FACILITY LEASE AGREEMENT
MEDITRUST ACQUISITION CORPORATION I
(A Massachusetts corporation)
as
Lessor
AND
EMERITUS PROPERTIES I, INC.
(A Washington corporation)
as
Lessee
September 5,1997
For Premises Located In
City of Newark, New Castle County, Delaware
FACILITY LEASE AGREEMENT
This FACILITY LEASE AGREEMENT ("Lease") is
dated as of the 10th day of September, 1997 and is
between MEDITRUST ACQUISITION CORPORATION I
("Lessor"), a Massachusetts corporation having its
principal office at 197 First Avenue, Needham
Heights, Massachusetts 02194, and EMERITUS
PROPERTIES I, INC. ("Lessee"), a Washington
corporation, having its principal office at c/o
Emeritus Corporation, 3131 Elliott Avenue, Suite
500, Seattle, Washington 98121 -2162.
ARTICLE 1
LEASED PROPERTY; TERM; CONSTRUCTION;
EXTENSIONS
1.1 LEASED PROPERTY. Upon and subject to the
terms and conditions hereinafter set forth, Lessor
leases to Lessee and Lessee rents and leases from
Lessor all of Lessor's rights and interests in and
to the following real and personal property
(collectively, the "Leased Property"):
(a) the real property described in
EXHIBIT A attached hereto (the "Land");
(b) all buildings, structures, Fixtures
(as hereinafter defined) and other
improvements of every kind including,
but not limited to, alleyways and
connecting tunnels, sidewalks, utility
pipes, conduits and lines, and parking
areas and roadways appurtenant to such
buildings and structures presently or
hereafter situated upon the Land
(collectively, the "Leased
Improvements");
(c) all easements, rights and
appurtenances of every nature and
description now or hereafter relating to
or benefitting any or all of the Land
and the Leased Improvements;
(d) all equipment, machinery, building
fixtures, and other items of property
(whether realty, personalty or mixed),
including all components thereof, now or
hereafter located in, on or used in
connection with, and permanently affixed
to or incorporated into the Leased
Improvements, including, without
limitation, all furnaces, boilers,
heaters, electrical equipment, heating,
plumbing, lighting, ventilating,
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, and
built-in oxygen and vacuum systems, all
of which, to the greatest extent
permitted by law, are hereby deemed by
the parties hereto
to constitute real estate, together with
all replacements, modifications,
alterations and additions thereto, but
specifically excluding all items
included within the category of Tangible
Personal Property (as hereinafter
defined) which are not permanently
affixed to or incorporated in the Leased
Property (collectively, the "Fixtures");
and
(e) LESSOR'S PERSONAL PROPERTY
The Leased Property is leased in its
present condition, AS IS, without representation
or warranty of any kind, express or implied, by
Lessor and subject to: (i) the rights of parties
in possession; (ii) the existing state of title
including all covenants, conditions, Liens (as
hereinafter defined) and other matters of record
(including, without limitation, the matters set
forth in EXHIBIT B); (iii) all applicable laws and
(iv) all matters, whether or not of a similar
nature, which would be disclosed by an inspection
of the Leased Property or by an accurate survey
thereof.
1.2 TERM. The term of this Lease shall
consist of the "Initial Term", which shall
commence on September 5,1997 (the "Commencement
Date") and end on March 31, 2010 (the
"Expiration Date"); provided, however, that this
Lease may be sooner terminated as hereinafter
provided. In addition, Lessee shall have the
option(s) to extend the Term (as hereinafter
defined) as provided for in Section 1.3.
1.3 EXTENDED TERMS. Provided that this Lease
has not been previously terminated, and as long as
there exists no Lease Default (as hereinafter
defined) at the time of exercise and on the last
day of the Initial Term or the then current
Extended Term (as hereinafter defined), as the
case may be, Lessee is hereby granted the option
to extend the Initial Term of this Lease for four
(4) additional periods (collectively, the
"Extended Terms") as follows: four (4) successive
five (5) year periods for a maximum Term, if all
such options are exercised, which ends on March
31, 2030. Lessee's extension option rights shall
be exercised by Lessee by giving written notice to
Lessor of each such extension at least one hundred
eighty (180) days, but not more than three hundred
sixty (360) days, prior to the termination of the
Initial Term or the then current Extended Term, as
the case may be. Lessee shall have no right to
rescind any such notice once given. Lessee may not
exercise its option for more than one Extended
Term at a time. During each effective Extended
Term, all of the terms and conditions of this
Lease shall continue in full force and effect,
except that the Base Rent (as hereinafter defined)
for each such Extended Term shall be adjusted as
set forth in Section 3.1 (a).
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Notwithstanding anything to the contrary set
forth herein, Lessee's rights to exercise the
options granted in this Section 1.3 are subject to
the further condition that concurrently with the
exercise of any extension option hereunder, Lessee
shall have exercised its option to extend the
terms of all of the Related Leases in accordance
with the provisions of the Agreement Regarding
Related Transactions and the provisions of Section
1.3 of each of the Related Leases.
ARTICLE 2
DEFINITIONS AND RULES OF CONSTRUCTION
2.1 DEFINITIONS. For all purposes of this
Lease and the other Lease Documents (as
hereinafter defined), except as otherwise
expressly provided or unless the context otherwise
requires, (i) the terms defined in this Article
have the meanings assigned to them in this Article
and include the plural as well as the singular and
(ii) all references in this Lease or any of the
other Lease Documents to designated "Articles",
"Sections" and other subdivisions are to the
designated Articles, Sections and other
subdivisions of this Lease or the other applicable
Lease Document.
ACCOUNTS: As defined in the UCC.
ACCREDITATION BODY: Any person, including any
Person having or claiming jurisdiction over the
accreditation, certification, evaluation or
operation of the Facility.
ADDED VALUE PERCENTAGE: The proportion of the
Fair Market Added Value of Capital Additions paid
for or financed by Lessee to the Fair Market Value
of the entire Leased Property, expressed as a
percentage.
ADDITIONAL CHARGES: As defined in Article 3.
ADDITIONAL LAND: As defined in Section 9.3.
ADDITIONAL RENT: As defined in Article 3.
ADDITIONAL RENT COMMENCEMENT DATE: As defined
in Article 3.
AFFILIATE: With respect to any Person (i) any
other Person which, directly or indirectly,
controls or is controlled by or is under common
control with such Person, (ii) any other Person
that owns, beneficially, directly or indirectly,
five percent (5%) or more of the outstanding
capital stock, shares or equity interests of such
Person or (iii) any officer, director, employee,
general partner or trustee of such Person,
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or any other Person controlling, controlled by, or
under common control with, such Person (excluding
trustees and Persons serving in a fiduciary or
similar capacity who are not otherwise an
Affiliate of such Person). For the purposes of
this definition, "control" (including the
correlative meanings of the terms "controlled by"
and "under common control with"), as used with
respect to any Person, shall mean 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 provided, however, that, (a) for
purposes of determining a Related Party Default,
the percentage of outstanding capital stock,
shares or equity interests referenced in (ii)
above shall be fifty percent (50%) and (b) any
Person who is an Affiliate by virtue of the
ownership thereof by Daniel R. Baty or his status
therein as an officer or director shall not be
deemed an Affiliate for purposes of determining a
Related Party Default.
AFFILIATED PARTY SUBORDINATION AGREEMENT:
That certain Affiliated Party Subordination
Agreement of even date by and among Lessee, the
Guarantor, various Affiliates of Lessee and
various Affiliates of Lessor.
AGREEMENT REGARDING RELATED TRANSACTIONS:
The Fifth Amended and Restated Agreement Regarding
Related Transactions (Development) dated September
5,1996, as may be amended from time to time,
between Lessee, Lessor and any Related Party that
is party to any Related Lease or Related Party
Agreement. Lessor and Lessee anticipate that the
Agreement Regarding Related Transactions will be
amended from time to time to include Affiliates of
Lessor and Lessee as parties thereto in connection
with future transactions and acknowledge and agree
that for all purposes under this Lease Agreement
such amendments shall be deemed to be included in
this definition.
ANNUAL FACILITY UPGRADE EXPENDITURE: An
aggregate annual amount equal to the product of
TWO HUNDRED DOLLARS ($200) (as increased as of the
first day of each Lease Year in which the Annual
Facility Upgrade Expenditure is to be made by an
amount equal to the product of the CPI Increase
multiplied by TWO HUNDRED DOLLARS ($200)) times
the number of units in the Facility, such amount
to be spent on Upgrade Renovations. The term
"CPI Increase" means a fraction, the numerator of
which is the Price Index in effect as of the first
day of the Lease Year in which the Annual Facility
Upgrade Expenditure is to be made and the
denominator of which is the Price Index in effect
as of the date hereof. The term "Price Index"
means the Consumer Price Index for Urban Wage
Earners and Clerical Workers, All Items Series A
(1982-84=100), published by the Bureau of Labor
Statistics, U.S. Department of Labor. If the
Bureau of Labor Statistics
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should cease to publish such Price Index in its
present form and calculated on the present basis,
then the most similar index published by the same
Bureau shall be used for the same purpose. If
there is no such similar index, a substitute index
which is then generally recognized as being
similar to such Price Index, such substitute index
to be reasonably selected by Lessor.
APPURTENANT AGREEMENTS: Collectively, all
instruments, documents and other agreements that
now or hereafter create any utility, access or
other rights or appurtenances benefiting or
relating to the Leased Property.
AWARD: All compensation, sums or anything of
value awarded, paid or received on a total or
partial Condemnation.
BASE GROSS REVENUES: The annualized Gross
Revenues of the Facility for the second twelve
month period following the Conversion Date,
initially as shown by Lessee's certified
consolidated Financial Statements and as later
verified by Lessee's Consolidated Financial
statements.
BASE RENT: Pre-Conversion Base Rent and/or
Post-Conversion Base Rent, as the context permits.
BUSINESS DAY: Any day which is not a Saturday
or Sunday or a public holiday under the laws of
the United States of America, the Commonwealth of
Massachusetts, the State or the state in which
Lessor's depository bank is located.
CAPITAL ADDITIONS: Collectively, all new
buildings and additional structures annexed to any
portion of any of the Leased Improvements and
material expansions of any of the Leased
Improvements which are constructed on any portion
of the Land during the Term, including, without
limitation, the construction of a new wing or new
story, the renovation of any of the Leased
Improvements on the Leased Property and any
expansion, construction, renovation or conversion
in connection therewith (a) in order to provide a
functionally new facility that is needed or used
to provide services not previously offered or (b)
in order to (i) increase the bed capacity of a
Facility, (ii) change the purpose for which such
beds are utilized and/or (iii) change the
utilization of any material portion of any of the
Leased Improvements, provided that for the
purposes of Article 9 hereof, the Project shall
not be treated as a Capital Addition.
CAPITAL ADDITION COST: The cost of any
Capital Addition made by Lessee whether paid for
by Lessee or Lessor. Such cost shall include all
costs and expenses of every nature whatsoever
incurred directly or indirectly in connection with
the development, permitting, construction
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and financing of a Capital Addition as reasonably
determined by, or to the reasonable satisfaction
of, Lessor.
CASH COLLATERAL: As defined in the Deposit
Pledge Agreement.
CASH FLOW: The Consolidated Net Income (or
Consolidated Net Loss) before federal and state
income taxes for any period plus (i) the amount of
the provision for depreciation and amortization
actually deducted on the books of the applicable
Person for the purposes of computing such
Consolidated Net Income (or Consolidated Net Loss)
for the period involved, us (ii) Rent and interest
on all other Indebtedness which is fully
subordinated to the Lease Obligations, plus (iii)
any indebtedness which is fully subordinated to
the Lease Obligations pursuant to the Affiliated
Party Subordination Agreement or the Management
Subordination Agreement.
CASUALTY: As defined in Section 13.1.
CHATTEL PAPER: As defined in the UCC.
CLOSING: As defined in Section 18.3.6.
CODE: The Internal Revenue Code of 1986, as
amended.
COLLATERAL: All of the property in which
security interests are granted to Lessor and the
other Meditrust Entities pursuant to the Lease
Documents and the Related Party Agreements to
secure the Lease Obligations, including, without
limitation, the Cash Collateral.
COMPETITIVE ACTIVITY: As defined in Section
11.5.
COMPLETION DATE: As defined in the Leasehold
Improvement Agreement.
COMPLETION OF THE PROJECT: As defined in the
Leasehold Improvement Agreement.
CONDEMNATION: With respect to the Leased
Property or any interest therein or right accruing
thereto or use thereof (i) the exercise of any
governmental authority, whether by legal
proceedings or otherwise, by a Condemnor or (ii) a
voluntary sale or transfer by Lessor to any
Condemnor, either under threat of Condemnation or
Taking or while legal proceedings for Condemnation
or Taking are pending.
CONDEMNOR: Any public or quasi-public
authority, or private corporation or individual,
having the power of condemnation.
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CONSOLIDATED: The consolidated accounts of
the relevant Person and its Subsidiaries
consolidated in accordance with GAAP.
CONSOLIDATED FINANCIALS: For any fiscal year
or other accounting period for any Person and its
consolidated Subsidiaries, statements of earnings
and retained earnings and of changes in financial
position for such period and for the period from
the beginning of the respective fiscal year to the
end of such period and the related 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 GAAP, and disclosing all
liabilities of such Person and its consolidated
subsidiaries, including, without limitation,
contingent liabilities.
CONSULTANTS: Collectively, the architects,
engineers, inspectors, surveyors and other
consultants that are engaged from time to time by
Lessor to perform services for Lessor in
connection with this Lease.
CONTRACTS: All agreements (including, without
limitation, Provider Agreements, to the extent
applicable, and any Residency Agreement),
contracts (including without limitation,
construction contracts, subcontracts, and
architects' contracts), contract rights,
warranties and representations, franchises, and
records and books of account benefiting, relating
to or affecting the Leased Property or the
ownership, construction, development, maintenance,
management, repair, use, occupancy, possession, or
operation thereof, or the operation of any
programs or services in conjunction with the
Facility and all renewals, replacement and
substitutions therefor, now or hereafter issued to
any member of the Leasing Group by, or entered
into by any member of the Leasing Group with, any
Governmental Authority, Accreditation Body or
Third Party Payor or maintained or used by any
member of the Leasing Group or entered into by any
member of the Leasing Group with any third Person.
CONVERSION DATE: The earlier to occur of (a)
the Completion Date, (b) the Completion of the
Project and (c) the occupancy of the Facility by a
resident.
CURRENT ASSETS: All assets of any Person
which would, in accordance with GAAP, be
classified as current assets.
CURRENT LIABILITIES: All liabilities of any
Person which would, in accordance with GAAP, be
classified as current liabilities.
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DATE OF TAKING : The date the Condemnor has
the right to possession of the property being
condemned.
DEBT COVERAGE RATIO: The ratio of (i) Cash
Flow for each applicable period to (ii) the total
of all Rent (excluding Additional Rent due under
this Lease) paid or payable during such period or
accrued for such period.
DECLARATION: As defined in Article 23.
DEED: As defined in Section 18.3.
DEPOSIT PLEDGE AGREEMENT: The pledge and
security agreement so captioned and dated as of
even date herewith between Lessee and Lessor.
DOCUMENTS: As defined in the UCC.
ENCUMBRANCE: As defined in Section 20.3.
ENVIRONMENTAL INDEMNITY AGREEMENT: The
Environmental Indemnity Agreement of even date
herewith by and among Lessee the Guarantor and
Lessor.
ENVIRONMENTAL LAWS: As defined in the
Environmental Indemnity Agreement.
ERISA: The Employment Retirement Income
Security Act of I 974, as amended.
EVENT OF DEFAULT: As defined in Article 16.
EXCESS GROSS REVENUES: Gross Revenues less
Base Gross Revenues.
EXPIRATION DATE: As defined in Section 1.2.
EXTENDED TERMS: As defined in Section 1.4.
FACILITY: The 100 unit 104 bed, fully
licensed assisted living facility to be
constructed on the Land and to be known as White
Chapel Assisted Living on the Land (together with
related parking and other amenities).
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FAILURE TO OPERATE: As defined in Article 16.
FAILURE TO PERFORM: As defined Article 16.
FAIR MARKET ADDED VALUE: The Fair Market
Value of the Leased Property (including all
Capital Additions) minus the Fair Market Value of
the Leased Property determined as if no Capital
Additions paid for by Lessee had been constructed.
FAIR MARKET VALUE OF THE CAPITAL ADDITION:
The amount by which the Fair Market Value of the
Leased Property upon the completion of a
particular Capital Addition exceeds the Fair
Market Value of the Leased Property just prior to
the construction of the particular Capital
Addition.
FAIR MARKET VALUE OF THE LEASED PROPERTY: The
fair market value of the Leased Property,
including all Capital Additions, and including the
Land and all other portions of the Leased
Property, and (a) assuming the same is
unencumbered by this Lease, (b) determined in
accordance with the appraisal procedures set forth
in Section 18.2 or in such other manner as shall
be mutually acceptable to Lessor and Lessee and
(c) not taking into account any reduction in value
resulting from any Lien to which the Leased
Property is subject and which Lien Lessee or
Lessor is otherwise required to remove at or prior
to closing of the transaction. However, the
positive or negative effect on the value of the
Leased Property attributable to the interest rate,
amortization schedule, maturity date, prepayment
provisions and other terms and conditions of any
Lien on the Leased Property which is not so
required or agreed to be removed shall be taken
into account in determining the Fair Market Value
of the Leased Property. The Fair Market Value
shall be determined as the overall value based on
due consideration of the "income" approach, the
"comparable sales" approach, and the "replacement
cost" approach.
FEE MORTGAGE: As defined in Section 20.3.
FEE MORTGAGEE: As defined in Section 20.3.
FINANCING PARTY: Any Person who is or may be
participating with Lessor in any way in connection
with the financing of any Capital Addition.
FINANCING STATEMENTS: Uniform Commercial Code
financing statements evidencing the security
interests granted to Lessor in connection with the
Lease Documents.
FISCAL QUARTER: Each of the three (3) month
periods commencing on January 1st, April 1st, July
1st and October 1st.
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FISCAL YEAR: The twelve (12) month period
from January 1st to December 31st.
FIXTURES: As defined in Article 1.
GAAP: Generally accepted accounting
principles, consistently applied throughout the
relevant period.
GENERAL INTANGIBLES: As defined in the UCC.
GOVERNMENTAL AUTHORITIES: Collectively, all
agencies, authorities, bodies, boards,
commissions, courts, instrumentalities,
legislatures, and offices of any nature whatsoever
of any government, quasi-government unit or
political subdivision, whether with a federal,
state, county, district, municipal, city or
otherwise and whether now or hereinafter in
existence.
GROSS REVENUES: Collectively, all revenues
generated by reason of the operation of the Leased
Property (including any Capital Additions),
directly or indirectly received or to be received
by Lessee or any Affiliate of Lessee, including,
without limitation, all resident revenues received
or receivable for the use of, or otherwise by
reason of, all rooms, units and other facilities
provided, meals served, services performed, space
or facilities subleased or goods sold on or from
the Leased Property and further including, without
limitation, except as otherwise specifically
provided below, any consideration received under
any subletting, licensing, or other arrangements
with any Person relating to the possession or use
of the Leased Property and all revenues from all
ancillary services provided at or relating to the
Leased Property; provided, however, that Gross
Revenues shall not include non-operating revenues
such as interest income or gain from the sale of
assets not sold in the ordinary course of
business; and provided, further, that there shall
be excluded or deducted (as the case may be) from
such revenues:
(i) all applicable contractual allowances
(relating to any period during the Term of this
Lease and thereafter until the Rent hereunder is
paid in full), if any, for billings not paid by or
received from the appropriate Governmental
Agencies or Third Party Payors,
(ii) all applicable allowances according
to GAAP for uncollectible accounts,
(iii) all proper resident billing credits
and adjustments according to GAAP, if any,
relating to health care accounting,
(iv) federal, state or local sales, use,
gross receipts and excise taxes and any tax
based upon or measured by said Gross Revenues
which is added to or made a part of the amount
billed to the
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resident or other recipient of such services or
goods, whether included in the billing or stated
separately,
(v) provider discounts for hospital or
other medical facility utilization contracts, if
any,
(vi) the cost, if any, of any federal,
state or local governmental program imposed
specially to provide or finance indigent
resident care (other than Medicare, Medicaid and
the like),
(vii) deposits refundable to residents of
the Facility, and
(viii) payments received on behalf of,
and paid to, Persons who are not Affiliates of
Lessee.
To the extent that the Leased Property is
subleased or occupied by an Affiliate of Lessee,
Gross Revenues calculated for all purposes of this
Lease (including, without limitation, the
determination of the Additional Rent payable under
this Lease) shall include the Gross Revenues of
such Sublessee with respect to the premises
demised under the applicable Sublease (i.e., the
Gross Revenues generated from the operations
conducted on such subleased portion of the Leased
Property) and the rent received or receivable from
such Sublessee pursuant to such Subleases shall be
excluded from Gross Revenues for all such
purposes. As to any Sublease between Lessee and a
non-Affiliate of Lessee, only the rental actually
received by Lessee from such non-Affiliate shall
be included in Gross Revenues.
GROUP TWO DEVELOPMENT FACILITIES: As defined
in the Agreement Regarding Related Transactions.
GUARANTOR: Emeritus Corporation, a Washington
corporation, and its successors and
assigns.
GUARANTY OF LEASE OBLIGATIONS: The Guaranty
of Lease Obligations of even date executed by
Guarantor in favor of Lessor, relating to the
Lease Obligations.
HAZARDOUS SUBSTANCES: As defined in the
Environmental Indemnity Agreement.
IMPOSITIONS: Collectively, all taxes
(including, without limitation, all capital stock
and franchise taxes of Lessor, all ad valorem,
property, sales and use, single business, gross
receipts, transaction
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privilege, rent or similar taxes), assessments
(including, without limitation, all assessments
for public improvements or benefits, whether or
not commenced or completed prior to the date
hereof and whether or not to be completed within
the Term), ground rents, water and sewer rents,
water charges or other rents and charges, excises,
tax levies, fees (including, without limitation,
license, permit, inspection, authorization and
similar fees), transfer taxes and recordation
taxes imposed as a result of this Lease or any
extensions hereof, 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
either or both of the Leased Property and the Rent
(including all interest and penalties thereon due
to any failure in payment by Lessee), which at any
time prior to, during or in respect of the Term
hereof and thereafter until the Leased Property is
surrendered to Lessor as required by the terms of
this Lease, may be assessed or imposed on or in
respect of or be a Lien upon (a) Lessor or
Lessor's interest in the Leased Property, (b) the
Leased Property or any rent therefrom or any
estate, right, title or interest therein, or (c)
any occupancy, operation, use or possession of,
sales from, or activity conducted on, or in
connection with, the Leased Property or the
leasing or use of the Leased Property.
Notwithstanding the foregoing, nothing contained
in this Lease shall be construed to require Lessee
to pay (1) any tax based on net income (whether
denominated as a franchise or capital stock or
other tax) imposed on Lessor or any other Person,
except Lessee or its successors, (2) any net
revenue tax of Lessor or any other Person, except
Lessee and its successors, (3) any tax imposed
with respect to the sale, exchange or other
disposition by Lessor of the Leased Property or
the proceeds thereof, or (4) except as expressly
provided elsewhere in this Lease, any principal or
interest on any Encumbrance on the Leased
Property; provided, however, the provisos set
forth in clauses (1) and (2) of this sentence
shall not be applicable to the extent that any
real or personal property tax, assessment, tax
levy or charge which Lessee 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 (1) or (2) is levied, assessed or imposed
expressly in lieu thereof. In computing the amount
of any franchise tax or capital stock tax which
may be or become an Imposition, the amount payable
by Lessee shall be equitably apportioned based
upon all properties owned by Lessor that are
located within the particular jurisdiction subject
to any such tax.
INDEBTEDNESS : The total of all obligations
of a Person, whether current or long-term, which
in accordance with GAAP would be included as
liabilities upon such Person's balance sheet at
the date as of which Indebtedness is to be
determined, and shall also include (i) all capital
lease obligations and (ii) all guarantees,
endorsements (other than for collection of
instruments in the ordinary course of business),
or other arrangements whereby responsibility is
assumed for the obligations of
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others, whether by agreement to purchase or
otherwise acquire the obligations of others,
including any agreement contingent or otherwise to
furnish funds through the purchase of goods,
supplies or services for the purpose of payment of
the obligations of others.
INDEMNIFIED PARTIES: As defined in Section
122.2.
INDEX: The rate of interest of actively
traded marketable United States Treasury
Securities bearing a fixed rate of interest
adjusted for a constant maturity of ten ( 10)
years as calculated by the Federal Reserve Board.
INITIAL TERM: As defined in Section 12.
INSTRUMENTS: As defined in the UCC.
INSURANCE REQUIREMENTS: All terms of any
insurance policy required by this Lease, all
requirements of the issuer of any such policy with
respect to the Leased Property and the activities
conducted thereon and the requirements of any
insurance board, association or organization or
underwriters' regulations pertaining to the Leased
Property.
LAND: As defined in Article 1.
LEASE: As defined in the preamble of this
Lease.
LEASE DEFAULT: The occurrence of any default
or breach of condition continuing beyond any
applicable notice and/or grace periods under this
Lease and/or any of the other Lease Documents.
LEASE DOCUMENTS: Collectively, this Lease,
the Guaranty of Lease Obligations, the Agreement
Regarding Related Transactions, the Leasehold
Improvement Agreement, the Security Agreement, the
Deposit Pledge Agreement, the Negative Pledge
Agreement, the Permits Assignment, the Financing
Statements, the Affiliated Party Subordination
Agreement, the Environmental Indemnity Agreement,
and any and all other instruments, documents,
certificates or agreements executed or furnished
by any member of the Leasing Group in connection
with the transactions evidenced by the Lease
and/or any of the foregoing documents.
LEASE OBLIGATIONS: Collectively, all
indebtedness, covenants, liabilities, obligations,
agreements and undertakings (other than Lessor's
obligations) under this Lease and the other Lease
Documents.
13
LEASE YEAR: A twelve month period ending on
July 31st of each year; provided, that the first
Lease Year shall begin on the Commencement Date
and shall end on July 31,1998.
LEASED IMPROVEMENTS: As defined in Article I.
LEASED PROPERTY: As defined in Article 1.
LEASEHOLD IMPROVEMENT AGREEMENT: The
Leasehold Improvement Agreement of even date by
and between Lessee and Lessor.
LEASEHOLD IMPROVEMENT FEE: Twenty-Five
Thousand Twenty-Five Dollars ($25,025.00)
LEASING GROUP: Collectively, Lessee, the
Guarantor, any Sublessee which is an Affiliate of
Lessee and any Manager which is an Affiliate of
Lessee.
LEGAL REQUIREMENTS: Collectively, all
statutes, ordinances, by-laws, codes, rules,
regulations, restrictions, orders, judgments,
decrees and injunctions (including, without
limitation, all applicable building, health code,
zoning, subdivision, and other land use and
assisted living licensing statutes, ordinances, by-
laws, codes, rules and regulations), whether now
or hereafter enacted, promulgated or issued by any
Governmental Authority, Accreditation Body or
Third Party Payor affecting Lessor, any member of
the Leasing Group or the Leased Property or the
ownership, construction, development, maintenance,
management, repair, use, occupancy, possession or
operation thereof or the operation of any programs
or services in connection with the Leased
Property, including, without limitation, any of
the foregoing which may (i) require repairs,
modifications or alterations in or to the Leased
Property, (ii) in any way affect (adversely or
otherwise) the use and enjoyment of the Leased
Property or (iii) require the assessment,
monitoring, clean-up, containment, removal,
remediation or other treatment of any Hazardous
Substances on, under or from the Leased Property.
Without limiting the foregoing, the term Legal
Requirements includes all Environmental Laws and
shall also include all Permits and Contracts
issued or entered into by any Governmental
Authority, any Accreditation Body and/or any Third
Party Payor and all Permitted Encumbrances.
LESSEE: As defined in the preamble of this
Lease and its successors and assigns.
LESSEE'S ELECTION NOTICE: As defined in
Section 14.3.
LESSEE'S PURCHASE OPTION NOTICE: As defined
in Section 18.3.
14
LESSOR: As defined in the preamble of this
Lease and its successors and assigns.
LESSOR'S PERSONAL PROPERTY: All machinery,
equipment, furniture, furnishings, movable walls
or partitions, computers or trade fixtures, goods,
inventory, supplies, and other personal property
owned by Lessor and used in the operation of the
Leased Property.
LIEN: With respect to any real or personal
property, any mortgage, easement, restriction,
lien, pledge, collateral assignment,
hypothecation, charge, security interest, title
retention agreement, levy, execution, seizure,
attachment, garnishment or other encumbrance of
any kind in respect of such property, whether or
not inchoate, vested or perfected.
LIMITED PARTIES: As defined in Section
11.5.4. provided, however, in no event shall the
term Limited Parties include any Person in its
capacity as a shareholder of a public entity,
unless such shareholder is a member of the Leasing
Group or an Affiliate thereof.
MANAGED CARE PLANS: All health maintenance
organizations, preferred provider organizations,
individual practice associations, competitive
medical plans, and similar arrangements.
MANAGEMENT AGREEMENT: Any agreement, whether
written or oral, between Lessee or any Sublessee
and any other Person pursuant to which Lessee or
such Sublessee provides any payment, fee or other
consideration to any other Person to operate or
manage the Facility.
MANAGEMENT SUBORDINATION AGREEMENT: The
Management Subordination Agreement which may be
executed in the future between Lessee and Lessor.
MANAGER: Any Person who has entered into a
Management Agreement with Lessee or any Sublessee.
MATERIAL STRUCTURAL WORK: Any (i) structural
alteration, (ii) structural repair or (iii)
structural renovation to the Leased Property,
which would customarily require or which require
the design and/or involvement of a structural
engineer or architect or which would require the
issuance of a Permit.
MEDICAID: The medical assistance program
established by Title XIX of the Social Security
Act (42 USC Section 1396 et seq.) and any statute
succeeding thereto.
MEDICARE: The health insurance program for
the aged and disabled established by Title XVIII
of the Social Security Act (42 USC
15
Section 1395 et seq.) and any statute succeeding
thereto.
MEDITRUST: As defined in Article 23.
MEDITRUST/EMERITUS TRANSACTION AFFILIATE: An
Affiliate of Lessee, the business and activities
of which are limited to those subject to
Meditrust/Emeritus Transaction Documents (other
than the Affiliated Party Subordination Agreement,
the Agreement Regarding Related Transactions and
comparable agreement now or hereafter in effect
among Affiliates of Lessee and of Lessor) to which
such Affiliate is a party.
MEDITRUST/EMERITUS TRANSACTION DOCUMENTS: As
defined in the Agreement Regarding Related
Transactions.
MEDITRUST ENTITIES: Collectively, Meditrust,
Lessor and any other Affiliate of Lessor which may
now or hereafter be a party to any Related Patty
Agreement.
MEDITRUST INVESTMENT: The sum of (i) the
Original Meditrust Investment plus, (ii) the
aggregate amount of all Subsequent Investments
plus (iii) so much of the Project Funds as Lessor
has expended from time to time less the sum of any
Net Award Amounts and/or Net Proceeds Amounts.
MONTHLY DEPOSIT DATE: As defined in Section
4.6.
NEGATIVE PLEDGE AGREEMENT: The Group Two
Negative Pledge Agreement (Development) dated
April 30,1997 by and between Guarantor, Lessee,
Lessor and any Related Party that is party to any
Related Lease or Related Party Agreement.
NET AWARD AMOUNT: As defined in Section 3.7.
NET INCOME (OR NET LOSS): The net income (or
net loss, expressed as a negative number) of a
Person for any period, after all taxes actually
paid or accrued and all expenses and other charges
determined in accordance with GAAP.
NET PROCEEDS AMOUNT: As defined in Section
3.7.
NET WORTH: An amount determined in accordance
with GAAP equal to the total assets of any Person,
minus the total liabilities of such Person,
provided, however, that for purposes of
calculating the Net Worth of the Guarantor, those
certain Thirty-Two Million Dollars
($32,000,000.00) of 6.25% of convertible,
unsecured, subordinated
16
debentures due in 2006, which were issued by the
Guarantor on February 15, 1996, shall not be
included in total liabilities.
OBLIGATIONS: Collectively, the Lease
Obligations and the Related Party Obligations.
OFFICER'S CERTIFICATE: A certificate of
Lessee signed on behalf of Lessee by the Chairman
of the Board of Directors, the President, any Vice
President or the Treasurer of Lessee, or another
officer authorized to so sign by the Board of
Directors or By-Laws of Lessee, or any other
Person whose power and authority to act has been
authorized by delegation in writing by any of the
Persons holding the foregoing offices.
ORIGINAL MEDITRUST INVESTMENT: The sum of One
Million Two Hundred Thirty Three Thousand Six
Hundred Seventy-One Dollars and 25/00 ($
1,233,671.25).
OTHER PERMITTED USES: To the extent permitted
under applicable Legal Requirements and under
Insurance Requirements, and so long as the same do
not detract in any material manner from the
Primary Intended Use and do not occupy more than
ten percent (10%) of the useable floor area of the
building comprising the Facility, such uses as
Lessee reasonably determines are appropriate and
incidental to the Primary Permitted Use.
OVERDUE RATE: On any date, a rate of interest
per annum equal to the greater of: (i) a variable
rate of interest per annum equal to one hundred
twenty percent (120%) of the Prime Rate, or (ii)
eighteen percent (18%) per annum; provided,
however, in no event shall the Overdue Rate be
greater than the maximum rate then permitted under
applicable law to be charged by Lessor.
PBGC: Pension Benefit Guaranty Corporation.
PERMITS: Collectively, all permits, licenses,
approvals, qualifications, rights, variances,
permissive uses, accreditation, certificates,
certifications, consents, agreements, contracts,
contract rights, franchises, interim licenses,
permits and other authorizations of every nature
whatsoever required by, or issued under,
applicable Legal Requirements relating or
affecting the Leased Property or the construction,
development, maintenance, management, use or
operation thereof, or the operation of any
programs or services in conjunction with the
Facility and all renewals, replacements and
substitutions therefor; now or hereafter required
or issued by any Governmental Authority,
Accreditation Body or Third Party Payor to any
member of the Leasing Group, or maintained or used
by any member of the Leasing Group, or entered
into by any member of the Leasing Group with any
third Person with respect to the Leased Property.
17
PERMITS ASSIGNMENT: The Collateral Assignment
of Permits, Licenses and Contracts of even date
granted by Lessee to Lessor.
PERMITTED ENCUMBRANCES: As defined in Section
10.1.18.
PERMITTED PRIOR SECURITY INTERESTS: As
defined in Section 6.1.2.
PERSON: Any individual, corporation, general
partnership, limited partnership, joint venture,
stock company or association, company, bank,
trust, trust company, land trust, business trust,
unincorporated organization, unincorporated
association, Governmental Authority or other
entity of any kind or nature.
PLANS AND SPECIFICATIONS : As defined in
Section 13.1.3.
