A PRIMER ON THE PURCHASE OF A HEALTHCARE FACILITY

The following materials are intended to provide some valuable information and to highlight various provisions and issues that arise in connection with the acquisition, transition of operations and financing of senior living facilities.

As you will see, these transactions are real estate oriented. They require many of the same documents that are used in any typical purchase. But health care transactions will always require greater disclosure and additional language in standard documentation and perhaps additional documentation based upon the structure of the transaction. The following materials describe nuances that arise in four particular instruments:

1. A Purchase and Sale Agreement.

2. An Operations and Transfer Agreement.

3. A Master Lease.

4. A Loan Agreement.

We have also provided a Loan Checklist, Revolving Credit Checklist and Due Diligence Checklist which provide an idea of the scope of the materials required.

Furthermore, although not addressed in these materials, almost every senior housing transaction will require the need for licensing approvals to deal with operations and the ability to receive reimbursement for Medicare, Medicaid and other available programs.

We hope that these materials provide a source of information to assist those practitioners who do not handle these matters on a regular basis.

TABLE OF CONTENTS

1. A Healthcare Purchase And Sale Agreement: Annotated Provisions.

2. An Operations and Transfer Agreement: Annotated Provisions.

3. A Healthcare Master Lease: Annotated Provisions.

4. A Loan Agreement: Identification of Major Mezzanine Loan Issues and Specific Loan Agreement Provisions.

5. Closing Checklists: Term Loan, Revolving Credit Loan and Due Diligence.

A HEALTHCARE PURCHASE AND SALE AGREEMENT:ANNOTATED PROVISIONS

This paper uses provisions of a hypothetical purchase and sale agreement to illustrate subjects of particular relevance to the acquisition of skilled nursing facilities. The provisions come from several real purchase and sale agreements and have been tailored to reflect loosely the facts of the hypothetical transaction summarized above. The purpose of this paper is not to turn real estate lawyers into healthcare lawyers. Transactions involving skilled nursing facilities, however, like those involving other healthcare facilities, are fundamentally real estate transactions and are often led by real estate lawyers. The goal of this paper is to alert real estate attorneys who may not work regularly in this area to issues unique to transactions involving skilled nursing facilities so that they can enlist colleagues and consultants with appropriate expertise where needed and manage the many parts of the transaction efficiently.

Part I of the paper discusses the senior housing industry in general and what specifically is meant by the terms “skilled nursing facility” and “nursing home,” which are used interchangeably. Part II discusses the assets that comprise and are typically acquired when buying a skilled nursing facility, as well as certain liabilities that typically are not assumed. Part III addresses aspects of due diligence that are of particular importance to the acquisition of a skilled nursing facility. Part IV deals with closing conditions that, in the context of buying skilled nursing facilities, raise regulatory and timing issues. And Part V identifies post-closing transitional issues that may have to be addressed in connection with the purchase of a skilled nursing facility.

In addition to federal statutes and regulations, this paper cites statutes of Florida, Massachusetts, Pennsylvania, and Virginia to illustrate some of the regulatory issues present in transactions involving skilled nursing facilities. These states were chosen from those involved in the hypothetical transaction set forth above simply for geographic distribution. (The other states involved are Rhode Island, Connecticut, New Jersey, Tennessee, and Georgia.) The statutes cited do not necessarily represent the regulatory schemes of other states.

Part I. Types of Senior Housing and the Meaning of “Skilled Nursing Facility.”

Sample Provision:

Seller is (a) the owner of certain real property in the states of Pennsylvania, New Jersey, Tennessee, Virginia, Massachusetts and Rhode Island located at the addresses and as legally described on Exhibits A-1 through A-15 hereto and all improvements thereon, and (b) is the lessee of certain real property and improvements in the states of Florida, Georgia, New Jersey and Connecticut located at the addresses and as legally described on Exhibits A-16 through A-25, which, together with certain tangible and intangible personal property also owned by Seller, comprise twenty five (25) skilled nursing facilities (each, a “Facility” and, collectively, the “Facilities”).

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Discussion:

“Senior housing” can mean many things:

• Independent living facilities.

• Assisted living facilities.

• Residential care facilities.

• Skilled nursing facilities, also known as nursing homes.

• Continuing care retirement facilities.

Types of senior housing are typically distinguished by the kinds and levels of assistance they provide to their residents. Independent living facilities, also known as congregate care facilities, typically offer apartment-style units with kitchens, but also a common dining facility, and limited services, such as housekeeping or transportation. See Timothy J. Boyce, Financing Senior Living Facilities, Probate and Property Magazine, March/April 1996, at 23. They serve residents generally able to function with very limited assistance. Residential care facilities offer more support and supervision and can be appropriate for residents with mild Alzheimer’s and dementia.

The Federal Housing and Community Development Act of 1992 defines assisted living as a state-licensed and regulated facility that “makes available to residents supportive services to assist the residents in carrying out activities of daily living, . . . may make available to residents home health care services, such as nursing and therapy, [and] provides separate dwelling units for residents, each of which may contain a full kitchen and bathroom.” 12 U.S.C. §1715w(b)(6)(2001). Speaking more broadly and, perhaps, more aspirationally, the Assisted Living Federation of America defines assisted living “as a special combination of services, personalized assistance and health care designed to respond to the individual needs of those who need help with activities of daily living . . . . Supportive services are available, 24 hours a day, to meet scheduled and unscheduled needs, in a way that promotes maximum dignity and independence for each resident and involves the resident’s family, neighbors, and friends.” Quoted in Jacque Woodring, Deer Springs Assisted Living: A Case Study, Real Estate Review Journal, Summer 2012.

