . . . . . 83 EXHIBITS A-1 - A-8 - Legal Descriptions B - Purchase Price C Minimum Rent Allocation MASTER LEASE AGREEMENT THIS MASTER LEASE AGREEMENT is entered into as of this ___ day of January 1995, by and between HEALTH AND RETIREMENT PROPERTIES TRUST, a Maryland real estate investment trust, having its principal office at 400 Centre Street, Newton, Massachusetts 02158 ("Landlord"), Vermont Subacute Corporation, a Delaware corporation, having its principal office at 150 South Champlain Street, Burlington, Vermont 05401 ("Vermont Subacute"), and New Hampshire Subacute Corporation, a Delaware corporation, having its principal office at 40 Whitehall Road, Rochester, New Hampshire 03867 ("New Hampshire Subacute"). W I T N E S E T H : WHEREAS, Landlord owns fee simple title to the Collective Leased Properties (this and other capitalized terms used and not otherwise defined herein having the meanings ascribed to such terms in Article 1); and WHEREAS, Landlord wishes to lease the Collective Leased Properties to Tenant and Tenant wishes to lease the Collective Leased Properties from Landlord, all subject to and upon the terms and conditions herein set forth; NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: ARTICLE 1 DEFINITIONS For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, (i) the terms defined in this Article shall have the meanings assigned to them in this Article and include the plural as well as the singular, (ii) all accounting terms not otherwise defined herein shall have the meanings assigned to them in accordance with GAAP, (iii) all references in this Agreement to designated "Articles," "Sections" and other subdivisions are to the designated Articles, Sections and other subdivisions of this Agreement, and (iv) the words "herein," "hereof," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision. 1.1 "Additional Rent" shall have the meaning given such term in Section 3.1.2(a). 1.2 "Additional Charges" shall have the meaning given such term in Section 3.1.3. -2- 1.3 "Additional Properties" shall have the meaning given such term in Section 23.18 hereof. 1.4 "Adjusted Purchase Price" shall mean, with respect to any Leased Property, the Purchase Price of such Leased Property plus any amounts disbursed or advanced by Landlord to finance, or to reimburse Tenant for its financing of, any Capital Addition to such Leased Property less the amount of any Award or the proceeds of any insurance received by Landlord in connection with a partial Condemnation or a partial casualty involving the applicable Leased Property as described in Section 11.2 or 10.2.2, and not applied by Landlord to the restoration of the applicable Leased Property as provided therein. 1.5 "Affiliated Person" shall mean, with respect to any Person, (a) in the case of any such Person which is a partnership, any partner in such partnership, (b) in the case of any such Person which is a limited liability company, any member of such company, (c) any other Person which is a Parent, a Subsidiary, or a Subsidiary of a Parent with respect to such Person or to one or more of the Persons referred to in the preceding clauses (a) and (b), (d) any other Person who is an officer, director, trustee or employee of, or partner in, such Person or any Person referred to in the preceding clauses (a), (b) and (c), and (e) any other Person who is a member of the Immediate Family of such Person or of any Person referred to in the preceding clauses (a) through (d). 1.6 "Agreement" shall mean this Master Lease Agreement, including Exhibits A-1 to A-8, B and C hereto, as it and they may be amended from time to time as herein provided. 1.7 "Applicable Laws" shall mean all applicable laws, statutes, regulations, rules, ordinances, codes, licenses, permits and orders (whether now existing or hereafter enacted or promulgated irrespective of whether its enactment is foreseeable or contemplated), of all courts of competent jurisdiction and Government Agencies, and all applicable judicial and administrative and regulatory decrees, judgments and orders, including common law rulings and determinations, relating to injury to, or the protection of, real or personal property or human health (except those requirements which, by definition, are solely the responsibility of employers) or the Environment, including, without limitation, all valid and lawful requirements of courts and other Government Agencies pertaining to reporting, licensing, permitting, investigation, remediation and removal of underground improvements (including, without limitation, treatment or storage tanks, or water, gas or oil wells), or emissions, discharges, releases or threatened releases of Hazardous Substances, chemical substances, pesticides, petroleum or petroleum products, pollutants, contaminants or hazardous or toxic substances, materials or wastes whether solid, liquid or gaseous in nature, into the Environment, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances or Regulated Medical Wastes, underground improvements (including, without limitation, treatment or -3- storage tanks, or water, gas or oil wells), or pollutants, contaminants or hazardous or toxic substances, materials or wastes, whether solid, liquid or gaseous in nature. 1.8 "Award" shall mean all compensation, sums or other value awarded, paid or received by virtue of a total or partial Condemnation of any of the Collective Leased Properties (after deduction of all reasonable legal fees and other reasonable costs and expenses, including, without limitation, expert witness fees, incurred by Landlord, in connection with obtaining any such award). 1.9 "Base Interest Rate" shall mean the annual floating rate of interest, determined daily and expressed as a percentage, from time to time announced by The First National Bank of Boston as its "prime" or "base" rate, so called, or if at any time The First National Bank of Boston ceases to announce such a rate, as announced by the largest national or state chartered banking institution other than The First National Bank of Boston then having its principal office in the City of Boston and announcing such a rate. 1.10 "Base Net Patient Revenues" shall mean Net Patient Revenues for the twelve (12) month period commencing April 1, 1995 and ending on March 31, 1996; provided, however, that in the event that, with respect to any Lease Year, or portion thereof, for any reason (including, without limitation, a taking or casualty with respect to any of the Collective Leased Properties) there shall be a reduction in the number of skilled nursing home beds at the Facilities or a change in the services provided at the Facilities from the number of such beds or the services provided during such twelve (12) month period, in determining Additional Rent payable with respect to such Lease Year, Base Net Patient Revenues shall be reduced on a pro rata basis (which shall mean, in the case of a change in the services provided at a Facility, Base Net Patient Revenues shall be reduced based upon the relative percentage reduction in rate made in connection with such change in services). 1.11 "Business Day" shall mean any day other than Saturday, Sunday, or any other day on which banking institutions in The Commonwealth of Massachusetts or the State are authorized by law or executive action to close. 1.12 "Capital Addition" shall mean one or more new buildings, or one or more additional structures annexed to any portion of any of the Leased Improvements with respect to any of the Collective Leased Properties, or the material expansion of existing improvements, which are constructed on any parcel or portion of the Land during the Term, including the construction of a new wing or new story, the renovation of existing improvements on any of the Collective Leased Properties in order to provide a functionally new facility needed to provide services not previously offered, or any expansion, construction, renovation or conversion in order to increase the bed capacity of any Facility to change the purpose for which such beds are utilized or to improve materially the quality of any Facility. -4- 1.13 "Capital Additions Cost" shall mean the cost of any Capital Addition proposed to be made by Tenant at any of the Collective Leased Properties, whether paid for by Tenant or Landlord. Such cost shall include (a) the cost of construction of the Capital Addition, including site preparation and improvement, materials, labor, supervision, developer and administrative fees, legal fees, and related design, engineering and architectural services, the cost of any fixtures, the cost of equipment and other personalty, the cost of construction financing (including, but not limited to, capitalized interest) and other miscellaneous costs approved by Landlord, (b) if agreed to by Landlord in writing, in advance, the cost of any land (including all related acquisition costs incurred by Tenant) contiguous to the applicable Leased Property which is to become a part of such Leased Property purchased for the purpose of placing thereon a Capital Addition or any portion thereof or for providing means of access thereto, or parking facilities therefor, including the cost of surveying the same, (c) the cost of insurance, real estate taxes, water and sewage charges and other carrying charges for such Capital Addition during construction, (d) title insurance charges, (e) reasonable attorneys' fees and expenses, (f) filing, registration and recording taxes and fees, (g) documentary stamp or transfer taxes, and (h) all actual and reasonable costs and expenses of Landlord and Tenant and, if agreed to by Landlord in writing, in advance, any Lending Institution committed to finance the Capital Addition, including, but not limited to, all (i) reasonable attorneys' fees and expenses, (ii) printing expenses, (iii) filing, registration and recording taxes and fees, (iv) documentary stamp or transfer taxes, (v) title insurance charges and appraisal fees, (vi) rating agency fees, and (vii) commitment fees charged by any Lending Institution advancing or offering to advance any portion of any financing to which Landlord has consented in writing for such Capital Addition. 1.14 "Change in Control" shall mean the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the SEC) of 5% or more, or rights, options or warrants to acquire 5% or more, of the outstanding shares of voting stock of Tenant or any Guarantor, as the case may be, or the merger or consolidation of Tenant or any Guarantor, as the case may be with or into any other Person or any one or more sales or conveyances to any Person of all or substantially all of the assets of Tenant or any Guarantor, as the case may be. 1.15 "Code" shall mean the Internal Revenue Code of 1986 and, to the extent applicable, the Treasury Regulations promulgated thereunder, each as from time to time amended. 1.16 "Collective Leased Properties" shall have the meaning given such term in Section 2.1. 1.17 "Commencement Date" shall mean the date of this Agreement. -5- 1.18 "Condemnation" shall mean, with respect to any of the Collective Leased Properties, (a) the exercise of any governmental power with respect to such Leased Property, whether by legal proceedings or otherwise, by a Condemnor of its power of condemnation, (b) a voluntary sale or transfer of such Leased Property by Landlord to any Condemnor, either under threat of condemnation or while legal proceedings for condemnation are pending, and (c) a taking or voluntary conveyance of all or part of such Leased Property, or any interest therein, or right accruing thereto or use thereof, as the result or in settlement of any Condemnation or other eminent domain proceeding affecting such Leased Property, whether or not the same shall have actually been commenced. 1.19 "Condemnor" shall mean any public or quasi-public authority, or private corporation or individual, having the power of Condemnation. 1.20 "Connecticut Subacute" shall mean Connecticut Subacute Corporation, a Delaware corporation. 1.21 "CSC-II" shall mean Connecticut Subacute Corporation II, a Delaware corporation. 1.22 "Declaration" shall mean the Declaration of Trust establishing Landlord, dated October 9, 1986, as amended. 1.23 "Default" shall mean any event or condition which with the giving of notice and/or lapse of time may ripen into an Event of Default. 1.24 "Distribution" shall mean (a) any declaration or payment of any dividend (except dividends payable in common stock of Tenant) on or in respect of any shares of any class of capital stock of Tenant, (b) any purchase, redemption retirement or other acquisition of any shares of any class of capital stock of a corporation, (c) any other distribution on or in respect of any shares of any class of capital stock of a corporation, (d) any return of capital to shareholders, or (e) any payment with respect to any indebtedness of any Guarantor to any Affiliated Person of such or any other Guarantor. 1.25 "Encumbrance" shall have the meaning given such term in Section 21.1. 1.26 "Entity" shall mean any corporation, general or limited partnership, limited liability company or partnership, stock company or association, joint venture, association, company, trust, bank, trust company, land trust, business trust, cooperative, any government or agency or political subdivision thereof or any other entity. 1.27 "Environment" shall mean soil, surface waters, ground waters, land, stream, sediments, surface or subsurface strata and ambient air. 1.28 "Environmental Obligation" shall have the meaning given such term in Section 4.4.1. -6- 1.29 "Environmental Notice" shall have the meaning given such term in Section 4.4.1. 1.30 "Environmental Report" shall have the meaning given such term in Section 4.4.2. 1.31 "Event of Default" shall have the meaning given such term in Section 12.1. 1.32 "Excess Net Patient Revenues" shall mean, with respect to any Lease Year, or portion thereof, the amount of Net Patient Revenues for such Lease Year, or portion thereof, in excess of Base Net Patient Revenues for the equivalent period. 1.33 "Extended Terms" shall have the meaning given such term in Section 2.4. 1.34 "Facility" shall mean, with respect to any of the Collective Leased Properties, the facility offering health care or related services being operated or proposed to be operated on such Leased Property. 1.35 "Facility Mortgage" shall mean, with respect to any of the Collective Leased Properties, any Encumbrance placed upon such Leased Property in accordance with Article 21. 1.36 "Facility Mortgagee" shall mean the holder of any Facility Mortgage. 1.37 "Facility Trade Name" shall mean, with respect to any Facility, any name under which Tenant has conducted the business of operating such Facility at any time during the Term. 1.38 "Fair Market Added Value" shall mean, with respect to any of the Collective Leased Properties, the Fair Market Value of such Leased Property (including all Capital Additions) less the Fair Market Value of such Leased Property determined as if no Tenant's Capital Additions had been constructed. 1.39 "Fair Market Added Value Percentage" shall mean the percentage that the Fair Market Added Value bears to the Fair Market Value Purchase Price. 1.40 "Fair Market Rental" shall mean, with respect to any of the Collective Leased Properties, the rental which a willing tenant not compelled to rent would pay a willing landlord not compelled to lease for the use and occupancy of such Leased Property (including all Capital Additions other than Tenant's Capital Additions) on the terms and condi- tions of this Agreement for the term in question, assuming Tenant is not in default hereunder and determined by agreement between Landlord and Tenant or, failing agreement, in accordance with the appraisal procedures set forth in Article 19. -7- 1.41 "Fair Market Value" shall mean, with respect to any of the Collective Leased Properties, the price that a willing buyer not compelled to buy would pay a willing seller not compelled to sell for such Leased Property (without taking into account any reduction in value resulting from any indebtedness to which such Leased Property is subject), assuming the same is unencumbered by this Agreement and determined by agreement between Landlord and Tenant or, failing agreement, the appraisal procedures set forth in Article 19. 1.42 "Fair Market Value Purchase Price" shall mean, with respect to any of the Collective Leased Properties, the Fair Market Value of such Leased Property less the Fair Market Added Value. 1.43 "Financial Officer's Certificate" shall mean, as to any Person, a certificate of the chief financial officer of such Person, duly authorized, accompanying the financial statements required to be delivered by such Person pursuant to Section 17.2, in which such officer shall certify (a) that such statements have been properly prepared in accordance with GAAP and are true, correct and complete in all material respects and fairly present the financial condition of such Person at and as of the dates thereof and the results of its and their operations for the periods covered thereby, and (b) certify that such officer has reviewed this Agreement and has no knowledge of any Default or Event of Default hereunder. 1.44 "Financials" shall mean, for any Fiscal Year or other accounting period of any Tenant or Guarantor, annual audited and quarterly unaudited financial statements for such Tenant or Guarantor, including such Tenant's or Guarantor's balance sheet and the related statements of income and cash flows, all in reasonable detail, and setting forth in comparative form the corresponding figures for the corresponding period in the preceding Fiscal Year, and prepared in accordance with GAAP throughout the periods reflected. 1.45 "Fiscal Year" shall mean the twelve (12) month period from January 1 to December 31. 1.46 "Fixed Term" shall have the meaning given such term in Section 2.3. 1.47 "Fixtures" shall have the meaning given such term in Section 2.1(d). 1.48 "GAAP" shall mean generally accepted accounting principles consistently applied. 1.49 "Government Agencies" shall mean any court, agency, authority, board (including, without limitation, environmental protection, planning and zoning), bureau, commission, department, office or instrumentality of any nature whatsoever of any governmental or quasi-governmental unit of the United States or the State or any county or any political subdivision of any of the foregoing, whether now or -8- hereafter in existence, having jurisdiction over Tenant or the Collective Leased Properties or any portion thereof or the Facilities operated thereon. 1.50 "Guarantor" shall mean, collectively, each and every guarantor of Tenant's obligations under this Agreement, including, without limitation, Connecticut Subacute, CSC II and the other Guarantors specified in Section 22.14 hereof, and each such guarantor's successors and assigns. 1.51 "Guaranty" shall mean any guaranty agreement executed by a Guarantor in favor of Landlord, of Tenant's obligations hereunder, together with all modifications, amendments or supplements thereto. 1.52 "Hazardous Substances" shall mean any substance: (a) the presence of which requires or may hereafter require notification, investigation or remediation under any federal, state or local statute, regulation, rule, ordinance, order, action or policy; or (b) which is or becomes defined as a "hazardous waste", "hazardous material" or "hazardous substance" or "pollutant" or "contaminant" under any present or future federal, state or local statute, regulation, rule or ordinance or amendments thereto including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. et seq.) and the Resource Conservation and Recovery Act (42 U.S.C. section 6901 et seq.) and the regulations promulgated thereunder; or (c) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and is or becomes regulated by any governmental authority, agency, department, commission, board, agency or instrumentality of the United States, any state of the United States, or any political subdivision thereof; or (d) the presence of which on any of the Collective Leased Properties causes or threatens to cause a nuisance upon such Leased Property or to adjacent properties or poses or threatens to pose a hazard to any of the Collective Leased Properties or to the health or safety of persons on or about any of the Collective Leased Properties; or (e), without limitation, which contains gasoline, diesel fuel or other petroleum hydrocarbons or volatile organic compounds; or (f), without limitation, which contains polychlorinated biphenyls (PCBs) or asbestos or urea formaldehyde foam insulation; or -9- (g), without limitation, which contains or emits radioactive particles, waves or material; or (h), without limitation, constitutes Regulated Medical Wastes. 1.53 "Immediate Family" shall mean, with respect to any individual, such individual's spouse, parents, brothers, sisters, children (natural or adopted), children-in-law, stepchildren, grandchildren, grandparents, parents-in-law, brothers-in-law, sisters- in-law, nephews and nieces. 1.54 "Impositions" shall mean, with respect to any of the Collective Leased Properties, collectively, all taxes (including, without limitation, all taxes imposed under the laws of the State, as such laws may be amended from time to time, and all ad valorem, sales and use, single business, gross receipts, transaction privilege, rent or similar taxes as the same relate to or are imposed upon Landlord, Tenant or the business conducted upon such Leased Property), assessments (including, without limitation, all assessments for public improvements or benefit, whether or not commenced or completed prior to the date hereof and whether or not to be completed within the Term), ground rents, water, sewer or other rents and charges, excises, tax levies, fees (including, without limitation, license, permit, inspection, authorization and similar fees) and all other governmental charges, in each case whether general or special, ordinary or extraordinary, or foreseen or unforeseen, of every character in respect of such Leased Property or the business conducted thereon by Tenant (including all interest and penalties thereon due to any failure in payment by Tenant), which at any time prior to, during or in respect of the Term hereof may be assessed or imposed on or in respect of or be a lien upon (a) Landlord's interest in such Leased Property, (b) such Leased Property or any part thereof or any rent therefrom or any estate, right, title or interest therein, or (c) any occupancy, operation, use or possession of, or sales from, or activity conducted on, or in connection with such Leased Property or the leasing or use of such Leased Property or any part thereof by Tenant; provided, however, that nothing contained herein shall be construed to require Tenant to pay (i) any tax based on net income imposed on Landlord, (ii) any net revenue tax of Landlord, (iii) any transfer fee or other tax imposed with respect to the sale, exchange or other disposition by Landlord of the applicable Leased Property or the proceeds thereof (other than in connection with the sale, exchange or other disposition to, or in connection with a transaction involving, Tenant), or (iv) any single business, gross receipts (other than a tax on any rent received by Landlord from Tenant), transaction privilege, rent or similar taxes as the same relate to or are imposed upon Landlord, except to the extent that any tax, assessment, tax levy or charge, which Tenant is obligated to pay pursuant to the first sentence of this definition and which is in effect at any time during the Term hereof is totally or partially repealed, and a tax, assessment, tax levy or charge set forth in clause (i) or (ii) preceding is levied, assessed or imposed expressly in lieu thereof. -10- 1.55 "Incidental Documents" shall mean, collectively, the Stock Pledge Agreement and the Pledge and Security Agreement. 1.56 "Indebtedness" shall mean all obligations, contingent or otherwise, which in accordance with GAAP should be reflected on the obligor's balance sheet as liabilities. 1.57 "Independent Trustees" shall mean Trustees who, in their individual capacity, are not Affiliated Persons as to Tenant and do not perform any services for Landlord except as Trustees. 1.58 "Insurance Requirements" shall mean all terms of any insurance policy required by this Agreement and all requirements of the issuer of any such policy. 1.59 "Investment" shall mean all loans, advances, extensions of credit (except for accounts and notes receivable for merchandise sold or services furnished in the ordinary course of business, and amounts paid in advance on account of the purchase price of merchandise to be delivered to the payor within one year of the date of the advance), or purchases of stock, notes, bonds or other securities or evidences of indebtedness or capital contribution to any Person, whether in cash or other property. The amount of an Investment shall be its cost (the amount of cash or the fair market value of other property given in exchange therefor), whether or not written or charged off or sold or otherwise disposed of, except to the extent such cost shall have been paid to Tenant by a Person in which Tenant had no present or prospective financial interest at the time of such payment. 1.60 "Land" shall have the meaning given such term in Section 2.1(a). 1.61 "Landlord" shall have the meaning given such term in the preambles to this Agreement. 1.62 "Lease Year" shall mean any calendar year or portion thereof, commencing with the 1995 calendar year, during the Term. 1.63 "Leased Improvements" shall have the meaning given such term in Section 2.1(b). 1.64 "Leased Personal Property" shall have the meaning given such term in Section 2.1(e). 1.65 "Leased Property" shall mean any one of the Collective Leased Properties. 1.66 "Legal Requirements" shall mean, with respect to any of the Collective Leased Properties, all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting such Leased Property or the maintenance, construction, alteration or operation -11- thereof, whether now or hereafter enacted or in existence, including, without limitation, (a) all permits, licenses, certificates of need, authorizations and regulations necessary to operate such Leased Property for its Primary Intended Use, and (b) all covenants, agreements, restrictions and encumbrances contained in any instruments at any time in force affecting such Leased Property, including those which may (i) require material repairs, modifications or alterations in or to such Leased Property or (ii) in any way adversely affect the use and enjoyment thereof. 1.67 "Lending Institution" shall mean any insurance company, federally insured commercial or savings bank, national banking association, savings and loan association, employees' welfare, pension or retirement fund or system, corporate profit sharing or pension trust, college or university, or real estate investment trust, including any corporation qualified to be treated for federal tax purposes as a real estate investment trust, such trust having a net worth of at least $100,000,000. 1.68 "Lien" shall mean any mortgage, security interest, pledge, collateral assignment, or other encumbrance, lien or charge of any kind, or any transfer any of property or assets for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to payment of its general creditors. 1.69 "Management Agreement" shall mean any agreement whether written or oral entered into between Tenant and any other party (including any Affiliated Person as to Tenant) pursuant to which management services are provided to any Facility, together with all amendments, modifications or supplements thereto. 1.70 "Manager" shall mean the management party under any Management Agreement. 1.71 "Market Area" shall mean an area within a (10) mile radius of the applicable Leased Property. 1.72 "Minimum Rent" shall mean the monthly sum of Three Hundred Six Thousand Two Hundred Fifty and 00/100 Dollars ($306,250.00). 1.73 "Net Patient Revenues" shall mean all revenues (determined on an accrual basis in accordance with GAAP) received or receivable from or by reason of the operation of the Facilities, or any portion thereof, or any other use of the Collective Leased Properties, or any portion thereof, including, without limitation, all patient revenues received or receivable for the use of or otherwise by reason of all rooms, beds and other facilities provided, meals served, services performed, space or facilities subleased or goods sold on the Collective Leased Properties, or any portion thereof, including, without limitation, and except as provided below, any other arrangements with third parties relating to the possession or use of any portion of the Collective Leased Properties; provided, however, that Net Patient Revenues shall not -12- include: (a) allowances according to GAAP for uncollectible accounts, including credit accounts and charity care and other administrative discounts; (b) revenue from professional fees or charges by physicians and unaffiliated providers of ancillary services, when and to the extent such charges are paid over to such physicians or unaffiliated providers of ancillary services, or are separately billed and not included in comprehensive fees; (c) non-operating revenues such as interest income or income from the sale of assets not sold in the ordinary course of business; (d) revenues attributable to services actually provided off-site or otherwise away from such Facility, such as home health care, to persons that are not patients at such Facility; and (e) all revenues attributable to Tenant's Capital Additions (as such revenues are calculated in accordance with Section 6.2.2(a)). 1.74 "New Hampshire Leased Property" shall mean the Leased Property known as and located at Rochester Manor, Rochester, New Hampshire. 1.75 "New Hampshire Subacute" shall have the meaning given such term in the preambles to this Agreement. 1.76 "Notice" shall mean a notice given in accordance with Section 23.12. 1.77 "Nursing Home Administrator License" shall mean any and all licenses, permits and approvals required under Applicable Law to authorize any individual or individuals to act as administrator of any Facility. 1.78 "Officer's Certificate" shall mean a certificate signed by an officer of Tenant duly authorized by the board of directors of Tenant. 1.79 "Option Purchase Price" shall mean, with respect to any of the Collective Leased Properties the greater of (x) the Fair Market Value Purchase Price of such Leased Property and (y) the purchase price for the applicable Leased Property as set forth in Exhibit B plus any amounts disbursed or advanced by Landlord to finance, or to reimburse Tenant for its financing of, any Capital Addition to such Leased Property, less the amount of any Award or the proceeds of any insurance received by Landlord in connection with a partial Condemnation or a partial casualty involving such Leased Property as described in Section 11.2 or 10.2.2, and not applied by Landlord to the restoration of such Leased Property as provided therein. 1.80 "Overdue Rate" shall mean, on any date, a per annum rate of interest equal to the lesser of eighteen percent (18%) and the maximum rate then permitted under applicable law. 1.81 "Parent" shall mean, with respect to any Person, any Person which owns directly, or indirectly through one or more Subsidiaries or Affiliated Persons, five percent (5%) or more of the voting or beneficial interest in, or otherwise has the right or power (whether by -13- contract, through ownership of securities or otherwise) to control, such Person. 1.82 "Permitted Encumbrances" shall mean, with respect to any of the Collective Leased Properties, all rights, restrictions, and easements of record set forth on Schedule B to the applicable owner's or leasehold title insurance policy issued to Landlord on the date hereof, plus any other such encumbrances as may have been consented to in writing by Landlord from time to time. 1.83 "Person" shall mean any individual or Entity, and the heirs, executors, administrators, legal representatives, successors and assigns of such Person where the context so admits. 1.84 "Pledge and Security Agreement" shall mean the Pledge and Security Agreement, dated as of the date hereof, made by Tenant for the benefit of Landlord. 1.85 "Purchase Agreement" shall have the meaning given such term in Section 23.18 hereof. 1.86 "Primary Intended Use" shall have the meaning given such term in Section 4.1.1. 1.87 "Qualified Appraiser" shall mean an appraiser who is not in control of, controlled by or under common control with either Landlord or Tenant and has not been an employee of Landlord or Tenant or any Affiliated Person with respect to either of Landlord or Tenant at any time, who is qualified to appraise commercial real estate in the State and is a member of the American Institute of Real Estate Appraisers (or any successor association or body of comparable standing if such Institute is not then in existence) and who has held his or her certificate as an M.A.I. or its equivalent for a period of not less than three (3) years, and has been actively engaged in the appraisal of commercial real estate in such area for a period of not less than five (5) years, immediately preceding his or her appointment hereunder. 1.88 "Records" shall have the meaning given such term in Section 7.2. 1.89 "Regulated Medical Wastes" shall mean all materials generated by Tenant, subtenants, patients, occupants or the operators of the Collective Leased Properties which are now or may hereafter be subject to regulation pursuant to the Material Waste Tracking Act of 1988, or any Applicable Laws promulgated by any Government Agencies. 1.90 "Rent" shall mean, collectively, the Minimum Rent, Additional Rent and Additional Charges. 1.91 "SEC" shall mean the Securities and Exchange Commission. -14- 1.92 "State" shall mean (i) with respect to the Vermont Leased Properties, the State of Vermont, and (ii) with respect to the New Hampshire Leased Property, the State of New Hampshire. 1.93 "Stock Pledge Agreement" shall mean the Stock Pledge and Security Agreement, dated as of the date hereof, made by Guarantor to Landlord. 1.94 "Subordinated Creditor" shall mean any creditor of Tenant which is a party to a Subordination Agreement in favor of Landlord. 1.95 "Subordination Agreement" shall mean any agreement executed by a Subordinated Creditor pursuant to which the payment and performance of Tenant's obligations to such Subordinated Creditor are subordinated to the payment and performance of Tenant's obligations to Landlord under this Agreement. 1.96 "Subsidiary" shall mean, with respect to any Person, any Entity (a) in which such Person owns directly, or indirectly through one or more Subsidiaries, five percent (5%) or more of the voting or beneficial interest or (b) which such Person otherwise has the right or power to control (whether by contract, through ownership of securities or otherwise). 1.97 "Tangible Net Worth" shall mean the excess of total assets over total liabilities, total assets and total liabilities each to be determined in accordance with GAAP, excluding, however, from the determination of total assets: (a) goodwill, organizational expenses, research and development expenses, trademarks, trade names, copyrights, patents, patent applications, licenses and rights in any thereof, and other similar intangibles; (b) all deferred charges or unamortized debt discount and expense; (c) all reserves carried and not deducted from assets; (d) treasury stock and capital stock, obligations or other securities of, or capital contributions to, or investments in, any Subsidiary; (e) securities which are not readily marketable; (f) any write-up in the book value of any asset resulting from a revaluation thereof subsequent to the Commencement Date; and (g) any items not included in clauses (a) through (g) above that are treated as intangibles in conformity with GAAP. 1.98 "Tenant" shall mean (i) with respect to the Vermont Leased Properties, Vermont Subacute, and (ii) with respect to the New Hampshire Leased Property, New Hampshire Subacute. 1.99 "Tenant's Capital Additions" shall have the meaning given such term in Section 6.2.2. 1.100 "Tenant's Personal Property" shall mean all motor vehicles and consumable inventory and supplies, furniture, furnishings, movable walls and partitions, equipment and machinery and all other personal property of Tenant now owned or hereafter acquired by Tenant on and after the date hereof and located at any of the Collective Leased -15- Properties or used in Tenant's business at any of the Collective Leased Properties and all modifications, replacements, alterations and ad- ditions to such personal property installed at the expense of Tenant, other than any items included within the definition of Fixtures or Leased Personal Property. 1.101 "Term" shall mean, collectively, the Fixed Term and the Extended Terms, to the extent properly exercised pursuant to the provi- sions of Section 2.4, unless sooner terminated pursuant to the provisions of this Agreement. 1.102 "Trustees" shall mean the trustees of Landlord. 1.103 "Unsuitable for Its Primary Intended Use" shall mean, with respect to any Facility, a state or condition of such Facility such that (a) following any damage or destruction involving such Leased Property, such Leased Property cannot reasonably be expected to be restored to substantially the same condition as existed immediately before such damage or destruction, and as otherwise required by Section 10.2.4, within six (6) months following such damage or destruction or such shorter period of time as to which business interruption insurance is available to cover Rent and other costs related to such Leased Property following such damage or destruction, or (b) as the result of a partial taking by Condemnation, such Facility cannot be operated, in the good faith judgment of Landlord, on a commercially practicable basis for its Primary Intended Use taking into account, among other relevant factors, the number of usable beds, the amount of square footage, or the revenues affected by such damage or destruction or partial taking. 1.104 "Vermont Subacute" shall have the meaning given such term in the preambles to this Agreement. 1.105 "Work" shall have the meaning given such term in Section 10.2.4. ARTICLE 2 COLLECTIVE LEASED PROPERTIES AND TERM 2.1 Collective Leased Properties. Upon and subject to the terms and conditions hereinafter set forth, Landlord leases to Tenant and Tenant leases from Landlord all of the following (collectively, the "Collective Leased Properties"): (a) those certain tracts, pieces and parcels of land, as more particularly described in Exhibits A-1 to A-8, attached hereto and made a part hereof (the "Land"); (b) all buildings, structures, Fixtures and other improvements of every kind including, but not limited to, alleyways and -16- connecting tunnels, sidewalks, utility pipes, conduits and lines (on-site and off-site), parking areas and roadways appurtenant to such buildings and structures presently situated upon the Land and all Capital Additions other than Tenant's Capital Additions (collectively, the "Leased Improve- ments"); (c) all easements, rights and appurtenances relating to the Land and the Leased Improvements; (d) all equipment, machinery, fixtures, and other items of property, now or hereafter permanently affixed to or incorporated into the Leased Improvements, including, without limitation, all furnaces, boilers, heaters, electrical equipment, heating, plumbing, lighting, ventilating, refrigerating, incineration, air and water pollution control, waste disposal, air-cooling and air-conditioning systems and apparatus, sprinkler systems and fire and theft protection equipment, all of which, to the maximum extent permitted by law, are hereby deemed by the parties hereto to constitute real estate, together with all replacements, modifications, alterations and additions thereto, but specifically excluding all items included within the category of Tenant's Personal Property (collectively, the "Fixtures"); (e) all machinery, equipment, furniture, furnishings, moveable walls or partitions, computers or trade fixtures or other personal property of any kind or description used or useful in Tenant's business on or in the Leased Improvements, and located on or in the Leased Improvements, and all modifications, replacements, alterations and additions to such personal property, except items, if any, included within the category of Fixtures, but specifically excluding all items included within the category of Tenant's Personal Property (collectively, the "Leased Personal Property"); and (f) all leases of space (including any security deposits held by Tenant pursuant thereto) in the Leased Improvements to tenants thereof. 2.2 Condition of Collective Leased Properties. Tenant acknowledges receipt and delivery of possession of the Collective Leased Properties and Tenant accepts the Collective Leased Properties in their "as is" condition, subject to the rights of all occupants and parties in possession, the existing state of title, including all covenants, condi- tions, restrictions, reservations, mineral leases, easements and other matters of record or that are visible or apparent on the Collective Leased Properties, all applicable Legal Requirements, the lien of financing instruments, mortgages and deeds of trust, and such other matters which would be disclosed by an inspection of the Collective Leased Properties and the record title thereto or by an accurate survey thereof. TENANT REPRESENTS THAT IT HAS INSPECTED THE COLLECTIVE LEASED -17- PROPERTIES AND ALL OF THE FOREGOING AND HAS FOUND THE CONDITION THEREOF SATISFACTORY AND IS NOT RELYING ON ANY REPRESENTATION OR WARRANTY OF LANDLORD OR LANDLORD'S AGENTS OR EMPLOYEES WITH RESPECT THERETO AND TENANT WAIVES ANY CLAIM OR ACTION AGAINST LANDLORD IN RESPECT OF THE CONDITION OF THE COLLECTIVE LEASED PROPERTIES. LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE COLLECTIVE LEASED PROPERTIES OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY TENANT. To the maximum extent permitted by law, however, Landlord hereby assigns to Tenant all of Landlord's rights to proceed against any predecessor in title for breaches of warranties or representations or for latent defects in the Collective Leased Properties. Landlord shall fully cooperate with Tenant in the prosecution of any such claims, in Landlord's or Tenant's name, all at Tenant's sole cost and expense. Tenant shall indemnify, defend, and hold harmless Landlord from and against any loss, cost, damage or liability (including reasonable attorneys' fees) incurred by Landlord in connection with such cooperation. 2.3 Fixed Term. The initial term of this Agreement (the "Fixed Term") shall be approximately thirteen (13) years, eleven (11) months. The Fixed Term shall commence on the Commencement Date and shall expire December 31, 2008. 2.4 Extended Term. Provided that no Default or Event of Default shall have occurred and be continuing and this Agreement shall be in full force and effect, Tenant shall have the right to extend the Term for three (3) consecutive ten (10) year renewal terms (collectively, the "Extended Terms") for all, and not less than all, of the Collective Leased Properties. Each Extended Term shall commence on the day succeeding the expiration of the Fixed Term or the preceding Extended Term, as the case may be. All of the terms, covenants and provisions of this Agreement shall apply to each such Extended Term, except that Tenant shall have no right to extend the Term beyond the expiration of the Extended Terms. If Tenant shall elect to exercise either of the aforesaid options, it shall do so by giving Landlord Notice thereof not later than one year prior to the scheduled expiration of the then current Term of this Agreement (Fixed or Extended, as the case may be), it being understood and agreed that time shall be of the essence with respect to the giving of such Notice. Tenant may not exercise its option for more than one such Extended Term at a time. If Tenant shall fail to give any such Notice, this Agreement shall automatically terminate at the end of the Term then in effect and Tenant shall have no further option to extend the Term of this Agreement. If Tenant shall give such Notice, the extension of this Agreement shall be automatically effected without the -18- execution of any additional documents; it being understood and agreed, however, that Tenant and Landlord shall execute such documents and agreements as either party shall reasonably require to evidence the same. Notwithstanding the provisions of the foregoing sentence, if, subsequent to the giving of such Notice, an Event of Default shall occur, unless Landlord shall otherwise consent in writing, the extension of this Agreement shall cease to take effect and this Agreement shall automatically terminate at the end of the Term then in effect and Tenant shall have no further option to extend the Term of this Agreement. ARTICLE 3 RENT 3.1 Rent. Tenant shall pay to Landlord, in lawful money of the United States of America which shall be legal tender for the payment of public and private debts, without offset, abatement, demand or deduction, Minimum Rent, Additional Rent and Additional Charges, during the Term, except as hereinafter expressly provided. All payments to Landlord shall be made by wire transfer of immediately available federal funds or by other means acceptable to Landlord in its sole discretion. Rent for any partial month shall be prorated on a per diem basis based on a 360 day year and the actual number of days elapsed. 3.1.1 Minimum Rent. Minimum Rent shall be paid in advance on the first day of each calendar month; provided, however, that the first monthly payment of Minimum Rent shall be payable on the Commencement Date. 3.1.2 Additional Rent: (a) Amount. For each Lease Year or portion thereof during the Term, commencing with the Lease Year beginning January 1, 1996, Tenant shall pay additional rent ("Additional Rent") for each Leased Property with respect to each such Lease Year equal to the greater of (i) the lesser of (x) three percent (3%) of Excess Net Patient Revenues for such Leased Property for such Lease Year and (y) the product of (A) the purchase price for such Leased Property as set forth in Exhibit B, multiplied by (B) three percent (3%); and (ii) Additional Rent payable for the immediately preceding Lease Year with respect to such Leased Property. (b) Quarterly Installments. Installments of Additional Rent for any such Lease Year or portion thereof shall be calculated and paid quarterly in arrears on or before each April 30, July 31, October 30 and January 31 during the term based on the amount of Additional Rent payable for the preceding calendar quarter. -19- (c) Date of Payment of Additional Rent. Tenant shall deliver to Landlord an Officer's Certificate setting forth the calculation of Additional Rent due and payable for the Collective Leased Properties for each quarter of any Lease Year. Each quarterly payment of Additional Rent is due and payable and shall be delivered to Landlord, together with such Officer's Certificate, together with the applicable installment of the Minimum Rent and shall be payable in the manner hereinabove provided for payment of Minimum Rent. (d) Reconciliation of Additional Rent. In addition, on or before March 31, of each year, commencing with March 31, 1996, Tenant shall deliver to Landlord certified audits of Tenant's financial operations for the preceding Lease Year, together with a certificate from Ernst & Young or other certified public accountants reasonably acceptable to Landlord, in form reasonably acceptable to Landlord, setting forth the Net Patient Revenues for such preceding Lease Year and such other matters as Landlord may from time to time reasonably request. If the annual Additional Rent for the applicable Leased Property for such preceding Lease Year as shown in the year-end certificate exceeds the amount previously paid with respect thereto by Tenant, Tenant shall pay such excess to Landlord at such time as the certificate is delivered, together with interest at the Base Interest Rate, which interest shall accrue from the close of such preceding Lease Year until the date that such certificate is required to be delivered, and thereafter such interest shall accrue at the Overdue Rate, until the amount of such difference shall be paid or otherwise discharged. (e) Confirmation of Additional Rent. Tenant shall utilize, or cause to be utilized, an accounting system for the Collective Leased Properties in accordance with its usual and customary practices and in accordance with GAAP, which will accurately record all Net Patient Revenues, and shall employ independent accountants reasonably acceptable to Landlord, and Tenant shall retain, for at least five (5) years after the expiration of each Lease Year, reasonably adequate records conforming to such accounting system showing all Net Patient Revenues for such Lease Year. Landlord, at its own expense except as provided hereinbelow, shall have the right from time to time by its accountants or representatives to audit the information set forth in the Officer's Certificate referred to in subparagraph (c) above or the year-end certificate referred to in subparagraph (d) above and, in connection with such audits, to examine Tenant's books and records with respect thereto (including supporting data and sales and excise tax returns) subject to any prohibitions or limitations on disclosure of any such data under applicable law or regulations, including without limitation any duly enacted "Patients' Bill of Rights" or similar legislation, including such limitations as may be necessary to preserve the confidentiality of the facility-patient relationship -20- and the physician-patient privilege and/or other similar privilege or confidentiality obligations. If any such audit discloses a deficiency in the payment of Additional Rent, and either Tenant agrees with the result of such audit or the matter is otherwise compromised with Landlord, Tenant shall forthwith pay to Landlord the amount of the deficiency, as finally agreed or determined, together with interest at the Base Interest Rate, from the date when said payment should have been made to the date of payment thereof; provided, however, that as to any audit that is commenced more than two (2) years after the date Net Patient Revenues for any Lease Year are reported by Tenant to Landlord, the deficiency, if any, with respect to such Net Patient Revenues shall bear interest as permitted herein only from the date such determination of deficiency is made unless such deficiency is the result of gross negligence or willful misconduct on the part of Tenant. If any such audit discloses that the Net Patient Revenues actually received by Tenant for any Lease Year exceed those reported by Tenant by more than three percent (3%), Tenant shall pay the reasonable cost of such audit and examination. If any such audit discloses that Tenant paid more Additional Rent for any Lease Year than was due hereunder, and either Landlord agrees with the result of such audit or the matter is otherwise determined, provided no Default or Event of Default has occurred and is continuing, Landlord shall grant Tenant a credit equal to the amount of such overpayment against Additional Rent next coming due in the amount of such difference, as finally agreed or determined. If such a credit cannot be made because the Term has expired before the credit can be effected, Landlord shall pay, by check, the amount of such difference to Tenant. Any proprietary information obtained by Landlord pursuant to the provisions of this Agreement shall be treated as confidential, except that such information may be used, subject to appropriate confidentiality safeguards, in any litigation between the parties and except further that Landlord may disclose such information to its prospective lenders. The obligations of Tenant contained in this Section 3.1.2 shall survive the expiration or earlier termination of this Agreement. 3.1.3 Additional Charges. In addition to the Minimum Rent and Additional Rent payable hereunder, Tenant shall pay and discharge as and when due and pay- able the following (collectively, "Additional Charges"): (a) Impositions. Subject to Article 8 relating to Permitted Contests, Tenant shall pay, or cause to be paid, all Impositions before any fine, penalty, interest or cost (other than any opportunity cost as a result of a failure to take advantage of any discount for early payment) may be added for non-payment, such payments to be made directly to the taxing authorities where feasible, and shall promptly, upon request, furnish to Landlord -21- copies of official receipts or other satisfactory proof evidencing such payments. If any such Imposition may, at the option of the taxpayer, lawfully be paid in installments (whether or not interest shall accrue on the unpaid balance of such Imposition), Tenant may exercise the option to pay the same (and any accrued interest on the unpaid balance of such Imposition) in installments and, in such event, shall pay such installments during the Term as the same become due and before any fine, penalty, premium, further interest or cost may be added thereto. Landlord, at its expense, shall, to the extent required or permitted by applicable law, prepare and file all tax returns in respect of Landlord's net income, gross receipts, sales and use, single business, transaction privilege, rent, ad valorem, franchise taxes and taxes on its capital stock, and Tenant, at its expense, shall, to the extent required or permitted by applicable laws and regulations, prepare and file all other tax returns and reports in respect of any Imposition as may be required by Government Agencies. Provided no Default or Event of Default shall have occurred and be continuing, if any refund shall be due from any taxing authority in respect of any Imposition paid by Tenant, the same shall be paid over to or retained by Tenant. Landlord and Tenant shall, upon request of the other, provide such data as is maintained by the party to whom the request is made with respect to the Collective Leased Properties as may be necessary to prepare any required returns and reports. In the event Government Agencies classify any property covered by this Agreement as personal property, Tenant shall file all personal property tax returns in such jurisdictions where it may legally so file. Each party shall, to the extent it possesses the same, provide the other, upon request, with cost and depreciation records necessary for filing returns for any property so classified as personal property. Where Landlord is legally required to file personal property tax returns, Landlord shall provide Tenant with copies of assessment notices in sufficient time for Tenant to file a protest. All Impositions assessed against such personal property shall be (irrespective of whether Landlord or Tenant shall file the relevant return) paid by Tenant not later than the last date on which the same may be made without interest or penalty. If the provisions of any Facility Mortgage require deposits on account of Impositions to be made with such Facility Mortgagee, provided the Facility Mortgagee has not elected to waive such provision, Tenant shall either pay Landlord the monthly amounts required at the time and place that payments of Minimum Rent are required and Landlord shall transfer such amounts to such Facility Mortgagee or, pursuant to written direction by Landlord, Tenant shall make such deposits directly with such Facility Mortgagee. Landlord shall give prompt Notice to Tenant of all Impositions payable by Tenant hereunder of which Landlord at any time has knowledge; provided, however, that Landlord's failure to give any such notice shall in no way diminish Tenant's obligation hereunder to pay such Impositions. -22- (b) Utility Charges. Tenant shall pay or cause to be paid all charges for electricity, power, gas, oil, water and other utilities used in connection with the Collective Leased Properties. (c) Insurance Premiums. Tenant shall pay or cause to be paid all premiums for the insurance coverage required to be maintained pursuant to Article 9. (d) Other Charges. Tenant shall pay or cause to be paid all other amounts, liabilities and obligations which Tenant assumes or agrees to pay under this Agreement, including, without limitation, all agreements to indemnify Landlord under Sections 4.4 and 9.7. (e) Reimbursement for Additional Charges. If Tenant pays or causes to be paid property taxes or similar Additional Charges attributable to periods after the end of the Term, whether upon expiration or sooner termination of this Agreement (other than termination following an Event of Default) and Tenant has not exercised its right to purchase the Collective Leased Properties as provided herein, Tenant may, within sixty (60) days of the end of the Term, provide Notice to Landlord of its estimate of such amounts. Landlord shall promptly reimburse Tenant for all payments of such taxes and other similar Additional Charges that are attributable to any period after the Term of this Agreement (unless this Agreement shall have been terminated following an Event of Default). 3.2 Late Payment of Rent. If any installment of Minimum Rent, Additional Rent or Additional Charges (but only as to those Additional Charges which are payable directly to Landlord) shall not be paid on its due date, Tenant shall pay Landlord, on demand, as Additional Charges, a late charge (to the extent permitted by law) computed at the Overdue Rate on the amount of such installment, from the due date of such installment to the date of payment thereof. To the extent that Tenant pays any Additional Charges directly to Landlord or any Facility Mortgagee pursuant to any requirement of this Agreement, Tenant shall be relieved of its obligation to pay such Additional Charges to the Entity to which they would otherwise be due. In the event of any failure by Tenant to pay any Additional Charges when due, Tenant shall promptly pay and discharge, as Additional Charges, every fine, penalty, interest and cost which may be added for non-payment or late payment of such items. Landlord shall have all legal, equitable and contractual rights, powers and remedies provided either in this Agreement or by statute or otherwise in the case of non- payment of the Additional Charges as in the case of non-payment of the Minimum Rent and Additional Rent. -23- 3.3 Net Lease. The Minimum Rent and Additional Rent shall be absolutely net to Landlord so that this Agreement shall yield to Landlord the full amount of the installments or amounts of Minimum Rent and Additional Rent throughout the Term, subject to any other provisions of this Agreement which expressly provide for adjustment or abatement of such Rent. 3.4 No Termination, Abatement, Etc. Except as otherwise specifically provided in this Agreement, Tenant, to the maximum extent permitted by law, shall remain bound by this Agreement in accordance with its terms and shall neither take any action without the consent of Landlord to modify, surrender or terminate this Agreement, nor seek, nor be entitled to any abatement, deduction, deferment or reduction of the Rent, or set-off against the Rent, nor shall the respective obligations of Landlord and Tenant be otherwise affected by reason of (a) any damage to or destruction of any of the Collective Leased Properties or any portion thereof from whatever cause or any Condemnation, (b) the lawful or unlawful prohibition of, or restriction upon, Tenant's use of any of the Collective Leased Properties, or any portion thereof, or the interference with such use by any Person or by reason of eviction by paramount title; (c) any claim which Tenant may have against Landlord by reason of any default or breach of any warranty by Landlord under this Agreement or any other agreement between Landlord and Tenant, or to which Landlord and Tenant are parties; (d) any bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding up or other proceedings affecting Landlord or any assignee or transferee of Landlord; or (e) for any other cause whether similar or dissimilar to any of the foregoing. Tenant hereby waives all rights arising from any occurrence whatsoever, which may now or hereafter be conferred upon it by law, to (a) modify, surrender or terminate this Agreement or quit or surrender any of the Collective Leased Properties or any portion thereof, or (b) entitle Tenant to any abatement, reduction, suspension or deferment of the Rent or other sums payable or other obligations to be performed by Tenant hereunder, except as otherwise specifically provided in this Agreement. The obligations of Tenant hereunder shall be separate and independent covenants and agreements, and the Rent and all other sums payable by Tenant hereunder shall continue to be payable in all events unless the obligations to pay the same shall be terminated pursuant to the express provisions of this Agreement. ARTICLE 4 USE OF THE COLLECTIVE LEASED PROPERTIES 4.1 Permitted Use. 4.1.1 Primary Intended Use. -24- Tenant shall, at all times during the Term and at any other time that Tenant shall be in possession of any Leased Property, continuously use each of the Collective Leased Properties as a licensed nursing home (or, in the case of the Leased Property known as Hanson Court, Springfield, Vermont, as a so-called "residential care facility") and for such other uses as may be incidental or necessary thereto (such use being hereinafter referred to as such Leased Property's "Primary Intended Use"). Tenant shall not use any of the Collective Leased Properties or any portion thereof for any other use without the prior written consent of Landlord. No use shall be made or permitted to be made of any of the Collective Leased Properties and no acts shall be done thereon which will cause the cancellation of any insurance policy covering any of the Collective Leased Properties or any part thereof (unless another adequate policy is available), nor shall Tenant sell or otherwise provide to residents or patients therein, or permit to be kept, used or sold in or about any of the Collective Leased Properties any article which may be prohibited by law or by the standard form of fire insurance policies, or any other insurance policies required to be carried hereunder, or fire underwriter's regula- tions. Tenant shall, at its sole cost, comply with all of the requirements pertaining to the Collective Leased Properties of any insurance board, association, organization or company necessary for the maintenance of insurance, as herein provided, covering the Collective Leased Properties and Tenant's Personal Property, including, without limitation, the Insurance Requirements. Tenant shall not take or omit to take any action, the taking or omission of which may materially impair the value or the usefulness of any of the Collective Leased Properties or any part thereof for its Primary Intended Use. 4.1.2 Necessary Approvals. Tenant shall proceed with all due diligence and exercise best efforts to obtain and maintain all approvals necessary to use and operate, for its Primary Intended Use, each of the Collective Leased Properties and each Facility located thereon under applicable law and, without limiting the foregoing, shall use its best efforts to maintain appropriate certifications for reimbursement and licensure. 4.1.3 Lawful Use, Etc. Tenant shall not use or suffer or permit the use of any of the Collective Leased Properties or Tenant's Personal Property for any unlawful purpose. Tenant shall not commit or suffer to be committed any waste on any of the Collective Leased Properties, or in any Facility, nor shall Tenant cause or permit any nuisance thereon or therein. Tenant shall neither suffer nor permit any of the Collective Leased Properties or any portion thereof, including any Capital Addition, or Tenant's Personal Property, to be used in such a manner as (i) might reasonably tend to impair Landlord's (or -25- Tenant's, as the case may be) title thereto or to any portion thereof, or (ii) may reasonably make possible a claim or claims for adverse usage or adverse possession by the public, as such, or of implied dedication of the applicable Leased Property or any portion thereof. 4.2 Compliance with Legal and Insurance Requirements, Etc. Subject to the provisions of Article 8, Tenant, at its sole expense, shall (i) comply with Legal Requirements and Insurance Requirements in respect of the use, operation, maintenance, repair, alteration and restoration of all of the Collective Leased Properties, and (ii) procure, maintain and comply with all appropriate licenses, certificates of need, permits, provider agreements and other authorizations and agreements required for any use of the Collective Leased Properties and Tenant's Personal Property then being made, and for the proper erection, installation, operation and maintenance of the Collective Leased Properties or any part thereof, including, without limitation, any Capital Additions. 4.3 Compliance with Medicaid and Medicare Requirements. Tenant shall, at its sole cost and expense, make whatever improve- ments (capital or ordinary) as are required to conform each of the Collective Leased Properties to such standards as may, from time to time, be required by Federal Medicare (Title 18) or Medicaid (Title 19) skilled and/or intermediate care nursing programs, to the extent Tenant is a participant in such programs, or any other applicable programs or legislation, or capital improvements required by any other governmental agency having jurisdiction over such Leased Property as a condition of the continued operation of such Leased Property for its Primary Intended Use. 4.4 Environmental Matters. 4.4.1 Restriction on Use, Etc. Tenant shall not store, spill upon, dispose of or transfer to or from the Collective Leased Properties any Hazardous Substance, except that Tenant may store, transfer and dispose of Hazardous Substances in compliance with all Applicable Laws. Tenant shall maintain the Collective Leased Properties at all times free of any Hazardous Substance (except such Hazardous Substances as are maintained in compliance with all Applicable Laws). Tenant shall promptly: (a) notify Landlord in writing of any change in the nature or extent of Hazardous Substances at any of the Collective Leased Properties, (b) transmit to Landlord a copy of any Community Right to Know report which is required to be filed by Tenant with respect to any of the Collective Leased Properties pursuant to SARA Title III or any other Applicable Law, (c) transmit to Landlord copies of any citations, orders, notices or other governmental com- munications received by Tenant or its agents or representatives with respect thereto (collectively, "Environmental Notice"), which -26- Environmental Notice requires a written response or any action to be taken and/or if such Environmental Notice gives notice of and/or could give rise to a violation of any Applicable Law and/or could give rise to any cost, expense, loss or damage (an "Environmental Obligation"), (d) observe and comply with all Applicable Laws relating to the use, maintenance and disposal of Hazardous Substances and all orders or directives from any official, court or agency of competent jurisdiction relating to the use or maintenance or requiring the removal, treatment, containment or other disposition thereof, and (e) pay or otherwise dispose of any fine, charge or Imposition related thereto, unless Tenant shall contest the same in good faith and by appropriate proceedings and the right to use and the value of any of the Collective Leased Properties is not materially and adversely affected thereby. If, at any time prior to the termination of this Agreement, Hazardous Substances are discovered on any of the Collective Leased Properties, Tenant shall take all actions and incur any and all expenses, as may be reasonably necessary and as may be required by any Government Agency, (i) to clean up and remove from and about the Collective Leased Properties all Hazardous Substances thereon, (ii) to contain and prevent any further release or threat of release of Hazardous Substances on or about the Collective Leased Properties and (iii) to use good faith efforts to eliminate any further release or threat of release of Hazardous Substances on or about the Collective Leased Properties. 4.4.2 Environment Report. Six (6) months prior to expiration of the Term, Tenant, at its sole cost and expense, shall designate a qualified environmental engineer, satisfactory to Landlord in its sole discretion, which engineer shall conduct an environmental investigation of the Collective Leased Properties and prepare an environmental site assessment report (the "Environmental Report") with respect thereto. The scope of such Environmental Report shall include, without limitation, review of relevant records, interviews with persons knowledgeable about the Collective Leased Properties and relevant governmental agencies, a site inspection of the Collective Leased Properties, any buildings, the fencelines of the Collective Leased Properties and adjoining properties (Phase I) and shall otherwise be satisfactory in form and substance to Landlord. If such investigation, in the opinion of the performing engineer, indicates that any of the Collective Leased Properties are not environmentally sound and free from oil, asbestos, radon and other Hazardous Substances (except in compliance with Applicable Laws), such investigation shall also include a more detailed physical site inspection, appropriate testing, subsurface and otherwise, and review of historical records (Phase II) to demonstrate the compliance of such of the Collective Leased Properties with Applicable Laws and the absence of Hazardous Substances. -27- All preliminary drafts of the Environmental Report, and supplements and amendments thereto, shall be provided to Landlord contemporaneously with delivery thereof to Tenant. With respect to any recommendations contained in the Environmental Report, violations of Applicable Laws and/or the existence of any conditions at any of the Collective Leased Properties which could give rise to an Environmental Obligation, Tenant shall promptly give Notice thereof to Landlord, together with a description, setting forth in reasonable detail, all actions Tenant proposes to take in connection therewith and Tenant shall promptly take all actions, and incur any and all expenses, as may be reasonably necessary and as may be required by any Government Agency and as may be required by Landlord, (i) to clean up, remove or remediate from and about the Collective Leased Properties all Hazardous Substances thereon, (ii) to contain, prevent and eliminate any further release or threat of release of Hazardous Substances on or about the Collective Leased Properties, and (iii) otherwise to eliminate such violation or condition from the Collective Leased Properties to the reasonable satisfaction of Landlord. 