PRE-CONVERSION BASE RENT: As defined in
Section 3.1.
PRE-CONVERSION RENT ADJUSTMENT RATE: 175
basis points over the Prime Rate.
POST-CONVERSION BASE RENT: As defined in
Section 3.1.
PRIMARY INTENDED USE: The use of the Facility
as an assisted living facility with one hundred (
100) fully licensed units, one hundred four ( 104)
beds or such additional number of units or beds as
may hereafter be permitted under this Lease, and
such ancillary uses as are permitted by law and
may be necessary in connection therewith or
incidental thereto. Notwithstanding the foregoing,
Lessee may increase the number of beds to up to
one hundred thirty-four (134) provided that all
necessary federal, state and local approvals,
licenses and permits are obtained and as long as
such increase does not require any changes to the
Facility that deviate from the approved
Construction Improvement Plans dated June 9,1997.
PRIME RATE: The variable rate of interest
per annum from time to time announced by the
Reference Bank as its prime rate of interest and
in the event that the Reference Bank no longer
announces a prime rate of interest, then the Prime
Rate shall be deemed to be the variable rate of
interest per annum which is the prime rate of
interest or base rate of interest from time to
time announced by any other major bank or other
financial institution reasonably selected by
Lessor.
PRINCIPAL PLACE OF BUSINESS: As defined in
Section 10.1.28.
PROCEEDS: As defined in the UCC.
18
PROJECT: As defined in the Leasehold
Improvement Agreement.
PROJECT FUNDS: As defined in the Leasehold
Improvement Agreement.
PROVIDER AGREEMENTS: All participation,
provider and reimbursement agreements or
arrangements, if any, now or hereafter in effect
for the benefit of Lessee or any Sublessee in
connection with the operation of the Facility
relating to any right of payment or other claim
arising out of or in connection with Lessee's or
such Sublessee's participation in any Third Party
Payor Program.
PURCHASE OPTION: As defined in Section 18.3.
PURCHASE OPTION DATE: As defined in Section
18.3.
PURCHASE OPTION PURCHASE PRICE: As defined in
Section 18.3.
PURCHASER: As defined in Section 11.5.
RECEIVABLES: Collectively, (i) all rights to
payment for goods sold or leased or services
rendered by Lessee or any other party, whether now
in existence or arising from time to time
hereafter and whether or not yet earned by
performance, including, without limitation,
obligations evidenced by an account, note,
contract, security agreement, chattel paper, or
other evidence of indebtedness, including Accounts
and Proceeds, and (ii) a license to use such
Instruments, Documents, Accounts, Proceeds,
General Intangibles and Chattel Paper as are
reasonably required for purposes of exercising the
rights set forth in (i) above.
REFERENCE BANK: Fleet Bank of Connecticut,
N.A.
RELATED LEASES: The Group Two Development
Facility Leases (as defined in the Agreement
Regarding Related Transactions), together with
such other new leases identified from time to time
in the Agreement Regarding Related Transactions.
RELATED PARTIES: Collectively, each Person
that may now or hereafter be a party to any
Related Party Agreement other than the Meditrust
Entities.
RELATED PARTY AGREEMENT: Any agreement,
document or instrument now or hereafter evidencing
or securing any Related Party Obligation,
including, without limitation, the Related Leases.
19
RELATED PARTY DEFAULT: The occurrence of a
default or breach of condition continuing beyond
the expiration of any applicable notice and grace
periods, if any, under the terms of any Related
Party Agreement.
RELATED PARTY OBLIGATIONS: Collectively, all
indebtedness, covenants, liabilities, obligations,
agreements and undertakings due to, or made for
the benefit of, Lessor or any of the other
Meditrust Entities by Lessee or any other member
of the Leasing Group or any of their respective
Affiliates in connection with any of the
properties described in Exhibit E to the Agreement
Regarding Related Transactions, as the same may be
modified and amended from time to time; whether
such indebtedness, covenants, liabilities,
obligations, agreements and/or undertakings are
direct or indirect, absolute or contingent,
liquidated or unliquidated, due or to become due,
joint, several or joint and several, primary or
secondary, now existing or hereafter arising.
RENT: Collectively, the Base Rent, Additional
Rent, the Additional Charges and all other sums
payable under this Lease and the other Lease
Documents.
RENT ADJUSTMENT DATE: The first day of any of
the Extended Terms.
RENT ADJUSTMENT RATE: 325 basis points over
the Index.
RENT INSURANCE PROCEEDS: As defined in
Section 13.8.
RESIDENCY AGREEMENT: All contracts,
agreements and consents executed by or on behalf
of any resident or other Person seeking services
at the Facility, including, without limitation,
assignments of benefits and guarantees.
RETAINAGE: As defined in Section 13.1.3.
SECURITY AGREEMENT: The Security Agreement as
of even date herewith between Lessee and Lessor.
SELLER: Wadman Investments, a Utah Limited
Partnership.
STATE: The state or commonwealth in which
the Leased Property is located.
SUBLEASE: Collectively, all subleases,
licenses, use agreements, concession agreements,
tenancy at will agreements and other occupancy
agreements of every kind and nature (but excluding
any Residency
20
Agreement), whether oral or in writing, now in
existence or subsequently entered into by Lessee,
encumbering or affecting the Leased Property.
SUBLESSEE: Any sublessee, licensee,
concessionaire, tenant or other occupant under any
of the Subleases.
SUBSEQUENT INVESTMENTS: The aggregate amount
of all sums expended and liabilities incurred by
Lessor in connection with Capital Additions.
SUBSIDIARY OR SUBSIDIARIES: With respect to
any Person, any corporation or other entity of
which such Person, directly, or indirectly,
through another entity or otherwise, owns, or has
the right to control or direct the voting of,
fifty percent (50%) or more of the outstanding
capital stock or other ownership interest having
general voting power (under ordinary
circumstances).
TAKING: A taking or voluntary conveyance
during the Term of the Leased Property, or any
interest therein or right accruing thereto, or use
thereof, as the result of, or in settlement of,
any Condemnation or other eminent domain
proceeding affecting the Leased Property whether
or not the same shall have actually been
commenced.
TANGIBLE PERSONAL PROPERTY: All machinery,
equipment, furniture, furnishings, movable walls
or partitions, computers or trade fixtures, goods,
inventory, supplies, and other personal property
owned or leased (pursuant to equipment leases) by
Lessee and used in the operation of the Leased
Property.
TERM: Collectively, the Initial Term and each
Extended Term which has become effective pursuant
to Section 1.4, as the context may require, unless
earlier terminated pursuant to the provisions
hereof.
THIRD PARTY PAYOR PROGRAMS: Collectively, all
third party payor programs in which Lessee or any
Sublessee presently or in the future may
participate, including without limitation,
Medicare, Medicaid, Blue Cross and/or Blue Shield,
Managed Care Plans, other private insurance plans
and employee assistance programs.
THIRD PARTY PAYORS: Collectively, Medicare,
Medicaid, Blue Cross and/or Blue Shield, private
insurers and any other Person which presently or
in the future maintains Third Party Payor
Programs.
TIME OF CLOSING: As defined in Section 18.3.
UCC: The Uniform Commercial Code as in effect
from time to time in the State.
21
UNITED STATES TREASURY SECURITIES: The
uninsured treasury securities issued by the United
States Federal Reserve Bank.
UNSUITABLE FOR ITS PRIMARY INTENDED USE: As
used anywhere in this Lease, the term "Unsuitable
For Its Primary Intended Use" shall mean that, by
reason of Casualty, or a partial or temporary
Taking by Condemnation, in the good faith judgment
of Lessor, the Facility cannot be operated on a
commercially practicable basis for the Primary
Intended Use, taking into account, among other
relevant factors, the number of usable units or
beds affected by such Casualty or partial or
temporary Taking.
UNAVOIDABLE DELAYS: Delays due to strikes,
lockouts, inability to procure materials, power
failure, acts of God, governmental restrictions,
enemy action, civil commotion, fire, unavoidable
casualty or other causes beyond the control of the
party responsible for performing an obligation
hereunder, provided that lack of funds shall not
be deemed a cause beyond the control of either
party hereto.
UPGRADE RENOVATIONS: Repair and refurbishing
other than normal janitorial, cleaning and
maintenance activities.
WORK: As defined in Section 13. I.1.
WORK CERTIFICATES: As defined in Section
I3.1.3.
WORKING CAPITAL LOAN: As defined in Section
6.I.3.
WORKING CAPITAL STOCK PLEDGE: As defined in
Section 16.1 (h).
2.2 RULES OF CONSTRUCTION. The following
rules of construction shall apply to the Lease and
each of the other Lease Documents: (a) references
to "herein", "hereof' and
"hereunder" shall be deemed to refer to this Lease
or the other applicable Lease Document, and shall
not be limited to the particular text or section
or subsection in which such words appear; (b) the
use of any gender shall include all genders and
the singular number shall include the plural and
vice versa as the context may require; (c)
references to Lessor's attorneys shall be deemed
to include, without limitation, special counsel
and local counsel for Lessor; (d) reference to
attorneys' fees and expenses shall be deemed to
include all costs for administrative, paralegal
and other support staff and to exclude any fees
and expenses of attorneys who are employees of an
Affiliate of Lessor; (e) references to Leased
Property shall be deemed to include references to
all of the Leased Property and references to any
portion thereof; (f) references to the Lease
Obligations shall be
22
deemed to include references to all of the Lease
Obligations and references to any portion thereof;
(g) references to the Obligations shall be deemed
to include references to all of the Obligations
and references to any portion thereof; (h) the
term "including", when following any general
statement, will not be construed to limit such
statement to the specific items or matters as
provided immediately following the term
"including" (whether or not non limiting language
such as "without limitation" or "but not limited
to" or words of similar import are also used), but
rather will be deemed to refer to all of the items
or matters that could reasonably fall within the
broadest scope of the general statement; (i) any
requirement that financial statements be
Consolidated in form shall apply only to such
financial statements as relate to a period during
any portion of which the relevant Person has one
or more Subsidiaries; (j) all accounting terms not
specifically defined in the Lease Documents shall
be construed in accordance with GAAP and (k) all
exhibits annexed to any of the Lease Documents as
referenced therein shall be deemed incorporated in
such Lease Document by such annexation and/or
reference.
ARTICLE 3
RENT
3.1 RENT FOR LAND, LEASED IMPROVEMENTS,
RELATED RIGHTS AND FIXTURES. Lessee will pay to
Lessor, in lawful money of the United States of
America, at Lessor's address set forth herein or
at such other place or to such other Person as
Lessor from time to time may designate in writing,
rent for the Leased Property, as follows.
3.1.1 BASE RENT: (A) PRE-CONVERSION BASE
RENT: From and after the Commencement Date
and until the Conversion Date, Lessee shall
pay, commencing on October 1,1997, and on the
first day of each calendar month thereafter
and on the Conversion Date, a base rent (the
"Pre-Conversion Base Rent") in arrears which
is equal to the product of (i) the Original
Meditrust Investment plus so much of the
Project Funds as Lessor has expended from
time to time multiplied by (ii) the Pre-
Conversion Rent Adjustment Rate in effect
from time to time, calculated on a daily
basis.
(b) POST-CONVERSION BASE RENT: From and
after the Conversion Date, Lessee shall pay a
base rent (the "Post-Conversion Base Rent")
per annum which is equal to the product of
(i) the Original Meditrust Investment plus
the aggregate amount of the Project Funds as
Lessor has expended as of the Conversion Date
multiplied by (ii) the Rent Adjustment Rate
which is in effect or calculated on the
Conversion Date, payable in advance in equal,
consecutive monthly installments due on the
first day of each
23
calendar month; provided, however, that on
each Rent Adjustment Date, the Base Rent
shall be adjusted to equal the greater of (i)
the then current Post-Conversion Base Rent or
(ii) an amount equal to Original Meditrust
Investment plus the aggregate amount of the
Project Funds as Lessor has expended as of
the Conversion Date plus the Subsequent
Advances multiplied by the Rent Adjustment
Rate then in effect on such subsequent Rent
Adjustment Date and further, provided,
however, that on the Conversion Date, Lessee
shall pay to Lessor (x) the proportionate
share of the Post-Conversion Base Rent due
for the period from (and including) such date
through the end of the calendar month during
which such date occurred.
3.1.2 ADDITIONAL RENT: In addition to the Base
Rent, Lessee shall also pay to Lessor additional
rent (the "Additional Rent") in an amount equal to
five percent (5%) of Excess Gross Revenues.
Additional Rent shall accrue commencing on the
second anniversary of the Conversion Date
("Additional Rent Accrual Date") and shall be
payable during the Term, quarterly in arrears,
commencing on the first day of the first fiscal
quarter occurring following the Additional Rent
Accrual Date and there shall be an annual
reconciliation as provided in Section 3.2 below.
3.2 CALCULATION AND PAYMENT OF ADDITIONAL
RENT; ANNUAL RECONCILIATION.
3.2.1 OFFICER'S CERTIFICATE AND
PRORATION. Each quarterly payment of
Additional Rent shall be delivered to Lessor,
together with an Officer's Certificate
setting forth the calculation thereof, within
thirty (30) days after the end of the
corresponding quarter. Additional Rent due
for any portion of any calendar year shall be
prorated accordingly.
3.2.2 ANNUAL STATEMENT. In addition, on
or before the first day of April of each year
following any calendar year for which
Additional Rent is payable hereunder, Lessee
shall deliver to Lessor an Officer's
Certificate, reasonably acceptable to Lessor
and certified by the chief financial officer
of Lessee, setting forth the Gross Revenues
for the immediately preceding calendar year.
3.2.3 DEFICITS. If the Additional Rent,
as finally determined for any calendar year
(or portion thereof, exceeds the sum of the
quarterly payments of Additional Rent
previously paid by Lessee with respect to
said calendar year, within thirty (30) days
after such determination is required to be
made hereunder, Lessee shall pay such deficit
to Lessor and, if the deficit exceeds five
percent (5%) of the Additional Rent which was
previously paid to Lessor with respect to
said calendar year, then Lessee shall also
pay Lessor interest on such deficit at the
Overdue Rate from
24
the date that such payment should have been
made by Lessee to the date that Lessor
receives such payment.
3.2.4 OVERPAYMENTS. If the Additional
Rent, as finally determined for any calendar
year (or portion thereof, is less than the
amount previously paid with respect thereto
by Lessee, Lessee shall notify Lessor either
(a) to pay to Lessee an amount equal to such
difference or (b) to grant Lessee a credit
against Additional Rent next coming due in
the amount of such difference.
3.2.5 FINAL DETERMINATION. The
obligation to pay Additional Rent shall
survive the expiration or earlier termination
of the Term (as to Additional Rent payments
that are due and payable prior to the
expiration or earlier termination of the Term
and during any periods that Lessee remains in
possession of the Leased Property), and a
final reconciliation, taking into account,
among other relevant adjustments, any
contractual allowances which related to Gross
Revenues that accrued prior to the date of
such expiration or earlier termination, but
which have been determined to be not payable
and Lessee's good faith best estimate of the
amount of any unresolved contractual
allowances, shall be made not later than two
(2) years after said expiration or
termination date. Within sixty (60) days
after the expiration or earlier termination
of the Term, Lessee shall advise Lessor of
Lessee's best estimate of the approximate
amount of such adjustments, which estimate
shall not be binding on Lessee or have any
legal effect whatsoever.
3.2.6 BEST EFFORTS TO MAXIMIZE. Lessee
further covenants that the operation of the
Facility shall be conducted in a manner
consistent with the prevailing standards and
practices recognized in the assisted living
industry as those customarily utilized by
reputable business operations. Subject to any
applicable Legal Requirements, the members of
the Leasing Group shall use their best
efforts to maximize the Facility's Gross
Revenues.
3.3 CONFIRMATION AND AUDIT OF ADDITIONAL
RENT.
3.3.1 MAINTAIN ACCOUNTING SYSTEMS.
Lessee shall utilize, or cause to be
utilized, an accounting system for the Leased
Property in accordance with usual and
customary practices in the assisted living
industry and in accordance with GAAP which
will accurately record all Gross Revenues.
Lessee shall retain, for at least three (3)
years after the expiration of each calendar
year (and in any event until the final
reconciliation described in Section
25
3.2 above has been made), adequate records
conforming to such accounting system showing
all Gross Revenues for such calendar year.
3.3.2 AUDIT BY LESSOR. Lessor, at its
own expense except as provided hereinbelow,
shall have the right from time to time to
have its accountants or representatives audit
the information set forth in the Officer's
Certificate referred to in Section 3.2 and in
connection with such audits, to examine
Lessee's records with respect thereto
(including supporting data, income tax and
sales tax returns), subject to any
prohibitions or limitations on disclosure of
any such data under applicable law or
regulations.
3.3.3 DEFICIENCIES AND OVERPAYMENTS. If
any such audit discloses a deficiency in the
reporting of Gross Revenues, and either
Lessee agrees with the result of such audit
or the matter is compromised, Lessee shall
forthwith pay to Lessor the amount of the
deficiency in Additional Rent which would
have been payable by it had such deficiency
in reporting Gross Revenues not occurred, as
finally agreed or determined, together with
interest on the Additional Rent which should
have been payable by it, calculated at the
Overdue Rate, from the date when said payment
should have been made by Lessee to the date
that Lessor receives such payment.
Notwithstanding anything to the contrary
herein, with respect to any audit that is
commenced more than two (2) years after the
date Gross Revenues for any calendar year are
reported by Lessee to Lessor, the deficiency,
if any, with respect to Additional Rent 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 Lessee (or any Affiliate thereof. If
any audit conducted for Lessor pursuant to
the provisions hereof discloses that (a) the
Gross Revenues actually received by Lessee
for any calendar year exceed those reported
by Lessee by more than five percent (5%),
Lessee shall pay the reasonable cost of such
audit and examination or (b) Lessee has
overpaid Additional Rent, Lessor shall so
notify Lessee and Lessee shall direct Lessor
either (i) to refund the overpayment to
Lessee or (ii) grant a credit against
Additional Rent next coming due in the amount
of such difference.
3.3.4 SURVIVAL. The obligations of
Lessor and Lessee contained in this Section
shall survive the expiration or earlier
termination of this Lease.
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3.4 ADDITIONAL CHARGE. Subject to the rights
to contest as set forth in Article 15, in addition
to the Base Rent and Additional Rent, (a) Lessee
will also pay and discharge as and when due and
payable all Impositions, all amounts, liabilities
and obligations under the Appurtenant Agreements
and all other amounts, liabilities and obligations
which Lessee assumes or agrees to pay under this
Lease, and (b) in the event of any failure on the
part of Lessee to pay any of those items referred
to in clause (a) above, Lessee will also promptly
pay and discharge every fine, penalty, interest
and cost which may be added for non-payment or
late payment of such items (the items referred to
in clauses (a) and (b) above being referred to
herein collectively as the "Additional Charges"),
and Lessor shall have all legal, equitable and
contractual rights, powers and remedies provided
in this Lease, by statute or otherwise, in the
case of non-payment of the Additional Charges, as
well as the Base Rent and Additional Rent. To the
extent that Lessee pays any Additional Charges to
Lessor pursuant to any requirement of this Lease,
Lessee shall be relieved of its obligation to pay
such Additional Charges to any other Person to
which such Additional Charges would otherwise be
due.
3.5 NET LEASE. The Rent shall be paid
absolutely net to Lessor, so that this Lease shall
yield to Lessor the full amount of the
installments of Base Rent, and the payments of
Additional Rent and, if and to the extent payable
to Lessor, Additional Charges throughout the Term.
3.6 NO LESSEE TERMINATION OR OFFSET.
3.6.1 NO TERMINATION. Except as may be
otherwise specifically and expressly provided
in this Lease, Lessee, to the extent not
prohibited by applicable law, shall remain
bound by this Lease in accordance with its
terms and shall neither take any action
without the consent of Lessor to modify,
surrender or terminate the same, nor seek nor
be entitled to any abatement, deduction,
deferment or reduction of Rent, or set-off
against the Rent, nor shall the respective
obligations of Lessor and Lessee be otherwise
affected by reason of (a) any Casualty or any
Taking of the Leased Property, (b) the lawful
or unlawful prohibition of, or restriction
upon, Lessee's use of the Leased Property or
the interference with such use by any Person
(other than Lessor, except to the extent
permitted hereunder) or by reason of eviction
by paramount title; (c) any claim that Lessee
has or might have against Lessor, (d) any
default or breach of any warranty by Lessor
or any of the other Meditrust Entities under
this Lease, any other Lease Document or any
Related Party Agreement, (e) any bankruptcy,
insolvency, reorganization, composition,
readjustment, liquidation, dissolution,
winding up or other proceedings affecting
Lessor or any assignee or transferee of
Lessor or (f) for any other cause whether
similar or
27
dissimilar to any of the foregoing, other
than a discharge of Lessee from any of the
Lease Obligations as a matter of law.
3.6.2 WAIVER. Lessee to the fullest
extent not prohibited by applicable law,
hereby specifically 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 Lease or quit or surrender the Leased
Property or (b) entitle Lessee to any
abatement, reduction, suspension or deferment
of the Rent or other sums payable by Lessee
hereunder, except as otherwise specifically
and expressly provided in this Lease.
3.6.3 INDEPENDENT COVENANTS. The
obligations of Lessor and Lessee hereunder
shall be separate and independent covenants
and agreements and the Rent and all other
sums payable by Lessee 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 or (except in those instances
where the obligation to pay expressly
survives the termination of this Lease) by
termination of this Lease other than by
reason of an Event of Default.
3.7 ABATEMENT OF RENT LIMITED. There shall be
no abatement of Rent on account of any Casualty,
Taking or other event, except that (a) in the
event of a partial Taking or a temporary Taking as
described in Section 14.3, the Base Rent shall be
abated as follows: (i) in the case of such a
partial Taking, the Meditrust Investment shall be
reduced for the purposes of calculating Base Rent
pursuant to Section 3.1 by subtracting therefrom,
as applicable, the net amount of the Award
received by Lessor, and (ii) in the case of such a
temporary Taking, by reducing the Base Rent for
the period of such a temporary Taking, by the net
amount of the Award received by Lessor and (b) in
the event of a Casualty, the Base Rent shall be
abated as follows: the Meditrust Investment shall
be reduced for the purposes of calculating Base
Rent pursuant to Section 3.1 by subtracting
therefrom, as applicable, the net amount of the
insurance proceeds.
For the purposes of this Section 3.7, the
"net amount of the Award received by Lessor" shall
mean the Award paid to Lessor or Lessor's
mortgagee on account of such Taking, minus all
costs and expenses incurred by Lessor in
connection therewith, and minus any amounts paid
to or for the account of Lessee to reimburse for
the costs and expenses of reconstructing the
Facility following such Taking in order to create
a viable and functional Facility under all of the
circumstances ("Net Award Amount") and the "net
amount of the insurance proceeds" shall mean the
insurance proceeds paid to Lessor or Lessor's
mortgagee on account of such Casualty, minus
28
all costs and expenses incurred by Lessor in
connection therewith and minus any amounts paid to
or for the account of Lessee to reimburse for the
costs and expenses of reconstructing the Facility
following such Casualty in order to create a
viable and functional Facility under all of the
circumstances ("Net Proceeds Amount").
3.8 LEASEHOLD IMPROVEMENT FEE: The Lessee
shall pay to the Lessor the Leasehold Improvement
Fee simultaneously with the execution of this
Lease; provided, however, that, at the Lessor's
option, the Leasehold Improvement Fee shall be
held in an escrow account established with a
Person designated by the Lessor pursuant to an
escrow arrangement satisfactory to the Lessor,
with interest thereon benefiting the Lessor. If
the Lessor exercises its option to require that
the Leasehold Improvement Fee be held in such an
escrow account (a) the Leasehold Improvement Fee
shall be disbursed from said escrow account only
upon the joint instructions of the Lessee and the
Lessor (which instructions from the Lessee shall
be immediately given upon the request of the
Lessor) and in no event shall the Leasehold
Improvement Fee be disbursed therefrom, in whole
or in part, unless and until so requested by the
Lessor and (b) the Lessor shall bear the risk of
loss of or misappropriation of the Leasehold
Improvement Fee by such escrow agent.
ARTICLE 4
IMPOSITIONS; TAXES; UTILITIES; INSURANCE PAYMENT
4.1 PAYMENT OF IMPOSITIONS.
4.1.1 LESSEE TO PAY. Subject to the
provisions of Article 15, Lessee will 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 authority where
feasible, and Lessee will promptly furnish
Lessor copies of official receipts or other
satisfactory proof evidencing payment not
later than the last day on which the same may
be paid without penalty or interest. Subject
to the provisions of Article 15 and Section
4.1.2, Lessee's obligation to pay such
Impositions shall be deemed absolutely fixed
upon the date such Impositions become a lien
upon the Leased Property or any part thereof.
4.1.2 INSTALLMENT ELECTIONS. 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), Lessee
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 hereof (subject to Lessee's right to
contest pursuant to the provisions of Section
4.1.5 below) as the
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same respectively become due and before any
fine, penalty, premium, further interest or
cost may be added thereto.
4.1.3 RETURNS AND REPORTS. Lessor, at
its expense, shall, to the extent permitted
by applicable law, prepare and file all tax
returns and reports as may be required by
Governmental Authorities in respect of
Lessor's net income, gross receipts,
franchise taxes and taxes on its capital
stock, and Lessee, at its expense, shall, to
the extent 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. Lessor and Lessee 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 that any
Governmental Authority classifies any
property covered by this Lease as personal
property, Lessee shall file all personal
property tax returns in such jurisdictions
where it may legally so file. Lessor, to the
extent it possesses the same, and Lessee, to
the extent it possesses the same, will
provide the other party, upon request, with
cost and depreciation records necessary for
filing returns for any portion of Leased
Property so classified as personal property.
Where Lessor is legally required to file
personal property tax returns, if Lessee
notifies Lessor of the obligation to do so in
each year at least thirty (30) days prior to
the date any protest must be filed, Lessee
will be provided with copies of assessment
notices so as to enable Lessee to file a
protest.
4.1.4 REFUNDS. If no Lease Default shall
have occurred and be continuing, any refund
due from any taxing authority in respect of
any Imposition paid by Lessee shall be paid
over to or retained by Lessee. If a Lease
Default shall have occurred and be
continuing, at Lessor's option, such funds
shall be paid over to Lessor and/or retained
by Lessor and applied toward Lease
Obligations which relate to the Leased
Property in accordance with the Lease
Documents.
4.1.5 PROTEST. Upon giving notice to
Lessor, at Lessee's option and sole cost and
expense, and subject to compliance with the
provisions of Article 15, Lessee may contest,
protest, appeal, or institute such other
proceedings as Lessee may deem appropriate to
effect a reduction of any Imposition and
Lessor, at Lessee's cost and expense as
aforesaid, shall fully cooperate in a
reasonable manner with Lessee in connection
with such protest, appeal or other action.
30
4.2 NOTICE OF IMPOSITIONS. Lessor shall
give prompt notice to Lessee of all Impositions
payable by Lessee hereunder of which Lessor at any
time has knowledge, but Lessor's failure to give
any such notice shall in no way diminish Lessee's
obligations hereunder to pay such Impositions.
4.3 ADJUSTMENT OF IMPOSITIONS. Impositions
imposed in respect of the period during which the
expiration or earlier termination of the Term
occurs shall be adjusted and prorated between
Lessor and Lessee, whether or not such Impositions
are imposed before or after such expiration or
termination, and Lessee's obligation to pay its
prorated share thereof shall survive
such expiration or termination.
4.4 UTILITY CHARGES. Lessee will pay or cause
to be paid all charges for electricity, power,
gas, oil, water, telephone, cable television and
other utilities used in the Leased Property during
the Term and thereafter until Lessee surrenders
the Leased Property in the manner required by this
Lease.
4.5 INSURANCE PREMIUMS. Lessee will pay or
cause to be paid all premiums for the insurance
coverage required to be maintained pursuant to
Article 12 during the Term, and thereafter until
Lessee yields up the Leased Property in the manner
required by this Lease. All such premiums shall be
paid annually in advance and Lessee shall furnish
Lessor with evidence satisfactory to Lessor that
all such premiums have been so paid prior to the
commencement of the Term and thereafter at least
thirty (30) days prior to the due date of each
premium which thereafter becomes due.
Notwithstanding the foregoing, Lessee may pay such
insurance premiums to the insurer in monthly
installments so long as the applicable insurer is
contractually obligated to give Lessor not less
than a sixty (60) days notice of non-payment and
so long as no Lease Default has occurred and is
continuing. In the event of the failure of Lessee
either to comply with the insurance requirements
in Article 12, or to pay the premiums for such
insurance, or to deliver such policies or
certificates thereof to Lessor at the times
required hereunder, Lessor shall be entitled, but
shall have no obligation, to effect such insurance
and pay the premiums therefor, which premiums
shall be a demand obligation of Lessee to Lessor.
4.6 DEPOSITS.
4.6.1 LESSOR'S OPTION. At the option of
Lessor upon the occurrence of an event or
circumstance which, with the giving of notice
and/or the passage of time, would constitute
a Lease Default, which may be exercised at
any time thereafter, Lessee shall, upon
written request of Lessor, on the first day
on the calendar month immediately following
such request, and on the
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first day of each calendar month thereafter
during the Term (each of which dates is
referred to as a "Monthly Deposit Date"), pay
to and deposit with Lessor a sum equal to one-
twelfth (1/12th) of the Impositions to be
levied, charged, filed, assessed or imposed
upon or against the Leased Property within
one (1) year after said Monthly Deposit Date
and a sum equal to one-twelfth ( 1/12th) of
the premiums for the insurance policies
required pursuant to Article 12 which are
payable within one (1) year after said
Monthly Deposit Date. If the amount of the
Impositions to be levied, charged, assessed
or imposed or insurance premiums to be paid
within the ensuing one (1) year period shall
not be fixed upon any Monthly Deposit Date,
such amount for the purpose of computing the
deposit to be made by Lessee hereunder shall
be estimated by Lessor based upon the most
recent available information concerning said
Impositions with an appropriate adjustment to
be promptly made between Lessor and Lessee as
soon as such amount becomes determinable. In
addition, Lessor may, at its option, from
time to time require that any particular
deposit be greater than one-twelfth (1/12th)
of the estimated amount payable within one
(1) year after said Monthly Deposit Date, if
such additional deposit is required in order
to provide to Lessor a sufficient fund from
which to make payment of all Impositions on
or before the next due date of any
installment thereof, or to make payment of
any required insurance premiums not later
than the due date thereof.
4.6.2 USE OF DEPOSITS. The sums
deposited by Lessee under this Section 4.6
shall be held by Lessor and shall be applied
in payment of the Impositions or insurance
premiums, as the case may be, when due. Any
such deposits may be commingled with other
assets of Lessor, and shall be deposited by
Lessor at such bank as Lessor may, from time
to time select, and, provided that Lessor has
invested such deposits in one or more of the
investment vehicles described on SCHEDULE
4.6.2 attached hereto and incorporated by
reference, Lessor shall not be liable to
Lessee or any other Person (a) based on
Lessor's (or such bank's) choice of
investment vehicles, (b) for any consequent
loss of principal or interest or (c) for any
unavailability of funds based on such choice
of investment. Furthermore, Lessor shall bear
no responsibility for the financial condition
of, nor any act or omission by, Lessor's
depository bank. The income from such
investment or interest on such deposit shall
be paid to Lessee on a semi-annual basis as
long as no Lease Default has occurred and is
then continuing, and as long as no fact or
circumstance exists which, with the giving of
notice and/or the passage of time, would
constitute a Lease Default. Lessee shall give
not less than ten (10) days prior written
notice to Lessor in each instance when an
Imposition or insurance premium is due,
specifying the Imposition or premium to be
paid
32
and the amount thereof, the place of payment,
and the last day on which the same may be
paid in order to comply with the requirements
of this Lease. If Lessor, in violation of its
obligations under this Lease, does not pay
any Imposition or insurance premium when due,
for which a sufficient deposit exists, Lessee
shall not be in default hereunder by virtue
of the failure of Lessor to pay such
Imposition or such insurance premium and
Lessor shall pay any interest or fine
assessed by virtue of Lessor's failure to pay
such Imposition or insurance premium.
4.6.3 DEFICITS. If for any reason any
deposit held by Lessor under this Section 4.6
shall not be sufficient to pay an Imposition
or insurance premium within the time
specified therefor in this Lease, then,
within ten (10) days after demand by Lessor,
Lessee shall deposit an additional amount
with Lessor, increasing the deposit held by
Lessor so that Lessor holds sufficient funds
to pay such Imposition or premium in full (or
in installments as otherwise provided for
herein), together with any penalty or
interest due thereon. Lessor may change its
estimate of any Imposition or insurance
premium for any period on the basis of a
change in an assessment or tax rate or on the
basis of a prior miscalculation or for any
other good faith reason; in which event,
within ten ( I 0) days after demand by
Lessor, Lessee shall deposit with Lessor the
amount in excess of the sums previously
deposited with Lessor for the applicable
period which would theretofore have been
payable under the revised estimate.
4.6.4 OTHER PROPERTIES. If any
Imposition shall be levied, charged, filed,
assessed, or imposed upon or against the
Leased Property, and if such Imposition shall
also be a levy, charge, assessment, or
imposition upon or for any other real or
personal property that does not constitute a
part of the Leased Property but for which a
lien exists or can exist upon the Leased
Property, then, at Lessor's reasonable
discretion, the computation of the amounts to
be deposited under this Section 4.6 shall be
based upon the entire amount of such
Imposition and Lessee shall not have the
right to apportion any deposit with respect
to such Imposition.
4.6.5 Transfers. In connection with any
assignment of Lessor's interest under this
Lease, the original Lessor named herein and
each successor in interest shall transfer all
amounts deposited pursuant to the provisions
of this Section 4.6 and still in its
possession to such assignee (as the
subsequent holder of Lessor's interest in
this Lease) and upon such transfer, the
original Lessor named herein or the
applicable successor in interest transferring
the deposits shall thereupon be completely
released from all liability with respect to
such deposits so transferred and Lessee
33
shall look solely to said assignee, as the
subsequent holder of Lessor's interest under
this Lease, in reference thereto.
4.6.6 SECURITY. All amounts deposited
with Lessor pursuant to the provisions of
this Section 4.6 shall be held by Lessor as
additional security for the payment and
performance of the Obligations and, upon the
occurrence of any Lease Default, Lessor may,
in its sole and absolute discretion, apply
said amounts towards payment or performance
of such Obligations.
4.6.7 RETURN. Upon the expiration or
earlier termination of this Lease, provided
that all of the Lease Obligations relating to
the Leased Property have been fully paid and
performed, any sums then held by Lessor under
this Section 4.6 shall be refunded to Lessee.
4.6.8 RECEIPTS. Lessee shall deliver to
Lessor copies of all notices, demands,
claims, bills and receipts in relation to the
Impositions and insurance premiums upon the
earlier to occur of (a) ten (10) days
following receipt thereof by Lessee and (b)
in the case of an invoice, demand or bill for
the payment of an Imposition, prior to the
date when such Imposition is due and payable.
