MASTER LEASE AGREEMENT

Exhibit 10.6

MASTER LEASE AGREEMENT

BETWEEN

HCRI MASSACHUSETTS PROPERTIES TRUST II

AND

KINDRED NURSING CENTERS EAST, L.L.C.

February 28, 2006

TABLE OF CONTENTS

 

 

(i)

 

(ii)

 

(iii)

 

(iv)

 

 

(v)

 

(vi)

MASTER LEASE AGREEMENT

This Master Lease Agreement (“Lease”) is made effective as of February 28, 2006 (the “Effective Date”) between HCRI MASSACHUSETTS PROPERTIES TRUST II , a Massachusetts business trust organized under the laws of the Commonwealth of Massachusetts (“HCN-MA” and a “Landlord” as further defined in §1.4 below), having its principal office located at One SeaGate, Suite 1500, P. O. Box 1475, Toledo, Ohio 43603-1475, and KINDRED NURSING CENTERS EAST, L.L.C., a Delaware limited liability company organized under the laws of the State of Delaware (“Tenant”), having its chief executive office located at 680 South Fourth Avenue, Louisville, Kentucky 40202.

R E C I T A L S

A. Landlord desires to lease the Leased Property to Tenant and Tenant desires to lease the Leased Property from Landlord upon the terms set forth in this Lease.

NOW, THEREFORE, Landlord and Tenant agree as follows:

ARTICLE 1: LEASED PROPERTY, TERM AND DEFINITIONS

1.1 Leased Property . Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Leased Property, subject, however, to the Permitted Exceptions and subject to the terms and conditions of this Lease.

1.2 Indivisible Lease . This Lease constitutes one indivisible lease of the entire Leased Property. The Leased Property constitutes one economic unit and the Base Rent and all other provisions have been negotiated and agreed to based on a lease of all of the Leased Property as a single, composite, inseparable transaction. This Lease would not have been made on these terms if it was not a single indivisible lease. Except as expressly provided herein for specific, isolated purposes including without limitation pursuant to Article 9 (with respect to casualty), Article 10 (with respect to condemnation), and Article 13 (with respect to purchase options) (and then only to the extent expressly otherwise stated), all provisions of this Lease shall apply equally and uniformly to all the Leased Property as one unit and any Event of Default under this Lease is an Event of Default as to the entire Leased Property. Subject to the exceptions set forth in the preceding sentence, the parties intend that the provisions of this Lease shall at all times be construed, interpreted and applied so as to carry out their mutual objective to create a single indivisible lease of all the Leased Property and, in particular but without limitation, that for purposes of any assumption, rejection or assignment of this Lease under the Bankruptcy Code, this is one indivisible and nonseverable lease and executory contract dealing with one legal and economic unit which must be assumed, rejected or assigned as a whole with respect to all (and only all) the Leased Property covered hereby. The parties agree that the existence of more than one Landlord under this Lease does not affect the indivisible, nonseverable nature of this Lease. The parties may amend this Lease from time to time to include one or more additional Facility Properties as part of the Leased Property and such future addition to the Leased Property shall not in any way change the indivisible and nonseverable nature of this Lease and all of the foregoing provisions shall continue to apply in full force.

1.3 Term . The initial term (“Initial Term”) of this Lease commences on the Effective Date, and expires at 12:00 Midnight Eastern Time on the day before the fifteenth anniversary of the Commencement Date (the “Expiration Date”); provided, however, that Tenant has one or more options to renew the Lease pursuant to Article 12.

1.4 Definitions . Except as otherwise expressly provided, [i] the terms defined in this section have the meanings assigned to them in this section and include the plural as well as the singular; [ii] all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles as of the time applicable; and [iii] the words “herein”, “hereof” and “hereunder” and similar words refer to this Lease as a whole and not to any particular section.

“ADA” means the federal statute entitled Americans with Disabilities Act, 42 U.S.C. §12101, et seq .

“Additional Rent” has the meaning set forth in §2.3.

“Affiliate” means any person, corporation, partnership, limited liability company, trust, or other legal entity that, directly or indirectly, controls, or is controlled by, or is under common control with Tenant or Guarantor. “Control” (and the correlative meanings of the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity. “Affiliate” includes, without limitation, each Guarantor.

“Affiliate Subtenant” means, [i] as of the Effective Date, each Affiliate of Tenant identified on Exhibit C as a subtenant of a Facility, individually and collectively, which will be the licensed operator of its respective Facility as shown on Exhibit C, and [ii] at any time during the Term, any other Affiliate of Tenant, which may be a subtenant of a Facility in accordance with the terms of this Lease and which is also the licensed operator of a Facility. References in this Lease to “Affiliate Subtenant” shall mean each Affiliate Subtenant individually and shall relate to such Affiliate Subtenant’s respective Facility unless expressly stated otherwise.

“Alterations” has the meaning set forth in §16.1.

“Alterations Summary” has the meaning set forth in §16.2.

“Annual Facility Budget” means Tenant’s projection of the Facility Financial Statement for the next fiscal year (or the 12-month rolling forward period, if applicable).

“Annual Financial Statements” means [i] for Tenant and Affiliate Subtenant, an unaudited balance sheet, statement of income, and statement of cash flows for the most recent fiscal year on an individual facility and consolidated basis, [ii] for Parent, an audited balance sheet, statement of income, and statement of cash flows for the most recent fiscal year on an individual facility and consolidated basis; [iii] for each Facility, an audited Facility Financial Statement for the most recent fiscal year; and [iv] for Guarantor, an unaudited balance sheet and statement of income for the most recent fiscal year.

 

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“Annual Rent Increase” means the sum of [i] the product of the Base Rent for the Measurement Year (adjusted to take into consideration any Leased Property purchased by Tenant during such Measurement Year) times the applicable Increaser Rate, plus [ii] the Rent Shortfall, if any.

“Assigned Leases and Tenancies” has the meaning set forth in §18.6.

“Bankruptcy Code” means the United States Bankruptcy Code set forth in 11 U.S.C. §101, et seq. , as amended from time to time.

“Base Rent” has the meaning set forth in §2.1, as increased from time to time pursuant to §2.2.

“Business Day” means any day other than a Saturday, Sunday, or national holiday.

“CERCLA” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time.

“Certifying Party” has the meaning set forth in §21.4.

“Closing” means the closing of the lease of the Leased Property to Tenant.

“Closing Certificate” means the Closing Certificate of even date from Tenant and Affiliate Subtenant in favor of Landlord.

“Commencement Date” means the Effective Date if such date is the first day of a month, and if it is not, the first day of the first month following the Effective Date.

“Commitment” means the Amended and Restated Term Sheet for the Lease dated February 21, 2006, as amended.

“Company” means Kindred Healthcare Operating, Inc., a corporation organized under the laws of the State of Delaware.

“Controlling Person” means any [i] Person(s) which, directly or indirectly (including through one or more intermediaries), controls Tenant and would be deemed an Affiliate of Tenant, including any partners, shareholders, principals, members, trustees and/or beneficiaries of any such Person(s) to the extent the same control Tenant and would be deemed an Affiliate of Tenant, and [ii] Person(s) which controls, directly or indirectly (including through one or more intermediaries), any other Controlling Person(s) and which would be deemed an Affiliate of any such Controlling Person(s).

“CPI” means the Consumer Price Index for All Urban Consumers, U.S. Cities Average, All Items Less Food and Energy (1982-84 = 100) published by the Bureau of Labor Statistics of the U.S. Department of Labor; provided that if compilation of the CPI in its present form and calculated on its present basis is discontinued or transferred to any other governmental department or bureau, then the index most nearly the same as the CPI published by the Bureau of

 

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Labor Statistics shall be used. If there is no such similar index, a substitute index which is then generally recognized as being similar to the CPI shall be used, such substitute index to be reasonably selected by Landlord.

“Dedham MOB” means the medical office building that constitutes part of the Dedham Facility and the parcel of land on which the medical office building is located (the boundaries of which will be shown on a subdivision plan to be recorded in Norfolk County, Massachusetts).

“Dedham MOB Option Period” has the meaning set forth in §13.8.

“Default Rent” has the meaning set forth in §8.6.

“Effective Date” means the date of this Lease.

“Environmental Agreement” means the Environmental Agreement of even date among Landlord, HCRI Massachusetts Properties Trust, Tenant, and the LTACH Tenant.

“Environmental Laws” means all federal, state, and local laws, ordinances and policies the purpose of which is to protect human health and the environment, as amended from time to time, including, but not limited to, [i] CERCLA; [ii] the Resource Conservation and Recovery Act; [iii] the Hazardous Materials Transportation Act; [iv] the Clean Air Act; [v] Clean Water Act; [vi] the Toxic Substances Control Act; [vii] the Occupational Safety and Health Act; [viii] the Safe Drinking Water Act; and [ix] analogous state laws and regulations.

“Event of Default” has the meaning set forth in §8.1.

“Expiration Date” has the meaning set forth in §1.3.

“Facility” means each facility located on a portion of the Land, including the Facility Property associated with such Facility. References in this Lease to “the Facility” shall mean each Facility individually unless expressly stated otherwise.