4.4.3 Indemnification of Landlord. Tenant shall protect, indemnify and hold harmless Landlord and each Facility Mortgagee, their trustees, officers, agents, employees and beneficiaries, and any of their respective successors or assigns (hereafter the "Indemnitees," and when referred to singly, an "Indemnitee") for, from and against any and all debts, liens, claims, causes of action, administrative orders or notices, costs, fines, penalties or expenses (including, without limitation, attorney's fees and expenses) imposed upon, incurred by or asserted against any Indemnitee resulting from, either directly or indirectly, the presence in, upon or under the soil or ground water of any of the Collective Leased Properties or any properties surrounding any of the Collective Leased Properties of any Hazardous Substances in violation of any Applicable Law or otherwise by reason of any failure by Tenant or any Person to perform or comply with any of the terms of this Section 4.4. Tenant's duty herein includes, but is not limited to, costs associated with personal injury or property damage claims as a result of the presence of Hazardous Substances in, upon or under the soil or ground water of any of the Collective Leased Properties in violation of any Applicable Law. Upon Notice from Landlord, Tenant shall undertake the defense, at Tenant's sole cost and expense, of any indemnification duties set forth herein. Tenant shall, upon demand, pay to Landlord, as an Additional Charge, any cost, expense, loss or damage (including, without limitation, reasonable attorneys' fees) incurred by Landlord and arising from a failure of Tenant strictly to observe and perform the foregoing requirements, which amounts shall bear interest from the date incurred until paid by Tenant to Landlord at the Overdue Rate. 4.4.4 Survival -28- The provisions of this Section 4.4 shall survive the expiration or sooner termination of this Agreement. ARTICLE 5 MAINTENANCE AND REPAIRS 5.1 Maintenance and Repair. 5.1.1 Tenant's Obligations. Tenant shall, at its sole cost and expense, keep each of the Collective Leased Properties and all private roadways, sidewalks and curbs appurtenant thereto (and Tenant's Personal Property) in good order and repair, reasonable wear and tear excepted (whether or not the need for such repairs occurs as a result of Tenant's use, any prior use, the elements or the age of the Collective Leased Properties or Tenant's Personal Property, or any portion thereof), and shall promptly make all necessary and appropriate repairs and replacements thereto of every kind and nature, whether interior or exterior, structural or nonstructural, ordinary or extraordinary, foreseen or unforeseen or arising by reason of a condition existing prior to the commencement of the Term (concealed or otherwise); provided, however, that Tenant shall be permitted to prosecute claims against Landlord's predecessors in title for breach of any representation or warranty made to or on behalf of Landlord or for any latent defects in the Collective Leased Properties. All repairs shall be made in a good, workmanlike and first-class manner, in accordance with all applicable federal, state and local statutes, ordinances, by-laws, codes, rules and regulations relating to any such work. Tenant shall not take or omit to take any action, the taking or omission of which would materially impair the value or the usefulness of any of the Collective Leased Properties or any part thereof for its respective Primary Intended Use. Tenant's obligations under this Section 5.1.1 as to any of the Collective Leased Properties shall be limited, in the event of any casualty or Condemnation involving such Leased Property, as set forth in Sections 10.2 and 11.2. Notwithstanding any provisions of this Section 5.1 to the contrary, Tenant's obligations with respect to Hazardous Substances are as set forth in Section 4.4. 5.1.2 Landlord's Obligations. Landlord shall not, under any circumstances, be required to build or rebuild any improvement on the Collective Leased Properties, or to make any repairs, replacements, alterations, restorations or renewals of any nature or description to the Collective Leased Properties, whether ordinary or extraordinary, structural or nonstructural, foreseen or unforeseen, or to make any expenditure whatsoever with respect thereto, or to maintain the -29- Collective Leased Properties in any way, except as specifically provided herein. Tenant hereby waives, to the maximum extent permitted by law, the right to make repairs at the expense of Landlord pursuant to any law in effect on the date hereof or hereafter enacted. Landlord shall have the right to give, record and post, as appropriate, notices of nonresponsibility under any mechanic's lien laws now or hereafter existing. 5.1.3 Nonresponsibility of Landlord; No Mechanics Liens. Landlord's interest in the Collective Leased Properties shall not be subject to liens for Capital Additions made by Tenant and Tenant shall have no power or authority to create any lien or permit any lien to attach to any of the Collective Leased Properties or the present estate, reversion or other estate of Landlord in the Collective Leased Properties or on the building or other improvements thereon as a result of Capital Additions made by Tenant or for any other cause or reason. All materialmen, contractors, artisans, mechanics and laborers and other persons contracting with Tenant with respect to the Collective Leased Properties, or any part thereof, are hereby charged with notice that such liens are expressly prohibited and that they must look solely to Tenant to secure payment for any work done or material furnished for Capital Additions by Tenant or for any other purpose during the term of this Agreement. Nothing contained in this Agreement shall be deemed or construed in any way as constituting the consent or request of Landlord, express or implied, by inference or otherwise, to any contractor, subcontractor, laborer or materialmen for the performance of any labor or the furnishing of any materials for any alteration, addition, improvement or repair to any of the Collective Leased Properties or any part thereof or as giving Tenant any right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials that would give rise to the filing of any lien against any of the Collective Leased Properties or any part thereof nor to subject Landlord's estate in any of the Collective Leased Properties or any part thereof to liability under any Mechanic's Lien Law of the State in any way, it being expressly understood Landlord's estate shall not be subject to any such liability. 5.2 Tenant's Personal Property. Tenant may (and shall as provided hereinbelow), at its expense, install, affix or assemble or place on any parcels of the Land or in any of the Leased Improvements, any items of Tenant's Personal Property, and Tenant may, subject to the conditions set forth below, remove the same at any time, provided that no Default or Event of Default has occurred and is continuing. Tenant shall provide and maintain throughout the Term all such Tenant's Personal Property as shall be necessary in order -30- to operate all of the Facilities located at the Collective Leased Properties in compliance with all applicable licensure and certification requirements, in compliance with applicable Legal Requirements and Insurance Requirements and otherwise in accordance with customary practice in the industry for such Primary Intended Use. All of Tenant's Personal Property not removed by Tenant on or prior to the expiration or earlier termination of this Agreement shall be considered abandoned by Tenant and may be appropriated, sold, destroyed or otherwise disposed of by Landlord without the necessity of first giving notice thereof to Tenant, without any payment to Tenant and without any obligation to ac- count therefor. Tenant shall, at its expense, restore each of the Collective Leased Properties to the condition required by Section 5.3, including repair of all damage to the Collective Leased Properties caused by the removal of Tenant's Personal Property, whether effected by Tenant or Landlord. If Tenant uses any item of tangible personal property (other than motor vehicles) on, or in connection with, any Leased Property which belongs to anyone other than Tenant, Tenant shall use its best efforts to require the agreement permitting such use to provide that Landlord or its designee may assume Tenant's rights under such agreement upon management or operation of the applicable Facility by Landlord or its designee. 5.3 Yield Up. Upon the expiration or sooner termination of this Agreement, Tenant shall vacate and surrender each of the Collective Leased Properties to Landlord in the condition in which each of the Collective Leased Properties was in on the Commencement Date, except as repaired, rebuilt, restored, altered or added to as permitted or required by the provisions of this Agreement, reasonable wear and tear excepted (and casualty damage and Condemnation, in the event that this Agreement is terminated with respect to any of the Collective Leased Properties following a casualty or total Condemnation in accordance with Article 10 or Article 11). In addition, upon the expiration or earlier termination of this Agreement, Tenant shall, at Landlord's sole cost and expense, use its best efforts to transfer to and cooperate with Landlord or Landlord's nominee in connection with the processing of all applications for licenses, operating permits and other governmental authorizations and all contracts, including contracts with governmental or quasi- governmental entities which may be necessary for the operation of the Facilities located on the Collective Leased Properties. If requested by Landlord, Tenant will continue to manage any such Facility after the expiration of the Term and for as long thereafter as is necessary to obtain all necessary licenses, operating permits and other governmental authorizations, on such reasonable terms (which shall include an agreement to reimburse Tenant for its reasonable out-of-pocket costs and expenses, and reasonable administrative costs) as Landlord shall request. -31- 5.4 Encroachments, Restrictions, Etc. If any of the Leased Improvements shall, at any time, encroach upon any property, street or right-of-way adjacent to the affected Leased Property, or shall violate the agreements or conditions contained in any lawful restrictive covenant or other agreement affecting any of the Collective Leased Properties, or any part thereof, or shall impair the rights of others under any easement or right-of-way to which any of the Collective Leased Properties is subject, upon the request of Landlord (but only as to any encroachment, violation or impairment that is not a Permitted Encumbrance) or of any Person affected by any such encroachment, violation or impairment, Tenant shall, at its sole cost and expense, subject to its right to contest the existence of any encroachment, violation or impairment in accordance with the provisions of Article 8, either (a) obtain valid and effective waivers or settlements of all claims, liabilities and damages resulting from each such encroachment, violation or impairment, whether the same shall affect Landlord or Tenant, or (b) make such changes in the Leased Improvements and take such other actions, as are reasonably practicable to remove such encroachment and to end such violation or impairment, including, if necessary, the alteration of any of the Leased Improvements and, in any event, take all such actions as may be necessary in order to ensure the continued operation of the affected Leased Improvements for their respective Primary Intended Use substantially in the manner and to the extent such Leased Improvements were operated prior to the assertion of such violation, impairment or encroachment. Any such alteration shall be made in conformity with the applicable requirements of this Article 5. Tenant's obligations under this Section 5.4 shall be in addition to and shall in no way discharge or diminish any obligation of any insurer under any policy of title or other insurance. 5.5 Landlord to Grant Easements, Etc. Landlord shall from time to time, so long as no Default or Event of Default shall have occurred and be continuing, at the request of Tenant and at Tenant's sole cost and expense, (a) grant easements and other rights in the nature of easements with respect to any of the Collective Leased Properties to third parties, (b) release existing easements or other rights in the nature of easements which are for the benefit of any of the Collective Leased Properties, (c) dedicate or transfer unimproved portions of any of the Collective Leased Properties for road, highway or other public purposes, (d) execute petitions to have any of the Collective Leased Properties annexed to any municipal corporation or utility district, (e) execute amendments to any covenants and restric- tions affecting any of the Collective Leased Properties and (f) execute and deliver to any Person any instrument appropriate to confirm or effect such grants, release, dedications, transfers, petitions and amendments (to the extent of its interests in such Leased Property); provided, however, that Landlord shall have first determined that such grant, release, dedication, transfer, petition or amendment is not detrimental to the operation of the applicable Leased Property for its -32- Primary Intended Use and does not materially reduce the value of such Leased Property, and Landlord shall have received an Officer's Certificate confirming such determination, together with such additional information as Landlord may request. ARTICLE 6 CAPITAL ADDITIONS, ETC. 6.1 Construction of Capital Additions to the Leased Property. Tenant shall not construct or install Capital Additions on any of the Collective Leased Properties without obtaining Landlord's prior written consent, provided that no consent shall be required for any Capital Addition so long as (a) the Capital Additions Costs for such Capital Addition are less than $100,000, (b) such construction or installation would not adversely affect or violate any Legal Requirement or Insurance Requirement applicable to the applicable Leased Property and (c) Landlord shall have received an Officer's Certificate certifying as to the satisfaction of the conditions set out in clauses (a) and (b) above. If Landlord's consent is required, prior to commencing construc- tion of any Capital Addition, Tenant shall submit to Landlord, in writing, a proposal setting forth, in reasonable detail, any proposed Capital Addition and shall provide to Landlord such plans and specifications, permits, licenses, contracts and other information concerning the proposed Capital Addition as Landlord may request. Landlord shall have thirty (30) days to review all materials submitted to Landlord in connection with any such proposal. Failure of Landlord to respond to Tenant's proposal within thirty-five (35) days after receipt of all information and materials requested by Landlord in connection with the proposed Capital Addition shall be deemed to constitute approval of such proposed Capital Addition. Without limiting the generality of the foregoing, such proposal shall indicate the approximate projected cost of constructing such Capital Addition and the use or uses to which it will be put. No Capital Addition shall be made which would tie in or connect any Leased Improvement on the applicable Leased Property with any other improvements on property adjacent to such Leased Property (and not part of the Land) including, without limitation, tie-ins of buildings or other structures or utilities. Tenant shall not finance the cost of any construction of any Capital Addition without the prior written consent of Landlord, which consent may be withheld by Landlord in Landlord's sole discretion. Any Capital Additions (including Tenant's Capital Additions) shall, upon the expiration or sooner termination of this Agreement, pass to and become the property of Landlord, free and clear of all encumbrances other than Permitted Encumbrances but subject to Landlord's obligation to compensate Tenant for Tenant's Capital Additions as provided below. 6.2 Capital Additions Financed or Paid For by Tenant. -33- 6.2.1 Financing of Capital Additions. Provided that Tenant has obtained the prior written consent of Landlord in each instance, Tenant may arrange for financing for Capital Additions from a Lending Institution; provided, however, that (i) the terms and conditions of any such financing shall be subject to the prior approval of Landlord; and (ii) if Landlord consents to the grant thereof, which consent may be given or withheld in the sole discretion of Landlord, any security interests in any property of Tenant, including, without limitation, the applicable Leased Property, shall be expressly and fully subordinated to this Agreement and to the interest of Landlord in the applicable Leased Property and to the rights of any Facility Mortgagee. 6.2.2 Purchase by Landlord. If, pursuant to the provisions of this Agreement, Tenant either pays for or arranges financing (to the extent permitted in Section 6.2.1) to pay for the costs of construction or installation of any Capital Addition ("Tenant's Capital Additions") (but excluding, in any event, any Capital Addition financed by or through Landlord) upon the expiration or earlier termination of this Agreement (but if this Agreement is terminated by reason of an Event of Default, only after Landlord is fully compensated for all damages resulting therefrom), Landlord shall compensate Tenant for all Tenant's Capital Additions in any of the following ways determined in Landlord's sole discretion: (a) By purchasing such Tenant's Capital Additions from Tenant for cash in the amount of the then Fair Market Added Value of such Tenant's Capital Additions; or (b) By purchasing such Tenant's Capital Additions from Tenant by delivering to Tenant Landlord's purchase money promissory note in the amount of the Fair Market Added Value, which note shall be on then commercially reasonable terms and secured by a mortgage or deed of trust on the applicable Leased Property and such Tenant's Capital Additions subject to all existing mortgages and encumbrances on such Leased Property and such Tenant's Capital Additions at the time of such purchase; or (c) Upon termination of this Agreement by reason of an Event of Default, by assigning to Tenant the right to receive an amount equal to the Fair Market Added Value Percentage (determined as of the date of such termination of this Agreement) of all rent and other consideration receivable by Landlord under any re-letting or other disposition of the applicable Leased Property and such Tenant's Capital Additions, after deducting from such rent all costs and expenses incurred by Landlord in connection with such reletting or other disposition of the Collective Leased Properties and such Tenant's Capital Additions and all costs and expenses of -34- operating and maintaining the Collective Leased Properties and such Tenant's Capital Additions during the term of any such new lease which are not borne by the tenant thereunder, with the provisions of this Section 6.2.2 to remain in effect until the sale or other final disposition of the applicable Leased Property and such Tenant's Capital Additions, at which time the Fair Market Added Value of such Tenant's Capital Addition shall be immediately due and payable, such obligation to be secured by a mortgage on the applicable Leased Property and such Tenant's Capital Additions, subject to all existing mortgages and encumbrances on the Leased Property at the time of such purchase and assignment; or (d) By making such other arrangement regarding such compensation as shall be mutually acceptable to Landlord and Tenant. 6.3 Capital Additions Financed by Landlord. If Landlord shall, at the request of Tenant and in Landlord's sole discretion, elect to finance any proposed Capital Addition, Tenant shall provide Landlord with such information as Landlord may from time to time request, including, without limitation, the following: (a) Evidence that such Capital Addition will be, and, upon completion, has been, completed in compliance with the applicable requirements of State and federal law with respect to capital expenditures for health care facilities; (b) Copies of all building, zoning and land use permits and approvals and upon completion of such Capital Addition, a copy of the certificate of occupancy for such Capital Addition, if required; (c) Such information, certificates, licenses, permits or other documents necessary to confirm that Tenant will be able to use the Capital Addition upon completion thereof in accordance with the Primary Intended Use, including all required federal, State or local government licenses and approvals; (d) An Officer's Certificate and a certificate from Tenant's architect setting forth, in reasonable detail, the projected (or actual, if available) Capital Additions Cost and invoices and lien waivers from Tenant's contractors for such work; (e) A deed conveying to Landlord title to any land acquired for the purpose of constructing the Capital Addition free and clear of any liens or encumbrances, except those approved by Landlord, and, upon completion of the Capital Addition, a final as-built survey thereof reasonably satisfactory to Landlord; (f) Endorsements to any outstanding policy of title insurance covering the applicable Leased Property or commitments therefor, -35- satisfactory in form and substance to Landlord, (i) updating the same without any additional exceptions except as approved by Landlord, and (ii) increasing the coverage thereof by an amount equal to the Fair Market Value of the Capital Addition (except to the extent covered by the owner's policy of title insurance referred to in subparagraph (g) below); (g) If appropriate, (i) an owner's policy of title insurance insuring fee simple title to any land conveyed to Landlord pursuant to subparagraph (e) above, free and clear of all liens and encumbrances, except those approved by Landlord, and (ii) a lender's policy of title insurance, reasonably satisfactory in form and substance to Landlord and any Facility Mortgagee; (h) An appraisal of the applicable Leased Property by a Qualified Appraiser, acceptable to Landlord, and/or an Officer's Certificate stating that the value of the applicable Leased Property upon completion of the Capital Addition exceeds the Fair Market Value thereof prior to the commencement of such Capital Addition by an amount not less than 80% of the Capital Additions Cost; and (i) Prints of architectural and engineering drawings relating to such Capital Addition and such other certificates, documents, opinions of counsel, appraisals, surveys, certified copies of duly adopted resolutions of the board of directors of Tenant authorizing the execution and delivery of any lease amendment or other instruments required by Landlord, any Facility Mortgagee and any Lending Institution advancing or reimbursing Landlord or Tenant for any portion of the Capital Additions Cost. If Landlord shall finance the proposed Capital Addition, (i) Landlord may elect to obtain repayment of amounts so financed by an increase in the Rent payable hereunder, and (ii) Tenant shall pay to Landlord all reasonable costs and expenses paid or incurred by Landlord and any Facility Mortgagee or Lending Institution which has committed to finance such Capital Addition in connection therewith, including, but not limited to, (a) the reasonable attorneys' fees and expenses, (b) all printing expenses, (c) all filing, registration and recording taxes and fees, (d) documentary stamp taxes, (e) title insurance charges, appraisal fees, and rating agency fees, and (f) commitment fees. 6.4 Non-Capital Additions. Tenant shall have the right, at Tenant's sole cost and expense, to make additions, modifications or improvements to the Collective Leased Properties which are not Capital Additions ("Non-Capital Additions") from time to time as Tenant, in its discretion, may deem desirable for the applicable Primary Intended Use provided that any such Non-Capital Addition will not materially alter the character or purpose or materially detract from the value, operating efficiency or revenue-producing capability of the applicable Leased Property or -36- adversely affect the ability of Tenant to comply with the provisions of this Agreement, and, without limiting the foregoing, will not adversely affect or violate any Legal Requirement or Insurance Requirement applicable to the applicable Leased Property. All such Non-Capital Additions shall, upon expiration or earlier termination of this Agreement, pass to and become the property of Landlord, free and clear of all liens and encumbrances, other than Permitted Encumbrances. 6.5 Salvage. All materials which are scrapped or removed in connection with the making of either Capital Additions or Non-Capital Additions or repairs required by Article 5 shall be or become the property of the party that paid for such work. ARTICLE 7 LIENS 7.1 Liens. Subject to Article 8, Tenant shall not, directly or indirectly, create or allow to remain and shall promptly discharge, at its expense, any lien, encumbrance, attachment, title retention agreement or claim upon the Collective Leased Properties or Tenant's leasehold interest therein or any attachment, levy, claim or encumbrance in respect of the Rent, other than (a) Permitted Encumbrances, (b) restrictions, liens and other encumbrances which are consented to in writing by Landlord, (c) liens for those taxes of Landlord which Tenant is not required to pay hereunder, (d) subleases permitted by Article 17, (e) liens for Impositions or for sums resulting from noncompliance with Legal Requirements so long as (i) the same are not yet payable, or (ii) are being contested in accordance with Article 8, (f) liens of mechanics, laborers, materialmen, suppliers or vendors incurred in the ordinary course of business that are not yet due and payable or are for sums that are being contested in accordance with Article 8, and (g) any Facility Mortgages or other liens which are the responsibility of Landlord pursuant to the provisions of Article 22. 7.2 Landlord's Lien. In addition to any statutory landlord's lien and in order to secure payment of the Rent and all other sums payable hereunder by Tenant, and to secure payment of any loss, cost or damage which Landlord may suffer by reason of Tenant's breach of this Agreement, Tenant hereby grants unto Landlord a security interest in and an express contractual lien upon Tenant's Personal Property (except motor vehicles), and all ledger sheets, files, records, documents and instruments (including, without limitation, computer programs, tapes and related electronic data processing) relating to the operation of the Facilities (the "Records") and all proceeds therefrom, subject to any Permitted Encumbrances; and -37- such Tenant's Personal Property shall not be removed from the Collective Leased Properties at any time when a Default or an Event of Default has occurred and is continuing. Upon Landlord's request, Tenant shall execute and deliver to Landlord financing statements in form sufficient to perfect the security interest of Landlord in Tenant's Personal Property and the proceeds thereof in accordance with the provisions of the applicable laws of the State. Tenant hereby grants Landlord an irrevocable limited power of attorney, coupled with an interest, to execute all such financing statements in Tenant's name, place and stead. The security interest herein granted is in addition to any statutory lien for the Rent. ARTICLE 8 PERMITTED CONTESTS Tenant shall have the right to contest the amount or validity of any Imposition, Legal Requirement, Insurance Requirement, lien, attachment, levy, encumbrance, charge or claim (collectively, "Claims") as to any of the Collective Leased Properties, by appropriate legal proceedings, conducted in good faith and with due diligence, provided that (a) the foregoing shall in no way be construed as relieving, modifying or extending Tenant's obligation to pay any Claims as finally determined, (b) such contest shall not cause Landlord or Tenant to be in default under any mortgage or deed of trust encumbering such Leased Property or any interest therein or result in or reasonably be expected to result in a lien attaching to such Leased Property, (c) no part of such Leased Property nor any Rent therefrom shall be in any immediate danger of sale, forfeiture, attachment or loss, and (d) Tenant shall indemnify and hold harmless Landlord from and against any cost, claim, damage, penalty or reasonable expense, including reasonable attorneys' fees, incurred by Landlord in connection therewith or as a result thereof. Upon Landlord's request, Tenant shall either (i) provide a bond or other assurance reasonably satisfactory to Landlord that all Claims which may be assessed against any of the Collective Leased Properties, together with all interest and penalties thereon will be paid, or (ii) deposit within the time otherwise required for payment with a bank or trust company, as trustee, as security for the payment of such Claims, an amount sufficient to pay the same, together with interest and penalties in connection therewith and all Claims which may be assessed against or become a Claim on any of the Collective Leased Properties, or any part thereof, in connection with any such contest. Tenant shall furnish Landlord and any Facility Mortgagee with reasonable evidence of such deposit within five (5) days after request therefor. Landlord agrees to join in any such proceedings if required legally to prosecute such contest, provided that Landlord shall not thereby be subjected to any liability therefor (including, without limitation, for the payment of any costs or expenses in connection therewith). Tenant shall be entitled to any refund of any Claims and such charges and penalties or interest thereon which have been paid by Tenant or paid by -38- Landlord and for which Landlord has been fully reimbursed by Tenant. If Tenant shall fail (x) to pay any Claims when finally determined, (y) to provide security therefor as provided in this Article 8, or (z) to prosecute any such contest diligently and in good faith, Landlord may, upon reasonable notice to Tenant (which notice may be oral and shall not be required if Landlord shall reasonably determine that the same is not practicable), pay such charges, together with interest and penalties due with respect thereto, and Tenant shall reimburse Landlord therefor, upon demand, as Additional Charges. ARTICLE 9 INSURANCE AND INDEMNIFICATION 9.1 General Insurance Requirements. Tenant shall, at all times during the Term and at any other time Tenant shall be in possession of any of the Collective Leased Properties, keep each of the Collective Leased Properties and all property located therein or thereon, including Tenant's Personal Property, insured against the risks and in the amounts as follows and shall maintain the following insurance: (a) "All-risk" property insurance, including insurance against loss or damage by fire, vandalism and malicious mischief, explosion of steamboilers, pressure vessels or other similar apparatus, now or hereafter installed in the Facility located at such Leased Property, extended coverage perils, earthquake and all physical loss perils insurance, including, but not limited to, sprinkler leakage, in an amount equal to one hundred percent (100%) of the then full Replacement Cost thereof (as defined in Section 9.2) with the usual extended coverage endorsements, including a Replacement Cost Endorsement and Builder's Risk Coverage during the continuance of any construction at such Leased Property; (b) Business interruption and blanket earnings plus extra expense under a rental value insurance policy covering risk of loss during the lesser of the first twelve (12) months of reconstruction or the actual reconstruction period necessitated by the occurrence of any of the hazards described in subparagraphs (a) and (b) above, in such amounts as may be customary for comparable properties in the area and in an amount sufficient to prevent Landlord or Tenant from becoming a co-insurer; (c) Comprehensive general liability insurance, including bodily injury and property damage (on an occurrence basis and on a 1988 1SO CGL form or its equivalent or otherwise in the broadest form available, including, without limitation, broad form contractual liability, fire legal liability independent contractor's hazard and completed operations coverage) and, with respect to the Collective Leased Properties, claims arising out of -39- malpractice in an amount not less than Five Million Dollars ($5,000,000) per occurrence, Ten Million Dollars ($10,000,000) in the aggregate and umbrella coverage of all such claims in an amount not less than Twenty Million Dollars ($20,000,000); (d) Flood (when the applicable Leased Property is located in whole or in part within an area identified as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968, as amended, or the Flood Disaster Protection Act of 1973, as amended (or any successor acts thereto)) and such other hazards and in such amounts as may be customary for comparable properties in the area; (e) Worker's compensation insurance coverage for all persons employed by Tenant on the applicable Leased Property with statutory limits and otherwise with limits of and provisions in accordance with the requirements of applicable local, State and federal law, and employer's liability insurance in such amounts as Landlord and any Facility Mortgagee shall reasonably require; and (f) Such additional insurance as may be reasonably required, from time to time, by Landlord or any Facility Mortgagee. 9.2 Replacement Cost. "Replacement Cost" as used herein, shall mean the actual replacement cost of the property requiring replacement from time to time, including an increased cost of construction endorsement, less exclusions provided in the standard form of fire insurance policy. In the event either party believes that the then full Replacement Cost has increased or decreased at any time during the Term, such party, at its own cost, shall have the right to have such full Replacement Cost redetermined by an accredited appraiser approved by the other, which approval shall not be unreasonably withheld or delayed. The party desiring to have the full Replacement Cost so redetermined shall forthwith, on receipt of such determination by such appraiser, give written notice thereof to the other. The determination of such appraiser shall be final and binding on the parties hereto, and Tenant shall forthwith conform the amount of the insurance carried to the amount so determined by the appraiser. 9.3 Waiver of Subrogation. Landlord and Tenant agree that (insofar as and to the extent that such agreement may be effective without invalidating or making it impossible to secure insurance coverage from responsible insurance companies doing business in the State) with respect to any property loss which is covered by insurance then being carried by Landlord or Tenant, respectively, the party carrying such insurance and suffering said loss releases the other of and from any and all claims with respect to such loss; and they further agree that their respective insurance companies shall have no right of subrogation against the other on account thereof, -40- even though extra premium may result therefrom. In the event that any extra premium is payable by Tenant as a result of this provision, Landlord shall not be liable for reimbursement to Tenant for such extra premium. 9.4 Form Satisfactory, Etc. All insurance policies and endorsements required pursuant to this Article 9 shall be fully paid for, nonassessable and shall contain such provisions and expiration dates and be in such form and amounts and issued by insurance carriers authorized to do business in the State, having a general policy holder's rating of A or A+ in Best's latest rating guide, and as otherwise shall be approved by Landlord. Without limiting the foregoing, such policies shall include no deductible and, with the exception of the insurance described in Section 9.1(f), shall name Landlord and any Facility Mortgagee as additional insureds, as their interests may appear. All losses shall be payable to Landlord, any Facility Mortgagee or Tenant as provided in Article 10. Any loss adjustment shall require the prior written consent of Landlord, Tenant, and each Facility Mortgagee. Tenant shall pay all insurance premiums and deliver policies or certificates thereof to Landlord prior to their effective date (and, with respect to any renewal policy, thirty (30) days prior to the expiration of the existing policy) and, in the event Tenant shall fail to effect such insurance as herein required, to pay the premiums therefor or to deliver such policies or certificates to Landlord or any Facility Mortgagee at the times required, Landlord shall have the right, but not the obligation, to acquire such insurance and pay the premiums therefor, which amounts shall be payable to Landlord, upon demand, as Additional Charges, together with interest accrued thereon at the Overdue Rate from the date such payment is made until the date repaid. All such policies shall provide Landlord (and any Facility Mortgagee, if required by the same) thirty (30) days' prior written notice of any modification, expiration or cancellation of such policy. 9.5 Blanket Policy. Notwithstanding anything to the contrary contained in this Article 9, Tenant's obligation to maintain the insurance herein required may be brought within the coverage of a so-called blanket policy or policies of insurance carried and maintained by Tenant, provided, that (a) the coverage thereby afforded will not be reduced or diminished from that which would exist under a separate policy meeting all other requirements of this Agreement, and (b) the requirements of this Article 9 are otherwise satisfied. Without limiting the foregoing, the amounts of insurance that are required to be maintained pursuant to Section 9.1 shall be on a Facility by Facility basis, and shall not be subject to an aggregate limit. 9.6 No Separate Insurance. Tenant shall not take out separate insurance, concurrent in form or contributing in the event of loss with that required by this Article 9, -41- or increase the amount of any existing insurance by securing an additional policy or additional policies, unless all parties having an insurable interest in the subject matter of such insurance, including Landlord and all Facility Mortgagees, are included therein as additional insureds and the loss is payable under such insurance in the same manner as losses are payable under this Agreement. In the event Tenant shall take out any such separate insurance or increase any of the amounts of the then existing insurance, Tenant shall give Landlord prompt Notice thereof. 9.7 Indemnification of Landlord. Notwithstanding the existence of any insurance provided for herein and without regard to the policy limits of any such insurance, Tenant shall protect, indemnify and hold harmless Landlord for, from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and reasonable expenses (including, without limitation, reasonable attorneys' fees), to the maximum extent permitted by law, imposed upon or incurred by or asserted against Landlord by reason of: (a) any accident, injury to or death of persons or loss of or damage to property occurring on or about the Collective Leased Properties or adjoining sidewalks or rights of way, including, without limitation, any claims of malpractice, (b) any past, present or future use, misuse, non-use, condition, management, maintenance or repair by Tenant or anyone claiming under Tenant of the Collective Leased Properties or Tenant's Personal Property or any litigation, proceeding or claim by governmental entities or other third parties to which Landlord is made a party or participant relating to the Collective Leased Properties or Tenant's Personal Property or such use, misuse, non-use, condition, management, maintenance, or repair thereof including, failure to perform obligations (other than Condemnation proceedings) to which Landlord is made a party, (c) any Impositions (which are the obligations of Tenant to pay pursuant to the applicable provisions of this Agreement), and (d) any failure on the part of Tenant or anyone claiming under Tenant to perform or comply with any of the terms of this Agreement. Tenant shall pay all amounts payable under this Section 9.7 within ten (10) days after demand therefor and, if not timely paid, such amounts shall bear interest at the Overdue Rate from the date of determination to the date of payment. Tenant, at its expense, shall contest, resist and defend any such claim, action or proceeding asserted or instituted against Landlord or may compromise or otherwise dispose of the same, with Landlord's prior written consent (which consent may not be unreasonably withheld or delayed). The obligations of Tenant under this Section 9.7 are in addition to the obligations set forth in Section 4.4 and shall survive the termination of this Agreement. -42- ARTICLE 10 CASUALTY 10.1 Insurance Proceeds. All proceeds payable by reason of any loss or damage to the Collective Leased Properties, or any portion thereof, and insured under any policy of insurance required by Article 9 (including, without limitation, proceeds of any business interruption insurance) shall be paid directly to Landlord and retained by Landlord (subject to the provisions of Section 10.2). If Tenant is required to reconstruct or repair any of the Collective Leased Properties as provided herein, such proceeds shall be paid out by Landlord from time to time for the reasonable costs of reconstruction or repair of such Leased Property necessitated by such damage or destruction, subject to the provisions of Section 10.2.4. Provided no Default or Event of Default has occurred and is continuing, any excess proceeds of insurance remaining after the completion of the restoration shall be paid to Tenant. In the event that the provisions of Section 10.2.1 are applicable, the insurance proceeds shall be retained by the party entitled thereto pursuant to Section 10.2.1. All salvage resulting from any risk covered by insur- ance shall belong to Landlord, except any salvage related to Tenant's Capital Additions and Tenant's Personal Property shall belong to Tenant. 10.2 Damage or Destruction. 10.2.1 Damage or Destruction of Leased Property. If, during the Term, any of the Collective Leased Properties shall be totally or partially destroyed and the Facility located thereon is thereby rendered Unsuitable for Its Primary Intended Use, Tenant shall, unless Landlord shall otherwise elect, purchase such Leased Property from Landlord for a purchase price equal to the greater of (i) the Adjusted Purchase Price of such Leased Property and (ii) the Fair Market Value Purchase Price of such Leased Property immediately prior to such damage or destruction. In the event Tenant purchases such Leased Property as provided in this Section 10.2.1, the insurance proceeds payable on account of such damage shall be paid to Tenant. If Tenant purchases the applicable Leased Property as provided herein, the closing with respect thereto shall occur on a date designated by Landlord by Notice to Tenant (but in no event prior to thirty (30) days after such Notice), this Agreement shall terminate as to the applicable Leased Property upon payment of the purchase price therefor, and Landlord shall remit to Tenant all insurance proceeds pertaining to the applicable Leased Property then held by Landlord. Upon termination of this Agreement with respect to such Leased Property as hereinabove provided, the Minimum Rent thereafter payable hereunder shall be reduced by an amount reasonably determined by Landlord to be that portion of the Minimum Rent allocable to such Leased Property. -43- 10.2.2 Partial Damage or Destruction. If, during the Term, any of the Collective Leased Properties shall be totally or partially destroyed but the Facility located thereon is not rendered Unsuitable for Its Primary Intended Use, Tenant shall promptly restore such Facility as provided in Section 10.2.4. 10.2.3 Insufficient Insurance Proceeds. If the cost of the repair or restoration of the applicable Leased Property exceeds the amount of insurance proceeds received by Landlord pursuant to Article 9, upon the demand of Landlord, Tenant shall contribute any excess amounts needed to restore such Leased Property. Such difference shall be paid by Tenant to Landlord and held by Landlord, together with any other insurance proceeds, for application to the cost of repair and restoration. 10.2.4 Disbursement of Proceeds. In the event Tenant is required to restore the applicable Leased Property pursuant to Section 10.2, Tenant shall, at its sole cost and expense, commence promptly and continue diligently to perform the repair and restoration of such Leased Property (hereinafter called the "Work"), or shall cause the same to be done, so as to restore such Leased Property in full compliance with all Legal Requirements and so that such Leased Property shall be at least equal in value and general utility to its general utility and value immediately prior to such damage or destruction. Subject to the terms hereof, Landlord shall advance the insurance proceeds (other than proceeds of business interruption insurance which shall be advanced as provided below) and the amounts paid to it pursuant to Section 10.2.3 to Tenant regularly during the repair and restoration period so as to permit payment for the cost of any such restoration and repair. Any such advances shall be for not less than $100,000 (or such lesser amount as equals the entire balance of the repair and restoration) and Tenant shall submit to Landlord a written requisition and substantiation therefor on AIA Forms G702 and G703 (or on such other form or forms as may be acceptable to Landlord). Landlord may, at its option, condition advancement of said insurance proceeds and other amounts on (i) the absence of any Default or Event of Default, (ii) its approval of plans and specifications of an architect satisfactory to Landlord, (iii) general contractors' estimates, (iv) architect's certificates, (v) unconditional lien waivers of general contractors, (vi) evidence of approval by all governmental authorities and other regulatory bodies whose approval is required and (vii) such other certificates as Landlord may, from time to time, reasonably require. Except as provided in the following sentence and provided no Default or Event of Default has occurred and is continuing, on the first day of each calendar month during which proceeds of business interruption insurance are disbursed to Landlord under the policy of business -44- interruption insurance maintained pursuant to Article 9, Landlord shall disburse proceeds of business interruption insurance received by it to Tenant upon Notice from Tenant accompanied by a certification from Tenant that such moneys will be used for costs or expenses of owning or operating the applicable Leased Property. Proceeds of business interruption insurance shall be applied by Landlord, on the first day of the calendar month following such disbursement, first to the payment of all Minimum Rent, Additional Rent and Additional Charges then due and payable and to become due and payable for the period for which such proceeds have been paid by the insurance provider, and the balance, if any, to Tenant as provided in the preceding sentence. If, at any time, the amount of such proceeds will be insufficient to pay all Minimum Rent, Additional Rent and Additional Charges due or to come due during such period, Landlord may, in its sole discretion, suspend disbursement of any proceeds to Tenant. Landlord's obligation to disburse insurance proceeds under this Article 10 shall be subject to the release of such proceeds by the applicable Facility Mortgagee to Landlord. Tenant's obligation to restore the applicable Leased Property pursuant to this Article 10 shall be subject to the release of available insurance proceeds by the applicable Facility Mortgagee to Landlord. 10.3 Damage Near End of Term. Notwithstanding any provisions of Section 10.1 or 10.2 to the contrary, if damage to or destruction of any of the Collective Leased Properties occurs during the last twelve (12) months of the second Extended Term and if such damage or destruction cannot reasonably be expected to be fully repaired and restored prior to the date that is six (6) months prior to the end of such Extended Term, the provisions of Section 10.2.1 shall apply as if such Leased Property had been totally or partially destroyed and the Facility located thereon rendered Unsuitable for its Primary Intended Use. 10.4 Tenant's Property. All insurance proceeds payable by reason of any loss of or damage to any of Tenant's Personal Property or Tenant's Capital Additions shall be paid to Tenant and, to the extent necessary to repair or replace Tenant's Capital Additions or Tenant's Personal Property in accordance with Section 10.5, Tenant shall hold such proceeds in trust to pay the cost of repairing or replacing damaged Tenant's Personal Property or Tenant's Capital Additions. 10.5 Restoration of Tenant's Property. If Tenant is required to restore the applicable Leased Property as hereinabove provided, Tenant shall either (a) restore all alterations -45- and improvements made by Tenant, Tenant's Personal Property and all Tenant's Capital Additions, or (b) replace such alterations and improvements, Tenant's Personal Property, and/or Tenant's Capital Additions with improvements or items of the same or better quality and utility in the operation of such Leased Property. 10.6 No Abatement of Rent. This Agreement shall remain in full force and effect and Tenant's obligation to make all payments of Rent and to pay all other charges as and when required under this Agreement shall, except as otherwise provided in Section 10.2.1, remain unabated during the Term notwithstanding any damage involving any of the Collective Leased Properties (provided that Landlord shall credit against such payments any amounts paid to Landlord as a consequence of such damage under any business interruption insurance obtained by Tenant hereunder). The provisions of this Article 10 shall be considered an express agreement governing any cause of damage or destruction to the applicable Leased Property and, to the maximum extent permitted by law, no local or State statute, laws, rules, regulation or ordinance in effect during the Term which provide for such a contingency shall have any application in such case. 10.7 Termination of Option to Purchase. Any termination of this Agreement with respect to one or more of the Collective Leased Properties pursuant to this Article 10 shall cause any options to purchase granted to Tenant under this Agreement with respect thereto to be terminated and to be without further force or effect. 10.8 Waiver. Tenant hereby waives any statutory rights of termination which may arise by reason of any damage or destruction of any of the Collective Leased Properties. ARTICLE 11 CONDEMNATION 11.1 Total Condemnation, Etc. If either (i) the whole of any of the Collective Leased Properties shall be taken by Condemnation or (ii) a Condemnation of less than the whole of any of the Collective Leased Properties renders such Leased Property Unsuitable for Its Primary Intended Use, this Agreement shall terminate with respect to such Leased Property, Tenant and Landlord shall seek the Award for their interests in such Leased Property as provided in Section 11.5 and the Minimum Rent thereafter payable shall be reduced by an amount reasonably determined by Landlord to be that -46- portion of the Minimum Rent allocable to such Leased Property. If the Award received by Landlord for Landlord's interest in such Leased Property is less than the greater of (x) the Adjusted Purchase Price or (y) the Fair Market Value Purchase Price of such Leased Property immediately prior to such Condemnation, Tenant shall contribute and pay to Landlord the amount of such shortfall. 11.2 Partial Condemnation. In the event of a Condemnation of less than the whole of any of the Collective Leased Properties such that such Leased Property is still suitable for its Primary Intended Use, Tenant shall, at its sole cost and expense, commence promptly and continue diligently to restore the untaken portion of the Leased Improvements on such Leased Property so that such Leased Improvements shall constitute a complete architectural unit of the same general character and condition (as nearly as may be possible under the circumstances) as the Leased Improvements existing immediately prior to such Condemnation, in full compliance with all Legal Requirements. Subject to the terms hereof, Landlord shall contribute to the cost of restoration that part of the Award necessary to complete such repair or restoration, together with severance and other damages awarded for the taken Leased Improvements, to Tenant regularly during the restoration period so as to permit payment for the cost of such repair or restoration. Landlord may, at its option, condi- tion advancement of such Award and other amounts on (i) the absence of any Default or Event of Default, (ii) its approval of plans and specifications of an architect satisfactory to Landlord (which approval shall not be unreasonably withheld or delayed), (iii) general contrac- tors' estimates, (iv) architect's certificates, (v) unconditional lien waivers of general contractors, (vi) evidence of approval by all governmental authorities and other regulatory bodies whose approval is required and (vii) such other certificates as Landlord may, from time to time, reasonably require. Landlord's obligation under this Section 11.2 to disburse the Award and such other amounts shall be subject to (x) the collection thereof by Landlord and (y) the satisfaction of any applicable requirements of any Facility Mortgage, and the release of such Award by the applicable Facility Mortgagee. Tenant's obligation to restore the applicable Leased Property shall be subject to the release of the Award by the applicable Facility Mortgagee to Landlord. If the cost of the restoration of the applicable Leased Property exceeds that part of the Award necessary to complete such restoration, together with severance and other damages awarded for the taken Leased Improvements, Tenant shall contribute upon the demand of Landlord any excess amounts needed to restore such Leased Property. Such difference shall be paid by Tenant to Landlord and held by Landlord, together with such part of the Award and such severance and other damages, for application to the cost of restoration. 11.3 Abatement of Rent. Other than as specifically provided in this Agreement, this Agreement shall remain in full force and effect and Tenant's obligation -47- to make all payments of Rent and to pay all other charges as and when required under this Agreement shall remain unabated during the Term notwithstanding any Condemnation involving the Collective Leased Properties. The provisions of this Article 11 shall be considered an express agreement governing any Condemnation involving any or all of the Collective Leased Properties and, to the maximum extent permitted by law, no local or State statute, law, rule, regulation or ordinance in effect during the Term which provides for such a contingency shall have any application in such case. 11.4 Temporary Condemnation. In the event of any temporary Condemnation of all or any part of the Collective Leased Properties or Tenant's interest therein, this Agreement shall continue in full force and effect, and Tenant shall continue to pay, in the manner and on the terms herein specified, the full amount of the Rent. Tenant shall continue to perform and observe all of the other terms and conditions this Agreement on the part of the Tenant to be performed and observed. Provided no Default or Event of Default has occurred and is continuing, the entire amount of any Award made for such temporary Condemnation allocable to the Term, whether paid by way of damages, rent or otherwise, shall be paid to Tenant. Tenant shall, promptly upon the termination of any such period of temporary Condemnation, at its sole cost and expense, restore such Leased Property to the condition that existed immediately prior to such Condemnation, in full compliance with all Legal Requirements, unless such period of temporary Condemnation shall extend beyond the expiration of the Term, in which event Tenant shall not be required to make such restoration. For purposes of this Section 11.4, a Condemnation shall be deemed to be temporary if the period of such Condemnation is not expected to, and does not, exceed twenty-four (24) months. 11.5 Allocation of Award. Except as provided in the second sentence of this Section 11.5, the total Award shall be solely the property of and payable to Landlord. Any portion of the Award made for the taking of Tenant's leasehold interest in the applicable Leased Property, Tenant's Capital Additions, loss of business during the remainder of the Term, the taking of Tenant's Personal Property, or Tenant's removal and relocation expenses shall be the sole property of and payable to Tenant (subject to the provisions of Section 11.2). In any Condemnation proceedings, Landlord and Tenant shall each seek its own Award in conformity herewith, at its own expense. 11.6 Termination of Rights of Option to Purchase. Any termination of this Agreement with respect to any of the Collective Leased Properties pursuant to this Article 11 shall cause any options to purchase granted to Tenant with respect thereto to be terminated and to be without further force or effect. -48- ARTICLE 12 DEFAULTS AND REMEDIES 12.1 Events of Default. The occurrence of any one or more of the following events shall constitute an "Event of Default" hereunder: (a) should Tenant shall fail to make any payment of the Rent or any other sum (including, but not limited to, payment of the purchase price for any of the Collective Leased Properties which Tenant shall be obligated or elects to purchase pursuant to the terms of this Agreement) payable hereunder when due and such failure shall continue for a period of ten (10) days after the date due; or (b) should Tenant shall fail to maintain the insurance coverages required under Article 9; or (c) should Tenant default in the due observance or performance of any of the terms, covenants or agreements contained herein to be performed or observed by it (other than as specified in clauses (a) and (b) above) or should any Guarantor default in the due observance or performance of any of the terms, covenants or agreements contained in any Guaranty or other Incidental Document, and, in either case, such default shall continue for a period of fifteen (15) days after Notice thereof from Landlord to Tenant (provided that no such notice shall be required if Landlord shall reasonably determine immediate action is necessary to protect person or property); provided, however, that if such default is susceptible of cure but such cure cannot be accomplished with due diligence within such period of time and if, in addition, Tenant or such Guarantor commences to cure such default within fifteen (15) days after Notice thereof from Landlord and thereafter prosecutes the curing of such default with all due diligence, such period of time shall be extended to such period of time (not to exceed an additional thirty (30) days in the aggregate) as may be necessary to cure such default with all due diligence; or (d) should any obligation of Tenant or any Guarantor, or of any Affiliated Person as to either of them, in respect of any Indebtedness for money borrowed or for the deferred purchase price of any material property or services, or any guaranty relating thereto, be declared to be or become due and payable prior to the stated maturity thereof, or should there occur and be continuing with respect to any such Indebtedness or deferred purchase price any default under any instrument or agreement evidencing or securing the same, the effect of which is to permit the holder or holders of such instrument or agreement or a trustee, agent or other representative on behalf of such holder or holders, to cause -49- such any such obligations to become due prior to its stated maturity; or (e) should a default or event of default occur and be continuing beyond the expiration of any applicable cure period under any Guaranty or any of the Incidental Documents; or (f) should there occur a final unappealable determination by applicable State authorities of the revocation or limitation of any license, permit, certification or approval required for the lawful operation of any of the Facilities in accordance with its Primary Intended Use or the loss or limitation of any license, permit, certification or approval under any other circumstances under which Tenant is required to cease its operation of such Facility in accordance with its Primary Intended Use at the time of such loss or limitation; or (g) should any representation or warranty made by or on behalf of Tenant or any other Person under or in connection with this Agreement, any Guaranty, any Incidental Document or in any document, certificate or agreement delivered in connection herewith or therewith prove to have been false or misleading in any material respect on the date when made or deemed made; or (h) should Tenant, any Guarantor or any Affiliated Person as to either of them generally not be paying its debts as they become due, or should Tenant, any Guarantor or any Affiliated Person as to either of them, make a general assignment for the benefit of creditors; or (i) should any petition be filed by or against Tenant, any Guarantor or any Affiliated Person as to either of them under the Federal bankruptcy laws, or should any other proceeding be instituted by or against Tenant, such Guarantor or Affiliated Person seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for Tenant, such Guarantor or Affiliated Person, or for any substantial part of the property of Tenant, such Guarantor or Affiliated Person, and such proceeding is not dismissed within ninety (90) days after institution thereof, or should Tenant, such Guarantor or Affiliated Person take any action to authorize or effect any of the actions set forth above in this paragraph; or (j) should Tenant, any Guarantor or any Affiliated Person as to either of them cause or institute any proceeding for its dissolution or termination; or -50- (k) should Tenant voluntarily cease operation of any of the Collective Leased Properties for its Primary Intended Use for a period in excess of thirty (30) consecutive days, except as a result of damage, destruction or partial or complete Condemnation; or (l) should a default shall occur under any mortgage which is secured by Tenant's leasehold interest hereunder or the mortgagee under any such mortgage accelerates the indebtedness secured thereby or commence a foreclosure action in connection with said mortgage; or (m) should the estate or interest of Tenant in any of the Collective Leased Properties or any part thereof be levied upon or attached in any proceeding and the same shall not be vacated or discharged within the later of (x) one hundred and twenty (120) days after commencement thereof, unless the amount in dispute is less than $10,000, in which case Tenant shall give notice to Landlord of the dispute but Tenant may defend in any suitable way, and (y) thirty (30) days after receipt by Tenant of Notice thereof from Landlord (unless Tenant shall be contesting such lien or attachment in good faith in accordance with Article 8); or (n) should any Provider Agreement material to the operation or financial condition of Tenant or any Facility be terminated prior to the stated expiration of the term thereof or, without the prior written consent of Landlord in each instance (which consent may be withheld in Landlord's sole and absolute discretion), not be renewed or extended or replaced upon the expiration of the stated term thereof and such termination may have a material adverse effect upon the operations, business prospects, property, or assets of, liabilities, or the condition of, revenues generated by, the applicable Facility or Tenant; or (o) should a final unappealable determination shall be made by any Government Agencies that Tenant has failed to comply with applicable Medicare and/or Medicaid regulations in the operation of any Facility, as a result of which failure Tenant is declared ineligible to receive reimbursements under the Medicare and/or Medicaid programs with respect to one or more of the Facilities; or (p) should there occur any Change in Control of Tenant or any Guarantor; then, and in any such event, Landlord, in addition to all other remedies available to it, may terminate this Agreement with respect to any or all of the Collective Leased Properties by giving Notice thereof to Tenant and upon the expiration of the time, if any, fixed in such Notice, this Agreement shall terminate and all rights of Tenant under this Agreement shall cease with respect to such of the Collective Leased Properties as shall have been identified in such Notice. Landlord shall have and may -51- exercise all rights and remedies available at law and in equity to Landlord as a result of Tenant's breach of this Agreement. Upon the occurrence of an Event of Default, Landlord may, in addition to any other remedies provided herein, enter upon the Collective Leased Properties or any portion thereof and take possession of any and all of Tenant's Personal Property and the Records (subject to any prohibitions or limitations to disclosure of any such data as described in Section 3.1.2(e)) on any such Leased Property, without liability for trespass or conversion (Tenant hereby waiving any right to notice or hearing prior to such taking of possession by Landlord) and sell the same at public or private sale, after giving Tenant reasonable Notice of the time and place of any public or private sale, at which sale Landlord or its assigns may purchase all or any portion of Tenant's Personal Property unless otherwise prohibited by law. Unless otherwise provided by law and without intending to exclude any other manner of giving Tenant reasonable notice, the requirement of reasonable Notice shall be met if such Notice is given at least five (5) days before the date of sale. The proceeds from any such disposition, less all expenses incurred in connection with the taking of possession, holding and selling of such property (including, reasonable attorneys' fees) shall be applied as a credit against the indebtedness which is secured by the security interest granted in Section 7.2. Any surplus shall be paid to Tenant or as otherwise required by law and Tenant shall pay any deficiency to Landlord, as Additional Charges, upon demand. 12.2 Remedies. None of (a) the termination of this Agreement with respect to any or all of the Collective Leased Properties pursuant to Section 12.1, (b) the repossession of any or all of the Collective Leased Properties or any portion thereof, (c) the failure of Landlord to re-let any or all of the Collective Leased Properties or any portion thereof, nor (d) the reletting of all or any of portion of the Collective Leased Properties, shall relieve Tenant of its liability and obligations hereunder, all of which shall survive any such termination, repossession or re-letting. In the event of any such termination, Tenant shall forthwith pay to Landlord all Rent due and payable with respect to the any of the Collective Leased Properties as to which this Agreement is so terminated through and including the date of such termination and, if this Agreement shall be terminated with respect to less than all of the Collective Leased Properties, the allocation of the Rent with respect to the Collective Leased Properties as to which this Agreement shall have been terminated shall be made in such manner as Landlord, in Landlord's sole and absolute discretion, shall determine. Thereafter, Tenant, until the end of what would have been the Term of this Agreement in the absence of such termination, and whether or not any of the Collective Leased Properties as to which this Agreement is so terminated or any portion thereof shall have been re-let, shall be liable to Landlord for, and shall pay to Landlord, as current damages, the Rent and other charges which would be payable hereunder for the remainder of the Term had such termination not occurred, less the net proceeds, if any, of any -52- re-letting of the applicable Leased Property, after deducting all expenses in connection with such reletting, including, without limitation, all repossession costs, brokerage commissions, legal expenses, attorneys' fees, advertising, expenses of employees, alteration costs and expenses of preparation for such reletting, and, if this Agreement shall be terminated with respect to less than all of the Collective Leased Properties, the allocation of the Rent with respect to the Collective Leased Properties as to which this Agreement shall have been terminated shall be made in such manner as Landlord, in Landlord's sole and absolute discretion, shall determine. Tenant shall pay such current damages to Landlord monthly on the days on which the Minimum Rent would have been payable hereunder if this Agreement had not been so terminated with respect to such of the Collective Leased Properties. At any time after such termination, whether or not Landlord shall have collected any such current damages, as liquidated final damages beyond the date of such termination, at Landlord's election, Tenant shall pay to Landlord either (a) an amount equal to the excess, if any, of the Rent and other charges which would be payable hereunder from the date of such termination (assuming that, for the purposes of this paragraph, annual payments by Tenant on account of Impositions would be the same as payments required for the immediately preceding twelve calendar months, or if less than twelve calendar months have expired since the Commencement Date, the payments required for such lesser period projected to an annual amount) for what would be the then unexpired term of this Agreement if the same remained in effect, over the Fair Market Rental for the same period, or (b) an amount equal to the lesser of (i) the Rent and other charges that would have been payable for the balance of the Term had it not been terminated, and (ii) the aggregate of the Rent and other charges accrued in the twelve (12) months ended next prior to such termination (without reduction for any free rent or other concession or abatement); provided, however, that if this Agreement shall have been terminated with respect to less than all of the Collective Leased Properties, the allocation of the Rent with respect to the Collective Leased Properties as to which this Agreement shall have been terminated shall be made in such manner as Landlord, in Landlord's sole and absolute discretion, shall determine. In the event this Agreement is so terminated prior to the expiration of the first full year of the Term, the liquidated damages which Landlord may elect to recover pursuant to clause (b) (ii) of this paragraph shall be calculated as if such termination had occurred on the first anniversary of the Commencement Date. Nothing contained in this Agreement shall, however, limit or prejudice the right of Landlord to prove and obtain in proceedings for bankruptcy or insolvency an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount be greater than, equal to, or less than the amount of the loss or damages referred to above. In case of any Event of Default, re-entry, expiration and dispossession by summary proceedings or otherwise, Landlord may (a) relet any of the Collective Leased Properties as to which this Agreement -53- is so terminated or any part or parts thereof, either in the name of Landlord or otherwise, for a term or terms which may at Landlord's option, be equal to, less than or exceed the period which would otherwise have constituted the balance of the Term and may grant concessions or free rent to the extent that Landlord considers advisable and necessary to relet the same, and (b) may make such reasonable alterations, repairs and decorations in any applicable Leased Property or any portion thereof as Landlord, in its sole and absolute discretion, considers advisable and necessary for the purpose of reletting any such Leased Property; and the making of such alterations, repairs and decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Landlord shall in no event be liable in any way whatsoever for any failure to relet all or any portion of the Collective Leased Properties, or, in the event that any of the Collective Leased Properties is relet, for failure to collect the rent under such reletting. To the maximum extent permitted by law, Tenant hereby expressly waives any and all rights of redemption granted under any present or future laws in the event of Tenant being evicted or dispossessed, or in the event of Landlord obtaining possession of any of the Collective Leased Properties, by reason of the violation by Tenant of any of the covenants and conditions of this Agreement. 