ARTICLE 5
OWNERSHIP OF LEASED PROPERTY AND PERSONAL
PROPERTY; INSTALLATION, REMOVAL AND REPLACEMENT OF
PERSONAL PROPERTY;
5.1 OWNERSHIP OF THE LEASED PROPERTY. Lessee
acknowledges that the Leased Property is the
property of Lessor and that Lessee has only the
right to the exclusive possession and use of the
Leased Property upon the terms and conditions of
this Lease.
5.2 PERSONAL PROPERTY; REMOVAL AND REPLACEMENT OF
PERSONAL PROPERTY.
5.2.1 LESSEE TO EQUIP FACILITY. If and
to the extent not included in the Leased
Property, Lessee, at its sole cost and
expense, shall install, affix or assemble or
place on the Leased Property, sufficient
items of Tangible Personal Property, to
enable the operation of the Facility in
accordance with the requirements of this
Lease for the Primary Intended Use, and such
Tangible
34
Personal Property and replacements thereof,
shall be at all times the property of Lessee.
5.2.2 SUFFICIENT PERSONAL PROPERTY.
Lessee shall maintain, during the entire
Term, the Tangible Personal Property and
Lessor's Personal Property in good order and
repair and shall provide at its expense all
necessary replacements thereof, as may be
necessary in order to operate the Facility in
compliance with all applicable Legal
Requirements and Insurance Requirements and
otherwise in accordance with customary
practice in the industry for the Primary
Intended Use and, if applicable, Other
Permitted Uses. In addition, Lessee shall
furnish all necessary replacements of such
obsolete items of the Tangible Personal
Property and Lessor's Personal Property
during the Term as are necessary to enable
the operation of the Facility in accordance
with the requirements of this Lease for the
Primary Intended Use.
5.2.3 REMOVAL AND REPLACEMENT; LESSOR'S
OPTION TO PURCHASE. Lessee shall not remove
from the Leased Property any one or more
items of Tangible Personal Property or
Lessor's Personal Property (whether now owned
or hereafter acquired) the fair market value
of which exceeds TWENTY-FIVE THOUSAND DOLLARS
($25,000), individually or ONE HUNDRED
THOUSAND DOLLARS ($100,000.00) collectively,
if such Tangible Personal Property or
Lessor's Personal Property is necessary to
enable the operation of the Facility in
accordance with the requirements of this
Lease for the Primary Intended Use. At its
sole cost and expense, Lessee shall restore
the Leased Property to the condition required
by Article 8, including repair of all damage
to the Leased Property caused by the removal
of the Tangible Personal Property or Lessor's
Personal Property, whether effected by Lessee
or Lessor. Upon the expiration or earlier
termination of this Lease, Lessor shall have
the option, which may be exercised by giving
notice thereof within twenty (20) days prior
to such expiration or termination, of (a)
acquiring the Tangible Personal Property
(pursuant to a bill of sale and assignments
of any equipment leases, all in such forms as
are reasonably satisfactory to Lessor) upon
payment of its fair market value or (b)
requiring Lessee to remove the Tangible
Personal Property. If Lessor exercises its
option to purchase the Tangible Personal
Property, the price to be paid by Lessor
shall be (i) reduced by the amount of all
payments due on any equipment leases or any
other Permitted Prior Security Interests
assumed by Lessor and (ii) applied to the
Lease Obligations before any payment to
Lessee. If Lessor requires the removal of the
Tangible Personal Property, then all of the
Tangible Personal Property that is not
removed by Lessee within ten (10) days
following such
35
request shall be considered abandoned by
Lessee and may be appropriated, sold,
destroyed or otherwise disposed of by Lessor
without first giving notice thereof to
Lessee, without any payment to Lessee and
without any obligation to account therefor.
ARTICLE 6
SECURITY FOR LEASE OBLIGATIONS
6.1 SECURITY FOR LESSEE'S OBLIGATIONS; PERMITTED
PRIOR SECURITY INTERESTS.
6.1.1 SECURITY. In order to secure the
payment and performance of all of the Obligations,
Lessee agrees to provide or cause there to be
provided the following security:
(a) a first lien and exclusive security
interest in the Collateral, as more
particularly provided for in the Security
Agreement;
(b) the Cash Collateral.
(c) a first lien and exclusive pledge
and assignment of, and security interest in,
all Permits and Contracts, as more
particularly provided for in the Collateral
Assignment of Permits and Contracts; and
(d) in the event that, at any time
during the Term, Lessee holds the fee title
to or a leasehold interest in any real
property and/or personal property which is
used as an integral part of the operation of
the Leased Property (but is not subject to
this Lease), Lessee shall (i) provide Lessor
with prior notice of such acquisition and
(ii) shall take such actions and enter into
such agreements as Lessor shall reasonably
request in order to grant Lessor a first
priority mortgage or other security interest
in such real property and personal property,
subject only to the Permitted Encumbrances
and other Liens reasonably acceptable to
Lessor. Without limiting the foregoing, it is
acknowledged and agreed that all revenues
generated from the operation of such
additional real property shall be included in
the determination of Gross Revenues (subject
to such adjustments as agreed upon
hereunder).
Notwithstanding the foregoing, Lessor
shall subordinate its security interest in
Receivables to a prior security interest to
secure a working capital line as provided in
Section 6.1.3.
36
6.1.2 PURCHASE-MONEY SECURITY INTERESTS
AND EQUIPMENT LEASES. Notwithstanding any
other provision hereof regarding the creation
of Liens,
Lessee may (a) grant priority purchase money
security interests in items of Tangible
Personal Property, (b) lease Tangible
Personal Property from equipment lessors as
long as: (i) the aggregate value of such
Tangible Personal Property shall not exceed
TWO HUNDRED THOUSAND DOLLARS ($200,000) or
(ii) (A) the secured party or equipment
lessor enters into an intercreditor agreement
with, and satisfactory to, Lessor, pursuant
to which, without limiting the foregoing, (1)
Lessor shall be afforded the option of curing
defaults and the option of succeeding to the
rights of Lessee and (2) Lessor's security
interest in Tangible Personal Property shall
be subordinated to the security interest
granted to such secured party, (B) all of the
terms, conditions and provisions of the
financing, security interest or lease are
reasonably acceptable to Lessor, (C) Lessee
provides a true and complete copy, as
executed, of each such purchase money
security agreement, financing document and
equipment lease and all amendments thereto
and (D) no such security interest, financing
agreement or lease is cross-defaulted or
cross-collateralized with any other
obligation. Security interests granted by
Lessee in full compliance with the provisions
of this Section 6.1.2 are referred to as
"Permitted Prior Security Interests".
6.1.3 RECEIVABLES FINANCING.
Notwithstanding any other provision hereof
regarding the creation of Liens, Lessee shall
also be permitted to grant a prior security
interest in Receivables (with the Lessor
retaining a junior security interest therein)
to an institutional lender which is providing
a working capital line of credit (a "Working
Capital Loan") for the exclusive use of
Guarantor, Lessee and Affiliates of Lessee as
long as such Lender enters into an
intercreditor agreement with, and
satisfactory to, Lessor pursuant to which,
without limiting the foregoing, (1) Lessor
shall be provided with notice with respect to
defaults under the Working Capital Loan
simultaneously with the delivery of such
notice to Lessee and shall be afforded the
option of curing defaults thereunder, (2)
such lender's use of Instruments, Documents,
General Intangibles and Chattel Paper shall
be limited to a license only for the purpose
of collecting Receivables and (3) the
subordination of Lessor's interest in the
Receivables shall be of no force and effect
and Lessor's first priority security interest
shall be reinstated from and after the
occurrence of an Event of Default if, upon or
following such Event of Default, Lessor
either exercises any of its remedies set
forth in Article 16 or Lessor notifies in
37
writing such lender of Lessor's intention to
invoke its right to reinstate its first
priority security interest in the
Receivables.
6.2 GUARANTY. All of the Lease Obligations
shall be unconditionally and irrevocably
guaranteed by the Guarantor pursuant to the
Guaranty of Lease Obligations.
ARTICLE 7
CONDITION AND USE OF LEASED PROPERTY; MANAGEMENT
AGREEMENTS
7.1 CONDITION OF THE LEASED PROPERTY. Lessee
acknowledges that Lessee has caused the Leased
Property to be sold to Lessor and has concurrently
entered into this Lease. Lessee acknowledges
receipt and delivery of possession of the Leased
Property and that Lessee has examined and
otherwise has acquired knowledge of the condition
of the Leased Property prior to the execution and
delivery of this Lease and has found the same to
be in good order and repair and satisfactory for
its purposes hereunder. Lessee is leasing the
Leased Property "AS-IS" in its present condition,
provided, however, that nothing herein contained
in this Section 7.1 shall be deemed to modify the
terms and provisions of the Leasehold Improvement
Agreement. Lessee waives any claim or action
against Lessor in respect of the condition of the
Leased Property. LESSOR MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT
TO THE LEASED PROPERTY, EITHER AS TO ITS FITNESS
FOR ANY PARTICULAR PURPOSE OR USE, ITS DESIGN OR
CONDITION OR OTHERWISE, OR AS TO DEFECTS IN THE
QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN,
LATENT OR PATENT; IT BEING AGREED THAT ALL RISKS
RELATING TO THE DESIGN, CONDITION AND/OR USE OF
THE LEASED PROPERTY ARE TO BE BORNE BY LESSEE.
LESSEE HEREBY ASSUMES ALL RISK OF THE PHYSICAL
CONDITION OF THE LEASED PROPERTY, THE SUITABILITY
OF THE LEASED PROPERTY FOR LESSEE'S PURPOSES, AND
THE COMPLIANCE OR NON-COMPLIANCE OF THE LEASED
PROPERTY WITH ALL ,APPLICABLE REQUIREMENTS OF LAW,
INCLUDING BUT NOT LIMITED TO ENVIRONMENTAL LAWS
AND ZONING OR LAND USE LAWS.
Upon the request of Lessor, at any time and
from time to time during the Term, Lessee shall
engage one (1) or more independent professional
consultants, engineers and inspectors, qualified
to do business in the State and acceptable to
Lessor to perform any environmental and/or
structural investigations and/or other inspections
of the Leased Property
38
and the Facility as Lessor may reasonably request
in order to detect (a) any structural deficiencies
in the Leased Improvements or the utilities
servicing the Leased Property or (b) the presence
of any condition that (i) may be harmful or
present a health hazard to the residents and other
occupants of the Leased Property or (ii)
constitutes a breach or violation of any of the
Lease Documents. In the event that Lessor
reasonably determines that the results of such
testing or inspections are unsatisfactory, within
thirty (30) days of notice from Lessor, Lessee
shall commence such appropriate remedial actions
as may be reasonably requested by Lessor to
correct such unsatisfactory conditions and,
thereafter, shall diligently and continuously
prosecute such remedial actions to completion
within the time limits prescribed in this Lease or
the other Lease Documents.
7.2 USE OF THE LEASED PROPERTY; COMPLIANCE;
MANAGEMENT.
7.2.1 OBLIGATION TO OPERATE. Following
completion of the Facility, Lessee shall
continuously operate the Leased Property in
accordance with the Primary Intended Use and
the Other Permitted Uses and maintain its
qualifications for licensure and
accreditation as required by all applicable
Legal Requirements.
7.2.2 PERMITTED USES. During the entire
Term, Lessee shall use the Leased Property,
or permit the Leased Property to be used,
only for the Primary Intended Use and, if
applicable, the Other Permitted Uses. Lessee
shall not use the Leased Property or permit
the Leased Property to be used for any other
use without the prior written consent of
Lessor, which consent may be withheld in
Lessor's sole and absolute discretion.
7.2.3 COMPLIANCE WITH INSURANCE
REQUIREMENTS. No use shall be made or
permitted to be made of the Leased Property
and no acts shall be done which will cause
the cancellation of any insurance policy
covering the Leased Property, nor shall
Lessee, any Manager or any other Person sell
or otherwise provide to residents, other
occupants or invitees therein, or permit to
be kept, used or sold in or about the Leased
Property, any article which may be prohibited
by any of the Insurance Requirements.
Furthermore, Lessee shall, at its sole cost
and expense, take whatever other actions that
may be necessary to comply with and to insure
that the Leased Property complies with all
Insurance Requirements.
7.2.4 NO WASTE. Lessee shall not commit
or suffer to be committed any waste on, in or
under the Leased Property, nor shall Lessee
cause or permit any nuisance thereon.
39
7.2.5 NO IMPAIRMENT. Lessee shall
neither permit nor knowingly suffer the
Leased Property to be used in such a manner
as (a) might reasonably tend to impair
Lessor's title thereto or (b) may reasonably
make possible a claim or claims of adverse
usage or adverse possession by the public or
of implied dedication of the Leased Property.
7.2.6 NO LIENS. Except as permitted
pursuant to Section 6.1.2, Lessee shall not
permit or suffer any Lien to exist on the
Tangible Personal Property and shall in no
event cause, permit or suffer any Lien to
exist with respect to the Leased Property
other than as set forth in Section 11.5.2.
7.3 COMPLIANCE WITH LEGAL REQUIREMENTS.
Lessee covenants and agrees that the Leased
Property shall not be used for any unlawful
purpose and that Lessee, at its sole cost and
expense, will promptly (a) comply with, and shall
cause every other member of the Leasing Group to
comply with, all applicable Legal Requirements
relating to the use, operation, maintenance,
repair and restoration of the Leased Property,
whether or not compliance therewith shall require
structural change in any of the Leased Property or
interfere with the use and enjoyment of the Leased
Property and (b) procure, maintain and comply with
(in all material respects), and shall cause every
other member of the Leasing Group to procure,
maintain and comply with (in all material
respects), all Contracts and Permits necessary or
desirable in order to operate the Leased Property
for the Primary Intended Use and/or, if
applicable, Other Permitted Uses, and for
compliance with all of the terms and conditions of
this Lease. Unless a Lease Default has occurred or
any event has occurred which, with the passage of
time and/or the giving of notice would constitute
a Lease Default, Lessee may, upon prior written
notice to Lessor, contest any Legal Requirement to
the extent permitted by, and in accordance with,
Article 15 below.
7.4 MANAGEMENT AGREEMENTS. Throughout the
Term, Lessee shall not enter into any Management
Agreement without the prior written approval of
Lessor, in each instance, which approval shall not
be unreasonably withheld. Lessee shall not,
without the prior written approval of Lessor, in
each instance, which approval shall not be
unreasonably withheld, agree to or allow: (a) any
change in the Manager or change in the ownership
or control of the Manager, (b) the termination of
any Management Agreement (other than in connection
with the exercise by Lessee of any of its remedies
under the Management Agreement as a result of any
default by the Manager thereunder), (c) any
assignment by the Manager of its interest under
the Management Agreement or (d) any material
amendment of the Management Agreement. In
addition, Lessee
40
shall, at its sole cost and expense, promptly and
fully perform or cause to be performed every
covenant, condition, promise and obligation of the
licensed operator of the Leased Property under any
Management Agreement.
Each Management Agreement shall provide that
Lessor shall be provided notice of any defaults
thereunder and, at Lessor's option, an opportunity
to cure such default. Lessee shall furnish to
Lessor, within three (3) days after receipt
thereof, or after the mailing or service thereof
by Lessee, as the case may be, a copy of each
notice of default which Lessee shall give to, or
receive from any Person, based upon the
occurrence, or alleged occurrence, of any default
in the performance of any covenant, condition,
promise or obligation under any Management
Agreement.
Whenever and as often as Lessee shall fail to
perform, promptly and fully, at its sole cost and
expense, any covenant, condition, promise or
obligation on the part of the licensed operator of
the Leased Property under and pursuant to any
Management Agreement, Lessor, or a lawfully
appointed receiver of the Leased Property, may, at
their respective options (and without any
obligation to do so), after five (5) days' prior
notice to Lessee (except in the case of an
emergency) enter upon the Leased Properly and
perform, or cause to be performed, such work,
labor, services, acts or things, and take such
other steps and do such other acts as they may
deem advisable, to cure such defaulted covenant,
condition, promise or obligation, and any amount
so paid or advanced by Lessor or such receiver and
all costs and expenses reasonably incurred in
connection therewith (including, without
limitation, attorneys' fees and expenses and court
costs), shall be a demand obligation of Lessee to
Lessor or such receiver, and, Lessor shall have
the same rights and remedies for failure to pay
such costs on demand as for Lessee's failure to
pay any other sums due hereunder.
7.5 PARTICIPATION IN THIRD PARTY PAYOR
PROGRAMS. No provision of this Lease shall be
deemed to require Lessee to commence participation
in any Third Party Payor Program or any Managed
Care Plan.
ARTICLE 8
REPAIRS; RESTRICTIONS
8.1 MAINTENANCE AND REPAIR.
8.1.1 LESSEE'S RESPONSIBILITY. Lessee,
at its sole cost and expense, shall keep the
Leased Property and all private
41
roadways, sidewalks and curbs appurtenant
thereto which are under Lessee's control in
good order and repair to the extent
consistent with the stage of construction of
the Project (whether or not the need for such
repairs occurs as a result of Lessee's use,
any prior use, the elements or the age of the
Leased Properly or such private roadways,
sidewalks and curbs or any other cause
whatsoever other than Lessor's gross
negligence or willful misconduct) and,
subject to Articles 9,13 and 14, Lessee shall
promptly, with the exercise of all reasonable
efforts, undertake and diligently complete
all necessary and appropriate repairs,
replacements, renovations, restorations,
alterations and modifications thereof of
every kind and nature, whether interior or
exterior, structural or non-structural,
ordinary or extraordinary, foreseen or
unforeseen or arising by reason of a
condition (concealed or otherwise) existing
prior to the commencement of, or during, the
Term and thereafter until Lessee surrenders
the Leased Property in the manner required by
this Lease. In addition, Lessee, at its sole
cost and expense, shall make all repairs,
modifications, replacements, renovations and
alterations of the Leased Property (and such
private roadways, sidewalks and curbs) that
are necessary to comply with all applicable
Legal Requirements and Insurance Requirements
so that the Leased Property can be legally
operated for the Primary Intended Use and, if
applicable, the Other Permitted Uses. All
repairs, replacements, renovations,
alterations, and modifications required by
the terms of this Section 8.1 shall be (a)
performed in a good and workmanlike manner in
compliance with all applicable Legal
Requirements, Insurance Requirements and the
requirements of Article 9 hereof, using new
materials well suited for their intended
purpose and (b) consistent with the operation
of the Facility in a reputable manner. Lessee
will not take or omit to take any action the
taking or omission of which might materially
impair the value or the usefulness of the
Leased Property for the Primary Intended Use
and, if applicable, the Other Permitted Uses.
To the extent that any of the repairs,
replacements, renovations, alterations or
modifications required by the terms of this
Section 8.1 constitute Material Structural
Work, Lessee shall obtain Lessor's prior
written approval (which approval shall not be
unreasonably withheld) of the specific
repairs, replacements, renovations,
alterations and modifications to be performed
by or on behalf of Lessee in connection with
such Material Structural Work.
Notwithstanding the foregoing, in the event
of a bona fide emergency during which Lessee
is unable to contact
the appropriate representatives of Lessor,
Lessee may commence such Material Structural
Work as may be necessary in order to address
such emergency without Lessor's prior
approval, provided, however, that Lessee
shall immediately thereafter advise Lessor of
such emergency and the nature and scope of
the Material Structural
42
Work commenced and shall obtain Lessor's
approval of the remaining Material Structural
Work to be completed.
8.1.2 NO LESSOR OBLIGATION. Lessor shall
not, under any circumstances, be required to
build or rebuild any improvements on the
Leased Property (or any private roadways,
sidewalks or curbs appurtenant thereto), or
to make any repairs, replacements,
renovations, alterations, restorations,
modifications, or renewals of any nature or
description to the Leased Property (or any
private roadways, sidewalks or curbs
appurtenant thereto), 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 (or any private roadways,
sidewalks or curbs appurtenant thereto) in
any way.
8.1.3 LESSEE MAY NOT OBLIGATE LESSOR.
Nothing contained herein nor any action or
inaction by Lessor shall be construed as (a)
constituting the consent or request of
Lessor, express or implied, to any
contractor, subcontractor, laborer,
materialman or vendor to or for the
performance of any labor or services for any
construction, alteration, addition, repair or
demolition of or to the Leased Property or
(b) except as otherwise provided in this
Lease, giving Lessee any right, power or
permission to contract for or permit the
performance of any labor or services or the
finishing of any materials or other property
in such fashion as would permit the making of
any claim against Lessor or the payment
thereof or to make any agreement that may
create, or in any way be the basis for, any
right, title or interest in, or Lien or claim
against, the estate of Lessor in the Leased
Property. Without limiting the generality of
the foregoing and except as otherwise
provided in this Lease, the right title and
interest of Lessor in and to the Leased
Property shall not be subject to liens or
encumbrances for the performance of any labor
or services or the furnishing of any
materials or other property furnished to the
Leased Property at or by the request of
Lessee or any other Person other than Lessor.
Lessee shall notify any contractor,
subcontractor, laborer, materialman or vendor
providing any labor, services or materials to
the Leased Property of this provision.
8.2 ENCROACHMENTS; TITLE RESTRICTIONS. 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 Lien now or
hereafter affecting the Leased Property, or shall
impair the rights of others under any easement,
right-of way or other Lien to
43
which the Leased Property is now or hereafter
subject, then promptly upon the request of Lessor,
Lessee shall, at its sole cost and expense,
subject to Lessee's right to contest the existence
of any encroachment, violation or impairment as
set forth in Article 15, (a) obtain valid and
effective waivers or settlements of all claims,
liabilities and damages resulting from each such
encroachment, violation or impairment or (b) make
such alterations to the Leased Improvements, and
take such other actions, as Lessee in the good
faith exercise of its judgment deems reasonably
practicable, to remove such encroachment, or to
end such violation or impairment, including, if
necessary, the alteration of any of the Leased
Improvements. Notwithstanding the foregoing,
Lessee shall, in any event, take all such actions
as may be reasonably necessary in order to be able
to continue the operation of the Leased
Improvements for the Primary Intended Use and, if
applicable, the Other Permitted Uses substantially
in the manner and to the extent that the Leased
Improvements were operated prior to the assertion
of such encroachment, violation or impairment and
nothing contained herein shall limit Lessee's
obligations to operate the Leased Property in
accordance with its Primary Intended Use. Any such
alteration made pursuant to the terms of this
Section 8.2 shall be completed in conformity with
the applicable requirements of Section 8.1 and
Article 9. Lessee's obligations under this Section
8.2 shall be in addition to and shall in no way
discharge or diminish any obligation of any
insurer under any policy of title or other
insurance. If and to the extent any obligation of
an insurer under any policy of title or other
insurance exists and Lessee has incurred costs and
expenses with respect to the subject matter of
such obligation and provided Lessor is reasonably
satisfied with the resolution of such subject
matter, at the request of Lessee, Lessor, at
Lessor's option, shall either assign to Lessee any
right it may have to proceed against such insurer
or remit to Lessee any amount which Lessor
recovers from such insurer, minus any amounts
needed to reimburse Lessor for its reasonable
costs and expenses, for the costs and expenses
incurred by Lessee in reconstructing the Facility
or taking such other action reasonably required in
order to create a viable and functional Facility
under all of the circumstances.
ARTICLE 9
MATERIAL STRUCTURAL WORK AND CAPITAL ADDITION
9.1 LESSOR'S APPROVAL. Without the prior
written consent of Lessor, which consent may be
withheld by Lessor, in its sole and absolute
discretion, Lessee shall make no Capital Addition
or Material Structural Work to the Leased Property
(including, without limitation, any change in the
size or unit capacity of the Facility), except as
may be otherwise expressly required pursuant to
Article 8.
44
9.2 GENERAL PROVISIONS AS TO CAPITAL
ADDITIONS AND CERTAIN MATERIAL STRUCTURAL WORK. As
to any Capital Addition or Material Structural
Work (other than such Material Structural Work
that is required to be performed pursuant to the
terms of Section 8.1) for which Lessor has granted
its prior written approval, the following terms
and conditions shall apply unless otherwise
expressly set forth in Lessor's written approval.
9.2.1 NO LIENS. Lessee shall not be
permitted to create any Lien on the Leased
Property in connection with any Capital
Addition or Material Structural Work
(including, without limitation, Liens
relating to the provision of financing for a
Capital Addition) other than Liens expressly
permitted by the terms and provisions of this
Lease Agreement.
9.2.2 LESSEE'S PROPOSAL REGARDING
CAPITAL ADDITIONS AND MATERIAL STRUCTURAL
WORK. If Lessee desires to undertake any
Capital Addition or Material Structural Work,
Lessee shall submit to Lessor in writing a
proposal setting forth in reasonable detail
any proposed Capital Addition or Material
Structural Work and shall provide to Lessor
copies of, or information regarding, the
applicable plans and specifications, Permits,
Contracts and any other materials concerning
the proposed Capital Addition or Material
Structural Work, as the case may be, as
Lessor may reasonably request. Without
limiting the generality of the foregoing,
each such proposal pertaining to any Capital
Addition shall indicate 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 Gross Revenues that Lessee
anticipates will result from the construction
of such Capital Addition.
9.2.3 LESSOR'S OPTIONS REGARDING CAPITAL
ADDITIONS AND MATERIAL STRUCTURAL WORK.
Lessor shall have the options of (a) denying
permission for the construction of the
applicable Capital Addition or Material
Structural Work, (b) offering to finance the
construction of the Capital Addition pursuant
to Section 9.3 on such terms as may be
specified by Lessor, including the terms of
any amendment to this Lease, including,
without limitation, an increase in Base Rent
based on Lessor's then existing terms and
prevailing conditions to compensate Lessor
for the additional funds advanced by it, (c)
allowing Lessee to separately pay for or
finance the construction of the Capital
Addition, subject to compliance with the
terms and conditions of Section 9.2.1,
Section 9.4, Section 13.1.3, all applicable
Legal Requirements, all other requirements of
this Lease and to such other terms and
conditions as Lessor may in its discretion
reasonably impose or (d) any combination of
the
45
foregoing. Unless Lessor notifies Lessee in
writing of a contrary election within thirty
(30) days of Lessee's request or unless
Lessor is required to consent thereto
pursuant to this Section 9.2.3, Lessor shall
be deemed to have denied the request for the
Capital Addition or Material Structural Work.
In the event and to the extent Lessor has
granted permission for the construction of
the applicable Capital Addition or Material
Structural Work and (x) Lessor has not
offered to finance the construction of the
same or (y) Lessee declines to accept the
financing offered by Lessor, Lessee may
separately finance such construction, subject
to the limitation on Liens set forth in
Section 9.2.1, or pay for such construction
itself. In the event Lessee declines to
accept the financing offered by Lessor or if
Lessor has not offered such financing to
Lessee and proposes to obtaining financing
from another Person, Lessee shall inform
Lessor in writing of the terms and conditions
of such financing and shall provide Lessor
with a copy of a commitment letter evidencing
the same and Lessor may, by giving notice
thereof to Lessee within twenty (20) days
following being so informed, elect to provide
financing to Lessee at the effective rate of
interest as such financing. Lessor shall not
unreasonably withhold its permission for the
construction of Material Structural Work
which is necessary to protect the safety or
welfare of residents of the Facility.
9.2.4 LESSOR MAY ELECT TO FINANCE
CAPITAL ADDITIONS. If Lessor elects to offer
financing for the proposed Capital Addition
and Lessee accepts lessor's financing
proposal, the provisions of Section 9.3 shall
apply.
9.3 CAPITAL ADDITIONS FINANCED BY LESSOR.
9.3.1 ADVANCES. All advances of funds
for any such financing shall be made in
accordance with Lessor's then standard
construction loan requirements and
procedures, which may include, without
limitation, the requirements and procedures
applicable to Work under Sections 13.1.3 and
13.1.4.
9.3.2 LESSOR'S GENERAL REQUIREMENTS. If
Lessor agrees to finance the proposed Capital
Addition and Lessee accepts Lessor's proposal
therefor, in addition to all other items
which Lessor or any applicable Financing
Party may reasonably require, Lessee shall
provide to Lessor the following:
(a) prior to any advance of funds,
(i) any information, opinions,
certificates, Permits or documents
reasonably requested by Lessor or any
applicable Financing Party which are
necessary to confirm that Lessee is
reasonably expected to be able to use
the Capital Addition
46
upon completion thereof in accordance
with the Primary Intended Use and/or, if
applicable, the Other Permitted Uses and
(ii) evidence satisfactory to Lessor and
any applicable Financing Party that all
Permits required for the construction
and use of the Capital Addition have
been received, are in full force and
effect and are not subject to appeal,
except only for those Permits which
cannot in the normal course be obtained
prior to commencement or completion of
the construction; provided, that Lessor
and any applicable Financing Party are
furnished with reasonable evidence that
the same is reasonably expected to be
available in the normal course of
business without unusual condition;
(b) prior to any advance of funds,
an Officer's Certificate and, if
requested, a certificate from Lessee's
architect, setting forth in reasonable
detail the projected (or actual, if
available) Capital Addition Cost;
(c) bills of sale, instruments of
transfer and other documents required by
Lessor so as to vest title to the
Capital Addition in Lessor free and
clear of all Liens (except to the extent
a Lien is being duly contested in
accordance with the terms and provisions
of this Lease), and amendments to this
Lease and any recorded notice or
memorandum thereof, duly executed and
acknowledged, in form and substance
reasonably satisfactory to Lessor,
providing for any changes required by
Lessor including, without limitation,
changes in the Base Rent and the legal
description of the Land;
(d) upon payment therefor, a deed
conveying to Lessor title to any land
acquired for the purpose of constructing
the Capital Addition ("Additional Land")
free and clear of any Liens except those
approved by Lessor;
(e) upon completion of the Capital
Addition, a final as-built survey
thereof reasonably satisfactory to
Lessor, if required by Lessor;
(f) during and following the
advance of funds and the completion of
the Capital Addition, endorsements to
any outstanding policy of title
insurance covering the Leased Property
satisfactory in form and substance to
Lessor (i) updating the same without any
additional exception except as may be
reasonably permitted by Lessor and (ii)
increasing the coverage thereof by an
amount equal to the Fair Market Value of
the Capital Addition and/or
47
increasing the coverage thereof by an
amount equal to the Fair Market Value of
the Additional Land and including the
Additional Land in the premises covered
by such title insurance policy;
(g) simultaneous with the initial
advance of funds, if appropriate, (i) an
owner's policy of title insurance
insuring fee simple title to any
Additional Land conveyed to Lessor
pursuant to subparagraph (d) free and
clear of all Liens except those approved
by Lessor and (ii) an owner's policy of
title insurance reasonably satisfactory
in form and substance to Lessor and a
lender's policy of title insurance
reasonably satisfactory in form and
substance to any applicable Financing
Party;
(h) following the completion of the
Capital Addition, if reasonably deemed
necessary by Lessor, an appraisal of the
Leased Property by an M.A.I. appraiser
acceptable to Lessor, which states that
the Fair Market Value of the Leased
Property upon completion of the Capital
Addition exceeds the Fair Market Value
of the Leased Property prior to the
commencement of such Capital Addition by
an amount not less than one hundred
twenty-five percent (125%) of the
Capital Addition Cost; and
(i) during or following the
advancement of funds, prints of
architectural and engineering drawings
relating to the Capital Addition and
such other materials, including, without
limitation, the modifications to
outstanding policies of title insurance
contemplated by subsection (f) above,
opinions of counsel, appraisals,
surveys, certified copies of duly
adopted resolutions of the board of
directors of Lessee authorizing the
execution and delivery of the lease
amendment and any other documents and
instruments as may be reasonably
required by Lessor and any applicable
Financing Party.
9.3.3 PAYMENT OF COSTS. By virtue of
making a request to finance a Capital
Addition, whether or not such financing is
actually consummated, Lessee shall be deemed
to have agreed to pay, upon demand, all costs
and expenses reasonably incurred by Lessor
and any Person participating with Lessor in
any way in the financing of the Capital
Addition Cost, including, but not limited to
(a) fees and expenses of their respective
attorneys, (b) all photocopying expenses, If
any, (c) the amount of any filing,
registration and recording taxes and fees,
(d) documentary stamp
48
taxes and intangible taxes (e) title
insurance charges and appraisal fees.
9.4 GENERAL LIMITATIONS. Without in any way
limiting Lessor's options with respect to proposed
Capital Additions or Material Structural Work: (a)
no Capital Addition or Material Structural Work
shall be completed that could, upon completion,
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
Lessee to comply with the terms of this Lease; (b)
no Capital Addition or Material Structural Work
shall be completed which would tie in or connect
any Leased Improvements on the Leased Property
with any other improvements on property adjacent
to the Leased Property (and not part of the Land
covered by this Lease) including, without
limitation, tie-ins of buildings or other
structures or utilities, unless Lessee shall have
obtained the prior written approval of Lessor,
which approval may be withheld in Lessor's sole
and absolute discretion and (c) all proposed
Capital Additions and Material Structural Work
shall be architecturally integrated and consistent
with the Leased Property.
9.5 NON-CAPITAL ADDITIONS. Lessee shall have
the obligation and right to make repairs,
replacements and alterations which are not Capital
Additions as required by the other Sections of
this Lease, but in so doing, Lessee shall always
comply with and satisfy the conditions of Section
9.4. Lessee shall have the right, from time to
time, to make additions, modifications or
improvements to the Leased Property which do not
constitute Capital Additions or Material
Structural Work as it may deem to be desirable or
necessary for its uses and purposes, subject to
the same limits and conditions imposed under
Section 9.4. The cost of any such repair,
replacement, alteration, addition, modification or
improvement shall be paid by Lessee and the
results thereof shall be included under the terms
of this Lease and become a part of the Leased
Property, without payment therefor by Lessor at
any time. Notwithstanding the foregoing, all such
additions, modifications and improvements which
affect the structure of any of the Leased
Improvements, or which involve the expenditure of
more than FIFTY THOUSAND DOLLARS ($50,000.00),
shall be undertaken only upon compliance with the
provisions of Section 13.1.3, all applicable Legal
Requirements and all other applicable requirements
of this Lease; provided, however, that in the
event of a bona fide emergency during which Lessee
is unable to contact the appropriate
representatives of Lessor, Lessee may commence
such additions, modifications and improvements as
may be necessary in order to address such
emergency without Lessor's prior approval, as long
as Lessee immediately
thereafter advises Lessor of such emergency and
the nature and scope of the additions,
modifications and improvements performed and
obtains
49
Lessor's approval of the remaining work to be
completed. Any such addition, modification and
improvement which affects the structure of any of
the Leased Improvements which is not a Capital
Addition or Material Structural Work shall be
exempt from the requirements of Section 9.2
hereof.