“Facility Financial Statement” means a financial statement for each Facility which shall include the balance sheet, statement of income, occupancy census data (including payor mix), and a comparison of the actual financial data versus the Annual Facility Budget for the applicable period.

“Facility Name” means the name under which a Facility has done business during the Term. The Facility Name in use by each Facility on the Effective Date is set forth on the attached Exhibit C.

“Facility Property” means the portion of the Land on which a Facility is located, the legal description of which is set forth beneath the applicable Facility Name on Exhibit A, the Improvements on such portion of the Land, the Related Rights with respect to such portion of the Land, and Landlord’s Personal Property with respect to such Facility.

 

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“Facility Revenue Change” shall be determined by dividing [i] the Facility Revenues during the Measurement Year by [ii] the Facility Revenues for the calendar year immediately preceding the Measurement Year.

“Facility Revenues” means revenues generated from the sale of goods or services at or through the Leased Property, whether by Tenant, any Affiliate Subtenant, or any subtenant or licensee of Tenant or Affiliate Subtenant which revenues are primarily derived from services provided to patients (including, without limitation, revenues received or receivable for the use of or otherwise by reason of all rooms, beds and other facilities provided, meals served, services performed or goods sold at the Leased Property.

“Facility State” means the State in which a respective Facility is located.

“Facility Uses” means the uses relating to the operation of a Facility as a facility of the type and subject to §14.11, operating the number of beds and, with respect to assisted living facilities, units set forth on Exhibit C with respect to such Facility.

“First Early Option” has the meaning set forth in §13.7.1.

“First Early Option Period” has the meaning set forth in §13.7.1.

“Fixtures” means all permanently affixed equipment, machinery, fixtures and other items of real and/or personal property (excluding Landlord’s Personal Property), including all components thereof, now and hereafter located in, on or used in connection with, and permanently affixed to the Improvements, including, without limitation, all such 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, built-in oxygen and vacuum systems, towers and other devices for the transmission of radio, television and other signals, 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.

“Government Authorizations” means all permits, licenses, approvals, consents, and authorizations required to comply with all Legal Requirements, including, but not limited to, [i] zoning permits, variances, exceptions, special use permits, conditional use permits, and consents; [ii] the permits, licenses, provider agreements and approvals required for licensure and operation of each Facility in accordance with its respective Facility Uses and certified as a provider under the federal Medicare and state Medicaid programs; [iii] environmental, ecological, coastal, wetlands, air, and water permits, licenses, and consents; [iv] curb cut, subdivision, land use, and planning permits, licenses, approvals and consents; [v] building, sign, fire, health, and safety permits, licenses, approvals, and consents; and [vi] architectural reviews, approvals, and consents required under restrictive covenants.

“Guarantor” means Company and each Affiliate Subtenant, individually and collectively.

 

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“Guaranty” means each Unconditional and Continuing Lease Guaranty entered into by a Guarantor to guarantee payment and performance of all of Tenant’s payment and performance obligations under this Lease and any amendments thereto or substitutions or replacements therefor.

“Hazardous Materials” means any substance [i] which requires removal or remediation under any Environmental Law, including, without limitation, asbestos containing materials or any substance which is toxic, explosive, flammable, radioactive, or otherwise hazardous; or [ii] which is regulated under or classified under any Environmental Law as hazardous or toxic, including, but not limited to, any substance within the meaning of “hazardous substance”, “hazardous material”, “hazardous waste”, “toxic substance”, “regulated substance”, “solid waste” or “pollutant” as defined in any Environmental Law.

“HCN” means Health Care REIT, Inc., a corporation organized under the laws of the State of Delaware.

“HCN-MA II” means HCRI Massachusetts Properties Trust II, a Massachusetts business trust organized under the laws of the Commonwealth of Massachusetts.

“Impositions” has the meaning set forth in §3.2.

“Improvements” means all buildings, structures, Fixtures and other improvements of every kind on any portion of the Land, including, but not limited to, alleys, sidewalks, utility pipes, conduits and lines (on-site and off-site), parking areas and roadways appurtenant to such buildings and structures, now or hereafter situated upon any portion of the Land.

“Increaser Rate” means 2.5% plus the Rate Shortfall, if any.

“Initial Term” has the meaning set forth in §1.3.

“Investment Amount” means $122,000,000.00 as of the Effective Date.

“Issuer” means a financial institution reasonably satisfactory to Landlord issuing the Letter of Credit and such Issuer’s successors and assigns. Any “Issuer” shall have a Lace Financial Service Rating of “C+” or higher at all times throughout the Term.

“Land” means the real property described in Exhibit A attached hereto.

“Landlord” means HCN-MA II.

“Landlord’s Personal Property” means all Personal Property owned by Landlord on the Effective Date and located at the Facility, including, without limitation, all Personal Property located at the Facility as of the Effective Date as evidenced by an inventory of the Facility to be completed by Landlord and Tenant after Closing, together with any and all replacements thereof, and all Personal Property that pursuant to the terms of this Lease becomes the property of Landlord during the Term.

 

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“Laurel Lake Indemnification Agreement” means the Indemnification Agreement among Landlord, Tenant, the Affiliate Subtenants of the Laurel Lake Facility, WEJJ-MED Realty LLC, Commonwealth Laurel Lake Realty LLC, Laurel Lake Nursing LLC and Laurel Lake Assisted Living LLC concerning a Tax Regulatory Agreement dated as of August 1, 1997.

“LC Proceeds” has the meaning set forth in §20.3.

“Lease” means this Master Lease Agreement, as amended from time to time.

“Lease Documents” means this Lease, the Laurel Lake Indemnification Agreement, the Environmental Agreement, and the Closing Certificate.

“Lease Year” means each consecutive period of 365 or 366 days throughout the Term. The first Lease Year commences on the Commencement Date and expires on the day before the first anniversary of the Commencement Date.

“Leased Property” means all of the Land, Improvements, Related Rights and Landlord’s Personal Property.

“Leasehold Mortgage” means a mortgage, a deed of trust, a deed to secure debt or other security instrument by which Tenant’s leasehold estate is mortgaged or otherwise transferred, to secure a debt.

“Leasehold Mortgagee” means Lender.

“Legal Requirements” means all laws, regulations, rules, orders, writs, injunctions, decrees, certificates, requirements, agreements, conditions of participation and standards of any federal, state, county, municipal or other governmental entity, administrative agency, insurance underwriting board, architectural control board, private third-party payor, accreditation organization, or any restrictive covenants applicable to the development, construction, condition and operation of the Facility by Tenant to the extent they are Permitted Encumbrances, including, but not limited to, [i] zoning, building, fire, health, safety, sign, and subdivision regulations and codes; [ii] certificate of need laws (if applicable); [iii] licensure to operate as each Facility in accordance with its respective Facility Uses; [iv] Medicare and Medicaid certification requirements (if applicable); [v] the ADA; [vi] any Environmental Laws; and [vii] requirements, conditions and standards for participation in third-party payor insurance programs.

“Lender” means JP Morgan Chase Bank and its successors and assigns or any financial institution or other financial company which routinely makes mortgage loans and is the primary or secondary lender to Parent, Guarantor, Tenant, and Affiliate Subtenant.

“Letter of Credit” means an irrevocable and transferable Letter of Credit in an amount as set forth under the terms of this Lease, issued by Issuer in favor of Landlord as security for the Lease and in a customary form otherwise acceptable to Landlord, and any amendments thereto or replacements or substitutions therefor. No Letter of Credit is currently required at the Closing of this Master Lease but may be delivered after the Effective Date pursuant to the terms of this Lease.

 

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“LTACH Lease” means the Master Lease Agreement of even date among Landlord, HCRI Massachusetts Properties Trust, and the LTACH Tenant for LTACH facilities located in Massachusetts.

“LTACH Tenant” means Kindred Hospitals East, L.L.C., a limited liability company organized under the laws of the State of Delaware.

“Major Alterations” means [i] Alterations that [a] affect building systems or structure at any Leased Property, in a manner which is not material, and [b] the cost of which exceeds $300,000, [ii] Alterations that materially affect the building structure or building systems at any Leased Property, [iii] Alterations that alter the footprint of any existing buildings at the Leased Property, and [iv] the construction of any new buildings at the Leased Property.

“Material Obligations” means any indebtedness exceeding $50,000,000.00 secured by a security interest in or a lien, deed of trust or mortgage on any of the Leased Property (or any part thereof) or any of Tenant’s Property and any agreement relating thereto.

“Measurement Year” means the Lease Year ending immediately before the Rent Adjustment Date.

“New Lease” has the meaning set forth in §23.7.

“New Tenant” has the meaning set forth in §23.7 and upon approval by Landlord shall be deemed to be a Replacement Operator for purposes of §15.9.

“Non-Structural Major Alterations” has the meaning set forth in §16.2.

“Option Amount” means the Investment Amount (as of the Effective Date), plus a cumulative annual increase by 2% on each anniversary of the Commencement Date.

“Option Price” has the meaning set forth in §13.2.