12.3 Tenant's Waiver. IF THIS AGREEMENT IS TERMINATED WITH RESPECT TO ANY OF THE COLLECTIVE LEASED PROPERTIES PURSUANT TO SECTION 12.1 OR 12.2, TENANT WAIVES, TO THE EXTENT PERMITTED BY LAW, ANY RIGHT TO A TRIAL BY JURY IN THE EVENT OF SUMMARY PROCEEDINGS TO ENFORCE THE REMEDIES SET FORTH IN THIS ARTICLE 12, AND THE BENEFIT OF ANY LAWS NOW OR HEREAFTER IN FORCE EXEMPTING PROPERTY FROM LIABILITY FOR RENT OR FOR DEBT. 12.4 Application of Funds. Any payments received by Landlord under any of the provisions of this Agreement during the existence or continuance of any Default or Event of Default (and any payment made to Landlord rather than Tenant due to the existence of any Default or Event of Default) shall be applied to Tenant's obligations under this Agreement in such order as Landlord may determine or as may be prescribed by the laws of the State. 12.5 Landlord's Right to Cure Tenant's Default. If an Event of Default shall have occurred and be continuing, Landlord, after Notice to Tenant (which Notice shall not be required if Landlord shall reasonably determine immediate action is necessary to protect person or property), without waiving or releasing any obligation of Tenant and without waiving or releasing any Event of Default, may (but shall not be obligated to), at any time thereafter, make such payment or perform such act for the account and at the expense of Tenant, and may, to the maximum extent permitted by law, enter upon any of the Collective Leased Properties or any portion thereof for such purpose and take all such action thereon as, in Landlord's sole and -54- absolute discretion, may be necessary or appropriate therefor, including the management of the Facility located thereon by Landlord or its designee, and Tenant hereby irrevocably appoints, in the event of such election by Landlord, Landlord or its designee as manager of any such Facility and its attorney in fact for such purpose, irrevocably and coupled with an interest, in the name, place and stead of Tenant. No such entry shall be deemed an eviction of Tenant. All reasonable costs and expenses (including, without limitation, reasonable attorneys' fees) incurred by Landlord in connection therewith, together with interest thereon (to the extent permitted by law) at the Overdue Rate from the date such sums are paid by Landlord until repaid, shall be paid by Tenant to Landlord, on demand. 12.6 Trade Names. If this Agreement is terminated with respect to any of the Collective Leased Properties for any reason, Tenant shall not use a Facility Trade Name in the same market in which the Facility located thereon is located in connection with any business that competes with such Facility. ARTICLE 13 HOLDING OVER Any holding over by Tenant after the expiration or sooner termination of this Agreement shall be treated as a daily tenancy at sufferance at a rate equal to two (2) times the Minimum Rent and the Additional Rent then in effect plus Additional Charges and other charges herein provided (prorated on a daily basis). Tenant shall also pay to Landlord all damages (direct or indirect) sustained by reason of any such holding over. Otherwise, such holding over shall be on the terms and conditions set forth in this Agreement, to the extent applicable. Nothing contained herein shall constitute the consent, express or implied, of Landlord to the holding over of Tenant after the expiration or earlier termination of this Agreement. ARTICLE 14 LANDLORD'S DEFAULT If Landlord shall default in the performance or observance of any of its covenants or obligations set forth in this Agreement and such default shall continue for a period of thirty (30) days after Notice thereof from Tenant to Landlord and any applicable Facility Mortgagee, or such additional period as may be reasonably required to correct the same, Tenant may declare the occurrence of a "Landlord Default" by a second Notice to Landlord and to such Facility Mortgagee. Thereafter, Tenant may forthwith cure the same and, subject to the provisions of the following paragraph, invoice Landlord for costs and expenses (including -55- reasonable attorneys' fees and court costs) incurred by Tenant in curing the same, together with interest thereon from the date Landlord receives Tenant's invoice, at the Overdue Rate. Tenant shall have no right to terminate this Agreement for any default by Landlord hereunder and no right, for any such default, to offset or counterclaim against any Rent or other charges due hereunder. If Landlord shall in good faith dispute the occurrence of any Landlord Default and Landlord, before the expiration of the applicable cure period, shall give Notice thereof to Tenant, setting forth, in reasonable detail, the basis therefor, no Landlord Default shall be deemed to have occurred and Landlord shall have no obligation with respect thereto until final adverse determination thereof. If Tenant and Landlord shall fail, in good faith, to resolve any such dispute within ten (10) days after Landlord's Notice of dispute, either may submit the matter for resolution to a court of competent jurisdiction. ARTICLE 15 PURCHASE OF LEASED PROPERTY In the event Tenant shall purchase any of the Collective Leased Properties from Landlord pursuant to the terms of this Agreement, Landlord shall, upon receipt from Tenant of the applicable purchase price, together with full payment of any unpaid Rent and other charges due and payable with respect to any period ending on or before the date of the purchase, and so long as no Default or Event of Default shall have occurred and be continuing at such time, deliver to Tenant an appropriate deed or other instruments, conveying the entire interest of Landlord in and to such Leased Property to Tenant, free and clear of all encumbrances created through the act or omission of Landlord other than (i) Permitted Encumbrances and such other liens, if any, which Tenant has agreed in writing to accept and take title subject to, and (ii) encumbrances imposed on such Leased Property under Section 5.5. The difference between the applicable purchase price and the total cost of discharging the encumbrances described in clause (i) preceding shall be paid to Landlord or as Landlord may direct, by wire transfer of im- mediately available federal funds. Such Leased Property shall be conveyed to Tenant on an "as is" basis and in its "as-is" physical condition. The closing of any such sale shall be subject to all terms and conditions with respect thereto set forth in this Agreement and shall, unless waived by Tenant, be contingent upon and subject to Tenant's obtaining all required governmental consents and approvals for such transfer. All expenses of such conveyance, including, without limitation, all transfer and sales taxes, documentary fees, the fees and expenses of counsel to Landlord and the cost of any title examination or title insurance, shall be paid by Tenant. -56- ARTICLE 16 SUBLETTING AND ASSIGNMENT 16.1 Subletting and Assignment. Except as provided in Section 16.3 below, Tenant shall not, without the prior written consent of a majority of the Independent Trustees and a majority of the Trustees (which consent may be given or withheld in their sole and absolute discretion), assign, mortgage, pledge, hypothecate, encumber or otherwise transfer this Agreement or sublease (which term shall be deemed to include the granting of concessions, licenses and the like), all or any part of the Collective Leased Properties or suffer or permit this Agreement or the leasehold estate created hereby or any other rights arising under this Agreement to be assigned, transferred, mortgaged, pledged, hypothecated or encumbered, in whole or in part, whether voluntarily, involuntarily or by operation of law, or permit the use or occupancy of any of the Collective Leased Properties by anyone other than Tenant, or any of the Collective Leased Properties to be offered or advertised for assignment or subletting. For purposes of this Section 16.1, an assignment of this Agreement shall be deemed to include any Change in Control of Tenant or any transaction pursuant to which Tenant is merged or consolidated with another entity or pursuant to which all or substantially all of Tenant's assets are transferred to any other entity, as if such Change in Control or transaction were an assignment of this Agreement. If this Agreement is assigned or if any of the Collective Leased Properties or any part thereof are sublet (or occupied by anybody other than Tenant and its employees) Landlord may collect the rents from such assignee, subtenant or occupant, as the case may be, and apply the net amount collected to the Rent herein reserved, but no such collection shall be deemed a waiver of the provisions set forth in the first paragraph of this Section 16.1, the acceptance by Landlord of such assignee, subtenant or occupant, as the case may be, as a tenant, or a release of Tenant from the future performance by Tenant of its covenants, agreements or obligations contained in this Agreement. No subletting or assignment shall in any way impair the continuing primary liability of Tenant hereunder, and no consent to any subletting or assignment in a particular instance shall be deemed to be a waiver of the prohibition set forth in this Section 16.1. No assignment, subletting or occupancy shall affect any Primary Intended Use. Any subletting, assignment or other transfer of Tenant's interest under this Agreement in contravention of this Section 16.1 shall be voidable at Landlord's option. 16.2 Required Sublease Provisions. Any sublease of all or any portion of any of the Collective Leased Properties shall provide (a) that it is subject and subordinate to this Agreement and to the matters to which this Agreement is or shall be -57- subject or subordinate; (b) that in the event of termination of this Agreement or reentry or dispossession of Tenant by Landlord under this Agreement, Landlord may, at its option, terminate such sublease or take over all of the right, title and interest of Tenant, as sublessor under such sublease, and such subtenant shall, at Landlord's option, attorn to Landlord pursuant to the then executory provisions of such sublease, except that neither Landlord nor any Facility Mortgagee, as holder of a mortgage or as Landlord under this Agreement, if such mortgagee succeeds to that position, shall (i) be liable for any act or omission of Tenant under such sublease, (ii) be subject to any credit, counterclaim, offset or defense which theretofore accrued to such subtenant against Tenant, (iii) be bound by any previous modification of such sublease not consented to in writing by Landlord or by any previous prepayment of more than one (1) month's Rent, (iv) be bound by any covenant of Tenant to undertake or complete any construction of such Leased Property or any portion thereof, (v) be required to account for any security deposit of the subtenant other than any security deposit actually delivered to Landlord by Tenant, (vi) be bound by any obligation to make any payment to such subtenant or grant any credits, except for services, repairs, maintenance and restoration provided for under the sublease that are performed after the date of such attornment, (vii) be responsible for any monies owing by Tenant to the credit of such subtenant, or (viii) be required to remove any Person occupying any portion of the Collective Leased Properties; and (c), in the event that such subtenant receives a written Notice from Landlord or any Facility Mortgagee stating that an Event of Default has occurred and is continuing, such subtenant shall thereafter be obligated to pay all rentals accruing under such sublease directly to the party giving such Notice or as such party may direct. All rentals received from such subtenant by Landlord or the Facility Mortgagee, as the case may be, shall be credited against the amounts owing by Tenant under this Agreement and such sublease shall provide that the subtenant thereunder shall, at the request of Landlord, execute a suitable instrument in confirmation of such agreement to attorn. An original counterpart of each such sublease and assignment and assumption, duly executed by Tenant and such subtenant or assignee, as the case may be, in form and substance reasonably satisfactory to Landlord, shall be delivered promptly to Landlord and (a) in the case of an assignment, the assignee shall assume in writing and agree to keep and perform all of the terms of this Agreement on the part of Tenant to be kept and performed and shall be, and become, jointly and severally liable with Tenant for the performance thereof and (b) in case of either an assignment or subletting, Tenant shall remain primarily liable, as principal rather than as surety, for the prompt payment of the Rent and for the performance and observance of all of the covenants and condi- tions to be performed by Tenant hereunder. The provisions of this Section 16.2 shall not be deemed a waiver of the provisions set forth in the first paragraph of Section 16.1. 16.3 Permitted Sublease. -58- Notwithstanding the foregoing, but subject to the provisions of Section 16.4 and any other express conditions or limitations set forth herein, Tenant may, in each instance after Notice to Landlord, sublease space at any of the Collective Leased Properties for laundry, commissary or child care purposes or similar concessions in furtherance of the applicable Primary Intended Use, so long as such sublease will not reduce the number of licensed beds at the applicable Facility, will not violate or affect any Legal Requirement or Insurance Requirement, and Tenant shall provide such additional insurance coverage applicable to the activities to be conducted in such subleased space as Landlord and any Facility Mortgagee may require. 16.4 Sublease Limitation. Anything contained in this Agreement to the contrary notwithstanding, Tenant shall not sublet any of the Collective Leased Properties on any basis such that the rental to be paid by any sublessee thereunder would be based, in whole or in part, on either (a) the income or profits derived by the business activities of such sublessee, or (b) any other formula such that any portion of such sublease rental would fail to qualify as "rents from real property" within the meaning of Section 856(d) of the Code, or any similar or successor provision thereto. ARTICLE 17 ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS 17.1 Estoppel Certificates At any time and from time to time, upon not less than ten (10) days prior Notice by Landlord, Tenant shall furnish to Landlord an Officer's Certificate certifying that this Agreement is unmodified and in full force and effect (or that this Agreement is in full force and effect as modified and setting forth the modifications), the date to which the Rent has been paid, that no Default or an Event of Default has occurred and is continuing or, if a Default or an Event of Default shall exist, specifying in reasonable detail the nature thereof, and the steps being taken to remedy the same, and such additional information as Landlord may reasonably request. Any such certificate furnished pursuant to this Section 17.1 may be relied upon by Landlord, any Facility Mortgagee and any prospective purchaser or mortgagee of any of the Collective Leased Properties. 17.2 Financial Statements. Tenant shall furnish the following statements to Landlord: (a) within forty-five (45) days after each of the first three quarters of any Fiscal Year, the most recent Financials and the most recent unaudited financial statements of Tenant and Guarantor -59- prepared, in the case of Tenant on a Facility by Facility basis, and in each case accompanied by the Financial Officer's Certificate; (b) within one hundred twenty (120) days after the end of each Fiscal Year, the most recent Financials for such Fiscal Year, including the most recent financial statements of Tenant and Guarantor, prepared, in the case of Tenant, on a Facility by Facility basis, and in each case certified by an independent certified public accountant reasonably satisfactory to Landlord and accompanied by a Financial Officer's Certificate; (c) within thirty (30) days after the end of each calendar month, an unaudited statement of income prepared on a Facility by Facility basis, including occupancy percentages and payor mix, accompanied by a Financial Officer's Certificate; [(d) promptly after the sending or filing thereof, copies of all reports which Tenant and/or any Guarantor sends to its security holders generally, and copies of all periodic reports which Tenant and/or any Guarantor files with the SEC or any stock exchange on which its shares are listed or traded;] (e) promptly after the delivery thereof to Tenant or any Guarantor, or either of their management, a copy of any management letter or written report prepared by the certified public accountants with respect to the financial condition, operations, business or prospects of Tenant or such Guarantor, as the case may be; (f) at any time and from time to time upon not less than twenty (20) days Notice from Landlord, any Financials or any other financial reporting information required to be filed by Landlord with any securities and exchange commission, the SEC or any successor agency, or any other governmental authority, or required pursuant to any order issued by any court, governmental authority or arbitrator in any litigation to which Landlord is a party, for purposes of compliance therewith; (g) Within forty-five (45) days after each quarter of each Fiscal Year, an occupancy and rate report with respect to each of the Facilities, together with an Officer's Certificate certifying to the accuracy of such occupancy and rate reports; and (h) promptly, upon Notice from Landlord, such other information concerning the business, financial condition and affairs of Tenant and any Guarantor as Landlord may request from time to time. Landlord may at any time, and from time to time, provide any Facility Mortgagee with copies of any of the foregoing statements. -60- 17.3 General Operations. Tenant covenants and agrees to furnish to Landlord: 17.3.1 Reimbursement, Licensure, Etc. Within thirty (30) days after receipt or modification thereof, copies of (a) all licenses authorizing Tenant to operate each Facility for its Primary Intended Use; (b) all Medicare and Medicaid certifications, together with provider agreements and all material correspondence relating thereto with respect to each Facility (excluding, however, correspondence which may be subject to any attorney-client privilege); (c) a Nursing Home Administrator License for the individual employed in such capacity with respect to each Facility; (d) all reports of surveys, statements of deficiencies, plans of correction, and all material correspondence relating thereto, including, without limitation, all reports and material correspondence concerning compliance with or enforcement of licensure, Medicare/Medicaid, and accreditation requirements, including physical environment and Life Safety Code survey reports (excluding, however, correspondence which may be subject to any attorney-client privilege); and (e) with reasonable promptness, such other confirmation as to the licensure and Medicare and Medicaid participation of Tenant as Landlord may reasonably request from time to time. 17.3.2 Annual Budgets. Not less than thirty (30) days prior to commencement of any Fiscal Year, proposed annual income and ordinary expense and capital improvement budgets setting forth projected income and costs and expenses projected to be incurred by Tenant in managing, owning, maintaining and operating the Facilities during the next succeeding Fiscal Year. ARTICLE 18 LANDLORD'S RIGHT TO INSPECT Tenant shall permit Landlord and its authorized representatives to inspect the Collective Leased Properties during usual business hours upon not less than twenty-four (24) hours' notice (provided that no such notice shall be required if Landlord shall reasonably determine -61- immediate action is necessary to protect person or property), and to make such repairs as Landlord is permitted or required to make pursuant to the terms of this Agreement, provided that any inspection or repair by Landlord or its representatives will not unreasonably interfere with Tenant's use and operation of the applicable Leased Property and further provided that in the event of an emergency, as determined by Landlord in its sole discretion, prior Notice shall not be necessary. ARTICLE 19 APPRAISAL 19.1 Appraisal Procedure. In the event that it becomes necessary to determine the Fair Market Value or Fair Market Rental of any of the Collective Leased Properties for any purpose of this Agreement and the parties cannot agree thereon, such Fair Market Value or Fair Market Rental, as the case may be, shall be determined upon the written demand of either party in accordance with the following procedure. The party requesting an appraisal, by Notice given to the other, shall propose and unilaterally approve a Qualified Appraiser. The other party, by Notice given within fifteen (15) days after receipt of such Notice appointing the first Qualified Appraiser, may appoint a second Qualified Appraiser. If the other party fails to appoint the second Qualified Appraiser within such fifteen (15) day period, such party shall have waived its right to appoint a Qualified Appraiser, the first Qualified Appraiser shall appoint a second Qualified Appraiser within fifteen (15) days thereafter and the Fair Market Value or Fair Market Rental, as the case may be, shall be determined by the Qualified Appraisers as set forth below. The two Qualified Appraisers shall thereupon endeavor to agree upon the Fair Market Value or Fair Market Rental, as the case may be. If the two Qualified Appraisers so named cannot agree upon such value or rental, as the case may be, within thirty (30) days after the designation of the second such appraiser, each such appraiser shall, within five (5) days after the expiration of such thirty (30) day period, submit his appraisal of fair market value to the other appraiser in writing, and if the fair market values set forth in such appraisals vary by five percent (5%) or less of the greater value, the fair market value shall be determined by calculating the average of the two fair market values determined by the two appraisers. If the fair market values set forth in the two appraisals vary by more than five percent (5%) of the greater value, the two Qualified Appraisers shall select a third Qualified Appraiser within an additional fifteen (15) days following the expiration of the aforesaid five (5) day period. If the two appraisers are unable to agree upon the appointment of a third appraiser within such fifteen (15) day period, either party -62- may, upon written notice to the other, request that such appointment be made by the then President (or equivalent officer) of the State's Chapter of the American Institute of Real Estate Appraisers, or his or her designee or, if there is no such organization or if such individual declines to make such appointment, by any state or Federal court of competent jurisdiction for the State. In the event that all three of the appraisers cannot agree upon Fair Market Value or Fair Market Rental, as the case may be, within twenty (20) days following the selection of the third appraiser, each appraiser shall, within ten (10) days thereafter, submit his appraisal of fair market value to the other two appraisers in writing, and the fair market value shall be determined by calculating the average of the two numerically closest values (or, if the values are equidistant, the average of all three values) determined by the three appraisers. In the event that any appraiser appointed hereunder does not or is unable to perform his or her obligation hereunder, then the party or the appraisers appointing such appraiser shall have the right to propose and approve unilaterally a substitute Qualified Appraiser, but if the party or the appraisers who have the right to appoint a substitute Qualified Appraiser fail to do so within ten (10) days after written notice from the other party (or either party in the event such appraiser was appointed by the other appraisers) either party may, upon written notice to the party having the right to appoint a substitute Qualified Appraiser, request that such appointment be made by such officer of the American Institute of Real Estate Appraisers or court of competent jurisdiction as described above; provided, however, that a party who has the right to appoint an appraiser or a substitute appraiser shall have the right to make such appointment only up until the time such appointment is made by such officer or court. In connection with the appraisal process, Tenant shall provide the appraisers full access during normal business hours to examine the applicable Leased Property, the books, records and files of Tenant and all agreements, leases and other operating agreements relating to the applicable Leased Property. The costs (other than Landlord's counsel fees) of each such ap- praisal shall be borne by Tenant and shall be included as part of the Additional Charges. Upon determining such value, the appraisers shall promptly notify Landlord and Tenant in writing of such determination. If any party shall fail to appear at the hearings appointed by the appraisers, the appraisers may act in the absence of such party. The determination of the Qualified Appraisers made in accordance with the foregoing provisions shall be final and binding upon the parties, such determination may be entered as an award in arbitration in a court of competent jurisdiction, and judgment thereon may be entered. 19.2 Landlord's Right to Appraisal. -63- Landlord shall have the right, exercisable twice at any time during the Term, to appoint a Qualified Appraiser to perform a complete appraisal of any or all of the Collective Leased Properties, (each such appraisal to include complete valuations of any such Leased Property based upon (a) the "Cost Approach", (b) the "Market Approach" and (c) the "Income Approach"), which appraisal shall meet all requirements of any state or Federal bank regulatory authority that Landlord considers relevant or any Facility Mortgagee. The costs of each such appraisal shall be borne by Tenant and shall be included as part of the Additional Charges. ARTICLE 20 OPTION TO PURCHASE 20.1 Landlord's Option to Purchase Tenant's Personal Property; Transfer of Licenses. Effective on not less than fifteen (15) days' prior Notice given at least sixty (60) days prior to expiration of the Term (or such shorter period as shall be appropriate if this Agreement is terminated with respect to any of the Collective Leased Properties prior to its expiration date), Landlord shall have the option to purchase all or any portion of Tenant's Personal Property with respect to any of the Collective Leased Properties, at the expiration or sooner termination of this Agreement with respect to such Leased Property, for an amount equal to Tenant's net book value thereof, subject to, and with appropriate price adjustments for, all equipment leases, conditional sale contracts, security interests and other encumbrances to which such Tenant's Personal Property is subject. Tenant's Personal Property shall be conveyed to Landlord on an "as-is" basis, in its then current condition and state of repair. Tenant shall provide Landlord with warranties of title, reflecting no encumbrances as to which adjustments to the purchase price thereof, as required by the previous sentence, have not been made. Failure of Landlord to notify Tenant of its election to purchase Tenant's Personal Property at any of the Collective Leased Properties by the fifteenth (15th) day prior to the expiration of this Agreement (or such shorter period as may be appropriate if this Agreement is terminated with respect to any of the Collective Leased Properties prior to its expiration date) shall be deemed to constitute a waiver of Landlord's right to purchase Tenant's Personal Property with respect to such Leased Property. Upon the expiration or sooner termination of this Agreement, or upon management of any Facility by Landlord or its designee, Tenant shall use all reasonable efforts to transfer and assign to Landlord or its designee, or assist Landlord or its designee in obtaining, any contracts, licenses, and certificates required for the then operation of such Facility. 20.2 Tenant's Option to Purchase the Leased Property. -64- Provided, no Default or Event of Default has occurred and is continuing at the time of exercise of the purchase option provided for in this Section 20.2 or at the time of payment of the purchase price provided for in this Section 20.2 and this Agreement shall be in full force and effect, Tenant shall have the option to purchase all, but not less than all, of the Collective Leased Properties for a purchase price equal to the sum of the Option Purchase Prices for all of the Collective Leased Properties. If Tenant wishes to exercise the aforesaid option, it shall do so by giving Landlord Notice thereof not less than one (1) year prior to the expiration of the then current term of this Agreement (Fixed or Extended, as the case may be). Such Notice shall be accompanied by a nonrefundable deposit made by certified check payable to the order of Landlord in an amount equal to five percent (5%) of the Option Purchase Price. It is expressly understood and agreed that time shall be of the essence with respect to the giving of such Notice and the making of such deposit and the failure of Tenant to give such Notice or deliver such deposit within the time and in the manner hereinabove provided shall be a waiver of Tenant's right to purchase the Collective Leased Properties pursuant to this Section 20.2. Any purchase of the Collective Leased Properties by Tenant shall be made in accordance with the provisions of Article 15 and the closing date for such purchase shall be the date of expiration of the then current term of this Agreement (Fixed or Extended, as the case may be). 20.3 First Refusal to Purchase. Provided, no Default or Event of Default has occurred and is continuing at the time of exercise of the first refusal to purchase provided for in this Section 20.3 or at the time of payment of the purchase price provided for in this Section 20.3 and this Agreement shall be in full force and effect, Tenant shall have a right of first refusal to purchase all, but not less than all, of the Collective Leased Properties as Landlord shall propose to sell upon the same price, terms and conditions as Landlord shall propose to sell such Collective Leased Properties, or upon the same price, terms and conditions of any written offer from a third party to purchase such Collective Leased Properties which Landlord intends to accept (or has accepted subject to Tenant's right of first refusal herein provided). If, during the Term or any Extended Term hereof, Landlord reaches such agreement with a third party or proposes to offer all or any portion of the Collective Leased Properties for sale, Landlord shall promptly give Notice to Tenant of the purchase price and all other material terms and conditions of such agreement or proposed sale and Tenant shall have thirty (30) days thereafter to exercise Tenant's right of first refusal to purchase by Notice to Landlord thereof. Such Notice shall be accompanied by a nonrefundable deposit made by certified check payable to the order of Landlord in an amount equal to five percent (5%) of the purchase price provided for in such proposal, offer or agreement. It is expressly understood and agreed that time shall be of the essence with respect to the giving of such Notice and the making of such deposit and the failure of Tenant to give such Notice or deliver such deposit within the time and in the manner hereinabove provided shall be a waiver of Tenant's -65- right of first refusal to purchase the Collective Leased Properties pursuant to this Section 20.3. If Tenant exercises its right of first refusal, the sale to Tenant shall be consummated upon the same terms and conditions as contained in such proposal, offer or agreement (including all terms certain in such agreement or Notice relating to any security deposit or fee, and the date of closing). Such sale to Tenant shall be made in accordance with the provisions of Article 15 no later than the closing date specified in such proposal, offer or agreement (or, if no closing date is so specified, thirty (30) days after Tenant exercises its right of first refusal). If Tenant shall not exercise its right of first refusal within the time period and in the manner above provided, Landlord shall be free to sell such Leased Property to any third party at a price and upon terms substantially similar and in any event no less favorable to Landlord than those offered to Tenant. Tenant shall be entitled to exercise its right of first refusal as provided in this Section 20.3 as to any subsequent or proposed sale during the Term or any Extended Term. ARTICLE 21 FACILITY MORTGAGES 21.1 Landlord May Grant Liens. Without the consent of Tenant, Landlord may, subject to the terms and conditions set forth in this Section 21.1, from time to time, directly or indirectly, create or otherwise cause to exist any lien, encumbrance or title retention agreement ("Encumbrance") upon any of the Collective Leased Properties, or any portion thereof or interest therein, whether to secure any borrowing or other means of financing or refinancing. Any such Encumbrance shall include the right to prepay (whether or not subject to a prepayment penalty) and shall provide (subject to Section 21.2 below) that it is subject to the rights of Tenant under this Agreement, including the rights of Tenant to acquire the Collective Leased Properties pursuant to the applicable provisions of this Agreement. 21.2 Subordination of Lease. Subject to Section 21.1, this Agreement, any and all rights of Tenant hereunder, are and shall be subject and subordinate to any ground or master lease, and all renewals, extensions, modifications and replacements thereof, and to all mortgages and deeds of trust, which may now or hereafter affect the Collective Leased Properties, or any of them, or any improvements thereon and/or any of such leases, whether or not such mortgages or deeds of trust shall also cover other lands and/or buildings and/or leases, to each and every advance made or hereafter to be made under such mortgages and deeds of trust, and to all renewals, modifications, replacements and extensions of such leases and such mortgages and deeds of trust and all consolidations of such mortgages and deeds of trust. This section shall be self-operative and no further -66- instrument of subordination shall be required. In confirmation of such subordination, Tenant shall promptly execute, acknowledge and deliver any instrument that Landlord, the lessor under any such lease or the holder of any such mortgage or the trustee or beneficiary of any deed of trust or any of their respective successors in interest may reasonably request to evidence such subordination. Any lease to which this Agreement is, at the time referred to, subject and subordinate is herein called "Superior Lease" and the lessor of a Superior Lease or its successor in interest at the time referred to, is herein called "Superior Landlord" and any mortgage or deed of trust to which this Agreement is, at the time referred to, subject and subordinate, is herein called "Superior Mortgage" and the holder, trustee or beneficiary of a Superior Mortgage is herein called "Superior Mortgagee". If any Superior Landlord or Superior Mortgagee or the nominee or designee of any Superior Landlord or Superior Mortgagee shall succeed to the rights of Landlord under this Agreement with respect to one or more of the Collective Leased Properties, whether through possession or foreclosure action or delivery of a new lease or deed, or otherwise, then at the request of such party so succeeding to Landlord's rights (herein called "Successor Landlord") and upon such Successor Landlord's written agreement to accept Tenant's attornment, Tenant shall attorn to and recognize such Successor Landlord as Tenant's landlord under this Agreement with respect to one or more of the Collective Leased Properties, and shall promptly execute and deliver any instrument that such Successor Landlord may reasonably request to evidence such attornment. Upon such attornment, this Agreement shall continue in full force and effect as a direct lease between the Successor Landlord and Tenant upon all of the terms, conditions and covenants as are set forth in this Agreement, except that the Successor Landlord (unless formerly the landlord under this Agreement or its nominee or designee) shall not be (a) liable in any way to Tenant for any act or omission, neglect or default on the part of Landlord under this Agreement, (b) responsible for any monies owing by or on deposit with Landlord to the credit of Tenant, (c) subject to any counterclaim or setoff which theretofore accrued to Tenant against Landlord, (d) bound by any modification of this Agreement subsequent to such Superior Lease or Mortgage, or by any previous prepayment of Minimum Rent or Additional Rent for more than one (1) month, which was not approved in writing by the Superior Landlord or the Superior Mortgagee thereto, (e) liable to Tenant beyond the Successor Landlord's interest in the applicable Leased Property and the rents, income, receipts, revenues, issues and profits issuing from such Leased Property, (f) responsible for the performance of any work to be done by the Landlord under this Agreement to render the applicable Leased Property ready for occupancy by Tenant, or (g) required to remove any Person occupying the applicable Leased Property or any part thereof, except if such person claims by, through or under the Successor Landlord. Tenant agrees at any time and from time to time to execute a suitable instrument in confirmation of Tenant's agreement to attorn, as aforesaid. 21.3 Notice to Mortgagee and Ground Landlord. -67- Subsequent to the receipt by Tenant of notice from any Person that it is a Facility Mortgagee or that it is the ground lessor under a lease with Landlord, as ground lessee, which includes the applicable Leased Property as part of the demised premises, no notice from Tenant to Landlord as to the applicable Leased Property shall be effective unless and until a copy of the same is given to such Facility Mortgagee or ground lessor, and the curing of any of Landlord's defaults by such Facility Mortgagee or ground lessor shall be treated as performance by Landlord. ARTICLE 22 ADDITIONAL COVENANTS OF TENANT 22.1 Prompt Payment of Indebtedness. Tenant shall (a) pay or cause to be paid when due all payments of principal of and premium and interest on Indebtedness for money borrowed and shall not permit or suffer any such Indebtedness to become or remain in default beyond any applicable grace or cure period, (b) pay or cause to be paid when due all lawful claims for labor and rents, (c) pay or cause to be paid when due all trade payables and (d) pay or cause to be paid when due all other Indebtedness upon which it is or becomes obligated, except, in each case, other than that referred to in clause (a), to the extent payment is being contested in good faith by appropriate proceedings in accordance with Article 8 and if Tenant shall have set aside on its books adequate reserves with respect thereto in accordance with GAAP or unless and until foreclosure, distraint sale or other similar proceedings shall have been commenced. 22.2 Conduct of Business. Tenant shall not engage in any business other than the ownership and operation of the Collective Leased Properties and shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect and in good standing its corporate existence and its rights and licenses necessary to conduct such business. 22.3 Maintenance of Accounts and Records. Tenant shall keep true records and books of account in which full, true and correct entries will be made of dealings and transactions in relation to the business and affairs of Tenant in accordance with GAAP. Tenant shall apply accounting principles in the preparation of the financial statements of Tenant which, in the judgment of and the opinion of its independent public accountants, are in accordance with GAAP, except for changes approved by such independent public accountants. Tenant shall provide to Landlord either in a footnote to the financial statements delivered under Section 17.2 which relate to the period in which such change occurs, or in separate schedules to such financial statements, information sufficient to show the effect of any such changes on such financial statements. -68- 22.4 Notice of Change of Name, Administrator, Etc. Tenant shall give prompt Notice to Landlord of any change in (a) the name (operating or otherwise) of Tenant or any Facility, (b) the individual licensed as administrator of any Facility, (c) the number of beds in any bed category for which any Facility is licensed or the number of beds in any bed category available for use at any Facility, and (d) the patient and/or child care services that are offered at any Facility. 22.5 Notice of Litigation, Potential Event of Default, Etc. Tenant shall give prompt Notice to Landlord of any litigation or any administrative proceeding to which it or any Guarantor may hereafter become a party which involves a potential liability equal to or greater than Ten Thousand Dollars ($10,000) or which may otherwise result in any material adverse change in the business, operations, property, prospects, results of operation or condition, financial or other, of Tenant or such Guarantor. Forthwith upon Tenant obtaining knowledge of any Default, Event of Default or any default or event of default under any agreement relating to Indebtedness for money borrowed in an aggregate amount exceeding, at any one time, Ten Thousand Dollars ($10,000), or any event or condition that would be required to be disclosed in a current report filed by Tenant or any Guarantor on Form 8-K or in Part II of a quarterly report on Form 10-Q if Tenant or any Guarantor were required to file such reports under the Securities Exchange Act of 1934, as amended, Tenant shall furnish Notice thereof to Landlord specifying the nature and period of existence thereof and what action Tenant has taken or is taking or proposes to take with respect thereto. 22.6 Indebtedness of Tenant. Tenant shall not create, incur, assume or guarantee, or permit to exist, or become or remain liable directly or indirectly upon, any Indebtedness except the following: (a) Indebtedness of Tenant to Landlord; (b) Indebtedness of Tenant for taxes, assessments, governmental charges or levies, to the extent that payment thereof shall not at the time be required to be made in accordance with the provisions of Article 8; (c) Indebtedness of Tenant in respect of judgments or awards (i) which have been in force for less than the applicable appeal period and in respect of which execution thereof shall have been stayed pending such appeal or review, or (ii) which are fully covered by insurance payable to Tenant, or (iii) which are for an amount not in excess of $10,000 in the aggregate at any one time outstanding and (x) which have been in force for not longer than the applicable appeal period, so long as execution is not levied -69- thereunder or (y) in respect of which an appeal or proceedings for review shall at the time be prosecuted in good faith in accordance with the provisions of Article 8, and in respect of which execution thereof shall have been stayed pending such appeal or review; (d) unsecured borrowings of Tenant from its Affiliated Persons which are by their terms expressly subordinate pursuant to a Subordination Agreement to the payment and performance of Tenant's obligations under this Agreement; or (e) Indebtedness for purchase money financing. 22.7 Distributions, Payments to Affiliated Persons, Etc. All payments by any Guarantor and/or Tenant to any Affiliated Person shall be subordinated to payments due to Landlord and neither any Guarantor nor Tenant shall declare, order, pay or make, directly or indirectly, any Distributions or any payment to any Affiliated Person of either of them (including payments in the ordinary course of business and reasonable payments pursuant to management agreements with any such Affiliated Person) or set apart any sum or property therefor, or agree to do so, if, at the time of such proposed action, or immediately after giving effect thereto, any Default or an Event of Default shall exist. 22.8 Investments. Tenant shall not make, or permit to remain outstanding, at any time any Investment (including without limitation, the formation of or investment in any Subsidiary or the acquisition of any business) except the following: (a) Marketable direct full faith and credit obligations of, and marketable obligations guaranteed by, the United States of America, or any agency or instrumentality thereof, which mature within one year from the date of acquisition thereof; (b) Marketable direct full faith and credit obligations of any state of the United States of America, or any county, city, town, township or other governmental subdivision of any such state, which mature within one year from the date of acquisition thereof, provided, that such obligations are accorded a rating within one of the three highest grades by Moody's Investors Service, Inc. or Standard & Poor's Corporation; (c) Commercial paper maturing no more than two hundred and seventy (270) days from the date of issue, provided that such paper is accorded a rating within the highest category by Moody's Investors Service, Inc. or Standard & Poor's Corporation; (d) Certificates of deposit which have a remaining term to maturity at the time of purchase of no more than one year (or which are subject to a repurchase agreement with one of the banks or trust companies described in this paragraph (d) exercisable within -70- one year from the time of purchase) issued by banks or trust companies organized under the laws of the United States of America or a State thereof and which are member banks of the Federal Reserve System, and have aggregate capital, surplus and undivided profits of at least $100,000,000 and the long term obligations of which carry a rating of "A" or better by Moody's Investors Service, Inc. or Standard & Poor's Corporation; and (e) Bonds or debentures which have a remaining term to maturity at the time of purchase of no more than one year, issued by a Person, other than an Affiliated Person as to Tenant or any Guarantor, organized under the laws of a State of the United States or the District of Columbia; provided, that such obligations carry a rating of "A" or better by Moody's Investors Service, Inc. or Standard & Poor's Corporation. 22.9 Prohibited Transactions. Tenant shall not permit to exist or enter into any agreement or arrangement whereby it engages in a transaction of any kind with any Affiliated Person as to Tenant or any Guarantor, except on terms and conditions which are not less favorable to Tenant than those on which similar transactions between unaffiliated parties could fairly be expected to be entered into on an arms-length basis. 22.10 Management of Collective Leased Properties. Tenant shall not enter into any Management Agreement unless the terms thereof have been previously approved in writing by Landlord, which approval may be given or withheld in Landlord's sole and absolute discretion. All management fees, payments in connection with any extension of credit and fees for services provided in connection with the operation of the applicable Leased Property, payable by Tenant to any Guarantor (or any Affiliated Person as to Tenant or such Guarantor), shall be subordinated to all of the obligations of Tenant due under this Agreement pursuant to a Subordination Agreement. Tenant shall not agree to any change in the Manager of any of the Collective Leased Properties and/or any Facility, to any change in any Management Agreement, terminate any Management Agreement or permit any Manager to assign any Management Agreement without the prior written approval of Landlord in each instance, which approval may be given or withheld in Landlord's sole and absolute discretion. Any Management Agreement shall provide that Landlord shall be provided notice of any defaults thereunder and, at Landlord's option, an opportunity to cure such defaults and shall otherwise be in form and substance satisfactory to Landlord in its sole and absolute discretion. If Landlord shall cure any of Tenant's defaults under any Management Agreement, the cost of such cure shall be payable upon demand by Tenant to Landlord with interest accruing from the demand date at the Overdue Rate and Landlord shall have the same rights and remedies for failure to pay such costs on demand as for Tenant's failure to pay Minimum Rent. Tenant shall deliver to Landlord -71- any instrument requested by Landlord to implement the intent of the foregoing provision. 22.11 Liens and Encumbrances. Except as permitted by Section 7.1, Tenant shall not create or incur or suffer to be created or incurred or to exist any Lien on this Agreement, Tenant's Personal Property or any of its other respective assets, properties, rights or income, or any of its interest therein, now or at any time hereafter owned, other than: (a) Security interests securing the purchase price of equipment or personal property acquired after the Commencement Date; provided, however, that (i) such Lien shall at all times be confined solely to the asset in question, (ii) the aggregate principal amount of Indebtedness secured by any such Lien shall not exceed the cost of acquisition or construction of the property subject thereto; and (iii) the aggregate principal amount of Indebtedness secured by any such Lien in favor of a single vendor shall not exceed $250,000 at any one time outstanding; and (b) Permitted Encumbrances. 22.12 Merger; Sale of Assets; Etc. Tenant shall not (i) sell, lease (as lessor or sublessor), transfer or otherwise dispose of, or abandon, all or any material portion of its assets (including capital stock) or business to any Person, (ii) merge into or with or consolidate with any other Entity, or (iii) sell, lease (as lessor or sublessor), transfer or otherwise dispose of, or abandon, any personal property or fixtures or any real property; provided, however, that, notwithstanding the provisions of clause (iii) preceding, Tenant may dispose of equipment or fixtures which have become inadequate, obsolete, worn-out, unsuitable, undesirable or unnecessary, provided substitute equipment or fixtures having equal or greater value and utility (but not necessarily having the same function) have been provided. 22.13 Guaranties. Upon the execution hereof and from time to time during the Term and any Extended Term hereof, Tenant shall cause Connecticut Subacute, CSC II, any corporate Parent of, or corporate successor to, Tenant, and any other Entity that is an Affiliated Person of Tenant that conducts business on any of the Collective Leased Properties, to execute a Guaranty, in favor of Landlord. ARTICLE 23 MISCELLANEOUS 23.1 Limitation on Payment of Rent. All agreements between Landlord and Tenant herein are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of Rent, or otherwise, shall the Rent or any other amounts payable to Landlord under this Agreement exceed the maximum permissible under applicable law, the benefit of which may be asserted by Tenant as a -72- defense, and if, from any circumstance whatsoever, fulfillment of any provision of this Agreement, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law, or if from any circumstances Landlord should ever receive as fulfillment of such provision such an excessive amount, then, ipso facto, the amount which would be excessive shall be applied to the reduction of the installment(s) of Minimum Rent next due and not to the payment of such excessive amount. This provision shall control every other provision of this Agreement and any other agreements between Landlord and Tenant. 23.2 No Waiver. No failure by Landlord to insist upon the strict performance of any term hereof or to exercise any right, power or remedy consequent upon a breach thereof, and no acceptance of full or partial payment of Rent during the continuance of any such breach, shall constitute a waiver of any such breach or of any such term. To the maximum extent permitted by law, no waiver of any breach shall affect or alter this Agreement, which shall continue in full force and effect with respect to any other then existing or subsequent breach. 23.3 Remedies Cumulative. To the maximum extent permitted by law, each legal, equitable or contractual right, power and remedy of Landlord, now or hereafter provided either in this Agreement or by statute or otherwise, shall be cumulative and concurrent and shall be in addition to every other right, power and remedy and the exercise or beginning of the exercise by Landlord of any one or more of such rights, powers and remedies shall not preclude the simultaneous or subsequent exercise by Landlord of any or all of such other rights, powers and remedies. 23.4 Severability. Any clause, sentence, paragraph, section or provision of this Agreement held by a court of competent jurisdiction to be invalid, illegal or ineffective shall not impair, invalidate or nullify the remainder of this Agreement, but rather the effect thereof shall be confined to the clause, sentence, paragraph, section or provision so held to be invalid, illegal or ineffective, and this Agreement shall be construed as if such invalid, illegal or ineffective provisions had never been contained therein. 23.5 Acceptance of Surrender. No surrender to Landlord of this Agreement or of any of the Collective Leased Properties or any part thereof, or of any interest therein, shall be valid or effective unless agreed to and accepted in writing by Landlord and no act by Landlord or any representative or agent of Landlord, other than such a written acceptance by Landlord, shall constitute an acceptance of any such surrender. 23.6 No Merger of Title. It is expressly acknowledged and agreed that it is the intent of the parties that there shall be no merger of this Agreement or of the leasehold estate created hereby by reason of the fact that the same Person may acquire, own or hold, directly or indirectly this Agreement or the leasehold estate created hereby and the -73- fee estate or ground landlord's interest in any of the Collective Leased Properties. 23.7 Conveyance by Landlord. If Landlord or any successor owner of all or any portion of any of the Collective Leased Properties shall convey all or any portion of the Collective Leased Properties in accordance with the terms hereof other than as security for a debt, and the grantee or transferee of such of the Collective Leased Properties shall expressly assume all obligations of Landlord hereunder arising or accruing from and after the date of such conveyance or transfer, Landlord or such successor owner, as the case may be, shall thereupon be released from all future liabilities and obligations of Landlord under this Agreement with respect to such of the Collective Leased Properties arising or accruing from and after the date of such conveyance or other transfer and all such future liabilities and obligations shall thereupon be binding upon the new owner. 23.8 Quiet Enjoyment. So long as Tenant shall pay the Rent as the same becomes due and shall comply with all of the terms of this Agreement, Tenant shall peaceably and quietly have, hold and enjoy the Collective Leased Properties for the Term, free of hindrance or molestation by Landlord or anyone claiming by, through or under Landlord, but subject to (a) any Encumbrance permitted under Article 21 or otherwise permitted to be created by Landlord hereunder, (b) all Permitted Encumbrances, (c) liens as to obligations of Landlord that are either not yet due or which are being contested in good faith and by proper proceedings, and (d) liens that have been consented to in writing by Tenant. Except as otherwise provided in this Agreement, no failure by Landlord to comply with the foregoing covenant shall give Tenant any right to cancel or terminate this Agreement or abate, reduce or make a deduction from or offset against the Rent or any other sum payable under this Agreement, or to fail to perform any other obligation of Tenant hereunder. 23.9 NON-LIABILITY OF TRUSTEES. THE DECLARATION, A COPY OF WHICH IS DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HEALTH AND RETIREMENT PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF LANDLORD SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, LANDLORD. ALL PERSONS DEALING WITH LANDLORD, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF LANDLORD FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. 23.10 Landlord's Consent of Trustees. Where provision is made in this Agreement for Landlord's consent and Landlord shall fail or refuse to give such consent, Tenant shall not be entitled to any damages for any withholding by Landlord of its consent, it being intended that Tenant's sole remedy shall be an action for specific performance or injunction, and that such remedy shall be available only in those cases -74- where Landlord has expressly agreed in writing not unreasonably to withhold its consent. 23.11 Memorandum of Lease. Neither Landlord nor Tenant shall record this Agreement. However, Landlord and Tenant shall promptly, upon the request of the other, enter into a short form memorandum of this Agreement, in form suitable for recording under the laws of the State in which reference to this Agreement, and all options contained herein, shall be made. Tenant shall pay all costs and expenses of recording such memorandum. 23.12 Notices. (a) Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Agreement shall be deemed adequately given if in writing and the same shall be delivered either in hand, by telecopier with written acknowledgment of receipt, or by mail or Federal Express or similar expedited commercial carrier, addressed to the recipient of the notice, postpaid and registered or certified with return receipt requested (if by mail), or with all freight charges prepaid (if by Federal Express or similar carrier). (b) All notices required or permitted to be sent hereunder shall be deemed to have been given for all purposes of this Agreement upon the date of acknowledged receipt, in the case of a notice by telecopier, and, in all other cases, upon the date of receipt or refusal, except that whenever under this Agreement a notice is either received on a day which is not a Business Day or is required to be delivered on or before a specific day which is not a Business Day, the day of receipt or required delivery shall automatically be extended to the next Business Day. (c) All such notices shall be addressed, if to Landlord to: Health and Retirement Properties Trust 400 Centre Street Newton, Massachusetts 02158 Attn: Mr. David J. Hegarty and Mr. John G. Murray [Telecopier No. (617) 332-2261] with a copy to: Sullivan & Worcester One Post Office Square Boston, Massachusetts 02109 Attn: Lena G. Goldberg, Esq. [Telecopier No. (617) 338-2880] -75- if to Vermont Subacute to: Vermont Subacute Corporation 150 South Champlain Street Burlington, Vermont 05401 Attn: Mark J. Finkelstein if to New Hampshire Subacute to: New Hampshire Subacute Corporation 40 Whitehall Road Rochester, New Hampshire 03867 Attn: Mark J. Finkelstein (d) By notice given as herein provided, the parties hereto and their respective successor 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 within the United States of America. 23.13 Construction. Anything contained in this Agreement to the contrary notwithstanding, all claims against, and liabilities of, Tenant or Landlord arising prior to any date of termination or expiration of this Agreement with respect to any of the Collective Leased Properties shall survive such termination or expiration. In no event shall Landlord be liable for any consequential damages suffered by Tenant as the result of a breach of this Agreement by Landlord. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated except by an instrument in writing signed by the party to be charged. All the terms and provisions of this Agreement shall be bind- ing upon and inure to the benefit of the parties hereto and their respective successors and assigns. Each term or provision of this Agreement to be performed by Tenant shall be construed as an independent covenant and condition. Time is of the essence with respect to the exercise of any rights of Tenant under this Agreement. Except as otherwise set forth in this Agreement, any obligations of Tenant (including without limitation, any monetary, repair and indemnification obligations) shall survive the expiration or sooner termination of this Agreement. 23.14 Counterparts; Headings. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but which, when taken together, shall constitute but one instrument and shall become effective as of the date hereof when copies hereof, which, when taken together, bear the signatures of each of the parties hereto shall have been signed. Headings in this Agreement are for purposes of reference only and shall not limit or affect the meaning of the provisions hereof. -76- 23.15 Landlord Financing. In the event that at any time during the Term, Tenant, any Guarantor or any Entity that is an Affiliated Person of Tenant or any Guarantor shall elect to obtain sale, lease or mortgage financing for any health care related facilities owned, leased, operated or to be owned, leased or operated by Tenant, any Guarantor or such Entity within the Market Area of any of the Collective Leased Properties, Tenant shall give (or cause such Guarantor or such Entity to give, as the case may be) Notice thereof to Landlord, which notice shall set forth in reasonable detail the terms of such financing, shall identify the source thereof and shall include a copy of any applicable term sheet, letter of intent or commitment letter. Landlord shall have the right, exercisable by the giving of Notice to Tenant (or such Guarantor or Entity, as the case may be) within ten (10) Business Days after such notice from Tenant (or such other Guarantor or Entity, as the case may be), to provide such financing on the same terms and conditions as described in the Notice given to Landlord. In the event that Landlord shall exercise such option, Tenant (or such Guarantor or Entity, as the case may be) shall be obligated to obtain such financing from Landlord on the terms and conditions set forth in the Notice to Landlord. In the event that Landlord shall decline to provide such financing or shall fail to give such notice to Tenant (or such Guarantor or Entity, as the case may be), Tenant (or such Guarantor or Entity, as the case may be) shall be free to obtain such financing from the party identified in, and on the terms and conditions set forth in, the Notice given to Landlord with respect thereto. 23.16 Applicable Law, Etc. Except as to matters regarding the internal affairs of Landlord and issues of or limitations on any personal liability of the shareholders and trustees of Landlord for obligations of Landlord, as to which the laws of the State of Maryland shall govern, this Agreement shall be interpreted, construed, applied and enforced in accordance with the laws of The Commonwealth of Massachusetts applicable to contracts between residents of Massachusetts which are to be performed entirely within Massachusetts, regardless of (i) where this Agreement is executed or delivered; or (ii) where any payment or other performance required by this Agreement is made or required to be made; or (iii) where any breach of any provision of this Agreement occurs, or any cause of action otherwise accrues; or (iv) where any action or other proceeding is instituted or pending; or (v) the nationality, citizenship, domicile, principal place of business, or jurisdiction of organization or domestication of any party; or (vi) whether the laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction other than The Commonwealth of Massachusetts; or (vii) any combination of the foregoing. Notwithstanding the foregoing, the laws of the State shall apply to the perfection and priority of liens upon and the disposition of and disposition with respect to any of the Collective Leased Properties. To the maximum extent permitted by applicable law, any action to enforce, arising out of, or relating in any way to, any of the provisions of this Agreement may be brought and prosecuted in such court or courts located in The Commonwealth of Massachusetts as is provided by -77- law; and the parties consent to the jurisdiction of said court or courts located in The Commonwealth of Massachusetts and to service of process by registered mail, return receipt requested, or by any other manner provided by law. 23.17 Allocation of Minimum Rent. Landlord and Tenant, by the execution hereof, agree that Minimum Rent shall be allocated among the Facilities as set forth in Exhibit C. 23.18 Additional Leased Properties. Landlord and Tenant acknowledge and agree that, concurrently herewith, Landlord is entering into a Purchase and Sale Agreement, dated of even date herewith (the "Purchase Agreement"), between Landlord, as purchaser, and John F. Chapple, III, as seller, to purchase certain land, with related improvements and personal property (collectively, the "Additional Properties"), to be used in connection with the operation of certain of the Collective Leased Properties, as further described in the Purchase Agreement. Landlord and Tenant further acknowledge and agree that, upon Landlord's purchase of the Additonal Properties, Landlord and Tenant shall enter into an amendment to this Agreement pursuant to which Landlord shall lease to Vermont Subacute, and Vermont Subacute shall lease from Landlord, the Additonal Properties, upon and subject to the terms and conditions herein set forth (but including an increase in the Minimum Rent payable hereunder by the amount of Five Thousand Nine Hundred Six and 25/100 ($5,906.25)), provided, however, that nothing herein shall be construed to require Landlord to acquire the Additional Properties and Landlord shall have the right, but not the obligation, to acquire the Additional Properties on such terms and conditions as Landlord, in its sole discretion, shall determine. In the event that Landlord shall, in its sole discretion, determine not to acquire the Additional Properties, Landlord's and Tenant's obligations under this Section 23.18 shall terminate. Landlord shall provide Tenant with copies of all purchase and other agreements entered into by Landlord with respect to the Additonal Properties and all diligence and other information provided to or obtained by Landlord in connection therewith. -78- IN WITNESS WHEREOF, the parties have executed this Agreement as a sealed instrument as of the date above first written. LANDLORD: HEALTH AND RETIREMENT PROPERTIES TRUST By: /s/ David J. Hegarty Its: Executive Vice President and Chief Financial Officer VERMONT SUBACUTE: VERMONT SUBACUTE CORPORATION By: /s/ Mark J. Finkelstein Its (Vice) President NEW HAMPSHIRE SUBACUTE: NEW HAMPSHIRE SUBACUTE CORPORATION By: /s/ Mark J. Finkelstein Its (Vice) President EXHIBITS A-1 TO A-8 The Land [See attached copies.] EXHIBIT B Purchase Prices Burlington $7,253,686 Bennington 4,822,930 Springfield 4,027,146 Berlin 5,121,951 St. Johnsbury 3,718,479 Rowan 4,167,011 Redstone 926,002 Hanson 868,127 Vermont Total 30,905,333 Rochester 4,094,667 Total 35,000,000 EXHIBIT C Minimum Rent Allocation Burlington $761,637.03 Bennington 506,407.65 Springfield 422,850.33 Berlin 537,804.85 St. Johnsbury 390,440.29 Rowan 437,536.15 Redstone 97,230.21 Hanson 91,153.33 Rochester 429,904.04 -2- EX-10.22 7 Exhibit 10.22 AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION BY AND AMONG BERLIN C.C., INC., A VERMONT CORPORATION, ST. JOHNSBURY C.C., INC., A VERMONT CORPORATION, ROCHESTER C.C., INC., A NEW HAMPSHIRE CORPORATION, SPRINGFIELD C.C., INC. A VERMONT CORPORATION, BURLINGTON C.C., INC., A VERMONT CORPORATION BENNINGTON C.C., INC., A VERMONT CORPORATION THE LP CORPORATION, A VERMONT CORPORATION, AMERICAN HEALTH CARE, INC., A VERMONT CORPORATION ("SELLERS") and HEALTH AND RETIREMENT PROPERTIES TRUST, A MARYLAND REAL ESTATE INVESTMENT TRUST, ("HRP") ___________________________ January 26, 1995 TABLE OF CONTENTS Section 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . 1 Section 2. CLOSING. . . . . . . . . . . . . . . . . . . . . . . . 3 2.1 Closing . . . . . . . . . . . . . . . . . . . . . . 3 Section 3. CONDITIONS TO HRP'S OBLIGATION TO CLOSE. . . . . . . . 4 3.1 Closing Documents . . . . . . . . . . . . . . . . . 4 3.2 Condition of Properties . . . . . . . . . . . . . . 5 3.3 Title Policies. . . . . . . . . . . . . . . . . . . 6 3.4 Opinions of Counsel . . . . . . . . . . . . . . . . 6 3.5 Hart-Scott-Rodino . . . . . . . . . . . . . . . . . 6 3.6 Rate Setting . . . . . . . . . . . . . . . . . . . 6 3.7 VSA/NHSA Agreement . . . . . . . . . . . . . . . . 6 3.8 Board Approval . . . . . . . . . . . . . . . . . . 6 3.9 Other Approvals . . . . . . . . . . . . . . . . . . 6 3.10 Deposit . . . . . . . . . . . . . . . . . . . . . . 7 Section 4. CONDITIONS TO SELLERS' OBLIGATION TO CLOSE. . . . . . 7 4.1 HRP Shares . . . . . . . . . . . . . . . . . . . . 7 4.2 Closing Documents . . . . . . . . . . . . . . . . . 7 4.3 Opinion of Counsel . . . . . . . . . . . . . . . . 7 4.5 Satisfaction of Other Conditions . . . . . . . . . 7 Section 5. REPRESENTATIONS AND WARRANTIES OF SELLERS. . . . . . . 7 5.1 Status and Authority of the Sellers . . . . . . . . 7 5.2 Action of the Sellers . . . . . . . . . . . . . . . 8 5.3 No Violations of Agreements . . . . . . . . . . . . 8 5.4 Litigation . . . . . . . . . . . . . . . . . . . . 8 5.5 Existing Leases, Agreements, Etc . . . . . . . . . 8 5.6 Disclosure . . . . . . . . . . . . . . . . . . . . 9 5.7 Utilities, Etc. . . . . . . . . . . . . . . . . . . 9 5.8 Compliance With Law . . . . . . . . . . . . . . . . 9 5.9 Taxes. . . . . . . . . . . . . . . . . . . . . . . 10 5.10 Special Districts . . . . . . . . . . . . . . . . . 10 5.11 Not A Foreign Person . . . . . . . . . . . . . . . 10 5.12 Hazardous Substances . . . . . . . . . . . . . . . 10 5.13 Investment Intent . . . . . . . . . . . . . . . . . 10 Section 6. REPRESENTATIONS AND WARRANTIES OF HRP . . . . . . . . 11 6.1 Status and Authority of HRP . . . . . . . . . . . . 11 6.2 Action of HRP . . . . . . . . . . . . . . . . . . . 11 6.3 No Violations of Agreements . . . . . . . . . . . . 12 6.4 Litigation . . . . . . . . . . . . . . . . . . . . 12 6.5 Capitalization . . . . . . . . . . . . . . . . . . 12 Section 7. COVENANTS OF THE SELLERS. . . . . . . . . . . . . . . 12 7.1 Compliance with Laws, Etc. . . . . . . . . . . . . 12 7.2 Operation of the Facilities . . . . . . . . . . . . 13 7.3 Approval of Agreements . . . . . . . . . . . . . . 13 7.4 Compliance with Agreements . . . . . . . . . . . . 13 -ii- 7.5 Notice of Material Changes or Untrue Representations . . . . . . . . . . . . . . . . . 13 7.6 Title Matters . . . . . . . . . . . . . . . . . . . 13 7.7 Survey Matters . . . . . . . . . . . . . . . . . . 14 7.8 Other Diligence Materials . . . . . . . . . . . . . 15 7.9 Other Activities During the Period Prior to Closing . . . . . . . . . . . . . . . . . . . . . 15 Section 8. ADJUSTMENTS. . . . . . . . . . . . . . . . . . . . . . 15 8.1 Adjustments Based on Existing Liens . . . . . . . . 15 8.2 Adjustments Relating to Rochester C.C., Inc. . . . 15 8.3 Closing Costs. . . . . . . . . . . . . . . . . . . 16 Section 9. DEFAULT; TERMINATION . . . . . . . . . . . . . . . . . 16 9.1 Default by the Sellers . . . . . . . . . . . . . . 16 9.2 Default by HRP . . . . . . . . . . . . . . . . . . 16 Section 10. INDEMNIFICATION. . . . . . . . . . . . . . 17 10.1 Indemnification by the Sellers . . . . . . . . . 17 10.2 Indemnification by HRP . . . . . . . . . . . . . 17 10.3 Notice and Payment of Claims . . . . . . . . . . 18 Section 11. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . 18 11.1 Expenses . . . . . . . . . . . . . . . . . . . . . 18 11.2 Brokerage Commissions . . . . . . . . . . . . . . 18 11.3 Publicity. . . . . . . . . . . . . . . . . . . . . 19 11.4 Execution of Additional Documents. . . . . . . . . 19 11.5 Notices . . . . . . . . . . . . . . . . . . . . . 19 11.6 Waivers, Etc. . . . . . . . . . . . . . . . . . . 20 11.7 Assignment; Successors and Assigns . . . . . . . . 21 11.8 Severability. . . . . . . . . . . . . . . . . . . 21 11.9 Counterparts; Amendments. . . . . . . . . . . . . 21 11.10 Governing Law . . . . . . . . . . . . . . . . . . 21 11.11 Jurisdiction. . . . . . . . . . . . . . . . . . . 22 11.12 Performance on Business Days . . . . . . . . . . . 22 11.13 Attorneys Fees . . . . . . . . . . . . . . . . . . 22 11.14 Section and Other Headings . . . . . . . . . . . . 22 11.15 Entire Agreement . . . . . . . . . . . . . . . . . 22 11.16 Obligations of Sellers After the Closing . . . . . 22 11.17 Limitation of Liability. . . . . . . . . . . . . . 23 -iii- Schedule A - List of Sellers Schedule B - Allocation of HRP Shares Schedule C-1 - Berlin Health and Rehab Center Schedule C-2 - St. Johnsbury Health and Rehab Center Schedule C-3 - Springfield Health and Rehab Center Schedule C-4 - Bennington Health and Rehab Center Schedule C-5 - Hanson Court Convalescent Home Schedule C-6 - Redstone Villa Schedule C-7 - Rowan Court Health and Rehab Center Schedule C-8 - Rochester Manor Schedule C-9 - Burlington Health and Rehab Center Schedule D - Liens and Encumbrances Schedule E - Opinion of Sellers' Counsel Schedule F - Opinion of HRP's Counsel Schedule G - Registration Rights Agreement Schedule H - Breaches or Conflicts Schedule I - Contracts and Agreements; Licensed Bed Capacity and Medicare/Medicaid Status Schedule J - Compliance with Law Schedule K - Hazardous Substances Schedule L - Capitalization of HRP Schedule M - Form of Surveyor's Certificate AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION is made as of the 26th day of January, 1995, by and among the Sellers listed on Schedule A hereto (collectively, the "Sellers") and HEALTH AND RETIREMENT PROPERTIES TRUST, a Maryland real estate investment trust ("HRP"). WITNESSETH: WHEREAS, Sellers are the owners and holders of the Properties (this and other capitalized terms used and not otherwise defined herein having the meanings ascribed to such terms in Section 1); and WHEREAS, the Sellers wish to transfer substantially all of their assets to HRP, solely in exchange for voting shares of HRP and the assumption by HRP of certain of the liabilities of Sellers in a transaction intended to qualify as a Reorganization within the meaning of Section 368(a)(1)(C) of the Code; WHEREAS, it is contemplated by Sellers and HRP that, upon the consummation of such Reorganization, each Seller will distribute the HRP Shares received by such Seller to its shareholders in complete liquidation of such Seller, and will thereafter dissolve as a corporation; WHEREAS, HRP wishes to acquire substantially all of Sellers' assets and agrees to assume certain liabilities of Sellers on the terms and conditions hereinafter set forth; WHEREAS, the Sellers and HRP entered into an Agreement and Plan of Reorganization dated September 1, 1994 (the "Original Agreement") to accomplish the transactions referred to above; and WHEREAS, the Sellers and HRP now desire to amend the Original Agreement in certain respects and to restate the Original Agreement in its entirety; NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, the Sellers and HRP hereby agree as follows: Section 1. DEFINITIONS. Capitalized terms used in this Agreement shall have the meanings set forth below or in the Section of this Agreement referred to below: -2- 1.1 "Agreement" shall mean this Amended and Restated Agreement and Plan of Reorganization, together with Schedules A through M, attached hereto, as it and they may be amended from time to time as herein provided. 1.2 "Business Day" shall mean any day other than a Saturday, Sunday or any other day on which banking institutions in The Commonwealth of Massachusetts, the State of Vermont or the State of New Hampshire are authorized by law or executive action to close. 1.3 "Closing" shall have the meaning given such term in Section 2.1. 1.4 "Closing Date" shall have the meaning given such term in Section 2.1. 1.5 "Code" means the United States Internal Revenue Code of 1986, as amended. 1.6 "Declaration" shall mean the Declaration of Trust of HRP, dated October 9, 1986, as the same has been and may be amended and restated from time to time. 1.7 "Deposit" shall mean the sum of Two Hundred Fifty Thousand Dollars ($250,000) paid by HRP to the Sellers and held by the Escrow Agent for the benefit of the Sellers prior to the date of the Original Agreement, receipt of which is hereby acknowledged by the Sellers. 1.8 "Escrow Agent" shall mean Miller, Eggleston and Rosenberg, Ltd. 1.9 "Facilities" shall mean, collectively, the nursing homes, retirement centers, congregate living facilities and/or other facilities offering other related health care products or services being operated by the Sellers at the Properties. 1.10 "HRP" shall have the meaning given such term in the preamble to this Agreement. 1.11 "HRP Shares" shall mean common shares of beneficial interest, $.01 par value per share, of HRP. 1.12 "Properties" shall mean, collectively, those certain real properties, the improvements thereon, all fixtures, machinery, systems, equipment, furniture and furnishings owned by the Sellers attached or appurtenant thereto or used in connection therewith and all easements, privileges, licenses, rights and appurtenances relating thereto, located in (i) Berlin, Vermont and known as Berlin Health and Rehab Center, as more particularly described in Schedule C-1, attached hereto and made a part -3- hereof; (ii) St. Johnsbury, Vermont and known as St. Johnsbury Health and Rehab Center, as more particularly described in Schedule C-2, attached hereto and made a part hereof; (iii) Springfield, Vermont and known as Springfield Health and Rehab Center, as more particularly described in Schedule C-3, attached hereto and made a part hereof; (iv) Bennington, Vermont and known as Bennington Health and Rehab Center, as more particularly described in Schedule C-4, attached hereto and made a part hereof; (v) Springfield, Vermont and known as Hanson Court Convalescent Home, as more particularly described in Schedule C- 5, attached hereto and made a part hereof; (vi) St. Albans, Vermont and known as Redstone Villa, as more particularly described in Schedule C-6, attached hereto and made a part hereof; (vii) Barre, Vermont and known as Rowan Court Health and Rehab Center, as more particularly described in Schedule C-7, attached hereto and made a part hereof; (viii) Rochester, New Hampshire and known as Rochester Manor, as more particularly described in Schedule C-8, attached hereto and made a part hereof; and (ix) Burlington, Vermont and known as Burlington Health and Rehab Center, as more particularly described in Schedule C-9, attached hereto and made a part hereof. 1.13 "Securities Act" shall have the meaning given such term in Section 5.13. 1.14 "Sellers" shall have the meaning given such term in the preamble to this Agreement. 1.15 "Surveys" shall have the meaning given such term in Section 7.6. 1.16 "Title Commitments" shall have the meaning given such term in Section 7.6. 1.17 "Title Company" shall mean Lawyer's Title Company or such other title insurance company as shall have been approved by HRP. 1.18 "VSA/NHSA Agreement" shall mean that certain Amended and Restated Purchase and Sale Agreement, dated the date hereof, among the Sellers, Vermont Subacute Corporation ("VSA") and New Hampshire Subacute Corporation ("NHSA"). Section 2. CLOSING. 2.1 Closing. (a) The transfer and delivery of the Properties to HRP and the issuance and delivery of HRP Shares to the Sellers shall be consummated at a closing (the "Closing") to be held at the offices of Sullivan & Worcester, One Post Office Square, Boston, Massachusetts, or at such other location as the Sellers and HRP may agree, at 10:00 a.m., local time, on a date -4- (the "Closing Date") ten (10) days after the later to occur of (i) the expiration of any applicable waiting periods required under or in connection with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or the receipt from the Federal Trade Commission and any other applicable governmental agency having jurisdiction of valid and enforceable waivers thereof, (ii) the approval for listing on the New York Stock Exchange of the HRP Shares, and (iii) the receipt of all other applicable approvals and licenses from any applicable governmental bodies including, without limitation, certificates or determinations of need, if required. In the event that the Closing shall not have occurred on or before March 31, 1995, provided that no action for specific performance shall have been commenced by any party to enforce this Agreement, any party shall have the right, by the giving of written notice, to terminate this Agreement and, in such event, the Deposit, together with interest thereon, shall be refunded to HRP in accordance with Section 9.1. (b) At the Closing, the Sellers shall transfer and deliver to HRP all of the Properties, and HRP shall accept delivery of the Properties. In exchange for the Properties, HRP shall cause to be delivered to the Sellers that number of HRP Shares, the value of which (as determined pursuant to the following sentence) shall be equal to $35,000,000; provided, however, that such amount shall be adjusted as may be required pursuant to Section 8). The value given to each HRP Share shall be $15.00. At the Closing, the portion of such HRP Shares allocated to each Seller on Schedule B hereto shall be issued to such Seller by delivery of a certificate or certificates representing that number of HRP Shares set forth opposite such Seller's name on such Schedule B, in such manner as each such Seller shall specify to HRP not later than three (3) Business Days prior to the Closing. The certificates representing the HRP Shares shall bear the legend set forth in Section 5.13 hereof. Section 3. CONDITIONS TO HRP'S OBLIGATION TO CLOSE. The obligation of HRP to accept delivery of the Properties and to deliver the HRP Shares at the Closing shall be subject to the satisfaction of the following conditions precedent on and as of the Closing Date: 3.1 Closing Documents. The Sellers shall have delivered to HRP: (a) a good and sufficient special warranty deed, or its local equivalent, with respect to each of the Properties, in proper statutory form for recording, duly executed and acknowledged by the Sellers, conveying good and marketable title to the applicable Properties, free from all liens and -5- encumbrances other than (i) liens and encumbrances approved by HRP in accordance with Sections 7.5 and 7.6 and (ii) liens set forth on Schedule D which HRP shall assume (subject to a corresponding reduction in the Purchase Price as set forth in Section 8); (b) an assignment by the Sellers and an assumption by HRP, in form and substance reasonably satisfactory to the Sellers and HRP, duly executed and acknowledged by the Sellers and HRP, of all of the Sellers' right, title and interest in, to and under all licenses, contracts, permits and agreements affecting the Properties which HRP has elected to assume (if any); (c) an assignment by the Sellers and an assumption by HRP, in form and substance reasonably satisfactory to, and duly executed and acknowledged by, the Sellers and HRP of the liabilities set forth on Schedule D which HRP has agreed to assume; (d) a certificate of a duly authorized officer of each of the Sellers confirming the continued truth and accuracy of (i) the representations and warranties of the Sellers in this Agreement and (ii) the matters set forth in Section 3.2 of this Agreement; (e) to the extent the same are in the Sellers' possession, original, fully executed copies of all documents and agreements pertaining to the Properties and, in any event, copies of all such documents and agreements certified by a responsible officer of Sellers as conforming to the originals in all respects; (f) certified copies of all charter documents, applicable corporate resolutions and certificates of incumbency with respect to each of the Sellers; and (g) such other conveyance documents, certificates, deeds and other instruments as HRP or the Title Company may reasonably require. 3.2 Condition of Properties. (a) All of the Properties and Facilities shall be in substantially the same physical condition as on the date of this Agreement, ordinary wear and tear excepted; (b) No material default or event which with the giving of notice and/or lapse of time could constitute a default shall have occurred and be continuing under any material agreement benefiting or affecting the Properties or the Facilities; (c) No material adverse change shall have occurred, and no action shall be pending or threatened which would adversely affect the licensing, certification, qualification status, -6- occupancy, eligibility for participation in federal or state reimbursement programs or material accreditations of any of the Facilities or, to the extent applicable, the Properties; and (d) No action shall be pending or threatened for the condemnation or taking by power of eminent domain of all or any portion of the Properties or all or any portion of the Facilities. 3.3 Title Policies. The Title Company shall be prepared, subject only to payment of the applicable premium, to issue title insurance policies to HRP, in form and substance satisfactory to HRP in accordance with Sections 7.5 and 7.6, together with such affirmative coverages as HRP may require and shall have been determined available prior to the Closing. 3.4 Opinions of Counsel. HRP shall have received a written opinion from Miller, Eggleston and Rosenberg, Ltd., special counsel to the Sellers (or such additional local counsel as may be reasonably acceptable to HRP), substantially in the form attached hereto as Schedule E. 3.5 Hart-Scott-Rodino. The Sellers and HRP shall have complied with all applicable provisions (if any) of the Hart- Scott-Rodino Antitrust Improvements Act of 1976, as amended. 3.6 Rate Setting. HRP shall have received such assurances as HRP, in its sole discretion, shall deem necessary, including, without limitation, opinions of counsel and/or confirmations from state agencies, that the transactions contemplated by this Agreement will have an acceptable effect on Medicaid rates for the Facilities. 3.7 VSA/NHSA Agreement. The transactions contemplated by the VSA/NHSA Agreement shall have been consummated. 3.8 Board Approval. The Board of Trustees of HRP shall have approved the transactions contemplated hereby in all respects. 3.9 Other Approvals. The Sellers and HRP shall have received, in form and substance reasonably satisfactory to the Sellers and HRP, all required approvals and waivers, including, without limitation, all licenses, certificates of need and regulatory and reimbursement permits and approvals as may be necessary or appropriate to consummate the transaction contemplated by this Agreement and to use the Properties in the same manner as they are currently being used by the Sellers, as set forth on Schedule I hereto. 3.10 Deposit. The Escrow Agent shall have returned the Deposit, together with interest accrued thereon, to HRP. -7- Section 4. CONDITIONS TO SELLERS' OBLIGATION TO CLOSE. The obligation of the Sellers to convey the Properties and the Facilities to HRP is subject to the satisfaction of the following conditions precedent on and as of the Closing Date: 4.1 HRP Shares. HRP shall deliver to the Sellers the HRP Shares in the manner provided in Section 2, adjusted as herein provided. 4.2 Closing Documents. HRP shall have delivered to the Sellers: (a) A certificate of a duly authorized officer of HRP confirming the continued truth and accuracy of the representations and warranties of HRP in this Agreement; and (b) Certified copies of all charter documents, applicable resolutions and certificates of incumbency with respect to HRP. 4.3 Opinion of Counsel. The Sellers shall have received a written opinion from (a) Sullivan & Worcester, special counsel to HRP (or such additional local counsel as shall be reasonably satisfactory to Sellers), substantially in the form attached hereto as Schedule F, and (b) Miller, Eggleston & Rosenberg, special counsel to the Sellers, that the transactions contemplated hereby qualify as a reorganization within Section 368(a)(1)(C) of the Code. 4.4 Registration Rights Agreement. The Sellers and HRP shall have entered into a Registration Rights Agreement in the form attached hereto as Schedule G. 4.5 Satisfaction of Other Conditions. The conditions precedent described in Sections 3.5, 3.7 and 3.8 shall have been satisfied. Section 5. REPRESENTATIONS AND WARRANTIES OF SELLERS. To induce HRP to enter into this Agreement, the Sellers jointly and severally represent and warrant to HRP as follows (such representations and warranties to be effective as of the date of the Original Agreement): 5.1 Status and Authority of the Sellers. Each of the Sellers is a corporation duly organized, validly existing and in corporate good standing under the laws of its state of incorporation, and has all requisite power and authority under the laws of such state and its respective charter documents to enter into and perform its obligations under this Agreement and -8- to consummate the transactions contemplated hereby. Each of the Sellers has duly qualified to transact business in each jurisdiction in which the nature of the business conducted by it requires such qualification. Each Seller is acquiring the HRP Shares solely for investment purposes, and not with a view toward involvement in the management of HRP. 5.2 Action of the Sellers. Each of the Sellers has taken all necessary action to authorize the execution, delivery and performance of this Agreement, and upon the execution and delivery of any document to be delivered by the Sellers on or prior to the Closing Date, such document shall constitute the valid and binding obligation and agreement of each of the Sellers, enforceable against each of the Sellers in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors. 5.3 No Violations of Agreements. Except as set forth on Schedule H, neither the execution, delivery or performance of this Agreement by the Sellers, 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 any property or assets of the Sellers pursuant to the terms of any indenture, mortgage, deed of trust, note, evidence of indebtedness or any other agreement or instrument by which any of the Sellers is bound. 5.4 Litigation. No investigation, action or proceeding is pending and, to the Sellers' knowledge, no action or proceeding is threatened and no investigation looking toward such an action or proceeding has begun, which (i) questions the validity of this Agreement or any action taken or to be taken pursuant hereto, (ii) will result in any material adverse change in the business, operation, licensure, reimbursement, affairs or condition of any of the Properties or the Facilities, (iii) result in or subject the Properties or the Facilities to a material liability, or (iv) involves condemnation or eminent domain proceedings against any part of the Properties. 5.5 Existing Leases, Agreements, Etc. The Sellers have not entered into any contracts or agreements with respect to the Properties, other than as previously disclosed to HRP and listed on Schedule I hereto. The copies of such contracts or agreements heretofore made available by the Sellers to HRP for examination are true, correct and complete copies thereof, have not been amended except as evidenced by amendments similarly delivered and constitute the entire agreement between the Sellers and the respective parties thereto. There are no defaults under such contracts or agreements; no events have occurred which with the -9- passage of time or the giving of notice or both would result in an event of default thereunder; there are no contingent liabilities under such contracts and agreements except as set forth in Schedule I; and Sellers are entitled to all benefits of such contracts and agreements which have not been assigned or encumbered in any way. Sellers may assign all such contracts and agreements to HRP. There are no other material agreements affecting the Properties. Schedule I sets forth a fair and accurate representation of the licensed bed capacity and Medicare/Medicaid certification status of each of the Facilities. 5.6 Disclosure. There is no fact or condition which materially and adversely affects the business or condition of the Properties or the Facilities which has not been set forth in this Agreement, or in the other documents, certificates or statements furnished to HRP in connection with the transactions contemplated hereby. 5.7 Utilities, Etc. All utilities and services necessary for the use and operation of the Properties and the Facilities located thereon (including, without limitation, road access, gas, water, electricity and telephone), are available thereto, are of sufficient capacity to meet adequately all needs and requirements necessary for the use and operation of the Properties and Facilities for their respective intended purposes and the Properties and the Facilities are legally entitled to be served by such utilities at rates typical for similar properties without further action by the Sellers or any other party. To the Sellers' knowledge, no fact, condition or proceeding exists which would result in the termination or impairment of the furnishing of such utilities to the Properties or the Facilities located thereon. 5.8 Compliance With Law. (i) Except as set forth on Schedule J, the Properties and the Facilities and the use and operation thereof do not violate any applicable federal, state, municipal or other governmental statutes, ordinances, by-laws, rules, regulations or any other legal requirements, including, without limitation, those relating to health care, construction, occupancy, zoning, adequacy of parking, environmental protection, occupational health and safety and fire safety; and (ii) there are presently in effect all licenses, permits, and other authorizations necessary for the current use, occupancy and operation thereof. The Sellers have not been advised in writing of any threatened request, application, proceeding, plan, study or effort which would materially adversely affect the present use, zoning of, or licenses, permits or other authorizations for use of, the Properties or the Facilities or which would modify or realign any adjacent street or highway. 5.9 Taxes. Other than the amounts disclosed by tax bills, no taxes or special assessments of any kind (special, bond or -10- otherwise) are or have been levied with respect to the Properties or any portion thereof, which are outstanding or unpaid, and, to the Sellers' knowledge, none will be levied prior to the Closing Date. Each of the Properties is separately and distinctly assessed as a separate tax lot. To the Sellers' knowledge, each of the Properties, during the most recent tax fiscal year and the three (3) years prior thereto, has been duly valued and assessed for property tax purposes in accordance with applicable law. There is no pending abatement proceeding or, to the Sellers' knowledge, threatened reassessment of all or any portion of the Properties. 5.10 Special Districts. No portion of the Properties is within a Special Flood Hazard Area (or 100-year flood plain) as identified by the Federal Emergency Management Administration or other governmental agency or within any specially designated or registered historic, architectural or taxing district, such as would require any more than normal or routine local governmental approvals in order to effect interior or exterior improvements to such Properties or the Facilities, either cosmetic or structural. 5.11 Not A Foreign Person. None of the Sellers is a "foreign person" within the meaning of Section 1445 of the United States Revenue Code of 1986, as amended, and the regulations promulgated thereunder. 5.12 Hazardous Substances. Except as set forth in Schedule K, neither the Sellers nor any other occupant or user of the Properties or the Facilities, or any portion thereof, has stored or disposed of (or engaged in the business of storing or disposing of) or has released or caused the release of any hazardous waste, contaminants, oil, radioactive or other material on the Properties or any portion thereof, the removal of which is required or the maintenance of which is prohibited or penalized by any applicable Federal, state or local statutes, laws, ordinances, rules or regulations, and, to the Sellers' knowledge, the Properties and the Facilities are free from any such hazardous waste, contaminants, oil, radioactive and other materials. 5.13 Investment Intent. Each of the Sellers and the shareholder of each Seller is acquiring the HRP Shares to be received by it pursuant to this Agreement for investment and not with a view to, or for sale in connection with, any distribution thereof, nor with any present intention of distributing or selling the same. Each Seller understands that such HRP Shares have not been registered under the Securities Act of 1993, as amended (the "Securities Act") by reason of a specific exemption from the registration provisions thereof which depends upon, among other things, the bona fide nature of the Sellers' investment intent as expressed herein. Each Seller acknowledges and agrees that each certificate representing such HRP Shares -11- shall bear the following legend until such time as such legend is no longer required under the Securities Act and the rules and regulations thereunder: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"), or any state laws regulating the sale of securities and may not be offered, sold or otherwise transferred unless registered or an opinion of counsel satisfactory to the Company is obtained to the effect that such registration is not required. Health and Retirement Properties Trust (the "Company") is authorized to issue more than one class of shares of beneficial interest. The preferences, voting powers, qualifications and special and relative rights of the shares of each such class are set forth in the Company's Declaration of Trust, a copy of which will be furnished without charge upon written request." The representations and warranties made in this Agreement by the Sellers shall be continuing and shall be deemed remade by the Sellers as of the Closing Date with the same force and effect as if made on, and as of, such date. All representations and warranties made by the Sellers in this Agreement shall survive the Closing for a period of three years and in the event of the liquidation and dissolution of a Seller shall be deemed to be representations and warranties of the shareholders of said Seller who receive distributions in connection with said liquidation and dissolution. Section 6. REPRESENTATIONS AND WARRANTIES OF HRP. To induce the Sellers to enter in this Agreement, HRP represents and warrants to the Sellers as follows (such representations and warranties to be effective as of the date of the Original Agreement): 6.1 Status and Authority of HRP. HRP is a real estate investment trust duly organized, validly existing and in good standing under the laws of the State of Maryland, and has all requisite power and authority under the laws of such state and under the Declaration to enter into and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. HRP has duly qualified and is in good standing as a trust or unincorporated business association in each jurisdiction in which the nature of the business conducted by it requires such qualification. 6.2 Action of HRP. HRP has taken all necessary action to authorize the execution, delivery and performance of this Agreement, and upon the execution and delivery of any document to be delivered by HRP on or prior to the Closing Date, such -12- document shall constitute the valid and binding obligation and agreement of HRP, enforceable against HRP in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors. 6.3 No Violations of Agreements. Neither the execution, delivery or performance of this Agreement by HRP, 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 any property or assets of HRP pursuant to the terms of any indenture, mortgage, deed of trust, note, evidence of indebtedness or any other agreement or instrument by which HRP is bound. 6.4 Litigation. No investigation, action or proceeding is pending and, to HRP's knowledge, no action or proceeding is threatened and no investigation looking toward such an action or proceeding has begun, which questions the validity of this Agreement or any action taken or to be taken pursuant hereto. 6.5 Capitalization. Schedule L sets forth the authorized capital stock of HRP and the number of shares of each class thereof outstanding as of the date hereof. All of such outstanding shares of capital stock are, and the HRP Shares to be issued to the Sellers hereunder, when issued pursuant to the terms hereof upon receipt of the consideration specified herein, will be, duly authorized and validly issued, fully paid and non- assessable and not subject to any preemptive or similar rights. The representations and warranties made in this Agreement by HRP shall be continuing and shall be deemed remade, subject to updating for those representations which are made as of the date hereof, by HRP as of the Closing Date with the same force and effect as if made by HRP on, and as of, such date. All representations and warranties made in this Agreement shall survive the Closing for a period of three years. Section 7. COVENANTS OF THE SELLERS. The Sellers hereby jointly and severally covenant with HRP between the date of this Agreement and the Closing Date as follows: 7.1 Compliance with Laws, Etc. With respect to their respective Properties and Facilities, to comply in all material respects with (i) all laws, regulations and other requirements from time to time applicable of every governmental body having jurisdiction of the Properties or the use or occupancy of the Facilities located thereon and (ii) all terms, covenants and -13- conditions of all of the instruments of record and other agreements affecting the Properties or the Facilities. 7.2 Operation of the Facilities. To operate the Properties and the Facilities only in the ordinary course of business as conducted, and to maintain the quality of the Facilities, in all material respects consistent with past practice; to maintain inventory at normal operating levels, in all material respects consistent with past practice; and to use their best efforts to preserve and maintain the Properties and the Facilities intact, maintain occupancy at present or higher percentages, keep available the services of their employees, and preserve for HRP their relationships with suppliers, customers, sales representatives and others having business relations with the Facilities, and generally maintain the reputation of the Facilities. 7.3 Approval of Agreements. Except as otherwise authorized by this Agreement, not to enter into modify, amend or terminate any material lease, contract or other agreement with respect to the Properties or the Facilities which would encumber or be binding upon the Properties or the Facilities from and after the Closing Date, without in each instance obtaining the prior written consent of HRP. 7.4 Compliance with Agreements. To the extent of their respective obligations, to comply with each and every material term, covenant and condition contained in any other document or agreement affecting the Properties or the Facilities. 7.5 Notice of Material Changes or Untrue Representations. Upon learning of any material change in any condition with respect to the Properties, the Facilities or of any event or circumstance which makes any representation or warranty of the Sellers to HRP under this Agreement untrue or misleading, promptly to notify HRP thereof (HRP agreeing, on learning of any such fact or condition, promptly to notify the Sellers thereof). 7.6 Title Matters. The Sellers have delivered to HRP a preliminary title report or title commitment, having an effective date after the date of the Original Agreement, for an ALTA extended owner's policy of title insurance with respect to the Properties, together with complete and legible copies of all instruments and documents referred to as exceptions to title or as title requirements (collectively, the "Title Commitments"), and HRP has given the Sellers notice of any title exceptions to which HRP objects. Sellers shall use their best efforts to take or cause to be taken such actions as may be required to cause such exceptions to be removed from the Title Commitments. In the event that Sellers cannot cause such exceptions to be removed, the Sellers shall give HRP prompt notice thereof; it being understood and agreed that the failure of the Sellers to give -14- such notice within ten (10) Business Days after Sellers' receipt of the final form of the Surveys referred to in Section 7.7 shall be deemed an election by the Sellers to remedy such matters. If HRP receives such notice from Sellers, HRP may elect (i) to terminate this Agreement by the giving of written notice thereof to the Sellers, in which event the Deposit, together with interest thereon, shall be returned to HRP in accordance with Section 9.1, or (ii) to consummate the transactions contemplated hereby, notwithstanding such title defect, with an appropriate abatement or reduction in the number of HRP Shares to be delivered to Sellers on account thereof, the amount of which shall be determined by good faith negotiation between the parties. HRP shall make any such election by written notice to the Sellers given on or prior to the tenth Business Day after the Sellers' notice of their inability to cure such defect. Failure of HRP to give such notice shall be deemed an election by it to proceed in accordance with clause (ii) above. 7.7 Survey Matters. HRP (a) has arranged for the preparation of an ALTA survey with respect to each of the Properties (collectively, the "Surveys"), by a licensed surveyor in the jurisdiction in which the applicable property is located, which (i) contains an accurate legal description of the applicable property, (ii) shows the exact location, dimension and description (including applicable recording information) of all utilities, easements, encroachments and other physical matters affecting such property, the number of striped parking spaces located thereon and all applicable building set-back lines, (iii) states whether the applicable property is located within a 100- year flood plain and (iv) includes a certification in the form set forth in Schedule M, addressed to HRP, the Title Company and any other persons requested by HRP, and (b) has given the Sellers notice of any matters shown thereon to which HRP objects. Sellers shall use their best efforts to take or cause to be taken such actions as may be required to remedy the objectionable matters. In the event the Sellers cannot cause such exceptions to be removed, the Sellers shall give HRP notice thereof within five (5) Business Days of becoming aware of such inability. If HRP receives such notice from the Sellers, HRP may elect (i) to terminate this Agreement by the giving of written notice thereof to the Sellers, in which event the Deposit, together with interest thereon, shall be refunded to HRP in accordance with Section 9.1, or (ii) to consummate the transactions contemplated hereby, notwithstanding such defect, with any appropriate abatement or reduction in the number of HRP Shares to be delivered to the Sellers on account thereof, the amount of which shall be determined by good faith negotiation between the parties. HRP shall make any such election by written notice to the Sellers, given on or prior to the tenth Business Day after the Sellers' notice of their inability to cure such defect. Failure of HRP to give such notice shall be deemed an election by HRP to proceed in accordance with clause (ii) above. -15- 7.8 Other Diligence Materials. The Sellers have delivered to HRP all surveys, environmental assessment reports, building evaluations, licenses, certificates of need, compliance and other surveys, and other investigations and materials pertaining to the Properties as are in the possession of the Sellers, and will deliver to HRP any additional materials of the same or similar nature which come into the possession of the Sellers between the date hereof and the Closing Date. HRP agrees to provide the Sellers with copies of all material studies and reports relating to the physical condition of the Properties prepared for HRP (if any) and with a copy of each of the Title Commitments and the Surveys. 7.9 Other Activities During the Period Prior to Closing. The Sellers and HRP shall endeavor to agree on the form of all of the closing documents and opinions of counsel described herein on or prior to the Closing Date. In addition, the Sellers and HRP shall, prior to the Closing, cooperate in the preparation and filing of any materials required (i) in order to obtain all licenses, certifications and approvals required for the purchase, sale and subsequent operation of the Properties and the Facilities, or (ii) by the Hart-Scott-Rodino Improvements Act of 1976 and shall respond promptly to any requests by any governmental agency with respect thereto. All covenants made by the Sellers in this Agreement shall survive the Closing for a period of three years and shall not be merged into any instrument or conveyance document delivered at Closing. Section 8. ADJUSTMENTS. 8.1 Adjustments Based on Existing Liens. At Closing, the number of HRP Shares to be issued to the Sellers shall be reduced by that number of HRP Shares the value of which (based on $15.00 per share) is equal to the amount of liabilities of the Sellers set forth on Schedule D which HRP has agreed to assume. It is understood and agreed by the parties that no insurance policies of the Sellers are to be transferred to HRP, and no apportionment of the premiums therefor shall be made. 8.2 Adjustments Relating to Rochester C.C., Inc. At Closing, the number of HRP Shares which would otherwise be delivered to Rochester C.C., Inc. shall be reduced by _____ HRP Shares.1 1 Number to be determined after calculation of post- closing adjustment. -16- 8.3 Closing Costs. At Closing, all closing costs for the transaction contemplated hereby (including, without limitation, documentary, stamp, and other transfer taxes and fees, recording and filing fees, premiums, charges, and fees of the Title Company and Survey costs, costs and expenses relating to those certain Phase II environmental site assessments performed by Environmental Management Group, Inc. at certain of the Properties, but specifically excluding each parties' legal and accounting fees) shall be equally divided between HRP and Sellers and an appropriate adjustment in the number of HRP Shares to be issued to Sellers at Closing shall be made. Section 9. DEFAULT; TERMINATION. 9.1 Default by the Sellers. If the Sellers shall have made any representation or warranty herein which shall be untrue or misleading in any material respect, or if the Sellers shall fail to perform any of the material covenants and agreements contained herein to be performed by them and such failure continues for a period of ten (10) days after notice thereof from HRP, then HRP may terminate this Agreement and/or HRP pursue any and all remedies available to it at law or in equity, including, but not limited to, a suit for specific performance or other equitable relief. In addition to, and not in limitation of, the foregoing, HRP may direct the Escrow Agent to return the Deposit, together with interest accrued thereon with respect to one-half of the Deposit from July 26, 1994 through the date of refund, and, with respect to the balance of the Deposit, from the date of the Original Agreement through the date of refund. 9.2 Default by HRP. If HRP shall have made any representation or warranty herein which shall be untrue or misleading in any material respect, or if HRP shall fail to perform any of the covenants and agreements contained herein to be performed by it and such failure shall continue for a period of ten (10) days after notice thereof from the Sellers, the Sellers may terminate this Agreement and/or the Sellers may either retain the Deposit as liquidated damages, or may pursue any and all remedies available to them at law or in equity, including, but not limited to, a suit for specific performance or other equitable relief. 9.3 Termination. If the average of the closing price for HRP Shares during any consecutive five day period prior to the -17- Closing Date as quoted in the Wall Street Journal is: (a) less than or equal to $12.50, then the Sellers, by notice to HRP delivered within two Business Days, may terminate this Agreement; or (b) greater than or equal to $17.50, then HRP, by notice to the Sellers delivered within two Business Days, may terminate this Agreement; provided, that in either case the parties agree, promptly upon such a termination, to direct the Escrow Agent to return the Deposit, together with interest accrued thereon, to HRP. Section 10. INDEMNIFICATION. 10.1 Indemnification by the Sellers. The Sellers shall indemnify and hold harmless HRP and its successors and assigns, from and against any and all damages, claims, losses, liabilities, and expenses, including without limitation reasonable legal and accounting expenses (collectively, "Losses"), which may arise out of: (i) any material breach or violation of this Agreement by the Sellers; (ii) any material breach of any of the representations, warranties or covenants made in this Agreement by Sellers; (iii) any material inaccuracy or misrepresentation or omission in any certificate or document delivered by the Sellers in connection with this Agreement; and (iv) any claim or action asserted by any third party arising out of or in connection with the Sellers' ownership of the Properties or operation of the Facilities prior to the Closing Date, including, without limitation, all Losses with respect to (a) Medicaid or Medicare depreciation recaptures as provided in Section 3.6 hereto and (b) retroactive rate adjustments whether arising from or related to recoupments, offsets, or otherwise. The representations, warranties and covenants of the Sellers contained in this Agreement, or any certificate, document, instrument or agreement delivered pursuant to this Agreement, shall survive the execution and delivery of this Agreement, the Closing and the consummation of the transactions contemplated by this Agreement for a period of three years from the Closing Date and in the event of the liquidation and dissolution of a Seller, these representations and warranties shall also be deemed to be the joint and several representations and warranties of the shareholders of said Seller. 10.2 Indemnification by HRP. HRP shall indemnify and hold harmless the Sellers and their successors and assigns from and against any and all Losses which may arise out of (i) any material breach or violation of this Agreement by HRP; (ii) any material breach of any of the representations, warranties or covenants made in this Agreement by HRP; (iii) any material inaccuracy or misrepresentation or omission in any certificate or document delivered by HRP in connection with this Agreement; or (iv) HRP's ownership of the Properties after the Closing Date. The warranties, representations and covenants of HRP contained in this Agreement, or any certificate, document, instrument or -18- agreement delivered pursuant to this Agreement, shall survive the execution and delivery of this Agreement, the Closing, and the consummation of the transactions contemplated by this Agreement for a period of three years from the Closing Date. 10.3 Notice and Payment of Claims. Upon obtaining knowledge thereof, the party entitled to indemnification (the "Indemnitee") shall promptly notify the party liable for such indemnification (the "Indemnitor") in writing of any damage, claim, loss, liability or expense which the Indemnitee has determined has given or could give rise to a claim under Sections 10.1 or 10.2 hereof (such written notice being hereinafter referred to as a "Notice of Claim"). A Notice of Claim shall specify in reasonable detail the nature and estimated amount of such claim, the basis on which such claim is asserted, whether such claim is covered by insurance and whether any rights of indemnification may exist against any third party with respect to such claim. The Indemnitor shall satisfy its obligations under Sections 10.1 or 10.2, as the case may be, or shall advise the Indemnitee that in good faith it disputes the claim, within 30 days of its receipt of a Notice of Claim. Section 11. MISCELLANEOUS. 11.1 Expenses. Except as set forth in Section 8.3, the Sellers and HRP shall pay their own expenses incident to the negotiation, preparation and carrying out of this Agreement, including, without limitation, all fees and expenses of their respective counsel. 11.2 Brokerage Commissions. Each of the parties hereto represents to the other parties that it dealt with no broker, finder or like agent in connection with this Agreement, the Original Agreement or the transactions contemplated hereby, and that it reasonably believes that there is no basis for any other person or entity to claim a commission or other compensation for bringing about this Agreement, the Original Agreement or the transactions contemplated hereby. The Sellers shall indemnify and hold harmless HRP and its legal representatives, heirs, successors and assigns from and against any loss, liability or expense, including reasonable attorneys' fees, arising out of any claim or claims for commissions or other compensation for bringing about this Agreement, the Original Agreement or the transactions contemplated hereby made by any broker, finder or like agent, if such claim or claims are based in whole or in part on dealings with the Sellers. HRP shall indemnify and hold harmless the Sellers and their respective legal representatives, heirs, successors and assigns from and against any loss, liability or expense, including reasonable attorneys' fees, arising out of any claim or claims for commissions or other compensation for bringing about this Agreement, the Original -19- Agreement or the transactions contemplated hereby made by any broker, finder or like agent, if such claim or claims are based in whole or in part on dealings with HRP. Nothing contained in this section shall be deemed to create any rights in any third party. 11.3 Publicity. The parties agree that no party shall, with respect to this Agreement and the transactions contemplated hereby, contact or conduct negotiations with public officials, make any public pronouncements, issue press releases or otherwise furnish information regarding this Agreement or the transactions contemplated to any third party without the consent of the other parties except with respect to HRP as may be required by law or rules of the New York Stock Exchange, and except as may be required in order to give governmental notices and secure governmental approvals or exemptions in connection with health care licenses or permits and Hart-Scott-Rodino notifications. No party, or its employees, agents, attorneys, officers, directors or shareholders, shall trade in the securities of HRP until a public announcement of the transactions contemplated by this Agreement has been made. 11.4 Execution of Additional Documents. From and after the Closing, the Sellers and HRP shall, at the cost of the requesting party, duly execute and deliver to the parties hereto all such instruments and documents, and shall take or cause to be taken all such other and further action as any party shall reasonably request to confirm the ownership and title to the Properties. 11.5 Notices. (a) Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Agreement shall be deemed adequately given if in writing and the same shall be delivered either in hand, by telecopier with written acknowledgment of receipt, or by mail or Federal Express or similar expedited commercial carrier, addressed to the recipient of the notice, postpaid and registered or certified with return receipt requested (if by mail), or with all freight charges prepaid (if by Federal Express or similar carrier). (b) All notices required or permitted to be sent hereunder shall be deemed to have been given for all purposes of this Agreement upon the date of acknowledged receipt, in the case of a notice by telecopier, and, in all other cases, upon the date of receipt or refusal, except that whenever under this Agreement a notice is either received on a day which is not a Business Day or is required to be delivered on or before a specific day which is not a Business Day, the day of receipt or required delivery shall automatically be extended to the next Business Day. (c) All such Notices shall be addressed, -20- if to the Sellers to: Marlin Management Box 1103 150 South Champlain Street Burlington, Vermont 05401 Attn: John F. Chapple, III Patricia Rickard, Esq. Telecopier No. (802) 862-6345 with a copy to: Miller, Eggleston and Rosenberg, Ltd. 150 South Champlain Street Burlington, Vermont 05401 Attn: Jon Eggleston, Esq. Telecopier No. (802) 864-0328 If to HRP, to: Health and Retirement Properties Trust 400 Centre Street Newton, Massachusetts 02158 Attn: Mr. David J. Hegarty Telecopier No. (617) 332-2261 with a copy to: Sullivan & Worcester One Post Office Square Boston, Massachusetts 02109 Attn: Lena G. Goldberg, Esq. Telecopier No. (617) 338-2880 (d) 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 within the United States of America. 11.6 Waivers, Etc. Any waiver of any term or condition of this Agreement, or of the breach of any covenant, representation or warranty contained herein, in any one instance, shall not operate as or be deemed to be or construed as a further or continuing waiver of any other breach of such term, condition, covenant, representation or warranty or any other term, condition, covenant, representation or warranty, nor shall any failure at any time or times to enforce or require performance of any provision hereof operate as a waiver of or affect in any manner such party's right at a later time to enforce or require -21- performance of such provision or any other provision hereof. This Agreement may not be amended, nor shall any waiver, change, modification, consent or discharge be effected, except by an instrument in writing executed by or on behalf of the party against whom enforcement of any amendment, waiver, change, modification, consent or discharge is sought. 11.7 Assignment; Successors and Assigns. This Agreement shall not be assignable by any party without the written consent of the other parties. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective legal representatives, successors and permitted assigns. This Agreement is not intended and shall not be construed to create any rights in or to be enforceable in any part by any other persons. 11.8 Severability. If any provision of this Agreement shall be held or deemed to be, or shall in fact be, invalid, inoperative or unenforceable as applied to any particular case in any jurisdiction or jurisdictions, or in all jurisdictions or in all cases, because of the conflict of any provision with any constitution or statute or rule of public policy or for any other reason, such circumstance shall not have the effect of rendering the provision or provisions in question invalid, inoperative or unenforceable in any other jurisdiction or in any other case or circumstance or of rendering any other provision or provisions herein contained invalid, inoperative or unenforceable to the extent that such other provisions are not themselves actually in conflict with such constitution, statute or rule of public policy, but this Agreement shall be reformed and construed in any such jurisdiction or case as if such invalid, inoperative or unenforceable provision had never been contained herein and such provision reformed so that it would be valid, operative and enforceable to the maximum extent permitted in such jurisdiction or in such case. 11.9 Counterparts; Amendments. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may not be amended or modified in any respect other than by the written agreement of all of the parties hereto. 11.10 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the law (other than the law governing conflict of law matters) of The Commonwealth of Massachusetts, except that matters relating to real property law as to the Properties located in Vermont shall be governed by and construed and enforced in accordance with the law of the State of Vermont, and matters relating to real property law as to the Property located in New Hampshire shall be governed by and -22- construed and enforced in accordance with the law of the State of New Hampshire. 11.11 Jurisdiction. The parties hereby irrevocably submit to the jurisdiction of any court sitting in The Commonwealth of Massachusetts or any United States Federal Court sitting in Boston, Massachusetts in any action or proceeding arising out of or relating to this Agreement and the parties hereby irrevocably agree that all claims in respect of any action or proceeding arising out of or relating to this Agreement shall be heard and determined in such state or Federal Court. The parties hereby consent to and grant to any such court jurisdiction over the person of such parties and over the subject matter of any such dispute and agree that delivery or mailing of any process or other papers in the manner provided in Section 11.5 or in such other manner as may be permitted by law shall be valid and sufficient service thereof. 11.12 Performance on Business Days. In the event the date on which performance or payment of any obligation of a party required hereunder is other than a Business Day, the time for payment or performance shall automatically be extended to the first Business Day following such date. 11.13 Attorneys Fees. If any lawsuit or arbitration or other legal proceeding arises in connection with the interpretation or enforcement of this Agreement, the prevailing party therein shall be entitled to receive from the other party the prevailing party's costs and expenses, including reasonable attorneys' fees incurred in connection therewith, in preparation therefor and on appeal therefrom, which amounts shall be included in any judgment therein. 11.14 Section and Other Headings. The headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 11.15 Entire Agreement. This Agreement (including all schedules hereto and all agreements, instruments, other documents and certificates delivered by the parties on the date hereof or pursuant hereto) constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, arrangements, covenants, promises, conditions, understandings, inducements, representations, and negotiations, expressed or implied, written or oral, between them as to such subject matter, including, without limitation, the Original Agreement and that certain letter of intent dated July 13, 1994 and accepted by the Sellers on July 18, 1994. 11.16 Obligations of Sellers After the Closing. From and after the Closing Date, the Sellers will not engage in any business, will each promptly liquidate and dissolve as a -23- corporation, and will each distribute the HRP Shares received by it at the Closing to its shareholders in complete cancellation and redemption of their shares of such Seller. 11.17 Limitation of Liability. The Declaration is duly filed in the Office of the Department of Assessments and Taxation of the State of Maryland, provides that the name "Health and Retirement Properties Trust" refers to the trustees under the Declaration collectively as Trustees, but not individually or personally, and that no trustee, officer, shareholder, employee or agent of HRP shall be held to any personal liability, jointly or severally, for any obligation of, or claim against, HRP. All persons dealing with HRP, in any way, shall look only to the assets of HRP for the payment of any sum or the performance of any obligation. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as a sealed instrument as of the date first above written. SELLERS: BERLIN C.C., INC. By: /s/ John F. Chapple III Its: President ST. JOHNSBURY C.C., INC. By: /s/ John F. Chapple III Its: President ROCHESTER C.C., INC. By: /s/ John F. Chapple III Its: President SPRINGFIELD C.C., INC. By: /s/ John F. Chapple III Its: President -24- BURLINGTON C.C., INC. By: /s/ John F. Chapple III Its: President BENNINGTON C.C., INC. By: /s/ John F. Chapple III Its: President THE LP CORPORATION By: /s/ John F. Chapple III Its: President AMERICAN HEALTH CARE, INC. By: /s/ John F. Chapple III Its: President HRP: HEALTH AND RETIREMENT PROPERTIES TRUST By: /s/ Mark J. Finkelstein Its: President EX-10.23 8 Exhibit 10.23 HEALTH AND RETIREMENT PROPERTIES TRUST SECOND AMENDED AND RESTATED REVOLVING LOAN AGREEMENT DATED AS OF MARCH 15, 1995 This SECOND AMENDED AND RESTATED REVOLVING LOAN AGREEMENT is dated as of March 15, 1995, among HEALTH AND RETIREMENT PROPERTIES TRUST, a real estate investment trust formed under the laws of the State of Maryland ("Borrower"), the several lenders parties to this Agreement (each, together with any additional lender or lenders pursuant to Section 2.1(c) or 10.4, a "Lender" and, collectively, the "Lenders"), KLEINWORT BENSON LIMITED, a bank organized under the laws of England, as agent for itself and the other Lenders (in such capacity, together with any successor in such capacity in accordance with the terms hereof, "Agent"), WELLS FARGO BANK, NATIONAL ASSOCIATION, a bank organized under the laws of the United States of America, as administrative agent, and NATWEST BANK N.A. (formerly National Westminster Bank USA), a national banking association, as co-agent (in such capacity, "Co-Agent"); and, in connection with Section 9 and the guaranties given therein, HOSPITALITY PROPERTIES, INC., a Delaware corporation, and HEALTH AND RETIREMENT PROPERTIES INTERNATIONAL, INC., a Delaware corporation, each being a direct wholly-owned Subsidiary (as defined below) of Borrower. WHEREAS, Borrower, Kleinwort Benson Limited, as agent, Wells Fargo Bank, National Association, as administrative agent, National Westminster Bank USA (the predecessor to NatWest Bank N.A.), as co-agent, and the lenders described therein are parties to that certain Amended and Restated Revolving Loan Agreement dated as of June 15, 1994 (as such agreement may have been amended, supplemented or modified from time to time prior to the date hereof, the "Existing Loan Agreement"); WHEREAS, Borrower desires that Lenders increase the size of their aggregate commitments and extend the maturity date under the Existing Loan Agreement, provide for borrowings to be made in either U.S. Dollars or, up to a limit, GBP (both such terms as defined below), permit Borrower to have Subsidiaries to which it may advance borrowings hereunder and make certain other amendments to the Existing Loan Agreement and amend and restate it in its entirety; and WHEREAS, Lenders desire to make such increase and extension, provide for such borrowings, permit such Subsidiaries and advances and make such amendments and such amendment and restatement. NOW, THEREFORE, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1. Defined Terms. As used in this Agreement: "Acute Care Asset" means, in respect of any Property or Mortgage Interest, that more than 50% of the licensed beds of the Property or, in the case of a Mortgage Interest, of the Mortgaged Property covered thereby, are designated for acute care. "Administrative Agent" means Wells Fargo Bank, National Association ("Wells") acting in its capacity as administrative agent in connection with this Agreement; provided that with respect to Loans denominated in GBP,"Administrative Agent" shall mean a Lender (the "GBP Agent") agreed to by Borrower, Agent and Wells and, in such circumstances, references to "Administrative Agent" relating to Loans denominated in GBP shall be read as references to the GBP Agent, while references to "Administrative Agent" relating to Loans denominated in U.S. Dollars or otherwise shall be read as references to Wells, and if such circumstances are applicable the singular term "Administrative Agent" shall be construed to include both Wells and the GBP Agent where appropriate (including, without limitation, for purposes of the indemnifications given in Sections 8 and 10.7); and, in addition, "Administrative Agent" shall mean any successor to either Wells or the GBP Agent in their respective capacities in accordance with the terms hereof; provided further that in no event shall Wells be or be deemed to be the GBP Agent or have any of its related duties unless Wells expressly accepts such role. "Advisor" means HRPT Advisors or such other Person as shall act as an advisor to Borrower, whether pursuant to the Advisory Agreement, or an agreement analogous to the Advisory Agreement, with the prior written consent of Agent. "Advisory Agreement" means the Advisory Agreement, dated as of November 20, 1986, between Borrower and HRPT Advisors, as amended by an Amendment Agreement, dated August 26, 1987, between Borrower and HRPT Advisors and as amended by a Second Amendment Agreement, dated December 6, 1993, between Borrower and HRPT Advisors, and as amended, supplemented or modified from time to time in a manner not inconsistent with the terms of the Existing Loan Agreement, hereof or of the Subordination Agreement. "Affiliate" means, with respect to a particular Person, (a) any Person which, directly or indirectly, is in Control of, is Controlled by, or is under common Control with such particular Person, or (b) any Person who is a director or officer or trustee (i) of such particular Person, (ii) of any Subsidiary of such 2 particular Person or (iii) of any Person described in clause (a) above. "Agreement" means this Second Amended and Restated Revolving Loan Agreement, as amended, supplemented or modified from time to time in accordance herewith. "Allowed Value" means, as of any date of determination, (i) with respect to each Eligible Property or Property (as the context may require), the lesser of (a) the acquisition cost to Borrower or to any of its Subsidiaries of such Eligible Property or Property, (b) the Appraised Value of such Eligible Property or Property as set forth in the then most recent Appraisal with respect to such Eligible Property or Property less the value attributable to any capital improvements made by the Operator of such Eligible Property or Property financed by such Operator, and (c) the minimum purchase price (howsoever denominated) that would be payable to Borrower or such Subsidiary by the Operator of such Eligible Property or Property or any other Person if it purchased such Eligible Property or Property on the date of determination pursuant to the exercise of any right it may have (whether then or in the future exercisable) to purchase such Eligible Property or Property (assuming in the case of any such right only exercisable in the future that such right is exercisable on the date of determination), and (ii) with respect to each Eligible Mortgage or Mortgage Interest (as the context may require), the lesser of (a) the outstanding principal amount due to Borrower or any of its Subsidiaries from the relevant Mortgagor in respect of such Eligible Mortgage or Mortgage Interest, and (b) the Appraised Value of the Mortgaged Property which is covered by the relevant Eligible Mortgage or Mortgage Interest as set forth in the most recent Appraisal with respect to such Eligible Mortgage or Mortgaged Property. "Alternate GBP Rate" means the interest rate per annum specified by Administrative Agent from time to time as the cost to Lenders of funding affected Loans described in Section 2.13 or 2.14 (without reference to the Applicable Margin or the Mandatory Liquid Asset Costs payable under Section 2.4(a)). "Alternate GBP Rate Loans" means the portion of Loans (which are denominated in GBP) the interest on which is computed by reference to the Alternate GBP Rate. "Alternate Rate", in respect of any Loan, means the rate or rates of interest agreed pursuant to Section 2.13 or 2.14, as the case may be, between Borrower and Lenders to be applicable to such Loan; provided that in the absence of such agreement under the circumstances specified in Section 2.13 or 2.14, as the case may be, the Alternate Rate shall be equal to the Base Rate in the case of Loans denominated in U.S. Dollars and shall be equal to the Alternate GBP Rate in the case of 3 Loans denominated in GBP. "Alternate Rate Loans" means the portion of the Loans (which may be denominated in U.S. Dollars or in GBP) the interest on which is computed by reference to the Alternate Rate. "Applicable Margin" means, in the case of a Base Rate Loan, a margin of zero and, in the case of a Eurodollar Loan or an Alternate Rate Loan which is not a Base Rate Loan, a margin of one and one-quarter percentage points (1.25%) per annum; provided that if, at any date of determination, Borrower's long-term unsecured senior debt is not rated BBB - or higher by Standard & Poor's Corporation or Baa3 or higher by Moody's Investors Service, Inc. (or similarly rated by any successor to either of such rating services), then, in the case of all Loans, the Applicable Margin otherwise applicable (including any increase under the next proviso) shall be increased by an additional one-quarter percentage point (0.25%) per annum; provided further that if, at any date of determination, Loans have been outstanding in an aggregate principal amount equal to or greater than 66-2/3% of the Commitments for a period of 12 consecutive months or longer, then, in the case of all Loans, the Applicable Margin otherwise applicable (including any increase under the previous proviso) shall be increased by an additional one-quarter percentage point (0.25%) per annum, with any additional margin under this further proviso to remain in effect until the first Business Day next following the first period of 30 consecutive days after such increase became effective during which the aggregate principal amount of Loans outstanding has been less than 66-2/3% of the Commitments. "Appraisal" means an appraisal using methodologies acceptable to Agent and Administrative Agent at the time such appraisal is or was made and performed by a Recognized Appraiser. "Appraised Value" of any Facility shall mean (a) in the case of any Fee Interest, the lesser of (i) the value placed upon such Facility pursuant to the most recent Appraisal thereof based on a valuation of the Fee Interest subject to the Lease(s) in respect of such Fee Interest and (ii) the value placed upon such Facility pursuant to the most recent Appraisal thereof based on a valuation of the Fee Interest free and clear of all Leases and determined by discounting to present value the Facility's future projected net cash flow, provided that in the case where the most recent Appraisal only values the Fee Interest under either subclause (i) or subclause (ii) of this clause (a) but not both, the Appraised Value shall mean the value so placed on the Fee Interest under either subclause (i) or subclause (ii) of this clause (a), whichever is applicable; (b) in the case of a Leasehold Interest, the lesser of (i) the value placed upon such Facility pursuant to the most recent Appraisal thereof based on a valuation of the Leasehold Interest subject to the Lease(s) in 4 respect of such Leasehold Interest and (ii) the value placed upon such Facility pursuant to the most recent Appraisal thereof based on a valuation of the Leasehold Interest free and clear of all Leases and determined by discounting to present value the Facility's future projected net cash flow, provided that in the case where the most recent Appraisal only values the Leasehold Interest under either subclause (i) or subclause (ii) of this clause (b) but not both, the Appraised Value shall mean the value so placed on the Leasehold Interest under either subclause (i) or subclause (ii) of this clause (b), whichever is applicable; and (c) in the case of a Mortgage Interest, the value placed upon the Mortgaged Property covered by such Mortgage Interest pursuant to the most recent Appraisal thereof based on a valuation of such Mortgaged Property free and clear of such Mortgage Interest and determined by discounting to present value the future projected net cash flow of such Mortgaged Property. "Base Rate" means a fluctuating interest rate per annum as shall be in effect from time to time, which rate per annum shall at all times be equal to the greater of: (i) the prime rate of interest announced by Administrative Agent from time to time, changing when and as said prime rate changes; and (ii) the sum of one-half of one percent (0.5%) and the Federal Funds Rate in effect from time to time, changing when and as such Federal Funds Rate changes. "Base Rate Loans" means the portion of the Loans (which are denominated in U.S. Dollars) the interest on which is computed by reference to the Base Rate. "Borrower" has the meaning set forth in the first paragraph of this Agreement. "Borrowing Date" means the Business Day specified in a Notice of Borrowing as the date on which Borrower requests the Lenders to make Loans hereunder. "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banks in New York City or London, England are authorized or required by law to remain closed or on which banks are not open for dealings in U.S. Dollar and GBP deposits in the London interbank market. "Capitalized Lease Obligation" means, as to any Person, any obligation of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real or personal property which obligation is required to be 5 classified or accounted for as a capital lease obligation on a balance sheet of such Person prepared in accordance with GAAP and, for purposes of this Agreement, the amount of such obligation at any date shall be the outstanding amount thereof at such date, determined in accordance with GAAP and Section 1.3(a). "Cash Flow" means, for any period and any Person in respect of one or more Properties and/or Mortgaged Properties as to which such Person is the Operator or Mortgagor thereof, the sum (without duplication of counting and determined in accordance with Section 1.3(a)) of (i) Income Before Extraordinary Items, (ii) Interest Charges payable to Borrower, in the case of a Mortgaged Property, (iii) depreciation expenses, (iv) amortization expenses, (v) other non-cash items reducing Income before Extraordinary Items, (vi) all payments required to be made to Borrower or any of its Subsidiaries under a Lease, including without limitation fixed rent, participation rent and additional rent in respect of (a) operating expenses, (b) taxes based on the ownership of real property, (c) insurance premiums and/or (d) any other costs or expenses of the relevant lessor or sublessor, (vii) subordinated expenses paid to any Affiliate of such Operator or such Mortgagor relating to management, accounting or other similar fees, and (viii) to the extent otherwise included in the calculation of Income Before Extraordinary Items, any Restricted Payment, less non-cash items increasing Income Before Extraordinary Items, in each case of such Person for such period attributable to such Properties and/or Mortgaged Properties. "Cash Flow Event" means in respect of a Property or Mortgaged Property, that the Cash Flow of the Operator or Mortgagor thereof (as applicable) over its four most recent financial quarters (or, (i) if financial reporting for such Cash Flow is provided on an annual basis, over its last reported financial year, or (ii) where Mariott International, Inc. is the Operator or Mortgagor (but not in any event for a Courtyard Lodging) and financial reporting for such Cash Flow is not otherwise required to be provided to Borrower or its Subsidiaries, over the last reported financial year as certified by an officer of Marriott International, Inc. in a certificate described in Section 5.2(b)(iii)), attributable to that Property or Mortgaged Property is less than its Fixed Charges over the same period for such Property or Mortgaged Property; provided that a Cash Flow Event shall not be deemed to occur in respect of a Property or a Mortgaged Property that is part of a group of Cross Guarantied Assets if the Cash Flow of the Operators and Mortgagors determined on an aggregate basis over their respective four most recent financial quarters (or last reported financial year or last certified financial year, as the case may be), attributable to the relevant group of Cross Guarantied Assets, is greater than or equal to their Fixed Charges determined on an aggregate basis over the same period in respect of such group of 6 Cross Guarantied Assets. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Commission" means the United States Securities and Exchange Commission or any successor to the responsibilities of such commission. "Commitment" has the meaning set forth in Section 2.1(b). "Commitment Period" means the period from and including the date hereof to and including the Final Borrowing Date or such earlier date as the Commitments shall terminate as provided herein. "Common Shares" means Borrower's common shares of beneficial interest, $0.01 par value. "Contingent Obligation" means, as to any Person, any obligation of such Person guaranteeing or intended to guarantee any Indebtedness, leases, dividends or other obligations ( "primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the payment of, or the ability of the primary obligor to make payment of, such primary obligation or (d) otherwise to assure or hold harmless the owner of such primary obligation against loss in respect thereof; provided that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be determined in accordance with Section 1.3(a) and shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. "Contractual Obligation" means, as to any Person, the Certificate of Incorporation and By-Laws or other organizational 7 or governing documents of such Person, and any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound. "Control" (including with correlative meanings the terms "Controlling", "Controlled by" and "under common Control with"), as applied to any Person, means the possession of the power, direct or indirect, (i) to vote 5% or more of the securities having ordinary voting power for the election of directors or trustees of such Person, or (ii) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Courtyard Lodgings" means the Properties consisting of 21 Courtyard Hotels identified on Schedule 6 to be purchased by Borrower and leased to HMH HPT Courtyards, Inc., an Affiliate of Host Marriott Corporation, and managed by Courtyard Management Corporation, an Affiliate of Marriott International, Inc. "Credit Support Agreements" means each of the Lease Guarantees, Mortgage Guarantees, Pledges and Sublease Agreements, and any other agreements or instruments providing assurances in any form, in each case in respect of any Person's obligations under a Lease or Mortgage Interest Agreement. "Credit Support Obligors" means the obligors in respect of the Credit Support Agreements, and each of them. "Cross Guarantied Assets" means a group of Properties and/or Mortgage Interests as to which the various Operators and/or Mortgagors have guarantied each other's obligations to Borrower and/or any of Borrower's Subsidiaries and have agreed to cross-default such obligations and/or cross-collateralize those obligations to the extent of any security or credit support that has been provided for such obligations or a group of Properties and/or Mortgage Interests operated by a single Operator or Mortgagor as to which such Operator or Mortgagor has agreed to cross-default all of its obligations to Borrower and/or any of Borrower's Subsidiaries and to cross-collateralize those obligations to the extent of any security or credit support that has been provided for such obligations. "Current" means, at any date of determination, in respect of cash flow information of an Operator or Mortgagor required in a Real Property Statement, (a) for a fiscal year of that Operator or Mortgagor, that such information relates to its fiscal year then current or the fiscal year ended not more than one hundred and fifty days prior thereto or (b) for a fiscal quarter of that Operator or Mortgagor, that such information relates to its fiscal quarter then current or a fiscal quarter 8 ended not more than seventy five days prior thereto. "Declaration of Trust" means the Declaration of Trust establishing Borrower, dated October 9, 1986, as amended and restated on July 1, 1994, as such Declaration of Trust may be further amended, supplemented or modified from time to time. "Default" means any of the events specified in Section 7.1, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "EBI" means, with respect to Borrower and its Subsidiaries, for any period of time, without duplication of counting and determined in accordance with Section 1.3(a), the sum of (i) the net income on a consolidated basis (determined in accordance with GAAP for such period), plus (ii) any losses for such period and reserves for such losses from the sale of real property assets (on a tax effected basis) plus (iii) any non-cash extraordinary losses and expenses and reserves for any non-cash extraordinary losses and expenses for such period, minus (iv) any gains for such period from the sale of assets (on a tax effected basis) outside the ordinary course of business, minus (v) any extraordinary gains from such period, plus (vi) to the extent deducted from gross income to calculate net income, Interest Charges of Borrower and its Subsidiaries on a consolidated basis for such period. "Effective Date" means the date when the conditions precedent set forth in Section 4 are first satisfied, or are waived pursuant to Section 10.6. "Eligible Mortgage" has the meaning set forth in Section 2.16. "Eligible Property" has the meaning set forth in Section 2.16. "Environmental Laws" means all statutes, ordinances, orders, rules and regulations having effect in any domestic or foreign jurisdiction relating to environmental matters, including, without limitation, those relating to fines, orders, injunctions, penalties, damages, contribution, cost recovery compensation, losses or injuries resulting from the Release or threatened Release of Hazardous Materials and to the generation, use, storage, transportation, or disposal of Hazardous Materials, in any manner applicable to Borrower or any Operator or Mortgagor or any of their respective Subsidiaries or any of their respective properties, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 9601 et seq.), the Hazardous Material Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource 9 Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.) and the Emergency Planning and Community Right-to-Know Act (42 U.S.C. Section 11001 et seq.), each as amended or supplemented, and any analogous future or present local, municipal, state and federal statutes and regulations promulgated pursuant thereto, each as in effect as of the date of determination. "Equivalent Amount" means the amount of a currency other than U.S. Dollars that can be purchased with U.S. Dollars calculated on the basis of Administrative Agent's spot rate of exchange for the purchase of such other currency with U.S. Dollars on the date such calculation is to be made (such calculation to be made on the occasions set forth in Section 1.3(b)). "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means (i) any corporation which is an entity under common control with Borrower within the meaning of Section 4001 of ERISA or a member of a controlled group of corporations within the meaning of Section 414(b) of the Code of which Borrower is a member; (ii) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Code of which Borrower is a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Code of which Borrower, any corporation described in clause (i) above or any trade or business described in clause (ii) above is a member. "Eurodollar Loans" means the portion of the Loans (which may be denominated in U.S. Dollars or in GBP) the interest on which is computed by reference to the LIBO Rate. "Event of Default" means any of the events specified in Section 7.1, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Existing Loan Agreement" has the meaning set forth in the introduction to this Agreement. "Existing Loans" has the meaning set forth in Section 2.1(a). 10 "Excluded Taxes" means taxes upon any Lender's overall net income imposed by the United States of America or any political subdivision or taxing authority thereof or therein or by any jurisdiction in which the Lending Office of any Lender is located or in which any Lender is organized or has its principal or registered office, except taxes, duties or charges imposed pursuant to Section 1, 2 and/or 39 of the Massachusetts General Laws, Chapter 63, as currently in effect or as amended hereafter or any analogous provisions (or provisions having an analogous effect) of the laws, rules or regulations (or interpretations thereof) of Massachusetts or any other Governmental Authority. "Facility" means each operating facility, offering health care or related services, rehabilitation or retirement services or hotel or other lodging services comprised of the Courtyard Lodgings, or other income producing real property interest (including, without limitation, the Fee Interests and/or Leasehold Interests and/or Mortgage Interests associated with such Facility) in which Borrower or any of its Subsidiaries has acquired or will acquire an interest as owner, lessee or mortgagee, including without limitation each Property and Mortgaged Property. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a day for which such rate is published, for the next preceding day for which it is published) by the Federal Reserve Bank of New York. "Fee Interests" means any land and any buildings, structures, improvements and fixtures owned beneficially in fee simple by Borrower or any of its Subsidiaries and equipment located thereon or used in connection therewith and all personalty (including, without limitation, franchises) related thereto and all other real estate interests, owned beneficially by Borrower or any of its Subsidiaries. "Final Borrowing Date" means the earlier of (i) March 15, 1997 and (ii) such date as the Commitments shall terminate as provided herein. "Fixed Charges" means, for any period and any Person in respect of one or more Properties and/or Mortgaged Properties as to which such Person is the Operator or Mortgagor thereof, the sum (without duplication of counting and determined in accordance with Section 1.3(a)) of (i) Interest Charges, (ii) all payments required to be made as lessee or sublessee under the terms of any Lease or other lease agreement, including without limitation 11 fixed rent, participation rent and additional rent in respect of (a) operating expenses, (b) taxes based on the ownership of real property, (c) insurance premiums and/or (d) any other costs or expenses of the relevant lessor or sublessor, and (iii) scheduled payments of principal of Indebtedness or payments of amounts equivalent to principal, in each case of such Person, for such period and attributable to such Properties and/or Mortgaged Properties. "GAAP" means, subject to the provisions of Section 1.2, generally accepted accounting principles set forth in the Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements by the Financial Accounting Standards Board or in such other statement by such other entity as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date in question; and the requirement that such principles be applied on a consistent basis shall mean that the accounting principles observed in a current period are comparable in all material respects to those applied in a preceding period. "GBP" shall mean the lawful currency from time to time of the United Kingdom. "General Corporate Loans" means Loans, the proceeds of which are to be applied toward general corporate purposes of Borrower or its Subsidiaries, as designated by Borrower pursuant to a Notice of Borrowing. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or Controlled (through stock or capital ownership or otherwise) by any of the foregoing. "Hazardous Material" means (i) any chemical, material, substance or waste defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous waste," "restricted hazardous waste," or "toxic substances" or any other formulations intended to define, list or classify substances by reason of deleterious properties under any applicable Environmental Laws, (ii) biomedical waste, (iii) any oil, petroleum or petroleum derived substance, any drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, any flammable substances or explosives, any radioactive materials, any toxic wastes or substances or any other materials or pollutants which (a) pose a hazard to any 12 property of Borrower or any Operator or Mortgagor or any of their respective Subsidiaries or to Persons on or about such property or (b) cause such property to be in violation of any Environmental Laws, (iv) asbestos in any form which is or could become friable, urea formaldehyde foam insulation, electrical equipment which contains any oil or dielectric fluid containing levels of polychlorinated biphenyls in excess of fifty parts per million, and (v) any other chemical, material, substance or waste, exposure to which is prohibited, limited or regulated by any Governmental Authority or may or could pose a hazard to the health and safety of the owners, occupants or any Persons surrounding the Facilities. "HRPT Advisors" means HRPT Advisors, Inc., a Delaware corporation. "IDFA Indebtedness" means the Indebtedness, in an aggregate principal amount not to exceed $17,700,000 plus accrued interest thereon, existing pursuant to (a) that certain Loan Agreement dated as of April 15, 1991 between the Illinois Development Finance Authority and Marriott Retirement Communities, Inc. and relating to the Illinois Development Finance Authority Revenue Refunding Bonds Series 1991A, and (b) that certain Loan Agreement dated as of April 15, 1991 between the Illinois Development Finance Authority and Marriott Retirement Communities, Inc. and relating to the Illinois Development Finance Authority Revenue Refunding Bonds Series 1991B, which Indebtedness was assumed by Borrower's wholly-owned Subsidiary Church Creek Corporation, a Massachusetts corporation, pursuant to that certain Purchase Agreement dated March 17, 1994 among HMC Retirement Properties, Inc., HMH Properties, Inc. and Borrower and (without duplication) the letter of credit obligations with respect to which such Indebtedness was guaranteed by Borrower. "Income Before Extraordinary Items" means, for any period and any Person in respect of one or more Properties and/or Mortgaged Properties as to which such Person is the Operator or Mortgagor thereof, the net income (or loss) of such Person for such period attributable to such Properties and/or Mortgaged Properties, excluding any extraordinary items (net of taxes) and including amounts paid or provided for income taxes or deferred income taxes by or on behalf of such Person attributable to such Properties and/or Mortgaged Properties, all as determined in conformity with GAAP and Section 1.3(a). "Indebtedness" means, with respect to any Person, and without duplication and determined in accordance with Section 1.3(a), (i) all indebtedness, obligations and other liabilities (contingent or otherwise) of such Person for borrowed money or 13 other extensions of credit or evidenced by bonds, debentures, notes or similar instruments (whether or not the recourse of the lender is to the whole of the assets of such Person or to only a portion thereof), (ii) all reimbursement obligations and other liabilities (contingent or otherwise) of such Person with respect to letters of credit or bankers' acceptances issued for the account of such Person or with respect to interest rate protection agreements or securities repurchase agreements or currency exchange agreements or similar or analogous hedging or derivative agreements or instruments, (iii) all obligations and other liabilities (contingent or otherwise) of such Person with respect to any conditional sale, installment sale or other title retention agreement, purchase money mortgage or security interest, or otherwise to pay the deferred purchase price of property or services (except trade accounts payable and accrued expenses arising in the ordinary course of business) or in respect of any sale and leaseback arrangement, (iv) all Capitalized Lease Obligations of such Person, (v) all Contingent Obligations of such Person, (vi) all surety and other bonds and deposits, and all obligations and other liabilities secured by a Lien or other encumbrance on any asset of such Person (even though such Person has not assumed or otherwise become liable for the payment thereof), and (vii) all obligations to purchase, redeem or acquire any capital stock of such Person or its Subsidiaries that, by its terms or by the terms of any security into which it is convertible or exchangeable, is, or upon the happening of any event or the passage of time would be, required to be redeemed or repurchased by such Person or its Subsidiaries, including at the option of the holder, in whole or in part, or has, or upon the happening of an event or passage of time would have, a redemption or similar payment due, on or prior to the fifth anniversary of the date hereof or, if later, the date which is two years after the due date for the final repayment of the Loans as specified in any amendment of this Agreement. "Independent Trustees" has the meaning set forth in the Declaration of Trust. "Insolvency Event", with respect to any Person, means that (i) such Person shall have suspended or discontinued its business or commenced any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or such Person shall have made a general assignment for the benefit of its creditors; or (ii) there shall have been commenced 14 against such Person any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall have been commenced against such Person any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets, which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) such Person shall have taken any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii) or (iii) above; or (v) such Person shall generally not be paying, or shall have been unable to pay, or shall have admitted in writing its inability to pay, its debts as they become due. "Interest Charges" of a Person for any period means the sum of (i) the aggregate interest accrued and payable in cash, securities or otherwise on all Indebtedness of such Person and its Subsidiaries, if any, on a consolidated basis for such period, plus (ii) the aggregate amount of debt discount or other amounts analogous to interest accruing during or attributable to such period, whether or not payable during such period, including without limitation all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under (a)(i) interest rate swap agreements, interest rate collar agreements, and (ii) other agreements or arrangements designed to protect such Person and/or its Subsidiaries against fluctuations in interest rates; and(b) foreign exchange contracts and other agreements or arrangements designed to protect such Person and/or its Subsidiaries against fluctuations in currency values, all amounts calculated above to be determined in conformity with GAAP and in accordance with Section 1.3(a). "Interest Payment Date" means, subject to Section 2.10 hereof, (i) in the case of a Eurodollar Loan, the last day of each Interest Period (or if any such day is not a Business Day, the next succeeding Business Day), provided that in the case of each Interest Period of more than three months duration, "Interest Payment Date" shall also include each date that is three months, or an integral multiple thereof, after commencement of such Interest Period; and (ii) in the case of an Alternate Rate Loan or Base Rate Loan, the last Business Day of March, June, September and December of each year and the date such Loan (or any portion thereof) is converted in accordance with the terms hereof into a Base Rate Loan or Eurodollar Loan, in the case of an Alternate Rate Loan, or an Alternate Rate Loan or Eurodollar Loan, in the case of a Base Rate Loan. 15 "Interest Period" means with respect to each Eurodollar Loan, and subject to Section 2.10 hereof, a one, two, three or six month period (or such other period of less than six months as shall be agreed by all the Lenders) as selected at the option of Borrower pursuant to a Notice of Borrowing or Notice of Continuation; provided that: (i) no Interest Period may be selected which expires later than the Termination Date; (ii) any Interest Period which begins on the last Business Day of a calendar month (or on a day with respect to which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to the foregoing proviso, end on the last Business Day of a calendar month; (iii) in the case of immediately successive Interest Periods applicable to a Eurodollar Loan continued as such pursuant to a Notice of Continuation, each successive Interest Period shall commence on the day on which the next preceding Interest Period expires; (iv) there shall be no more than eight Interest Periods outstanding at any one time; and (v) in the event Borrower fails to specify an Interest Period for any Loan in the applicable Notice of Borrowing or Notice of Continuation, Borrower shall be deemed to have selected an Interest Period of one month. "Interest Rate Determination Date" means each date for calculating the LIBO Rate for purposes of determining the interest rate in respect of an Interest Period. For a Eurodollar Loan, the Interest Rate Determination Date for such Loans denominated in U.S. Dollars shall be the second Business Day prior to the first day of the related Interest Period, while the Interest Rate Determination Date for such Loans denominated in GBP shall be the first day of the related Interest Period. "Kleinwort Benson" means Kleinwort Benson Limited, a bank organized and existing under the laws of England. "Lease Guarantees" means each guarantee, letter of credit or other similar undertaking issued by any Person in respect of any of the obligations of an Operator under a Lease. "Lease Guarantors" means the obligors in respect of the Lease Guarantees, and each of them. "Leasehold Interests" means any leasehold estate in any land and/or any buildings, structures, improvements and fixtures 16 owned beneficially by Borrower or any of its Subsidiaries and all equipment located thereon or used in connection therewith and all personalty (including, without limitation, franchises) related thereto, owned beneficially by Borrower or any of its Subsidiaries. "Leases" means any leases or subleases relating to the Properties in respect of which Borrower of any of its Subsidiaries is the lessor. "Lender" has the meaning set forth in the first paragraph of this Agreement. "Lending Office" means the branch or Affiliate office or offices of each Lender designated as the Lending Office(s) of such Lender on Schedule 1 and each other branch or Affiliate office as such Lender may designate as its Lending Office(s) from time to time by notice to Agent and Borrower. "LIBO Rate" means the average (expressed as a percentage and rounded to the nearest one ten thousandth of one percent) of the offered rates, if any, quoted by the Reference Banks to Administrative Agent in the London interbank market for U.S. Dollar or GBP (as applicable) deposits of amounts comparable to the principal amount of the Loans for which the LIBO Rate is being determined with maturities comparable to the Interest Period for which such LIBO Rate will apply as of approximately 11:00 A.M. (London time) on the Interest Rate Determination Date for such Interest Period. "Lien" means, as to any Person, any mortgage, lien (statutory or otherwise), pledge, adverse claim, charge, security interest, assignment, deposit agreement or other encumbrance in or on, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capitalized Lease Obligation with respect to any property or asset of such Person, or the signing or filing of a financing statement which names such Person as debtor, or the signing of any security agreement authorizing any other party as the secured party thereunder to file any financing statement. "Loan Agents" has the meaning set forth in Section 8.1(a). "Loan Documents" means, collectively, this Agreement (including, without limitation, the guaranties in Section 9), the Notes and any other agreements, documents or instruments delivered pursuant to or in connection with any of the foregoing, as such agreements, documents or instruments may be amended, 17 modified or supplemented from time to time. "Loans" means the Existing Loans and the revolving loans made or to be made to Borrower by the Lenders hereunder. "MAC" means, with respect to any Property or Mortgage Interest, any material adverse effect on or change in (a) the business, operations, assets, prospects or financial condition or other condition of (i) such Property or (ii) such Mortgage Interest or (iii) any Operator of such Property or (iv) any Mortgagor of such Mortgage Interest or (v) any Credit Support Obligor of such Property or Mortgage Interest, (b) Agent's, Administrative Agent's or any Lender's rights and remedies under the Loan Documents, or (c) the ability of (i) any Operator of such Property or (ii) any Mortgagor of such Mortgage Interest or (iii) any Credit Support Obligor of such Property or Mortgage Interest to perform its obligations under the Loan Documents or under the Leases, the Mortgage Interest Agreements or the Credit Support Agreements in respect of such Property or Mortgage Interest. "Majority Lenders" means, at any particular time, Lenders having more than 66-2/3% of the Commitments, or if the Commitments have been terminated at such time, Lenders having more than 66-2/3% of the aggregate principal amount of the Loans then outstanding. "Mandatory Liquid Asset Costs" means, in relation to each Lender which may be subject to such requirements, the additional cost to such Lender of complying with the relative reserve asset ratio required by the Bank of England from time to time (if any), expressed as a percentage per annum and calculated as set forth in Schedule 5. "Material Adverse Effect" means a material adverse effect on or change in (a) the business, operations, assets, prospects or financial condition or other condition of (i) Borrower and its Subsidiaries taken as a whole or (ii) the Advisor or (iii) the Properties and Mortgage Interests taken as a whole, (b) Agent's, Administrative Agent's or any Lender's rights and remedies under the Loan Documents, (c) the ability of (i) Borrower or any of its Subsidiaries or (ii) the Advisor to perform its respective obligations under the Loan Documents, the Advisory Agreement, the Leases, the Mortgage Interest Agreements or the Credit Support Agreements, or (d) the ability of the Operators, Mortgagors and Credit Support Obligors (taken as a whole) to perform their obligations under the Leases, the Mortgage Interest Agreements and the Credit Support Agreements insofar as they relate to Eligible Properties and Eligible Mortgages. "Mortgage Guarantees" means each guarantee, letter of 18 credit or other similar undertaking issued by any Person in respect of any of the obligations of a Mortgagor under a Mortgage Interest Agreement. "Mortgage Guarantors" means the obligors in respect of the Mortgage Guarantees, and each of them. "Mortgage Interest" means any interest of Borrower or any of its Subsidiaries as lender and as mortgagee or beneficiary, as applicable, in respect of a loan secured in whole or in part by a Lien on any land or any buildings, structures, improvements and fixtures (including any leasehold estate with respect thereto). "Mortgage Interest Agreement" means any agreement, note, mortgage, deed of trust and/or other document creating, evidencing or securing a Mortgage Interest. "Mortgaged Property" means any land and any building, structure, improvements and fixtures (including any leasehold estate with respect thereto) with respect to which Borrower or any of its Subsidiaries has a Mortgage Interest. "Mortgagor" means, in the case of a Mortgage Interest, the obligor or obligors in respect of such Mortgage Interest. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which Borrower or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "Multiple Employer Plan" means an employee benefit plan, other than a Multiemployer Plan, subject to Title IV of ERISA to which Borrower or any ERISA Affiliate, and at least one employer other than Borrower or an ERISA Affiliate, is making or accruing an obligation to make contributions or, in the event that any such plan has been terminated, to which Borrower or any ERISA Affiliate made or accrued an obligation to make contributions during any of the five plan years preceding the date of termination of such plan. "Net Mortgage Proceeds" means (a) any amounts paid, other than scheduled repayments, by a Mortgagor to Borrower or any of its Subsidiaries under an agreement, evidencing or securing any interest of Borrower or such Subsidiary as lender and as mortgagee or beneficiary, as applicable, in respect of a loan secured in whole or in part by a Lien on a Facility, in respect of principal thereunder, plus (b) the gross proceeds received by or for the account of Borrower or such Subsidiary of any sale or other disposition of any such agreement, minus (c) 19 the reasonable out-of-pocket fees and expenses (including attorneys' fees and expenses) incurred by Borrower or such Subsidiary in connection with such sale or other disposition. "Net Property Proceeds" means (a) the gross proceeds received by or for the account of Borrower or any of its Subsidiaries of any sale, lease or other disposition of any Fee Interest or Leasehold Interest or termination or substitution of any lease or sublease with respect to any Fee Interest or Leasehold Interest of Borrower or any of its Subsidiaries, minus the reasonable out-of-pocket fees and expenses (including attorneys' fees and expenses) incurred by Borrower or such Subsidiary in connection with such sale or other disposition, (b) all insurance proceeds paid and received by or for the account of Borrower or such Subsidiary on account of the loss of or damage of any such Fee Interest or Leasehold Interest, to the extent such proceeds are not applied to the replacement or restoration of such assets and (c) all proceeds received by or for the account of Borrower or such Subsidiary, arising from the taking by condemnation or eminent domain of any such Fee Interest or Leasehold Interest, to the extent such proceeds are not applied to the replacement or restoration of such assets. "Net Securities Proceeds" with respect to any private or public offering of securities or any borrowing from one or more financial institutions means the gross proceeds thereof received by or for the account of Borrower net of (a) underwriting discounts and commissions and (b) reasonable out-of-pocket fees and expenses incurred in connection with such offering or borrowing; provided that such proceeds shall not include proceeds from borrowings (or from refinancing of such borrowings) from financial institutions which are applied substantially contemporaneously with the borrowing thereof to the acquisition of one or more Facilities but no later than two Business Days after such borrowing. "Notes" has the meaning set forth in Section 2.2. "Notice of Borrowing" means a notice substantially in the form of Exhibit B hereto delivered by Borrower to Administrative Agent (with a copy to Agent to follow) pursuant to Section 2.3 with respect to a proposed borrowing. "Notice of Continuation/Conversion" means a notice substantially in the form of Exhibit C hereto delivered by Borrower to Administrative Agent (with a copy to Agent to follow) pursuant to Section 2.5 with respect to a continuation or conversion of one or more Loans. "Operators" in respect of a Facility, means the lessee or sublessee (other than Borrower or any of its Subsidiaries) thereof. 20 "Outstanding" means, when used with reference to the Notes as of a particular time, all Notes theretofore issued as provided in this Agreement, except (i) Notes theretofore reported as lost, stolen, damaged or destroyed, or surrendered for transfer, exchange or replacement, in respect of which replacement Notes have been issued, (ii) Notes theretofore paid in full, and (iii) Notes theretofore duly cancelled by Borrower; and except that, for the purpose of determining whether holders of the requisite principal amount of Notes have made or concurred in any waiver, consent, approval, notice or other communication or matter under this Agreement, Notes held or owned by Borrower or any Affiliate of Borrower, shall not be deemed to be outstanding. "PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA, or any successor to the responsibilities of such corporation. "Permitted Exceptions" means those exceptions to title set forth on Schedule 2. "Person" means an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Plan" means an employee benefit plan, other than a Multiemployer Plan, maintained for or covering any employees of Borrower or any ERISA Affiliate and subject to Title IV of ERISA. "Pledges" means any pledge or grant of a Lien to secure any of the obligations of a Mortgagor under a Mortgage Interest Agreement, an Operator under a Lease, a Mortgage Guarantor under a Mortgage Guarantee, a Lease Guarantor under a Lease Guarantee or a Sublessee under a Sublease Agreement, each as amended, supplemented or modified from time to time. "Pledgors" means the obligors in respect of the Pledges, and each of them. "Preferred Shares" means Borrower's preferred shares of beneficial interest authorized under the Declaration of Trust. "Primary Credit Support Obligor" means each Credit Support Obligor in respect of obligations of a Primary Operator/Mortgagor. "Primary Operator/Mortgagor" means any Operator and/or Mortgagor which is a lessee or sublessee with respect to Facilities and/or an obligor or mortgagor with respect to Mortgage Interests or Facilities representing, in aggregate, 10% or more of the aggregate Allowed Value of the Properties and 21 Mortgage Interests; provided that with respect to property interests located in the United Kingdom, every Operator and every Mortgagor shall be deemed to be a "Primary Operator/Mortgagor" . "Process Agent" has the meaning set forth in Section 10.2. "Property" or "Properties" means each of the Facilities in which Borrower or any of its Subsidiaries has a Fee Interest or Leasehold Interest. "Pro Rata Share" means, with respect to each Lender as of the date of determination, the percentage obtained by dividing (i) the Commitment of that Lender as of such date by (ii) the Commitment of all Lenders as of such date; provided that if the Commitments have been terminated at such time, such Pro Rata Share shall be the percentage obtained by dividing (i) the aggregate amount of the Loans outstanding from that Lender as of such date by (ii) the aggregate amount of the Loans outstanding from all Lenders as of such date; and provided further that with respect to Agent and The Daiwa Bank, Limited this definition shall be subject to the modification described in Section 2.3(c) with respect to Loans denominated in GBP for the period of time described therein, but not otherwise. "Psychiatric Care Asset" means, in respect of any Property or Mortgage Interest, that more than 50% of the licensed beds of the Property or, in the case of a Mortgage Interest, of the Mortgaged Property covered thereby, are designated for psychiatric treatment. "Real Property" has the meaning set forth in Section 5.12. "Real Property Permit" means, in respect of any Property or Mortgaged Property, all certificates of occupancy, permits, licenses, franchises, approvals and authorizations from all Governmental Authorities having jurisdiction over such Property or Mortgaged Property or any portion thereof, the absence of which could materially impair the use of such Property or Mortgaged Property for the purposes for which it is currently used, and from all insurance companies and fire rating and similar boards and organizations required to have been issued to Borrower or any of its Subsidiaries or the Operator (in the case of a Property) or the Mortgagor (in the case of a Mortgaged Property) to enable such Property or Mortgaged Property or any portion thereof to be lawfully occupied and used as currently so occupied or used. "Real Property Statement" means a certificate of a Responsible Officer providing each of the following: 22 (i) a list of all Facilities owned by Borrower and its Subsidiaries or in which Borrower or any such Subsidiary has an interest at the date of such certificate, identifying the nature of such interest and certifying the Appraised Value, if available, and each of the other costs, values and prices referred to in the definition of "Allowed Value" relating to each Facility; (ii) specification in respect of each Facility of each of the following: (a) whether as of the date of such certificate such Facility is an Eligible Property or a Mortgaged Property covered by an Eligible Mortgage; (b) in respect of each Eligible Property, the acquisition cost of Borrower or any of its Subsidiaries in respect of such Eligible Property; and (c) in respect of each Eligible Mortgage, the then outstanding principal amount due to Borrower or any of its Subsidiaries from the relevant Mortgagor in respect of such Eligible Mortgage; (iii) with respect to each such Eligible Property or Eligible Mortgage, certification as to the ratio of (A) the Cash Flow of the Operator or Mortgagor thereof (as applicable) over the four most recent financial quarters (or, (y) if financial reporting for such Cash Flow is provided on an annual basis, over its last reported financial year, or (z) where Marriott International, Inc. is the Operator or Mortgagor (but not in any event for a Courtyard Lodging) and financial reporting for such Cash Flow is not otherwise required to be provided to Borrower or its Subsidiaries, over the last reported financial year as certified by an officer of Marriott International, Inc. in a certificate described in Section 5.2(b)(iii)) attributable to that Eligible Property or Eligible Mortgage to its (B) Fixed Charges over the same period for such Eligible Property or Eligible Mortgage and, further, certification that, with respect to each Eligible Property or Eligible Mortgage, the details of cash flows of the Operator or Mortgagor thereof used by Borrower in its calculations are Current; provided that if such Eligible Property or Eligible Mortgage is part of a group of Cross Guarantied Assets, in addition to the certification required for each individual Eligible Property or Eligible Mortgage, Borrower also shall provide certification as to the ratio of (A) the Cash Flow of the Operators or Mortgagors (as applicable) for such group determined on an aggregate basis over their respective 23 four most recent financial quarters (or last reported financial year or last certified financial year, as the case may be) attributable to the group of Cross Guarantied Assets to (B) their Fixed Charges over the same period for such group of Cross Guarantied Assets; and (iv) certification that there has been no MAC in any of the circumstances set forth in Section 2.16(c), other than, in each case, a MAC which has ceased to be in effect. "Recognized Appraiser" means a qualified and recognized professional appraiser as may be selected or approved by Agent and Administrative Agent with the consent of Borrower, which will not be unreasonably withheld, having at least five years' prior experience in performing real estate appraisals in the geographic area where the property being appraised is located, having a recognized expertise in appraising properties operated as health care or retirement facilities or hotel or other lodging facilities; provided that if the property being appraised is located in the United Kingdom, such appraiser will be selected or approved by Agent with the consent of Borrower. "Reference Banks" means Kleinwort Benson Limited and Wells Fargo Bank, National Association. "Rehabilitation Treatment Asset" means, in respect of any Property or Mortgage Interest, that more than 50% of the licensed beds of the Property or, in the case of a Mortgage Interest, of the Mortgaged Property covered thereby, are designated for rehabilitation treatment. "Release" means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, leaching or migration of any Hazardous Materials into the indoor or outdoor environment (including, without limitation, the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Materials), or into or out of any Facility, including the movement of any Hazardous Material through the air, soil, surface water, groundwater or property. "Reportable Event" means a "reportable event" within the meaning of Section 4043 of ERISA (other than a "reportable event" for which the 30-day notice to PBGC requirement has been waived by regulation of PBGC). "Requirement of Law" means, as to any Person, any law, treaty, rule or regulation, or judgment, order, directive or other determination of any arbitrator or a court or other 24 Governmental Authority, in each case applicable to or binding upon such Person or any of its properties or to which such Person or any of its property is subject. "Responsible Officer" means, with respect to any matter (including financial matters), the president, chief executive officer, chief financial officer, executive vice president or treasurer of Borrower. "Restricted Payment" means (a) every dividend or other distribution of assets, properties, cash, rights, obligations or securities paid, made, declared or authorized by Borrower or any of its Subsidiaries (other than to Borrower) or in respect of any of the Common Shares, the Preferred Shares or other equity securities of Borrower, or any class of Borrower's equity securities, or for the benefit of holders of any thereof in their capacity as such and (b) every payment by or for the account of Borrower or any of its Subsidiaries in connection with the redemption, purchase, retirement, defeasance or other acquisition of any Common Shares, Preferred Shares or other equity securities of Borrower or options, warrants or other rights to acquire any of Borrower's equity securities and (c) every payment (i) of principal, interest, fees or other amounts in respect of any Indebtedness of Borrower or any of its Subsidiaries to any Affiliate of Borrower (provided that "Restricted Payment" shall not include or prohibit any such payment in respect of intercompany Indebtedness of any of Borrower's Subsidiaries permitted under Section 6.8(d)), (ii) in respect of the redemption, purchase, retirement, defeasance, or other acquisition from an Affiliate of Borrower of any Indebtedness of Borrower, or (iii) of fees in respect of advisory services rendered to Borrower or any of its Subsidiaries by the Advisor and (d) every direct or indirect investment by Borrower (by means of capital contribution, advance, loan or otherwise) in an Affiliate or any Person which becomes an Affiliate after or as a result of such investment (but not including investments by Borrower in its direct wholly-owned Subsidiaries), and (e) every payment by or for the account of Borrower or any of its Subsidiaries in connection with the redemption, purchase, retirement, defeasance or other acquisition for value, directly or indirectly, prior to any scheduled maturity, scheduled repayment or scheduled sinking fund payment, of Indebtedness which is subordinate in right of payment to the Loans or the Notes. "Solvent" means, with respect to any Person on a particular date, that on such date (i) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person (whether or not required to be reflected on a balance sheet prepared in accordance with GAAP), 25 (ii) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (iii) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (iv) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature, and (v) such Person is not engaged in business or a transaction for which such Person's property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "Specified Subordinated Indebtedness" means Indebtedness of any Person, the terms of which prohibit the holder or any representative of the holder from exercising any legal remedies or other creditor's rights (including without limitation the filing of a petition in respect of such Person under the U.S. Bankruptcy Code, 11 U.S.C. 101 et seq.) thereunder until all obligations (contingent or otherwise) of such Person to Borrower under all Leases, Mortgage Interest Agreements and Credit Support Agreements to which that Person is a party have been indefeasibly satisfied in full. "Sublease Agreement" means any agreement pursuant to which a Person subleases all, or a material portion, of a Property from an Operator, as such agreement is amended, supplemented or modified from time to time. "Sublessees" means the sublessees in respect of the Sublease Agreements, and each of them. "Subordination Agreement" means the amended and restated subordination agreement, dated as of June 15, 1994, among Administrative Agent, the Advisor and Borrower an executed copy of which is annexed hereto as Exhibit D, as amended, supplemented or modified from time to time in a manner not inconsistent with the terms of the Existing Loan Agreement or hereof. "Subsidiary" means, as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, 26 partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly, through one or more intermediaries, or both, by such Person. "Tangible Net Worth" means, with respect to Borrower and its Subsidiaries, the excess of total assets over total liabilities of such Persons on a consolidated basis, such total assets and total liabilities each to be determined in accordance with GAAP and Section 1.3(a), consistent with those applied in the preparation of the financial statements referred to in Section 3.1; excluding, however, from the determination of total assets (i) goodwill, organizational expenses, capitalized software, research and development expenses, trademarks, trade names, copyrights, patents, patent applications, licenses and rights in any thereof, and other similar intangibles, (ii) all prepaid expenses, deferred charges or unamortized debt discount and expense, (iii) all reserves carried and not deducted from assets, (iv) treasury stock and shares of beneficial interest and capital stock, obligations or other securities of, or capital contributions to, or investments in, any Subsidiary, (v) securities which are not readily marketable, (vi) cash held in a sinking or other analogous fund established for the purpose of redemption, purchase, retirement, defeasance, acquisition or prepayment of Common Shares, Preferred Shares or other equity securities, capital stock or Indebtedness, (vii) any write-up in the book value of any asset resulting from a revaluation thereof subsequent to December 31, 1987, (viii) leasehold improvements not recoverable at the expiration of a Lease (to the extent that the useful life of such improvements is greater than the term of such Lease), and (ix) any items not included in clauses (i) through (viii) above which are treated as intangibles in conformity with GAAP. "Termination Date" means March 15, 1998. "Termination Event" means (i) a Reportable Event or an event described in Section 4062(e) of ERISA, or (ii) the withdrawal of Borrower or any ERISA Affiliate from a Multiple Employer Plan during a plan year in which it was a "substantial employer", as such term is defined in Section 4001(a)(2) of ERISA, or the incurrence of liability by Borrower or any ERISA Affiliate under Section 4064 of ERISA upon the termination of a Multiple Employer Plan, (iii) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, (iv) the institution of proceedings to terminate a Plan by the PBGC under Section 4042 of ERISA, (v) the withdrawal of Borrower or any ERISA Affiliate from any Multiemployer Plan, or (vi) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. 27 "Total Liabilities" of any Person means and includes, as of any date as of which the amount thereof is to be determined, without duplication (i) all items which in accordance with GAAP would be required to be included on the liabilities side of a consolidated balance sheet of such Person at such date and (ii) to the extent not otherwise included in (i) above, all Indebtedness of such Person as of such date, determined on a consolidated basis and in accordance with Section 1.3(a). "Trigger Date" has the meaning set forth in Section 5.14. "Trigger Amount" has the meaning set forth in Section 5.14. "United Kingdom" means the United Kingdom of Great Britain and Northern Ireland. "U.S. Dollars" or "$" shall mean the lawful currency of the United States of America. 1.2. Other Definitional Provisions. (a) All terms defined in this Agreement shall have the meanings assigned to them herein when used in the Notes or any certificate or other document made or delivered pursuant hereto, unless otherwise defined therein. (b) As used herein and in the Notes and other Loan Documents, and any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in Section 1.1, and accounting terms partly defined in Section 1.1 to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section, schedule and exhibit references are to this Agreement unless otherwise specified and, where appropriate, the singular shall include the plural. 1.3 Certain Calculations: Mark-to Market (a) Except in the circumstances set forth in Section 1.3(b), for the purposes of determining the amount of outstanding Indebtedness, Total Liabilities or any other indebtedness, obligations or liabilities of Borrower or any of its Subsidiaries or any other Person, or the amount or value of any investments or assets of or obligations owed to Borrower or any of its Subsidiaries or any other Person, or the amount of any other item included in income or cash flow statements of Borrower or any of 28 its Subsidiaries or any other Person (each of the foregoing being a "Calculation Item"), if such Calculation Item is owed or otherwise recorded or measured in GBP or any other currency other than U.S. Dollars, the amount or value of the Calculation Item shall be calculated in U.S. Dollars and shall be the amount of U.S. Dollars that can be purchased with GBP or such other currency calculated on the basis of Administrative Agent's spot rate of exchange for the purchase of U.S. Dollars with GBP or such other currency on the date such calculation is to be made; provided that notwithstanding the continuous nature of certain representations and covenants in this Agreement, unless requested to do so by Agent or Administrative Agent or unless Borrower is aware of any material currency movement or other circumstance which would be reasonably likely to have an effect on its ability to satisfy any such representation or covenant, Borrower shall not be required to make such calculation with respect to such representations and covenants at any time other than in connection with the delivery of a Real Property Statement or the delivery of the certificate of a Responsible Officer under Section 5.2(b); provided further that even if not required to make such calculations, nothing in this Section 1.3(a) shall be construed to in any way limit Borrower's obligations to satisfy all such representations and covenants in accordance with their terms. (b) Administrative Agent shall calculate the Equivalent Amount of Loans denominated in GBP: (i) after any Borrowing Date on which Loans are made such that the aggregate principal amount of Loans outstanding exceeds 75% of the Commitments and if requested by Agent or if Administrative Agent in the reasonable exercise of its judgment considers it desirable to make such calculation to monitor compliance by Borrower with the limits set forth in Section 2.1, once each Business Day or otherwise as often as Administrative Agent considers it desirable or necessary to make such calculation and Administrative Agent shall notify Borrower and Agent if, based on such calculation, Borrower is in compliance with the requirements of Section 2.1 as to the maximum aggregate outstanding principal amount of Loans denominated in GBP or whether prepayment of the Loans is necessary as required by Section 2.8(e); (ii) on any proposed Borrowing Date to determine whether, after giving effect to a proposed borrowing, Borrower will be in compliance with such requirements of Section 2.1; (iii) on any proposed continuation/conversion date under Section 2.5 to determine whether, after giving effect to such proposed continuation/conversion, Borrower will be in compliance with such requirements of Section 2.1 and (iv) if any Loans denominated in GBP are outstanding, from time to time as necessary for the purpose of calculating the Commitment fees payable under Section 2.6(a); provided that any failure by Administrative Agent to make such calculations or provide the information under this Section 1.3(b) shall not affect the obligations of Borrower to 29 comply with the limits set forth in Section 2.1 or otherwise to satisfy all representations and covenants made by it in this Agreement. SECTION 2. AMOUNT AND TERMS OF REVOLVING LOANS 2.1. Revolving Loans. (a) Each Lender severally (and not jointly) agrees, subject to the terms and conditions hereof, to continue the Existing Loans outstanding on the Effective Date, to make Loans to Borrower from time to time during the period from the Effective Date to and including the Final Borrowing Date, and to maintain its Loans outstanding to Borrower on the Final Borrowing Date from such date until the Termination Date, up to an aggregate amount (including, without limitation, the amount of any Existing Loans) or the Equivalent Amount in GBP at any one time not exceeding its Pro Rata Share of the aggregate Commitments (as defined below) to be used for the purposes identified in Section 2.11 ; provided that in no event shall the aggregate outstanding principal amount of Loans denominated in GBP at any time exceed the Equivalent Amount of $100,000,000 (as determined in accordance with Section 1.3(b)). Each Loan hereunder shall be made by Lenders in accordance with their respective Pro Rata Share. Upon satisfaction of the conditions set forth in Section 4, (i) all loans outstanding under the Existing Loan Agreement as of, and at the time of, the Effective Date ("Existing Loans") and all rights relating to the Existing Loans and all other rights arising under the Existing Loan Agreement and all documents relating thereto, except to the extent specifically amended and restated by this Agreement, shall be assigned (without any further action or authorization being required) by the lenders under the Existing Loan Agreement to the Lenders proportionately to their respective Pro Rata Shares of the Commitments without recourse, representation or warranty (except for representations and warranties made in this Section 2.1(a)) of any nature, express or implied, by any such lender and such Existing Loans shall be continued and deemed to be Loans for all purposes under this Agreement and (ii) each Lender shall pay to Administrative Agent its Pro Rata Share of the Existing Loans or, if less, the amount by which such Pro Rata Share exceeds its outstanding Existing Loans (if any), for distribution to the lenders under the Existing Loan Agreement that are not Lenders and to the other Lenders that have funded such Loans, in accordance with their respective Commitments, and each Lender's share of the Existing Loans shall be adjusted accordingly. In connection with such assignment, each Lender shall be deemed to represent and warrant to each other Lender that (i) it is, and will be on the Effective Date, prior to the assignment of its interests pursuant to this Section 2.1(a), the legal and beneficial owner of the interests being assigned and such interests are, and will be on the Effective Date, free and clear 30 of any adverse claim and (ii) the total aggregate principal amount and accrued interest, fees and other amounts due to such Lender under the Existing Loan Agreement on March 15, 1995 are as set forth on Schedule 3 annexed hereto. Any amounts of accrued interest, commitment fees or other amounts (other than principal) owed (whether or not presently due and payable) by Borrower to the lenders under or in respect of the Existing Loans shall, as of the Effective Date, be deemed to be due and payable to the lenders under the Existing Loan Agreement. The continuation of the Existing Loans hereunder shall not be deemed to be a repayment thereof, and Borrower shall not be required to deliver any notice of prepayment or notice of borrowing or to satisfy any condition relating to minimum amounts of prepayments or minimum amounts of borrowings hereunder with respect to such continuance of the Existing Loans. (b) Each Lender's commitment to make and maintain Loans to Borrower pursuant to this Section 2.1 is herein called its "Commitment" and such commitments of all Lenders in the aggregate are herein called the "Commitments". The original amount of each Lender's Commitment is set forth opposite its name on Schedule 1 annexed hereto and the aggregate original amount of the Commitments is $200,000,000; provided that up to an Equivalent Amount of $100,000,000 may be made in Loans denominated in GBP (as determined in accordance with Section 1.3(b)); provided further that the amount of the Commitments shall be reduced from time to time by the amount of any reductions thereto made pursuant to Section 2.7 (with a proportionate reduction of the amount of the Commitments otherwise available for the borrowing of Loans denominated in GBP); provided further that Lenders shall have no obligation to make or maintain Loans hereunder to the extent any such Loan would (i) cause the aggregate amount of the Loans then outstanding to exceed the Commitments or (ii) cause the aggregate amount of the General Corporate Loans then outstanding to exceed 25% of the Commitments; and provided further that Lenders shall have no obligation to make or maintain Loans denominated in GBP hereunder to the extent any such Loan would cause the aggregate amount of the Loans denominated in GBP then outstanding to exceed the Equivalent Amount of $100,000,000 (as determined in accordance with Section 1.3(b)). (c) The foregoing notwithstanding, if prior to September 30, 1995 an additional lender satisfactory to Borrower and Agent shall execute and deliver to Borrower and Agent on behalf of the parties hereto counterparts substantially in the form of this Agreement, with the amount of such additional lender's Commitment hereunder typed immediately below its signature on such counterpart, upon notification of such execution and delivery by Agent to the other parties hereto, such additional lender shall become a Lender and its Commitment shall 31 be added to the aggregate Commitments for all purposes hereunder; and if an existing Lender shall notify Borrower and Agent of its agreement to increase its Commitment above its original Commitment and such agreement is accepted by Borrower and Agent, then upon notification thereof by Agent to the other parties hereto (or, if later, upon the effective date for such increase stated in such notification), in each case not later than September 30, 1995, such existing Lender's Commitment shall be increased as set forth in such notification; provided that no such additional lender shall become a Lender (and no such increase shall become effective) without the consent of Borrower and all Lenders if such additional lender's Commitment (or such increase) would make the aggregate Commitments exceed $250,000,000. The other terms of this Agreement notwithstanding, such additional lender or Lender increasing its Commitment shall, on the first day thereafter which is the last day of an Interest Period (or on such day if such day is the last day of an Interest Period), pay to Administrative Agent (i) its Pro Rata Share of the Loans then outstanding (if any) or, if less, the amount by which such Pro Rata Share exceeds its outstandings hereunder (if any), for distribution to the other Lenders that have funded such Loans, in accordance with their respective Commitments, and all rights of such other Lenders with respect to the Pro Rata Share being assumed by such additional lender or the increased portion thereof of an existing Lender shall be deemed assigned (without any further action or authorization being required) to such additional lender or increasing Lender without recourse, representation or warranty, and each Lender's share of the outstanding Loans shall be adjusted accordingly; and (ii) any other amounts due from it on such date as a Lender hereunder. (d) Each Lender's Commitment shall expire on the Termination Date and all Loans and all other amounts owed hereunder with respect to the Loans and the Commitments shall be paid in full no later than that date. (e) Subject to the other terms and conditions hereof, Borrower may borrow under this Section 2.1, repay Loans in accordance with Section 2.10 or prepay Loans in accordance with Section 2.8 and reborrow the amounts so repaid under this Section 2.1. 2.2. Notes; Maturity Date. The Loans of each Lender pursuant hereto shall be evidenced by, and be repayable with interest in accordance with the terms of, a promissory note of Borrower substantially in the form of Exhibit A, with appropriate insertions, payable to the order of such Lender in the principal amount of the Commitment of such Lender (together with any replacement, modification, renewal or substitution thereof, individually a "Note" and collectively, the "Notes"), which shall be dated the Effective Date and be duly completed, executed and delivered by Borrower. The Loans of each Lender pursuant hereto 32 shall be made and maintained by such Lender's Lending Office(s) as designated by such Lender from time to time. All outstanding Loans and each of the Notes shall mature and Borrower shall repay the outstanding principal amount of such Loans and the Notes in full together with all unpaid interest accrued thereon on the Termination Date (or earlier as hereinafter provided) (or if such day is not a Business Day, the next preceding Business Day) all in accordance with Section 2.10(b), and shall be subject to payment and prepayment as provided in Section 2.8 hereof. Each Lender is authorized to endorse at any time the date and amount of each Loan or conversion or continuation thereof, the date and amount of each payment of principal with respect to its Loans and whether its Loans are Base Rate Loans, Eurodollar Loans or Alternate Rate Loans, on the schedule annexed to and constituting a part of such Lender's Note, which endorsement shall constitute prima facie evidence of the accuracy of the information endorsed. 