9.6 COMPENSATION TO LESSEE FOR CAPITAL
ADDITIONS PAID FOR OR FINANCED BY LESSEE. Upon the
expiration or earlier termination of this Lease,
except by reason of the default by Lessee
hereunder, Lessor shall compensate Lessee for all
Capital Additions paid for or financed by Lessee
in any of the following ways, determined in the
sole discretion of Lessor:
(a) By purchasing all Capital Additions paid
for or financed by Lessee from Lessee for cash in
the amount of the Fair Market Added Value
(determined as of the date of such purchase) of
all such Capital Additions paid for or financed by
Lessee; or
(b) By purchasing such Capital Addition from
Lessee by delivering to Lessee Lessor's purchase
money promissory note in the amount of said Fair
Market Added Value, due and payable no later than
eighteen ( 18) months after the date of expiration
or other termination of this Lease, bearing
interest at a rate equal to one hundred ten
percent (110%) of the applicable federal rate
(determined at the time of execution of such note
pursuant to Section 1274 of the Code or any
successor section thereto), compounded
semiannually, or, if no such rate exists, or such
rate is in excess of that permitted under
applicable law, at the Prime Rate, which interest
shall be payable monthly, and which note shall be
secured by a mortgage on the Leased Property,
subject to all Liens on the Leased Property at the
time of such purchase; or
(c) By Lessor assigning to Lessee under
appropriate written instruments the right to
receive an amount equal to the Added Value
Percentage (determined as of the expiration of
earlier termination of this Lease) from all rent
and other consideration receivable by Lessor under
any re-letting or other disposition of the Leased
Property, after deducting all costs and expenses
incurred by Lessor in connection with such re-
letting or other disposition of the leased
Property and all costs and expenses of operating
and maintaining the Leased Property during any
such new lease which are not borne by the tenant
thereunder. The provisions of this Subparagraph
(c) shall remain in effect until the sale or other
final disposition of the Leased Property in which
event Lessor shall pay to Lessee the outstanding
balance of the Fair Market Added Value in
accordance with Subparagraph (a), (b), or (d) of
this Section 9.6, after deducting any amounts
received by Lessee under this Subparagraph (c); or
(d) Such other arrangement regarding such
compensation as shall be mutually acceptable to
Lessor and Lessee.
50
ARTICLE 10
WARRANTIES AND REPRESENTATIONS
10.1 REPRESENTATIONS AND WARRANTIES. Lessee
hereby represents and warrants to, and covenants
and agrees with, Lessor that:
10.1.1 EXISTENCE; POWER; QUALIFICATION.
Lessee is a corporation duly organized,
validly existing and in good standing under
the laws of the State of Washington. Lessee
has all requisite corporate power to own and
operate its properties and to carry on its
business as now conducted and is duly
qualified to transact business and is in good
standing in each jurisdiction where such
qualification is necessary or desirable in
order to carry out its business as presently
conducted. As of the date of this Agreement,
Lessee does not have any Subsidiaries and
Lessee is not a member of any partnership or
joint venture. Attached hereto as EXHIBIT C
is a true and correct list of all of the
shareholders of Lessee and their respective
ownership interests in Lessee;
10.1.2 VALID AND BINDING. Lessee is duly
authorized to make and enter into all of the
Lease Documents to which Lessee is a party
and to carry out the transactions
contemplated therein. All of the Lease
Documents to which Lessee is a party have
been duly executed and delivered by Lessee,
and each is a legal, valid and binding
obligation of Lessee, enforceable in
accordance with its terms.
10.1.3 SINGLE PURPOSE. Lessee is, and
during the entire time that this Lease
remains in force and effect shall be, engaged
in no business, trade or activity other than
the operation and development of the Leased
Property for the Primary Intended Use and
such other activities in which Lessee may be
permitted to engage by the provisions of
Meditrust/Emeritus Transaction Documents. The
fiscal year of Lessee and the Guarantor is
the Fiscal Year.
10.1.4 NO VIOLATION. The execution,
delivery and performance of the Lease
Documents by the members of the Leasing Group
and the consummation by the members of the
Leasing Group of the transactions thereby
contemplated shall not result in any breach
of, or constitute a default under, or result
in the acceleration of, or constitute an
event which, with the giving of notice or the
passage of time, or both, could result in
default or acceleration of any obligation of
any such member of the Leasing
Group under any of the Permits or Contracts
or any other contract,
51
mortgage, lien, lease, agreement, instrument,
franchise, arbitration award, judgment,
decree, bank loan or credit agreement, trust
indenture or other instrument to which any
member of the Leasing Group is a party or by
which any member of the Leasing Group may be
bound or affected and do not violate or
contravene any Legal Requirement.
10.1.5 CONSENTS AND APPROVALS. Except as
already or reasonably expected to be obtained
in the ordinary course of business prior to
or upon the Completion of the Project, as the
case may be, no consent or approval or other
authorization of, or exemption by, or
declaration or fling with, any Person and no
waiver of any right by any Person is required
to authorize or permit, or is otherwise
required as a condition of the execution,
delivery and performance of its obligations
under the Lease Documents by any member of
the Leasing Group or as a condition to the
validity (assuming the due authorization,
execution and delivery by Lessor of the Lease
Documents to which it is a party) and the
first priority of any Liens granted under the
Lease Documents, except the filing of the
Financing Statements.
10.1.6 NO LIENS OR INSOLVENCY
PROCEEDINGS. Each member of the Leasing Group
in existence as of the date hereof is
financially solvent and there are no actions,
suits, investigations or proceedings
including, without limitation, outstanding
federal or state tax liens, garnishments or
insolvency or bankruptcy proceedings, pending
or, to the best of Lessee's knowledge and
belief, threatened:
(a) against or affecting any member
of the Leasing Group, which if adversely
resolved to such member of the Leasing
Group, would materially adversely affect
the ability of any of the foregoing to
perform their respective obligations
under the Lease Documents;
(b) against or affecting the Leased
Property or the ownership, construction,
development, maintenance, management,
repair, use, occupancy, possession or
operation thereof; or
(c) which may involve or affect the
validity, priority or enforceability of
any of the Lease Documents, at law or in
equity, or before or by any arbitrator
or Governmental Authority.
10.1.7 INTENTIONALLY DELETED.
52
10.1.8 COMMERCIAL ACTS. Lessee's
performance of and compliance with the
obligations and conditions set forth herein
and in the other Lease Documents will
constitute commercial acts done and performed
for commercial purposes.
10.1.9 ADEQUATE CAPITAL. NOT INSOLVENT.
After giving effect to the consummation of
the transactions contemplated by the Lease
Documents, each member of the Leasing Group:
(a) will be able to pay its debts
as they become due;
(b) will have sufficient funds or
available capital to carry on its
business as now conducted or as
contemplated to be conducted (in
accordance with the terms of the Lease
Documents); and
(c) will not be rendered insolvent
as determined by applicable law.
10.1.10 NOT DELINQUENT. Except as
permitted under Section 11.3.8, no member of
the Leasing Group which exists as of the date
hereof is delinquent or claimed to be
delinquent under any obligation for the
payment of borrowed money.
10.1.11 NO AFFILIATE DEBT. Lessee has
not created, incurred, guaranteed, endorsed,
assumed or suffered to exist any liability
(whether direct or contingent) for borrowed
money from the Guarantor (or any of its
Affiliates) or any Affiliate of Lessee which
has not been fully subordinated to the Lease
Obligations.
10.1.12 TAXES CURRENT. Each member of
the Leasing Group which exists as of the date
hereof has filed all federal, state and local
tax returns which are required to be filed as
to which extensions are not currently in
effect and has paid all taxes, assessments,
impositions, fees and other governmental
charges (including interest and penalties)
which have become due pursuant to such
returns or pursuant to any assessment or
notice of tax claim or deficiency received by
each such member of the Leasing Group. No tax
liability has been asserted by the Internal
Revenue Service against any member of the
Leasing Group or any other federal, state or
local taxing authority for taxes,
assessments, impositions, fees or other
governmental charges (including interest or
penalties thereon) in excess of those already
paid.
10.1.13 FINANCIALS COMPLETE AND
ACCURATE. The financial statements of each
member of the Leasing Group given to Lessor
in connection with the execution and delivery
of the Lease Documents were true, complete
and accurate, in all material respects, and
fairly presented the financial condition of
53
each such member of the Leasing Group as of
the date thereof and for the periods covered
thereby, having been prepared in accordance
with GAAP and such financial statements
disclosed all liabilities, including, without
limitation, contingent liabilities, of each
such member of the Leasing Group as of the
date thereof. There has been no material
adverse change since such date with respect
to the Net Worth of any such member of the
Leasing Group or with respect to any other
matters contained in such financial
statements, nor have any additional material
liabilities, including, without limitation,
contingent liabilities, of any such member of
the Leasing Group arisen or been incurred or
asserted since such date except as otherwise
disclosed to Lessor. The projections
heretofore delivered to Lessor continue to be
reasonable (with respect to the material
assumptions upon which such projections are
based) and Lessee reasonably anticipates
based on information currently available to
it after due inquiry the results projected
therein will be achieved, there having been
(a) no material adverse change in the
business, assets or condition, financial or
otherwise of any such member of the Leasing
Group or the Leased Property and (b) no
material depletion of the cash or decrease in
working capital of any such member of the
Leasing Group.
10.1.14 PENDING ACTIONS, NOTICES AND REPORTS.
(a) There is no action or investigation
pending or, to the best knowledge and belief
of Lessee, threatened, anticipated or
contemplated (nor, to the knowledge of
Lessee, is there any reasonable basis
therefor) against or affecting the Leased
Property or any member of the Leasing Group
(or any Affiliate thereof before any
Governmental Authority, Accreditation Body or
Third Party Payor which could prevent or
hinder the consummation of the transactions
contemplated hereby or call into question the
validity of any of the Lease Documents or any
action taken or to be taken in connection
with the transactions contemplated thereunder
or which in any single case or in the
aggregate might result in any material
adverse change in the business, prospects,
condition, affairs of any member of the
Leasing Group or the Leased Property
(including, without limitation, any action to
revoke, withdraw or suspend any Permit
necessary or desirable for the operation of
the Leased Property in accordance with its
Primary Intended Use and any action to
transfer or relocate any such Permit to a
location other than the Leased Property) or
any material impairment of the right or
ability of any member of the Leasing Group to
carry on its operations as proposed, upon
Completion of the Project, to be conducted
with respect to the Leased Property or with
respect to its obligations under the Lease
Documents or which may materially adversely
impact reimbursement to any member of the
Leasing
54
Group for services rendered to beneficiaries
of Third Party Payor Programs.
(b) Neither the Facility nor any member
of the Leasing Group has received any notice
of any claim, requirement or demand of any
Governmental Authority, Accreditation Body,
Third Party Payor or any insurance body
having or claiming any licensing, certifying,
supervising, evaluating or accrediting
authority over the Leased Property to rework
or redesign the Leased Property, its
professional staff or its professional
services, procedures or practices in any
material respect or to provide additional
furniture, fixtures, equipment or inventory
or to otherwise take action so as to make the
Leased Property conform to or comply with any
Legal Requirement;
(c) The most recent utilization reviews,
if any, relating to the Leased Property by
all applicable Third Party Payors,
Accreditation Bodies and Governmental
Authorities and all applicable reviews or
scrutiny by any managed care or utilization
review companies, if any, have not had a
material adverse impact on the utilization of
units or programs at any of the Leased
Property. No claims or assertions have been
made in any utilization review that any of
the practices or procedures used at the
Leased Property are improper or inappropriate
other than such claims or assertions which
singly and in the aggregate will not have a
material adverse impact on the Leased
Property; and
(d) Lessee has delivered or caused to be
delivered to Lessor true and correct copies
of all licenses, inspection surveys and
accreditation reviews, if any, relating to
the Leased Property, issued by any
Governmental Authority or Accreditation Body
during the most recent licensing period,
together with all plans of correction
relating thereto.
10.1.15 COMPLIANCE WITH LEGAL AND OTHER
REQUIREMENTS.
(a) To the extent consistent with
the stage of construction of the Project,
Lessee and the Leased Property and the
ownership, construction, development,
maintenance, management, repair, use,
occupancy, possession and operation thereof
comply with all applicable Legal Requirements
and there is no claim of any violation
thereof known to Lessee. Without limiting the
foregoing, Lessee has obtained all Permits
that are necessary or desirable to operate
the Leased Property in accordance with its
Primary Intended Use or reasonably expects to
obtain such Permits prior to, or upon, the
Completion of the Project.
55
(b) Except as previously delivered to
Lessor pursuant to Section 10.1.14(d) hereof,
there are no outstanding notices of
deficiencies, notices of proposed action or
orders of any kind relating to the Leased
Property, if any, issued by any Governmental
Authority, Accreditation Body or Third Party
Payor requiring conformity to any of the
applicable Legal Requirements.
(c) To the extent such accreditation is
applicable, the Facility is accredited by all
applicable Accreditation Bodies and there are
no deficiencies in either the Leased Property
or any services provided at the Facility that
would prevent the extension of the
accreditation of the Facility by any
applicable Accreditation Body after any next
regularly scheduled inspections.
10.1.16 NO ACTION BY GOVERNMENTAL
AUTHORITY OR ACCREDITATION BODY. There is no
action pending or, to the best knowledge and
belief of Lessee, recommended, by any
Governmental Authority, Accreditation Body to
revoke, repeal, cancel, modify, withdraw or
suspend any Permit or Contract or to take any
other action of any other type which could
have a material adverse effect on the Leased
Property.
10.1.17 PROPERTY MATTERS.
(a) The Leased Property is free and
clear of agreements, covenants and Liens,
except those agreements, covenants and Liens
to which this Lease is expressly subject,
whether presently existing, as are listed on
EXHIBIT B or were listed on the UCC lien
search results delivered to Lessor at or
prior to the execution and delivery of this
Lease (and were not required to be terminated
as a condition of the execution and delivery
of this Lease), or which may hereafter be
created in accordance with the terms hereof
(collectively referred to herein as the
"Permitted Encumbrances"); and Lessee shall
warrant and defend Lessor's title to the
Leased Property against any and all claims
and demands of every kind and nature
whatsoever;
(b) There is no Condemnation or similar
proceeding pending with respect to or
affecting the Leased Property, and Lessee is
not aware, to the best of Lessee's knowledge
and belief, that any such proceeding is
contemplated;
(c) No part of the Collateral or the
Leased Property has been damaged by any fire
or other casualty;
(d) None of the Permitted Encumbrances
has or is likely to have a material adverse
impact upon, nor interfere with or impede,
56
in any material respect, the operation of the
Leased Property in accordance with the
Primary Intended Use;
(e) Upon the Conversion Date, all
buildings, facilities and other improvements
necessary, both legally and practically, for
the proper and efficient operation of the
Facility will be located upon the Leased
Property and all real property and personal
property currently utilized by Lessee will be
included within the definition of the Leased
Property or the Collateral;
(f) Upon the Conversion Date the Leased
Property shall abut on and have direct
vehicular access to a public road or access
to a public road via permanent, irrevocable,
appurtenant easements;
(g) The Leased Property constitutes a
parcel(s) for real estate tax purposes
separate from any real property that does not
constitute a portion of the Leased Property
and no portion of any real property that does
not constitute a portion of the Leased
Property is part of the same tax parcel as
any part of the Leased Property;
(h) All utilities necessary for the use
and operation of the Facility are available
to the lot lines of the Leased Property:
(i) in sufficient supply and
capacity;
(ii) through validly created and
existing easements of record appurtenant
to or encumbering the Leased Property
(which easements shall not impede or
restrict the operation of the Facility);
and
(iii) without need for any Permits
and/or Contracts to be issued by or
entered into with any Governmental
Authority, except as already obtained or
executed, as the case may be, or as
otherwise shown to the satisfaction of
Lessor to be readily obtainable.
10.1.18 THIRD PARTY PAYOR Agreements.
Neither Lessee with respect to the Facility
nor the Facility is, or upon completion of
construction, will be qualified as a provider
of services under, or does, or upon
completion of construction will, participate
in, any Third Party Payor Programs and
neither Lessee with respect to the Facility
nor the Facility is, or upon completion of
construction will be, accredited by an
Accreditation Body.
57
10.1.19 RATE LIMITATIONS. The State
currently imposes no restrictions or
limitations on rates which may be charged to
private pay residents receiving services at
the Facility.
10.1.20 FREE CARE. There are no
Contracts, Permits or applicable Legal
Requirements which require that, a percentage
of units in any program at the Facility be
reserved for Medicaid or Medicare eligible
residents or that the Facility provide a
certain amount of welfare, free or charity
care or discounted or government assisted
resident care.
10.1.21 No Proposed Changes. Lessee has
no actual knowledge of any applicable Legal
Requirements which have been enacted,
promulgated or issued within the eighteen (
18) months preceding the date of this Lease
or any proposed applicable Legal Requirements
currently pending in the State which may
materially adversely affect rates at the
Facility (or any program operated by a member
of the Leasing Group in conjunction with the
Facility) or may result in the likelihood of
increased competition at the Facility or the
imposition of Medicaid, Medicare, charity,
free care, welfare or other discounted or
government assisted residents at the Facility
or require that Lessee or the Facility obtain
a certificate of need, Section 11.22 approval
or the equivalent, which Lessee or the
Facility does not currently possess.
10.1.22 ERISA. No employee pension
benefit plan maintained by any member of the
Leasing Group has any accumulated funding
deficiency within the meaning of the ERISA,
nor does any member of the Leasing Group have
any material liability to the PBGC
established under ERISA (or any successor
thereto) in connection with any employee
pension benefit plan (or other class of
benefit which the PBGC has elected to
insure), and there have been no "reportable
events" (not waived) or "prohibited
transactions" with respect to any such plan,
as those terms are defined in Section 4043 of
ERISA and Section 4975 of the Internal
Revenue Code of 1986, as now or hereafter
amended, respectively.
10.1.23 No Broker. No member of the
Leasing Group nor any of their respective
Affiliates has dealt with any broker or agent
in connection with the transactions
contemplated by the Lease Documents.
10.1.24 NO IMPROPER PAYMENTS. No member
of the Leasing Group nor any of their
respective Affiliates has:
(a) made any contributions,
payments or gifts of its funds or
property to or for the private use of
any government official, employee, agent
or other Person
58
where either the payment or the purpose
of such contribution, payment or gifts
is illegal under the laws of the United
States, any state thereof or any other
jurisdiction (foreign or domestic);
(b) knowingly established or
maintained any unrecorded fund or asset
for any purpose or knowingly made any
false or artificial entries on any of
its books or records for any reason;
(c) made any payments to any Person
with the intention or understanding that
any part of such payment was to be used
for any other purpose other than that
described in the documents supporting
the payment; or
(d) made any contribution, or
reimbursed any political gift or
contribution made by any other Person,
to candidates for public office, whether
federal, state or local, where such
contribution would be in violation of
applicable law.
10.1.25 Nothing Omitted. Neither this
Lease, nor any of the other Lease Documents,
nor any certificate, agreement, statement or
other document, including, without
limitation, any financial statements
concerning the financial condition of any
member of the Leasing Group, furnished to or
to be furnished to Lessor or its attorneys in
connection with the transactions contemplated
by the Lease Documents, contains or will
contain any untrue statement of a material
fact or omits or will omit to state a
material fact necessary in order to prevent
all statements contained herein and therein
from being misleading. There is no fact
within the special knowledge of Lessee which
has not been disclosed herein or in writing
to Lessor that materially adversely affects,
or in the future, insofar as Lessee can
reasonably foresee based on the information
currently available to it after due inquiry,
may materially adversely affect the business,
properties, assets or condition, financial or
otherwise, of any member of the Leasing Group
or the Leased Property.
10.1.26 No Margin Security. Lessee is
not engaged in the business of extending
credit for the purpose of purchasing or
carrying margin stock (within the meaning of
Regulation U of the Board of Governors of the
Federal Reserve System), and no part of the
proceeds of the Meditrust Investment will be
used to purchase or carry any margin security
or to extend credit to others for the purpose
of purchasing or carrying any margin security
or in any other manner which would involve a
violation of any of the regulations of the
Board of Governors of the Federal Reserve
59
System. Lessee is not an "investment company"
within the meaning of the Investment Company
Act of 1940, as amended.
10.1.27 No Default. No event or state of
facts which constitutes, or which, with
notice or lapse of time, or both, could
constitute, a Lease Default has occurred and
is continuing.
10.1.28 PRINCIPAL PLACE OF BUSINESS. The
principal place of business and chief
executive office of Lessee is located at 3131
Elliot Avenue, Suite 500, Seattle, Washington
98121-2162 (the "Principal Place of
Business").
10.1.29 Intentionally Deleted10.1.30
INTELLECTUAL PROPERTY. Lessee is duly
licensed or authorized to use all (if any)
copyrights, rights of reproduction,
trademarks, trade-names, trademark
applications, service marks, patent
applications, patents and patent license
rights, (all whether registered or
unregistered, U.S. or foreign), inventions,
franchises, discoveries, ideas, research,
engineering, methods, practices, processes,
systems, formulae, designs, drawings,
products, projects, improvements,
developments, know-how and trade secrets
which are used in or necessary for the
development and/or operation of the Facility
in accordance with its Primary Intended Use,
without conflict with or infringement of any,
and subject to no restriction, lien,
encumbrance, right, title or interest in
others.
10.1.31 MANAGEMENT AGREEMENTS. There is
no Management Agreement in force and effect
as of the date hereof.
10.2 CONTINUING EFFECT OF
REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained in
this Lease and the other Lease Documents
shall constitute continuing representations
and warranties which shall remain true,
correct and complete throughout the Term.
Notwithstanding the provisions of the
foregoing sentence but without derogation
from any other terms and provisions of this
Lease, including, without limitation, those
terms and provisions containing covenants to
be performed or conditions to be satisfied on
the part of Lessee the representations and
warranties contained in Sections 10.1.6,
10.1.8, 10.1.10, 10.1.14, 10.1.15,
10.1.17(b), 10.1.17(c), 10.1.17(i), 10.1.18,
10.1.19, 10.1.20, 10.1.21, 10.1.22, 10.1.27,
10.1.29, in the second sentence of Section
10.1.12, in the second and third sentences of
Section 10.1.13 and in the second sentence of
Section 10.1.25 shall not constitute
continuing representations and warranties
throughout the Term provided, however, that
nothing contained in the first sentence of
Section
60
10.1.25 shall be construed as imposing any
obligation on Lessee to update after the
Commencement Date the information furnished
to Lessor prior to the execution and delivery
of this Lease but without derogation of any
other obligation Lessee has under this Lease
to provide information to Lessor.
ARTICLE 11
FINANCIAL AND OTHER COVENANTS
11.1 STATUS CERTIFICATES. At any time, and
from time to time, upon request from the other,
Lessee and Lessor shall furnish to the other,
within ten (10) Business Days' after receipt of
such request, 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) and the dates to which the Rent has
been paid. Any Officer's Certificate furnished
pursuant to this Section at the request of Lessor
shall be addressed to any prospective purchaser or
mortgagee of the Leased Property as Lessor may
request and may be relied upon by Lessor and any
such prospective purchaser or mortgagee of the
Leased Property.
11.2 FINANCIAL STATEMENTS;
REPORTS; NOTICE AND INFORMATION.
11.2.1 OBLIGATION TO FURNISH. Lessee
will furnish and shall cause to be furnished
to Lessor the following statements,
information and other materials:
(a) ANNUAL STATEMENTS. Within
ninety (90) days after the end of each
of their respective fiscal years, (i) a
copy of the Consolidated Financials for
each of (x) Lessee, (y) the Guarantor
and (z) any Sublessee which is an
Affiliate of Lessee for the preceding
fiscal year, certified and, in the case
of Guarantor, audited by, and with the
unqualified opinion of, independent
certified public accountants acceptable
to Lessor and certified as true and
correct by Lessee, the Guarantor ox the
applicable Sublessee, as the case may be
(and, without limiting anything else
contained herein, the Consolidated
Financials for Lessee and for each such
Sublessee shall include a detailed
balance sheet for Leased Property as of
the last day of such fiscal year and a
statement of earnings from the Leased
Property for such fiscal year showing,
among other things, all rents and other
income therefrom and all expenses paid
or incurred in connection with the
operation of the Leased Property); (ii)
separate statements, certified as true
and correct by Lessee, the Guarantor,
any Manager
61
which is an Affiliate of Lessee and each
such Sublessee which is an Affiliate of
Lessee, stating whether, to the best of
the signer's knowledge and belief after
making due inquiry, Lessee, the
Guarantor, such Manager or any such
Sublessee, as the case may be, is in
default in the performance or observance
of any of the terms of this Lease or any
of the other Lease Documents and, if so,
specifying all such defaults, the nature
thereof and the steps being taken to
immediately remedy the same; (iii) a
copy of all letters from the independent
certified accountants engaged to perform
the annual audits referred to above,
directed to the management of the
Guarantor regarding the existence of any
reportable conditions or material
weaknesses; (iv) a statement certified
as true and connect by Lessee setting
forth all Subleases as of the last day
of such fiscal year, the respective
areas demised thereunder, the names of
the Sublessees thereunder, the
respective expiration dates of the
Subleases, the respective rentals
provided for therein, and such other
information pertaining to the Subleases
as may be reasonably requested by
Lessor; and (v) evidence satisfactory to
Lessor that Lessee has fulfilled its
obligation to make the Annual Facility
Upgrade Expenditure, provided, however,
that no such evidence shall be required
to be submitted until the fourth Lease
Year. (b) MONTHLY STATEMENTS
OF LESSEE. Commencing on the Conversion
Date, within thirty (30) days after the
end of each calendar month during the
pendency of this Lease, (i) a statement
certified as true and correct by Lessee
setting forth the Gross Revenues of the
Leased Property for the immediately
preceding month, (ii) an unaudited,
detailed month and year to date income
and expense statement for the Leased
Property which shall include a
comparison to corresponding budget
figures, occupancy statistics (including
the actual number of residents, the
number of units available and total
resident days for such month) and
resident mix breakdowns (for each
resident day during such month
classifying residents by the type of
care required and source of payment) and
(iii) an express written calculation
showing the compliance or non-
compliance, as the case may be, with the
specific financial covenants set forth
in Section 11.3 for the applicable
period, including, with respect to the
calculation of Lessee's Debt Coverage
Ratio, a schedule substantially in the
form attached hereto as EXHIBIT D.
62
(c) QUARTERLY STATEMENTS.
Commencing on the Conversion Date,
within thirty (30) days after the end of
each respective fiscal quarter,
unaudited Consolidated Financials for
each of (i) Lessee and (ii) each
Sublessee which is an Affiliate of
Lessee certified as true and correct by
Lessee or such applicable Sublessee, as
the case May be and within thirty (30)
days after each calendar quarter, Lessee
shall also provide Lessor with a
calculation of the Additional Rent
payable for such quarter.
(d) QUARTERLY STATEMENTS OF THE
GUARANTOR. Commencing on the Conversion
Date, within forty-five (45) days after
the end of each fiscal quarter,
unaudited Consolidated Financials for
the Guarantor certified as true and
correct by the Guarantor.
(e) PERMITS AND CONTRACTS. Within
ten (10) days after the issuance or the
execution thereof, as the case may be,
true and complete copies of (i) all
Permits which constitute operating
licenses for the Facility issued by any
Governmental Authority having
jurisdiction over assisted living
matters and (ii) Contracts (involving
payments in the aggregate in excess of $
100,000 per annum), including, without
limitation, all Provider Agreements.
(f) CONTRACT NOTICES. Promptly but
in no event more than ten (10) days
after the receipt thereof, true and
complete copies of any notices,
consents, terminations or statements of
any kind or nature relating to any of
the Contracts (involving payments in the
aggregate in excess of ONE HUNDRED
THOUSAND DOLLARS ($100,000) per annum)
other than those issued in the ordinary
course of business. (g)
PERMIT OR CONTRACT DEFAULTS. Promptly
but in no event more than ten ( 10) days
after the receipt thereof, true and
complete copies of all surveys, follow-
up surveys, licensing surveys, complaint
surveys, examinations, compliance
certificates, inspection reports,
statements (other than those statements
that are issued in the ordinary course
of business), if any, terminations and
notices of any kind (other than those
notices that are furnished in the
ordinary course of business) issued or
provided to Lessee, the Manager or any
Sublessee by any Governmental Authority,
Accreditation Body or any Third Party
Payor, including, without limitation,
any notices
63
pertaining to any delinquency in, or
proposed revision of, Lessee's, the
Manager's or any Sublessee's obligations
under the terms and conditions of any
Permits or Contracts now or hereafter
issued by or entered into with any
Governmental Authority, Accreditation
Body or Third Party Payor and the
response(s) thereto made by or on behalf
of Lessee, the Manager or any Sublessee.
(h) OFFICIAL REPORTS. Upon
completion or filing thereof, complete
copies of all applications (other than
those that are furnished in the ordinary
course of business), notices (other than
those that are furnished in the ordinary
course of business), statements, annual
reports, cost reports and other reports
or filings of any kind (other than those
that are furnished in the ordinary
course of business) provided by Lessee,
the Manager or any Sublessee to any
Governmental Authority, Accreditation
Body or any Third Party Payor with
respect to the Leased Property.
(i) OTHER INFORMATION. With
reasonable promptness, such other
information as Lessor may from time to
time reasonably request respecting (i)
the financial condition and affairs of
each member of the Leasing Group and the
Leased Property and (ii) the licensing
and operation of the Leased Property;
including, without limitation, financial
statements, certificates and consents
from accountants and all other financial
and licensing/operational information as
may be required or requested by any
Governmental Authority.
(j) DEFAULT CONDITIONS. As soon as
possible, and in any event within five
(5) days after the occurrence of any
Lease Default, or any event or
circumstance which, with the giving of
notice or the passage of time, or both,
would constitute a Lease Default, a
written statement of Lessee setting
forth the details of such Lease Default,
event or circumstance and the action
which Lessee proposes to take with
respect thereto.
(k) OFFICIAL ACTION. Promptly but
in no event more than ten ( 10) days
after the commencement thereof, notice
of all actions, suits and proceedings
before any Governmental Authority or
Accreditation Body which could have a
material adverse effect on any member of
the Leasing Group or the Leased
Property.
64
(l) AUDIT REPORTS. Promptly
but in no event more than ten (10) days
after receipt, a copy of all audits or
reports submitted to Lessee by any
independent public accountant in
connection with any annual, special or
interim audits of the books of Lessee
and, if requested by Lessor, any letter
of comments directed by such accountant
to the management of Lessee.
(m) ADVERSE DEVELOPMENTS.
Promptly but in no event more than ten
(10) days after Lessee acquires
knowledge thereof, written notice of
(i) the potential
termination of any Permit or
Provider Agreement necessary for
the operation of the Leased
Property; (ii) any loss,
damage or destruction to or of the
Leased Property in excess of TWENTY-
FIVE THOUSAND DOLLARS ($25,000)
(regardless of whether the same is
covered by insurance);
(iii) any material controversy
involving Lessee or any Sublessee
which is an Affiliate of Lessee and
(x) Facility administrator or
Facility employee of similar
stature or (y) any labor
organization or (z) the Manager or
any employee of the Manager which
has, or is reasonably likely to
have, a materially adverse effect
on the financial condition and/or
operations of the Facility;
(iv) any controversy that calls
into question the eligibility of
the Facility for the participation
in any Medicaid, Medicare or other
Third Party Payor Program in which
the Facility is participating;
(v) any refusal of
reimbursement by any Third Party
Payor which, singularly or together
with all other such refusals by any
Third Party Payors, could
reasonably be expected to have a
material adverse effect on the
financial condition of Lessee or
any Sublessee which is an Affiliate
of Lessee; and
(vi) any fact within
the special knowledge of any member
of the Leasing Group, or any other
development in the business or
affairs of any member of the
Leasing Group, which could
65
reasonably be expected to be
materially adverse to the business,
properties, assets or condition,
financial or otherwise, of any
member of the Leasing Group or the
Leased Property.
(n) RESPONSES TO INSPECTION
REPORTS. Within thirty (30) days after
receipt of an inspection report relating
to the Leased Property from Lessor, a
written response describing in detail
prepared plans to address concerns
raised by the inspection report.
(o) PUBLIC INFORMATION. Upon the
completion or filing, mailing or other
delivery thereof, complete copies of all
financial statements, reports, notices
and proxy statements, if any, sent by
any member of the Leasing Group (which
is a publicly held corporation) to its
shareholders and of all reports, if any,
f led by any member of the Leasing Group
(which is a publicly held corporation)
with any securities exchange or with the
Securities Exchange Commission.
(p) ANNUAL BUDGET. Commencing on
the Conversion Date, prior to the end of
each Fiscal Year, Lessee, any Sublessee
which is an Affiliate of Lessee and/or
any Manager which is an Affiliate of
Lessee shall submit to Lessor a
preliminary annual financial budget for
the Facility for the next Fiscal Year, a
preliminary capital expenditures budget
for the Facility for the next Fiscal
Year and a report detailing the capital
expenditures made in the then current
Fiscal Year and on or before the end of
the first month of each Fiscal Year,
Lessee, any such Sublessee and/or any
such Manager shall submit to Lessor
revised finalized versions of such
budgets and report.
(q) WORKING CAPITAL LOAN. Promptly
after receipt thereof, copies of any
notices with respect to default from a
lender of a Working Capital Loan.
11.2.2 RESPONSIBLE OFFICER. Any
certificate, instrument, notice, or other
document to be provided to Lessor hereunder
by any member of the Leasing Group shall be
signed by an executive officer of such member
(in the event that any of the foregoing is
not an individual), having a position of Vice
President or higher and with respect to
financial matters, any such certificate,
instrument, notice or other document shall be
signed by the chief financial officer of such
member. 11.2.3 NO MATERIAL
OMISSION. No certificate, instrument, notice
or other document, including without
limitation,
66
any financial statements furnished or to be
furnished to Lessor pursuant to the terms
hereof or of any of the other Lease Documents
shall contain any untrue statement of a
material fact or shall omit to state any
material fact necessary in order to prevent
all statements contained therein from being
misleading.
11.2.4 CONFIDENTIALITY. Lessor shall
afford any information received pursuant to
the provisions of the Lease Documents the
same degree of confidentiality that Lessor
affords similar information proprietary to
Lessor; provided, however, that Lessor shall
have the unconditional right to (a) disclose
any such information as Lessor deems
necessary or appropriate in connection with
any sale, transfer, conveyance, participation
or assignment of the Leased Property or any
of the Lease Documents or any interest
therein and (b) use such information in any
litigation or arbitration proceeding between
Lessor and any member of the Leasing Group.
Without limiting the foregoing, Lessor may
also utilize any information furnished to it
hereunder as and to the extent (i) counsel to
Lessor determines that such utilization is
necessary pursuant to 15 USC. 77a-77aa or 15
USC. 78a-78jj and the rules and regulations
promulgated thereunder, (ii) Lessor is
required or requested by any Governmental
Authority to disclose any such information
and/or (iii) Lessor is requested to disclose
any such information by any of the Meditrust
Entities' lenders or potential lenders.
Lessor shall not be liable in any way for any
subsequent disclosure of such information by
any Person to which Lessor has provided such
information in accordance with the terms
hereof. Nevertheless, in connection with any
such disclosure, Lessor shall inform the
recipient of any such information of the
confidential nature thereof. Lessor shall
observe any prohibitions or limitations on
the disclosure of any such information under
applicable confidentiality law or
regulations, to the extent that the same are
applicable to such information.