“Option to Purchase” has the meaning set forth in §13.1.

“Parent” means Kindred Healthcare, Inc.

“Periodic Financial Statements” means [i] for Tenant and Affiliate Subtenant, an unaudited balance sheet and statement of income for the most recent quarter; [ii] for Parent, an audited balance sheet and statement of income for the most recent quarter, [iii] for the Facility, an unaudited Facility Financial Statement for the most recent month; and [iv] for Guarantor, an unaudited balance sheet and statement of income of Guarantor for the most recent quarter.

“Permitted Alterations” means Alterations that [i] do not affect the structure or the building systems or that do not alter the building footprint, at any Leased Property, [ii][a] affect building systems or building structure at any Leased Property, in a manner which is not material and [b] the cost of which does not exceed $300,000, and [iii] are not otherwise Major Alterations.

 

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“Permitted Exceptions” means all easements, liens, encumbrances, restrictions, agreements and other title matters existing as of the Effective Date, including, without limitation, the exceptions to title set forth on Exhibit B attached hereto, and any sublease of any portion of the Leased Property made in complete accordance with Article 18.

“Permitted Liens” means [i] liens granted by Tenant to Landlord, if any, or with Landlord’s consent; [ii] liens customarily incurred by Tenant or Affiliate Subtenant in the ordinary course of business for items not more than thirty (30) days delinquent (provided, that, no such lien is in imminent danger of foreclosure), including mechanic’s liens and deposits and charges under workers’ compensation laws; [iii] liens for taxes and assessments not yet due and payable; [iv] any lien, charge, or encumbrance which is being contested in good faith pursuant to this Lease; [v] the Permitted Exceptions; [vi] subleases permitted under this Lease; [vii] purchase money financing and capitalized equipment leases for the acquisition of personal property that are not prohibited by the terms of the Lease; and [viii] liens in favor of Lender.

“Permitted Transfer” has the meaning set forth in §18.1.1.

“Person” means any individual, corporation, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other form of entity.

“Personal Property” means all machinery, equipment, furniture, furnishings, movable walls or partitions, computers (and all associated software), trade fixtures and other personal property (but excluding consumable inventory and supplies owned by Tenant) used in connection with the Leased Property, together with all replacements and alterations thereof and additions thereto, except items, if any, included within the definition of Fixtures or Improvements.

“Plans and Specifications” has the meaning set forth in §16.2.

“Portfolio Cash Flow” has the meaning set forth in §15.7.1.

“Portfolio Coverage Ratio” has the meaning set forth in §15.7.1.

“Profit Sharing Agreement” has the meaning set forth in §13.8.

“Purchase Notice” has the meaning set forth in §13.1.

“Qualified Capital Expenditures” means the expenditures capitalized on the books of Tenant or Affiliate Subtenant for any of the following: replacement of furniture, fixtures and equipment, including refrigerators, ranges, major appliances, bathroom fixtures, doors (exterior and interior), central air conditioning and heating systems (including cooling towers, water chilling units, furnaces, boilers and fuel storage tanks) and replacement of siding; roof replacements, including replacements of gutters, downspouts, eaves and soffits; repairs and replacements of plumbing and sanitary systems; overhaul of elevator systems; repaving, resurfacing and sealcoating of sidewalks, parking lots and driveways; repainting of entire building exterior; but excluding additions to existing buildings and maintenance and repairs to the Leased Property that do not extend the useful life of the Leased Property.

 

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“Rate Shortfall” means, as of the applicable Rent Adjustment Date, a cumulative annual percentage amount equal to the sum of 2.5% for each Lease Year in which there was no Annual Rent Increase.

“Related Rights” means all easements, rights (including bed operating rights) and appurtenances relating to the Land and the Improvements.

“Renewal Date” means the first day of each Renewal Term.

“Renewal Option” has the meaning set forth in §12.1.

“Renewal Term” has the meaning set forth in §12.1.

“Rent” means Base Rent, Additional Rent and Default Rent.

“Rent Adjustment Date” means each anniversary of the Commencement Date.

“Rent Schedule” means the schedule issued by Landlord to Tenant showing the Base Rent to be paid by Tenant pursuant to the terms of this Lease, as such schedule is amended from time to time by Landlord. The initial Rent Schedule is attached to this Lease as Schedule 1 or will be attached following Closing if the Rent Schedule cannot be determined until the day of Closing.

“Rent Shortfall” means the cumulative amount equal to the difference between the Base Rent payable for each Lease Year in which there was no Annual Rent Increase and the Base Rent that would have been payable if the Base Rent had been calculated based upon a rate of return to Landlord that increased by 2.5% each Lease Year.

“Replacement Operator” has the meaning set forth in §15.9.1.

“Requesting Party” has the meaning set forth in §21.4.

“Second Early Option” has the meaning set forth in §13.7.2.

“Second Early Option Period” has the meaning set forth in §13.7.2.

“Securities Act” means The Securities Act of 1933, as amended.

“Tenant” has the meaning set forth in the introductory paragraph of this Lease.

“Tenant’s Property” has the meaning set forth in §11.1.

“Term” means the Initial Term and each Renewal Term.

“Transfer” has the meaning set forth in §18.1.

1.5 Landlord as Agent . With respect to its respective Facility, each Landlord appoints HCN as the agent and lawful attorney-in-fact of such Landlord to act for such Landlord for all purposes and actions of Landlord under this Lease and the other Lease Documents. All

 

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notices, consents, waivers and all other documents and instruments executed by HCN pursuant to the Lease Documents from time to time and all other actions of HCN as Landlord under the Lease Documents shall be binding upon such Landlord. All Rent payable under this Lease shall be paid to HCN.

ARTICLE 2: RENT

2.1 Base Rent . Tenant shall pay Landlord base rent (“Base Rent”) in advance in consecutive monthly installments payable on the first day of each month during the Term commencing on the Commencement Date. If the Effective Date is not the first day of a month, Tenant shall pay Landlord Base Rent on the Effective Date for the partial month, i.e., for the period commencing on the Effective Date and ending on the day before the Commencement Date. The Base Rent payable for the first Lease Year is as shown on the Rent Schedule, subject to adjustment pursuant to §2.2.2 if applicable. For the second and each subsequent Lease Year of the Initial Term, the Base Rent shall be paid in accordance with the most recent revised Rent Schedule provided by Landlord pursuant to §2.2, as applicable. The Base Rent for each Renewal Term will be determined in accordance with §12.2.

2.2 Base Rent Adjustments . Commencing on the first Rent Adjustment Date and on each Rent Adjustment Date thereafter, the monthly installment of Base Rent shall increase by an amount equal to 1/12th of the Annual Rent Increase; provided, however, that if the Facility Revenue Change as of the Rent Adjustment Date is less than 75%, there shall not be an Annual Rent Increase for such Lease Year and the Base Rent will be equal to the Base Rent payable for the prior Lease Year. As of each Rent Adjustment Date, Landlord shall calculate the Annual Rent Increase and shall deliver the revised Rent Schedule to Tenant no later than 30 days after the Rent Adjustment Date. Until the revised Rent Schedule is delivered to Tenant, Tenant shall pay the monthly Base Rent with the Annual Rent Increase calculated based upon an Increaser Rate of 2.5%. After the revised Rent Schedule is delivered to Tenant, if the actual monthly Base Rent is more or less than the monthly Base Rent paid pursuant to the preceding sentence, the difference shall be added to or deducted from (as applicable) the monthly Base Rent payment made for the following month. Thereafter, Tenant shall make monthly Base Rent payments in accordance with the revised Rent Schedule.

2.3 Additional Rent . In addition to Base Rent, Tenant shall pay all other amounts, liabilities, obligations and Impositions which Tenant assumes or agrees to pay under this Lease including any fine, penalty, interest, charge and cost which may be added for nonpayment or late payment of such items (collectively the “Additional Rent”).

2.4 Place of Payment of Rent . Tenant shall make all payments of Rent to Landlord by electronic wire transfer in accordance with the wiring instructions set forth in Exhibit D attached hereto, subject to change in accordance with other written instructions provided by Landlord from time to time.

2.5 Net Lease . This Lease shall be deemed and construed to be an “absolute net lease”, and Tenant shall pay all Rent and other charges and expenses in connection with the Leased Property throughout the Term, without abatement, deduction, recoupment or setoff.

 

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Landlord shall have all legal, equitable and contractual rights, powers and remedies provided either in this Lease or by statute or otherwise in the case of nonpayment of the Rent.