2.3. Procedure for Borrowing. (a) Whenever Borrower desires to borrow under Section 2.1, it shall deliver both a Notice of Borrowing and a Real Property Statement to Administrative Agent (with a copy of each to Agent) no later than 11:00 A.M. (New York time) in the case of Base Rate Loans at least one Business Day and in the case of Eurodollar Loans at least three Business Days in advance of the proposed Borrowing Date. The Notice of Borrowing shall specify (i) the proposed Borrowing Date (which shall be a Business Day), (ii) whether such Loans are to be denominated in U.S. Dollars or, subject to the limit in Section 2.1, GBP, (iii) the amount of the Loans requested (which amount shall be in a minimum aggregate amount of $1,000,000 and integral multiples of $500,000 in excess of that amount if the Loans are to be denominated in U.S. Dollars or a minimum aggregate amount of GBP 1,000,000 and integral multiples of GBP 500,000 in excess of that amount if the Loans are to be denominated in GBP), (iv) whether such Loans will be Base Rate Loans or Eurodollar Loans and, if Eurodollar Loans are specified, the initial Interest Period requested for such Eurodollar Loans, (v) Borrower's account at Administrative Agent to which the net proceeds of the requested Loans are to be credited, (vi) whether the requested Loans (or any portion thereof) are to be General Corporate Loans and, if only a portion thereof are so designated, the amount of such portion, (vii) that the representations and warranties contained in the Loan Documents are true, correct and accurate in all material respects to the same extent as though made on and as of the date of such Notice of Borrowing unless stated in the relevant Loan Document to relate to a specific earlier date, in which case such representations and warranties shall be true, correct and complete in all material respects as of such earlier date, (viii) that no event has occurred and is continuing or would result from the proposed borrowing that would constitute a Default or Event of Default, (ix) that the amount of the proposed 33 borrowing will not cause (A) the aggregate outstanding principal amount of the Loans to exceed the Commitments currently in effect, (B) the aggregate amount of the General Corporate Loans then outstanding to exceed 25% of the Commitments or (C) the aggregate amount of the Loans denominated in GBP then outstanding to exceed the Equivalent Amount of $100,000,000 (as determined in accordance with Section 1.3(b)), (x) that the proceeds of the proposed borrowing (other than any proceeds of General Corporate Loans) shall be used to make payment on the proposed Borrowing Date for the purchase price and costs of acquiring interests in one or more Facilities due and payable on such Borrowing Date and (xi) with respect to the amount of such Loans which will not be General Corporate Loans, the following: (x) the name of the proposed Operators and/or Mortgagors (as applicable) of the Facility or Facilities to which such borrowing relates and any Credit Support Obligors in relation thereto; (y) the name and location of such Facility or Facilities, the Appraised Value(s) thereof and each of the other costs, values and prices referred to in the definition of "Allowed Value" therefor, and a description of the interests of Borrower or any of its Subsidiaries therein to be acquired with the proceeds of such borrowing; and (z) if the proceeds of such Loan will be used to acquire an interest in any Facility which interest is required to be an Eligible Property or Eligible Mortgage included in the calculation of Indebtedness permitted under Section 6.8(a) after giving effect to such Loan, certification to that effect. In lieu of delivering the above-described Notice of Borrowing, Borrower may give Administrative Agent telephonic notice (which telephonic notice shall be followed immediately with a notice by facsimile telecopy) by the time specified for a Notice of Borrowing above; provided that such notice shall be promptly confirmed in writing by delivery of a Notice of Borrowing and a Real Property Statement to Administrative Agent and Agent on or before the applicable Borrowing Date; provided further that in the event of a discrepancy between a Notice of Borrowing and such telephonic notice, the telephonic notice shall govern. Except as otherwise provided in Sections 2.13 and 2.14, a Notice of Borrowing (or telephonic notice in lieu thereof as provided above) shall be irrevocable, and Borrower shall be bound to make the borrowing specified in such Notice of Borrowing (or telephonic notice in lieu thereof as provided above) in accordance therewith. 34 None of Agent, Administrative Agent or any Lender shall incur any liability to any Person (including Borrower or any of its Subsidiaries) in acting upon any telephonic notice referred to above that Administrative Agent or Agent believes in good faith to have been given by a duly authorized officer or other Person authorized to borrow on behalf of Borrower or otherwise acting in good faith under this Section 2.3, and upon funding of Loans by Lenders in accordance with this Agreement pursuant to any such telephonic notice Borrower shall have effected the borrowing of such Loans hereunder. (b) All Loans under this Agreement shall be made by Lenders simultaneously and proportionately to their respective Pro Rata Shares of the Commitments, it being understood that no Lender shall be responsible for any default by any other Lender in that other Lender's obligation to make Loans requested hereunder nor shall the Commitment of any Lender to make Loans requested hereunder be increased or decreased as a result of a default by any other Lender in that other Lender's obligation to make Loans requested hereunder. Promptly after receipt by Administrative Agent of a Notice of Borrowing pursuant to Section 2.3(a) (or telephonic notice in lieu thereof followed immediately with a notice by facsimile telecopy) and in any event not later than 2:00 p.m. (New York time) on the preceding Business Day (in the case of Base Rate Loans) or at least three Business Days (in the case of Eurodollar Loans) in advance of the proposed Borrowing Date, Administrative Agent shall notify each Lender of the relevant details of the proposed borrowing. Each Lender shall make the amount of its Loan available to Administrative Agent, in immediately available funds, at the account specified by Administrative Agent to the Lenders, not later than 11:00 A.M. (New York time) on the Borrowing Date specified in the applicable Notice of Borrowing. Upon satisfaction or waiver of the applicable conditions precedent specified in Sections 4.1 and 4.2, Administrative Agent shall make the proceeds of such Loans available to Borrower on such Borrowing Date by causing an amount of immediately available funds equal to the proceeds of all such Loans received by Administrative Agent from Lenders to be credited to the account at Administrative Agent as specified by Borrower in the Notice of Borrowing. Unless Administrative Agent shall have been notified by any Lender prior to the Borrowing Date for any Loans that such Lender does not intend to make available to Administrative Agent the amount of such Lender's Loan requested on such Borrowing Date (and any such notice shall be without prejudice to any rights of Borrower against such Lender hereunder), Administrative Agent may assume that such Lender has made such amount available to Administrative Agent on such Borrowing Date and Administrative Agent may, in its sole discretion, but shall not be obligated to, make available to Borrower a corresponding amount on such Borrowing Date. If such corresponding amount is not in fact made 35 available to Administrative Agent by such Lender, Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from such Borrowing Date until the date such amount is paid to Administrative Agent, at the Base Rate in the case of Loans denominated in U.S. Dollars or at the Alternate GBP Rate in the case of Loans denominated in GBP. If such Lender does not pay such corresponding amount forthwith upon Administrative Agent's demand therefor, Administrative Agent shall promptly notify Borrower and Borrower shall immediately pay such corresponding amount to Administrative Agent together with interest thereon, for each day from such Borrowing Date until the date such amount is paid to Administrative Agent, at the Base Rate in the case of Loans denominated in U.S. Dollars or at the Alternate GBP Rate in the case of Loans denominated in GBP. Nothing in this Section 2.3 shall be deemed to relieve any Lender from its obligation to fulfill its Commitments hereunder or to prejudice any rights that Borrower may have against any Lender as a result of any default by such Lender hereunder. (c) (i) Notwithstanding the foregoing provisions of this Section 2.3 and other references in this Agreement to the obligations of Lenders to fund Loans in proportion to their respective Pro Rata Shares, for a period of no more than 120 days after the Effective Date The Daiwa Bank, Limited ("Daiwa") shall not be required (unless it has notified Agent and Administrative Agent of its ability to do so) to make Loans denominated in GBP; provided that Agent shall fund all such Loans which would otherwise be required to be made by Daiwa; provided further that Agent shall only be required to make such fundings so long as it is satisfied as to letter of credit or other guaranty, funding or support arrangements provided by Daiwa with respect to such additional fundings by Agent. If Agent is not, or ceases to be, so satisfied and, in any event, at the end of the 120 day period described above, Daiwa shall assume its obligations hereunder to fund its Pro Rata Share of Loans denominated in GBP and shall be subject to the provisions of Section 2.3(b) and any other provisions relating to defaulting Lenders. (ii) Subject to Section 2.3(c)(iii), payments of principal or interest with respect to any additional fundings made by Agent under this Section 2.3(c) shall be made to Agent rather than to Daiwa for distribution between themselves as separately agreed. (iii) At the end of the 120 day period described in Section 2.3(c)(i) (or earlier if Daiwa has notified Agent and Administrative Agent of its ability to make Loans denominated in GBP), Agent shall be deemed to have assigned to Daiwa all rights and obligations with respect to any additional fundings made by Agent under this Section 2.3 and not previously assumed by Daiwa without recourse, representation or warranty of any nature, 36 express or implied, by Agent, and Daiwa shall be obliged to pay to Agent all principal, accrued but unpaid interest and any other amounts as owed to Agent with respect to such additional fundings. 2.4. Interest. (a) Generally. Each Loan shall be a Eurodollar Loan or a Base Rate Loan as selected by Borrower initially at the time a Notice of Borrowing is given pursuant to Section 2.3(a) or as selected pursuant to Section 2.5 (or, in the case of any Existing Loans, as in effect on the Effective Date), except for any portion of a Eurodollar Loan which is converted to an Alternate Rate Loan pursuant to Section 2.13 or 2.14. Loans shall bear interest on the unpaid principal amount thereof from the date made (or, in the case of any Existing Loans, from the Effective Date) to maturity (whether by accelerations or otherwise), at the interest rates specified as follows: (i) in the case of a Eurodollar Loan, at an interest rate per annum for and during each Interest Period equal to the LIBO Rate for such Interest Period plus the Applicable Margin in effect from time to time; (ii) in the case of the Base Rate Loan, at an interest rate per annum equal to the Base Rate in effect from time to time plus the Applicable Margin in effect from time to time; and (iii) in the case of an Alternate Rate Loan (including any Alternate GBP Rate Loan), at an interest rate per annum equal to the Alternate Rate in effect from time to time plus the Applicable Margin in effect from time to time, plus, in the case of any Loan denominated in GBP and made by a Lender subject to such requirements, Mandatory Liquid Asset Costs. Borrower shall pay interest on the unpaid principal amount of the Loans outstanding from time to time, in arrears, (i) on each Interest Payment Date, (ii) on the Termination Date, (iii) in the currency required by Section 2.10(b) and (iv) in accordance with Section 2.4(b) (where applicable). In addition, Borrower shall pay accrued interest on the principal amount of any Loans prepaid in accordance with Section 2.8 on the date of any such prepayment. (b) Default Interest. If Borrower shall default in the payment of the principal of or interest on any portion of a 37 Loan or any other amount becoming due hereunder or under any of the Loan Documents, Borrower shall on demand from time to time pay interest (to the extent permitted by law in the case of interest on overdue interest) on such defaulted amount accruing from and including the date of such default (without reference to any period of grace) up to and including the date of actual payment (after as well as before judgment) at a rate per annum which is the sum of (i) two percent (2%) plus (ii) the greatest of the LIBO Rate, the Alternate Rate or the Base Rate plus (iii) the Applicable Margin. Interest under this Section 2.4(b) shall be payable upon demand. (c) Interest Determination. Upon determining the LIBO Rate for each Interest Period, the Alternate Rate for any period or the Base Rate in effect from time to time, Administrative Agent shall promptly notify Borrower and Lenders thereof by telephone (confirmed promptly in writing) or in writing. Such determination shall, in the absence of manifest error, be conclusive and binding upon Borrower and the Lenders. 2.5. Duration of Interest Period; Notice of Continuation/Conversion. (a) Borrower may, pursuant to the applicable Notice of Borrowing or Notice of Continuation/Conversion, as the case may be, select an Interest Period to be applicable to each Eurodollar Loan. (b) Subject to the provisions of Sections 2.13 and 2.14, Borrower shall have the option (i) to convert at any time all or any part of outstanding Base Rate Loans to Eurodollar Loans or (ii) upon the expiration of any Interest Period applicable to Eurodollar Loans, to continue all or any portion of such Loans as Eurodollar Loans or convert all or any portion of such Loans to Base Rate Loans, as the case may be, and the succeeding Interest Period(s) of such continued Loans shall commence on the most recent Interest Payment Date therefor; provided that Loans may be continued as, or converted into, Eurodollar Loans with a particular Interest Period only in an aggregate amount equal to $1,000,000 and integral multiples of $500,000 in excess of that amount if the Loans are to be denominated in U.S. Dollars or a minimum aggregate amount of GBP 1,000,000 and integral multiples of GBP 500,000 in excess of that amount if the Loans are to be denominated in GBP (but subject always to the determinations described in Section 1.3(b) and the limits in Section 2.1 for Loans denominated in GBP); provided further that Eurodollar Loans or any portion thereof may only be converted into Base Rate Loans on the expiration date of the Interest Period(s) applicable thereto; and provided further that (i) no event has occurred and is continuing or would result from such Loan continuation/conversion that would constitute a Default or Event of Default, and (ii) the representations and warranties 38 contained in Section 3 shall be true, correct and complete in all material respects on and as of the proposed continuation/ conversion date to the same extent as though made on and as of that date unless stated in such section to relate to a specific earlier date, in which case such representations and warranties shall be true, correct and complete in all material respects as of such earlier date. All conversions and continuations of Loans shall be made simultaneously and on a pro rata basis by the Lenders in accordance with their respective Pro Rata Shares. Borrower shall deliver a Notice of Continuation/ Conversion to Administrative Agent (with a copy to Agent to follow) no later than 11:00 A.M. (New York City time) at least three Business Days in advance of the proposed continuation/ conversion date (in the case of a conversion to, or a continuation of, Eurodollar Loans) or at least three Business Days in advance of the proposed conversion date (in the case of a conversion to Base Rate Loans). A Notice of Continuation/Conversion shall specify (i) the proposed continuation/conversion date (which shall be a Business Day), (ii) the amount of the Loans to be continued/ converted, (iii) the nature of the proposed continuation/ conversion, (iv) in the case of a continuation of, or conversion to, Eurodollar Loans, the requested Interest Period, (v) that the representations and warranties contained in the Loan Documents are true, correct and accurate in all material respects to the same extent as though made on and as of the date of such Notice of Continuation/Conversion unless stated in such Loan Documents to relate to a specific earlier date, in which case such representations and warranties shall be true, correct and complete in all material respects as of such earlier date, and (vi) that no event has occurred and is continuing or would result from the proposed continuation/conversion that would constitute a Default or Event of Default. In lieu of delivering the above-described Notice of Continuation/Conversion, Borrower may give Administrative Agent telephonic notice by the time specified for delivery of a Notice of Continuation/Conversion above (which telephonic notice shall be followed immediately with a notice by facsimile telecopy); provided that in the event of a discrepancy between a Notice of Continuation/Conversion and such telephonic notice, such telephonic notice shall govern. Promptly after receipt by Administrative Agent of a Notice of Continuation/Conversion pursuant to this Section 2.5 (or telephonic notice followed immediately with a notice by facsimile telecopy), and in any event not later than 2:00 p.m. (New York time) at least three Business Days in advance of the proposed continuation/conversion date, Administrative Agent shall notify each Lender of the relevant details of the proposed continuation/conversion. None of Agent, Administrative Agent or any Lender shall 39 incur any liability to any Person (including Borrower) in acting upon any telephonic notice referred to above that Administrative Agent or Agent believes in good faith to have been given by a duly authorized officer or other person authorized to act on behalf of Borrower or for otherwise acting in good faith under this Section 2.5, and upon the continuation and/or conversion (as applicable) of any Loan in accordance with this Agreement pursuant to any such telephonic notice, Borrower shall have effected a continuation and/or conversion (as applicable) hereunder of such Loan. Except as otherwise provided in Sections 2.13 and 2.14, a Notice of Continuation/Conversion (or telephonic notice in lieu thereof) shall be irrevocable from and after the giving thereof, and Borrower shall be bound to effect a continuation and/or conversion (as applicable) in accordance therewith. 2.6. Fees. (a) Borrower shall pay to Administrative Agent for the account of each Lender, in accordance with its Pro Rata Share of the Commitments, a Commitment fee in an amount equal to one quarter of one percent (0.25%) per annum of the average of the daily excess of (i) such Lender's Commitment over (ii) the aggregate amount of the Loans of such Lender outstanding from time to time during the period from the date hereof to but excluding the Final Borrowing Date (which aggregate amount of Loans shall be determined in accordance with Section 1.3(b) when Loans denominated in GBP are outstanding), payable in arrears on (x) the last Business Day of March, June, September and December of each year until the Final Borrowing Date and (y) the Final Borrowing Date, such Commitment fee to accrue from the Effective Date to and excluding the Final Borrowing Date and be payable in U.S. Dollars as required by Section 2.10(b); provided that if, at any date of determination, Borrower's long-term unsecured senior debt is not rated BBB- or higher by Standard & Poor's Corporation or Baa3 or higher by Moody's Investors Service, Inc. (or similarly rated by any successor to either of such rating services), then the Commitment fee otherwise payable shall be increased by an additional one-eighth of one percent (0.125%) per annum. (b) Borrower shall on the date this Agreement is delivered by the parties hereto pay to Administrative Agent for Administrative Agent's own account and the account of each Lender such fees in such amount as may have been agreed in writing between Agent and Borrower. (c) Borrower shall pay to Administrative Agent for its account an annual administration fee payable in such amounts and according to such terms as are set forth in a separate letter agreement between Administrative Agent and Borrower, the first 40 such payment to be due on the date this Agreement is delivered by the parties hereto. 2.7. Termination or Reduction of Commitment. Borrower shall have the right, upon not less than five Business Days' notice to Administrative Agent, to terminate the Commitments or, from time to time, to reduce pro rata the amount of the Commitments, to the extent, in either case, that the Commitments are undrawn. Any such reduction shall be in an amount of $1,000,000 or any integral multiple thereof and shall reduce permanently the aggregate amount of the Commitments then in effect, with a proportionate reduction of the amount of the Commitments otherwise available for the borrowing of Loans denominated in GBP. 2.8. Optional Prepayments; Mandatory Prepayments. (a) Subject to Sections 2.8(f) and 2.15, Borrower may, at its option, prepay any Loans on any Business Day in whole or in part, without premium, upon at least three Business Days', in the case of Eurodollar Loans, or one Business Day's, in the case of Base Rate Loans, prior written notice to Administrative Agent, specifying the amount of prepayment. Each notice of prepayment pursuant to this clause (a) shall be irrevocable and the payment amount specified in such notice shall be due and payable on the date specified in the currency required by Section 2.10(b), together with accrued interest to such date on the Loans and all amounts (if any) payable pursuant to Section 2.15. Partial prepayments of the Loans pursuant to this clause (a) shall be in an aggregate principal amount of $1,000,000 (or GBP 1,000,000) or integral multiples of $500,000 (or GBP 500,000) in excess of that amount. (b) In the event of any sale or other disposition of any interest in any Facility, any Lease termination, or any other event giving rise to Net Property Proceeds or Net Mortgage Proceeds, within thirty days after the closing of any such sale or other disposition, Lease termination or other event giving rise to Net Property Proceeds or Net Mortgage Proceeds, Borrower shall apply an amount equal to all of such Net Property Proceeds and Net Mortgage Proceeds (other than any amount thereof required and used to satisfy Indebtedness secured by a Lien, not inconsistent with the terms of this Agreement, on the relevant Properties or Mortgage Interests) to the prepayment of the Loans; provided that with respect to a particular transaction or a related series of transactions giving rise to Net Property Proceeds or Net Mortgage Proceeds, prepayment of the Loans shall be required from such Net Property Proceeds or Net Mortgage Proceeds only to the extent that the same exceed $1,000,000. (c) In the event of any (i) public or private offering by or on behalf of Borrower of debt or equity securities issued 41 by Borrower or (ii) incurrence by Borrower of Indebtedness to one or more financial institutions, within thirty days after such offering or incurrence, Borrower shall apply all Net Securities Proceeds arising from such offering or incurrence to the prepayment of the Loans; provided that such Net Securities Proceeds may, at Borrower's option, first be applied toward any obligation of Borrower to repay any installment of principal on any Indebtedness of Borrower at its stated maturity then or at any time in the next thirty days due and owing. (d) The Loans shall be subject to certain mandatory prepayments pursuant to and upon the occurrence of the events described in the provisions of Sections 2.13 and 2.14. (e) If at any time the principal balance of the Loans exceeds the Commitments, Borrower shall promptly (and in any event no later than two Business Days after becoming aware thereof) repay Loans to the extent necessary to reduce the aggregate outstanding principal amount thereof to an amount that is equal to or less than the Commitments. If at any time the principal balance of the General Corporate Loans then outstanding exceeds 25% of the Commitments, Borrower shall promptly (and in any event no later than two Business Days after becoming aware thereof) repay General Corporate Loans to the extent necessary to reduce the aggregate outstanding principal amount thereof to an amount that is equal to or less than 25% of the Commitments. If at any time the principal balance of the Loans denominated in GBP exceeds the Equivalent Amount of $100,000,000 (as determined in accordance with Section 1.3(b)), Borrower shall promptly (and in any event no later than two Business Days after becoming aware thereof) repay Loans denominated in GBP to the extent necessary to reduce the aggregate outstanding principal amount thereof to an amount that is equal to or less than the Equivalent Amount in GBP of $100,000,000; provided that, so long as no Default or Event of Default has occurred and is continuing, any such repayment of the Loans denominated in GBP may be made at the end of the applicable Interest Periods on condition that Borrower deposits with Administrative Agent cash in an amount equal to the amount of the required prepayment at the time otherwise required for prepayment (such amounts to be held as cash collateral by Administrative Agent pending such repayment on terms satisfactory to Agent, Administrative Agent and Borrower). (f) Subject to the application of the payment provisions of Section 2.10(a), any prepayments of the Loans pursuant to this Section, Sections 2.13 or 2.14, or any other provision of any Loan Document shall be applied first to any amounts payable with respect thereto pursuant to Section 2.15, second to the payment of accrued and unpaid interest on the principal amount of outstanding General Corporate Loans up to and including the date of prepayment, third, to the extent no General Corporate Loans remain outstanding, to the payment of accrued and 42 unpaid interest on the principal amount of all other outstanding Loans up to and including the date of prepayment, fourth to the principal amount of such General Corporate Loans, and fifth to the principal amount of all other outstanding Loans. Subject to the requirements of the preceding sentence, Borrower may designate the application of any prepayments, to be applied to principal on the Loans, to the Eurodollar Loans, Base Rate Loans and/or Alternate Rate Loans, as it may select, provided that if Borrower does not designate such application, such prepayments shall be applied (x) first to outstanding Base Rate Loans, (y) second to outstanding Alternate Rate Loans and (z) third to outstanding Eurodollar Loans. 2.9. Computation of Interest and Fees. Fees and other amounts other than interest calculated on the basis of a rate per annum shall be computed on the basis of a 360-day year for the actual days elapsed. Interest on the Base Rate Loans (other than any such interest the calculation of which is based on the Federal Funds Rate) and interest on the Eurodollar Loans denominated in GBP shall be computed on the basis of a 365-day year for the actual days elapsed, while interest on the Eurodollar Loans denominated in U.S. Dollars and interest on the Alternate Rate Loans which do not bear interest at the Base Rate shall be computed on the basis of a 360-day year for the actual days elapsed. 2.10. Payments and Currency. (a) Except as contemplated by this Agreement, the borrowing by Borrower from the Lenders, each payment (including each prepayment) by Borrower on account of principal, interest and fees required under Sections 2.6(a) and (b), and any reduction of the amount of the Commitments of the Lenders hereunder, shall be made for the account of each Lender according to its Pro Rata Share; provided that payments to the Lenders of interest based upon the Alternate Rate shall be allocated appropriately to give effect to differences among the Lenders' respective costs of funds. All payments (including prepayments) by Borrower on account of principal, interest, fees, costs, indemnities or other amounts payable hereunder or under any of the Loan Documents shall be made to Administrative Agent for the account of the applicable Lenders (except for fees required under Section 2.6(c) which shall be only for the account of Administrative Agent and Agent, respectively) at the account of Administrative Agent specified in Section 10.3(b) and in immediately available funds in the currency required by Section 2.10(b). Each payment or prepayment hereunder and under the Notes and the other Loan Documents shall be made without set-off or counterclaim and free and clear of, and without deduction for, any present or future withholding or other taxes, duties or charges of any nature imposed on or attributable to such payments or prepayments by or on behalf of any Governmental Authority, except for any Excluded Taxes. If any such taxes (other than any Excluded Taxes), duties or charges 43 (including, without limitation, any tax, duty or charge imposed by Sections 1, 2 and/or 39 of the Massachusetts General Laws, Chapter 63, as currently in effect or as amended hereafter or any analogous provisions (or provisions having an analogous effect) of the laws, rules or regulations (or interpretations thereof) of Massachusetts or any other Governmental Authority) are so levied or imposed on or are attributable to any such payment or prepayment, Borrower will make additional payments in such amounts as may be necessary so that the net amount received by a Lender, after withholding or deduction for or on account of all such taxes, duties or charges, will be equal to the amount provided for herein or in such Lender's Note or in any of the other Loan Documents. Whenever any taxes, duties or charges are payable by Borrower with respect to or attributable to any payments or prepayments hereunder or under any of the Notes or any other Loan Document, Borrower agrees to furnish promptly to Administrative Agent for the account of the applicable Lender official receipts or copies thereof, if reasonably available, evidencing payment of any such taxes, duties or charges so withheld or deducted. If Borrower fails to pay any such taxes, duties or charges when due to the appropriate taxing authority after receipt of notice that any such taxes, duties or charges are due, or fails to remit to Administrative Agent for the account of the applicable Lender the customary evidence of payment of any such taxes, duties or charges so withheld or deducted, Borrower shall indemnify the affected Lender for any incremental taxes, duties, charges, interest or penalties that may become payable by such Lender as a result of any such failure. During the continuance of any Default, Administrative Agent may, but shall be under no obligation to, apply all payments received by Administrative Agent from Borrower pursuant to any of the Loan Documents in the following order of payment regardless of the application designated by Borrower: first to any interest owing under Section 2.4(b) or under any of the Loan Documents other than interest owing on the Loans and the Notes referred to below, second to any fees then payable to Agent, Administrative Agent or the Lenders, third to any amounts owing pursuant to Section 10.7, fourth to any amounts owing pursuant to Sections 2.13, 2.14 or 2.15, fifth to any other sums (other than principal on the Loans and the Notes and interest thereon referred to below) owing under any of the Loan Documents, sixth to any interest owing on the Loans and Notes and seventh to the repayment of the principal of the Loans and the Notes as designated by Administrative Agent; provided that if such application is other than in accordance with any express designation by Borrower, Administrative Agent shall promptly notify Borrower of such application. Administrative Agent will distribute each payment to the applicable Lenders promptly upon receipt thereof (and in any event on the same Business Day as the date when received, if such payment is received at or prior to 12:00 noon (New York time)). Each payment by Administrative Agent to a Lender shall be made for the account of such Lender's 44 Lending Office as designated by such Lender to Administrative Agent in writing from time to time. Whenever any payment to be made hereunder or under any Loan Document, including, without limitation, any principal of or interest on any Loan, shall become due and payable, or whenever the last day of any Interest Period would otherwise occur, on a day which is not a Business Day, such payment shall be made and the last day of such Interest Period shall occur on the next succeeding Business Day and such extension of time shall in such case be included in computing interest on such payment; provided that if such extension would cause any such payment to be made in the next succeeding calendar month, or the last day of such Interest Period to occur in the next succeeding calendar month, such payment shall be made, and the last day of such Interest Period shall occur, on the next preceding Business Day. (b) A repayment or prepayment of a Loan or any part of a Loan is payable in the currency in which the Loan was denominated at the time at which such Loan was made to Borrower by Lenders. Interest in respect of a Loan is payable in the currency in which the principal portion of the respective Loan in respect of which it is payable is denominated. Fees in respect of Commitments or otherwise hereunder shall be payable in U.S. Dollars. Amounts payable in respect of costs, expenses and taxes and the like are payable in the currency in which they are incurred. Any other amount payable under this Agreement is, except as otherwise provided in this Agreement, payable in U.S. Dollars. 2.11. Use of Proceeds. The proceeds of the Loans hereunder shall be used by Borrower (either directly or indirectly through intercompany advances of such proceeds as permitted under Section 6.8(d) to its Subsidiaries; provided that Church Creek Corporation may not receive any such proceeds) for (a) the acquisition of Properties; and (b) the acquisition or funding of Mortgage Interests; provided that the General Corporate Loans may be used by Borrower and its Subsidiaries for their respective general corporate purposes; provided further that the Existing Loans may be continued for the same purposes as they were made under the Existing Loan Agreement, and shall not be treated as General Corporate Loans. 2.12. Increased Costs. (a) If any Requirement of Law or other event or condition, or any amendment, modification or interpretation thereof (including, without limitation, any request, recommendation, guideline or policy, whether or not having the force of law, of or from any central bank or other Governmental Authority), in any such case, adopted, effective, made or issued after the date hereof (but in any event including, without limitation, Regulation D and Section 1, 2 and/or 39 of the 45 Massachusetts General Laws, Chapter 63 as currently in effect or as amended hereafter or any analogous provisions (or provisions having an analogous effect) of the laws, rules or regulations (or interpretations thereof) of Massachusetts or any other Governmental Authority) by any authority charged with the administration or interpretation thereof: (i) subjects Agent, Administrative Agent or any Lender or any branch or Affiliate of Agent, Administrative Agent or such Lender to any tax (except Excluded Taxes), fee, deduction, duty, withholding, levy, impost or other charge or reduction of any nature, on or with respect to, or which Agent, Administrative Agent or such Lender in its sole discretion deems applicable or attributable to this Agreement, any Note, any of the other Loan Documents, its Commitment or its pro rata share of the Loans, or interest, fees or other amounts attributable thereto or to any of the foregoing; or (ii) changes the basis of taxation of payments to any Lender or any branch or Affiliate of such Lender of principal of and/or interest on such share of the Loans and/or other fees and amounts payable hereunder or under any of the Loan Documents or with respect hereto or thereto (including in any event imposition of or change in any withholding taxes, but excluding any Excluded Taxes); or (iii) imposes upon, modifies, requires, makes or deems applicable to any Lender, or any of its branches or Affiliates, any regular, special, supplementary or other reserve or deposit requirement, insurance assessment or similar requirement against or affecting any assets held by, or liabilities of, or deposits with or for the account of, such Lender or such branch or Affiliate, with respect to or which Agent or such Lender in its sole discretion deems applicable or attributable to this Agreement, any Note, any of the other Loan Documents, its Commitment or its pro rata share of the Loans, or interest, fees or other amounts attributable thereto or to any of the foregoing; or (iv) imposes, modifies or deems applicable any condition or requirement upon or causes in any manner the addition of any supplement to, or increase of any kind to, the capital or cost base of Agent, Administrative Agent or any Lender or such branch or Affiliate, for extending or maintaining its Commitment or its pro rata share of the Loans which results in an increase in the capital requirement supporting such Commitment or its pro rata share of the Loans, or imposes upon, modifies, requires, makes or deems applicable to Agent, Administrative Agent or such Lender or any such branch or Affiliate any capital requirement, increased capital requirement or similar 46 requirement, with respect to or which Agent, Administrative Agent or such Lender in its sole discretion deems applicable or attributable to this Agreement, any Note, any of the other Loan Documents, its Commitment or its pro rata share of the Loans, or interest, fees or other amounts attributable thereto or to any of the foregoing; or (v) imposes upon Agent, Administrative Agent or any Lender or any branch or Affiliate of Agent, Administrative Agent or such Lender any other conditions with respect to, or allocable or attributable in good faith by Agent, Administrative Agent or the Lender to, this Agreement, any Note, any of the other Loan Documents or such share of the Loans or its Commitment hereunder or such interest, fees or other amounts; and the result of any of the foregoing, based solely upon the good faith determination and allocation by Agent, Administrative Agent or any Lender, as the case may be, of costs, decreased benefits and/or reduced amount of payments, is to increase the cost or decrease the benefit, in any way, to Agent, Administrative Agent or such Lender, as the case may be, or any branch or Affiliate of Agent, Administrative Agent or such Lender, as the case may be, of funding or maintaining its Commitment or its share of the Loans hereunder, or to reduce the amount of any payment (whether of principal, interest, or otherwise) received or receivable by Agent, Administrative Agent or such Lender, as the case may be, or any branch or Affiliate of Agent, Administrative Agent or such Lender, as the case may be, or to require Agent, Administrative Agent or such Lender, as the case may be, or any branch or Affiliate of Agent, Administrative Agent or such Lender, as the case may be, to make any payment, then and in any such case: (1) Agent, Administrative Agent or such Lender, as the case may be, shall promptly notify Borrower and the other Lenders in writing of the happening of such event; (2) Agent, Administrative Agent or such Lender, as the case may be, shall promptly deliver to Borrower and the other Lenders a certificate stating the change or event which has occurred or the reserve or capital requirements or other conditions which have been imposed on Agent, Administrative Agent or such Lender, as the case may be, or branch or Affiliate of Agent, Administrative Agent or such Lender, as the case may be, or the request, recommendation, guideline or policy with which it has complied, together with the date thereof, the amount of such increased cost, decreased benefit or reduction payment; and (3) Borrower shall pay Agent, Administrative Agent or such Lender, as the case may be, promptly on demand such an 47 amount or amounts as: (A) in the case of events referred to in clauses (i), (ii), (iii) and (v) and, if applicable, clause (iv) above, shall be sufficient to compensate it or such branch or Affiliate for all such increased costs and/or payments and/or decreased benefits, and/or reduced amount of payment; and/or (B) in the case of events referred to in clause (iv) above, shall be an amount equal to the reduction, as reasonably determined by Agent, Administrative Agent or such Lender, as the case may be, in the after-tax rate of return on Agent's, Administrative Agent's or such Lender's capital resulting from any such capital or increased capital or similar requirement, all as certified by Agent, Administrative Agent or such Lender or Lenders, as the case may be, in said written notice to Borrower. Such certification shall be conclusive and binding on Borrower absent manifest error. The certificate of Agent, Administrative Agent or such Lender as to the additional amounts payable pursuant to this Section 2.12 delivered to Borrower shall constitute prima facie evidence of the amount thereof. Agent, Administrative Agent and each Lender agree to use reasonable efforts, as determined by Agent, Administrative Agent or such Lender, as the case may be, to avoid or minimize the payment by Borrower of any additional amounts under this Section 2.12. The protection provided by this Section 2.12 shall be available to Agent, Administrative Agent and each Lender regardless of any possible contention of invalidity or inapplicability of the Requirement of Law, interpretation, recommendation, guideline, policy or event or condition which has been imposed or has occurred. In the event that after Borrower shall have paid any additional amount under this Section 2.12 with respect to the Loans Agent, Administrative Agent or such Lender shall have successfully contested such Requirement of Law, interpretation, recommendation, guideline, policy or event or condition then, to the extent that Agent, Administrative Agent or such Lender will be placed in the same position it was in prior to the incurrence of the increased cost or reduction in amount received or receivable (on an after-tax basis), but without giving effect to interest which may have been earned on the additional amount paid by Borrower (but with interest to the extent actually earned by Agent, Administrative Agent or such Lender, as the case may be, on such amount as determined by Agent, Administrative Agent or such Lender, as the case may be), Agent, Administrative Agent or such Lender, as the case may be, shall refund to Borrower such additional amount (with such interest, if any). 48 2.13. Change in Law Rendering Eurodollar Loans or Alternate Rate Loans Unlawful; Failure to Give Notice of Continuation. (a) Notwithstanding anything to the contrary herein contained, in the event that any Requirement of Law or any change in any existing Requirement of Law or in the interpretation thereof by any Governmental Authority charged with the administration thereof, in any case adopted, issued or effective after the date hereof, (i) shall make it unlawful for any Lender to fund any portion of the Eurodollar Loans or to give effect to its obligations as contemplated hereby with respect to its making or maintaining its pro rata share of the Eurodollar Loans, or (ii) shall make it unlawful for any Lender to fund any portion of the Alternate Rate Loans or to give effect to its obligations as contemplated hereby with respect to its Commitment or making or maintaining its pro rata share of the Alternate Rate Loans, such Lender shall, upon the happening of such event, notify Agent, Administrative Agent, the other Lenders and Borrower thereof in writing stating the reason therefor and the effective date of such event, and (x) upon the effectiveness of any such event referred to in clause (i) above, the obligation of such Lender to make or maintain its pro rata share of the Eurodollar Loans to Borrower shall forthwith be suspended for the duration of such illegality and during such illegality such Lender shall, upon payment of any amounts owing under Section 2.15 with respect to such conversion, convert its share of the Eurodollar Loans to Alternate Rate Loans or (upon effectiveness of any such event referred to in clause (ii) and during the continuance of such event) Base Rate Loans in the case of Loans denominated in U.S. Dollars or Alternate GBP Rate Loans in the case of Loans denominated in GBP, and (y) upon the effectiveness of any such event referred to in clause (ii), the obligation of such Lender to make or maintain its pro rata share of the Alternate Rate Loans to Borrower shall forthwith be suspended for the duration of such illegality and during such illegality such Lender shall, upon payment of any amounts owing under Section 2.15 with respect to such conversion, convert its share of the Alternate Rate Loans to Base Rate Loans in the case of Loans denominated in U.S. Dollars or Alternate GBP Rate Loans in the case of Loans denominated in GBP. If and when such illegality with respect thereto ceases to exist, such suspension shall cease and such affected Lender shall similarly notify Agent, Administrative Agent, the other Lenders and Borrower and the Alternate Rate Loan or Base Rate Loan or Alternate GBP Rate Loan into which such share of the Eurodollar Loans or Alternate Rate Loans (as applicable) was converted pursuant to this Section 2.13 shall be reconverted to a Eurodollar Loan or Alternate Rate Loan, respectively, on the first day of the next succeeding Interest Period. (b) If Borrower fails to give a valid Notice of 49 Continuation/Conversion in respect of any portion of a Eurodollar Loan which is not repaid in accordance with the terms hereof at the end of the relevant Interest Period in respect thereto, such portion shall be converted automatically into Base Rate Loans in the case of Loans denominated in U.S. Dollars or Alternate GBP Rate Loans in the case of Loans denominated in GBP; provided that if Borrower subsequently gives a valid Notice of Continuation/Conversion in respect of such Base Rate Loans or Alternate GBP Rate Loans, such Loans shall be converted into Eurodollar Loans in accordance with the requirements for a continuation/conversion under Section 2.5. (c) If any Loan is converted to an Alternate Rate Loan pursuant to this Section 2.13, Borrower and Lenders, acting through Administrative Agent, shall enter into negotiations in good faith with a view to agreeing upon a substitute basis for determining the rate or rates of interest from time to time applicable to such Loan, which shall be acceptable to each Lender, and the rate or rates so determined shall constitute the Alternate Rate for that Loan from the date of such conversion. If, however, Borrower and Majority Lenders fail to agree to such substitute basis within thirty (30) days after such conversion, such Loan shall be deemed to have been converted to (i) in the case of Loans denominated in U.S. Dollars, a Base Rate Loan, and (ii) in the case of Loans denominated in GBP, an Alternate GBP Rate Loan effective (in the case of clauses (i) and (ii)) from the date of such conversion. 2.14. Eurodollar Availability. (a) In the event, and on each occasion, that on the day two Business Days prior to the commencement of any Interest Period for any Eurodollar Loans, Administrative Agent shall have determined (which determination shall, in the absence of manifest error, be conclusive and binding upon Borrower) that U.S. Dollar or GBP (as the case may be) deposits in the amount of the principal amount of the Eurodollar Loans which is to have such Interest Period are not generally available in the London interbank market, or that the rate at which such U.S. Dollar or GBP (as the case may be) deposits are being offered will not accurately reflect the cost to any of the Lenders of making or funding such principal amount of such Eurodollar Loans during such Interest Period, or that reasonable means do not exist for ascertaining the LIBO Rate, Administrative Agent shall, as soon as practicable thereafter, give written or telephonic notice (which telephonic notice shall be followed immediately with a notice by facsimile telecopy) of such determination to Agent, the Lenders and Borrower and (i) such principal amount of such Eurodollar Loans shall automatically be converted, as of the last day of the Interest Period during which such determination is made, to Alternate Rate Loans subject to the last sentence of this paragraph and (ii) any request by Borrower for such Eurodollar Loans pursuant to Section 2.3 hereof shall thereupon, and until the circumstances 50 giving rise to such notice no longer exist (as notified by Administrative Agent to Borrower and the Lenders), be deemed a request for the making of Alternate Rate Loans. If at any time Administrative Agent shall have determined (which determination shall, in the absence of manifest error, be conclusive and binding upon Borrower) that any contingency has occurred which adversely affects the London interbank market or that any Requirement of Law or any change in any existing Requirement of Law or in the interpretation thereof or other circumstance affecting the Lenders or the London interbank market makes the funding of the Eurodollar Loans impracticable, Administrative Agent shall, as soon as practicable thereafter, give written or telephonic notice (which telephonic notice shall be followed immediately with a notice by facsimile telecopy) of such determination to Agent, the Lenders and Borrower and (i) the Eurodollar Loans shall automatically be converted, as of the last day of each Interest Period during which such determination is made and in each case in respect of the principal amount of the Eurodollar Loans having an Interest Period ending on such date, to Alternate Rate Loans, subject to the last sentence of this paragraph, and (ii) any request by Borrower for the Eurodollar Loans pursuant to Section 2.3 hereof shall thereupon, and until the circumstances giving rise to such notice no longer exist (as notified by Administrative Agent to Borrower, Agent and the Lenders), be deemed a request for the making of Alternate Rate Loans. If, in the circumstances specified in this paragraph or in Section 2.13, Administrative Agent determines that no reasonable alternate source of funding for the Eurodollar Loans, or no reasonable basis for determining the Alternate Rate, is available or practicable, Administrative Agent shall promptly so notify the other Lenders, Agent and Borrower thereof and any notice of borrowing under Section 2.3 shall be deemed rescinded and each principal amount of the Eurodollar Loans, if outstanding, having an Interest Period then current, together with all interest thereon, shall be due and payable by Borrower on the last day of the Interest Period then applicable to it. (c) If any Loan is converted to an Alternate Rate Loan pursuant to this Section 2.14, Borrower and Lenders, acting through Administrative Agent, shall enter into negotiations in good faith with a view to agreeing upon a substitute basis for determining the rate or rates of interest from time to time applicable to such Loan, which shall be acceptable to each Lender, and the rate or rates so determined shall constitute the Alternate Rate for that Loan from the date of such conversion. If, however, Borrower and Majority Lenders fail to agree to such substitute basis within thirty (30) days after such conversion, such Loan shall be deemed to have been converted to (i) in the case of Loans denominated in U.S. Dollars, a Base Rate Loan, and (ii) in the case of Loans denominated in GBP, an Alternate GBP Rate Loan, effective (in the case of clauses (i) and (ii)) from the date of such conversion. 51 2.15. Indemnities. Borrower shall indemnify each Lender on demand for, from and against any actual loss (including, without limitation, any loss of anticipated profits) or expense (including but not limited to any loss or expense sustained or incurred in liquidating or employing or redeploying deposits from third parties acquired to effect or maintain any Loan or any portion thereof) which such Lender or its branch or Affiliate may sustain or incur as a consequence of (i) any default in payment or prepayment of the principal amount of any Loan or any portion thereof or interest accrued thereon, as and when due and payable (at the due date thereof, by irrevocable notice of payment or prepayment, or otherwise), (ii) the effect of the occurrence of any Event of Default upon any Loan, (iii) the payment or prepayment of any principal amount of any Loan or the conversion of any portion of any Eurodollar Loan to Alternate Rate Loans or Base Rate Loans on any day other than the last day of an Interest Period or the payment of any interest on such Loan, or portion thereof, on a day other than an Interest Payment Date for the Loan or (iv) any failure of Borrower to accept or make a borrowing of the Loans or continue or convert a Loan after delivery of a notice requesting a Loan under Section 2.3 or, as the case may be, a notice requesting a continuation or conversion under Section 2.5 or any failure by Borrower to satisfy any of the conditions precedent to the making of Loans hereunder after it has requested the borrowing thereof (other than any such conditions that are waived in accordance with the provisions hereof). The determination of each Lender of any amount payable under this Section 2.15 shall, in the absence of manifest error, be conclusive and binding upon Borrower. 2.16 Eligible Mortgages and Eligible Properties. (a) "Eligible Mortgage" means each Mortgage Interest where (i) the requirements of Section 2.16(c) in respect of such Mortgage Interest are met, (ii) the Mortgagor in respect of such Mortgage Interest is not in default under any payment obligation or in any material respect under any other Contractual Obligation between such Mortgagor and Borrower or any of its Subsidiaries, including without limitation any Mortgage Interest Agreement, any note payable by such Mortgagor to Borrower or any of its Subsidiaries or any Lease, (iii) there has been no Cash Flow Event with respect to such Mortgaged Property, (iv) no Credit Support Obligor in respect of such Mortgage Interest is in default under any payment obligation or in any material respect under any other Contractual Obligation of such Credit Support Obligor to Borrower or any of its Subsidiaries, including without limitation any Lease, Mortgage Interest Agreement or Credit Support Agreement, and (v) such Mortgage Interest is not subject to a Lien otherwise permitted pursuant to Section 6.9(i) or 6.9 (iv). (b) "Eligible Property" means each Property which is 52 leased to an Operator pursuant to a Lease approved in all respects by Agent, provided (i) the requirements of Section 2.16(c) in respect of such Property are met, (ii) it is not a Property the Operator of which has failed to exercise any renewal option under the Lease thereof prior to the expiration of that option (and no replacement Lease with that or another Operator has been signed), (iii) such Operator is not in default under any payment obligation or in any material respect under any other Contractual Obligation between such Operator and Borrower or any of its Subsidiaries, including without limitation such Lease, any other Lease or any Mortgage Interest Agreement, (iv) there has been no Cash Flow Event with respect to such Property, (v) no Credit Support Obligor for the Lease of such Property is in default under any payment obligation or in any material respect under any other Contractual Obligation of such Credit Support Obligor to Borrower or any of its Subsidiaries, including without limitation any Lease, Mortgage Interest Agreement or Credit Support Agreement, (vi) such Property is not subject to a Lien otherwise permitted pursuant to Section 6.9(i) or 6.9 (iv), and (vii) in the case of any Property which is a Courtyard Lodging, either (y) the ratio of the Cash Flow of its Operator attributable to that Property for the last period certified in a Real Property Statement delivered pursuant to Section 5.2(b)(ii) to its Fixed Charges over the same period for such Property is equal to or greater than 1.25 to 1.00 or (z) such Property is part of a group of Cross Guarantied Assets, and the ratio of the Cash Flow attributable to all such Cross Guarantied Assets to Fixed Charges for all such Cross Guarantied Assets is equal to or greater than 1.25 to 1.00. (c) No Mortgage Interest shall be an Eligible Mortgage and no Property shall be an Eligible Property unless, on any relevant date, there has been no MAC in respect of such (i) Property (or any Operator or Credit Support Obligor for the Lease thereof), or (ii) Mortgaged Property (or any Mortgagor or Credit Support Obligor for the Mortgage Interest Agreements in respect thereof), in each case since December 31, 1993 or, if later, the date on which Borrower or any of its Subsidiaries acquired an interest in such Property or Mortgaged Property other than, in each case, a MAC which has ceased to be in effect; provided that for the purposes of this Section 2.16, failure to comply with clause (ii) of Section 5.5(a) in connection with an Eligible Property or an Eligible Mortgage shall be deemed to constitute a MAC in respect of such Eligible Property or Eligible Mortgage. SECTION 3. REPRESENTATIONS AND WARRANTIES In order to induce the Lenders to enter into this Agreement and to make the Loans herein provided for, Borrower hereby covenants, represents and warrants to Agent, Administrative Agent and each Lender that: 53 3.1. Financial Condition. The balance sheet of Borrower and its Subsidiaries (if any) as at December 31, 1991, December 31, 1992 and December 31, 1993 and the related consolidated statements of income, stockholders' equity and cash flows for the fiscal years ended on such dates, certified by Ernst & Young, copies of which have heretofore been furnished to Agent, are complete and correct and present fairly the financial condition of Borrower and its Subsidiaries (if any) on a consolidated basis as at such dates, and stockholders' equity and cash flows for the fiscal years then ended. All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants or Responsible Officer, as the case may be, and as disclosed therein). Borrower and its Subsidiaries have no material Contingent Obligation, contingent liabilities or liability for taxes, long-term lease or unusual forward or long-term commitment, which is not reflected in the foregoing statements or in the notes thereto. 3.2. No Material Adverse Effect. Since December 31, 1993 (a) there has been no Material Adverse Effect, and no event has occurred and no condition exists which could reasonably be expected to have a Material Adverse Effect and (b) no dividends or other distributions have been declared the payment of which could result in a Default or Event of Default nor have any Common Shares, Preferred Shares or other equity securities of Borrower been redeemed, retired, purchased or otherwise acquired for value by Borrower or any of its Subsidiaries. 3.3. Existence; Compliance with Law. Borrower and each of its Subsidiaries (a) is, in the case of Borrower, a real estate investment trust duly organized, validly existing and in good standing under the laws of the State of Maryland and, in the case of each such Subsidiary, a corporation duly organized, validly and existing and in good standing under the laws of its respective jurisdiction of incorporation, (b) has full power and authority and the legal right to own its property, to lease (as lessee) the property that it leases as lessee, to lease (as lessor) or sublease the property it owns and/or leases (as lessee) and to conduct the business in which it is currently engaged, (c) is duly qualified or licensed and is in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business require such qualification, and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith is not reasonably likely to have, in the aggregate, a Material Adverse Effect. 54 3.4. Operator, Advisor, Credit Support Obligors; Compliance with Law. (a) To the best knowledge of Borrower, each Operator and Mortgagor (i) has full power and authority and the legal right to own, lease (or sublease) and operate (as applicable) the properties it operates and to conduct the business in which it is currently engaged with respect to any Facility, (ii) is duly qualified or licensed and is in good standing under the laws of each jurisdiction where its ownership, lease (or sublease) or operation of any Facility requires such qualification, and (iii) is in compliance with all Requirements of Law applicable to the Facilities operated by it, or applicable to the operation thereof except to the extent that the failure to comply therewith is not reasonably likely to have, in the aggregate, a Material Adverse Effect. (b) To the best knowledge of Borrower, the Advisor (i) has full power and authority and legal right to conduct the business in which it is presently engaged and to perform its obligations under the Advisory Agreement, (ii) is duly qualified or licensed and is in good standing under the laws of each jurisdiction where the conduct of its business requires such qualification, and (iii) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith is not reasonably likely to have, in the aggregate, a Material Adverse Effect. (c) To the best knowledge of Borrower, the Credit Support Obligors (i) have full power and authority and legal right to conduct the business in which they are presently engaged and to perform their obligations under the Credit Support Agreements to which they are parties, and (ii) are in compliance with all Requirements of Law, except, in the case of clauses (i) and (ii), to the extent that the failure to comply therewith is not reasonably likely to have, in the aggregate, a Material Adverse Effect. 3.5. Power; Authorization; Enforceable Obligations. Borrower and each of its Subsidiaries has the power and authority and the legal right to make, deliver and perform each of the Loan Documents to which it is a party and, in the case of Borrower, to borrow hereunder; and Borrower has taken all necessary action to authorize the borrowings hereunder, on the terms and conditions of the Loan Documents, and Borrower and each of its Subsidiaries has taken all necessary action to authorize the execution, delivery and performance of each of the Loan Documents to which it is a party. No consent or authorization of, filing with, or other act by or in respect of any Governmental Authority is required in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of the Loan Documents. This Agreement has been, and each other Loan 55 Document will be, duly executed and delivered on behalf of Borrower and each of its Subsidiaries which is a party thereto and this Agreement constitutes, and each other Loan Document when executed and delivered will constitute, a legal, valid and binding obligation of Borrower and each of its Subsidiaries which is a party thereto enforceable against Borrower and each of its Subsidiaries which is a party thereto in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally. 3.6. No Legal Bar. The execution, delivery and performance of this Agreement and the other Loan Documents, the borrowings hereunder and the use of the proceeds thereof, will not violate any Requirement of Law or any Contractual Obligation of Borrower or any of its Subsidiaries, and will not result in, or require, the creation or imposition of any Lien on any of their respective properties or revenues pursuant to any Requirement of Law or Contractual Obligation. 3.7. No Material Litigation. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the best knowledge and belief of Borrower, threatened by or against Borrower or any of its Subsidiaries or against any of their respective properties or revenues or, to the best knowledge and belief of Borrower, by or against any of the Operators and Mortgagors or against any of their respective properties (a) with respect to this Agreement or the other Loan Documents, the Leases, the Mortgage Interest Agreements, or any of the transactions contemplated hereby or thereby, or (b) relating to the Properties, the Mortgaged Properties or the ownership or the operation thereof or the conduct of business thereon as presently conducted, which, in the case of (a) or (b), is reasonably likely to have, in the aggregate, a Material Adverse Effect. 3.8. No Default. Neither Borrower nor any of its Subsidiaries is in default under or with respect to any Contractual Obligation in any respect which could have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 3.9. Ownership of Mortgage Interests and Property; Liens. (a) In the case of a Mortgage Interest, Borrower or one of its Subsidiaries has good record, marketable and indefeasible title to such Mortgage Interest. In the case of a Property which is a Fee Interest, Borrower or one of its Subsidiaries has good record, marketable and indefeasible fee simple absolute title to such Fee Interest. In the case of a Property which is a Leasehold Interest, Borrower or one of its 56 Subsidiaries has good record and marketable title to such Leasehold Interest. In the case of a Mortgage Interest in respect of which all or any part of the Mortgaged Property is a fee interest in land and/or buildings, structures, improvements and fixtures, the Mortgagor with respect to such Mortgaged Property has good record, marketable and indefeasible fee simple absolute title to such Mortgaged Property. In the case of a Mortgage Interest in respect of which all or any part of the Mortgaged Property is a leasehold estate, the Mortgagor with respect to such Mortgaged Property has good record and marketable title to such leasehold estate. In each of the cases described in this Section 3.9, such title shall be free and clear of all Liens and other matters affecting title except for such other matters not reasonably likely to have, in the aggregate, a Material Adverse Effect. (b) The buildings, structures, and other improvements located on each Facility are in good operating condition and repair (ordinary wear and tear which are not such as to materially and adversely affect the operations of the business conducted thereon, excepted), free of any material structural or engineering defects known to Borrower or any of its Subsidiaries on the date hereof and are suitable for their present uses, subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. (c) All water, sewer, gas, electricity, telephone and other utilities serving each Facility are supplied directly to such Facility by public utilities and enter such Facility through adjoining public streets or, if they pass through adjoining private land, do so in accordance with valid public easements which inure to the benefit of Borrower or one of its Subsidiaries (in the case of a Facility in which Borrower or such Subsidiary has a Fee Interest) or a mortgagor's or beneficiary's benefit (in the case of a Facility in which Borrower or such Subsidiary is a mortgagor or beneficiary, as applicable, of a loan secured in whole or in part by a Lien on a Facility), subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. All of such utilities are presently installed and operating and are in good and safe condition, subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. All material assessments for public improvements that have been made against the Facilities have been paid or provided for, except that in the case of any assessments that are payable in installments, all installments due as of the date hereof have been paid or provided for, subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. (d) None of Borrower or any of its Subsidiaries or to 57 the best knowledge and belief of Borrower, the Operators and Mortgagors, has received notice of any pending, threatened or contemplated condemnation proceeding or similar taking affecting the Facilities, or any portion thereof, or any sale or other disposition of the Facilities or any portion thereof in lieu of condemnation or similar taking, in each case, subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. (e) All Real Property Permits from all Governmental Authorities having jurisdiction over the Facilities or any portion thereof, the absence of which could materially impair the use of any Facility for the purposes for which it is currently used, and from all insurance companies and fire rating and similar boards and organizations required to have been issued to Borrower or any of its Subsidiaries or any Operators and Mortgagors of such Facility, as the case may be, to enable such Facility or any portion thereof to be lawfully occupied and used as currently so occupied or used have been issued and are in full force and effect, subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. Neither Borrower nor any of its Subsidiaries has received or been informed by a third party, including the Operators and Mortgagors of the Facilities, of the receipt by it of any notice from any Governmental Authority having jurisdiction over the Facilities or any portion thereof or from any insurance company or fire rating or similar board or organization threatening a suspension, revocation, modification or cancellation of any Real Property Permit, subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. (f) Each of the Leases, Mortgage Interest Agreements and Credit Support Agreements relating to Properties and Mortgage Interests (including Properties which are not Eligible Properties and Mortgage Interests which are not Eligible Mortgages) is in full force and effect and is a legally valid and binding obligation of Borrower or its Subsidiaries and the other parties thereto, subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. Neither Borrower nor any of its Subsidiaries has mortgaged, pledged or otherwise encumbered any of the Leases or Mortgage Interest Agreements or its right to obtain rental, interest or other payments thereunder except for the Liens permitted by Section 6.9. Neither Borrower nor any of its Subsidiaries has collected any rents becoming due under any Lease more than 30 days in advance (except (i) an amount equal to one month's instalment of rent under a Lease or (ii) in the case of a lease acquired from Host Marriott Corporation and its Affiliates pursuant to the transaction (or one on substantially similar terms) described in the Form S-3 Registration Statement of Borrower filed with the Commission on March 29, 1994, an amount 58 equal to no more than three months' instalment of rent under such lease). All rent and other sums and charges payable by any Operator under each Lease to which it is a party are current, no notice of default or termination under any such Lease is outstanding, no termination event or condition or uncured default on the part of an Operator exists under any Lease, and no event of default has occurred which, with the giving of notice or the lapse of time or both, would constitute such a default or termination event or condition or uncured default on the part of Borrower or its Subsidiaries or the Operators (as the case may be), subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. All payments required from any Mortgagor under any Mortgage Interest Agreement to which it is a party are current, no notice of default or acceleration under any such Mortgage Interest Agreement is outstanding, no default or condition or uncured default on the part of the Mortgagor exists under any Mortgage Interest Agreement, and no event of default has occurred which, with the giving of notice or the lapse of time or both, would constitute such a default or termination event or condition or uncured default on the part of the Mortgagor, subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. All payments required from any Credit Support Obligor in respect of any Credit Support Agreement for the Lease of a Property or for a Mortgage Interest are current, no notice of default or acceleration under any such Credit Support Agreement is outstanding, and no default or condition or uncured default on the part of such Credit Support Obligor exists under any such Credit Support Agreement, subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. As to all of the Leases, Borrower and each of its Subsidiaries has performed all of its repair and maintenance obligations (if any) and, to the best knowledge and belief of Borrower, each Operator and Mortgagor under each Lease and Mortgage to which it is a party has performed all of its repair and maintenance obligations, subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. (g) Borrower and each of its Subsidiaries has good record and marketable title in fee simple to or valid mortgage interests in all its real property, other than the Properties and Mortgaged Properties, as to which Borrower has made the representation set forth in subsection (a) of this Section 3.9, and good title to all its other property other than the Properties, and none of such property is subject to any Lien for borrowed money as of the date hereof, except for Liens permitted by Section 6.9. 