11.3 FINANCIAL COVENANTS. Lessee covenants
and agrees that, throughout the Term and as long
as Lessee is in possession of the Leased Property:
11.3.1 DEBT COVERAGE RATIO OF LESSEE.
From and after the second anniversary of the
Conversion Date until the fourth anniversary
thereof, the Facility and all other Group Two
Development Facilities shall maintain for
each Fiscal Quarter an aggregate Debt
Coverage Ratio equal to or greater than 1.1
to 1 and from and after the fourth
anniversary thereof and for the remainder of
the Term, the Facility and all other Group
Two Development Facilities shall maintain for
each Fiscal Quarter an aggregate Debt
Coverage Ratio equal to or greater than 1.2
to 1.
67
11.3.2 Intentionally Deleted.
11.3.3 Intentionally Deleted.
11.3.4 Intentionally Deleted.
11.3.5 CURRENT RATIO - GUARANTOR. From and
after December 31,1999 and for the remainder
of the Term, the Guarantor shall maintain a
ratio of Consolidated Current Assets to
Consolidated Current Liabilities equal to or
greater than 1 to 1 as of the end of each
fiscal year.
11.3.6 Intentionally Deleted.
11.3.7 NET WORTH - GUARANTOR. The
Guarantor shall maintain, at all times, a Net
Worth of not less than FORTY MILLION DOLLARS
($40,000,000). 11.3.8 NO
INDEBTEDNESS. Lessee shall not create, incur,
assume or suffer to exist any liability for
borrowed money except (i) Indebtedness to
Lessor under the Lease Documents and, (ii)
Impositions allowed pursuant to the
provisions of the Lease, (iii) unsecured
normal trade debt incurred upon customary
terms in the ordinary course of business,
(iv) Indebtedness created in connection with
any financing of any Capital Addition,
provided, that each such financing has been
approved by Lessor in accordance with the
terms of Article 9 hereof, (v) Indebtedness
to any Affiliate, provided, that, such
Indebtedness is fully subordinated to this
Lease pursuant to the Affiliated Party
Subordination Agreement, (vi) other
Indebtedness of Lessee in the aggregate
amount not to exceed TWO HUNDRED THOUSAND
DOLLARS ($200,000) incurred, for the
exclusive use of the Leased Property, on
account of purchase money indebtedness or
finance lease arrangements, each of which
shall not exceed the fair market value of the
assets or properly acquired or leased and
shall not extend to any assets or property
other than those purchased or leased and
purchase money security interests in
equipment and equipment leases which comply
with the provisions of Section 6.1.2 and
(vii) Indebtedness specifically permitted by
the Meditrust/Emeritus Transaction Documents.
11.3.9 NO GUARANTIES. Lessee shall not
assume, guarantee, endorse, contingently
agree to purchase or otherwise become
directly or contingently liable (including,
without limitation, liable by way of
agreement, contingent or otherwise, to
purchase, to provide funds for payment, to
supply funds to or otherwise to invest in any
debtor or otherwise to assure any creditor
against loss) in connection with any
Indebtedness of any other Person, except by
the endorsement of negotiable instruments
68
for deposit or collection or similar
transactions in the ordinary course of
business and except for a guaranty of the
Indebtedness of the Guarantor in connection
with a Working Capital Loan which expressly
limits recourse under such guaranty to the
Receivables.
11.4 AFFIRMATIVE COVENANTS. Lessee covenants and
agrees that throughout the Term and any periods
thereafter that Lessee remains in possession of
the Leased Property:
11.4.1 MAINTENANCE OF EXISTENCE.
If Lessee is a corporation, trust or
partnership, during the entire time that this
Lease remains in full force and effect,
Lessee shall keep in effect its existence and
rights as a corporation, trust or partnership
under the laws of the state of its
incorporation or formation and its right to
own property and transact business in the
State. 11.4.2 MATERIALS. Except as
provided in Section 6.1.2, Lessee shall not
suffer the use in connection with any
renovations or other construction relating to
the Leased Property of any materials,
fixtures or equipment intended to become part
of the Leased Property which are purchased
upon lease or conditional bill of sale or to
which Lessee does not have absolute and
unencumbered title, and Lessee covenants to
cause to be paid punctually all sums becoming
due for labor, materials, fixtures or
equipment used or purchased in connection
with any such renovations or construction,
subject to Lessee's right to contest to the
extent provided for in Article 15.
11.4.3 COMPLIANCE WITH LEGAL
REQUIREMENTS AND APPLICABLE AGREEMENTS.
Lessee and the Leased Property and all uses
thereof shall comply with (i) all applicable
Legal Requirements (except to the extent
being duly contested in accordance with the
terms hereof, (ii) all Permits and Contracts,
(iii) all Insurance Requirements, (iv) the
Lease Documents, (v) the Permitted
Encumbrances and (vi) the Appurtenant
Agreement.
11.4.4 BOOKS AND RECORDS. Lessee shall
cause to be kept and maintained, and shall
permit Lessor and its representatives to
inspect at all reasonable times and upon
reasonable notice, accurate books of accounts
in which complete entries will be made in
accordance with GAAP reflecting all financial
transactions of Lessee (showing, without
limitation, all materials ordered and
received and all disbursements, accounts
payable and accounts receivable in connection
with the operation of the Leased Property).
69
11.4.5 PARTICIPATION IN THIRD PARTY
PAYOR PROGRAMS. If Lessee or a Sublessee
which is an Affiliate of Lessee elects to
participate in Third Party Payor Programs,
Lessee or such Sublessee shall remain
eligible to participate in such Third Party
Payor Programs in accordance with all
requirements thereof (including, without
limitation, all applicable Provider
Agreements), if and to the extent remaining
eligible shall be necessary for the prudent
operation of the Facility in the good faith
exercise of commercially reasonable business
judgment.
11.4.6 CONDUCT OF ITS BUSINESS.
Lessee will maintain, and cause any Sublessee
and any Manager to maintain, experienced and
competent professional management with
respect to its business and with respect to
the Leased Property. Lessee, any Sublessee
and any Manager shall conduct, in the
ordinary course, the operation of the
Facility, and Lessee and any Sublessee which
is an Affiliate of Lessee shall not enter
into any other business or venture during the
Term or such time as Lessee or any such
Sublessee is in possession of the Leased
Property other than activities in which
Lessee or such Sublessee are permitted to
engage by the provisions of the
Meditrust/Emeritus Transaction Documents.
11.4.7 ADDRESS. Lessee shall provide
Lessor thirty (30) days' prior written notice
of any change of its Principal Place of
Business from its current Principal Place of
Business. Lessee shall maintain the
Collateral, including without limitation, all
books and records relating to its business,
solely at its Principal Place of Business and
at the Leased Property. Lessee shall not (a)
remove the Collateral, including, without
limitation, any books or records relating to
Lessee's business from either the Leased
Property or Lessee's Principal Place of
Business or (b) relocate its Principal Place
of Business until after receipt of a
certificate from Lessor, signed by an officer
thereof, stating that Lessor has, to its
satisfaction, obtained all documentation that
it deems necessary or desirable to obtain,
maintain, perfect and confirm the first
priority security interests granted in the
Lease Documents.
11.4.8 SUBORDINATION OF AFFILIATE
TRANSACTIONS. Without limiting the provisions
of any other Section of this Lease or the
Affiliated Party Subordination Agreement, any
payments to be made by Lessee to (a) any
member of the Leasing Group (or any of its
Affiliates) or (b) any Affiliate of Lessee,
in connection with any transaction between
Lessee and such Person, including, without
limitation, the purchase, sale or exchange of
any property, the rendering of any service to
or with any such Person (including, without
limitation, all allocations of any so-called
corporate or central office costs, expenses
and
70
charges of any kind or nature) or the making
of any loan or other extension of credit or
the making of any equity investment, shall be
subordinate to the complete payment and
performance of the Lease Obligations;
provided, however, that all such subordinated
payments may be paid at any time unless: (x)
after giving effect to such payment, Lessee
shall be unable to comply with any of its
obligations under any of the Lease Documents
or (y) a Lease Default has occurred and is
continuing and has not been expressly waived
in writing by Lessor or an event or state of
facts exists, which, with the giving of
notice or the passage of time, or both, would
constitute a Lease Default. 11.4.9
INSPECTION. At reasonable times and upon
reasonable notice, Lessee shall permit Lessor
and its authorized representatives
(including, without limitation, the
Consultants) to inspect the Leased Property
as provided in Section 7.1 above, provided,
however, that, in the event results of any
such testing or inspection reflect the same
satisfactory results as the results of a
similar testing or inspection initiated by
Lessor within the prior twelve (12) months
period, the costs and expense of such testing
or inspection shall be the responsibility of
Lessor.
11.4.10 ANNUAL FACILITY UPGRADE
EXPENDITURE. Lessee shall spend an amount
equal to the Annual Facility Upgrade
Expenditure on Upgrade Renovations to the
Facility each Lease Year commencing with the
fourth Lease Year. Lessee will furnish and
shall cause to be furnished to Lessor
evidence satisfactory to Lessor that Lessee
has fulfilled its obligation to make the
Annual Facility Upgrade Expenditure within
ninety (90) days after the end of Lessee's
fiscal year, provided, however, that no such
evidence shall be required to be submitted
and no such expenditure shall be required to
be made until the fourth Lease Year.
11.5 ADDITIONAL NEGATIVE COVENANTS. Lessee
covenants and agrees that, throughout the Term and
such time as Lessee remains in possession of the
Leased Property:
11.5.1 RESTRICTIONS RELATING
TO LESSEE. Except as may otherwise be
expressly provided in Section 19.4 or in any
of the other Lease Documents, Lessee shall
not, without the prior written consent of
Lessor, in each instance, which consent may
be withheld in the sole and absolute
discretion of Lessor:
(a) convey, assign,
hypothecate, transfer, dispose of or
encumber, or permit the conveyance,
assignment, transfer, hypothecation,
disposal or encumbrance of all or
71
any part of any legal or beneficial
interest in this Lease, .its other
assets or the Leased Property except as
expressly permitted by the terms of this
Lease Agreement; provided, however, that
this restriction shall not apply to (i)
the Permitted Encumbrances that may be
created after the date hereof pursuant
to the Lease Documents; (ii) Liens
created in accordance with Section 6.1.2
against Tangible Personal Property
securing Indebtedness permitted under
Section 11.3.8(v); (iii) the sale,
conveyance, assignment, hypothecation,
lease or other transfer of any material
asset or assets (whether now owned or
hereafter acquired), the fair market
value of which equals or is less than
TWENTY-FIVE THOUSAND DOLLARS ($25,000),
individually, or ONE HUNDRED THOUSAND
DOLLARS ($100,000) collectively; (iv)
without limitation as to amount, the
disposition in the ordinary course of
business of any obsolete, worn out or
defective fixtures, furnishings or
equipment used in the operation of the
Leased Property provided that the same
are replaced with fixtures, furnishings
or equipment of equal or greater utility
or value or Lessee provides Lessor with
an explanation (reasonably satisfactory
to Lessor) as to why such fixtures,
furnishings or equipment is no longer
required in connection with the
operation of the Leased Property; (v)
without limitation as to amount, any
sale of inventory by Lessee in the
ordinary course of business; and (vi)
subject to the terms of the Negative
Pledge Agreement and the Affiliated
Party Subordination Agreement,
distributions to the shareholders of
Lessee; (b) permit the use of
the Facility for any purpose other than
the Primary Intended Use and the Other
Permitted Uses; or
(c) liquidate, dissolve or merge or
consolidate with any other Person
except, subject to Lessor's prior
written consent, which consent shall not
be unreasonably withheld, a
Meditrust/Emeritus Transaction
Affiliate.
11.5.2 NO LIENS. Lessee will not
directly or indirectly create or allow to
remain and will promptly discharge at its
expense any Lien, title retention agreement
or claim upon or against the Leased Property
(including Lessee's interest therein) or
Lessee's interest in this Lease or any of the
other Lease Documents, or in respect of the
Rent, excluding (a) this Lease and any
permitted Subleases, (b) the Permitted
Encumbrances, (c) Liens which are consented
to in writing by Lessor, (d) Liens for those
taxes of Lessor which Lessee is not required
to pay
72
hereunder, (e) Liens of mechanics, laborers,
materialmen, suppliers or vendors for sums
either not yet due or being contested in
strict compliance with the terms and
conditions of Article 15, (f) any Liens which
are the responsibility of Lessor pursuant to
the provisions of Article 20, (g) Liens or
Impositions which are either not yet due and
payable or which are in the process of being
contested in strict compliance with the terms
and conditions of Article 15 (h) the Liens
incurred pursuant to the provisions of
Section 6.1.2 and (i) involuntary Liens
caused by the actions or omissions of Lessor.
11.5.3 LIMITS ON AFFILIATE
TRANSACTIONS. Lessee shall not enter into any
transaction with any Affiliate, including,
without limitation, the purchase, sale or
exchange of any property, the rendering of
any service to or with any Affiliate and the
making of any loan or other extension of
credit, except in the ordinary course of, and
pursuant to the reasonable requirements of,
Lessee's business and upon fair and
reasonable terms no less favorable to the
Lessee than would be obtained in a comparable
arms'-length transaction with any Person that
is not an Affiliate. 11.5.4 NON-
COMPETITION. Lessee acknowledges that upon
and after any termination of this Lease, any
competition by any member of the Leasing
Group with any subsequent owner or subsequent
lessee of the Leased Property (the
"Purchaser") would cause irreparable harm to
Lessor and any such Purchaser. To induce
Lessor to enter into this Lease, Lessee
agrees that, from and after the date hereof
and thereafter until (a) in the case of the
expiration of the Initial Term or a
termination of this Lease, the fifth (5th)
anniversary of the termination hereof or of
the expiration of the Initial Term, as
applicable, and (b) in the case of an
expiration of any of the Extended Terms, the
second (2nd) anniversary of the expiration of
the applicable Extended Term, no member of
the Leasing Group nor any Person holding or
controlling, directly or indirectly, any
interest in any member of the Leasing Group
(collectively, the "Limited Parties") shall
be involved in any capacity in or lend any of
their names to or engage in any capacity in
any assisted living facility, center, unit or
program (or in any Person engaged in any such
activity or any related activity competitive
therewith) other than (a) those set forth on
Schedule 11.5.4 annexed hereto, (b) those
activities in which a Meditrust/Emeritus
Transaction Affiliate is permitted to engage
by the provisions of the Meditrust/Emeritus
Transaction Documents which relate to any
such facility, center, unit or program and
(c) the acquisition of an ownership interest
in any such facility, center, unit or program
which is part of a single transaction in
which an
73
ownership interest in at least four (4) other
facilities, centers, units or programs
(provided, however, that if such acquisition
occurs within the last twelve month period of
the Initial Term or any of the Extended
Terms, Lessee shall have the benefit of this
clause (c) only if at the time such
acquisition occurs Lessee has already (x)
exercised in that twelve month period its
right under Section 1. 3 hereof to extend the
Term for another Extended Term or (y) given a
Purchase Option Notice and has waived any
right to rescind the same based upon the
determination of the Fair Market Value of the
Leased Property), whether such competitive
activity shall be as an officer, director,
owner, employee, agent, advisor, independent
contractor, developer, lender, sponsor,
venture capitalist, administrator, manager,
investor, partner, joint venturer, consultant
or other participant in any capacity
whatsoever with respect to an assisted living
facility, center, unit or program located
within a five (5) mile radius of the Leased
Property. Lessee hereby
acknowledges and agrees that none of the time
span, scope or area covered by the foregoing
restrictive covenants is or are unreasonable
and that it is the specific intent of Lessee
that each and all of the restrictive
covenants set forth hereinabove shall be
valid and enforceable as specifically set
forth herein. Lessee further agrees that
these restrictions are special, unique,
extraordinary and reasonably necessary for
the protection of Lessor and any Purchaser
and that the violation of any such covenant
by any of the Limited Parties would cause
irreparable damage to Lessor and any
Purchaser for which a legal remedy alone
would not be sufficient to fully protect such
parties. Therefore, in addition to
and without limiting any other remedies
available at law or hereunder, in the event
that any of the Limited Parties breaches any
of the restrictive covenants hereunder or
shall threaten breach of any of such
covenants, then Lessor and any Purchaser
shall be entitled to obtain equitable
remedies, including specific performance and
injunctive relief, to prevent or otherwise
restrain a breach of this Section 11.5.4
(without the necessity of posting a bond) and
to recover any and all costs and expenses
(including, without limitation, reasonable
attorneys' fees and expenses and court costs)
incurred in enforcing the provisions of this
Section 11.5.4. The existence of any claim or
cause of action of any of the Limited Parties
or any member of the Leasing Group against
Lessor or any Purchaser, whether predicated
on this Lease or otherwise, shall not
constitute a defense to the enforcement by
Lessor or any Purchaser of the foregoing
restrictive covenants and the Limited Parties
shall not defend on the basis that there is
an adequate remedy at law.
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Without limiting any other provision of
this Lease, the parties hereto acknowledge
that the foregoing restrictive covenants are
severable and separate. If at any time any of
the foregoing restrictive covenants shall be
deemed invalid or unenforceable by a court
having jurisdiction over this Lease, by
reason of being vague or unreasonable as to
duration, or geographic scope or scope of
activities restricted, or for any other
reason, such covenants shall be considered
divisible as to such portion and such
covenants shall be immediately amended and
reformed to include only such covenants as
are deemed reasonable and enforceable by the
court having jurisdiction over this Lease to
the full duration, geographic scope and scope
of restrictive activities deemed reasonable
and thus enforceable by said court; and the
parties agree that such covenants as so
amended and reformed, shall be valid and
binding as through the invalid or
unenforceable portion has not been included
therein.
The provisions of this Section 11.5.4 shall
survive the termination of the Lease and any
satisfaction of the Lease Obligations in
connection therewith or subsequent thereto. The
parties hereto acknowledge and agree that any
Purchaser may enforce the provisions of this
Section 11.5.4 as a third party beneficiary.
11.5.5 Intentionally deleted. 11.5.6
Intentionally deleted.
11.5.7 Intentionally deleted.
11.5.8 ERISA. Lessee shall not establish or
permit any Sublessee to establish any new pension
or defined benefit plan or modify any such
existing plan for employees subject to ERISA,
which plan provides any benefits based on past
service without the advance consent of Lessor
(which consent shall not be unreasonably withheld)
to the amount of the aggregate past service
liability thereby created.
11.5.9 FORGIVENESS OF INDEBTEDNESS. Lessee
will not waive, or permit any Sublessee or Manager
which is an Affiliate to waive any debt or claim,
except in the ordinary course of its business.
11.5.10 VALUE OF ASSETS. Except as disclosed
in the financial statements provided to Lessor as
of the date hereof, Lessee will not write up (by
creating an appraisal surplus or otherwise) the
value of any assets of Lessee above their cost to
Lessee, less the depreciation regularly allowable
thereon.
11.5.11 CHANGES IN FISCAL YEAR AND
ACCOUNTING PROCEDURES. Upon notice to Lessor,
Lessee may (a) change its fiscal
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year or capital structure or (b) change, alter,
amend or in any manner modify in accordance with
GAAP any of its current accounting procedures
related to the method of revenue recognition,
billing procedures or determinations of doubtful
accounts or bad debt expenses or permit any of its
Subsidiaries to so change its fiscal year,
provided that, in the event of such change,
modification or alteration, Lessee and Lessor
shall make such adjustments to the calculation of
Additional Rent and the financial covenants
contained herein as Lessor shall reasonably
require to make the same consistent in result with
the calculation thereof immediately prior to such
change, modification or alteration.
ARTICLE 12INSURANCE AND INDEMNITY
12.1 GENERAL INSURANCE
REQUIREMENTS. During the Term of this Lease and
thereafter until Lessee surrenders the Leased
Property in the manner required by this Lease,
Lessee shall at its sole cost and expense keep the
Leased Property, the Tangible Personal Property
located thereon and the business operations
conducted on the Leased Property insured as set
forth below.
12.1.1 TYPES AND AMOUNTS OF INSURANCE.
Lessee's insurance shall include the
following:
(a) property loss and physical
damage insurance on an all-risk basis
(with only such exceptions as Lessor may
in its reasonable discretion approve)
covering the Leased Property (exclusive
of Land) for its full replacement cost,
which cost shall be reset once a year at
Lessor's option, with an agreed-amount
endorsement and a deductible not in
excess of TWENTY FIVE THOUSAND DOLLARS
($25,000). Such insurance shall include,
without limitation, the following
coverages: (i) increased cost of
construction, (ii) cost of demolition,
(iii) the value of the undamaged portion
of the Facility and (iv) contingent
liability from the operation of building
laws, less exclusions provided in the
normal "All Risk" insurance policy.
During any period of construction, such
insurance shall be on a builder's-risk,
completed value, non-reporting form
(including all risk and extended
coverage, collapse, cost of demolition,
increased cost of construction and value
of undamaged portion of the improvements
protection) with permission to occupy;
(b) flood insurance (if the Leased
Property or any portion thereof is
situated in an area which is considered
a flood risk area by the U.S. Department
of Housing and
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Urban Development or any future
governmental authority charged with such
flood risk analysis in the future) in
limits reasonably acceptable to Lessor
and subject to the availability of such
flood insurance;
(c) boiler and machinery insurance
(including related electrical apparatus
and components) under a standard
comprehensive form, providing coverage
against loss or damage caused by
explosion of steam boilers, pressure
vessels or similar vessels, now or
hereafter installed on the Leased
Property, in limits acceptable to Lessor
;
(d) earthquake insurance (if
reasonably deemed necessary by Lessor)
in limits and with deductibles
acceptable to Lessor;
(e) environmental impairment
liability insurance (if available on
commercially reasonable terms and deemed
reasonably necessary by Lessor) in
limits and with deductibles acceptable
to Lessor;
(f)From and after the Conversion
Date: business interruption insurance in
an amount equal to the annual Base Rent
due hereunder plus the aggregate sum of
the Impositions relating to the Leased
Property due and payable during one
year;
(g) comprehensive general public
liability insurance including coverages
commonly found in the Broad Form
Commercial Liability Endorsements with
amounts not less than FIVE MILLION
DOLLARS ($5,000,000) per occurrence with
respect to bodily injury and death and
THREE MILLION DOLLARS ($3,000,000) for
property damage and with all limits
based solely upon occurrences at the
Leased Property without any other
impairment;
(h) From and after the Conversion
Date: professional liability insurance
in an amount not less than TEN MILLION
DOLLARS ($10,000,000) for each medical
incident;
(i) physical damage insurance on an
all-risk basis (with only such
exceptions as Lessor in its reasonable
discretion shall approve) covering the
Tangible Personal Property for the full
replacement cost thereof and with a
deductible not in excess of one percent
( 1%) of the full replacement cost
thereof;
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(j) From and after the Conversion
Date and prior thereto with respect to
Persons employed on the Leased Property
or any portion thereof prior to the
Conversion Date, "Workers' Compensation
and Employers' Liability Insurance
providing protection against all claims
arising out of injuries to all employees
of Lessee or of any Sublessee (employed
on the Leased Property or any portion
thereof in amounts equal for Workers'
Compensation, to the statutory benefits
payable to employees in the State and
for Employers' Liability, to limits of
not less than ONE HUNDRED THOUSAND
DOLLARS ($100,000) for injury by
accident, ONE HUNDRED THOUSAND DOLLARS
($100,000) per employee for disease and
FIVE HUNDRED THOUSAND DOLLARS ($500,000)
disease policy limit;
(k) subsidence insurance (if deemed
necessary by Lessor) in limits
acceptable to Lessor; and
(l) such other insurance as Lessor
from time to time may reasonably require
and also, as may from time to time be
required by applicable Legal
Requirements and/or by any Fee
Mortgagee.
12.1.2 INSURANCE COMPANY
REQUIREMENTS. All such insurance required by
this Lease or the other Lease Documents shall
be issued and underwritten by insurance
companies licensed to do insurance business
by, and in good standing under the laws of,
the State and which companies have and
maintain a rating of A:X or better by A.M.
Best Co.
12.1.3 POLICY REQUIREMENTS. Every
policy of insurance from time to time
required under this Lease or any of the other
Lease Documents (other than worker's
compensation) shall name Lessor as owner,
loss payee, secured party (to the extent
applicable) and additional named insured as
its interests may appear. If an insurance
policy covers properties other than the
Leased Property, then Lessor shall be so
named with respect only to the Leased
Property. Each such policy, where applicable
or appropriate, shall:
(a) include an agreed amount
endorsement and loss payee, additional
named insured and secured party
endorsements, in forms acceptable to
Lessor in its reasonable discretion;
(b) include mortgagee, secured
party, loss payable and additional named
insured endorsements reasonably
78
acceptable to each Fee Mortgagee;
(c) provide that the coverages may
not be cancelled or materially modified
except upon thirty (30) days' prior
written notice to Lessor and any Fee
Mortgagee;
(d) be payable to Lessor and any
Fee Mortgagee notwithstanding any
defense or claim that the insurer may
have to the payment of the same against
any other Person holding any other
interest in the Leased Property;
(e) be endorsed with standard
noncontributory clauses in favor of and
in form reasonably acceptable to Lessor
and any Fee Mortgagee;
(f) expressly waive any right of
subrogation on the part of the insurer
against Lessor, any Fee Mortgagee or the
Leasing Group; and
(g) otherwise be in such forms as
shall be reasonably acceptable to
Lessor.
12.1.4 NOTICES: CERTIFICATES AND
POLICIES. Lessee shall promptly provide to
Lessor copies of any and all notices
(including notice of non-renewal), claims and
demands which Lessee receives from insurers
of the Leased Property. At least ten (10)
days prior to the expiration of any insurance
policy required hereunder, Lessee shall
deliver to Lessor certificates and evidence
of insurance relating to all renewals and
replacements thereof, together with evidence,
satisfactory to Lessor, of payment of the
premiums thereon. Lessee shall deliver to
Lessor original counterparts or copies
certified by the insurance company to be true
and complete copies, of all insurance
policies required hereunder not later than
ten (10) days after receipt thereof by
Lessee. Lessee shall use its best efforts to
obtain such counterparts or copies within
ninety (90) days after the effective date of
each such policy.
12.1.5 LESSOR'S RIGHT TO PLACE
INSURANCE. If Lessee shall fail to obtain any
insurance policy required hereunder by
Lessor, or shall fail to deliver the
certificate and evidence of insurance
relating to any such policy to Lessor, or if
any insurance policy required hereunder (or
any part thereof shall expire or be cancelled
or become void or voidable by reason of any
breach of any condition thereof, or if Lessor
reasonably determines that such insurance
coverage is unsatisfactory by reason of the
failure or impairment of the capital of any
insurance company which wrote
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any such policy, upon demand by Lessor,
Lessee shall promptly but in any event in not
more than ten ( 10) days thereafter obtain
new or additional insurance coverage on the
Leased Property, or for those risks required
to be insured by the provisions hereof,
satisfactory to Lessor, and, in the event
Lessee fails to perform its obligations under
this Section and at its option, Lessor may
obtain such insurance and pay the premium or
premiums therefor; in which event, any amount
so paid or advanced by Lessor and all costs
and expenses incurred in connection therewith
(including, without limitation, reasonable
attorneys' fees and expenses and court
costs), shall be a demand obligation of
Lessee to Lessor, payable as an Additional
Charge.
12.1.6 PAYMENT of Proceed s. All
insurance policies required hereunder (except
for general public liability, professional
liability and workers' compensation and
employers liability insurance) shall provide
that in the event of loss, injury or damage,
subject to the rights of any Fee Mortgagee,
all proceeds shall be paid to Lessor alone
(rather than jointly to Lessee and Lessor).
Lessor is hereby authorized to adjust and
compromise any such loss with the consent of
Lessee or, following any Lease Default,
whether or not cured, without the consent of
Lessee, and to collect and receive such
proceeds in the name of Lessor and Lessee,
and Lessee appoints Lessor (or any agent
designated by Lessor) as Lessee's attorney-in-
fact with full power of substitution, to
endorse Lessee's name upon any check in
payment thereof. Subject to the provisions of
Article 13, such insurance proceeds shall be
applied first toward reimbursement of all
costs and expenses reasonably incurred by
Lessor in collecting said insurance proceeds,
then toward payment of the Lease Obligations
or any portion thereof, which have not been
paid when due and payable or within any
applicable cure period, in such order as
Lessor determines, and then in whole or in
part toward restoration, repair or
reconstruction of the Leased Property for
which such insurance proceeds shall have been
paid.
12.1.7 IRREVOCABLE POWER OF ATTORNEY.
The power of attorney conferred on Lessor
pursuant to the provisions of Section 12.1,
being coupled with an interest, shall be
irrevocable for as long as this Lease is in
effect or any Lease Obligations are
outstanding, shall not be affected by any
disability or incapacity which Lessee may
suffer and shall survive the same. Such power
of attorney, is provided solely to protect
the interests of Lessor and shall not impose
any duty on Lessor to exercise any such
power, and neither Lessor nor such attorney-
in-fact shall be liable for any act,
omission, error in judgment or mistake of
law, except as the same may result from its
gross negligence or wilful misconduct.
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12.1.8 BLANKET POLICIES.
Notwithstanding anything to the contrary
contained herein, Lessee's obligations to
carry the insurance provided for herein may
be brought within the coverage of a so-called
blanket policy or policies of insurance
carried and maintained by Lessee and its
Affiliates; provided, however, that the
coverage afforded to Lessor shall not be
reduced or diminished or otherwise be
different from that which would exist under a
separate policy meeting all other
requirements of this Lease by reason of the
use of such blanket policy of insurance, and
provided, further that the requirements of
Section 12.1 are otherwise satisfied.
12.1.9 NO SEPARATE INSURANCE. Lessee
shall not, on Lessee's own initiative or
pursuant to the request or requirement of any
other Person, take out separate insurance
concurrent in form or contributing in the
event of loss with the insurance required
hereunder to be furnished by Lessee, or
increase the amounts of any then existing
insurance by securing an additional policy or
additional policies, unless (a) all parties
having an insurable interest in the subject
matter of the insurance, including Lessor,
are included therein as additional insureds
and (b) losses are payable under said
insurance in the same manner as losses are
required to be payable under this Lease.
Lessee shall immediately notify Lessor of the
taking out of any such separate insurance or
of the increasing of any of the amounts of
the then existing insurance by securing an
additional insurance policy or policies.
12.1.10 ASSIGNMENT OF UNEARNED
PREMIUMS. Lessee hereby assigns to Lessor all
rights of Lessee in and to any unearned
premiums on any insurance policy required
hereunder to be furnished by Lessee which may
become payable or are refundable after the
occurrence of an Event of Default hereunder,
which premium, upon receipt thereof, Lessor
shall at Lessor's option apply toward the
Lease Obligations or hold as security
therefor. In the event that this Lease is
terminated for any reason (other than the
purchase of the Leased Property by Lessee),
the insurance policies required to be
maintained hereunder, including all right,
title and interest of Lessee thereunder,
shall become the absolute property of Lessor
subject to any limitation on assignment
provided for therein.
12.2 INDEMNITY.
12.2.1 INDEMNIFICATION. Except with
respect to the gross negligence or wilful
misconduct of Lessor or any of the other
Indemnified Parties, as to which no indemnity
is provided, Lessee hereby agrees to defend
with counsel reasonably acceptable to
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Lessor, against all claims and causes of
action and to indemnify and hold harmless
Lessor and each of the other Indemnified
Parties from and against all damages, losses,
liabilities, obligations, penalties, costs
and expenses (including, without limitation,
reasonable attorneys' fees, court costs and
other expenses of litigation) suffered by, or
claimed or asserted against, Lessor or any of
the other Indemnified Parties, directly or
indirectly, by any Person other than a member
of the Leasing Group who prevails in such
claim or action based on, arising out of or
resulting from (a) the use and occupancy of
the Leased Property or any business conducted
therein, (b) any act, fault, omission to act
or misconduct by (i) any member of the
Leasing Group, (ii) any Affiliate of Lessee
or (iii) any employee, agent, licensee,
business invitee, guest, customer, contractor
or sublessee of any of the foregoing parties,
relating to, directly or indirectly, the
Leased Property, (c) any accident, injury or
damage whatsoever caused to any Person,
including, without limitation, any claim of
malpractice, or to the property of any Person
in or about the Leased Property or outside of
the Leased Property where such accident,
injury or damage results or is claimed to
have resulted from any act, fault, omission
to act or misconduct by any member of the
Leasing Group or any Affiliate of Lessee or
any employee, agent, licensee, contractor or
sublessee of any of the foregoing parties,
(d) any Lease Default, (e) any claim brought
or threatened against Lessor by any member of
the Leasing Group or by any other Person on
account of (i) Lessor's relationship with any
member of the Leasing Group pertaining in any
way to the Leased Property and/or the
transaction evidenced by the Lease Documents
and/or (ii) Lessor's negotiation of, entering
into and/or performing any of its obligations
and/or exercising any of its right and
remedies under any of the Lease Documents,
(f) any attempt by any member of the Leasing
Group or any Affiliate of Lessee to transfer
or relocate any of the Permits to any
location other than the Leased Property,
and/or (g) the enforcement of this indemnity.
Any amounts which become payable by Lessee
under this Section 12.2.1 shall be a demand
obligation of Lessee to Lessor, payable as an
Additional Charge. The indemnity provided for
in this Section 12.2.1 shall survive any
termination of this Lease.
12.2.2 INDEMNIFIED PARTIES. As used
in this Lease the term "Indemnified Parties"
shall mean the Meditrust Entities, any Fee
Mortgagee and their respective successors,
assigns, employees, servants, agents,
attorneys, officers, directors, shareholders,
partners and owners.
12.2.3 LIMITATION ON LESSOR LIABILITY.
Neither Lessor nor any Affiliate of Lessor
shall be liable to any member of the Leasing
Group or any Affiliate of any member of the
Leasing
82
Group, or to any other Person whatsoever for
any damage, injury, loss, compensation, or
claim (including, but not limited to, any
claim for the interruption of or loss to any
business conducted on the Leased Property)
based on, arising out of or resulting from
any cause whatsoever, including, but not
limited to, the following: (a) repairs to the
Leased Property, (b) interruption in use of
the Leased Property; (c) any accident or
damage resulting from the use or operation of
the Leased Property or any business conducted
thereon; (d) the termination of this Lease by
reason of Casualty or Condemnation, (e) any
fire, theft or other casualty or crime, (f)
the actions, omissions or misconduct of any
other Person, (g) damage to any property, or
(h) any damage from the flow or leaking of
water, rain or snow. All Tangible Personal
Property and the personal property of any
other Person on the Leased Property shall be
at the sole risk of Lessee and Lessor shall
not in any manner be held responsible
therefor (except in the event of loss caused
by the gross negligence or willful misconduct
of Lessor). Notwithstanding the foregoing,
Lessor shall not be released from liability
for any injury, loss, damage or liability
suffered by Lessee to the extent caused
directly by the gross negligence or willful
misconduct of Lessor, its servants, employees
or agents acting within the scope of their
authority on or about the Leased Property or
in regards to the Lease; provided, however,
that in no event shall Lessor, its servants,
employees or agents have any liability based
on any loss for any indirect or consequential
damages.