2.6 No Termination, Abatement, Etc . Except as otherwise specifically provided in this Lease, Tenant shall remain bound by this Lease in accordance with its terms. Except for rights specifically granted to Tenant herein, Tenant shall not, without the consent of Landlord, modify, surrender or terminate the Lease, nor seek nor be entitled to any abatement, deduction, deferment or reduction of Rent, or setoff or recoupment against the Rent. Except as expressly provided in this Lease, the obligations of Landlord and Tenant shall not be affected by reason of [i] any damage to, or destruction of, the Leased Property or any part thereof from whatever cause or any Taking (as hereinafter defined) of the Leased Property or any part thereof; [ii] the lawful or unlawful prohibition of, or restriction upon, Tenant’s use of the Leased Property, or any part thereof, the interference with such use by any person, corporation, partnership or other entity, or by reason of eviction by paramount title; [iii] any claim which Tenant has or might have against Landlord or by reason of any default or breach of any warranty by Landlord under this Lease or any other agreement between Landlord and Tenant, or to which Landlord and Tenant are parties; [iv] any bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding up or other proceeding affecting Landlord or any assignee or transferee of Landlord; or [v] any other cause, whether similar or dissimilar to any of the foregoing, other than a discharge of Tenant from any such obligations as a matter of law. Except as otherwise specifically provided in this Lease, Tenant hereby specifically waives all rights, arising from any occurrence whatsoever, which may now or hereafter be conferred upon it by law [a] to modify, surrender or terminate this Lease or quit or surrender the Leased Property or any portion thereof; or [b] entitling Tenant to any abatement, reduction, suspension or deferment of the Rent or other sums payable by Tenant hereunder. The obligations of Landlord and Tenant hereunder shall be separate and independent covenants and agreements and the Rent and all other sums payable by Tenant hereunder shall continue to be payable in all events unless the obligations to pay the same shall be terminated pursuant to the express provisions of this Lease or by termination of this Lease other than by reason of an Event of Default.

ARTICLE 3: IMPOSITIONS AND UTILITIES

3.1 Payment of Impositions . Tenant shall pay, as Additional Rent, all Impositions that may be levied or become a lien on the Leased Property or any part thereof at any time (whether prior to or during the Term), without regard to prior ownership of said Leased Property, before any fine, penalty, interest, or cost is incurred; provided, however, Tenant may contest any Imposition in accordance with §3.7. Tenant’s obligation to pay such Impositions shall be deemed absolutely fixed upon the date such Impositions become a lien upon the Leased Property or any part thereof. Landlord shall promptly provide copies of any notices, bills or assessments it receives relating to Impositions to Tenant with reasonably sufficient time for Tenant to pay such amounts. Tenant shall have no liability, including, without limitation, interest and penalties on unpaid amounts, for failure of Landlord to give notice to Tenant of Impositions for which Tenant has not otherwise received notice and for which Landlord has actually received notice. Tenant, at its expense, shall prepare and file all tax returns and reports in respect of any Imposition as may be required by governmental authorities. Tenant shall be entitled to any refund due from any taxing authority if no monetary Event of Default shall have occurred hereunder and be continuing and if Tenant shall have paid all Impositions prior to the

 

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date they become delinquent as of the date of the refund. Landlord shall be entitled to any refund from any taxing authority if a monetary Event of Default has occurred and is continuing. Any refunds retained by Landlord due to an Event of Default shall be applied to any outstanding obligations of Tenant hereunder as Landlord shall determine. Landlord and Tenant shall, upon request of the other, provide such data as is maintained by the party to whom the request is made with respect to the Leased Property as may be necessary to prepare any required returns and reports. In the event governmental authorities classify any property covered by this Lease as personal property, Tenant shall file all personal property tax returns in such jurisdictions where it may legally so file. In any jurisdictions where Tenant is not legally permitted to file property tax returns, then Landlord shall make such filings. Landlord, to the extent it possesses the same, and Tenant, 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 property so classified as personal property. Where Landlord is legally required to file personal property tax returns, Landlord will provide Tenant with copies of assessment notices indicating a value in excess of the reported value in sufficient time for Tenant to file a protest. Tenant may, upon notice to Landlord, at Tenant’s option and at Tenant’s sole cost and expense, protest, appeal, or institute such other proceedings as Tenant may deem appropriate to effect a reduction of real estate or personal property assessments and Landlord, at Tenant’s expense as aforesaid, shall fully cooperate with Tenant in such protest, appeal, or other action. Tenant shall reimburse Landlord for all personal property taxes paid by Landlord within 30 days after receipt of billings accompanied by copies of a bill therefor and payments thereof which identify the personal property with respect to which such payments are made. Impositions imposed in respect to the tax-fiscal period during which the Term terminates shall be adjusted and prorated between Landlord and Tenant, whether or not such Imposition is imposed before or after such termination, and Tenant’s obligation to pay its prorated share thereof shall survive such termination.

3.2 Definition of Impositions . “Impositions” means, collectively, [i] subject to clause [1] in this section below, taxes (including, without limitation, all capital stock and franchise taxes of Landlord imposed by the Facility State or any governmental entity in the Facility State due to this lease transaction or Landlord’s ownership of the Leased Property and the income arising therefrom, or due to Landlord being considered as doing business in the Facility State because of Landlord’s ownership of the Leased Property or lease thereof to Tenant), all real estate and personal property ad valorem, sales and use, business or occupation, single business, gross receipts, commercial activity, transaction privilege, rent or similar taxes; [ii] 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); [iii] ground rents, water, sewer or other rents and charges, excises, tax levies, and fees (including, without limitation, license, permit, inspection, authorization and similar fees); [iv] all taxes imposed on Tenant’s operations of the Leased Property, including, without limitation, employee withholding taxes, income taxes and intangible taxes; [v] all taxes imposed by the Facility State or any governmental entity in the Facility State with respect to the conveyance of the Leased Property by Landlord to Tenant or Tenant’s designee, including, without limitation, conveyance taxes, capital gains taxes and commercial activity taxes; and [vi] all other governmental charges, in each case whether general or special, ordinary or extraordinary, or foreseen or unforeseen, of every character in respect of the Leased Property or any part thereof and/or the Rent (including all interest and penalties thereon due to any failure in payment by Tenant), which at any time prior to, during or in respect of the Term Fywx#x#ct to which such payments are made. Impositions imposed in respect to the tax-fiscal period during which the Term terminates shall be adjusted and prorated between Landlord and Tenant, whether or not such Imposition is imposed before or after such termination, and Tenant’s obligation to pay its prorated share thereof shall survive such termination.

 

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hereof may be assessed or imposed on or in respect of or be a lien upon [a] Landlord or Landlord’s interest in the Leased Property or any part thereof; [b] the Leased Property or any part thereof or any rent therefrom or any estate, right, title or interest therein; or [c] any occupancy, operation, use or possession of, or sales from, or activity conducted on, or in connection with the Leased Property or the leasing or use of the Leased Property or any part thereof. Notwithstanding the foregoing, Tenant shall not, however, be required to pay [1] any tax based on net income imposed on Landlord by any governmental entity other than the capital stock and franchise taxes described in clause [i] above; [2] franchise tax, registration fee or other fee payable as a result of or relating to a change in Landlord’s corporate structure or existence after the Effective Date; [3] any estate or inheritance tax of Landlord and its permitted successors and assigns; [4] any tax imposed with respect to the sale, exchange or other disposition by Landlord of any Leased Property or the proceeds thereof to a party other than Tenant, Affiliate Subtenant, Guarantor or any Affiliates, or the successors or assigns of the foregoing; or [5] except as expressly provided elsewhere in this Lease any principal or interest on any indebtedness on the Leased Property for which Landlord is the obligor or any ground rents under any encumbrances on Landlord’s fee interest in the Leased Property imposed by Landlord after the Effective Date.

3.3 Escrow of Impositions . If an Event of Default occurs under §8.1(a) and while it remains uncured, Tenant shall, at Landlord’s election, [i] deposit with Landlord on the first day of each month a sum equal to 1/12th of the Impositions assessed against the Leased Property for the preceding tax year, which sums shall be used by Landlord toward payment of such Impositions, and [ii] enter into a tax escrow agreement with Landlord in a form reasonably acceptable to Landlord and Tenant. The receipt by Landlord of the payment of such Impositions by and from Tenant shall only be as an accommodation to Tenant, the mortgagees, and the taxing authorities, and shall not be construed as rent or income to Landlord, Landlord serving, if at all, only as a conduit for delivery purposes.

3.4 Utilities . Tenant shall pay, as Additional Rent, all taxes, assessments, charges, deposits, and bills for utilities, including, without limitation, charges for water, gas, oil, sanitary and storm sewer, electricity, telephone service, and trash collection, which may be charged against the occupant of the Improvements during the Term.

3.5 Discontinuance of Utilities . Landlord will not be liable for damages to person or property or for injury to, or interruption of, business for any discontinuance of utilities nor will such discontinuance in any way be construed as an eviction of Tenant or cause an abatement of rent or operate to release Tenant from any of Tenant’s obligations under this Lease.

3.6 Business Expenses . Tenant acknowledges that it is solely responsible for all expenses and costs incurred in connection with the operation of the Facility on the Leased Property, including, without limitation, employee benefits, employee vacation and sick pay, consulting fees, and expenses for inventory and supplies.