3.10. No Burdensome Restrictions. No Contractual Obligation of Borrower or any of its Subsidiaries or, to Borrower's best knowledge and belief, of any of the Operators and 59 Mortgagors and no Requirement of Law currently has a Material Adverse Effect, or insofar as Borrower may reasonably foresee may have a Material Adverse Effect. 3.11. Taxes. Borrower and each of its Subsidiaries has filed or caused to be filed all tax returns which to the best knowledge and belief of Borrower are required to be filed, and has paid or caused to be paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than those the amount or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of Borrower or such Subsidiary); and no tax Liens have been filed and, to the knowledge of Borrower, no claims are being asserted with respect to any such taxes, fees or other charges. 3.12. Federal Regulations. Neither Borrower nor any of its Subsidiaries is engaged and nor will it engage, principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. No part of the proceeds of the Loans hereunder will be used for "purchasing" or "carrying" "margin stock" as so defined or for any purpose which violates, or which would be inconsistent with, the provisions of the Regulations of such Board of Governors. If requested by Agent, Borrower will furnish to Agent and each Lender a statement in conformity with the requirements of Federal Reserve Form U-1 referred to in said Regulation U to the foregoing effect. 3.13. Employees. Neither Borrower nor any of its Subsidiaries has any employees and none of them has ever engaged any employees. 3.14. ERISA. No ERISA Affiliate has been, since July 1, 1974, an "employer", as defined in Section 3(5) of ERISA, in respect of any Plan or making contributions to any Multiemployer Plan. 3.15. Status as REIT. Borrower is organized in conformity with the requirements for qualification as a real estate investment trust under the Code. Borrower's failure to elect to be treated as a real estate investment trust under the Code for its fiscal year ended December 31, 1986 has not had and will not have any Material Adverse Effect. Borrower has met all of the requirements for qualification as a real estate investment trust under the Code for its fiscal years ended December 31, 60 1991, 1992, 1993 and 1994. Borrower is in a position to qualify for its current fiscal year as a real estate investment trust under the Code and its proposed methods of operation will enable it to so qualify. 3.16. Restrictions on Incurring Indebtedness. Neither Borrower nor any of its Subsidiaries is (a) an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended, or (b) a "holding company" as defined in, or otherwise subject to, regulation under the Public Utility Holding Company Act of 1935. Neither Borrower nor any of its Subsidiaries is subject to regulation under any federal or state statute or regulation which limits its ability to incur the indebtedness or give the guaranties described in this Agreement. 3.17. Subsidiaries. Set forth on Schedule 4 annexed hereto is a complete and accurate list of all of Borrower's Subsidiaries showing as of the date hereof (as to each Subsidiary) the jurisdiction of its incorporation, the number of shares of each class of capital stock authorized, and the number outstanding, and the percentage of each class of capital stock owned by Borrower, all of which capital stock is owned free and clear of all Liens; all of the issued and outstanding shares of capital stock of such Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable. 3.18. Compliance with Environmental Laws. Borrower and each of its Subsidiaries and, to the best knowledge of Borrower, each Operator and each Mortgagor of the Facilities is in compliance with all applicable statutes, laws, rules, regulations and orders of all Governmental Authorities relating to environmental protection, pollution control and Hazardous Materials and with respect to the conduct of its business and the ownership of its properties, except for such noncompliance which would not result in imposition of Liens, fines, penalties, injunctive relief or other civil or criminal liabilities and which, in the aggregate, could not have a Material Adverse Effect. 3.19. Pollution; Hazardous Materials. In connection with the acquisition and ownership of its interests in the Properties and Mortgage Interests, Borrower and each of its Subsidiaries has made and will continue to make such inquiries, and has and will continue to cause such testing, surveying, inspection or other action, with respect to each Facility as is necessary or desirable in connection with Hazardous Materials which might be present in the air, soil, surface water or groundwater at such Facility. Except for such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect, there are not, and, to the knowledge of Borrower after diligent inquiry, were not previously, any Hazardous 61 Materials present in the air, soil, surface water or groundwater at any Facility and no Hazardous Materials (except Hazardous Materials maintained in accordance with all Requirements of Law and necessary for the business operations of any such Facility as a health care facility, including, without limitation, petroleum used for heating oil and certain medications) are used in the operation of any Facility. Borrower is not aware of any claim or notice of violation, alleged violation, noncompliance, liability or potential liability relating to any Facility nor any judicial proceedings or governmental or administrative actions pending or, to the knowledge of Borrower, threatened, to which Borrower or any of its Subsidiaries would be named a party in connection with any Facility which, if adversely determined, would be reasonably likely to result in a Material Adverse Effect. 3.20. Securities Laws. None of the Common Shares, Preferred Shares or other equity securities of Borrower has been issued in violation of the Securities Act of 1933, as amended, or the securities or "blue sky" or other applicable laws or regulations of any applicable jurisdiction. 3.21. Declaration of Trust, By-Laws, Advisory Contract, etc. The copies of the Declaration of Trust and by-laws of Borrower and the Advisory Agreement which have been furnished to Agent are true, correct and complete copies thereof as in effect on the date of this Agreement. 3.22. Disclosures. The financial statements referred to in Section 3.1 do not, nor does this Agreement, the other Loan Documents, or any other written statement furnished by or on behalf of Borrower to any Lender in connection with the transactions contemplated hereby or thereby, contain any untrue statement of a material fact or omit a material fact necessary to make the statement contained therein or herein not misleading. 3.23. Medicare and Medicaid Certification. Subject to such exceptions which, in the aggregate, are not reasonably likely to have a Material Adverse Effect, to the best knowledge of Borrower after reasonable investigation, each Operator with respect to each of the Properties that it operates, and each Mortgagor with respect to each of the Mortgaged Properties that it owns, (a) is validly licensed under applicable law to operate such Property or Mortgaged Property and to conduct the business in which it is currently engaged, (b) has received any applicable certificate of need, determination of need or similar approval, and any amendments or supplements, and such approvals are in full force and effect, (c) (except in the case of non-healthcare Properties and Mortgaged Properties, United Kingdom located Properties or Mortgaged Properties or otherwise where participation in Medicare or Medicaid is deemed undesirable in the reasonable business judgment of the Operator or Mortgagor) is validly certified or approved for participation in Medicare and 62 Medicaid by the applicable federal and state authorities and is a party to provider agreements with respect to its participation in Medicare and Medicaid, which provider agreements are in full force and effect, in each case only to the extent that such Property or Mortgaged Property is of a character eligible for participation in Medicare or Medicaid, and (d) no proceedings have been initiated or notices issued to suspend or revoke any such license, approval, certification or provider agreement, except for notices of deficiency which are issued and corrected in the ordinary course of business. 3.24. Offering, Etc., of Securities. Neither Borrower nor any agent with the authority of Borrower has offered any securities similar to the Notes, nor solicited any offer to buy any such securities, in a manner which would render the offering, sale or issuance of the Notes subject to the registration requirements of the Securities Act of 1933, as amended. SECTION 4. CONDITIONS PRECEDENT 4.1. Conditions to Effectiveness. This Agreement shall become effective only upon satisfaction of all of the following conditions precedent: (a) Note. Agent shall have received for the account of each Lender a Note conforming to the requirements hereof and executed by a duly authorized officer of Borrower. (b) Legal Opinion. Agent shall have received, with a counterpart for each Lender, a favorable opinion of Sullivan & Worcester, as counsel to Borrower and its Subsidiaries and the Advisor, addressed to Agent and the Lenders and dated the Effective Date, and in form and substance satisfactory to Agent. (c) Organizational Documents. Agent shall have received certified copies of the Declaration of Trust for Borrower and Articles of Organization or a Certificate of Incorporation for each Subsidiary of Borrower, by-laws of Borrower and each of its Subsidiaries and all resolutions of the Board of Trustees of Borrower and the board of directors of each of its Subsidiaries approving this Agreement and the other Loan Documents to which each is a party and the transactions contemplated hereby and thereby, and of all documents evidencing other necessary corporate action and approvals, if any, of Governmental Authorities with respect to this Agreement and the other Loan Documents and the transactions contemplated hereby and thereby. (d) Good Standing and Existence. Agent shall have received certificates of the appropriate governmental officials of the State of Maryland and of any other State where Borrower conducts business and the State of incorporation of each of 63 Borrower's Subsidiaries and of any other State where such Subsidiary conducts business, each dated a recent date prior to the Effective Date, to the effect that Borrower or such Subsidiary (as the case may be) is validly existing and is in good standing with respect to payment of franchise and similar taxes and is duly qualified to transact business therein. (e) Advisory Agreement and Subordination Agreement. Agent shall have received copies of the Advisory Agreement and the Subordination Agreement each certified by a Responsible Officer. (f) Debt Rating. Agent shall have received evidence that Borrower's long-term unsecured senior debt is rated BBB- or higher by Standard & Poor's Corporation or Baa3 or higher by Moody's Investors Service, Inc. (g) Existing Loan Agreement (i) Borrower shall have paid all accrued interest, fees, commissions and other amounts (other than principal) accrued or owed under the Existing Loan Agreement, whether or not presently due and payable. (ii) No Default or Event of Default (both such terms being used as defined in the Existing Loan Agreement) shall have occurred and be continuing under the Existing Loan Agreement. (h) No Material Adverse Effect. No Material Adverse Effect specified in clause (a)(i), (b), (c)(i) or (d) of the definition thereof shall have occurred since December 31, 1993. (i) Compensation. All obligations of Borrower to pay fees and provide compensation and reimbursement of costs and expenses to Agent, Administrative Agent and the Lenders or their designees as of the Effective Date hereunder or otherwise in connection with the financing contemplated hereby shall have been satisfied. (j) Real Property Statement. Agent shall have received a Real Property Statement dated the Effective Date. (k) Additional Matters. Agent shall have received such other approvals, opinions or documents as it may reasonably request and all documents and legal matters in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be satisfactory in form and substance to Agent and its counsel. 64 4.2. Conditions Precedent to Loans. The obligations of Lenders to make Loans on each Borrowing Date and to continue any Existing Loans on the Effective Date (which, for purposes of this Section 4.2 shall be deemed to be a Borrowing Date) are subject to the following further conditions precedent: (a) Representations and Warranties. The representations and warranties made by Borrower herein or made by any Person in the other Loan Documents or which are contained in any certificate, document or financial or other statement furnished at any time under or in connection with any of the Loan Documents, shall be true, correct and accurate in all material respects on and as of the Borrowing Date for the Loan as if made on and as of such date unless stated to relate to a specific earlier date, in which case such representations and warranties shall be true, correct and complete in all material respects as of such earlier dates. (b) No Default or Event of Default. No Default or Event of Default shall have occurred and be continuing on such date either before or after giving effect to the Loan to be made on the Borrowing Date. (c) Legality of Loans. The making of the Loans hereunder by the Lenders and the acquisition of the Notes shall be permitted as of the Borrowing Date by all applicable Requirements of Law and shall not subject any Lender to any penalty or other onerous condition in or pursuant to any such Requirement of Law or result in a Material Adverse Effect. (d) No Material Adverse Effect. No Material Adverse Effect specified in clause (a)(i), (b), (c)(i) or (d) of the definition thereof shall have occurred since December 31, 1993. (e) Solvency. Both after and immediately before the making of any Loans on the Borrowing Date, Borrower and each of its Subsidiaries shall be Solvent. (f) Borrowing Certificate. Administrative Agent shall have received, with a counterpart for each Lender, a Notice of Borrowing, dated the Borrowing Date, substantially in the form of Exhibit B, with appropriate insertions and attachments satisfactory in form and substance to Agent and its counsel, executed by a Responsible Officer; provided that while no Notice of Borrowing shall be required with respect to any Existing Loans continued on the Effective Date, on the Effective Date Agent shall have received a certificate of a Responsible Officer certifying as to the matters set forth in clauses (vi)-(viii) of the Notice of Borrowing with respect to such Existing Loans. (g) Borrowing Limits. After the making of the Loans on any Borrowing Date, the aggregate principal amount of all 65 Loans outstanding shall not exceed the Commitments, the aggregate principal amount of all General Corporate Loans outstanding shall not exceed 25% of the Commitments and the aggregate principal amount of all Loans outstanding denominated in GBP shall not exceed the Equivalent Amount of $100,000,000 (as determined in accordance with Section 1.3(b)) and Agent and Administrative Agent shall have received a certificate dated as of a date not more than five (5) Business Days prior to the relevant Borrowing Date to such effect. (h) Real Property Statement. Administrative Agent shall have received a Real Property Statement dated, or dated as of, the Borrowing Date. SECTION 5. AFFIRMATIVE COVENANTS. Borrower hereby agrees that, so long as the Commitments remain in effect, any Note remains Outstanding and unpaid or any other amount is owing to any Lender, Agent or Administrative Agent hereunder or under any other Loan Document, Borrower shall (and shall cause each of its Subsidiaries to): 5.1. Financial Statements. Furnish to Administrative Agent, with sufficient copies for each Lender: (a) as soon as available, but in any event within ninety days after the end of each fiscal year of Borrower and within one hundred thirty-five days after the end of each fiscal year of each Primary Operator/Mortgagor and Primary Credit Support Obligor, a copy of each of the following (except for any thereof to the extent none of the related Leases, Mortgage Interest Agreements or Credit Support Agreements requires the provision of any of the following to Borrower or one of its Subsidiaries within such period, in respect of which Borrower's obligation to furnish copies to each Lender shall be satisfied by furnishing copies as soon as practicable after Borrower or such Subsidiary receives one or more copies thereof): the audited balance sheet prepared on a consolidated basis (and, if ever prepared on a consolidating basis, on a consolidating basis) for Borrower and its Subsidiaries and on a consolidated basis for each Primary Operator/Mortgagor and Primary Credit Support Obligor, each as at the end of such year and the related statements or income, stockholders' equity and cash flows for such year (on a consolidated basis (and,if ever prepared on a consolidating basis, on a consolidating basis) for Borrower and its Subsidiaries and on a consolidated basis for each Primary Operator/Mortgagor and Primary Credit Support Obligor), setting forth in each case in comparative form the figures for the previous year, certified without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by independent certified public accountants of nationally recognized standing; and 66 (b) as soon as available, but in any event not later than forty-five days after the end of each of the first three quarterly periods of each fiscal year of Borrower and not later than seventy-five days after the end of each of the first three quarterly periods of each fiscal year of each Primary Operator/ Mortgagor and Primary Credit Support Obligor, copies of each of the following (except for any thereof to the extent none of the related Leases, Mortgage Interest Agreements or Credit Support Agreements requires the provision of any of the following to Borrower or one of its Subsidiaries within such period, in respect of which Borrower's obligation to furnish copies to each Lender shall be satisfied by furnishing copies as soon as practicable after Borrower or such Subsidiary receives one or more copies thereof): the unaudited balance sheet prepared on a consolidated basis (and, if ever prepared on a consolidating basis, on a consolidating basis) for Borrower and its Subsidiaries and on a consolidated basis for each Primary Operator/Mortgagor and Primary Credit Support Obligor, each as at the end of each such quarter and the related unaudited statements of income, stockholders' equity and cash flows for such quarterly period and the portion of the fiscal year through such date (on a consolidated basis (and, if ever prepared on a consolidating basis, on a consolidating basis) for Borrower and its Subsidiaries and on a consolidated basis for each Primary Operator/Mortgagor and Primary Credit Support Obligor), setting forth in each case in comparative form the figures for the previous year, certified by a responsible officer of such entity as being fairly stated and complete and correct in all material respects (subject to normal year-end audit adjustments); all such financial statements referred to in clauses (a) and (b) above to be complete and correct in all material respects and be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein (except as approved by such accountants or officer, as the case may be, and disclosed therein). 5.2. Certificates; Other Information. Furnish to Administrative Agent, with sufficient copies for each Lender: (a) concurrently with the delivery of the financial statements of Borrower and its Subsidiaries referred to in Section 5.1(a) above, a certificate of Borrower's independent certified public accountants certifying such financial statements of Borrower and its Subsidiaries stating that in making the examination necessary therefor, no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of the financial statements of Borrower and its Subsidiaries referred to in Sections 5.1(a) and (b) above, (i) a certificate of a Responsible Officer (A) stating that, to the best of such officer's 67 knowledge, Borrower and each of its Subsidiaries during such period has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in the Loan Documents to be observed, performed or satisfied by it, and that such officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate, and (B) showing in detail the calculations supporting such statement in respect of Sections 6.1(a), 6.1(b) and 6.1(c) and 6.8 (including, without limitation, certification and details as to all Indebtedness of Borrower and its Subsidiaries, if any), (ii) a Real Property Statement and (iii) with respect to each Property or Mortgaged Property (but in no event for a Courtyard Lodging, for which the reporting information required will be as set forth in Sections 5.1(a) and (b)) for which Marriott International, Inc. is the Operator or Mortgagor, a certificate of a senior officer of Marriott International, Inc. as to the Cash Flow and Fixed Charges of Marriott International, Inc. attributable to that Property or Mortgaged Property for the last reported financial year of Marriott International, Inc.; (c) within forty-five days after the end of each calendar quarter following the Effective Date, a written report signed by a Responsible Officer describing in reasonable detail any acquisitions or dispositions of any Fee Interests or Mortgage Interests by Borrower and its Subsidiaries or any other material property of Borrower and its Subsidiaries which shall include, without limitation (i) in the case of acquisitions of property, a description of (A) the geographic area and type of property, (B) the current and anticipated cash flow from the property, (C) the operators of such property and (D) financing of the acquisition, (ii) with respect to dispositions of property, a description of (A) the amount and use of proceeds from such disposition and (B) the reasons for the disposition, and (iii) a copy of any appraisals of the property acquired or disposed of; (d) within 30 days prior to the first day of each fiscal year of Borrower, a copy of the projections by Borrower of the operating budget and cash flow of Borrower and its Subsidiaries for such fiscal year, such projections to be accompanied by a certificate of a Responsible Officer to the effect that such projections have been prepared on the same basis as the financial statements of Borrower and its Subsidiaries then current and that such officer has no reason to believe they are incorrect or misleading in any material respect; (e) promptly after the same are sent, copies of all financial statements and reports which Borrower sends to its holders of Common Shares, Preferred Shares or other equity securities, and promptly after the same are filed by Borrower copies of all financial statements and reports which Borrower or any of its Subsidiaries may make to, or file with, the Commission or any successor or analogous Governmental Authority; and 68 (f) promptly, such additional financial and other information respecting the financial or other condition of the Primary Operators/Mortgagors, the Primary Credit Support Obligors, the Advisor or Borrower or any of its Subsidiaries or the status or condition of the Facilities or the operation thereof which Borrower is entitled to or can otherwise reasonably obtain as Agent may from time to time reasonably request. 5.3. Payment of Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its Indebtedness and other obligations of whatever nature, except, in the case of Indebtedness other than that described in Section 7.1(e), when the amount or validity thereof is currently being contested in good faith by appropriate proceedings, and reserves in conformity with GAAP with respect thereto have been provided on the books of Borrower and its Subsidiaries. 5.4. Conduct of Business and Maintenance of Existence. Continue to engage in business of the same general type as now conducted by it (except that Borrower and its Subsidiaries may acquire the Courtyard Lodgings but will not own, operate or finance Psychiatric Care Assets other than those owned, operated or financed as of the date hereof and will not own, operate or finance hotels or other lodging facilities other than the Courtyard Lodgings), and preserve, renew and keep in full force and effect its existence and take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business; and comply with all Contractual Obligations and Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, have a Material Adverse Effect. 5.5. Leases and Mortgage Interests; Credit Support Agreements. (a) (i) Maintain the Leases, Mortgage Interests and Credit Support Agreements in full force and effect and enforce the obligations of the Operators under the Leases, the Mortgagors under the Mortgage Interests and the Credit Support Obligors under the Credit Support Agreements in a timely manner and (ii) obtain the consent of Agent in connection with any materially adverse change in or waiver of any obligation of any Operator, Mortgagor or Credit Support Obligor contained in, or any right or remedy of Borrower or any of its Subsidiaries under, any Lease, Mortgage Interest Agreement or Credit Support Agreement, including, without limitation, any renewal, amendment, modification or termination thereof, except to the extent that the failure to comply with this Section 5.5(a) could not, in the aggregate, have a Material Adverse Effect; and (b) give notice to Agent of each waiver, renewal, amendment, modification or termination of the Leases, Mortgage Interests and Credit Support Agreements in respect of any Eligible Property or Eligible Mortgage, together with a copy of such waiver, renewal, 69 amendment, modification or termination. 5.6. Maintenance of Property, Insurance. Keep all property useful and necessary in its business in good working order and condition; maintain or cause the Operators of its Properties to maintain with financially sound and reputable insurance companies insurance with respect to its property and business of such a nature, with such terms and in such amounts, as is customary in the case of business entities of established reputation engaged in the same or similar business similarly situated against loss or damage of the kinds and in the amounts customarily insured against and for by such business entities, and to cause the Mortgagors of each of its Mortgaged Properties to maintain comparable insurance. Borrower shall furnish to each Lender, upon written request, full information as to the insurance carried. 5.7. Inspection of Property; Books and Records; Discussions. Keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and permit representatives of Agent and/or Administrative Agent and, after the occurrence of a Default, any Lender, to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired, and to discuss the business, operations, properties, prospects and financial and other condition of Borrower and its Subsidiaries with officers and employees of Borrower or such Subsidiaries and the Advisor and with its independent certified public accountants. 5.8. Notices. Promptly, and in any event within ten Business Days after an officer of Borrower obtains knowledge thereof, give notice to Agent, Administrative Agent and each Lender: (a) of the occurrence of any Default or Event of Default; (b) of (i) any default or event of default or termination under any Lease, Credit Support Agreement, Mortgage Interest Agreement or any other Contractual Obligation of or in favor of Borrower or any of its Subsidiaries which could have a Material Adverse Effect and (ii) any litigation, investigation or proceeding which may exist at any time between Borrower or any of its Subsidiaries or any Operator, Mortgagor or Credit Support Obligor and any Governmental Authority or other Person, which if adversely determined could have a Material Adverse Effect; (c) of any litigation or proceeding affecting Borrower or any of its Subsidiaries, any Primary Operator/Mortgagor or 70 any Primary Credit Support Obligor in which the amount involved is $100,000 or more and is not fully covered by insurance or in which injunctive or similar relief is sought; (d) of the following events, as soon as possible and in any event within 30 days after Borrower knows or has reason to know thereof (provided that with respect to any Multiemployer Plan in which neither Borrower nor any ERISA Affiliate is a substantial employer Borrower shall only be deemed to have knowledge of facts concerning which it has actual knowledge): (i) the occurrence or expected occurrence of any Reportable Event with respect to any Plan, or (ii) the institution of proceedings or the taking or expected taking of any other action by PBGC or Borrower or any ERISA Affiliate to terminate or withdraw from any Plan, and in addition to such notice, deliver to each Lender whichever of the following may be applicable: (A) a certificate of the chief financial officer or treasurer of Borrower setting forth details as to such Reportable Event and the action that Borrower or ERISA Affiliate proposes to take with respect thereto, together with a copy of any notice of such Reportable Event that may be required to be filed with PBGC, or (B) any notice delivered by PBGC evidencing its intent to institute such proceedings or any notice to PBGC that such Plan is to be terminated, as the case may be; (e) of the adoption by Borrower or any ERISA Affiliate of any Plan or of any Plans maintained by any Person that becomes an ERISA Affiliate after the date hereof; (f) of any proposed transaction or event which may give rise to Net Property Proceeds, Net Mortgage Proceeds or Net Securities Proceeds; (g) of the occurrence or existence of any event or condition which could reasonably be expected to have, or which has had, a Material Adverse Effect; and (h) of the occurrence or existence of any event or condition which would cause any of the representations and warranties set forth in Section 3.9 to be untrue if repeated after the occurrence, or during the existence, of such event or condition. Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action Borrower proposes to take with respect thereto. For all purposes of clause (d) of this Section, Borrower shall be deemed to have all knowledge or knowledge of all facts attributable to the administrator of such Plan. 5.9. Appraisals and Other Valuations. (a) From time 71 to time during the term of this Agreement, Agent may, in its sole discretion, order an Appraisal of one or more of the Eligible Properties and/or Mortgaged Properties covered by Eligible Mortgages. Any such Appraisal shall be at Borrower's cost if (i) Agent shall have obtained a letter from an expert appraiser or evaluator of real property, health care or retirement facilities or hotel or other lodging facilities to the effect that, or Agent shall otherwise in good faith have determined that, facts or circumstances exist, or changes in market conditions have occurred, as a result of which there exists a reasonable possibility that Appraisals of the Eligible Properties and Mortgaged Properties covered by Eligible Mortgages, might result in an aggregate valuation thereof reflecting a material loss of value as compared to the value thereof indicated in the certificate of a Responsible Officer delivered to Agent pursuant to Section 4.1(j), or (ii) an Event of Default has occurred. (b) In addition to the Appraisals referred to in Section 5.9(a), from time to time during the term of this Agreement, if so requested by Agent, in its sole discretion, Borrower shall furnish to Administrative Agent, with sufficient copies for each Lender, a certificate of a Responsible Officer certifying as to the value of one or more of the Eligible Properties and/or Mortgaged Properties covered by Eligible Mortgages. 5.10. Meetings. Within one hundred days after the end of each fiscal year of Borrower, one or more Responsible Officers of Borrower shall attend an annual informational meeting with the Lenders, for the purpose of answering reasonable questions of any Lender, Agent and/or Administrative Agent relating to the Facilities and/or the Loan Documents, to be held at Borrower's cost and at such time and place to be determined by Agent as is reasonably requested by Agent; provided that each Lender shall bear the costs of transportation and accommodation for any of its representatives attending such meeting. 5.11. REIT Requirements. Operate its business at all times so as to satisfy or be deemed to have satisfied all requirements necessary to qualify as a real estate investment trust under Section 856 through 860 of the Code. Borrower will maintain adequate records so as to comply with all record-keeping requirements relating to the qualification of Borrower as a real estate investment trust as required by the Code and applicable regulations of the Department of the Treasury promulgated thereunder and will properly prepare and timely file with the Internal Revenue Service all returns and reports required thereby. Borrower will request from its shareholders all shareholder information required by the Code and applicable regulations of the Department of Treasury promulgated thereunder. 5.12. Indemnification. Borrower agrees to indemnify, 72 defend (with counsel selected by Agent) and hold Agent, Administrative Agent, Lenders and the directors, officers, shareholders, employees and agents of each of them harmless for, from and against any claims (including without limitation third party claims for personal injury or real or personal property damage), actions, administrative proceedings, judgments, damages, punitive damages, penalties, fines, costs, expenses disbursements, liabilities (including sums paid in settlements of claims), obligations, interest or losses, including attorneys' fees, consultant fees and expert fees, that arise at any time (including, without limitation, at any time after the payment of the Notes) directly or indirectly from or in connection with the presence, suspected presence, release or suspected release of any Hazardous Material in the air, soil, surface water or groundwater at or from the real property or any portion thereof with respect to a Facility, or any other real property in which Borrower or any of its Subsidiaries has any interest (all of the foregoing real property shall be referred to collectively as the "Real Property"). Without limiting the generality of the foregoing, the indemnification provided by this Section shall specifically cover (i) costs, including capital, operating and maintenance costs, incurred in connection with any investigation or monitoring of site conditions or any clean-up, remedial, removal or restoration work required or performed by any federal, state or local governmental agency or political subdivision or performed by any non-governmental Person, including any Operator or Mortgagor of a Facility, because of the presence, suspected presence, release or suspected release of Hazardous Material in the air, soil, surface water or groundwater at or from the Real Property; and (ii) costs incurred in connection with (A) Hazardous Material present or suspected to be present in the air, soil, surface water or groundwater at the Real Property before the date of this Agreement, or (B) Hazardous Material that migrates, flows, percolates, diffuses or in any way moves onto or under or from the Real Property after the date of this Agreement, or (C) Hazardous Material present at the Real Property as a result of any release, discharge, disposal, dumping, spilling or leaking (accidental or otherwise) onto or from the Property before or after the date of this Agreement by any Person. 5.13. Changes in GAAP. Borrower and the Lenders hereby agree that in the event of a change in GAAP which would cause the financial covenants set forth herein to provide less protection to the Lenders than presently provided for hereunder, such financial covenants shall be reset, in good faith, by the Majority Lenders to maintain the protection to the Lenders equivalent to that in place prior to such change and Borrower agrees to execute one or more amendments to this Agreement to effect such reset. 5.14. Refinancing of Loans. If at any date of determination (the "Trigger Date"), Loans are outstanding in an 73 aggregate principal amount equal to or greater than 66-2/3% of the Commitments (the "Trigger Amount"), Borrower shall promptly (but in no event later than 12 months after the Trigger Date) take action to obtain financing in an amount at least equal to the Trigger Amount or, if at the date of consummation of any such financing less than the Trigger Amount aggregate principal amount of Loans are outstanding, such lesser amount. Borrower shall have completed such financing transaction within 15 months of the Trigger Date and the proceeds thereof shall be used to prepay the Loans in an amount equal to that required by the first sentence of this Section 5.14. Any such financing shall be in the form of either equity or of Indebtedness which shall not have any instalment of principal due earlier than three months after the Termination Date. 5.15. Further Assurances; Restrictions on Negative Pledges. (a) At any time upon the request of Agent, Borrower will, promptly and at its expense, execute, acknowledge and deliver such further documents and do such other acts and things as Agent may reasonably request to provide for payment of the Loans made hereunder and interest thereon in accordance with the terms of this Agreement. (b) If Borrower or any of its Subsidiaries shall agree to any "negative pledge" or like agreement more restrictive (or otherwise more generous to its beneficiaries) in its scope than Section 6.9, then, without any further action being required, the provisions of such agreement relating to the prohibition on Liens shall be deemed incorporated by reference (with appropriate modifications as may be necessary) into this Agreement for the benefit of Lenders. 5.16. Currency Arrangements. (a) Borrower shall at all times maintain agreements or other arrangements, practices or procedures in form and substance satisfactory to Agent which will protect Borrower and its Subsidiaries against fluctuations in foreign currency values against the U.S. Dollar. (b) Borrower shall only enter into interest rate and currency exchange or similar or analogous arrangements as are (in Borrower's reasonable judgment) necessary for the hedging or other protection to exposure of Borrower and its Subsidiaries, and not those which are of a purely speculative nature. SECTION 6. NEGATIVE COVENANTS. Borrower hereby agrees that, so long as the Commitments remain in effect or any Note remains Outstanding and unpaid or any other amount is owing to any Lender, Agent or Administrative 74 Agent hereunder or under any other Loan Document, Borrower shall not (and shall not permit any of its Subsidiaries to) directly or indirectly: 6.1. Financial Covenants. (a) Tangible Net Worth. Suffer or permit Tangible Net Worth at any time to be less than the aggregate of (i) $525,000,000, plus (ii) 75% of the Net Securities Proceeds of all issues of any Common Shares, Preferred Shares or other equity securities by Borrower in one or more transactions received after the date hereof. (b) Interest Coverage. Suffer or permit the ratio of EBI for any fiscal quarter to the Interest Charges of Borrower and its Subsidiaries for such quarter to be less than 3 to 1. (c) Debt to Net Worth. Suffer or permit the ratio of the Total Liabilities of Borrower and its Subsidiaries to Tangible Net Worth to be greater than 1 to 1 at any time. 6.2. Restricted Payments. (a) Declare, make or pay any Restricted Payment except where (i) no Default or Event of Default is continuing either before or after giving effect to such Restricted Payment, (ii) Borrower has sufficient funds or availability under its credit facilities (including this Agreement) to pay the next installment of interest payable in respect of the Loans and (iii) immediately upon declaring, making or paying any such Restricted Payment a Responsible Officer shall certify to Administrative Agent in writing that Borrower is in compliance with each condition hereof with respect to the declaration, making or payment, as the case may be, of such Restricted Payment; or (b) directly or indirectly make any payment of Indebtedness of Borrower or any of its Subsidiaries in contravention of the terms of any agreement or instrument subordinating or purporting to subordinate any rights to receive payments in respect of any Indebtedness of Borrower or such Subsidiary to any rights to receive payments under this Agreement. 6.3. Merger; Sale of Assets; Termination and Other Actions.(a) Cause to be organized or assist in organizing any Person under the laws of any jurisdiction to acquire all or substantially all of its assets, terminate, wind up, liquidate or dissolve its affairs or enter into any reorganization, merger or consolidation or, in the case of Borrower, take any other action whatsoever under or pursuant to Articles 6.15, 8.1, 8.2 and 8.5 of the Declaration of Trust or agree to do any of the foregoing 75 at any future time, except that Borrower or any Subsidiary of Borrower other than Church Creek Corporation may acquire all or substantially all of the assets of a Subsidiary of Borrower and any Subsidiary of Borrower may reorganize, merge or consolidate with Borrower (so long as Borrower is the surviving entity) or any other Subsidiary of Borrower other than Church Creek Corporation, or (b) convey, sell, lease or otherwise dispose of (i) any of the Properties, the Mortgage Interests or its other interests in Facilities or (ii) any substantial part of its property or assets (other than the Properties) or (iii) any shares of stock in any of its Subsidiaries; except that the foregoing will be permitted in the case of sub-clauses (i) and (ii) of this clause (b), but only if (A) the consideration therefor shall be equal to the fair market value thereof (or, in the case of a Mortgage Interest where the consideration is less than fair market value, the Board of Trustees of Borrower or the board of directors of the relevant Subsidiary of Borrower shall have determined that the consideration received or to be received is in an amount consistent with the best financial interests of Borrower or such Subsidiary, as the case may be) and no default under any other provision hereof results therefrom or (B) such conveyance, sale, lease or other disposition is pursuant to the exercise of an option contained in a Lease, and, in either case, the proceeds of such disposition (whether received by Borrower or one of its Subsidiaries) are used to prepay the Loans to the extent required by Section 2.8(b). 6.4. Transactions with Affiliates. Enter into or be a party to any transaction directly or indirectly with or for the benefit of any Affiliate of Borrower, other than (i) in the ordinary course of business and (ii) for fair consideration and on terms no less favorable to Borrower or any of its Subsidiaries than are available in an arm's-length transaction from unaffiliated third parties and (iii) if the Independent Trustees determine in their reasonable good faith judgment that such transaction is in the best interests of Borrower or such Subsidiary based on full disclosure of all relevant facts and circumstances. 6.5. Subsidiaries. (a) Create, or permit to exist, any Subsidiary other than those named on Schedule 4 without the prior written consent of Agent and Borrower shall not sell or otherwise dispose of any of the capital stock owned by Borrower in any such Subsidiary or (b) permit any Subsidiary to issue any shares of capital stock to any Person other than Borrower. 6.6. Accounting Changes. Make any significant change in accounting treatment and reporting practices, except as required by GAAP or with which Borrower's independent certified public accountants have agreed. Borrower will advise Agent sufficiently in advance of any proposed change to permit representatives of Agent to discuss the proposed change with the 76 officers of Borrower. 6.7. Change in Nature of Business. Make any material change in the nature of its business as presently conducted (where a "material change" shall mean any change in the type of industry then invested in in accordance with this Section 6.7, regardless of the amount or size of such new investment); the business of Borrower and its Subsidiaries as presently conducted being the business of acquiring and operating, and acquiring or funding Mortgage Interests in, income producing real property interests and facilities which are hotels or other lodging facilities being Courtyard Lodgings or which offer health care or related services or rehabilitation or retirement services, and activities incidental to any of the foregoing, but which shall not include any acquisition, operating or funding either of Psychiatric Care Assets other than those owned, operated or financed as of the date hereof or of hotels or other lodging facilities other than the Courtyard Lodgings; provided that (i) such property interests and facilities shall be located in either the United States of America or the United Kingdom, (ii) the aggregate Allowed Value of all Properties and Mortgage Interests located in the United Kingdom shall not exceed 10% of the aggregate Allowed Value of all Properties and Mortgage Interests and (iii) Church Creek Corporation shall not engage in any business or activities other than those engaged in by it on the Effective Date, and activities incidental thereto. 6.8. Indebtedness. (a) Suffer or permit the total Indebtedness (determined without duplication) of Borrower and its Subsidiaries (other than the IDFA Indebtedness, Indebtedness in the nature of bridge financings described in the exception to Section 6.8(b) and Indebtedness described in Section 6.8(c)), at any time to be greater than the aggregate of (i) 50% of the aggregate Allowed Value of all Eligible Properties and all Eligible Mortgages other than Eligible Properties which are Courtyard Lodgings plus (ii) 25% of the aggregate Allowed Value of all Eligible Properties which are Courtyard Lodgings. (b) Suffer or permit to exist any Indebtedness unless, in the case of Borrower, the earliest date for any payment of principal or other settlement thereof is at least three months after the Termination Date, except for (i) Borrower's guaranty of the IDFA Indebtedness, the terms of which Indebtedness provide for mandatory redemption prior to the Termination Date upon the occurrence of certain extraordinary events, and (ii) Indebtedness of Borrower in the nature of bridge financings to effect acquisitions of Fee Interests or Mortgage Interests by Borrower so long as the final date for payment or other settlement of all such bridge financing Indebtedness is less than one year from the date of its incurrence or issuance and Borrower promptly commences (and diligently pursues) the refinancing thereof; provided that, at any time either after total 77 Indebtedness in the nature of bridge financings exceeds $100,000,000 or would as a result of any proposed further bridge financing exceed $100,000,000, not less than thirty days prior to the incurrence or issuance of any additional bridge financing, Borrower shall provide Lenders with such details of the terms and conditions thereof as Lenders (acting through Agent) may reasonably request (and Borrower shall promptly advise Agent of any subsequent material changes to such details), and if after a review of such details Majority Lenders (each in its respective absolute discretion) determine that no further Loans may be made and the Termination Date shall be brought forward to a date which is the earlier of the maturity date for such additional bridge Indebtedness and a date eleven months after the incurrence or issuance thereof, then, effective upon the incurrence or issuance of such Indebtedness and without any further action being required, no further Loans shall be made and the definition of "Termination Date" shall be so amended; provided that if Majority Lenders (acting through Agent) have not advised Borrower of such a determination within fifteen days of receipt of all such details as they may have requested, then, subject to the opportunity to review any subsequent material changes to the details provided and to make a contrary determination based thereon, Majority Lenders shall be deemed not to have made such a determination and no change to this Agreement shall be effected pursuant to this Section 6.8(b). (c) Suffer or permit the aggregate of Indebtedness which is (i) secured by a Lien covering property or assets acquired by Borrower or any of its Subsidiaries, (ii) Indebtedness of a Person acquired by Borrower or any of its Subsidiaries or (iii) Indebtedness to which the assets of a Person acquired by Borrower or any of its Subsidiaries are subject, which in the case of any of clause (i), (ii) or (iii) is outstanding at the time of the relevant acquisition and remains outstanding following such acquisition, to exceed $50,000,000 at any time; provided that, in addition to Indebtedness otherwise permitted under this Section 6.8(c), Borrower and Church Creek Corporation may suffer or permit to exist the IDFA Indebtedness. (d) In the case of Subsidiaries of Borrower, suffer or permit to exist any Indebtedness, except for (i) intercompany Indebtedness owed to Borrower which is incurred as the result of the direct or indirect advance by Borrower of the proceeds of Loans and used for purposes described in Section 2.11 and (ii) in the case of Subsidiaries other than Church Creek Corporation, the Contingent Obligations arising from the guarantees given under Section 9 and (iii) in the case of Church Creek Corporation, the IDFA Indebtedness. 6.9. No Liens. Suffer or permit after the date hereof any Lien on any Facility, Lease, Mortgage Interest, or Credit Support Agreement, except (i) in the case of Borrower, Liens 78 granted to secure Indebtedness in the nature of bridge financings (but not any subsequent refinancing or any other restructuring of such bridge financing) permitted under Section 6.8(b), so long as such Liens are granted only on the properties or interests acquired with such Indebtedness; provided that any such property or interest which is the subject of such a Lien shall not be an Eligible Property or an Eligible Mortgage, (ii) Permitted Exceptions, (iii) with respect to either (A) Properties that are not Eligible Properties or (B) Mortgaged Properties that are subject to Mortgage Interest Agreements which are not Eligible Mortgages only, Liens that are not created or granted by Borrower or any of its Subsidiaries, which Liens, in the aggregate, would not be reasonably likely to cause or create a Material Adverse Effect and (iv) (A) Liens securing Indebtedness permitted by Section 6.8(c) (other than the IDFA Indebtedness) so long as neither such Indebtedness nor such Liens were incurred or granted in contemplation of such acquisition and such Liens are granted only on the related properties or interests acquired by Borrower or its Subsidiaries and (B) Liens existing on the Effective Date securing the IDFA Indebtedness and any Liens in continuation thereof or replacement or substitution therefor so long as the Allowed Value of the subject property or interest is not greater than the Allowed Value on the Effective Date of the property or interest then the subject of such permitted Liens; provided that any property or interest which is the subject of a Lien permitted under this clause (iv) shall not be an Eligible Property or an Eligible Mortgage. 6.10. Fiscal Year. Change the fiscal year end of Borrower or any of its Subsidiaries from December 31 to any other date without the prior written consent of Agent. 6.11. Chief Executive Office. Change the name of Borrower or the chief executive office of Borrower unless Borrower has given Administrative Agent at least 15 Business Days' prior written notice of any such change. 6.12. Amendment of Certain Agreements. Amend, supplement or otherwise modify (a) the Advisory Agreement, or (b) the Declaration of Trust in a manner which would be reasonably likely to cause a Material Adverse Effect, in either case without the prior written consent of Agent. 6.13. Payments Not to Exceed Appraised Value. Pay consideration in an amount greater than the Appraised Value for the acquisition of any Facility. SECTION 7. EVENTS OF DEFAULT 7.1. Events of Default. Upon the occurrence of any of the following events (each an "Event of Default"): 79 (a) Payments. Borrower shall fail to pay any principal of or interest on any Note, or Borrower or any of its Subsidiaries shall fail to pay any other amount payable hereunder, when due in accordance with the terms thereof or hereof; or (b) Representations and Warranties. Any representation or warranty made or deemed made by Borrower or any of its Subsidiaries herein or by any Person in any other Loan Document or which is contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement or any other Loan Document shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) Certain Covenant Defaults. Borrower shall default in the observance or performance of any agreement contained in Section 6 of this Agreement, or the Advisor shall default in the observance or performance of any material provision of the Subordination Agreement; or (d) Certain Other Covenant Defaults. Borrower or any other party to any of the Loan Documents (other than Agent, Administrative Agent and the Lenders hereunder) shall default in the observance or performance of any other provision of this Agreement or any of the other Loan Documents, and such default shall continue unremedied for a period of 20 days; or (e) Cross-Default. Borrower or any of its Subsidiaries shall (i) default in any payment of principal of or interest on any Indebtedness (other than the Notes) in respect of money borrowed or Capitalized Lease Obligations or incurred for the deferred purchase price of property or services or evidenced by a note, debenture or other similar written obligation to pay money, or in the payment of any Contingent Obligation (other than the guarantees of Subsidiaries of Borrower given in Section 9, which shall be subject to Section 7.1(d)), beyond the period of grace (not to exceed 30 days), if any, provided in the instrument or agreement under which such Indebtedness or Contingent Obligation was created; or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or Contingent Obligation or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Contingent Obligation (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or such Contingent Obligation to become payable; or 80 (f) Qualification as REIT. Either Agent or the Majority Lenders shall have determined in good faith, and shall have so given notice to Borrower, that Borrower has at any time ceased to be in a position to qualify, or has not qualified, as a real estate investment trust for any of the purposes of the provisions of the Code applicable to real estate investment trusts; provided that no Event of Default under this Section 7.1(f) shall be deemed to have occurred and be continuing if, within 10 days after notice of any such determination is given to Borrower, Borrower shall have furnished each Lender with an opinion of Borrower's tax counsel (who shall be satisfactory to the Majority Lenders provided that the Majority Lenders may not unreasonably withhold their approval) to the effect that Borrower is then in a position to so qualify, or has so qualified, as the case may be, which opinion shall not contain any material qualification unsatisfactory to the Majority Lenders; or (g) Insolvency, Etc. There shall be an Insolvency Event with respect to Borrower or any of its Subsidiaries or the Advisor; or (h) ERISA. (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan, (iii) a Termination Event shall occur or (iv) any other event or condition shall occur or exist with respect to a Plan or a Multiemployer Plan; and in each case in clauses (i) through (iv) above, such event or condition, together with all other such events or conditions, if any, could subject Borrower or any of its Subsidiaries to any tax, penalty or other liabilities in the aggregate material in relation to the business, operations, property or financial or other condition of Borrower and its Subsidiaries, taken as a whole; or (i) Certain Judgments. One or more judgments or decrees shall be entered against Borrower or any of its Subsidiaries involving in the aggregate a liability (not paid or fully covered by insurance) of $250,000 or more and all such judgments or decrees shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (j) Certain Ownership of Borrower. Barry M. Portnoy and Gerard M. Martin (or any Person in respect of which either or both of them own more than 50% of the securities having ordinary voting power for the election of directors) shall cease at any time to hold beneficially and of record, in the aggregate, at least 750,000 shares of the issued and outstanding Common Shares and each other class of equity securities of Borrower (adjusted for any division, reclassification or stock dividend in respect 81 of Common Shares) or such lesser amount as shall be approved by Agent; or (k) Change of Control of Advisor. Barry M. Portnoy and Mr. Gerard M. Martin shall cease at any time to have the power to direct the management and policies of HRPT Advisors; or (l) Investment Grade Operators and Mortgagors. More than 50% of the aggregate Allowed Value of the Properties and Mortgage Interests shall be attributable to Properties and Mortgage Interests having the same "investment grade Person" (or any of that Person's Affiliates; provided that for the purposes of this Section 7.1(l), so long as there is no material change in their practices and procedures in place at the Effective Date to provide for arm's-length dealings, Marriott International, Inc. and its Affiliates and Host Marriott Corporation and its Affiliates will not be treated as Affiliates of each other) as Mortgagor or Operator thereof (with an "investment grade Person" being one whose long-term senior debt is rated BBB- or higher by Standard & Poor's Corporation or Baa3 or higher by Moody's Investors Service, Inc. (or similarly rated by any successor to either of such rating agencies)); or (m) Operators and Mortgagors Generally. Except in the case of Mortgagors or Operators which are "investment grade Persons" (as defined in Section 7.1(l)), more than 40% of the aggregate Allowed Value of the Properties and Mortgage Interests shall be attributable to Properties and Mortgage Interests having the same Person (or any of that Person's Affiliates; provided that for the purposes of this Section 7.1(m) so long as there is no material change in their practices and procedures in place at the Effective Date to provide for arm's-length dealings, Marriott International, Inc. and its Affiliates and Host Marriott Corporation and its Affiliates will not be treated as Affiliates of each other) as Mortgagor or Operator thereof; or (n) Rehabilitation Treatment Assets. More than 40% of the aggregate Allowed Value of the Properties and Mortgage Interests shall be attributable to Properties and Mortgages consisting of Rehabilitation Treatment Assets; or (o) Acute Care Assets. More than 15% of the aggregate Allowed Value of the Properties and Mortgage Interests shall be attributable to Properties and Mortgages consisting of Acute Care Assets; or (p) Psychiatric Care Assets. Any of the aggregate Allowed Value of the Properties and Mortgage Interests shall be attributable to Properties or Mortgages consisting of Psychiatric Care Assets other than Psychiatric Care Assets owned, operated or financed by Borrower and its Subsidiaries as of the date hereof; or 82 (q) Hotels and Lodging Facilities. Any of the aggregate Allowed Value of the Properties and Mortgage Interests shall be attributable to Properties and Mortgages consisting of hotels or other lodging facilities other than the Courtyard Lodgings; or (r) Advisor. HRPT Advisors shall cease to be the sole Advisor to Borrower pursuant to and in accordance with the Advisory Agreement, without Agent's prior written consent or the Advisory Agreement shall be materially amended, supplemented or modified without Agent's prior written consent; or (s) Loan Documents. From and after the Effective Date, any guarantee given by a Subsidiary of Borrower in Section 9 or any Loan Document shall be terminated or otherwise shall cease to be in full force and effect or shall cease to give the Lenders the rights, powers and privileges purported to be created thereby or any party thereto other than Agent and the Lenders shall cease to be, or shall assert that it is not, bound thereby in accordance with its terms; then, and in any such event, (a) if such event is an Event of Default specified in paragraph (g) above, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement, the Notes and any other Loan Document shall immediately become due and payable, and (b) if such event is any other Event of Default, either or both of the following actions may be taken: (i) Agent may, or upon the request of the Majority Lenders, Agent shall, by notice to Borrower, declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; and (ii) Agent may, or upon the request of the Majority Lenders, Agent shall, by notice of default to Borrower, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement, the Notes and any other Loan Document to be due and payable forthwith, whereupon the same shall immediately become due and payable. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. 7.2. Annulment of Acceleration. If payment on the Loans and the Notes is accelerated in accordance with Section 7.1 of this Agreement, then and in every such case, the Majority Lenders may, by an instrument delivered to Borrower (and to Agent and/or Administrative Agent, as applicable, to the extent it is or they are not participating in the giving of notice) annul such acceleration and the consequences thereof; provided that at the time such acceleration is annulled: (a) all arrears or interest on the Loans and the Notes 83 and all other sums payable in respect of the Loans and pursuant to this Agreement, the Notes and each other Loan Document (except any principal of or interest or premium on the Loans and the Notes and other sums which have become due and payable only by reason of such acceleration) shall have been duly paid; and (b) every other Default or Event of Default shall have been duly waived or otherwise cured; provided, further, that no such annulment shall extend to or affect any subsequent Default or Event of Default or impair any right consequent thereon. 