12.2.4 RISK OF LOSS. During the Term of
this Lease, the risk of loss or of decrease
in the enjoyment and beneficial use of the
Leased Property in consequence of any damage
or destruction thereof by fire, the elements,
casualties, thefts, riots, wars or otherwise,
or in consequence of foreclosures, levies or
executions of Liens (other than those created
by Lessor in accordance with the provisions
of Article 20) is assumed by Lessee and, in
the absence of the gross negligence or
willful misconduct as set forth in Section
12.2.3, Lessor shall in no event be
answerable or accountable therefor (except
for the obligation to account for insurance
proceeds and Awards to the extent provided
for in Articles 13 and 14) nor shall any of
the events mentioned in this Section entitle
Lessee to any abatement of Rent (except for
an abatement, if any, as specifically
provided for in Section 3.7).
ARTICLE 13
FIRE AND CASUALTY
13.1 RESTORATION FOLLOWING FIRE OR OTHER
CASUALTY.
13.1.1 FOLLOWING FIRE OR CASUALTY. In
the event
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of any damage or destruction to the Leased
Property by reason of fire or other hazard or
casualty (a "Casualty"), Lessee shall give
immediate written notice thereof to Lessor
and, subject to the terms of this Article 13
and any applicable Legal Requirements, Lessee
shall proceed with reasonable diligence, in
full compliance with all applicable Legal
Requirements, to perform such repairs,
replacement and reconstruction work (referred
to herein as the
"Work") to restore the Leased Property to the
condition it was in immediately prior to such
damage or destruction and to a condition
adequate to operate the Facility for the
Primary Intended Use and, if applicable, the
Other Permitted Uses and in compliance with
applicable Legal Requirements. All Work shall
be performed and completed in accordance with
all applicable Legal Requirements and the
other requirements of this Lease within one
hundred and twenty ( 120) days following the
occurrence of the damage or destruction plus
a reasonable time to compensate for
Unavoidable Delays (including for the
purposes of this Section, delays in obtaining
Permits and in adjusting insurance losses),
but in no event beyond two-hundred and
seventy (270) days following the occurrence
of the Casualty.
13.1.2 PROCEDURES. In the event that any
Casualty results in non-structural damage to
the Leased Property in excess of FIFTY
THOUSAND DOLLARS ($50,000) or in any
structural damage to the Leased Property,
regardless of the extent of such structural
damage, prior to commencing the Work, Lessee
shall comply with the following requirements:
(a) Lessee shall furnish to Lessor
complete plans and specifications for
the Work (collectively and as the same
may be modified and amended from time to
time pursuant to the terms hereof, the
"Plans and Specifications"), for
Lessor's approval, in each instance,
which approval shall not be unreasonably
withheld. The Plans and Specifications
shall bear the signed approval thereof
by an architect, licensed to do business
in the State, reasonably satisfactory to
Lessor (in the event Lessor reasonably
determines that the Work is of a nature
for which the involvement of an
architect is appropriate) and shall be
accompanied by a written estimate from
the architect, bearing the architect's
seal, of the entire cost of completing
the Work, and to the extent feasible,
the Plans and Specifications shall
provide for Work of such nature, quality
and extent, that, upon the completion
thereof, the Leased Property shall be at
least equal in value and general utility
to its value and general utility prior
to the Casualty and shall be adequate to
operate the Leased Property for the
84
Primary Intended Use and, if applicable,
the Other Permitted Uses;
(b) Lessee shall furnish to Lessor
certified or photostatic copies of all
Permits and Contracts required by all
applicable Legal Requirements in
connection with the commencement and
conduct of the Work to the extent the
same can be secured in the ordinary
course prior to the commencement of
construction;
(c) Lessee shall furnish to Lessor
a cash deposit or a payment and
performance bond sufficient to pay for
completion of and payment for the Work
in an amount not less than the
architect's estimate of the entire cost
of completing the Work, less the amount
of property insurance proceeds (net of
costs and expenses incurred by Lessor in
collecting the same), if any, then held
by Lessor and which Lessor shall be
required to apply toward restoration of
the Leased Property as provided in
Section 13.2;
(d) Lessee shall furnish to Lessor
such insurance with respect to the Work
(in addition to the insurance required
under Section 12.1 hereof in such
amounts and in such forms as is
reasonably required by Lessee; and
(e) Lessee shall not commence any
of the Work until Lessee shall have
complied with the requirements set forth
in clauses (a) through (d) immediately
above, as applicable, and, thereafter,
Lessee shall perform the Work
diligently, in a good and workmanlike
fashion and in good faith in accordance
with (i) the Plans and Specifications
referred to in clause (a) immediately
above, (ii) the Permits and Contracts
referred to in clause (b) immediately
above and (iii) all applicable Legal
Requirements and other requirements of
this Lease; provided, however, that in
the event of a bona fide emergency
during which Lessee is unable to contact
the appropriate representatives of
Lessor, Lessee may commence such Work as
may be necessary in order to address
such emergency without Lessor's prior
approval, as long as Lessee immediately
thereafter advises Lessor of such
emergency and the nature and scope of
the Work performed and obtains Lessor's
approval of the remaining Work to be
completed.
13.1.3. DISBURSEMENT OF INSURANCE
PROCEEDS. If, as provided in Section 13.2,
Lessor is required to apply any property
insurance proceeds toward repair or
restoration of the
85
Leased Property, then as long as the Work is
being diligently performed by Lessee in
accordance with the terms and conditions of
this Lease, Lessor shall disburse such
insurance proceeds from time to time during
the course of the Work in accordance with and
subject to satisfaction of the following
provisions and conditions. Lessor shall not
be required to make disbursements more often
than at thirty (30) day intervals. Lessee
shall submit a written request for each
disbursement at least ten (10) Business Days
in advance and shall comply with the
following requirements in connection with
each disbursement:
(a) Prior to the commencement of
any Work, Lessee shall have received
Lessor's written approval of the Plans
and Specifications (which approval shall
not be unreasonably withheld) and the
Work shall be supervised by an
experienced construction manager with
the consultation of an architect or
engineer qualified and licensed to do
business in the State (in the event
Lessor reasonably determines that the
Work is of a nature for which the
involvement of such architect or
engineer is appropriate). Lessee shall
not make any changes in, and shall not
permit any changes in, the quality of
the materials to be used in the Work,
the Plans and Specifications or the
Work, whether by change order or
otherwise, without the prior written
consent of Lessor, in each instance
(which consent may be withheld in
Lessor's sole and absolute discretion);
provided, however, that such consent
shall not be required for any individual
change which has been approved by the
architect, which does not materially
affect the structure or exterior of the
Facility, and the cost of which does not
exceed TEN THOUSAND DOLLARS ($10,000) or
which changes, in the aggregate, do not
exceed ONE HUNDRED THOUSAND DOLLARS
($100,000) in cost. Notwithstanding the
foregoing, prior to making any change in
Plans and Specifications, copies of all
change orders shall be submitted by
Lessee to Lessor and Lessee shall also
deliver to Lessor evidence satisfactory
to Lessor, in its reasonable discretion,
that all necessary Permits and/or
Contracts required by any Governmental
Authority in connection therewith have
been obtained or entered into, as the
case may be.
(b) Each request for payment shall
be accompanied by (x) a certificate of
the architect or engineer, bearing the
architect's or engineer's seal, and (y)
a certificate of the general contractor,
qualified and licensed to do business in
the State, that is performing the Work
(collectively, the "Work Certificates"),
each dated not more than ten ( 10)
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days prior to the application for
withdrawal of funds, and each stating:
(i) that all of the Work
performed as of the date of the
certificates has been completed in
compliance with the approved Plans
and Specifications, applicable
Contracts and all applicable Legal
Requirements;
(ii) that the sum then
requested to be withdrawn has been
paid by Lessee or is justly due to
contractors, subcontractors,
materialmen, engineers, architects
or other Persons, whose names and
addresses shall be stated therein,
who have rendered or furnished
certain services or materials for
the Work, and the certificate shall
also include a brief description of
such services and materials and the
principal subdivisions or
categories thereof and the
respective amounts so paid or due
to each of said Persons in respect
thereof and stating the progress of
the Work up to the date of said
certificate;
(iii) that the sum then
requested to be withdrawn, plus all
sums previously withdrawn, does not
exceed the cost of the Work insofar
as actually accomplished up to the
date of such certificate;
(iv) that the remainder of the
funds held by Lessor will be
sufficient to pay for the full
completion of the Work in
accordance with the Plans and
Specifications;
(v) that no part of the cost
of the services and materials
described in the applicable Work
Certificate has been or is being
made the basis of the withdrawal of
any funds in any previous or then
pending application; and
(vi) that, except for the
amounts, if any, specified in the
applicable Work Certificate to be
due for services and materials,
there is no outstanding
indebtedness known, after due
inquiry, which is then due and
payable for work, labor, services
or materials in connection with the
Work which, if unpaid, might become
the basis of a vendor's,
mechanic's, laborer's or
materialman's
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statutory or other similar Lien
upon the Leased Property.
(c) Lessee shall deliver to Lessor
satisfactory evidence that the Leased
Property and all materials and all
property described in the Work
Certificates are free and clear of
Liens, except (i) Liens, if any,
securing indebtedness due to Persons
(whose names and addresses and the
several amounts due them shall be stated
therein) specified in an applicable Work
Certificate, which Liens shall be
discharged upon disbursement of the
funds then being requested or duly
contested in accordance with the terms
of this Lease Agreement, (ii) any Fee
Mortgage and (iii) the Permitted
Encumbrances. Lessor shall accept as
satisfactory evidence of the foregoing
lien waivers in customary form from the
general contractor and all
subcontractors performing the Work,
together with an endorsement of its
title insurance policy (relating to the
Leased Property) in form acceptable to
Lessor, dated as of the date of the
making of the then current disbursement,
confirming the foregoing.
(d) If the Work involves alteration
or restoration of the exterior of any
Leased Improvement that changes the
footprint of any Leased Improvement,
Lessee shall deliver to Lessor, upon the
request of Lessor, an "as-built" survey
of the Leased Property dated as of a
date within ten ( 10) days prior to the
making of the first and final advances
(or revised to a date within ten (10)
days prior to each such advance) showing
no encroachments other than such
encroachments, if any, by the Leased
Improvements upon or over the Permitted
Encumbrances as are in existence as of
the date hereof.
(e) Lessee shall deliver to Lessor
(i) an opinion of counsel (satisfactory
to Lessor both as to counsel and as to
the form of opinion) prior to the first
advance opining that all necessary
Permits for the repair, replacement
and/oz
restoration of the Leased Property which
can be obtained in the ordinary course
as of said date have been obtained and
that the Leased Property, if repaired,
replaced or rebuilt in accordance, in
all material respects, with the approved
Plans and Specifications and such
Permits, shall comply with all
applicable Legal Requirements subject to
such limitations as may be imposed on
such opinion under local law and (ii) if
applicable, an architect's certificate
(satisfactory to Lessor both as to the
architect and as to the form of the
certificate) prior to the final advance,
certifying
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that the Leased Property was repaired,
replaced or rebuilt in accordance, in
all material respects, with the approved
Plans and Specifications and complies
with all applicable Legal Requirements,
including, without limitation, all
Permits referenced in the foregoing
clause (i).
(f)There shall be no Lease Default
or any state of facts or circumstance
existing which, with the giving of
notice and/or the passage of time, would
constitute any Lease Default.
Lessor, at its option, may waive any of the
foregoing requirements in whole or in part in any
instance. Upon compliance by Lessee with the
foregoing requirements (except for such
requirements, if any, as Lessor may have expressly
elected to waive), and to the extent of (x) the
insurance proceeds, if any, which Lessor may be
required to apply to restoration of the Leased
Property pursuant to the provisions of this Lease
and (y) all other cash deposits made by Lessee,
Lessor shall make available for payment to the
Persons named in the Work Certificate the
respective amounts stated in said certificate(s)
to be due, subject to a retention often percent
(10%) as to all hard costs of the Work (the
"Retainage"). It is understood that the Retainage
is intended to provide a contingency fund to
assure Lessor that the Work shall be fully
completed in accordance with the Plans and
Specifications and the requirements of Lessor.
Upon the full and final completion of all of the
Work in accordance with the provisions hereof, the
Retainage shall be made available for payment to
those Persons entitled thereto.
Upon completion of the Work, and as a condition
precedent to making any further advance, in
addition to the requirements set forth above,
Lessee shall promptly deliver to Lessor:
(i) if applicable, written
certificates of the architect or
engineer, bearing the architect's or
engineer's seal, and the general
contractor, certifying that the Work has
been fully completed in a good and
workmanlike manner in material
compliance with the Plans and
Specifications and all applicable Legal
Requirements;
(ii) an endorsement of its title
insurance policy (relating to the Leased
Property) in form reasonably acceptable
to Lessor insuring the Leased Property
against all mechanic's and materialman's
liens accompanied by the final lien
waivers from the general contractor and
all subcontractors;
89
(iii) a certificate by Lessee
in form and substance reasonably
satisfactory to Lessor, listing all
costs and expenses in connection with
the completion of the Work and the
amount paid by Lessee with respect to
the Work; and
(iv) a temporary certificate of
occupancy (if obtainable) and all other
applicable Permits and Contracts issued
by or entered into with any Governmental
Authority with respect to the Primary
Intended Use not already delivered to
Lessor and, to the extent applicable,
the Other Permitted Uses and by the
appropriate Board of Fire Underwriters
or other similar bodies acting in and
for the locality in which the Leased
Property is situated with respect to the
Facility; provided, at within thirty
(30) days after completion of the Work,
Lessee shall obtain and deliver to
Lessor a permanent certificate of
occupancy for the Leased Property,
subject to seasonal delays.
Upon completion of the Work and delivery
of the documents required pursuant to the
provisions of this Section 13.1, Lessor shall
pay the Retainage to Lessee or to those
Persons entitled thereto and if there shall
be insurance proceeds or cash deposits, other
than the Retainage, held by Lessor in excess
of the amounts disbursed pursuant to the
foregoing provisions, then provided that no
Lease Default has occurred and is continuing,
nor any state of facts or circumstances
which, with the giving of notice and/or the
passage of time would constitute a Lease
Default, Lessor shall pay over such proceeds
or cash deposits to Lessee.
No inspections or any approvals of the
Work during or after construction shall
constitute a warranty or representation by
Lessor, or any of its agents or Consultants,
as to the technical sufficiency, adequacy or
safety of any structure or any of its
component parts, including, without
limitation, any fixtures, equipment or
furnishings, or as to the subsoil conditions
or any other physical condition or feature
pertaining to the Leased Property. All acts,
including any failure to act, relating to
Lessor are performed solely for the benefit
of Lessor to assure the payment and
performance of the Lease Obligations and are
not for the benefit of Lessee or the benefit
of any other Person.
13.2 DISPOSITION OF INSURANCE PROCEEDS.
13.2.1 PROCEEDS TO BE RELEASED TO PAY
FOR WORK. In the event of any Casualty,
except as provided for in Section 13.2.2,
Lessor shall release proceeds of property
insurance
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held by it to pay for the Work in accordance
with the provisions and procedures set forth
in this Article 13, only if:
(a) all of the terms, conditions
and provisions of Sections 13.1 and
13.2.1 are satisfied;
(b) Lessee demonstrates to Lessor's
satisfaction that Lessee has the
financial ability to satisfy the Lease
Obligations during such repair or
restoration; and
(c) no Sublease material to the
operation of the Facility immediately
prior to such damage or taking shall
have been cancelled or terminated, nor
contain any still exercisable right to
cancel or terminate, due to such
Casualty if and to the extent that the
income from such Sublease is necessary
in order to avoid the violation of any
of the financial covenants set forth in
this Lease or otherwise to avoid the
creation of an Event of Default.
If a Fee Mortgagee prevents Lessor from releasing
proceeds of property insurance notwithstanding the
satisfaction of the foregoing requirements, Lessee
shall have no obligation to restore the Casualty
to which such proceeds pertain.
13.2.2 PROCEEDS NOT TO BE RELEASED. If, as
the result of any Casualty, the Leased Property is
damaged to the extent it is rendered Unsuitable
For Its Primary Intended Use and if either: (a)
Lessee, after exercise of diligent efforts, cannot
within a reasonable time (not in excess of ninety
(90) days) obtain all necessary Permits in order
to be able to perform all required Work and to
again operate the Facility for its Primary
Intended Use and, if applicable, the Other
Permitted Uses within two hundred and seventy
(270) days from the occurrence of the damage or
destruction in substantially the manner as
immediately prior to such damage or destruction or
(b) such Casualty occurs during the last twenty-
four (24) months of the Term and would reasonably
require more than nine (9) months to obtain all
Permits and complete the Work, then Lessee may
either (i) acquire the Leased Property from Lessor
for a purchase price equal to the greater of (x)
the Meditrust Investment or (y) the Fair Market
Value of the Leased Property minus the Fair Market
Added Value, with the Fair Market Value and the
Fair Market Added Value to be determined as of the
day immediately prior to such Casualty and prior
to any other Casualty which has not been fully
repaired, restored or replaced, in which event,
Lessee shall be entitled upon payment of the full
purchase price to receive all property insurance
proceeds (less any costs and expenses incurred by
Lessor in collecting the same), or (ii) terminate
this Lease, in which event (subject to the
provisions of the last sentence of this Section
13.2.2) Lessor shall be entitled to receive and
retain the insurance
91
proceeds; provided, however, that Lessee shall
only have such right of termination effective upon
payment to Lessor of all Rent and other sums due
under this Lease and the other Lease Documents
through the date of termination plus an amount,
which when added to the sum of (1) the Fair Market
Value of the Leased Property as affected by all
unrepaired or
unrestored damage due to any Casualty (and giving
due regard for delays, costs and expenses incident
to completing all repair or restoration required
to fully repair or restore the same) plus (2) the
amount of insurance proceeds actually received by
Lessor (net of costs and expenses incurred by
Lessor in collecting the same) equals (3) the
greater of the Meditrust Investment or the Fair
Market Value of the Leased Property minus the Fair
Market Added Value, with the Fair Market Value and
the Fair Market Added Value to be determined as of
the day immediately prior to such Casualty and
prior to any other Casualty which has not been
fully repaired. Any acquisition of the Leased
Property pursuant to the terms of this Section
13.2.2 shall be consummated in accordance with the
provisions of Article 18, mutatis, mutandis. If
such termination becomes effective, Lessor shall
assign to Lessee any outstanding insurance claims
and, at Lessee's expense, shall cooperate in
Lessee's efforts to secure the same. In the event
this Lease is terminated pursuant to the
provisions of this Section 13.2.2 and the
insurance proceeds received by Lessor in
connection therewith (net of costs and expenses
incurred in obtaining such proceeds) exceeds one
hundred fifteen percent (115%) of the Fair Market
Value of the Leased Premises at the time of such
termination, Lessor shall pay to Lessee fifty
percent (50%) of the amount of such excess.
13.3 TANGIBLE PERSONAL PROPERTY. All
insurance proceeds payable by reason of any loss
of or damage to any of the Tangible Personal
Property shall be paid to Lessor as secured party,
subject to the rights of the holders of any
Permitted Prior Security Interests, and,
thereafter, provided that no Lease Default, nor
any fact or circumstance which with the giving of
notice and/or the passage of time could constitute
a Lease Default, has occurred and is continuing,
Lessor shall pay such insurance proceeds to Lessee
to reimburse Lessee for the cost of repairing or
replacing the damaged Tangible Personal Property,
subject to the terms and conditions set forth in
the other provisions of this Article 13, mutatis
mutandis.
13.4 RESTORATION OF CERTAIN IMPROVEMENTS AND
THE TANGIBLE PERSONAL PROPERTY . If Lessee is
required or elects to restore the Facility, Lessee
shall either (a) restore (i) all alterations and
improvements to the Leased Property made by Lessee
and (ii) the Tangible Personal property or (b)
replace such alterations and improvements and the
Tangible Personal Property with improvements or
items of the same or better quality and utility in
the operation of the Leased Property provided,
however, that Lessee shall be obligated to so
restore or replace the Tangible Personal Property
only to the extent desirable for the prudent
operation of the Facility in the good faith
exercise of commercially reasonable business
judgment.
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13.5 NO ABATEMENT OF RENT. In no event shall
any Rent abate as a result of any Casualty except
as expressly provided in Section 3.7.
13.6 TERMINATION OF CERTAIN RIGHTS. Any
termination of this Lease pursuant to this Article
I 3 shall cause any right of Lessee to extend the
Term of this Lease granted to Lessee herein and
any right of Lessee to purchase the Leased
Property contained in this Lease to be terminated
and to be without further force or effect.
13.7 WAIVER. Lessee hereby waives any
statutory rights of termination which may arise by
reason of any damage or destruction to the Leased
Property due to any Casualty which Lessee is
obligated to restore or may restore under any of
the provisions of this Lease.
13.8 APPLICATION OF RENT LOSS AND/OR BUSINESS
INTERRUPTION INSURANCE. Lessor shall direct all
proceeds of rent loss and/or business interruption
insurance (collectively, "Rent Insurance
Proceeds") to be paid to Lessee, provided no fact
or circumstance exists which constitutes, or with
notice, or passage of time, or both, would
constitute, a Lease Default pertaining to the
Facility or the Leased Property. If a Lease
Default or such fact or circumstance exists,
Lessor may rescind such direction and apply all
such insurance proceeds towards the Lease
Obligations pertaining to the Facility or the
Leased Property or hold such proceeds as security
therefor.
13.9 OBLIGATION TO ACCOUNT. Upon Lessee's
written request, which may not be made not more
than once in any three (3) month period, Lessor
shall provide Lessee with a written accounting of
the application of all insurance proceeds received
by Lessor.
ARTICLE 14
CONDEMNATION
14.1 PARTIES' RIGHTS AND OBLIGATIONS. If
during the Term there is any Taking of all or any
part of the Leased Property or any interest in
this Lease, the rights and obligations of the
parties shall be determined by this Article 14.
14.2 TOTAL TAKING. If there is a permanent
Taking of all or substantially all of the Leased
Property, this Lease shall terminate on the Date
of Taking. In the event this Lease is terminated
pursuant to the provisions of this Section 14.2
and the Award received by Lessor in connection
therewith (net of costs and expenses incurred in
obtaining such Award) exceeds one hundred fifteen
percent ( 115%) of the Fair Market Value of the
Leased Premises at the time of such termination,
Lessor shall pay to Lessee fifty percent (50%) of
the amount of such excess.
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14.3 PARTIAL OR TEMPORARY TAKING. If there is
a Permanent Taking of a portion of the Leased
Property, or if there is a temporary Taking of all
or a portion of the Leased Property, this Lease
shall remain in effect so long as the Leased
Property is not thereby rendered permanently
Unsuitable For Its Primary Intended Use or
temporarily Unsuitable For Its Primary Intended
Use for a period not likely to, or which does not,
exceed two hundred and seventy (270) days. If,
however, the Leased Property is thereby so
rendered permanently or temporarily Unsuitable For
Its Primary Intended Use: (a) if only rendered
temporarily Unsuitable For Its Primary Intended
Use, Lessee shall have the right to restore the
Leased Property, at its own expense (subject to
the
right under certain circumstances as provided for
in Section 14.5 to receive the net proceeds of an
Award for reimbursement), to the extent possible,
to substantially the same condition as existed
immediately before the partial or temporary Taking
or (b) Lessee shall have the right to acquire the
Leased Property from Lessor (i) upon payment of
all Rent due through the date that the purchase
price is paid, for a purchase price equal to the
greater of (x) the Meditrust Investment or (y) the
Fair Market Value of the Leased Property minus the
Fair Market Added Value, with the Fair Market
Value of the Leased Property and the Fair Market
Added Value to be determined as of the day
immediately prior to such partial or temporary
Taking and (ii) in accordance with the terms and
conditions set forth in Article 18; in which
event, this Lease shall terminate upon payment of
such purchase price and the consummation of such
acquisition. Notwithstanding the foregoing, Lessor
may overrule Lessee's election under clause (a) or
(b) and instead either (1) terminate this Lease
(with no obligation on the part of Lessee to
acquire the Leased Property as a result thereof as
of the date when Lessee is required to surrender
possession of the portion of the Leased Property
so taken if (X) such portion comprises more than
thirty percent (30%) of the Leased Property or of
the residential building(s) located thereon or (In
possession thereof is to be surrendered within two
years of the expiration of the Term or (2) compel
Lessee to keep the Lease in full force and effect
and to restore the Leased Property as provided in
clause (a) above, but only if the Leased Property
may be operated for at least eighty percent (80%)
of the licensed unit capacity of the Facility in
effect prior to the Taking. Lessee shall exercise
its election under this Section 14.3 by giving
Lessor notice thereof("Lessee's Election Notice")
within sixty (60) days after Lessee receives
notice of the Taking. Lessor shall exercise its
option to overrule Lessee's election under this
Section 14.3 by giving Lessee notice of Lessor's
exercise of its rights under Section 14.3 within
thirty (30) days after Lessor receives Lessee's
Election Notice. If, as the result of any such
partial or temporary Taking, this Lease is not
terminated as provided above, Lessee shall be
entitled to an abatement of Rent, but only to the
extent, if any, provided for in Section 3.7,
effective as of the date upon which the Leased
Property is rendered Unsuitable For Its Primary
Intended Use.
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14.4 RESTORATION. If there is a partial or
temporary Taking of the Leased Property and this
Lease remains in full force and effect pursuant to
Section 14.3, Lessee shall accomplish all
necessary restoration and Lessor shall release the
net proceeds of such Award to reimburse Lessee for
the actual reasonable costs and expenses thereof,
subject to all of the conditions and provisions
set forth in Article 13 as though the Taking was a
Casualty and the Award was insurance proceeds. If
the cost of the restoration exceeds the amount of
the Award (net of costs and expenses incurred in
obtaining the Award), Lessee shall be obligated to
contribute any excess amount needed to restore the
Facility or pay for such costs and expenses. To
the extent that the cost of restoration is less
than the amount of the Award (net of cost and
expenses incurred in obtaining the Award), the
remainder of the Award shall be retained by Lessor
and Rent shall be abated as set forth in Section
3.7.
14.5 AWARD DISTRIBUTION. In the event Lessee
completes the purchase of the Leased Property, as
described in Section 14.3, the entire Award shall,
upon payment of the purchase price and all Rent
and other sums due under this Lease and the other
Lease Documents, belong to Lessee and Lessor
agrees to assign to Lessee all of Lessor's rights
thereto or, to the extent Lessor has received
payment of the Award, the amount of such payment
shall be credited against the purchase price. In
any other event, the entire Award (except for such
portion thereof which the Condemner designates as
allocable to Lessee's loss of business or Tangible
Personal Property) shall belong to and be paid to
Lessor.
14.6 CONTROL OF PROCEEDINGS. Subject to the
rights of any Fee Mortgagee, unless and until
Lessee completes the purchase of the Leased
Property as provided in Section 14.3, all
proceedings involving any Taking and the
prosecution of claims arising out of any Taking
against the Condemnor shall be conducted,
prosecuted and settled by Lessor; provided,
however, that Lessor shall keep Lessee apprised of
the progress of all such proceedings and shall
solicit Lessee's advice with respect thereto and
shall give due consideration to any such advice.
In addition, Lessee shall reimburse Lessor (as an
Additional Charge) for all costs and expenses,
including reasonable attorneys' fees, appraisal
fees, fees of expert witnesses and costs of
litigation or dispute resolution, in relation to
any Taking, whether or not this Lease is
terminated; provided, however, if this Lease is
terminated as a result of a Taking, Lessee's
obligation to so reimburse Lessor shall be
diminished by the amount of the Award, if any,
received by Lessor which is in excess of the
Meditrust Investment.
ARTICLE 15
PERMITTED CONTESTS
15.1 LESSEE'S RIGHT TO CONTEST. To the extent
of the express references made to this Article 15
in other Sections of this Lease, Lessee, any
Sublessee or any Manager on their own or on
Lessor's behalf
95
(or in Lessor's name), but at their sole cost and
expense, may contest, by appropriate legal
proceedings conducted in good faith and with due
diligence (until the resolution thereof, the
amount, validity or application, in whole or in
part, of any Imposition, Legal Requirement, the
decision of any Governmental Authority related to
the operation of the Leased Property for its
Primary Intended Use and/or, if applicable, any of
the Other Permitted Uses or any Lien or claim
relating to the Leased Property not otherwise
permitted by this Agreement; provided, that (a)
prior written notice of such contest is given to
Lessor, (b) in the case of an unpaid Imposition,
Lien or claim, the commencement and continuation
of such proceedings shall suspend the collection
thereof from Lessor and/or compliance by any
applicable member of the Leasing Group with the
contested Legal Requirement or other matter may be
legally delayed pending the prosecution of any
such proceeding without the occurrence or creation
of any Lien, charge or liability of any kind
against the Leased Property, (c) neither the
Leased Property nor any rent therefrom would be in
any immediate danger of being sold, forfeited,
attached or lost as a result of such proceeding,
(d) in the case of a Legal Requirement, neither
Lessor nor any member of the Leasing Group would
be in any immediate danger of civil or criminal
liability for failure to comply therewith pending
the outcome of such proceedings, (e) in the event
that any such contest shall involve a sum of money
or potential loss in excess of TWENTY FIVE
THOUSAND DOLLARS (525,000), Lessee shall deliver
to Lessor an Officer's Certificate and option of
counsel, if Lessor deems the delivery of an
opinion to be appropriate, certifying or opining,
as the case may be, as to the validity of the
statements set forth to the effect set forth in
clauses (b), (c) and (d), to the extent
applicable, (f) Lessee shall give such cash
security as may be demanded in good faith by
Lessor to insure ultimate payment of any fine,
penalty, interest or cost and to prevent any sale
or forfeiture of the affected portion of the
Leased Property by reason of such non-payment or
non-compliance, (g) if such contest is finally
resolved against Lessor or any member of the
Leasing Group, Lessee shall promptly pay, as
Additional Charges due hereunder, the amount
required to be paid, together with all interest
and penalties accrued thereon and/or comply (and
cause any Sublessee and any Manager to comply)
with the applicable Legal Requirement, and (h) no
state of facts or circumstance exists which
constitutes, or with the passage of time and/or
the giving of notice, could constitute a Lease
Default; provided, however, but without limiting
any other right Lessee may have under the Lease
Documents to contest the payment of Rent, the
provisions of this Article 15 shall not be
construed to permit Lessee to contest the payment
of Rent or any other sums payable by Lessee to
Lessor under any of the Lease Documents. If such
contest is finally resolved in favor of Lessee,
Lessee shall be entitled to any refund resulting
therefrom.
15.2 LESSOR'S COOPERATION. Lessor, at
Lessee's sole cost and expense, shall execute and
deliver to Lessee such authorizations and
96
other documents as may reasonably be required in
any such contest, so long as the same does not
expose Lessor to any civil or criminal liability,
and, if reasonably requested by Lessee or if
Lessor so desires, Lessor shall join as a party
therein.
15.3 LESSEE'S INDEMNITY. Lessee, as more
particularly provided for in Section 12.2, shall
indemnify, defend (with counsel acceptable to
Lessor) and save Lessor harmless against any
liability, cost or expense of any kind, including,
without limitation, attorneys' fees and expenses
that may be imposed upon Lessor in connection with
any such contest and any loss resulting therefrom
and in the enforcement of this indemnification.
ARTICLE 16
DEFAULT
16.1 Events of Default. Each of the following
shall constitute an "Event of Default" hereunder
and shall entitle Lessor to exercise its remedies
hereunder and under any of the other Lease
Documents:
(a) any failure of Lessee to pay any
amount due hereunder or under any of the
other Lease Documents within ten (10) days
following the date when such payment was due;
(b) any failure in the observance or
performance of any other covenant,
term, condition or warranty provided in
this Lease or any of the other Lease
Documents, other than the payment of any
monetary obligation and other than as
specified in subsections (c) through (v)
below (a "Failure to Perform"), continuing
for thirty (30) days after the giving of
notice by Lessor to Lessee specifying the
nature of the Failure to Perform; except as
to matters not susceptible to cure within
thirty (30) days, provided that with respect
to such matters, (i) Lessee commences the
cure thereof within thirty (30) days after
the giving of such notice by Lessor to
Lessee, (ii) Lessee continuously prosecutes
such cure to completion, (iii) such cure is
completed within one hundred twenty ( 120)
days after the giving of such notice by
Lessor to Lessee and (iv) such Failure to
Perform does not impair the value of, or
Lessor's rights with respect to, the Leased
Property or otherwise impair the Collateral
or Lessor's security interest therein;
(c) the occurrence of any default or
breach of condition continuing beyond the
expiration of the applicable notice and grace
periods, if any, under any of the other Lease
Documents, including, without limitation, the
Agreement Regarding Related Transactions;
97
(d) if any representation, warranty or
statement contained herein or in any of the
other Lease Documents proves to be untrue in
any material respect as of the date when made
or at any time during the Term if such
representation or warranty is a continuing
representation or warranty pursuant to
Section 10.2;
(e) if any member of the Leasing Group
shall (i) voluntarily be adjudicated a
bankrupt or insolvent, (ii) seek or consent
to the appointment of a receiver or trustee
for itself or for the Leased Property, (iii)
file a petition seeking relief under the
bankruptcy or other similar laws of the
United States, any state or any jurisdiction,
(iv) make a general assignment for the
benefit of creditors, (v) make or offer a
composition of its debts with its creditors
or (vi) be unable to pay its debts as such
debts mature;
(f) if any court shall enter an
order, judgment or decree appointing, without
the consent of any member of the Leasing
Group, a receiver or trustee for such member
or for any of its property and such order,
judgment or decree shall remain in force,
undischarged or unstayed, ninety (90) days
after it is entered;
(g) if a petition is f led against any
member of the Leasing Group which seeks
relief under the bankruptcy or other similar
laws of the United States, any state or any
other jurisdiction, and such petition is not
dismissed within ninety (90) days after it is
filed;
(h) in the event that:
i. all or any portion of the
interest of any partner, shareholder,
member in any member of the Leasing
Group (other than Guarantor) shall be,
on any one or more occasions, directly
or indirectly, sold, assigned,
hypothecated or otherwise transferred
(whether by operation of law or
otherwise), if such member of the
Leasing Group shall be a partnership,
joint venture, syndicate or other group,
without the prior written consent of
Lessor, in each instance, which consent
may be withheld by Lessor in its
reasonable discretion with respect to a
sale, assignment, hypothecation or other
transfer to a Meditrust/Emeritus
Transaction Affiliate and in all other
cases, in its sole and absolute
discretion;
ii. the shares of the issued and
outstanding capital stock of any member
of the Leasing Group (other than
Guarantor) shall be, on any one or more
occasions, directly or indirectly, sold,
assigned, hypothecated or otherwise
transferred (whether by operation of law
or
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otherwise), if such member of the
Leasing Group shall be a corporation,
without the prior written consent of
Lessor, in each instance, which consent
may be withheld by Lessor in its
reasonable discretion with respect to a
sale, assignment, hypothecation or other
transfer to a Meditrust/Emeritus
Transaction Affiliate and in all other
cases, in its sole and absolute
discretion; or
iii. all or any portion of the
beneficial interest in any member of the
Leasing Group (other than Guarantor)
shall be, directly or indirectly, sold
or otherwise transferred (whether by
operation of law or otherwise), if such
member of the Leasing Group shall be a
trust, without the prior written consent
of Lessor, in each instance, which
consent may be withheld by Lessor in its
reasonable discretion with respect to a
sale, assignment, hypothecation or other
transfer to a Meditrust/Emeritus
Transaction Affiliate and in all other
cases, in its sole and absolute
discretion;
Notwithstanding the foregoing, no consent of
Lessor to a pledge by Lessee of its stock to the
lender of a Working Capital Loan satisfying the
requirements of Section 6.1.3 shall be required (a
"Working Capital Stock Pledge").