3.7 Permitted Contests . Tenant, on its own or on Landlord’s behalf (or in Landlord’s name), but at Tenant’s expense, may contest, by appropriate legal proceedings conducted in good faith and with due diligence, the amount or validity or application, in whole or in part, of any Imposition or any Legal Requirement or insurance requirement or any lien,

 

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attachment, levy, encumbrance, charge or claim provided that [i] in the case of an unpaid Imposition, lien, attachment, levy, encumbrance, charge or claim, the commencement and continuation of such proceedings shall suspend the collection thereof from Landlord and from the Leased Property; [ii] neither the Leased Property nor any Rent therefrom nor any part thereof or interest therein would be in any immediate danger of being sold, forfeited, attached or lost; [iii] in the case of a Legal Requirement, Landlord would not be in any immediate danger of civil or criminal liability for failure to comply therewith pending the outcome of such proceedings; [iv] the provisions of this section shall not be construed to permit Tenant to contest the payment of Rent (except as to contests concerning the method of computation or the basis of levy of any Imposition or the basis for the assertion of any other claim) or any other sums payable by Tenant to Landlord hereunder; [v] in the case of an insurance requirement, the coverage required by Article 4 shall be maintained; and [vi] if such contest be finally resolved against Landlord or Tenant, Tenant shall, as Additional Rent due hereunder, promptly pay the amount required to be paid, together with all interest and penalties accrued thereon, or comply with the applicable Legal Requirement or insurance requirement. Landlord, at Tenant’s expense, shall execute and deliver to Tenant such authorizations and other documents as may be reasonably required in any such contest, and, if reasonably requested by Tenant or if Landlord so desires, Landlord shall join as a party therein. If Landlord does not join as a party therein, then Tenant hereby agrees to indemnify and save Landlord harmless from and against any liability, cost or expense of any kind that may be imposed upon Landlord in connection with any such contest and any loss resulting therefrom except for any liability, cost or expense resulting from Landlord’s gross negligence or willful misconduct.

ARTICLE 4: INSURANCE

4.1 Property Insurance . At Tenant’s expense, Tenant shall maintain in full force and effect a property insurance policy or policies insuring the Leased Property against the following:

(a) Loss or damage commonly covered by a “Special Form” policy insuring against physical loss or damage to the Improvements and Personal Property, including, but not limited to, risk of loss from fire and other hazards, collapse, transit coverage, vandalism, malicious mischief, theft, earthquake (if the Leased Property is in earthquake zone 1 or 2) and sinkholes (if usually recommended in the area of the Leased Property). The policy shall be in the amount of the full replacement value (as defined in §4.5) of the Improvements and Personal Property and shall contain a commercially reasonable deductible amount. Landlord shall be named as an additional insured. The policy shall include a stipulated value endorsement or agreed amount endorsement and endorsements for contingent liability for operations of building laws, demolition costs, and increased cost of construction.

(b) If applicable, loss or damage by explosion of steam boilers, pressure vessels, or similar apparatus, now or hereafter installed on the Leased Property, in commercially reasonable amounts.

(c) Consequential loss of rents and income coverage insuring against all “Special Form” risk of physical loss or damage with limits and deductible amounts reasonably acceptable to Landlord covering risk of loss during the first nine months of

 

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reconstruction, and containing an endorsement for extended period of indemnity of at least six months, and shall be written with a stipulated amount of coverage if available at a reasonable premium.

(d) If the Leased Property is located, in whole or in part, in a federally designated 100-year flood plain area, flood insurance for the Improvements in an amount equal to the lesser of [i] the full replacement value of the Improvements; or [ii] the maximum amount of insurance available for the Improvements under all federal and private flood insurance programs.

(e) Loss or damage caused by the breakage of plate glass in commercially reasonable amounts.

(f) Loss or damage commonly covered by blanket crime insurance, including employee dishonesty, loss of money orders or paper currency, depositor’s forgery, and loss of property of patients accepted by Tenant for safekeeping, in commercially reasonable amounts.

4.2 Liability Insurance . At Tenant’s expense, Tenant shall maintain liability insurance against the following:

(a) Claims for personal injury or property damage commonly covered by comprehensive general liability insurance with endorsements for incidental malpractice, contractual, personal injury, owner’s protective liability, voluntary medical payments, products and completed operations, broad form property damage, and extended bodily injury, with commercially reasonable amounts for bodily injury, property damage, and voluntary medical payments acceptable to Landlord, but with a combined single limit of not less than $5,000,000.00 per occurrence.

(b) Claims for personal injury and property damage commonly covered by comprehensive automobile liability insurance, covering all owned and non-owned automobiles, with commercially reasonable amounts for bodily injury, property damage, and for automobile medical payments acceptable to Landlord, but with a combined single limit of not less than $5,000,000.00 per occurrence.

(c) Claims for personal injury commonly covered by medical malpractice and professional liability insurance in commercially reasonable amounts acceptable to Landlord.

(d) Claims commonly covered by workers’ compensation insurance for all persons employed by Tenant on the Leased Property. Such workers’ compensation insurance shall be in accordance with the requirements of all applicable local, state, and federal law.

4.3 Builder’s Risk Insurance. In connection with any construction, Tenant shall maintain in full force and effect a builder’s completed value risk policy (“Builder’s Risk Policy”) of insurance in a nonreporting form insuring against all “Special Form” risk of physical loss or damage to the Improvements, including, but not limited to, risk of loss from fire and other

 

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hazards, collapse, transit coverage, vandalism, malicious mischief, theft, earthquake (if Leased Property is in earthquake zone 1 or 2) and sinkholes (if usually recommended in the area of the Leased Property). The Builder’s Risk Policy shall include endorsements providing coverage for building materials and supplies and temporary premises. The Builder’s Risk Policy shall be in the amount of the full replacement value of the Improvements and shall contain a commercially reasonable deductible amount. Landlord shall be named as an additional insured. The Builder’s Risk Policy shall include an endorsement permitting initial occupancy.

4.4 Insurance Requirements . The following provisions shall apply to all insurance coverages required hereunder:

(a) The form and substance of all policies shall be subject to the approval of Landlord, which approval will not be unreasonably withheld.

(b) The carriers of all policies shall have a Best’s Rating of “A” or better and a Best’s Financial Category of XII or higher and shall be authorized to do insurance business in the Facility State.

(c) Tenant shall be the “named insured” and Landlord shall be an “additional insured” on each policy.

(d) Tenant shall deliver to Landlord certificates showing the required coverages and endorsements. The certificates of insurance shall provide that the policy may not be canceled or not renewed, and no material change or reduction in coverage may be made, without at least 30 days’ prior written notice to Landlord.

(e) The policies shall contain a severability of interest and/or cross-liability endorsement, provide that the acts or omissions of Tenant or Landlord will not invalidate the coverage of the other party, and provide that Landlord shall not be responsible for payment of premiums.

(f) All loss adjustment for claims greater than $300,000.00 shall require the written consent of Landlord and Tenant, as their interests may appear not to be unreasonably withheld. All other loss adjustment shall be solely determined by Tenant. Tenant shall give notice to Landlord of any adjustment for which Tenant is not obligated to obtain Landlord’s consent.

(g) Prior to the expiration of each insurance policy, Tenant shall deliver to Landlord a certificate showing renewal of such policy and payment of the annual premium therefor signed by Tenant’s insurance agent.

4.5 Replacement Value . The term “full replacement value” means the actual replacement cost thereof from time to time, including increased cost of construction endorsement, with no reductions or deductions. Tenant shall, in connection with each annual policy renewal, deliver to Landlord a redetermination of the full replacement value by the insurer or an endorsement indicating that the Leased Property is insured for its full replacement value. If Tenant makes any Major Alterations to the Leased Property, Landlord may have such full

 

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replacement value redetermined at any time after such Alterations are made, regardless of when the full replacement value was last determined.

4.6 Blanket Policy . Notwithstanding anything to the contrary contained in this Article 4, Tenant may carry the insurance required by this Article under a blanket policy of insurance, provided that the coverage afforded Tenant will not be reduced or diminished or otherwise be different from that which would exist under a separate policy meeting all of the requirements of this Lease.

4.7 No Separate Insurance . Tenant shall not take out separate insurance concurrent in form or contributing in the event of loss with that required in this Article, or increase the amounts of any then existing insurance, by securing an additional policy or additional policies, unless all parties having an insurable interest in the subject matter of the insurance, including Landlord and any mortgagees, are included therein as additional insureds or loss payees, the loss is payable under said insurance in the same manner as losses are payable under this Lease, and such additional insurance is not prohibited by the existing policies of insurance. Tenant shall immediately notify Landlord of the taking out of such separate insurance or the increasing of any of the amounts of the existing insurance by securing an additional policy or additional policies.

4.8 Waiver of Subrogation . Each party hereto hereby waives any and every claim which arises or may arise in its favor and against the other party hereto during the Term for any and all loss of, or damage to, any of its property located within or upon, or constituting a part of, the Leased Property, which loss or damage is covered by valid and collectible insurance policies, to the extent that such loss or damage is recoverable under such policies. Said mutual waiver shall be in addition to, and not in limitation or derogation of, any other waiver or release contained in this Lease with respect to any loss or damage to property of the parties hereto. Inasmuch as the said waivers will preclude the assignment of any aforesaid claim by way of subrogation (or otherwise) to an insurance company (or any other person), each party hereto agrees immediately to give each insurance company which has issued to it policies of insurance, written notice of the terms of said mutual waivers, and to have such insurance policies properly endorsed, if necessary, to prevent the invalidation of said insurance coverage by reason of said waivers, so long as such endorsement is available at a reasonable cost.