7.3. Cooperation by Borrower. To the extent that it lawfully may, Borrower agrees that it will not (and that it will cause its Subsidiaries not to) at any time insist upon or plead, or in any manner whatever claim or take any benefit or advantage of any applicable present or future stay, extension or moratorium law, which may affect observance or performance of the provisions of this Agreement or of any Note or any other Loan Document. SECTION 8. THE AGENTS 8.1. Appointment of Agent and Administrative Agent. (a) Each Lender hereby irrevocably designates and appoints Kleinwort Benson as Agent of such Lender and each of Wells Fargo Bank, National Association and the GBP Agent (as defined in the definition of "Administrative Agent"), as Administrative Agent of such Lender (with their respective functions as set forth in the definition of "Administrative Agent") (the Agent and Administrative Agent collectively being the "Loan Agents", and, for the purposes of Sections 8.1(c), 8.1(g), 8.1(h) and 8.1(l), Co-Agent shall also be deemed to be a "Loan Agent") under this Agreement and the Loan Documents and the other documents or instruments delivered pursuant to or in connection herewith or therewith and each such Lender hereby irrevocably authorizes each Loan Agent, for such Lender, to take such action on behalf of each Lender under the provisions of the Loan Documents and to exercise such powers and perform such duties as are expressly delegated to such Loan Agent by the terms of the Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in the Loan Documents, no Loan Agent shall have any duties or responsibilities other than those expressly set forth in the Loan Documents, nor any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into the Loan Documents or otherwise exist against either Loan Agent. (b) Each Loan Agent may execute any of its duties 84 under the Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. No Loan Agent shall be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. (c) None of the Loan Agents nor any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it under or in connection with the Loan Documents (except for its gross negligence or willful misconduct), or (ii) responsible in any manner to any Lender for any recitals, statements, representations or warranties made by Borrower or any of its Subsidiaries or any other Person contained in the Loan Documents or in any certificate, report, statement or other document referred to or provided for in, or received by either Loan Agent under or in connection with, the Loan Documents (including, without limitation, any Appraisal or valuation or any certificate or other report relating to the value of any Property or any Mortgage Interest), or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of the Loan Documents or otherwise or for any failure of Borrower or any of its Subsidiaries or any other Person to perform its obligations under the Loan Documents. The Loan Agents shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, the Loan Documents, or to inspect the properties, books or records of Borrower or any of its Subsidiaries or any other Person or to insure, protect or preserve any of the property of Borrower or any of its Subsidiaries or any other Person. (d) Each Loan Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation reasonably believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to Borrower or its Subsidiaries), independent accountants and other experts selected by such or the other Loan Agent. Each Loan Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with such Loan Agent. (e) Each Loan Agent shall be fully justified in failing or refusing to take any action under the Loan Documents unless it shall first receive such advice or concurrence of the Majority Lenders as it deems appropriate or it shall first be 85 indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Each Loan Agent shall in all cases be fully protected in acting, or in refraining from acting, under the Loan Documents in accordance with a request of the Majority Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Notes. (f) No Loan Agent shall be deemed to have knowledge or notice of the occurrence of any Event of Default or event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default hereunder unless such Loan Agent shall have received notice from the other Loan Agent, a Lender or Borrower referring to this Agreement, describing such event, act or condition or Event of Default and stating that such notice is a "notice of default". In the event that a Loan Agent receives such a notice, such Loan Agent shall give prompt notice thereof to the Lenders and (provided such notice is not received from the other Loan Agent) to the other Loan Agent. Each Loan Agent shall take such action with respect to the rights and remedies given to such Loan Agent pursuant to the terms of the Loan Documents as shall be reasonably directed by the Majority Lenders; provided that, unless and until such Loan Agent shall have received such directions, such Loan Agent may (but shall not be obligated to) take such action, or refrain from taking such action, as it shall deem advisable in the best interests of the Lenders. (g) Each Lender expressly acknowledges that none of the Loan Agents nor any of their officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by either Loan Agent hereinafter taken or hereinbefore taken in connection with the Existing Loan Agreement, including any review of the affairs of Borrower or any of its Subsidiaries, shall be deemed to constitute any representation or warranty by that Loan Agent to any Lender. Each Lender represents to the Loan Agents that it has, independently and without reliance upon either Loan Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of Borrower and its Subsidiaries, each Operator, each Mortgagor and each Credit Support Obligor, and made its own decision to make its loans hereunder and enter into this Agreement, and that it has satisfied itself independently, without reliance on either of the Loan Agents or any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates, as to the compliance of the transactions contemplated hereby with all legal and regulatory requirements applicable to such Lender. Each Lender expressly acknowledges that its representation in the previous sentence shall not be restricted or construed in any way 86 to import any reliance on either Loan Agent or any other Lender as a result of any duties or other actions which may have been undertaken by that Loan Agent or other Lender in connection with the Existing Loan Agreement, and, where such Lender is itself also a party to the Existing Loan Agreement, that such Lender's decision to make its Loans hereunder and enter into this Agreement is made independently of its decisions to enter into the Existing Loan Agreement and to make any loans thereunder. Each Lender also represents that it will, independently and without reliance upon either Loan Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of Borrower and its Subsidiaries, any Operator, any Mortgagor or any Credit Support Obligor. Except for notices, reports and other documents expressly required to be furnished to the Lenders by that Loan Agent hereunder, neither Loan Agent shall have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, financial and other condition or credit-worthiness of Borrower and its Subsidiaries which may come into its possession or the possession of any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. (h) Each Lender agrees to indemnify, defend (with counsel selected by each Loan Agent) and hold each Loan Agent in its capacity as such (to the extent not reimbursed by Borrower and without limiting the obligation of Borrower to do so), and such Loan Agent's respective officers, directors, shareholders, employees and agents, ratably according to the aggregate loan percentages set forth opposite its name on Schedule 1 hereto, harmless for, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including without limitation at any time following the payment of the Notes) be imposed on, incurred by or asserted against such Loan Agent in any way relating to or arising out of the Loan Documents or the transactions contemplated thereby or any action taken or omitted by such Loan Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgements, suits, costs, expenses or disbursements resulting primarily from such Loan Agent's willful misconduct or gross negligence. The agreements in this Section shall survive the payment of the Notes. (i) Each Loan Agent and its affiliates may make loans to and generally engage in any kind of business with Borrower or 87 any of its Subsidiaries as though such Loan Agent were not a Loan Agent hereunder. With respect to its pro rata share of the Loan made or extended by it and any Note issued to it, each Loan Agent shall have the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not a Loan Agent. The terms "Lender" and "Lenders" shall include each Loan Agent in its individual capacity. (j) A Loan Agent may resign as Loan Agent upon 30 days' written notice to the Lenders. In the event that a Loan Agent shall enter receivership, then the Lenders (other than the Lender which is acting as such Loan Agent, if applicable) may, by unanimous consent, remove such Loan Agent as Loan Agent under this Agreement. If a Loan Agent shall resign as such Loan Agent under this Agreement or a Loan Agent shall be removed, then the Majority Lenders shall within 30 days of such resignation or removal or, in the absence of such appointment, the resigning or removed Loan Agent shall, appoint a successor agent for the Lenders, whereupon such successor agent shall succeed to the rights, powers and duties of such Loan Agent, and the term "Agent" or "Administrative Agent", as applicable, shall mean such successor agent effective upon its appointment, and the former Loan Agent's rights, powers and duties as Loan Agent shall be terminated, without any other or further act or deed on the part of such former Loan Agent or any of the parties to this Agreement or any holders of the Notes. After any retiring Loan Agent's resignation hereunder as Loan Agent or any Loan Agent's removal, the provisions of this Section 8.1 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was a Loan Agent under this Agreement. (k) Each Lender agrees to use its best efforts promptly upon an officer responsible for the administration of this Agreement becoming aware of any development or other information which may have a Material Adverse Effect or MAC to notify the other Lenders of the same. Each Loan Agent agrees that it shall promptly deliver to each Lender copies of all notices, demands, statements and communications which such Loan Agent gives to Borrower, except for routine notices of payment due under the Loan Documents and other miscellaneous notices, demands, statements and communications, the failure of delivery of which to each Lender shall not have a material adverse effect on any Lender. The foregoing notwithstanding, no Loan Agent shall have any liability to any Lender, nor shall a cause of action arise against any Loan Agent, as a result of the failure of such Loan Agent to deliver to any Lender any notice, demand, statement or communication required to be delivered by it under this Section 8.1(k), except to the extent such failure is due to the gross negligence or wilful misconduct of such Loan Agent. (l) Each Loan Agent shall endeavor to exercise the same care in administering the Loan Documents as it exercises 88 with respect to similar transactions in which it is involved and where no other co-lenders or participants are involved; provided that the liability of such Loan Agent for failing to do so shall be limited as provided in the preceding paragraphs of this Section 8.1. (m) Each Lender agrees that, as between it and any Loan Agent, any Loan Document or Appraisal, or other report or document with respect to which the approval of such Lender is required hereunder, sent to it for review shall be deemed consented to by it for purposes of any approval thereof by any Loan Agent if such Lender does not give to such Loan Agent written notice of its objection thereto within five Business Days of its receipt thereof. The foregoing shall be for the benefit of such Loan Agent only and shall not be deemed a consent under any other provision of this Agreement or to confer any rights on Borrower or any of its Subsidiaries under this Agreement in any manner whatsoever. SECTION 9. SUBSIDIARY GUARANTIES 9.1 Guaranties. In order to induce the Lenders to enter into this Agreement and to make the Loans to Borrower hereunder, each Subsidiary of Borrower other than Church Creek Corporation agrees as follows: (a) Each such Subsidiary of Borrower hereby unconditionally (subject to the next paragraph) and irrevocably guarantees, as primary obligor and not merely as surety, the full and punctual payment (whether at stated maturity, upon acceleration or otherwise) of the principal and interest (including, without limitation, interest which, but for the filing of a petition in bankruptcy with respect to Borrower would accrue hereunder) on all Loans made to Borrower, and the full and punctual payment of all other amounts payable by Borrower under this Agreement (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the United States Bankruptcy Code). Upon failure by Borrower to pay punctually any such amount, each such Subsidiary shall forthwith on demand pay the amount not so paid as if that Subsidiary instead of Borrower were expressed to be the principal obligor. The obligations of each Subsidiary of Borrower under this Section 9 shall be limited to a maximum aggregate amount equal to the largest amount that would not render its obligations subject to avoidance as a fraudulent transfer or conveyance under Section 548 of the United States Bankruptcy Code or any applicable provisions of comparable state law, in each case after giving effect to all other liabilities of the relevant Subsidiary (contingent or otherwise) that are relevant under 89 those laws. In order to provide for just and equitable contribution among the Subsidiaries of Borrower, each such Subsidiary agrees that if any other Subsidiary makes payments under this Section 9 in an aggregate amount in excess of the net value of the benefits received by such other Subsidiary and its own Subsidiaries from extensions of credit under this Agreement, then the Subsidiary which has made such excess payments shall have a right of contribution against the other Subsidiaries of Borrower for such excess. However, this right of contribution shall be subject to Section 9.1(e) in all respects. Each Subsidiary of Borrower acknowledges that the giving by it of this guarantee is a condition precedent to the making or maintenance of the Loans to Borrower and also acknowledges that a portion of the proceeds of the Loans may be advanced to it by Borrower, and accordingly the obligations guaranteed are being incurred for, and will inure to, its benefit. (b) The obligations of each Subsidiary of Borrower hereunder shall be unconditional, irrevocable, direct and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by (and, to the fullest extent permitted by law, each such Subsidiary waives its rights in connection with): (i) any extension, increase, renewal, settlement, compromise, waiver or release in respect of any obligation of Borrower hereunder, by operation of law or otherwise; (ii) any modification or amendment of or supplement to this Agreement; (iii) any release, impairment, non-perfection or invalidity of any direct or indirect security (if any) for any obligation of Borrower under this Agreement; (iv) any change in the trust existence, structure or ownership of Borrower, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting Borrower or its assets or any resulting release or discharge of any obligation of Borrower contained in the Agreement; (v) the existence of any claim, set-off or other rights which such Subsidiary may have at any time against Borrower, any Lender or any other Person, whether in connection herewith or any unrelated transactions; provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim; 90 (vi) any invalidity or unenforceability relating to or against Borrower for any reason of this Agreement, or any provision of applicable law or regulation purporting to prohibit the payment by Borrower of the principal or interest on any Loan or any other amount payable by Borrower under this Agreement; or (vii) any other act or omission to act or delay of any kind by Borrower, any Lender or any other Person or any other circumstance whatsoever which might, but for the provisions of this Section 9, constitute a legal or equitable discharge of or defense to such Subsidiary's obligations hereunder. (c) Each such Subsidiary's obligations hereunder shall remain in full force and effect until this Agreement shall have terminated and the principal and interest on all Loans and all other amounts payable by Borrower hereunder shall have been paid in full. Each such Subsidiary further agrees that its guarantee hereunder shall continue to be effective or be reinstated, as the case may be, if at any time payments, or any part thereof, of principal of or interest on any obligation of Borrower is rescinded or must otherwise be restored by Agent or any Lender upon the bankruptcy or reorganization of Borrower or otherwise. (d) Each such Subsidiary irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against Borrower or any other Person. (e) Each Subsidiary irrevocably waives any and all rights to which it may be entitled, by operation of law or otherwise, upon making any payment hereunder to be subrogated to the rights of the payee against Borrower with respect to such payment or against any direct or indirect security therefor, or otherwise to be reimbursed, indemnified or exonerated by or for the account of Borrower in respect thereof. SECTION 10. GENERAL 10.1 CHOICE OF LAW. THIS AGREEMENT AND THE NOTES SHALL BE CONTRACTS UNDER AND SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 10.2 SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL; ETC. NOTWITHSTANDING ANY OTHER PROVISION IN THIS AGREEMENT, THE NOTES OR ANY OTHER LOAN DOCUMENT, EACH OF BORROWER AND EACH OF ITS SUBSIDIARIES HEREBY IRREVOCABLY (a) SUBMITS TO THE NON-EXCLUSIVE PERSONAL JURISDICTION OF ANY STATE OR FEDERAL COURT IN THE STATE OF NEW YORK IN ANY SUIT, ACTION OR OTHER LEGAL 91 PROCEEDING RELATING TO THIS AGREEMENT OR THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS; (b) AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH SUIT, ACTION OR OTHER LEGAL PROCEEDING MAY BE HEARD AND DETERMINED IN, AND ENFORCED IN AND BY, ANY SUCH COURT; (c) WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO VENUE IN ANY SUCH COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM; (d) AGREES TO SERVICE OF PROCESS IN ANY SUCH PROCEEDING BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, OR IN ANY OTHER MANNER PERMITTED BY LAW, TO ANY THEN ACTIVE AGENT FOR SERVICE OF PROCESS ("PROCESS AGENT") AT ANY SPECIFIED ADDRESS OR TO BORROWER AT ITS ADDRESS SET FORTH HEREIN OR TO SUCH OTHER ADDRESS OF WHICH ADMINISTRATIVE AGENT (WITH A COPY TO AGENT TO FOLLOW) SHALL HAVE BEEN NOTIFIED IN WRITING (SUCH SERVICE TO BE EFFECTIVE ON THE EARLIER OF RECEIPT THEREOF OR, IN THE CASE OF SERVICE BY MAIL, THE 5TH DAY AFTER DEPOSIT OF SUCH SERVICE IN THE MAILS AS AFORESAID), AND HEREBY WAIVES ANY CLAIM OF ERROR ARISING OUT OF SERVICE OF PROCESS BY ANY METHOD PROVIDED FOR HEREIN OR ANY CLAIM THAT SUCH SERVICE WAS NOT EFFECTIVELY MADE; (e) AGREES THAT THE FAILURE OF ITS PROCESS AGENT TO GIVE ANY NOTICE OF ANY SUCH SERVICE OF PROCESS TO IT SHALL NOT IMPAIR OR AFFECT THE VALIDITY OF SUCH SERVICE OR ANY JUDGMENT BASED THEREON; (f) TO THE EXTENT THAT BORROWER OR ANY SUCH SUBSIDIARY HAS ACQUIRED, OR HEREAFTER MAY ACQUIRE, ANY IMMUNITY FROM JURISDICTION OF ANY SUCH COURT OR FROM LEGAL PROCESS THEREIN, WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, SUCH IMMUNITY; (g) WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN CONNECTION WITH, OR WITH RESPECT TO, ANY SUIT, ACTION OR OTHER LEGAL PROCEEDING RELATING TO THIS AGREEMENT OR THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS, (i) ANY CLAIM THAT IT IS IMMUNE FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO IT OR ANY OF ITS PROPERTY, (ii) ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, AND (iii) ANY RIGHT TO A JURY TRIAL; AND (h) AGREES THAT AGENT AND EACH LENDER SHALL HAVE THE RIGHT TO BRING ANY LEGAL PROCEEDINGS (INCLUDING A PROCEEDING FOR ENFORCEMENT OF A JUDGMENT ENTERED BY ANY OF THE AFOREMENTIONED COURTS) AGAINST BORROWER OR SUCH SUBSIDIARY IN ANY OTHER COURT OR JURISDICTION IN ACCORDANCE WITH APPLICABLE LAW. NOTWITHSTANDING THE FOREGOING, NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF AGENT AND EACH LENDER TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS IN THE COURTS OF ANY OTHER JURISDICTION OR THE RIGHT, IN CONNECTION WITH ANY LEGAL ACTION OR PROCEEDING WHATSOEVER, TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. EACH OF BORROWER AND EACH OF ITS SUBSIDIARIES HEREBY IRREVOCABLY DESIGNATES THE FIRM OF SULLIVAN & WORCESTER, WITH OFFICES AT 767 THIRD AVENUE, NEW YORK, NEW YORK 10017, ATTENTION: CHARLES M. DUBROFF, AS ITS PROCESS AGENT TO RECEIVE SERVICE OF ANY AND ALL PROCESS AND DOCUMENTS ON ITS BEHALF IN ANY LEGAL PROCEEDING IN THE STATE OF NEW YORK AND SUCH PROCESS AGENT, BY ITS ACKNOWLEDGEMENT BELOW, IRREVOCABLY AGREES TO SO ACT AS PROCESS AGENT FOR SERVICE OF PROCESS. IF SUCH PROCESS AGENT 92 SHALL FOR ANY REASON FAIL TO ACT, OR BE PREVENTED FROM ACTING, AS PROCESS AGENT, NOTICE THEREOF SHALL IMMEDIATELY BE GIVEN TO AGENT BY REGISTERED OR CERTIFIED MAIL AND BORROWER AGREES (FOR ITSELF AND ITS SUBSIDIARIES) PROMPTLY TO DESIGNATE ANOTHER PROCESS AGENT IN THE CITY OF NEW YORK, SATISFACTORY TO AGENT UNDER THIS AGREEMENT, TO SERVE IN PLACE OF SUCH PROCESS AGENT AND DELIVER TO AGENT WRITTEN EVIDENCE OF SUCH SUBSTITUTE PROCESS AGENT'S ACCEPTANCE OF SUCH DESIGNATION. SUCH ACTING PROCESS AGENT SHALL NEVERTHELESS CONTINUE TO SERVE AS PROCESS AGENT UNTIL ITS SUCCESSOR IS DULY APPOINTED. 10.3 Notices; Certain Payments. (a) All notices, consents and other communications to Borrower or any of its Subsidiaries, Agent, Administrative Agent or any Lender relating hereto to be effective shall be in writing and shall be deemed made (i) if by certified mail, return receipt requested, or facsimile, when received, (ii) if by telex, when sent answerback received, and (iii) if by courier, when receipted for, in each case addressed to them as follows or at such other address as either of them may designate by written notice to the other: (w) Borrower and its Subsidiaries: Health and Retirement Properties Trust, 400 Centre Street, Newton, Massachusetts 02158, Attention: President and Treasurer (telecopier no. (617) 332-2261) with a copy to Sullivan & Worcester, One Post Office Square, Boston, Massachusetts 02109, Attention: Lena G. Goldberg, Esq. (telecopier no. (617) 338-2880); (x) Agent: Kleinwort Benson Limited, P.O. Box 560, 20 Fenchurch Street, London, EC3P 3DB, England, Attention: Robin Tilbury, Loans Administration (telecopier no. 011-44-171-956-6105) with a copy to Kleinwort Benson (North America), Incorporated, 200 Park Avenue, 25th Floor, New York, New York 10166, Attention: David Watanabe and Peter Kettle (telecopier no. 1-212-983-5981); (y) Administrative Agent: Wells Fargo Bank, National Association, Corporate Banking, 420 Montgomery Street, San Francisco, California 94163, Attention: (in the case of a Notice of Borrowing) Lupe Barajas (telecopier no. 1-415-989-4319) or (in all other cases) Richard Clapp (telecopier no. 1-415-421-1352); and (z) the Lenders : to the addresses specified opposite such Lenders' respective names on Schedule 1 hereto, with a copy to O'Melveny & Myers, 153 East 53rd Street, New York, New York 10022, Attention: Christopher D. Hall, Esq. (telecopier no. (212) 326-2061). (b) All payments on account of the Loans and the related Notes pursuant hereto or pursuant to the other Loan Documents shall be made to the Borrower's account with Administrative Agent at: Wells Fargo Bank, N.A. San Francisco, California ABA No. 121000248 Account Name: Health and Retirement Properties Trust 93 Account No. 4518073184 together with irrevocable instructions to Administrative Agent to apply such payments under this Agreement. Administrative Agent may by written notice to Borrower specify or change its account and address for payment instructions hereunder. 10.4 No Waivers; Cumulative Remedies; Entire Agreement; Headings; Successors and Assigns; Counterparts; Severability. No action, failure, delay or omission by Agent, Administrative Agent or any Lender in exercising any rights, powers, privileges and remedies under this Agreement, the Notes or any other Loan Document, or otherwise, shall constitute a waiver of, or impair, any of the rights, powers, privileges or remedies of Agent, Administrative Agent or any Lender hereunder or thereunder. No single or partial exercise of any such right, power, privilege or remedy shall preclude any other or further exercise thereof or the exercise of any other right, power, privilege or remedy. Such rights, powers, privileges and remedies are cumulative and not exclusive of any rights, powers, privileges and remedies provided by law or otherwise available, including, but not limited to, rights to specific performance (to the extent permitted by law) or any covenant or agreement contained in this Agreement or any of the Loan Documents. No waiver of any such right, power, privilege or remedy shall be effective unless given in writing by the Majority Lenders or as otherwise provided in Section 10.6. No waiver of any such right, power, privilege or remedy shall be deemed a waiver of any other right, power, privilege or remedy hereunder or thereunder. Every right, power, privilege and remedy given by this Agreement or by applicable law to Agent, Administrative Agent or any Lender may be exercised from time to time and as often as may be deemed expedient by Agent, Administrative Agent or any Lender. This Agreement, the Notes and the other Loan Documents constitute the entire agreement of the parties relating to the subject matter hereof and thereof and there are no verbal agreements relating hereto or thereto. Section headings herein shall have no legal effect. This Agreement, the Notes and the other Loan Documents (including all covenants, representations, warranties, rights, powers, privileges and remedies made or granted herein or therein) shall inure to the benefit of, and be enforceable by, Agent, Administrative Agent and each Lender and their respective successors and assigns, except as otherwise expressly provided in this Agreement. Neither Borrower nor any of its Subsidiaries may directly or indirectly assign or transfer (whether by agreement, by operation of law or otherwise) any of its rights or obligations and liabilities hereunder without the prior written consent of each Lender. Each of the Lenders may make, carry or transfer its pro rata share of the Loans at, to or for the account of, any of its branch offices or the office of one or more of its Affiliates. Further, each Lender may sell participations in all or any part of its pro rata share of the 94 Loans or its Commitments or any other interest herein or in its Notes to another bank or Person, or with the prior written consent of Agent and Borrower (not to be unreasonably withheld; provided that Borrower's consent shall not be required if an Event of Default has occurred and is continuing) each Lender may assign its rights and delegate its obligations under this Agreement and any of the other Loan Documents and with the prior written consent of Agent and Borrower (not to be unreasonably withheld; provided that Borrower's consent shall not be required if an Event of Default has occurred and is continuing) may assign all or any part of its pro rata share of the Loans or its Commitment or any other interest herein or in its Notes to another bank or other Person in amounts not less than $5,000,000 (or any lesser amount in the case of an assignment by one Lender to another Lender) to any one assignee, in which event (i) in the case of an assignment, upon notice thereof by such Lender to Borrower, Agent and Administrative Agent, the assignee shall have, to the extent of such assignment (unless otherwise provided therein), the same rights and benefits as it would have if it were such Lender hereunder and the holder of a Note and to such extent shall be deemed a "Lender" for all purposes of this Agreement and the other Loan Documents, and (ii) in the case of a participation, the participant shall not have any rights under this Agreement or any Note or any other Loan Document (the participant's rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the participant relating thereto). In the case of such a participation, the terms of the agreement or agreements pursuant to which any such participation is created shall not confer upon the participant any right to vote its interest as a participant in respect of any matter relating to the Loans other than (w) the extension of the maturity of any Note or the time of payment of interest thereon, (x) the reduction of the rate of interest payable hereunder, (y) the reduction of any other amount payable hereunder or (z) the increase of such participant's share of the relevant Lender's Commitment hereunder. Each Lender may furnish any information concerning Borrower and its Subsidiaries, the Advisor, any Operator, any Mortgagor and any Credit Support Obligor in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants). In the event that any Lender shall assign or sell any of its Notes, such Lender shall at the time of such assignment or sale give written notice to Agent, Administrative Agent and Borrower of the name and address of the assignee (including the name of the account officer if applicable). Each Lender agrees that such Lender shall not assign or offer to assign interests in its Notes in such a manner which would require that the Notes be registered under applicable securities laws. Each Lender represents that it is acquiring its respective Note for investment and not with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act of 1933, as amended; 95 provided that the disposition of the Notes in accordance with the other provisions of this Section 10.4 shall at all times remain within the Lenders' control. This Agreement may be executed in any number of separate counterparts, each of which shall be deemed an original and all of which taken together shall be deemed to constitute one and the same instrument. In the event any one or more of the provisions contained in this Agreement or any Notes or any other Loan Documents should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal, or unenforceable provisions. 10.5 Survival. The obligations of Borrower under Sections 2.6, 2.10, 2.12, 2.13, 2.14, 2.15, 5.12 and 10.7 (and all other indemnification and expense reimbursement obligations of Borrower under this Agreement) shall survive the repayment of the Loans and the cancellation of the Notes and the termination of the other obligations of Borrower hereunder and under the other Loan Documents. All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Notes and the funding of the Loans. 10.6 Amendments and Waivers. With the written consent of the Majority Lenders, Agent and Borrower may, from time to time, enter into written amendments, supplements or modifications hereto or to any of the other Loan Documents and with the written consent of the Majority Lenders, Agent on behalf of the Lenders may execute and deliver to Borrower a written instrument waiving, on such terms and conditions as Agent may specify in such instrument, any of the requirements of this Agreement or the Notes or any Default or Event of Default and its consequences; provided that no such waiver and no such amendment, supplement or modification shall (a) extend the maturity of any Note, or reduce the rate or extend the time of payment of interest thereon, or reduce or postpone the due date for the principal amount thereof or any other amount payable in connection herewith, or change the amount or terms of any Lender's Commitment or amend, modify or waive any provision of this Section or reduce the percentage specified in the definition of Majority Lenders, or consent to the assignment or transfer by Borrower or any of its Subsidiaries of any of its rights and obligations under this Agreement, in each case without the written consent of all the Lenders, (b) amend, modify or waive any provision of Section 8 or otherwise change any of the rights or obligations of either or both of the Loan Agents under any of the Loan Documents without 96 the written consent of the affected Loan Agent or Loan Agents (as applicable) at the time, (c) with respect to Section 6.7, amend, modify or waive (y) any provision thereof in a manner which permits Borrower or any of its Subsidiaries to own, operate, acquire or fund income producing real property interests or facilities which are not Courtyard Lodgings or which do not offer health care or related services or rehabilitation or retirement services, or incidental activities to any of the foregoing, or (z) the proviso to Section 6.7, without, in the case of both clauses (y) and (z) of this clause (c), the written consent of the Majority Lenders, Agent, Co-Agent and Borrower (provided that any other type of amendment, modification or waiver of Section 6.7 shall only require the written consent of the Majority Lenders, Agent and Borrower) or (d) amend, modify or waive any provision of this Section 10.6 without the written consent of all Lenders. In the case of any waiver, Borrower, Agent, Administrative Agent and the Lenders shall be restored to their former position and rights hereunder and under the Outstanding Notes, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 10.7 Payment of Expenses and Taxes. Borrower agrees (a) to pay or reimburse each of Agent and Administrative Agent on demand for all its out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement, the Notes and any other Loan Documents or other documents prepared in connection herewith, and the consummation of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to Agent and Administrative Agent, (b) to pay or reimburse each Lender, Agent and Administrative Agent on demand for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the Notes, the other Loan Documents and any such other documents, or the satisfaction or review of conditions precedent to any borrowing other than that occurring on the Effective Date, including, without limitation, reasonable fees and disbursements of counsel to Agent and Administrative Agent and, in the case of enforcement or preservation of any rights under this Agreement, counsel to the several Lenders, and (c) to pay, indemnify, and to hold each Lender, Agent and Administrative Agent and their respective officers, directors, employees and agents harmless for, from and against, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or 97 in respect of, this Agreement, the Notes, the other Loan Documents and any such other documents, and (d) to pay, indemnify, and hold each Lender, Agent and Administrative Agent and their respective officers, directors, employees and agents harmless for, from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of, or in any other way arising out of or relating to, this Agreement, the Notes, the other Loan Documents and any such other documents, including, without limitation, any claim resulting or arising out of the presence of Hazardous Materials in any of the Properties (all the foregoing, collectively, the "indemnified liabilities"), provided that Borrower shall have no obligation hereunder with respect to indemnified liabilities arising from (i) the willful misconduct of any such Lender or (ii) legal proceedings commenced against any such Lender by any security holder or creditor thereof arising out of and based upon rights afforded any such security holder or creditor solely in its capacity as such. 10.8 Adjustments; Setoff. (a) If any Lender (a "benefitted Lender") shall at any time receive any payment of all or part of its Loan, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in clause (g) of Section 7.1, or otherwise) in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lenders' Loan, or interest thereon, such benefitted Lender shall purchase for cash from the other Lenders such portion of each such other Lender's Loan, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided that if all or any portion of such excess payment or benefits is thereafter recovered from such benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. Borrower expressly consents to the foregoing arrangements and agrees that each Lender so purchasing a portion of another Lender's Loan may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Lender were the direct holder of such portion. (b) In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior notice to Borrower, any such notice being expressly waived by Borrower to the extent permitted by applicable law, upon 98 (i) the filing of a petition under any of the provisions of the federal bankruptcy act or amendments thereto, by or against; (ii) the making of an assignment for the benefit of creditors by; (iii) the application for the appointment, or the appointment, of any receiver of, or of any of the property of; (iv) the issuance of any execution against any of the property of; (v) the issuance of a subpoena or order, in supplementary proceedings, against or with respect to any of the property of; and/or (vi) or the issuance of a warrant of attachment against any of the property of; Borrower to set off and apply against any indebtedness, whether matured or unmatured, of Borrower to such Lender, any amount owing from such Lender to Borrower, at or at any time after, the happening of any of the above-mentioned events, and the aforesaid right of set off may be exercised by such Lender against Borrower or against any trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver, or execution, judgment or attachment creditor of Borrower, or against anyone else claiming through or against Borrower or such trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver, or execution, judgment or attachment creditor, notwithstanding the fact that such right of set off shall not have been exercised by such Lender prior to the making, filing or issuance, or service upon such Lender of, or of notice of, any such petition; assignment for the benefit of creditors; appointment or application for the appointment of a receiver; or issuance of execution, subpoena or order of warrant. Each Lender agrees promptly to notify Borrower, Agent and Administrative Agent after any such set off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set off and application. The proceeds of any set off or application pursuant to this subsection (b) of Section 10.8 shall be distributed in accordance with the preceding subsection (a). 10.9 NONLIABILITY OF TRUSTEES. THE DECLARATION OF TRUST ESTABLISHING BORROWER, DATED OCTOBER 9, 1986, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HEALTH AND RETIREMENT PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE 99 DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF BORROWER SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, BORROWER. ALL PERSONS DEALING WITH BORROWER, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF BORROWER FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. [Remainder of page left blank intentionally] 100 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in New York, New York by their proper and duly authorized officers as of the day and year first above written. HEALTH AND RETIREMENT PROPERTIES TRUST By: /s/ David J. Hegarty Name: David J. Hegarty Title: Executive Vice President KLEINWORT BENSON LIMITED, as Agent and as a Lender By: /s/ Patrick F. Donelan Name: Patrick F. Donelan Title: Director WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent and as a Lender By: /s/ Lenny Mason Name: Lenny Mason Title: Assistant Vice President NATWEST BANK N.A. (formerly National Westminster Bank, USA), as Co-Agent and as a Lender By: /s/ Paul Chau Name: Paul Chau Title: Vice President By: ___________________________________ Name:_________________________________ Title:________________________________ S-1 FLEET BANK OF MASSACHUSETTS, as a Lender By: /s/ Ginger Stolzenthaler Name: Ginger Stolzenthaler Title: Vice President THE DAIWA BANK, LIMITED, as a Lender By: /s/ Daniel Eastman Name: Daniel Eastman Title: Executive Vice President By: /s/ Stephen F. O'Sullivan Name: Stephen F. O'Sullivan Title: Executive Officer MITSUI LEASING (USA) INC., as a Lender By: /s/ Toshiaki Nagano Name: Toshiaki Nagano Title: Executive Vice President BANK HAPOALIM B.M., as a Lender By: /s/ Nancy J. Lushan Name: Nancy J. Lushan Title: Vice President By: /s/ Paul J. Bresler Name: Paul J. Bresler Title: Vice President DRESDNER BANK AG, New York Branch and Grand Cayman Branch, as a Lender By: /s/ Andrew P. Nesi Name: Andrew P. Nesi Title: Vice President By: /s/ Andrew K. Mittag Name: Andrew K. Mittag Title: Vice President CREDIT LYONNAIS, Cayman Island Branch, as a Lender By: /s/ Xavier Ratouis Name: Xavier Ratouis Title: Authorized Signature S-2 For the purposes of Section 9 and the guaranties given therein: HOSPITALITY PROPERTIES, INC. By: /s/ David J. Hegarty Name: David J. Hegarty Title: President HEALTH AND RETIREMENT PROPERTIES INTERNATIONAL, INC. By: /s/ David J. Hegarty Name: David J. Hegarty Title: President S-3 Acknowledgement by Process Agent We hereby acknowledge and accept the designation of our firm at our address of 767 Third Avenue, New York, New York 10017 (or such other address as the Process Agent may notify the Agent and Administrative Agent under the foregoing Agreement) as Process Agent for Health and Retirement Properties Trust, Hospitality Properties, Inc. and Health and Retirement Properties International, Inc pursuant to Section 10.2 of the foregoing Agreement. SULLIVAN & WORCESTER By: /s/ Lena Goldberg Sullivan & Worcester S-4 EXHIBIT A FORM OF PROMISSORY NOTE A-1 EXHIBIT B FORM OF NOTICE OF BORROWING B-1 EXHIBIT C FORM OF NOTICE OF CONTINUATION/CONVERSION C-1 EXHIBIT D FORM OF SUBORDINATION AGREEMENT D-1 SCHEDULE 1 LENDERS' COMMITMENTS LENDER COMMITMENT Kleinwort Benson Limited $47,500,000 Wells Fargo Bank, National Association $15,000,000 NatWest Bank N.A. $25,000,000 The Daiwa Bank, Limited $20,000,000 Fleet Bank of Massachusetts $20,000,000 Bank Hapoalim B.M. $20,000,000 Dresdner Bank AG, New York Branch $20,000,000 and Grand Cayman Branch Credit Lyonnais, $20,000,000 Cayman Island Branch Mitsui Leasing (USA) Inc. $12,500,000 Total $200,000,000 CERTAIN LENDING OFFICES Kleinwort Benson Limited 20 Fenchurch Street London EC3P 3DB Tel: (44) 171-623-8000 Fax: (44) 171-623-3598 Attn:______________ Wells Fargo Bank, National Association Corporate Banking 420 Montgomery Street San Francisco, California 94163 Tel: (415) 396-5997 Fax: (415) 421-1352 Attn: Lenny Mason NatWest Bank N.A. 175 Water Street, 28th Floor S1-1 New York, New York 10038 Tel: (212) 602 2610 Fax: (212) 602 2671 Attn: Paul Chau The Daiwa Bank, Limited 233 South Wacker Drive Suite 5400 Chicago, Illinois 60606 Tel: (617) 451-3200 Fax: (617) 423-4884 Attn: Vice President/Credit Administration Fleet Bank of Massachusetts 75 State Street Boston, Massachusetts 02109 Tel: (617) 346-1647 Fax: (617) 346-1634 Attn: Ginger Stolzenthaler Mitsui Leasing (U.S.A.) Inc. 200 Park Avenue, Suite 3214 New York, New York 10166 Tel: (212) 557 0454 Fax: (212) 490 1684 Attn: Ms. Takako Sumi Bank Hapoalim B.M. 70 Federal Street Boston, Massachusetts 02110 Tel: (617) 457-1811 Fax: (617) 542-0015 Attn: Nancy Lushan Dresdner Bank, New York Branch and Grand Cayman Branch 75 Wall Street New York, New York 10005-2889 Tel: (212) 574 0100 Fax: (212) 574 0127 Attn: Andrew Nesi Credit Lyonnais, Cayman Island Branch 1301 Avenue of the Americas 20th Floor New York, New York 10019 Tel: (212) 261 7748 Fax: (212) 261 3440 Attn: Francoise Giacalone S1-2 S1-3 SCHEDULE 2 PERMITTED EXCEPTIONS 1. Liens of landlords, mechanics, materialmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith; provided that, in each case, any such Lien is not reasonably likely to cause a MAC; and provided further that, in the case of any Liens being so contested, (v) the amount secured thereby is not material in relation to the Allowed Value of the affected Property or Mortgage Interest, (w) such Property or any interest therein would not be in any danger of being sold, forfeited or lost by reason of such contest; (y) no insurance coverage required to be maintained pursuant to this Agreement shall be cancelled or jeopardized as a result of the contest; and (z) if required by Agent, Borrower shall have furnished to Agent a bond, or other security satisfactory to Borrower, to protect Lenders from any liability to which it may be exposed as a result of such contest. 2. In the case of a Property, all Leases for such Property and the rights of the Operators under such Leases and any Credit Support Agreements relating to such Leases. 3. In the case of a Mortgaged Property, the Mortgaged Interest Agreements for such Mortgaged Property and any Credit Support Agreements relating thereto. 4. Liens for taxes, assessments, water rates, sewer or other governmental charges or claims, the payment of which is not, at the time, due. 5. Easements, rights-of-way, rights of access, encroachments upon or by any Property, in respect of which affirmative insurance, without payment of additional premiums, has been provided by a reputable title insurance company. 6. Easements, rights-of-way, restrictions, minor defects, encroachments or irregularities in title and other similar charges or encumbrances that, in respect of any Property, could not reasonably be likely to result in a MAC. 7. Liens resulting from equipment financings or similar security arrangements entered into by an Operator. S2-1 SCHEDULE 3 AMOUNTS OWED UNDER THE EXISTING LOAN AGREEMENT Kleinwort Benson Limited 1. Aggregate principal amount of Existing Loans outstanding on March 15, 1995 $1,176,470.59 2. Aggregate interest accrued (whether or not due and payable) on March 15, 1995 $5,511.68 3. Aggregate commitment fee accrued (whether or not due and payable) on March 15, 1995 $10,261.44 Wells Fargo Bank, N.A. 1. Aggregate principal amount of Existing Loans outstanding on March 15, 1995 $882,352.94 2. Aggregate interest accrued (whether or not due and payable) on March 15, 1995 $4,133.76 3. Aggregate commitment fee accrued (whether or not due and payable) on March 15, 1995 $7,696.08 NatWest Bank, N.A. 1. Aggregate principal amount of Existing Loans outstanding on March 15, 1995 $1,470,588.24 2. Aggregate interest accrued (whether or not due and payable) on March 15, 1995 $6,889.61 3. Aggregate commitment fee accrued (whether or not due and payable) on March 15, 1995 $12,826.80 S3-1 Fleet Bank of Massachusetts 1. Aggregate principal amount of Existing Loans outstanding on March 15, 1995 $1,176,470.59 2. Aggregate interest accrued (whether or not due and payable) on March 15, 1995 $5,511.68 3. Aggregate commitment fee accrued (whether or not due and payable) on March 15, 1995 $10,261.44 The Daiwa Bank, Limited 1. Aggregate principal amount of Existing Loans outstanding on March 15, 1995 $1,176,470.59 2. Aggregate interest accrued (whether or not due and payable) on March 15, 1995 $5,511.68 3. Aggregate commitment fee accrued (whether or not due and payable) on March 15, 1995 $10,261.44 Mitsui Leasing (USA) Inc. 1. Aggregate principal amount of Existing Loans outstanding on March 15, 1995 $735,294.12 2. Aggregate interest accrued (whether or not due and payable) on March 15, 1995 $3,444.80 3. Aggregate commitment fee accrued (whether or not due and payable) on March 15, 1995 $6,413.40 S3-2 Bank Hapoalim B.M. 1. Aggregate principal amount of Existing Loans outstanding on March 15, 1995 $735,294.12 2. Aggregate interest accrued (whether or not due and payable) on March 15, 1995 $3,444.80 3. Aggregate commitment fee accrued (whether or not due and payable) on March 15, 1995 $6,413.40 Dresdner Bank 1. Aggregate principal amount of Existing Loans outstanding on March 15, 1995 $1,176,470.59 2. Aggregate interest accrued (whether or not due and payable) on March 15, 1995 $5,511.68 3. Aggregate commitment fee accrued (whether or not due and payable) on March 15, 1995 $10,261.44 Credit Lyonnais 1. Aggregate principal amount of Existing Loans outstanding on March 15, 1995 $588,235.29 2. Aggregate interest accrued (whether or not due and payable) on March 15, 1995 $2,755.84 3. Aggregate commitment fee accrued (whether or not due and payable) on March 15, 1995 $5,130.72 S3-3 SCHEDULE 4 BORROWER'S SUBSIDIARIES Name of Subsidiary Jurisdiction of Shares Shares % Incorporation Authorized Outstanding Owned 1. Church Creek Massachusetts 200,000 100 100% Corporation common stock ($0.01 par value) 2. Hospitality Delaware 3,000 100 100% Properties, Inc. common stock ($0.01 par value) 3. Health and Delaware 3,000 100 100% Retirement common Properties stock International, ($0.01 par Inc. value) S4-1 SCHEDULE 5 Calculation of the Mandatory Liquid Asset Costs for any GBP Loans (a) The Mandatory Liquid Asset Costs for a Loan if denominated in GBP for each Interest Period for that Loan is calculated in accordance with the following formula: BY + L(Y-X) + S(Y-Z)% PER ANNUM 100 - (B+S) where on the day of the application of the formula: B is the percentage of Agent's eligible liabilities which the Bank of England then requires Agent to hold on a non-interest-bearing deposit account in accordance with its cash ration requirements; Y is the rate at which GBP deposits are offered by Agent to leading banks in the London interbank market at or about 11.00 A.M. on that day for the relevant period; L is the percentage of eligible liabilities which (as a result of the requirements of the Bank of England) Agent maintains as secured money with members of the London Discount Market Association or in certain marketable or callable securities approved by the Bank of England, which percentage shall (in the absence of evidence that any other figure is appropriate) be conclusively presumed to be 5 per cent.; X is the rate at which secured GBP deposits may be placed by Agent with members of the London Discount Market Association at or about 11.00 A.M. on that day for the relevant period or, if greater, the rate at which GBP bills of exchange (of a tenor equal to the duration of the relevant period) eligible for rediscounting at the Bank of England can be discounted in the London Discount Market at or about 11.00 A.M. on that day; S is the percentage for Agent's eligible liabilities which the Bank of England requires Agent to place as a special deposit; and Z is the interest rate per annum allowed by the Bank of England on special deposits. (b) For the purposes of this Schedule: (i) "eligible liabilities" and "special deposits" have the meanings given to them at the time of application of S5-1 the formula by the Bank of England; and (ii) "relevant period" in relation to each Interest Period means: (A) if it is 3 months or less, that Interest Period, or (B) if it is more than 3 months, 3 months. (c) In the application of the formula, B, Y, L, X, S and Z are included in the formula as figures and not as percentages, e.g. if B=0.5% and Y = 15%, BY is calculated as 0.5 x 15. (d) The formula is applied on the first day of each relevant period. Each amount is rounded up to the nearest one- sixteenth of one per cent. (e) If Agent determines that a change in circumstances has rendered, or will render, the formula inappropriate, Agent (after consultation with the Lenders) shall notify Borrower of the manner in which the Mandatory Liquid Asset Costs for such Loans will subsequently be calculated. The manner of calculation so notified by Agent shall, in the absence of manifest error, be binding on Borrower. S5-2 SCHEDULE 6 COURTYARD LODGINGS 1. Seattle/Bellevue, WA 2. Atlanta Airport North, GA 3. Minneapolis/Eden Prairie, MN 4. Spartanburg, SC 5. Boston/Danvers, MA 6. Kansas City South, MO 7. Philadelphia Airport, PA 8. Boston/Foxboro, MA 9. Atlanta Midtown, GA 10. Indianapolis/Carmel, IN 11. Dulles/Fairfax, VA 12. Raleigh/Durham Airport, NC 13. Atlanta Cumberland, GA 14. Detroit/Auburn Hills, MI 15. Boston/Milford, MA 16. Boston/Lowell, MA 17. Atlanta/Jimmy Carter Blvd., GA 18. Phoenix Camelback, AZ 19. Boston/Stoughton, MA 20. Scottsdale/Mayo Clinic, AZ 21. Mahwah, NJ S6-1 EXECUTION U.S. $200,000,000 SECOND AMENDED AND RESTATED REVOLVING LOAN AGREEMENT among HEALTH AND RETIREMENT PROPERTIES TRUST, as Borrower, THE LENDERS NAMED HEREIN, KLEINWORT BENSON LIMITED, as Agent, WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent and NATWEST BANK N.A. as Co-Agent Dated as of March 15, 1995 TABLE OF CONTENTS SECTION PAGE SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . 2 1.1. Defined Terms . . . . . . . . . . . . . . . . . . 2 1.2. Other Definitional Provisions . . . . . . . . . . 24 SECTION 2. AMOUNT AND TERMS OF REVOLVING LOANS . . . . . . . 25 2.1. Revolving Loans. . . . . . . . . . . . . . . . . 25 2.2. Notes; Maturity Date. . . . . . . . . . . . . . . 27 2.3. Procedure for Borrowing. . . . . . . . . . . . . 28 2.4. Interest. . . . . . . . . . . . . . . . . . . . . 31 2.5. Duration of Interest Period; Notice of Continuation/Conversion. . . . . . . . . . . . 32 2.6. Fees. . . . . . . . . . . . . . . . . . . . . . . 33 2.7. Termination or Reduction of Commitment. . . . . . 34 2.8. Optional Prepayments; Mandatory Prepayments. . . 34 2.9. Computation of Interest and Fees. . . . . . . . . 36 2.10. Payments and Currency. . . . . . . . . . . . . . 36 2.11. Use of Proceeds. . . . . . . . . . . . . . . . . 38 2.12. Increased Costs. . . . . . . . . . . . . . . . . 38 2.13. Change in Law Rendering Eurodollar Loans or Alternate Rate Loans Unlawful . . . . . . . . 40 2.14. Eurodollar Availability. . . . . . . . . . . . . 42 2.15. Indemnities. . . . . . . . . . . . . . . . . . . 43 2.16 Eligible Mortgages and Eligible Properties. . . . 43 SECTION 3. REPRESENTATIONS AND WARRANTIES . . . . . . . . . 44 3.1. Financial Condition. . . . . . . . . . . . . . . 44 3.2. No Material Adverse Effect. . . . . . . . . . . . 45 3.3. Existence; Compliance with Law. . . . . . . . . . 45 3.4. Operator, Advisor, Credit Support Obligors; Compliance with Law. . . . . . . . . . . . . . 45 3.5. Power; Authorization; Enforceable Obligations. . 46 3.6. No Legal Bar. . . . . . . . . . . . . . . . . . . 46 3.7. No Material Litigation. . . . . . . . . . . . . . 46 3.8. No Default. . . . . . . . . . . . . . . . . . . . 46 3.9. Ownership of Mortgage Interests and Property; Liens. . . . . . . . . . . . . . . . . . . . . 47 3.10. No Burdensome Restrictions. . . . . . . . . . . 49 3.11. Taxes. . . . . . . . . . . . . . . . . . . . . . 49 3.12. Federal Regulations. . . . . . . . . . . . . . . 49 3.13. Employees. . . . . . . . . . . . . . . . . . . . 50 3.14. ERISA. . . . . . . . . . . . . . . . . . . . . . 50 3.15. Status as REIT. . . . . . . . . . . . . . . . . 50 3.16. Restrictions on Incurring Indebtedness. . . . . 50 3.17. Subsidiaries. . . . . . . . . . . . . . . . . . 50 3.18. Compliance with Environmental Laws. . . . . . . 50 3.19. Pollution; Hazardous Materials. . . . . . . . . 50 3.20. Securities Laws. . . . . . . . . . . . . . . . . 51 3.21. Declaration of Trust, By-Laws, Advisory Contract, etc. . . . . . . . . . . . . . . . . 51 i 3.22. Disclosures. . . . . . . . . . . . . . . . . . . 51 3.23. Medicare and Medicaid Certification . . . . . . 51 3.24. Offering, Etc., of Securities . . . . . . . . . 52 SECTION 4. CONDITIONS PRECEDENT . . . . . . . . . . . . . . 52 4.1. Conditions to Effectiveness . . . . . . . . . . . 52 4.2. Conditions Precedent to Loans . . . . . . . . . . 53 SECTION 5. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . 54 5.1. Financial Statements. . . . . . . . . . . . . . . 55 5.2. Certificates; Other Information. . . . . . . . . 56 5.3. Payment of Obligations . . . . . . . . . . . . . 57 5.4. Conduct of Business and Maintenance of Existence . . . . . . . . . . . . . . . . . . 57 5.5. Leases and Mortgage Interests; Credit Support Agreements . . . . . . . . . . . . . . . . . . 57 5.6. Maintenance of Property, Insurance. . . . . . . 57 5.7. Inspection of Property; Books and Records; Discussions . . . . . . . . . . . . . . . . . 58 5.8. Notices. . . . . . . . . . . . . . . . . . . . . 58 5.9. Appraisals and Other Valuations. . . . . . . . . 59 5.10. Meetings. . . . . . . . . . . . . . . . . . . . 59 5.11. REIT Requirements. . . . . . . . . . . . . . . . 60 5.12. Indemnification. . . . . . . . . . . . . . . . . 60 5.13. Changes in GAAP. . . . . . . . . . . . . . . . . 60 5.14. Refinancing of Loans . . . . . . . . . . . . . . 61 5.15. Further Assurances; Restrictions on Negative Pledges . . . . . . . . . . . . . . . . . . . 61 5.16. Currency Arrangements . . . . . . . . . . . . . 61 SECTION 6. NEGATIVE COVENANTS . . . . . . . . . . . . . . . 61 6.1. Financial Covenants. . . . . . . . . . . . . . . 62 6.2. Restricted Payments. . . . . . . . . . . . . . . 62 6.3. Merger; Sale of Assets; Termination and Other Actions . . . . . . . . . . . . . . . . . . . 62 6.4. Transactions with Affiliates. . . . . . . . . . . 63 6.5. Subsidiaries . . . . . . . . . . . . . . . . . . 63 6.6. Accounting Changes. . . . . . . . . . . . . . . . 63 6.7. Change in Nature of Business. . . . . . . . . . . 63 6.8. Indebtedness. . . . . . . . . . . . . . . . . . . 63 6.9. No Liens. . . . . . . . . . . . . . . . . . . . . 65 6.10. Fiscal Year. . . . . . . . . . . . . . . . . . . 65 6.11. Chief Executive Office. . . . . . . . . . . . . 65 6.12. Amendment of Certain Agreements . . . . . . . . 65 SECTION 7. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . 65 7.1. Events of Default. . . . . . . . . . . . . . . . 66 7.2. Annulment of Acceleration. . . . . . . . . . . . 69 7.3. Cooperation by Borrower. . . . . . . . . . . . . 69 SECTION 8. THE AGENTS . . . . . . . . . . . . . . . . . . . 69 8.1. Appointment of Agent and Administrative Agent. . 69 SECTION 9. SUBSIDIARY GUARANTIES . . . . . . . . . . . 73 ii 9.1 Guaranties. . . . . . . . . . . . . . . . . . . 73 SECTION 10. GENERAL . . . . . . . . . . . . . . . . . . 75 10.1 CHOICE OF LAW. . . . . . . . . . . . . . . . . . 75 10.2 SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL; ETC. . . . . . . . . . . . . . . . . . 75 10.3 Notices; Certain Payments. . . . . . . . . . . . 77 10.4 No Waivers; Cumulative Remedies; Entire Agreement; Headings; Successors and Assigns; Counterparts; Severability. . . . . . . . . . 78 10.5 Survival. . . . . . . . . . . . . . . . . . . . . 80 10.6 Amendments and Waivers. . . . . . . . . . . . . . 80 10.7 Payment of Expenses and Taxes. . . . . . . . . . 80 10.8 Adjustments; Setoff. . . . . . . . . . . . . . . 81 10.9 NONLIABILITY OF TRUSTEES. . . . . . . . . . . . . 82 EXHIBITS EXHIBIT A - FORM OF PROMISSORY NOTE EXHIBIT B - FORM OF NOTICE OF BORROWING EXHIBIT C - FORM OF NOTICE OF CONTINUATION/CONVERSION EXHIBIT D - FORM OF SUBORDINATION AGREEMENT SCHEDULES Schedule 1 - LENDERS' COMMITMENTS AND CERTAIN LENDING OFFICES Schedule 2 - PERMITTED EXCEPTIONS Schedule 3 - AMOUNTS OWED UNDER THE EXISTING LOAN AGREEMENT Schedule 4 - BORROWER'S SUBSIDIARIES Schedule 5 - MANDATORY LIQUID ASSET COSTS (FOR GBP LOANS) Schedule 6 - COURTYARD LODGINGS iii EX-10.24 9 Exhibit 10.24 PURCHASE OPTION AGREEMENT THIS PURCHASE OPTION AGREEMENT (this "Agreement") is entered into as of this 11th day of February, 1994, by and between HEALTH AND REHABILITATION PROPERTIES TRUST, a Maryland real estate investment trust ("HRP"), and HORIZON HEALTHCARE CORPORATION, a Delaware corporation ("HHC"). W I T N E S S E T H : WHEREAS, HRP is the owner of certain real property and the improvements thereon as more particularly described in Exhibits A-1 through A-7, attached hereto and made a part hereof (collectively, the "Properties"); and WHEREAS, on the date hereof, HRP and HHC are entering into lease agreements (collectively, the "Leases"), pursuant to which HRP is leasing to HHC and HHC is leasing from HRP the Properties; and WHEREAS, HHC would like an option to purchase each of the Properties and HRP is willing to grant such an option to HHC, all subject to and upon the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Purchase Option. Provided no Default or Event of Default (as defined therein) shall have occurred and be continuing under the Leases, HHC shall, subject to and upon the terms and conditions set forth in this Agreement, have the option to purchase one or more of the Properties. The purchase price for each of the Properties shall be an amount equal to the allocable purchase price set forth on Exhibit B, attached hereto and made a part hereof, plus the cost of any improvements made or purchased by HRP with respect thereto after the date of this Agreement, without deduction or adjustment for depreciation or otherwise. HHC may exercise its option to purchase one or more of the Properties described in Exhibits A-1 through A-6 at any time after January 1, 1994 and prior to the first to occur of December 31, 2003 and the sooner termination of the Leases (the "Option Period") and may exercise its option to purchase the property described in Exhibit A-7 at any time after July 1, 1995 and prior to the expiration of the Option Period (or at such other time as HRP may approve), in either case, by the giving of sixty (60) days prior written notice (any such notice, an "Exercise Notice") thereof to HRP. The failure of HHC to give an Exercise Notice with respect to any Property prior to the expiration of the Option Period shall be deemed a waiver by HHC of its option to purchase the Properties pursuant to this Agreement; it being expressly understood and agreed that time shall be of the essence with respect to the giving of any such Exercise Notice. Any Exercise Notice shall be -2- accompanied by a refundable deposit (the "Option Deposit") in the amount of five percent (5%) of the purchase price of the applicable Property. 2. Certain Terms and Conditions. HHC's right to purchase one or more of the Properties pursuant to this Agreement shall be subject to the following additional terms and conditions: (i) the first Property acquired pursuant to this Agreement shall be the Property located in Slidell, Louisiana; (ii) among the first four (4) Properties acquired pursuant to this Agreement shall be either the Property located in Middleboro, Massachusetts or the Property located in Cannonsburg, Pennsylvania; (iii) among the first six (6) Properties acquired pursuant to this Agreement shall be both the Property located in Middleboro, Massachusetts and the Property located in Cannonsburg, Pennsylvania; and (iv) HHC shall not have the right to acquire more than one (1) Property in any consecutive twelve (12) month period during the Option Period. HHC shall have no right to acquire the Properties other than in a manner consistent with this Section 2. 3. Purchase and Sale. Any closing pursuant to this Agreement shall occur sixty (60) days after the giving of the applicable Exercise Notice. The purchase price for each Property shall be payable in cash or by wire transfer of immediately available Federal funds. Any applicable Property shall be conveyed by HRP to HHC by insurable deed with warranties and other instruments customary therefor in the jurisdiction in which the applicable property is located. Upon such conveyance, the applicable Lease shall be terminated. All closing costs shall be paid by HHC. 4. Default. In the event of any default by HHC in purchasing any Property subsequent to the giving of the applicable Exercise Notice (for reasons other than HHC's determination of sufficiency of title, any encumbrances and matters of record affecting such Property), HRP's sole remedy shall be to retain that portion of the applicable Option Deposit equal to the reasonable costs and expenses (including, without limitation, attorneys' fees) incurred by HRP in connection with the exercise of such option by HHC and HHC shall, thereafter, have no further right to purchase any of the Properties pursuant to this Agreement. 5. Financing. In the event that HHC shall elect to obtain financing for the purchase of any Property pursuant to this Agreement from a third party, HHC shall give HRP notice thereof, which notice shall set forth in reasonable detail the terms of such financing, shall identify the source thereof and shall include a copy of any applicable term sheet, letter of intent or commitment letter. HRP shall have the right, exercisable by the giving of notice to HHC within 10 days after such notice from HHC, to provide financing for such acquisition on the same terms and conditions as offered by such third party. In the event -3- HRP shall exercise such option, HHC shall be obligated to obtain such financing from HRP on the terms and conditions set forth in HHC's notice to HRP. In the event HRP shall decline to provide such financing or shall fail to give such notice to HHC, HHC shall be free to obtain such financing from the third party and on the terms and conditions set forth in HHC's notice. 6. Notices. (a) Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Agreement shall be deemed adequately given if in writing and the same shall be delivered either in hand, by telecopier with written acknowledgment of receipt, or by mail or Federal Express or similar expedited commercial carrier, addressed to the recipient of the notice, postpaid and registered or certified with return receipt requested (if by mail), or with all freight charges prepaid (if by Federal Express or similar carrier). (b) All notices required or permitted to be sent hereunder shall be deemed to have been given for all purposes of this Agreement upon the date of acknowledged receipt, in the case of a notice by telecopier, and, in all other cases, upon the date of receipt or refusal, except that whenever under this Agreement a notice is either received on a day which is not a business day or is required to be delivered on or before a specific day which is not a business day, the day of receipt or required delivery shall automatically be extended to the next business day. (c) All such notices shall be addressed, If to HRP, to: Health and Rehabilitation Properties Trust 400 Centre Street Newton, Massachusetts 02158 Attn: Mr. David J. Hegarty [Telecopier No. (617) 332-2261] with a copy to: Sullivan & Worcester One Post Office Square Boston, Massachusetts 02109 Attn: Lena G. Goldberg, Esq. [Telecopier No. (617) 338-2880] if to HHC to: Horizon Healthcare Corporation 6001 Indian School Road, NE, Fl. 5 Albuquerque, NM 87110 Attn: Neal Elliott [Telecopier No. (505) 881-5097] with a copy to: -4- Horizon Healthcare Corporation 6001 Indian School Road, NE, Fl. 5 Albuquerque, NM 87110 Attn: Scot Sauder, Esq. [Telecopier No. (505) 881-5097] (d) 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 within the United States of America. 7. Waivers, Etc. Any waiver of any term or condition of this Agreement, or of the breach of any covenant, representation or warranty contained herein, in any one instance, shall not operate as or be deemed to be or construed as a further or continuing waiver of any other breach of such term, condition, covenant, representation or warranty or any other term, condition, covenant, representation or warranty, nor shall any failure at any time or times to enforce or require performance of any provision hereof operate as a waiver of or affect in any manner such party's right at a later time to enforce or require performance of such provision or any other provision hereof. This Agreement may not be amended, nor shall any waiver, change, modification, consent or discharge be effected, except by an instrument in writing executed by or on behalf of the party against whom enforcement of any amendment, waiver, change, modification, consent or discharge is sought. 8. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective legal representatives, successors and permitted assigns. This Agreement is not intended and shall not be construed to create any rights in or to be enforceable in any part by any other persons. 9. Severability. If any provision of this Agreement shall be held or deemed to be, or shall in fact be, invalid, inoperative or unenforceable as applied to any particular case in any jurisdiction or jurisdictions, or in all jurisdictions or in all cases, because of the conflict of any provision with any constitution or statute or rule of public policy or for any other reason, such circumstance shall not have the effect of rendering the provision or provisions in question invalid, inoperative or unenforceable in any other jurisdiction or in any other case or circumstance or of rendering any other provision or provisions herein contained invalid, inoperative or unenforceable to the extent that such other provisions are not themselves actually in conflict with such constitution, statute or rule of public policy, but this Agreement shall be reformed and construed in any such jurisdiction or case as if such invalid, inoperative or unenforceable provision had never been contained herein and such provision reformed so that it would be valid, operative and enforceable to the maximum extent permitted in such jurisdiction or in such case. 10. Counterparts, Etc. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This -5- Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and shall supersede and take the place of any other instruments purporting to be an agreement of the parties hereto relating to the subject matter hereof. Each of the parties hereto shall cooperate with one another in order to consummate the transactions contemplated by this Agreement. 11. Section and Other Headings. The headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 12. Memorandum of Option. Neither HRP nor HHC shall record this Agreement. However, HRP and HHC shall promptly, upon the request of either, enter into a short form memorandum of this Agreement, in form suitable for recording under the laws of the states in which the Properties are located, in which reference to the options herein contained shall be made. The party requesting such memorandum shall pay all costs and expenses incurred in recording such memorandum. 13. Limitation of Liability. The Declaration of Trust of HRP, as amended, is duly filed in the Office of the Department of Assessments and Taxation of the State of Maryland, provides that the name "Health and Rehabilitation Properties Trust" refers to the trustees under the Declaration collectively as Trustees, but not individually or personally, and that no trustee, officer, shareholder, employee or agent of HRP shall be held to any personal liability, jointly or severally, for any obligation of, or claim against, HRP. All persons dealing with HRP, in any way, shall look only to the assets of HRP for the payment of any sum or the performance of any obligation. 14. Governing Law. This Agreement shall be interpreted, construed, applied and enforced in accordance with the laws of The Commonwealth of Massachusetts applicable to contracts between residents of Massachusetts which are to be performed entirely within Massachusetts, regardless of (i) where this Agreement is executed or delivered; or (ii) where any payment or other performance required by this Agreement is made or required to be made; or (iii) where any breach of any provision of this Agreement occurs, or any cause of action otherwise accrues; or (iv) where any action or other proceeding is instituted or pending; or (v) the nationality, citizenship, domicile, principle place of business, or jurisdiction of organization or domestication of any party; or (vi) whether the laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction other than The Commonwealth of Massachusetts; or (vii) any combination of the foregoing. To the maximum extent permitted by applicable law, any action to enforce, arising out of, or relating in any way to, any of the provisions of this Lease may be brought and prosecuted in such court or courts located in The Commonwealth of Massachusetts as is provided by law; and the parties consent to the jurisdiction of said court or courts located in The Commonwealth of Massachusetts and to service of process by registered mail, return receipt requested, or by any other manner provided by law. -6- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as a sealed instrument as of the date above first written. HEALTH AND REHABILITATION PROPERTIES TRUST By: David J. Hegarty Its: Executive Vice President HORIZON HEALTHCARE CORPORATION By: Neal Elliott Its: President EXHIBIT A-1 [See attached copy.] EXHIBIT A-2 [See attached copy.] EXHIBIT A-3 [See attached copy.] EXHIBIT A-4 [See attached copy.] EXHIBIT A-5 [See attached copy.] EXHIBIT A-6 [See attached copy.] EXHIBIT A-7 [See attached copy.] EXHIBIT B Purchase Price Hyannis $ 8,300,000 North Andover $12,500,000 Middleboro $17,000,000 Worcester $17,500,000 Cannonsburg $15,600,000 Slidell $24,500,000 Boston $25,000,000 EX-12.1 10 Exhibit 12 - Computation of Ratios
HEALTH AND RETIREMENT PROPERTIES TRUST (In thousands) YEARS ENDED DECEMBER 31, 1990 1991 1992 1993 1994 EARNINGS: INCOME BEFORE $14,280 $22,079 $27,243 $37,738 $57,878 GAIN ON SALE OF PROPERTIES AND EXTRAORDINARY ITEMS ADJUSTMENTS FOR 9,997 12,305 10,419 6,529 10,096 FIXED CHARGES TOTAL EARNINGS $24,277 $34,384 $37,662 $44,267 $67,974 FIXED CHARGES: INTEREST EXPENSE $ 9,511 $11,741 $ 9,466 $6,217 $ 8,965 AMORTIZATION 486 584 943 312 1,131 TOTAL FIXED $ 9,997 $12,305 $10,419 $ 6,529 $10,096 CHARGES RATIO OF 2.4X 2.8X 3.6X 6.8X 6.7X EARNINGS TO FIXED CHARGES /TABLE EX-21.1 11 Exhibit 21.1 SUBSIDIARIES OF THE REGISTRANT
STATE OF NAME BUSINESS NAME INCORPORATION Church Creek Corporation Same Massachusetts Health and Retirement Same Delaware Properties International, Inc. Hospitality Properties, Inc. Same Delaware Hospitality Project Hospitality Properties (Delaware), Inc.
EX-23.1 12 Consent of Ernst & Young LLP, Independent Auditors We consent to the incorporaltion by reference in Amendment No. 1 to the Registration Statement (Form S-3 No. 33-53173) of Health and Retirement Properties Trust and in the related Prospectus of (a) our report dated February 9, 1995, with respect to the financial statements and schedules of Health and Retirement Properties Trust included in this Annaul Report (Form 10-K) for the year ended December 31, 1994, and (b) our report dated February 21, 1995 with respect to the consolidated financial statements and schedules of GranCare, Inc. included in GranCare, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1994, all filed with the Securities and Exchange Commission. ERNST & YOUNG LLP Boston, Massachusetts March 27, 1995 EX-23.2 13 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated July 22, 1994, included in Horizon Healthcare Corporation's Form 10-K for the year ended May 31, 1994, into Health and Retirement Properties Trust previously filed Registration Statement File No. 33-52875. ARTHUR ANDERSEN LLP Albuquerque, New Mexico March 30, 1995 EX-25.1 14 POWER OF ATTORNEY The undersigned Officers and Trustees of Health and Retirement Properties Trust hereby severally constitue Mark J. Finkelstein, David J. Hegarty, Gerard M. Martin and Barry M. Portnoy, and each of them, to sign for us and in our names in the capacities indicated below, the Annual Report on Form 10-K herewith filed with the Securities and Exchange Commission, and any and all amendments thereto, hereby ratifying and confirming our signatures as they may be signed by our said attorneys to the Annual Report on Form 10-K and any and all amendments to the Annual Report on Form 10-K. Witness our hands and seals on the dates set forth below.
Signature Title Date /s/ MARK J. FINKELSTEIN President and Chief March 30, 1995 Mark J. Finkelstein Executive Officer /s/ DAVID J. HEGARTY Executive Vice March 30, 1995 David J. Hegarty President and Chief Financial Officer /s/ JOHN L. HARRINGTON Trustee March 30, 1995 John L. Harrington /s/ ARTHUR G. KOUMANTZELIS Trustee March 30, 1995 Arthur G. Koumantzelis /s/ REV. JUSTINIAN MANNING Trustee March 30, 1995 Rev. Justinian Manning, C.P. /s/ GERARD M. MARTIN Trustee March 30, 1995 Gerard M. Martin /s/ BARRY M. PORTNOY Trustee March 30, 1995 Barry M. Portnoy /TABLE EX-27 15
5 This schedule contains summary financial information extracted from the Registrant's audited financial statements incorporated by reference to the accompanying Form 10-K and is qualified in its entirety by reference to such financial statements. 1000 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 59,766 0 4,712 0 0 64,478 673,083 39,570 840,206 17,854 216,513 574 0 0 601,465 840,206 0 86,683 0 19,840 0 (10,000) 8,965 51,872 0 57,878 0 (1,953) 0 49,919 .95 0
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