(i) the death, incapacity, liquidation,
dissolution or termination of existence of
any member of the Leasing Group or the merger
or consolidation of any member of the Leasing
Group with any other Person except as
expressly permitted by the terms of this
Lease Agreement;
(j) except as provided in Section 19.1
hereof, if, without the prior written consent
of Lessor, in each instance, which consent
may be withheld by Lessor in its sole and
absolute discretion, Lessee's interest, or
any interest of a Sublessee which is an
Affiliate of Lessee, in the Leased Property
shall be, directly or indirectly, mortgaged,
encumbered (by any voluntary or involuntary
Lien other than the Permitted Encumbrances),
subleased, sold, assigned, hypothecated ox
otherwise transferred (whether by operation
of law or otherwise);
(k) the occurrence of a default or
breach of condition continuing beyond the
expiration of the applicable notice and grace
periods, if any, in connection with the
payment or performance of any other material
obligation of Lessee or any Sublessee which
is an Affiliate of Lessee, if the applicable
creditor or obligee elects to declare the
obligations of Lessee or the applicable
Sublessee under the applicable agreement due
and payable or to exercise any other right or
remedy available to such creditor or obligee,
or, whether or
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not such creditor or obligee has so elected
or exercised, such creditor's or obligee's
rights and remedies, if exercised, may
involve or result in the taking of possession
of, or the creation of a Lien on, the Leased
Property; provided, however, that in any
event, the election by the applicable
creditor or obligee to declare the
obligations of Lessee under the applicable
agreement due and payable or to exercise any
other right or remedy available to such
creditor or obligee shall be an Event of
Default hereunder only if such obligations,
individually or in the aggregate, are in
excess of TWO HUNDRED FIFTY THOUSAND DOLLARS
($250,000);
(1) the occurrence of a Related Party
Default;
(m) the occurrence of any default or
breach of condition which is not cured within
any applicable cure period under a Working
Capital Loan secured by a Working Capital
Stock Pledge (or any documents executed in
connection therewith) or the exercise of any
ownership rights by the lender of a Working
Capital Loan secured by a Working Capital
Stock Pledge;
(n) except as a result of Casualty or a
partial or complete Condemnation (including a
temporary taking), if Lessee or any Sublessee
ceases operation of the Facility for a period
in excess of thirty (30) days (a "Failure to
Operate");
(o) if one or more judgments against
Lessee or any Sublessee which is an Affiliate
of Lessee or attachments against Lessee's
interest or any such Sublessee's interest in
the Leased Property, which in the aggregate
exceed TWO HUNDRED FIFTY THOUSAND DOLLARS
($250,000) or which may materially and
adversely interfere with the operation of the
Facility, remain unpaid, unstayed on appeal,
undischarged, unbonded or undismissed for a
period of thirty (30) days;
(p) if any malpractice award or
judgment exceeding any applicable
professional liability insurance coverage by
more than FIVE HUNDRED THOUSAND
DOLLARS.($500,000) shall be rendered against
any member of the Leasing Group and either
(i) enforcement proceedings shall have been
commenced by any creditor upon such award or
judgment or (ii) such award or judgment shall
continue unsatisfied and in effect for a
period of ten (10) consecutive days without
an insurance company satisfactory to Lessor
(in its sole and absolute discretion) having
agreed to fund such award or judgment in a
manner satisfactory to Lessor (in its sole
and absolute discretion) and in either case
such award or judgment shall, in the
reasonable opinion of Lessor, have a
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material adverse affect on the ability of
Lessee or any Sublessee to operate the
Facility;
(q) if any Provider Agreement material
to the operation or financial condition of
the Leased Property shall be terminated prior
to the expiration of the term thereof or,
without the prior written consent of Lessor,
in each instance, which consent may be
withheld in Lessor's reasonable discretion,
shall not be renewed or extended upon the
expiration of the stated term thereof;
(r) if, after Lessee or any Sublessee
has obtained approval for Medicare and/or
Medicaid funding, a final unappealable
determination is made by the applicable
Governmental Authority that Lessee or any
Sublessee shall have failed to comply with
applicable Medicare and/or Medicaid
regulations in the operation of the Facility,
as a result of which failure Lessee or such
Sublessee is declared ineligible to continue
its participation in the Medicare and/or
Medicaid programs and such determination
could reasonably be expected to have a
material adverse effect on the operation or
financial condition of the Leased Property;
(s) if any member of the Leasing Group
receives notice of a final unappealable
determination by applicable Governmental
Authorities of the revocation of any Permit
required for the lawful construction or
operation of the Facility in accordance with
the Primary Intended Use and, if applicable,
the Other Permitted Uses or the loss of any
Permit under any other circumstances under
which any member of the Leasing Group is
required to permanently cease the
construction or operation of the Facility in
accordance with the Primary Intended Use and
the Other Permitted Uses; and
(t) any failure to maintain the
insurance required pursuant to Section I 3 of
this Lease in force and effect at all times
until the Lease Obligations are fully paid
and performed;
(u) the appointment of a temporary
manager (or operator) for the Leased Property
by any Governmental Authority;
(v) the entry of an order by a court
with jurisdiction over the Leased Property to
close the Facility, to transfer one or more
residents the Facility as a result of an
allegation of abuse or neglect or to take any
action to eliminate an emergency situation
then existing at the Facility, if such order
has not been stayed pending appeal within ten
( 10) following such entry; or
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(w) the occurrence of any default or
breach of condition continuing for more than
thirty (30) days under any credit agreement,
loan agreement or other agreement
establishing a major line of credit
(including, without limitation, a major line
of credit or a Working Capital Loan which is
not secured by a Working Capital Stock
Pledge)(or any documents executed in
connection with such lines of credit) on
behalf of Guarantor without regard to whether
the applicable creditor has elected to
declare the indebtedness due and payable
under such line of credit or to exercise any
other right or remedy available to it or the
occurrence of any such default or breach of
condition if the applicable creditor has
elected to declare the indebtedness due and
payable under such line of credit or to
exercise any other right or remedy available
to it. For the purpose of this provision, a
major line of credit shall mean and include
any line of credit established in an amount
equal to or greater than ONE MILLION DOLLARS
($1,000,000) with respect to a line of credit
for which Guarantor is an obligor, endorser,
surety or guarantor.
16.2 REMEDIES.
(a) If any Lease Default shall have
occurred, Lessor may at its option terminate
this Lease by giving Lessee not less than ten
( 10) days' notice of such termination, or
exercise any one or more of its rights and
remedies under this Lease or any of the other
Lease Documents, or as available at law or in
equity and upon the expiration of the time
fixed in such notice, the Term shall
terminate (but only if Lessor shall have
specifically elected by a written notice to
so terminate the Lease) and all rights of
Lessee under this Lease shall cease.
Notwithstanding the foregoing, in the event
of Lessee's failure to pay Rent, if such Rent
remains unpaid beyond ten (10) days from the
due date thereof, Lessor shall not be
obligated to give ten (10) days notice of
such termination or exercise of any of its
other rights and remedies under this Lease,
or the other Lease Documents, or otherwise
available at law or in equity, and Lessor
shall be at liberty to pursue any one or more
of such rights or remedies without further
notice. No taking of possession of the Leased
Property by or on behalf of Lessor, and no
other act done by or on behalf of Lessor,
shall constitute an acceptance of surrender
of the Leased Property by Lessee or reduce
Lessee's obligations under this Lease or the
other Lease Documents, unless otherwise
expressly agreed to in a written document
signed by an authorized officer or agent of
Lessor.
(b) To the extent permitted under
applicable law, Lessee shall pay as
Additional Charges all costs and expenses
(including,
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without limitation, attorneys' fee and
expenses) reasonably incurred by or on behalf
of Lessor as a result of any Lease Default.
(c) If any Lease Default shall have
occurred, whether or not this Lease has been
terminated pursuant to Paragraph (a) of this
Section, Lessee shall, to the extent
permitted under applicable law, if required
by Lessor so to do, upon not less than ten (
10) days' prior notice from Lessor,
immediately surrender to Lessor the Leased
Property pursuant to the provisions of
Paragraph (a) of this Section and quit the
same, and Lessor may enter upon and repossess
the Leased Property by reasonable force,
summary proceedings, ejectment or otherwise,
and may remove Lessee and all other Persons
and any and all of the Tangible Personal
Property from the Leased Property, subject to
the rights of any residents of the Facility
and any Sublessees who are not Affiliates of
any member of the Leasing Group and to any
requirements of applicable law, or Lessor may
claim ownership of the Tangible Personal
Property as set forth in Section 5.2.3 hereof
or Lessor may exercise its rights as secured
party under the Security Agreement. Lessor
shall use reasonable, good faith efforts to
relet the Leased Property or otherwise
mitigate damages suffered by Lessor as a
result of Lessee's breach of this Lease.
(d) In addition to all of the rights and
remedies of Lessor set forth in this Lease
and the other Lease Documents, if Lessee
shall fail to pay any rental or other charge
due hereunder (whether denominated as Base
Rent, Additional Rent, Additional Charges or
otherwise) within ten (10) days after same
shall have become due and payable, then and
in such event Lessee shall also pay to Lessor
(i) a late payment service charge (in order
to partially defray Lessor's administrative
and other overhead expenses) equal to TWO
HUNDRED FIFTY DOLLARS ($250) and (ii) to the
extent permitted by applicable law, interest
on such unpaid sum at the Overdue Rate; it
being understood, however, that nothing
herein shall be deemed to extend the due date
for payment of any sums required to be paid
by Lessee hereunder or to relieve Lessee of
its obligation to pay such sums at the time
or times required by this Lease.
16.3 DAMAGES. None of(a) the termination of
this Lease pursuant to Section 16.2, (b) the
eviction of Lessee or the repossession of the
Leased Property, (c) the inability after
reasonable diligence of Lessor, notwithstanding
reasonable good faith efforts, to relet the Leased
Property, (d) the reletting of the Leased Property
or (e) the failure of Lessor to collect or receive
any rentals due upon any such reletting, shall
relieve Lessee of its liability and obligations
hereunder, all of which shall survive any such
termination, repossession or reletting. In any
such event, Lessee
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shall forthwith pay to Lessor all Rent due and
payable with respect to the Leased Property to and
including the date of such termination,
repossession or eviction. Thereafter, Lessee shall
forthwith pay to Lessor, at Lessor's option,
either:
(i) the sum of: (x) all Rent that is
due and unpaid at later to occur of
termination, repossession or eviction,
together with interest thereon at the Overdue
Rate to the date of payment, plus (y) the
worth (calculated in the manner stated below)
of the amount by which the unpaid Rent for
the balance of the Term after the later to
occur of the termination, repossession or
eviction exceeds the fair market rental value
of the Leased Property for the balance of the
Term, plus (z) any other amount necessary to
compensate Lessor for all damage proximately
caused by Lessee's failure to perform the
Lease Obligations or which in the ordinary
course would be likely to result therefrom
and less the amount of rent that has actually
been received by Lessor following the
termination of this Lease from a Person other
than an Affiliate of Lessor (which for
purposes hereof shall include the net income
received by Lessor or an Affiliate of Lessor
from its own operation of the Leased Property
in the event it elects to resume operation
thereof in lieu of hiring a third party
manager or re-letting the Leased Property);
or
(ii) each payment of Rent as the same
would have become due and payable if Lessee's
right of possession or other rights under
this Lease had not been terminated, or if
Lessee had not been evicted, or if the Leased
Property had not been repossessed which Rent,
to the extent permitted by law, shall bear
interest at the Overdue Rate from the date
when due until the date paid, and Lessor may
enforce, by action or otherwise, any other
term or covenant of this Lease. There shall
be credited against Lessee's obligation under
this Clause (ii) amounts actually collected
by Lessor from another tenant to whom the
Leased Property may have actually been leased
or, if Lessor is operating the Leased
Property for its own account, the actual Cash
Flow of the Leased Property.
In making the determinations described in
subparagraph (i) above, the "worth" of unpaid Rent
shall be determined by a court having jurisdiction
thereof using the lowest rate of capitalization
(highest present worth) reasonably applicable at
the time of such determination and allowed by
applicable law and the Additional Rent shall be
deemed to be the same as the average Additional
Rent of the preceding five (5) full calendar
years, or if shorter, the average Additional Rent
for the calendar years or portions thereof since
the date that Additional Rent commenced
104
to accrue or such other amount as either party
shall prove reasonably could have been earned
during the remainder of the Term or any portion
thereof.
16.4 LESSEE WAIVERS. If this Lease is
terminated pursuant to Section 16.2, Lessee
waives, to the extent not prohibited by applicable
law, (a) any right of redemption, re-entry or
repossession, (b) any right to a trial by jury in
the event of summary proceedings to enforce the
remedies set forth in this Article 16, and (c) the
benefit of any laws now or hereafter in force
exempting property from liability for rent or for
debt.
16.5 APPLICATION OF FUNDS. Any payments
otherwise payable to Lessee which are received by
Lessor under any of the provisions of this Lease
during the existence or continuance of any Lease
Default shall be applied to the Lease Obligations
in the order which Lessor may reasonably determine
or as may be required by the laws of the State.
16.6 FAILURE TO CONDUCT BUSINESS. For the
purpose of determining rental loss damages or
Additional Rent, in the event Lessee fails to
conduct business upon the Leased Property, exact
damages or the amount of Additional Rent being
unascertainable, it shall be deemed that the
Additional Rent for such period would be equal to
the average annual Additional Rent during the five
(5) preceding calendar years or such shorter
period of time as may have existed between the
date Additional Rent commenced to accrue and the
date of computation.
16.7 LESSOR'S RIGHT TO CURE. If Lessee shall
fail to make any payment, or to perform any act
required to be made or performed under this Lease
and to cure the same within the relevant time
periods provided in Section 16.1, Lessor, after
five (5) Business Days' prior notice to Lessee
(except in an emergency when such shorter notice
shall be given as is reasonable under the
circumstances), and without waiving or releasing
any obligation or Event of Default, may (but shall
be under no obligation to) at any time thereafter
make such payment or perform such act for the
account and at the expense of Lessee, and may, to
the extent permitted by law, enter upon the Leased
Property for such purpose and take all such action
thereon as, in Lessor's opinion, may be necessary
or appropriate therefor. No such entry shall be
deemed an eviction of Lessee. All sums so paid by
Lessor and all costs and expenses (including,
without limitation, reasonable attorneys' fees and
expenses, in each case, to the extent permitted by
law) so incurred shall be paid by Lessee to Lessor
on demand as an Additional Charge. The obligations
of Lessee and rights of Lessor contained in this
Article shall survive the expiration or earlier
termination of this Lease.
16.8 NO WAIVER BY LESSOR. Lessor shall not by
any act, delay, omission or otherwise (including,
without limitation, the exercise of any right or
remedy hereunder) be deemed to have waived any of
its rights or remedies hereunder or under any of
the other Lease Documents unless
105
such waiver is in writing and signed by Lessor,
and then, only to the extent specifically set
forth therein. No waiver at any time of any of the
terms, conditions, covenants, representations or
warranties set forth in any of the Lease Documents
(including, without limitation, any of the time
periods set forth therein for the performance of
the Lease Obligations) shall be construed as a
waiver of any other term, condition, covenant,
representation or warranty of any of the Lease
Documents, nor shall such a waiver in any one
instance or circumstances be construed as a waiver
of the same term, condition, covenant,
representation or warranty in any subsequent
instance or circumstance. No such failure, delay
or waiver shall be construed as creating a
requirement that Lessor must thereafter, as a
result of such failure, delay or waiver, give
notice to Lessee or any Guarantor, or any other
Person that Lessor does not intend to, or may not,
give a further waiver or to refrain from insisting
upon the strict performance of the terms,
conditions, covenants, representations and
warranties set forth in the Lease Documents before
Lessor can exercise any of its rights or remedies
under any of the Lease Documents or before any
Lease Default can occur, or as establishing a
course of dealing for interpreting the conduct of
and agreements between Lessor and Lessee, the
Guarantor or any other Person.
The acceptance by Lessor of any payment that
is less than payment in full of all amounts then
due under any of the Lease Documents at the time
of the making of such payment shall not: (a)
constitute a waiver of the right to exercise any
of Lessor's remedies at that time or at any
subsequent time, (b) constitute an accord and
satisfaction or (c) nullify any prior exercise of
any remedy, without the express written consent of
Lessor. Any failure by Lessor to take any action
under this Lease or any of the other Lease
Documents by reason of a default hereunder or
thereunder, acceptance of a past due installment,
or indulgences granted from time to time shall not
be construed as a novation of this Lease or any of
the other Lease Documents or as a waiver on such
right or of the right of Lessor thereafter to
insist upon strict compliance with the terms of
this Lease or any of the other Lease Documents, or
(d) prevent the exercise of such right of
acceleration or any other right granted hereunder
or under applicable law for purposes of obtaining
the damages set forth in Section 16.3, specific
performance or equitable remedies; and to the
maximum extent not prohibited by applicable law,
Lessee hereby expressly waives the benefit of any
statute or rule of law or equity now provided, or
which may hereafter be provided, which would
produce a result contrary to or in conflict with
the foregoing.
16.9 RIGHT OF FORBEARANCE. Whether or not for
consideration paid or payable to Lessor and,
except as may be otherwise specifically agreed to
by Lessor in writing, no forbearance on the part
of Lessor, no extension of the time for the
payment of the whole or any part of the
Obligations, and no other indulgence given by
Lessor to Lessee or any other Person, shall
operate to release or in any manner affect the
106
original liability of Lessee or such other
Persons, or to limit, prejudice or impair any
right of Lessor, including, without limitation,
the right to realize upon any collateral, or any
part thereof, for any of the Obligations evidenced
or secured by the Lease Documents; notice of any
such extension, forbearance or indulgence being
hereby waived by Lessee and all those claiming by,
through or under Lessee.
16.10 CUMULATIVE REMEDIES. The rights and
remedies set forth under this Lease are in
addition to all other rights and remedies afforded
to Lessor under any of the other Lease Documents
or at law or in equity, all of which are hereby
reserved by Lessor, and this Lease is made and
accepted without prejudice to any such rights and
remedies. All of the rights and remedies of Lessor
under each of the Lease Documents shall be
separate and cumulative and may be exercised
concurrently or successively in Lessor's sole and
absolute discretion.
ARTICLE 17
SURRENDER OF LEASED PROPERTY OR LEASE; HOLDING
OVER
17.1 SURRENDER. Lessee shall, upon the
expiration or prior termination of the Term
(unless occasioned by Lessee's purchase of the
Leased Property pursuant to the terms of this
Lease Agreement), vacate and surrender the Leased
Property to Lessor in good repair and condition,
in compliance with all applicable Legal
Requirements, all Insurance Requirements, and in
compliance with the provisions of Article 8,
except for: (a) ordinary wear and tear (subject to
the obligation of Lessee to maintain the Leased
Property in good order and repair during the
entire Term of the Lease), (b) damage caused by
the gross negligence or willful acts of Lessor,
and (c) any damage or destruction resulting from a
Casualty or Taking that Lessee is not required by
the terms of this Lease to repair or restore.
17.2 TRANSFER OF CONTRACTS AND PERMITS. In
connection with the expiration or any earlier
termination of this Lease (unless occasioned by
Lessee's purchase of the Leased Property pursuant
to the terms of this Lease Agreement), upon any
request made from time to time by Lessor, Lessee
shall (a) promptly and diligently use its best
efforts to (i) transfer and assign all Permits and
Contracts necessary or desirable for the operation
of the Leased Property in accordance with its
Primary Intended Use to Lessor or its designee to
the extent the same are assignable under
applicable Legal Requirements and/or (ii) arrange
for the transfer or assignment of such Permits and
Contracts to Lessor or its designee and (b)
cooperate in every respect (and to the fullest
extent possible) and assist Lessor or its designee
in obtaining such Permits and Contracts (whether
by transfer, assignment or otherwise) provided,
however, that unless a termination is the result
of a Lease Default, Casualty or Condemnation,
Lessee's efforts and cooperation shall not
107
require Lessee to pay the costs and expenses
incurred by Lessor or Lessor's designated
transferee of the Contracts and Permits. Such
efforts and cooperation on the part of Lessee
shall include, without limitation, the execution,
delivery and filing with appropriate Governmental
Authorities and Third Party Payors of any
applications, petitions, statements, notices,
requests, assignments and other documents or
instruments requested by Lessor. Furthermore,
Lessee shall not take any action or refrain from
taking any action which would defer, delay or
jeopardize the process of Lessor or its designee
obtaining said Permits and Contracts (whether by
transfer, assignment or otherwise). Without
limiting the foregoing, Lessee shall not seek to
transfer or relocate any of said Permits or
Contracts to any location other than the Leased
Property. The provisions of this Section I7.2
shall survive the expiration or earlier
termination of this Lease.Lessee hereby appoints
Lessor as its attorney-in-fact, with full power of
substitution to take such actions, in the event
that Lessee fails to comply with any request made
by Lessor hereunder, as Lessor (in its sole
absolute discretion) may deem necessary or
desirable to effectuate the intent of this Section
17.2. The power of attorney conferred on Lessor by
the provisions of this Section 17.2, being coupled
with an interest, shall be irrevocable until the
Obligations are fully paid and performed and shall
not be affected by any disability or incapacity
which Lessee may suffer and shall survive the
same. Such power of attorney is provided solely to
protect the interests of Lessor and shall not
impose any duty on the Lender to exercise any such
power and neither Lessor nor such attorney-in-fact
shall be liable for any act, omission, error in
judgment or mistake of law, except as the same may
result from its gross negligence or willful
misconduct.
17.3 NO ACCEPTANCE OF SURRENDER. Except at
the expiration of the Term in the ordinary course,
no surrender to Lessor of this Lease or of the
Leased Property or any interest therein shall be
valid or effective unless agreed to and accepted
in writing by Lessor and no act by Lessor or any
representative or agent of Lessor, other than such
a written acceptance by Lessor, shall constitute
an acceptance of any such surrender.
17.4 HOLDING OVER. If, for any reason, Lessee
shall remain in possession of the Leased Property
after the expiration or any earlier termination of
the Term, such possession shall be as a tenant at
sufferance during which time Lessee shall pay as
rental each month, one and one-half times the
aggregate of (i) one-twelfth of the aggregate Base
Rent, and Additional Rent payable at the time of
such expiration or earlier termination of the
Term; (ii) all Additional Charges accruing during
the month and (iii) all other sums, if any,
payable by Lessee pursuant to the
provisions of this Lease with respect to the
Leased Property. During such period of tenancy,
Lessee shall be obligated to perform and observe
all of the terms, covenants and conditions of this
Lease, but shall have no rights hereunder other
than the right, to the extent given by law to
tenants at
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sufferance, to continue its occupancy and use of
the Leased Property. Nothing contained herein
shall constitute the consent, express or implied,
of Lessor to the holding over of Lessee after the
expiration or earlier termination of this Lease.
ARTICLE 18
PURCHASE OF THE LEASED PROPERTY
18.1 PURCHASE OF THE LEASED PROPERTY. In the
event Lessee purchases the Leased Property from
Lessor pursuant to any of the terms of this Lease,
Lessor shall, upon receipt from Lessee of the
applicable purchase price, together with full
payment of any unpaid Rent due and payable with
respect to any period ending on or before the date
of the purchase, deliver to Lessee a deed with
covenants only against acts of Lessor conveying
the entire interest of Lessor in and to the Leased
Property to Lessee subject to all applicable Legal
Requirements, all of the matters described in
clauses (a), (b), (e) and (g) of Section 11.5.2,
Impositions, any Liens created by Lessee, any
Liens created in accordance with the terms of this
Lease (except to the extent specifically excluded
by the terms hereof or consented to by Lessee, the
claims of all Persons claiming by, through or
under Lessee, any other matters assented to by
Lessee and all matters for which Lessee has
responsibility under any of the Lease Documents,
but otherwise not subject to any other Lien
created by Lessor from and after the Commencement
Date (other than an Encumbrance permitted under
Article 20 which Lessee elects to assume). The
applicable purchase price shall be paid in cash to
Lessor, or as Lessor may direct, in federal or
other immediately available funds except as
otherwise mutually agreed by Lessor and Lessee.
All expenses of such conveyance, including,
without limitation, the cost of title examination
or standard or extended coverage title insurance,
attorneys' fees incurred by Lessor in connection
with such conveyance, recording and transfer taxes
and recording fees and similar charges and
specifically excluding any prepayment penalties,
if any, due Lessor's mortgagee, shall be paid by
Lessee.
18.2 Appraisal.
18.2.1 Designation of Appraisers. In the
event that it becomes necessary to determine
the Fair Market Value of the Leased Property
for any purpose of this Lease, the party
required or permitted to give notice of such
required determination shall include in the
notice the name of a Person selected to act
as appraiser on its behalf. Within ten ( 10)
days after receipt of any such notice, Lessor
(or Lessee, as the case may be) shall by
notice to Lessee (or Lessor, as the case may
be) either accept such Person to be the sole
appraiser to determine the Fair Market Value
of the Leased Property or appoint a second
Person as appraiser on its behalf.
109
18.2.2 APPRAISAL PROCESS. The appraisers
thus appointed, each of whom must be a member
of the American Institute of Real Estate
Appraisers (or any successor organization
thereto), shall, within forty-five (45) days
after the date of the notice appointing the
first appraiser, proceed to appraise the
Leased Property to determine the Fair Market
Value of the Leased Property as of the
relevant date (giving effect to the impact,
if any, of inflation from the date of their
decision to the relevant date); provided,
however, that if only one appraiser shall
have been so appointed, or if two appraisers
shall have been so appointed but only one
such appraiser shall have made such
determination within fifty (50) days after
the making of Lessee's or Lessor's request,
then the determination of such appraiser
shall be final and binding upon the parties.
If two appraisers shall have been appointed
and shall have made their determinations
within the respective requisite periods set
forth above and if the difference between the
amounts so determined shall not exceed ten
per cent ( 10%) of the lesser of such
amounts, then the Fair Market Value of the
Leased Property shall be an amount equal to
fifty percent (50%) of the sum of the amounts
so determined. If the difference between the
amounts so determined shall exceed ten
percent ( 10%) of the lesser of such amounts,
then such two appraisers shall have twenty
(20) days to appoint a third appraiser, but
if such appraisers fail to do so, then either
party may request the American Arbitration
Association or any successor organization
thereto to appoint an appraiser within twenty
(20) days of such request, and both parties
shall be bound by any appointment so made
within such twenty (20) day period. If no
such appraiser shall have been appointed
within such twenty (20) days or within ninety
(90) days of the original request for a
determination of Fair Market Value of the
Leased Property, whichever is earlier, either
Lessor or Lessee may apply to any court
having jurisdiction to have such appointment
made by such court. Any appraiser appointed
by the original appraisers, by the American
Arbitration Association or by such court
shall be instructed to determine the Fair
Market Value of the Leased Property within
thirty (30) days after appointment of such
Appraiser. The determination of the appraiser
which differs most in terms of dollar amount
from the determinations of the other two
appraisers shall be excluded, and fifty
percent (50%) of the sum of the remaining two
determinations shall be final and binding
upon Lessor and Lessee as the Fair Market
Value of the Leased Property.
18.2.3 SPECIFIC ENFORCEMENT AND
COSTS. This provision for determination by
appraisal shall be specifically enforceable
to the extent such remedy is available under
applicable law, and any determination
hereunder shall be final and binding upon the
parties except as otherwise provided by
applicable law.
110
Lessor and Lessee shall each pay the fees and
expenses of the appraiser appointed by it and
each shall pay one-half of the fees and
expenses of the third appraiser and one-half
of all other cost and expenses incurred in
connection with each appraisal.
18.3 LESSEE'S OPTION TO PURCHASE.
18.3.1 CONDITIONS TO OPTION. On the
conditions (which conditions Lessor may
waive, at its sole option, by notice to
Lessee at any time) that (a) at the time of
exercise of the Purchase Option and on the
applicable Purchase Option Date, there then
exists no Lease Default, nor any state of
facts or circumstance which constitutes, or
with the passage of time and/or the giving of
notice, would constitute a Lease Default and
(b) Lessee strictly complies with the
provisions of this Section 18.3, then Lessee
shall have the option to purchase the Leased
Property, at the price and upon the terms
hereinafter set forth (the "Purchase
Option").
18.3.2 EXERCISE OF OPTION; DEPOSIT. Such
Purchase Option shall permit Lessee to
purchase the Leased Property (a) on the last
day of the Initial Term or (b) on the last
day of any Extended Term effectively
exercised by Lessee (each of such dates are
referred to herein as a "Purchase Option
Date") and shall be exercised by notice given
by Lessee to Lessor (the "Lessee's Purchase
Option Notice") at least one hundred eighty
(180) days (but not more than three hundred
sixty (360) days) prior to the relevant
Purchase Option Date. Notwithstanding
anything to the contrary set forth in this
Lease, Lessee's right to purchase the Leased
Property is subject to the further conditions
that (i) concurrently with the exercise of
the option set forth under this Section 18.3,
the Lessee shall have exercised its right to
purchase the premises demised under each of
the Related Leases in accordance with the
provisions of Section 18.3 of each of the
Related Leases, (ii) the conveyance of the
Leased Property pursuant to the provisions of
this Section 18.3 shall occur simultaneously
with the conveyance of the premises demised
under each of the Related Leases pursuant to
Section 18.3 of each of the Related Leases
and (iii) all conditions contained in the
Agreement Regarding Related Transactions
pertaining to the Purchase Option are
satisfied. Lessee shall have no right to
rescind Lessee's Purchase Option Notice once
given unless (a) a notice of such rescission
is given (i) within ten ( 10) days following
receipt of the final determination of the
Fair Market Value of the Leased Property or
(ii) within thirty (30) days following an
event of Casualty or Condemnation as to which
Lessee has waived any right of termination
set forth in Section 13.2.2 hereof and (b)
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simultaneously with such notice of
rescission, Lessee, by notice given pursuant
to Section 1.3 hereof extends the Term.
18.3.3 CONVEYANCE. If the Purchase
Option is exercised by Lessee in accordance
with the terms hereof, the Leased Property
shall be conveyed by a good and sufficient
deed with covenants only against acts of
Lessor (the "Deed") running to Lessee or to
such grantee as Lessee may designate by
notice to Lessor at least seven (7) days
before the Time of Closing.
18.3.4 CALCULATION OF PURCHASE PRICE.
The price to be paid by Lessee for the
acquisition of the Leased Property pursuant
to this Purchase Option (the "Purchase
Price") shall be equal to the greater of (a)
the Meditrust Investment or (b) an amount
equal to the then Fair Market Value of the
Leased Property minus the Fair Market Added
Value, subject to the terms of the Agreement
Regarding Related Transactions.
18.3.5 PAYMENT OF PURCHASE PRICE. The
Purchase Price shall be paid by Lessee at the
Time of Closing by certified, cashier's,
treasurer's or bank check(s) or wire transfer
pursuant to instructions received from Lessor
in accordance with the terms of the Agreement
Regarding Related Transactions as reduced by
the principal balance of any Fee Mortgage
which Lessee has elected to, and has the
right to, assume in accordance with the terms
hereof.
18.3.6 PLACE AND TIME OF CLOSING. If
this Purchase Option is exercised, the
closing shall occur and the Deed shall be
delivered (the "Closing") at the office of
Lessor at 12:00 o'clock noon (E.S.T.) on the
applicable Purchase Option Date (such time,
as the same may be extended by mutual written
agreement of Lessor and Lessee, being
hereinafter referred to as the "Time of
Closing") in accordance with the terms of the
Agreement Regarding Related Transactions. It
is agreed that time is of the essence of this
Purchase Option.
18.3.7 CONDITION OF LEASED PROPERTY. The
Leased Property is to be purchased "AS IS"
and "WHERE IS" as of the Time of Closing.
18.3.8 QUALITY OF TITLE. If Lessor shall
be unable to give title or to make
conveyance, as stipulated in this Section
18.3, then, at Lessor's option, Lessor shall
use reasonable efforts to remove all defects
in title and the applicable Purchase Option
Date and Time of Closing shall be extended
for period of thirty (30) days other than
with respect to any Encumbrances which Lessor
has caused to exist. Lessor shall not be
required to expend more
112
than FIFTY THOUSAND DOLLARS ($50,000)
(inclusive of attorney's fees) in order to
have used "reasonable efforts."
18.3.9 LESSOR'S INABILITY TO PERFORM. If
at the expiration of the extended time Lessor
shall have failed so to remove any such
defects in title, then all other obligations
of all parties hereto under Section 18.3
shall cease and Section 18.3 shall be void
and without recourse to the parties hereto.
Notwithstanding the foregoing, Lessee shall
have the election, at either the original or
extended Purchase Option Date and Time of
Closing, to accept such title as Lessor can
deliver to the Leased Property in its then
condition and to pay therefor the Purchase
Price without reduction, in which case Lessor
shall convey such title; provided, that, in
the event of such conveyance, if any portion
of the Leased Property shall have been taken
by Condemnation prior to the applicable
Purchase Option Date and Time of Closing,
Lessor shall pay over or assign to Lessee at
the Time of Closing, all Awards recovered on
account of such Taking, less any amounts
reasonably expended by Lessor in obtaining
such Award and less any amounts expended for
restoration pursuant to the provisions of
Article 14 hereof, or, to the extent such
Awards have not been recovered as of the
applicable Purchase Option Date and Time of
Closing, Lessor shall assign to Lessee all
its rights with respect to any claim therefor
and further provided, that, in the event of
such conveyance, if any portion of the Leased
Property shall have suffered a Casualty prior
to the applicable Purchase Option Date and
Time of Closing, Lessor shall pay over or
assign to Lessee at the Time of Closing, all
insurance proceeds recovered on account of
such Casualty, less any amounts reasonably
expended by Lessor in obtaining such proceeds
and less any amounts expended for restoration
pursuant to the provisions of Article 13
hereof, or, to the extent such proceeds have
not been recovered as of the applicable
Purchase Option Date and Time of Closing,
Lessor shall assign to Lessee all its rights
with respect to any claim therefor.