4.9 Mortgages . The following provisions shall apply if Landlord now or hereafter places a mortgage on the Leased Property or any part thereof: [i] Tenant shall obtain a standard form of lender’s loss payable clause insuring the interest of the mortgagee; [ii] Tenant shall deliver a certificate of insurance to such mortgage; [iii] loss adjustment for claims greater than $300,000.00 shall require the consent of the mortgagee not to be unreasonably withheld; and [iv] Tenant shall provide such other information and documents as may be reasonably required by the mortgagee relating to the insurance required hereunder.

4.10 Escrows . After an Event of Default occurs under §8.1(a) and while it remains uncured, Tenant shall make such periodic payments of insurance premiums in accordance with Landlord’s requirements after receipt of notice thereof from Landlord.

 

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ARTICLE 5: INDEMNITY

5.1 Tenant’s Indemnification . Tenant hereby indemnifies and agrees to hold harmless Landlord, any successors or assigns of Landlord, and Landlord’s and such successor’s and assign’s directors, officers, employees and agents from and against any and all demands, claims, causes of action, fines, penalties, damages (excluding consequential damages), losses, liabilities (including strict liability), judgments, and reasonable expenses (including, without limitation, reasonable attorneys’ fees, court costs, and the costs set forth in §8.7) incurred in connection with or arising from: [i] the use or occupancy of the Leased Property by Tenant or any persons claiming under Tenant; [ii] any activity, work, or thing done, or permitted or suffered by Tenant in or about the Leased Property; [iii] any acts, omissions, or negligence of Tenant or any person claiming under Tenant, or the contractors, agents, employees, invitees, or visitors of Tenant or any such person; [iv] any breach, violation, or nonperformance by Tenant or any person claiming under Tenant or the employees, agents, contractors, invitees, or visitors of Tenant or of any such person, of any term, covenant, or provision of this Lease or any law, ordinance, or governmental requirement of any kind, including, without limitation, any failure to comply with any applicable requirements under the ADA; [v] any injury or damage to the person, property or business of Tenant, its employees, agents, contractors, invitees, visitors, or any other person entering upon the Leased Property; [vi] any construction, alterations, changes or demolition of the Facility performed by or contracted for by Tenant or its employees, agents or contractors; and [vii] any obligations, costs or expenses arising under any Permitted Exceptions, in each case excluding any such demands, claims, causes of action, fines, penalties, damages, losses, liabilities, judgments, and expenses incurred as a result of Landlord’s gross negligence or willful misconduct. If any action or proceeding is brought against Landlord, its employees, or agents by reason of any such claim, Tenant, upon notice from Landlord, will defend the claim at Tenant’s expense with counsel reasonably satisfactory to Landlord. All amounts payable to Landlord under this section shall be payable on written demand and any such amounts which are not paid within thirty (30) days after demand therefor by Landlord shall bear interest at the rate of thirteen percent per annum. In case any action, suit or proceeding is brought against Tenant by reason of any such occurrence, Tenant shall use commercially reasonable efforts to defend such action, suit or proceeding.

5.1.1 Notice of Claim . Landlord shall notify Tenant in writing of any claim or action brought against Landlord in which indemnity may be sought against Tenant pursuant to this section. Such notice shall be given in sufficient time to allow Tenant to defend or participate in such claim or action, but the failure to give such notice in sufficient time shall not constitute a defense hereunder nor in any way impair the obligations of Tenant under this section unless the failure to give such notice precludes or impairs Tenant’s defense of any such action.

5.1.2 Survival of Covenants . The covenants of Tenant and Landlord contained in this section shall remain in full force and effect after the termination of this Lease until the expiration of the period stated in the applicable statute of limitations during which a claim or cause of action may be brought and payment in full or the satisfaction of such claim or cause of action and of all reasonable expenses and charges incurred by Landlord relating to the enforcement of the provisions herein specified.

 

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5.1.3 Reimbursement of Expenses . Unless prohibited by law, Tenant hereby agrees to pay to Landlord all of the reasonable fees, charges and reasonable out-of-pocket expenses incurred by Landlord in enforcing the provisions of this Lease.

5.2 Environmental Indemnity; Audits . Tenant hereby indemnifies and agrees to hold harmless Landlord, any successors to Landlord’s interest in this Lease, and Landlord’s and such successors’ directors, officers, employees and agents from and against any losses, claims, damages (excluding consequential damages), penalties, fines, liabilities (including strict liability), costs (including cleanup and recovery costs), and reasonable expenses (including expenses of litigation and reasonable consultants’ and attorneys’ fees) incurred by Landlord or any other indemnitee or assessed against any portion of the Leased Property by virtue of any claim or lien by any governmental or quasi-governmental unit, body, or agency, or any third party, for cleanup costs or other costs pursuant to any Environmental Law. Tenant’s indemnity shall survive the termination of this Lease. Provided, however, Tenant shall have no indemnity obligation with respect to [i] Hazardous Materials first introduced to the Leased Property subsequent to the date that Tenant’s occupancy of the Leased Property shall have fully terminated; [ii] Hazardous Materials introduced to the Leased Property by Landlord, its agents, employees, successors or assigns; or [iii] Hazardous Materials existing or introduced to the Leased Property prior to the Commencement Date. If at any time during the Term of this Lease any governmental authority notifies Landlord or Tenant of a violation of any Environmental Law or Landlord reasonably believes that a Facility may violate any Environmental Law, Landlord may require one or more environmental audits of such portion of the Leased Property, in such form, scope and substance as specified by Landlord, at Tenant’s expense, except if such violation relates to the situations in [i] or [ii] above, in which case, such audits shall be performed at Landlord’s expense. With respect to auditors for which Tenant is responsible pursuant to the preceding sentence, Tenant shall, within 30 days after receipt of an invoice from Landlord, reimburse Landlord for all reasonable out-of-pocket costs and expenses incurred in reviewing any environmental audit, including, without limitation, reasonable attorneys’ fees and costs.

5.3 Limitation of Landlord’s Liability . Landlord, its agents, and employees, will not be liable for any loss, injury, death, or damage (including consequential damages) to persons, property, or Tenant’s business occasioned by theft, act of God, public enemy, injunction, riot, strike, insurrection, war, court order, requisition, order of governmental body or authority, fire, explosion, falling objects, steam, water, rain or snow, leak or flow of water (including water from the elevator system), rain or snow from the Leased Property or into the Leased Property or from the roof, street, subsurface or from any other place, or by dampness or from the breakage, leakage, obstruction, or other defects of the pipes, sprinklers, wires, appliances, plumbing, air conditioning, or lighting fixtures of the Leased Property, or from construction, repair, or alteration of the Leased Property or from any acts or omissions of any other occupant or visitor of the Leased Property, or from any other cause beyond Landlord’s control unless Tenant can demonstrate that the problem was caused by Landlord’s gross negligence or willful misconduct.

ARTICLE 6: USE AND ACCEPTANCE OF PREMISES

6.1 Use of Leased Property . Tenant shall use and occupy the Leased Property exclusively for the Facility Uses specified for each Facility and for all lawful and licensed

 

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ancillary uses, and for no other purpose without the prior written consent of Landlord. Tenant shall obtain and maintain all approvals, licenses, and consents needed to use and operate the Leased Property as herein permitted.

6.2 Acceptance of Leased Property . Tenant acknowledges that [i] Tenant and its agents have had an opportunity to inspect the Leased Property; [ii] Tenant has found the Leased Property fit for Tenant’s use; [iii] Landlord will deliver the Leased Property to Tenant in “as-is” condition and Tenant accepts the Leased Property subject to all existing conditions and subject to the terms of the Environmental Agreement; [iv] Landlord is not obligated to make any improvements or repairs to the Leased Property including by not limited to the roof, walls, foundation, heating, ventilating, air conditioning, telephone, sewer, electrical, mechanical, elevator, utility, and plumbing. Tenant waives any claim or action against Landlord with respect to the condition of the Leased Property. LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, OR AS TO QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY TENANT.

6.3 Conditions of Use and Occupancy . Tenant agrees that during the Term it shall use and keep the Leased Property in a careful, safe and proper manner; not commit or suffer waste thereon; not use or occupy the Leased Property for any unlawful purposes; not use or occupy the Leased Property or permit the same to be used or occupied, for any purpose or business reasonably deemed extra-hazardous on account of fire or otherwise; keep the Leased Property in such repair and condition as may be required by the Board of Health, or other city, state or federal authorities, free of all cost to Landlord; not permit any acts to be done which will cause the cancellation, invalidation, or suspension of any insurance policy; and permit Landlord and its agents to enter upon the Leased Property at all reasonable times upon five (5) days prior notice (except in the case of an emergency) to examine the condition thereof. Landlord shall have the right to have an annual inspection of the Leased Property performed and Tenant shall pay an inspection fee of $1,500.00 per Facility plus Landlord’s reasonable out-of-pocket expenses within 30 days after receipt of Landlord’s invoice.

ARTICLE 7: MAINTENANCE AND MECHANICS’ LIENS

7.1 Maintenance . Tenant shall maintain, repair, and replace the Leased Property, including, without limitation, all structural and nonstructural repairs and replacements to the roof, foundations, exterior walls, HVAC systems, equipment, parking areas, sidewalks, water, sewer and gas connections, pipes and mains. Tenant shall pay, as Additional Rent, the full cost of maintenance, repairs, and replacements. Tenant shall maintain all drives, sidewalks, parking areas, and lawns on or about the Leased Property in a clean and orderly condition, free of accumulations of dirt, rubbish, snow and ice. Tenant shall at all times maintain, operate and otherwise manage the Leased Property on a basis and in a manner consistent with the standards of the highest quality competing facilities in the market areas served by the Leased Property. All repairs shall be performed in a good, workmanlike manner. Tenant shall permit Landlord to inspect the Leased Property at all reasonable times upon five (5) days prior notice (except in the case of an emergency) to the Kindred Leased Properties Manager or Vice President of Facilities

 

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and Real Estate Development. If Landlord gives Tenant notice of any maintenance conditions which are not being maintained by Tenant in accordance with this Lease, then Tenant shall act in good faith to investigate the issues raised in the notice, notify Landlord of the course of action Tenant intends to take with respect to the problem and the anticipated time required to complete the work in accordance with this section, and complete such work within such anticipated time period unless due to unforeseen circumstances such work cannot with due diligence be completed within such estimated time period, in which case such period of time shall be extended as may be necessary to complete such work but, in any event, the work shall be completed within one year after the date of Landlord’s original notice to Tenant. At each inspection of the Leased Property by Landlord, Tenant shall use commercially reasonable efforts to make its employee in charge of maintenance available to tour the Facility with Landlord and answer questions.

7.2 Required Alterations . Tenant shall, at Tenant’s sole cost and expense, make any additions, changes, improvements or alterations to the Leased Property, including structural alterations, which may be required by any governmental authorities, including those required to maintain licensure or certification under the Medicare and Medicaid programs (if so certified), whether such changes are required by Tenant’s use, changes in the law, ordinances, or governmental regulations, defects existing as of the date of this Lease, or any other cause whatsoever. All such additions, changes, improvements or alterations shall be deemed to be Permitted Alterations and shall comply with all laws requiring such alterations and with the provisions of §16.4.

7.3 Mechanic’s Liens . Tenant shall have no authority to permit or create a lien against Landlord’s interest in the Leased Property, and Tenant shall post notices or file such documents as may be required to protect Landlord’s interest in the Leased Property against liens. Tenant hereby agrees to defend, indemnify, and hold Landlord harmless from and against any mechanic’s liens against the Leased Property by reason of work, labor, services or materials supplied or claimed to have been supplied on or to the Leased Property. Tenant shall remove, bond-off, or otherwise obtain the release of any mechanic’s lien filed against the Leased Property within sixty (60) days after notice of the filing thereof. Tenant shall pay all expenses in connection therewith, including, without limitation, damages, interest, court costs and reasonable attorneys’ fees.

7.4 Replacements of Fixtures and Landlord’s Personal Property . Tenant shall not remove Fixtures and Landlord’s Personal Property from the Leased Property except to replace the Fixtures and Landlord’s Personal Property by other similar items of equal quality and value. Items being replaced by Tenant may be removed and shall become the property of Tenant and items replacing the same shall be and remain the property of Landlord. Landlord appoints Tenant as its agent and attorney-in-fact to act for Landlord in replacing Fixtures and Landlord’s Personal Property when replacement is necessary to meet Tenant’s maintenance obligations under this article. Tenant shall execute, upon written request from Landlord, any and all reasonable and customary documents necessary to evidence Landlord’s ownership of Landlord’s Personal Property and replacements therefor. Tenant shall not finance any individual replacements for the Fixtures and Landlord’s Personal Property.

 

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ARTICLE 8: DEFAULTS AND REMEDIES

8.1 Events of Default . The occurrence of any one or more of the following shall be an event of default (“Event of Default”) hereunder without any advance notice to Tenant unless specified herein:

(a) Tenant fails to pay in full any installment of Base Rent, any Additional Rent or any other monetary obligation payable by Tenant under this Lease (including the Option Price), within 10 days after written notice from Landlord that such payment is due; provided, however, that Landlord shall not be obligated to provide more than two such notices to Tenant within any two-year time period during the Term. After receipt of such second notice, Tenant shall thereafter have a grace period of 10 days after the payment is due in which to make the payment and no notice and cure period shall be applicable.

(b) Tenant, Affiliate Subtenant or Guarantor (where applicable) fails to comply with any covenant set forth in Article 14, §15.6 or §15.7.

(c) Tenant fails to observe and perform any other covenant, condition or agreement under this Lease to be performed by Tenant and [i] such failure continues for a period of 30 days after written notice thereof is given to Tenant by Landlord; or [ii] if, by reason of the nature of such default it cannot be remedied within 30 days, Tenant fails to proceed with diligence reasonably satisfactory to Landlord after receipt of the notice to cure the default, or in any event, fails to cure such default within 180 days after receipt of the notice. The foregoing notice and cure provisions do not apply to any Event of Default otherwise specifically described in any other subsection of §8.1.

(d) Tenant or Affiliate Subtenant abandons or vacates any Facility Property or ceases to operate any Facility except as permitted under §14.11 and except during any period that Tenant cannot reasonably be expected to conduct business at a Facility because of fire or other casualty or condemnation, interruption of services of electrical, water or plumbing to the Facility or because of any cause beyond Tenant’s reasonable control including strikes, war, terrorist act, labor troubles or the occurrence of an act of God.

(e) [i] The filing by Tenant, Affiliate Subtenant or Guarantor of a petition under the Bankruptcy Code or the commencement of a bankruptcy or similar proceeding by Tenant, Affiliate Subtenant or Guarantor; [ii] the failure by Tenant, Affiliate Subtenant or Guarantor within 60 days to dismiss an involuntary bankruptcy petition or other commencement of a bankruptcy, reorganization or similar proceeding against such party, or to lift or stay any execution, garnishment or attachment of such consequence as will impair its ability to carry on its operation at the Leased Property; [iii] the entry of an order for relief under the Bankruptcy Code in respect of Tenant, Affiliate Subtenant or Guarantor; [iv] any assignment by Tenant, Affiliate Subtenant or Guarantor for the benefit of its creditors; [v] the entry by Tenant, Affiliate Subtenant or Guarantor into an agreement of composition with its creditors during or in connection with a bankruptcy proceeding by Tenant, Affiliate Subtenant or Guarantor; [vi] the approval by a court of competent jurisdiction of a petition applicable to Tenant, Affiliate Subtenant or Guarantor in any proceeding for its reorganization instituted under the provisions of any state or federal bankruptcy, insolvency, or similar laws; [vii] appointment by final order,

 

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judgment, or decree of a court of competent jurisdiction of a receiver of a whole or any substantial part of the properties of Tenant, Affiliate Subtenant or Guarantor (provided such receiver shall not have been removed or discharged within 60 days of the date of his qualification).

(f) [i] Any administrator, custodian or other similar person takes possession or control of any of the Leased Property and continues in possession for 60 days; [ii] any writ against any of the Leased Property is not released within 60 days; [iii] any judgment is rendered or proceedings are instituted against the Leased Property, Tenant or Affiliate Subtenant which affect the Leased Property or any part thereof, which is not dismissed for 60 days (except as otherwise provided in this section) unless Tenant is proceeding with due diligence to release any such judgment and has provided reasonable security to Landlord; [iv] all or a substantial part of the assets of Tenant, Affiliate Subtenant or Guarantor are attached, seized, subjected to a writ or distress warrant, or are levied upon, or come into the possession of any receiver, trustee, custodian, or assignee for the benefit of creditors; [v] Tenant, Affiliate Subtenant or Guarantor is enjoined, restrained, or in any way prevented by court order, or any proceeding is filed or commenced seeking to enjoin, restrain or in any way prevent Tenant, Affiliate Subtenant or Guarantor from conducting all or a substantial part of its business or affairs; or [vi] except for a Permitted Lien, a lien that Tenant is contesting pursuant to §3.7, or a lien arising from Landlord’s action or failure to act, a final notice of lien, levy or assessment is filed of record with respect to all or any part of the Leased Property or any property of Tenant or Affiliate Subtenant located at the Leased Property and is not dismissed, discharged, or bonded-off within 60 days.

(g) Any representation or warranty made by Tenant, Affiliate Subtenant or Guarantor in this Lease or any other document executed in connection with this Lease, any guaranty of this Lease, or any report, certificate, application, financial statement or other instrument furnished by Tenant, Affiliate Subtenant or Guarantor pursuant hereto or thereto shall prove to be false, misleading or incorrect in any material respect as of the date made and the foregoing results in a material adverse effect on the Leased Property or Tenant’s ability to satisfy its obligations under this Lease.