18.3.10 MERGER BY DEED. The acceptance
of the Deed by Lessee or the grantee
designated by Lessee, as the case may be,
shall be deemed to be a full performance and
discharge of every agreement and obligation
to be performed by Lessor contained or
expressed in this Lease.
18.3.11 USE OF PURCHASE PRICE TO CLEAR
TITLE. To enable Lessor to make conveyance as
provided in this Section, Lessor may, at the
Time of Closing, use the Purchase Price or
any portion thereof to clear the title of any
Lien, provided that all instruments so
procured are recorded contemporaneously with
the Closing or reasonable arrangements are
made for a recording subsequent to the Time
of Closing in accordance with customary
conveyancing practices.
113
18.3.12 LESSEE'S DEFAULT. If Lessee
delivers Lessee's Purchase Option Notice and
fails to consummate the purchase of the
Leased Property in accordance with the terms
hereof for any reason other than Lessor's
willful and unexcused refusal to deliver the
Deed or exercise of the right of rescission
in Section 18.3.2 hereof, (a) Lessee shall
thereafter have no further right to purchase
the Leased Property pursuant to this Section,
although this Lease shall otherwise continue
in full force and effect and (b) Lessor shall
have the right to sue for specific
performance of Lessee's obligations to
purchase the Leased Property provided such
suit for specific performance is commenced
within one (1) year after the applicable
Purchase Option Date on which such sale was
supposed to occur.
ARTICLE 19
SUBLETTING AND ASSIGNMENT
19.1 SUBLETTING AND ASSIGNMENT. Lessee may
not, without the prior written consent of Lessor,
which consent may be withheld in Lessor's sole and
absolute discretion, assign or pledge all or any
portion of its interest in this Lease or any of
the other Lease Documents (whether by operation of
law or otherwise) or sublet all or any part of the
Leased Property. For purposes of this Section
19.1, the term "assign" shall be deemed to
include, but not be limited to, any one or more
sales, pledges, hypothecations or other transfers
(including, without limitation, any transfer by
operation of law) of any of the capital stock of
or partnership interest in Lessee or sales,
pledges, hypothecations or other transfers
(including, without limitation, any transfer by
operation of law) Of the Capital or the assets of
Lessee. Any such assignment, pledge, sale,
hypothecation or other transfer made without
Lessor's consent shall be void and of no force and
effect. Notwithstanding the foregoing, Lessor's
consent shall not be unreasonably withheld with
respect to an assignment or pledge of an interest
of Lessee in this Lease or a sublet of all or a
part of the Leased Property to a
Meditrust/Emeritus Transaction Affiliate.
19.2 ATTORNMENT. Lessee shall insert in each
Sublease approved by Lessor, provisions to the
effect that (a) such Sublease is subject and
subordinate to all of the terms and provisions of
this Lease and to the rights of Lessor hereunder,
(b) in the event this Lease shall terminate before
the expiration of such Sublease, the Sublessee
thereunder will, at Lessor's option, attorn to
Lessor and waive any right the Sublessee may have
to terminate the Sublease or to surrender
possession thereunder, as a result of the
termination of this Lease and (c) in the event the
Sublessee receives a written notice from Lessor
stating that Lessee is in default under this
Lease, the Sublessee shall thereafter be obligated
to pay all rentals accruing under said Sublease
directly to Lessor or as Lessor may direct. All
rentals received from the Sublessee by Lessor
shall be credited against the amounts owing by
Lessee under this Lease.
114
ARTICLE 20
TITLE TRANSFERS AND LIENS GRANTED BY LESSOR
20.1 NO MERGER OF TITLE. Except as otherwise
provided in Section I 8.3.10, there shall be no
merger of this Lease or of the leasehold estate
created hereby with the fee estate in the Leased
Property by reason of the fact that the same
Person may acquire, own or hold, directly or
indirectly (a) this Lease or the leasehold estate
created hereby or any interest in this Lease ox
such leasehold estate and (b) the fee estate in
the Leased Property.
20.2 TRANSFERS BY LESSOR. If the original
Lessor named herein or any successor in interest
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 Lessor hereunder arising or
accruing from and after the date of such
conveyance or transfer, the original Lessor named
herein or the applicable successor in interest so
conveying the Leased Property shall thereupon be
released from all future liabilities and
obligations of Lessor 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.
20.3 LESSOR MAY GRANT LIENS. Without the
consent of Lessee, but subject to the terms and
conditions set forth below in this Section 20.3,
Lessor may, from time to time, directly or
indirectly, create or otherwise cause to exist any
lien, encumbrance or title retention agreement
upon the Leased Property or any interest therein
("Encumbrance"), whether to secure any borrowing
or other means of financing or refinancing,
provided that Lessee shall have no obligation to
make payments under such Encumbrances. Lessee
shall subordinate this Lease to the lien of any
such Encumbrance, on the condition that the
beneficiary or holder of such Encumbrance executes
a non-disturbance agreement in conformity with the
provisions of Section 20.4. To the extent that any
such Encumbrance consists of a mortgage or deed of
trust on Lessor's interest in the Leased Property
the same shall be referred to herein as a "Fee
Mortgage" and the holder thereof shall be referred
to herein as a "Fee Mortgagee".
20.4 SUBORDINATION AND NON-DISTURBANCE.
Concurrently with the execution and delivery of
any Fee Mortgage entered into after the date
hereof, provided that the Lessee executes and
delivers an agreement of the type described in the
following paragraph, Lessor shall obtain and
deliver to Lessee an agreement by the holder of
such Fee Mortgage, pursuant to which, (a) the
applicable Fee Mortgagee consents to this Lease
and (b) agrees that, notwithstanding the terms of
the applicable Fee Mortgage held by such Fee
Mortgagee, or any default, expiration,
termination, foreclosure, sale, entry or other act
or omission under or
115
pursuant to such Fee Mortgage or a transfer in
lieu of foreclosure, (i) Lessee shall not be
disturbed in peaceful enjoyment of the Leased
Property nor shall this Lease be terminated or
cancelled at any time, except in the event that
Lessor shall have the right to terminate this
Lease under the terms and provisions expressly set
forth herein, (ii) Lessee's option to purchase the
Leased Property shall remain in force and effect
pursuant to the terms hereof and (iii) in the
event that Lessee elects its option to purchase
the Leased Property and performs all of its
obligations hereunder in connection with any such
election, the holder of the Fee Mortgage shall
release its Fee Mortgage upon payment by Lessee of
the purchase price required hereunder, provided,
that (1) such purchase price is paid to the holder
of the Fee Mortgage, in the event that the
Indebtedness secured by the applicable Fee
Mortgage is equal to or greater than the purchase
price or (2) in the event that the purchase price
is greater than the Indebtedness secured by the
Fee Mortgage, a portion of the purchase price
equal to the Indebtedness secured by the Fee
Mortgage is paid to the Fee Mortgagee and the
remainder of the purchase price is paid to Lessor.
At the request from time to time by any Fee
Mortgagee, Lessee shall (a) subordinate this Lease
and all of Lessee's rights and estate hereunder to
the Fee Mortgage held by such Fee Mortgagee and
(b) agree that Lessee will attorn to and recognize
such Fee Mortgagee or the purchaser at any
foreclosure sale or any sale under a power of sale
contained in any such Fee Mortgage as Lessor under
this Lease for the balance of the Term then
remaining. To effect the intent and purpose of the
immediately preceding sentence, Lessee agrees to
execute and deliver such instruments in recordable
from as are reasonably requested by Lessor or the
applicable Fee Mortgagee; provided, however, that
such Fee Mortgagee simultaneously executes,
delivers and records a written agreement of the
type described in the preceding paragraph.
ARTICLE 21
LESSOR OBLIGATIONS
21.1 QUIET ENJOYMENT. As long as Lessee shall
pay all Rent and all other sums due under any of
the Lease Documents as the same become due and
shall fully comply with all of the terms of this
Lease and the other Lease Documents and fully
perform its obligations thereunder, Lessee shall
peaceably and quietly have, hold and enjoy the
Leased Property throughout the Term, free of any
claim or other action by Lessor or anyone claiming
by, through or under Lessor, but subject to all
the Permitted Encumbrances and such Liens as may
hereafter be consented to by Lessee. No failure by
Lessor to comply with the foregoing covenant shall
give Lessee any right to cancel or terminate this
Lease, or to fail to perform any other sum payable
under this Lease, or to fail to perform any
116
other obligation of Lessee hereunder.
Notwithstanding the foregoing, Lessee shall have
the right by separate and independent action to
pursue any claim it may have against Lessor as a
result of a breach by Lessor of the covenant of
quiet enjoyment contained in this Article 21.
21.2 MEMORANDUM OF LEASE. Lessor and Lessee
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. Lessee
shall pay all recording costs and taxes associated
therewith.
21.3 DEFAULT BY LESSOR. Lessor shall be in
default of its obligations under this Lease only
if Lessor shall fail to observe or perform any
term, covenant or condition of this Lease on its
part to be performed and such failure shall
continue for a period of thirty (30) days after
notice thereof from Lessee (or such shorter time
as may be necessary in order to protect the health
or welfare of any residents of the Facility or to
ensure the continuing compliance of the Facility
with applicable Legal Requirements), unless such
failure cannot with due diligence be cured within
a period of thirty (30) days, in which case such
failure shall not be deemed to continue if Lessor,
within said thirty (30) day period, proceeds
promptly and with due diligence to cure the
failure and diligently completes the curing
thereof within one hundred twenty ( I 20) days
after notice thereof.
ARTICLE 22
NOTICES
Any notice, request, demand, statement or
consent made hereunder or under any of the other
Lease Documents shall be in writing and shall be
deemed duly given if personally delivered, sent by
certified mail, return receipt requested, or sent
by a nationally recognized commercial overnight
delivery service with provision for a receipt,
postage or delivery charges prepaid, and shall be
deemed given when so personally delivered, three
(3) business days following the date postmarked or
the next business day when placed in the
possession of such mail delivery service and
addressed as follows:
If to Lessee : c/o Emeritus
Corporation
3131 Elliot Avenue, Suite 500
Seattle, WA 98121-2162
Attention: Raymond R.
Brandstrom, President
With a copy to: The Nathanson Group
1411 Fourth Avenue, Suite 905
Seattle, WA 98101
Attn: Randi S. Nathanson,
Esquire
117
If to the Emeritus Corporation
Guarantor: 3131 Elliot Avenue, Suite
500
Seattle, WA 98121-2162
Attention: Raymond R.
Brandstrom, President
With a copy to: The Nathanson Group
1411 Fourth Avenue, Suite 905
Seattle, WA 98101
Attn: Randi S. Nathanson,
Esquire
If to Lessor: Meditrust Acquisition
Corporation I
197 First Avenue
Needham Heights, Massachusetts
02194 Attn: President
With copies to: Meditrust Acquisition
Corporation I
197 First Avenue
Needham Heights, Massachusetts
02194 Attn: General Counsel
and Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
Attn: Jack H. Fainberg, Esq.
or such other address as Lessor, Lessee or the
Guarantor shall hereinafter from time to time
designate by a written notice to the others given
in such manner. Any notice given to Lessee or the
Guarantor by Lessor at any time shall not imply
that such notice or any further or similar notice
was or is required.
ARTICLE 23
LIMITATION OF MEDITRUST LIABILITY
The Declaration of Trust establishing the
sole shareholder of Lessor, Meditrust, a
Massachusetts business trust ("Meditrust"), dated
August 6, 1985 (the "Declaration"), as amended, a
copy of which is duly filed in the office of the
Secretary of State of the Commonwealth of
Massachusetts, provides that the name "Meditrust"
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 Meditrust or any
of its Subsidiaries shall be held to any personal
liability, jointly, or severally, for any
obligation of, or claim against Meditrust or any
of its Subsidiaries. All Persons dealing with
Meditrust or Lessor, in any way, shall look only
to the assets of Meditrust or Lessor, as
applicable, for the payment of any sum or the
performance of any
118
obligation. Furthermore, in no event shall
Meditrust or Lessor ever be liable to Lessee or
any other Person for any indirect or consequential
damages incurred by Lessee or such other Person
resulting from any cause whatsoever.
Notwithstanding the foregoing, Lessee hereby
acknowledges and agrees that Meditrust is not a
party to this Lease and that Lessee shall look
only to the assets of Lessor for the payment of
any sum or performance of any obligation due by or
from Lessor pursuant to the terms and provisions
of the Lease Documents.
ARTICLE 24
MISCELLANEOUS PROVISIONS
24.1 BROKER'S FEE INDEMNIFICATION. Lessee and
Lessor each shall and hereby agrees to indemnify,
defend (with counsel acceptable to the other) and
hold the other harmless from and against any and
all claims for premiums or other charges, finder's
fees, taxes, brokerage fees or commissions and
other similar compensation due to a broker or
finder allegedly employed or retained by it in
connection with any of the transactions
contemplated by the Lease Documents.
Notwithstanding the foregoing, the indemnified
party shall have the option of conducting its own
defense against any such claims with counsel of
such party's choice, but at the expense of the
indemnifying party, as aforesaid. This
indemnification shall include all reasonable
attorneys' fees and expenses and court costs
reasonably incurred by the indemnified party in
connection with the defense against any such
claims and the enforcement of this indemnification
agreement and shall survive the termination of
this Lease.
24.2 NO JOINT VENTURE OR PARTNERSHIP. Neither
anything contained in any of the Lease Documents,
nor the acts of the parties hereto, shall create,
or be construed to create, a partnership or joint
venture between Lessor and Lessee. Lessee is not
the agent or representative of Lessor and nothing
contained herein or in any of the other Lease
Documents shall make, or be construed to make,
Lessor liable to any Person for goods delivered to
Lessee, services performed with respect to the
Leased Property at the direction of Lessee or for
debts or claims accruing against Lessee.
24.3 AMENDMENTS, WAIVERS AND MODIFICATIONS.
None of the terms, covenants, conditions,
warranties or representations contained in this
Lease or in any of the other Lease Documents may
be renewed, replaced, amended, modified, extended,
substituted, revised, waived, consolidated or
terminated except by an agreement in writing
signed by all parties to this Lease or the other
Lease Documents, as the case may be, in the case
of any renewal, replacement, amendment,
modification, extension, substitution, revisions,
consolidation or termination and by the Person
against whom enforcement is sought in the case of
a waiver or except as otherwise expressly provided
for herein or in
119
any other Lease Document. The provisions of this
Lease and the other Lease Documents shall extend
and be applicable to all renewals, replacements,
amendments, extensions, substitutions, revisions,
consolidations and modifications of any of the
Lease Documents, the Management Agreements, the
Related Party Agreements, the Permits and/or the
Contracts. References herein and in the other
Lease Documents to any of the Lease Documents, the
Management Agreements, the Related Party
Agreements, the Permits and/or the Contracts shall
be deemed to include any renewals, replacements,
amendments, extensions, substitutions, revisions,
consolidations or modifications thereof.
Notwithstanding the foregoing, any reference
contained in any of the Lease Documents, whether
express or implied, to any renewal, replacement,
amendment, extension, substitution, revisions,
consolidation or modification of any of the Lease
Documents or any Management Agreement, Related
Party Agreement, Permit and/or the Contract is not
intended to constitute an agreement or consent by
Lessor to any such renewal, replacement,
amendment, substitution, revision, consolidation
or modification; but, rather as a reference only
to those instances where Lessor may give, agree or
consent to any such renewal, replacement,
amendment, extension, substitution, revision,
consolidation or modification as the same may be
required pursuant to the terms, covenants and
conditions of any of the Lease Documents.
24.4 CAUTIONS AND HEADINGS. The captions and
headings set forth in this Lease and each of the
other Lease Documents are included for convenience
and reference only, and the words contained
therein shall in no way be held or deemed to
define, limit, describe, explain, modify, amplify
or add to the interpretation, construction or
meaning of, or the scope or intent of, this Lease,
any of the other Lease Documents or any parts
hereof or thereof.
24.5 TIME IS OF THE ESSENCE. Time is of
essence of each and every term, condition,
covenant and warranty set forth herein and in the
other Lease Documents.
24.6 COUNTERPARTS. 'This Lease and the other
Lease Documents may be executed in one or more
counterparts, each of which taken together shall
constitute an original and all of which shall
constitute one in the same instrument.
24.7 ENTIRE AGREEMENT. This Lease and the
other Lease Documents set forth the entire
agreement of the parties with respect to the
subject matter and shall supersede in all respect
the letter of intent, dated January 31,1996 (and
all prior iterations thereof, from Meditrust to
Lessee.
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24.8 WAIVER OF JURY TRIAL. TO THE MAXIMUM
EXTENT PERMITTED BY APPLICABLE LAW, LESSOR AND
LESSEE HEREBY MUTUALLY, KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT WHICH ANY PARTY
HERETO MAY NOW OR HEREAFTER HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THE LEASE OR ANY OF
THE LEASE DOCUMENTS. Lessee hereby certifies that
neither Lessor nor any of Lessor's
representatives, agents or counsel has represented
expressly or otherwise that Lessor would not, in
the event of any such suit, action or proceeding
seek to enforce this waiver to the right of trial
by jury and acknowledges that Lessor has been
induced by this waiver (among other things) to
enter into the transactions evidenced by this
Lease and the other Lease Documents and further
acknowledges that Lessee (a) has read the
provisions of this Lease, and in particular, the
paragraph containing this waiver, (b) has
consulted legal counsel, (c) understands the
rights that it is granting in this Lease and the
rights that it waiving in this paragraph in
particular and (d) makes the waivers set forth
herein knowingly, voluntarily and intentionally.
24.9 SUCCESSORS AND ASSIGNS. This Lease and
the other Lease Documents shall be binding upon
and inure to the benefit of (a) Lessee and
Lessee's legal representatives and permitted
successors and assigns and (b) Lessor and any
other Person who may now or hereafter hold the
interest of Lessor under this Lease and their
respective successors and assigns.
24.10 NO THIRD PARTY BENEFICIARIES. This
Lease and the other Lease Documents are solely for
the benefit of Lessor, its successors, assigns and
participants (if any), the Meditrust Entities,
Lessee, the Guarantor, the other members of the
Leasing Group and their respective permitted
successors and assigns, and, except as otherwise
expressly set forth in any of the Lease Documents,
nothing contained therein shall confer: upon any
Person other than such parties any right to insist
upon or to enforce the performance or observance
of any of the obligations contained therein. All
conditions to the obligations of Lessor to advance
or make available proceeds of insurance or Awards,
or to release any deposits held for Impositions or
insurance premiums are imposed solely and
exclusively for the benefit of Lessor, its
successors and assigns. No other Person shall have
standing to require satisfaction of such
conditions in accordance with their terms, and no
other Person shall, under any circumstances, be a
beneficiary of such conditions, any or all of
which may be freely waived in whole or in part by
Lessor at any time, if, in Lessor s sole and
absolute discretion, Lessor deems it advisable or
desirable to do so.
24.11 GOVERNING LAW. This Lease shall be
construed and the rights and obligations of Lessor
and Lessee shall be determined in
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accordance with the laws of the State. The parties
to
this Lease intend this Lease to be a rental
agreement for a commercial rental unit for
purposes of 25.De1. c. Section 5101(b).
Lessee hereby consents to personal
jurisdiction in the courts of the State and the
United States District Court for the District in
which the Leased Property is situated as well as
to the jurisdiction of all courts from which an
appeal may be taken from the aforesaid courts, for
the purpose of any suit, action or other
proceeding arising out of or with respect to any
of the Lease Documents, the negotiation and/or
consummation of the transactions evidenced by the
Lease Documents, the Lessor's relationship of any
member of the Leasing Group in connection with the
transactions evidenced by the Lease Documents
and/or the performance of any obligation or the
exercise of any remedy under any of the Lease
Documents and expressly waives any and all
objections Lessee may have as to venue in any of
such courts.
24.12 GENERAL. Anything contained in this
Lease to the contrary notwithstanding, all claims
against, and liabilities of, Lessee or Lessor
arising prior to any date of termination of this
Lease or any of the other Lease Documents shall
survive such termination.
If any provision of this Lease or any of the
other Lease Documents or any application thereof
shall be invalid or unenforceable, the remainder
of this Lease or the other applicable Lease
Document, as the case may be, and any other
application of such term or provision shall not be
affected thereby. Notwithstanding the foregoing,
it is the intention of the parties hereto that if
any provision of any of this Lease is capable of
two (2) constructions, one of which would render
the provision void and the other of which would
render the provision valid, then such provision
shall be construed in accordance with the
construction which renders such provision valid.
If any late charges provided for in any
provision of this Lease or any of the other Lease
Documents 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.
Lessee waives all presentments; demands for
performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, and
notices of acceptance and waives all notices of
the existence, creation, or incurring of new or
additional obligations, except as to all of the
foregoing as expressly provided for herein.
ARTICLE 25
SUBSTITUTION OF PROPERTY
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25.1 SUBSTITUTION OF PROPERTY FOR THE LEASED
PROPERTY. Provided that no Event of Default has
occurred under this
Lease (excluding any Event of Default which has
been waived, in writing, by the Lessor), nor any
event which, with the giving of notice or the
passage of time or both, would constitute such an
Event of Default, Lessee shall have the right from
time to time (referred to herein as the
"Substitution Right"), exercisable upon not less
than ninety (90) days' prior written notice to
Lessor (referred to herein as a "Substitution
Notice") to substitute, on a date specified in
such Substitution Notice (such date, as the same
may be extended by express written agreement of
lessor, shall be referred to herein as a
"Substitution Date"), the Leased Property with a
Comparable Facility. As used herein, the term
"Comparable Facility" shall be defined as a health
care facility or facilities which Lessor
determines (a) has an appraised Fair Market Value
greater than or equal to the greater of (i) the
appraised Fair Market Value of the Leased Property
as of the Conversion Date or (ii) the appraised
Fair Market Value of the Leased Property at the
time that the applicable Substitution Notice is
furnished to Lessor (based on appraisal criteria
then in effect), (b) has a Facility Debt Coverage
Ratio greater than or equal to the greater of (i)
the Facility Debt Coverage Ratio of the Leased
Property as of the second anniversary of the
Conversion Date, (ii) the Facility Debt Coverage
Ratio of the Leased Property at the time that the
applicable Substitution Notice is furnished to
Lessor, (c) provides a mix of services similar to
the Leased Property and (d) is otherwise
reasonably acceptable, in all respects, to Lessor
(based on Lessor's usual and customary property
evaluation criteria then in effect). Lessee may
not exercise its Substitution Right more than once
in any calendar year.
25.2 CONDITIONS TO SUBSTITUTION. Without
limiting the foregoing, as conditions precedent to
the consummation of any proposed substitution:
(a) as of the applicable Substitution
Date, no Event of Default shall have occurred
under the Lease (excluding any Event of
Default which has been waived, in writing, by
Lessor), nor any event which with the giving
of notice or the passage of time or both
would constitute such an Event of Default;
(b) Lessor shall have received
engineering and inspection reports relating
to the assisted living facility identified by
Lessee in the applicable Substitution Notice
(referred to herein as a "Proposed
Facility"), reasonably satisfactory in all
respects to Lessor.
(c) Lessee shall have delivered to
Lessor (i) an MAI appraisal of the Proposed
Facility (prepared by an appraiser selected
by Lessee and approved by Lessor), in form
and substance
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reasonably satisfactory to Lessor and (ii) an
instrument survey of the premises upon which
the Proposed Facility is located acceptable
to Lessor and the title insurance company
providing insurance with respect to the
Proposed Facility;
(d) Lessor shall be satisfied as to
compliance of Lessee, the Proposed Facility,
the owner of the Proposed Facility (to the
extent such owner is not Lessee as provided
in subsection (1) below) and/or the proposed
substitution, as the case may be, with (i)
all applicable land use, zoning, subdivision
and environmental laws and regulations, (ii)
all applicable assisted living licensure laws
and regulations and (iii) such other matters
as Lessor reasonably deems relevant
(including, without limitation, whether the
conveyance of the property to Lessor in
connection with the proposed substitution may
be avoided under the Bankruptcy Code);
(e) Lessee shall have delivered to
Lessor a valid and binding owner's or
lessee's (as applicable) title insurance
commitment issued by a title insurer
reasonably acceptable to Lessor (the "Title
Company"), in an amount equal to the Fair
Market Value of the Proposed Facility, with
such endorsements and affirmative coverages,
and in such form, as Lessor may reasonably
require insuring Lessor's fee title or
leasehold title to the Proposed Facility,
subject to no Liens except those approved or
assumed by Lessor and arrangements
satisfactory to Lessor shall have been made
for the issuance of a title insurance policy
on the Substitution Date in accordance with
such title insurance commitment;
(f) Lessee shall have delivered an
environmental site assessment report relating
to the Proposed Facility, in form and
substance reasonably acceptable to Lessor and
prepared by an environmental consultant
reasonably acceptable to Lessor;
(g) Lessor shall have obtained, at
Lessee's cost, an opinion of Lessor's
counsel, in form and substance acceptable to
Lessor, confirming that (i) the substitution
of the Proposed Facility 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" such as cash needed to equalize
exchange values or discharge indebtedness, no
gain or loss is recognized to Lessor, (ii)
the substitution or sale will not result in
ordinary recapture income to Lessor pursuant
to Code Section 1250(d)(4) or any other Code
provision, (iii) the substitution or sale
will result in income, if any, to Lessor of a
type described in Code Section 856(c)(2) or
(3) and will not result in income of the
types described in Code Section 856(c)(4) or
result in the tax imposed under Code Section
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857(b)(6) and (iv) the substitution or sale,
together with all other substitutions and
sales made or requested by Lessee or any
Affiliate of Lessee or of any Guarantor
pursuant to any other leases with Lessor (or
any of its Affiliates) or any other transfers
of the Leased Property or the properties
leased under other such leases, during the
relevant time period, will not jeopardize the
Qualification of Lessor as a real estate
investment trust under Code Sections 856-860;
(h) Lessor shall have received opinions
of Lessee's counsel as to (i) the compliance
of the Proposed Facility with land use,
zoning, subdivision and environmental laws
and regulations, (ii) the compliance of
Lessee, the owner of the Proposed Facility
(to the extent such owner is not Lessee as
provided in subsection (1) below), the
proposed substitution and the Proposed
Facility with applicable assisted living laws
and regulations, (iii) the due authorization,
execution and enforceability of the
Substitution Documents and (iv) such other
matters as are reasonably requested; in form
and substance reasonably acceptable to
Lessor;
(i) Lessee and each Guarantor shall have
executed and delivered, or caused to be
executed and delivered, such documents as are
reasonably required by Lessor to effectuate
the substitution (collectively, the
"Substitution Documents"), including, without
limitation, (i) a deed with full warranties
or assignment of a leasehold estate with full
warranties (as applicable) conveying to
Lessor title to the Proposed Facility free
and clear of all Liens, except those approved
or assumed by Lessor, (ii) a facility lease
(the "Substitution Lease") duly executed,
acknowledged and delivered by Lessee,
containing the same terms and conditions as
are contained herein except that (1) the
legal description of the land shall refer to
the Proposed Facility, (2) the Minimum
Repurchase Price of the Proposed Facility
shall be an amount equal to the Minimum
Repurchase Price of the Leased Property
increased by any Cash Adjustment paid by
Lessor, (3) the Rent under the Substitution
Lease in all respects shall provide Lessor
with a substantially equivalent yield at the
time of the substitution (i.e., annual return
on its equity in such Proposed Facility) to
that received (and reasonably expected to be
received thereafter) from the Leased
Property, taking into account the Cash
Adjustment, if any, paid by Lessor and any
other relevant factors and (4) such other
changes therein as may be necessary or
appropriate under the circumstances shall be
made; (iii) a collateral assignment of
permits, licenses, approvals and contracts
relating to the Proposed Facility,
substantially in the form of the Permits
Assignment; (iv) UCC financing statements;
(v) a guaranty substantially in the form of
the Guaranty of Lease Obligations shall be
executed by Guarantor, (vi) an affiliated
party subordination agreement,
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substantially in the form of the Affiliated
Party Subordination Agreement, shall be
executed by the Lessee, and such other
Affiliates of the Lessee as are deemed
necessary or appropriate by the Lessor and
(vii) the Agreement Regarding Related
Transactions shall be amended to reflect the
substitution of the Proposed Facility. The
Substitution Documents shall be based upon
and contain the same terms and conditions as
are set forth in Lease Documents in effect
prior to the substitution, except that such
changes shall be made as may be necessary or
reasonably appropriate under the
circumstances to effectuate the substitution
and secure the protection and priority of the
property and security interests conveyed
and/or granted to Lessor;
(j) without limiting any other provision
contained herein, Lessee shall have delivered
to Lessor such other information and
materials relating to Lessee, the owner of
the Proposed Facility (to the extent that
such owner is not Lessee as provided in
subsection (I) below) and the Proposed
Facility as Lessor may reasonably request,
including, without limitation, leases,
receipted bills, management agreements and
other Contracts, Provider Agreements, cost
reports, Permits, evidence of legal and
actual access to the Proposed Facility,
evidence of the availability and sufficiency
of utilities servicing the Proposed Facility,
historical and current operating statements,
detailed budgets and financial statements and
Lessor shall have found the same to be
satisfactory in all respects;
(k) Lessee or an Affiliate of Lessee
shall be the licensed operator of the
Proposed Facility as of the date of the
consummation of the substitution;
(l) the Proposed Facility shall be owned
or leased by Lessee or an Affiliate of
Lessee; provided, however that in the event
that the Proposed Facility is owned by any
such Affiliate, (i) said Affiliate shall
execute and deliver to Lessor such
Substitution Documents as may be reasonably
required by Lessor and (ii) Lessor shall be
provided with such evidence as it may require
to determine that the conveyance of the
Proposed Facility (or a leasehold interest
therein) to Lessor does not constitute a
fraudulent conveyance (under applicable
federal or state law);
(m) Lessee shall have delivered to
Lessor an insurance certificate evidencing
compliance with all of the insurance
requirements set forth in the Substitution
Documents;
(n) Lessee shall have delivered to
Lessor an Officer's Certificate certifying as
of the Substitution Date that (i) the
Proposed Facility has been accepted by Lessee
for all purposes of
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the Substitution Lease and there has been no
material damage to the improvements located
on the Proposed Facility, nor is any
condemnation or eminent domain proceeding
pending with respect thereto; (ii) all
Permits (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 Proposed
Facility in accordance with the provisions of
the Substitution Lease have been obtained and
are in full force and effect; (iii) under
applicable zoning and use laws, ordinances,
rules and regulations, the Proposed Facility
may be used for the purposes contemplated by
Substitution Documents and all necessary
subdivision approvals have been obtained;
(iv) to the best knowledge of Lessee, there
exists no Event of Default under this Lease,
and no defense, offset or claim exists with
respect to any sums to be paid by Lessee
hereunder, and (v) any exceptions to Lessor's
title to the Proposed Facility do not
materially interfere with the intended use of
the Proposed Facility by Lessee;
(o) Lessor shall have determined that
the Proposed Facility constitutes a
Comparable Facility, and
(p) Lessor shall have received all Rent
due and payable hereunder through the
Substitution Date.
In the event that the equity value of
the Proposed Facility (i.e., the Fair Market
Value of the Proposed Facility minus the
Liens to which Lessor will take the Proposed
Facility subject) as of the Substitution Date
is greater than the equity value of the
Leased Property (i.e., the Fair Market Value
of the Leased Property minus the Liens to
which Lessee will take the Leased Property
subject other than those Liens which Lessee
is obligated to pay or discharge pursuant to
the terms of this Lease) as of the
Substitution Date, subject to the limitation
set forth below, Lessor shall pay an amount
equal to the difference to Lessee; provided,
however, that Lessor shall not be obligated
to consummate such substitution if Lessor
would be required to make a payment to Lessee
of an amount equal to or in excess of fifteen
percent (15%) of said Fair Market Value of
the Leased Property (the amount of cash paid
by Lessor to Lessee being referred to herein
as the "Cash Adjustment"). Without limiting
the generality or effect of the preceding
sentence, in the event that, on the
Substitution Date, Lessor is obligated to pay
a Cash Adjustment to Lessee and Lessor does
not have sufficient funds available, or
elects not to make such payment in cash,
Lessor shall provide Lessee with (and Lessee
shall accept) a purchase money note and
mortgage for a term not to exceed eighteen
(18) months from the Substitution Date and
bearing interest, payable monthly, at the
rate described in Section 10.2.
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25.3 CONVEYANCE TO LESSEE. If the Lessor
shall have determined that the Proposed Facility
Constitutes a Comparable Facility, on the
Substitution Date, after the consummation of a
substitution in accordance with the terms hereof,
Lessor will convey the Leased Property to Lessee
in accordance with the provisions of Article 18
(except as to payment of any expenses in
connection therewith which shall be governed by
Section 22.4 below) and this Lease shall thereupon
terminate as to the Leased Property. Upon
completion of the purchase of the Leased Property,
no Rent shall thereafter accrue with respect
thereto.
25.4 EXPENSES. Whether or not any proposed
substitution is consummated, Lessee shall pay all
of the out-of pocket expenses and other costs
incurred or expended by Lessor in connection with
any proposed substitution (collectively referred
to herein as "Substitution Closing Costs"),
including, without limitation, reasonable
attorneys' fees and expenses, engineering costs,
consultants' fees, appraisal costs, audit and tax
review costs, out-of pocket travel expenses,
inspection fees, title insurance premiums and
other title -fees, survey expenses, mortgage
taxes, transfer; documentary stamp and other
taxes, search charges of any nature, recording,
registration and filing costs; broker's fees and
commissions, if any, escrow fees, fees and
expenses, if any, incurred in qualifying Lessor
and maintaining its right to do business in the
state where the Proposed Facility is located, the
cost of obtaining, preparing and recording a
release of the Leased Property from the lien of
any Fee Mortgage on the Facility (other than the
amount necessary to payoff such Fee Mortgage) and
any other costs expended or incurred by Lessor in
connection with the preparation for and the
documentation and/or the closing of the proposed
substitution. The Substitution Closing Costs shall
be a demand obligation of Lessee to Lessor and, if
not paid within ten ( 10) days after demand, shall
thereafter (to the extent permitted by applicable
law) bear interest at the Overdue Rate until the
date of payment.
25.5 LIMITATION. No Substitution Right may be
exercised earlier than the fifth anniversary of
the Conversion Date.
IN WITNESS WHEREOF, the parties have caused
this Lease to be executed and attested by their
respective officers thereunto duly authorized.
ATTEST: LESSEE: EMERITUS PROPERTIES I,
INC., a Washington
corporation
/s/ Susan Griffin By: /s/ Kelly J. Price
- --------------------- -----------------------
Name: Susan Griffin Name: Kelly J. Price
Title: Vice President of Finance
128
ATTEST: LESSOR: MEDITRUST ACQUISITION
CORPORATION I, a
Massachusetts
corporation
/s/ Amelia C. Gentry By: /s/ Michael F. Bushee
- ------------------------- ------------------------
Name: Amelia C. Gentry Name: Michael F. Bushee
Title: Chief Operating Officer
129