(h) The LTACH Tenant fails to pay Base Rent under the LTACH Lease and such failure continues for a period of 120 days without such default having been cured, or the occurrence of a default under any Material Obligation that results in acceleration of the obligation and initiation of foreclosure (or equivalent judicial proceedings) related to real or personal property collateral. This provision applies to the LTACH Lease and the Material Obligations as they may be amended, modified, extended, or renewed from time to time.

(i) Any Guarantor of this Lease, dissolves, terminates, files a petition in bankruptcy, or is adjudicated insolvent under the Bankruptcy Code or any other insolvency law, or fails to comply with any covenant or requirement of such guarantor set forth in this Lease or in the Guaranty of such Guarantor.

(j) [i] The license for the Facility or any other Government Authorization necessary to operate the Facility is canceled, suspended, reduced to provisional or temporary, or otherwise invalidated and not reinstated within 270 days thereafter; or [ii] license

 

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revocation or decertification proceedings are commenced against Tenant or Affiliate Subtenant and not dismissed within 270 days; or [iii] an admissions ban is issued for the Facility and not dismissed within 270 days; or [iv] except as permitted under §14.11, any voluntary reduction occurs in the number of licensed beds or units at the Facility; provided, however that if the actions referenced under clauses [i], [ii], and [iii] are not dismissed within 270 days, such failure shall not cause an Event of Default hereunder if Tenant delivers to Landlord a Letter of Credit in an amount equal to one year’s Base Rent for the affected Facility to be held by Landlord as security for Tenant’s obligations under this Lease as provided in Article 20 until such time as there is a final, unappealable determination in favor of Tenant or Affiliate Subtenant or the action is dismissed.

(k) A final, unappealable determination shall occur whereby an involuntary reduction occurs in the number of licensed beds or units at the Facility and such reduction equals 5% or more of the total number of licensed beds or units at the Facility.

8.2 Remedies . Upon the occurrence and during the continuance of an Event of Default under this Lease or any Lease Document, and at any time thereafter until Landlord waives the default in writing or acknowledges cure of the default in writing, at Landlord’s option, without declaration, notice of nonperformance, protest, notice of protest, notice of default, notice to quit or any other notice or demand of any kind, Landlord may exercise any and all rights and remedies provided in this Lease or any Lease Document or otherwise provided under law or in equity, including, without limitation, any one or more of the following remedies:

(a) Landlord may re-enter and take possession of the Leased Property without terminating this Lease, and lease the Leased Property for the account of Tenant, holding Tenant liable for all reasonable costs of Landlord in reletting the Leased Property and for the difference in the amount received by such reletting and the amounts payable by Tenant under the Lease.

(b) Landlord may terminate this Lease by written notice to Tenant, exclude Tenant from possession of the Leased Property and use efforts to lease the Leased Property to others, holding Tenant liable for the difference in the amounts received from such reletting and the amounts payable by Tenant under this Lease.

(c) Landlord may re-enter the Leased Property and have, repossess and enjoy the Leased Property as if this Lease had not been made, and in such event, Tenant and its successors and assigns shall remain liable for any contingent or unliquidated obligations or sums owing at the time of such repossession less any amounts recouped by Landlord from reletting.

(d) Landlord may accelerate all of the unpaid Rent hereunder based on the then current Rent Schedule and Tenant shall be liable for the present value of the aggregate Rent for the unexpired term of this Lease, discounted at an annual rate equal to the then-current U.S. Treasury Note rate for the closest comparable term less the present value of fair market rental for the unexpired term of this Lease, discounted at the same rate.

 

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(e) Landlord may demand payment from Tenant of an amount equal to the Outstanding Straight Line Rent Receivable accrued by Landlord under this Lease as of the date that Tenant surrenders possession of the Leased Property (“Surrender Date”). As used herein, the “Outstanding Straight Line Rent Receivable” means [i] the amount of Base Rent that would have accrued under this Lease, up to the Surrender Date, if the Base Rent were calculated based upon the mathematical average of Landlord’s rate of return over the entire Initial Term after taking into account the Inflation Adjustment (as defined in the Commitment) for each Lease Year of the entire Initial Term, minus [ii] the amount of Base Rent payable under this Lease, up to the Surrender Date, based upon the Rent Schedule, i.e. based upon Landlord’s rate of return including the annual Inflation Adjustment imposed for each Lease Year up to the Surrender Date, as computed in accordance with generally accepted accounting principles.

(f) Landlord may take whatever action at law or in equity as may appear necessary or desirable to collect the Rent and other amounts payable under this Lease then due and thereafter to become due, or to enforce performance and observance of any obligations, agreements or covenants of Tenant under this Lease.

(g) Without waiving any prior or subsequent Event of Default, Landlord may waive any Event of Default or, with or without waiving any Event of Default, remedy any default.

(h) Landlord may apply, through appropriate legal action, with notice to Tenant, for the appointment of a receiver for the Leased Property.

8.3 Right of Setoff . Landlord may, and is hereby authorized by Tenant to, following the occurrence and during the continuance of an Event of Default without advance notice to Tenant (any such notice being expressly waived by Tenant), setoff or recoup and apply any and all sums held by Landlord, any indebtedness of Landlord to Tenant, and any claims by Tenant against Landlord, against any obligations of Tenant hereunder and against any claims by Landlord against Tenant, whether or not such obligations or claims of Tenant are matured and whether or not Landlord has exercised any other remedies hereunder. The rights of Landlord under this section are in addition to any other rights and remedies Landlord may have against Tenant.

8.4 Performance of Tenant’s Covenants . Landlord may perform any obligation of Tenant for which Tenant fails to diligently pursue performance within twenty (20) days after Landlord has sent a written notice to Tenant informing it of its specific failure; provided, however, that the foregoing shall not apply to licensure issues identified under §8.1(j) and §8.1(k) which Landlord shall not address or seek to perform until Tenant’s failure constitutes an Event of Default hereunder. Tenant shall reimburse Landlord on demand, as Additional Rent, for any reasonable expenditures thus incurred by Landlord and shall pay interest thereon at the rate of 13% per annum.

8.5 Late Payment Charge . Tenant acknowledges that any default in the payment of any installment of Rent payable hereunder will result in loss and additional expense to Landlord in servicing any indebtedness of Landlord secured by the Leased Property, handling such delinquent payments, and meeting its other financial obligations, and because such loss and

 

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additional expense is extremely difficult and impractical to ascertain, Tenant agrees that in the event any Rent payable to Landlord hereunder is not paid within 10 days after the due date, Tenant shall pay a late charge of 5% of the amount of the overdue payment as a reasonable estimate of such loss and expenses, unless applicable law requires a lesser charge, in which event the maximum rate permitted by such law may be charged by Landlord. The 10-day grace period set forth in this section shall not extend the time for payment of Rent or the period for curing any default or constitute a waiver of such default.

8.6 Default Rent . At Landlord’s option at any time after the occurrence of an Event of Default and while such Event of Default remains uncured, the Base Rent payable under this Lease shall be increased to reflect Landlord’s rate of return of 13%  per annum on the Investment Amount (“Default Rent”); provided, however, that if a court of competent jurisdiction determines that any other amounts payable under this Lease are deemed to be interest, the Default Rent shall be adjusted to ensure that the aggregate interest payable under this Lease does not accrue at a rate in excess of the maximum legal rate.

8.7 Attorneys’ Fees . Following the occurrence and during the continuance of an Event of Default, Tenant shall pay all reasonable costs and expenses incurred by Landlord in enforcing or preserving Landlord’s rights under this Lease, including, without limitation, [i] the fees, expenses, and costs of any litigation, appellate, receivership, administrative, bankruptcy, insolvency or other similar proceeding; [ii] reasonable attorney, paralegal, consulting and witness fees and disbursements of outside counsel; and [iii] the expenses, including, without limitation, lodging, meals, and transportation, of Landlord and its employees, agents, attorneys, and witnesses in preparing for litigation, administrative, bankruptcy, insolvency or other similar proceedings and attendance at hearings, depositions, and trials in connection therewith. All such reasonable costs, expenses, charges and fees payable by Tenant shall be deemed to be Additional Rent under this Lease.

8.8 Escrows and Application of Payments . As security for the performance of the Obligor Group Obligations, Tenant hereby assigns to Landlord all its right, title, and interest in and to all monies escrowed with Landlord under this Lease; provided, however, that Landlord shall not exercise its rights hereunder until an Event of Default has occurred. Any payments received by Landlord under any provisions of this Lease during the existence or continuance of an Event of Default shall be applied to the Obligor Group Obligations in the order which Landlord may determine.

8.9 Remedies Cumulative . The remedies of Landlord herein are cumulative to and not in lieu of any other remedies available to Landlord at law or in equity. The use of any one remedy shall not be taken to exclude or waive the right to use any other remedy.

8.10 Waivers . Tenant waives [i] any notice required by statute or other law as a condition to bringing an action for possession of, or eviction from, any of the Leased Property, [ii] any right of re-entry or repossession following the occurrence and during the continuance of an Event of Default, [iii] any right to a trial by jury in any action or pro