A skilled nursing facility provides the most extensive services of any type of senior housing. In addition to assistance with activities of daily living, including feeding, bathing, grooming and dressing (called “ADLs” in the industry), residents have access to round-the-clock medical, nursing and rehabilitative care provided by nurses, physical therapists, occupational therapists, pharmacists and other licensed professionals. Reflecting the condition of most residents of skilled nursing facilities, units are more like hospital rooms than apartments and have no kitchens and minimal furniture.

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A continuing care facility may combine features of independent living, assisted living and skilled nursing facilities. Residents of continuing care facilities typically take occupancy needing a relatively lower level of service, but have the right to remain in the facility and move as needed to ever-higher levels of care.

States adopt their own definitions of different types of senior housing, so the definitions above should be considered illustrative only. Here are two examples of state definitions of skilled nursing facilities, one from Florida and one from Virginia:

“Nursing home means any premises operated for profit in which nursing care and related medical or other health services are provided, for a period exceeding twenty- four hours for two or more individuals, who are not relatives of the operator, who are not acutely ill and in need of hospitalization, but who, because of age, illness, disease, injury, convalescence or physical or mental infirmity need such care.” 62 Pa. Cons. Stat. Ann. § 1001 (West 2010).

“‘Nursing home’ means any facility or any identifiable component of any facility licensed pursuant to this article [Chapter 5, Title 32.1, VA Code Ann. (2004)] in which the primary function is the provision, on a continuing basis, of nursing services and health-related services for the treatment and inpatient care of two or more nonrelated individuals, including facilities known by varying nomenclature or designation such as convalescent homes, skilled nursing facilities or skilled care facilities, intermediate care facilities, extended care facilities and nursing or nursing care facilities.” VA Code Ann. §32.1-123 (2011).

(This paper is focused on skilled nursing facilities as a segment of the senior housing industry but, as these definitions reveal, skilled nursing facilities may serve residents of any age that need the level of care they provide – people recovering from accidents, and people who have been disabled by injury or disease, for example.)

A 2011 report on skilled nursing facilities provides some interesting facts about this segment of the senior housing industry:

• At the time of the survey, there were 15,465 certified facilities in the United States with 1,646,302 beds and 1.4 million residents.

• In 2010, 13% of the U.S. population was 65 or older. By 2040, 20% of the U.S. population will occupy that demographic.

• The average size of skilled nursing facilities in the U.S. was 108.5 beds, but varied widely by state. In New York skilled nursing facilities had, on average, 186 beds; in Alaska, 42.5.

• The average occupancy rate of skilled nursing facilities across the U.S. was 83%, again with wide variations by state. South Dakota’s average occupancy rate was the highest in the nation at 100% (joining nine other states with occupancy rates above 90%). Montana’s occupancy rate was the lowest at 69.5%, joining five other states with rates less than 70%.

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• 95% of skilled nursing facilities were certified to participate in both Medicare and Medicaid. Overall, Medicaid paid the expenses of over 63% of residents, Medicare 14.5%. 22% of residents paid privately. Some of these statistics also vary widely by state, however, presumably reflecting the fact that Medicare is administered federally, Medicaid by the states. In Iowa, Medicaid paid for 47% of residents and private sources paid for 45% In Alaska and the District of Columbia, Medicaid paid for over 80% of residents.

• Nationally, 68% of skilled nursing facilities were for-profit. In some states, however, this percentage exceeded 80% (e.g., Arkansas, Oklahoma and Oregon); in others, it was less than 50% (e.g., Minnesota and South Dakota). Over half of all skilled nursing facilities were owned by companies that have multiple facilities.

The Kaiser Commission on Medicaid and the Uninsured, Overview of Nursing Facility Capacity, Financing and Ownership in the United States, (June 28, 2013) http://kff.org/medicaid/fact-sheet/overview-of-nursing-facility-capacity-financing-and-ownership-in-the-united-states-in-2011/.

Part II: What Makes up a Skilled Nursing Facility? Assets to be Acquired and Liabilities to be Avoided.

A. Assets to be Acquired -- Sample Provision:

__. Seller agrees to sell to Buyer on the Closing Date, and Buyer agrees to purchase on the Closing Date, in accordance with the terms of this Agreement:

(a) The land described on Exhibits A-1 through A-15 hereto, together with any and all privileges and easements appurtenant thereto (the “Land”);

(b) The existing buildings, fixtures, structures and other improvements located upon the Land, together with, to the extent not constituting Personal Property, apparatus, equipment and appliances incorporated therein and used in connection with the operation and occupancy thereof, but specifically excluding the property more particularly described on Schedule [•] (the “Improvements”);

(c) All of Seller’s right, title and interest in and to the leases identified on Schedule [•] hereto (the “Leases”) pursuant to which Seller leases the real property identified on Exhibits A-16 through A-25;

(d) All tangible personal property located at the Facilities and used in connection with the operation of the Facilities, including, but not limited, to inventory, supplies, furnishings, moveable trade fixtures, and vehicles, but specifically excluding the property more particularly described on Schedule [•] (the “Personal Property”);

(e) to the extent assignable, all governmental permits, licenses, certificates, accreditations, approvals and authorizations used in or relating to the ownership, occupancy or operation of any of the Facilities, including any permit, license, accreditation or other approval

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necessary under applicable federal, state or local law in order to operate the Facilities as skilled nursing facilities, excluding, however, those more particularly described on Schedule [•] (the “Permits”);

(f) All of Seller’s right, title and interest in and to the resident agreements for the Facilities in effect on the Closing Date (the “Resident Agreements”);

(g) All refundable deposits under the Resident Agreements or under other Rights being assumed by Buyer as part of the Property and all funds held in trust by Seller for residents of the Facilities (the “Resident Property”);

(h) The trade names listed on Schedule [•] attached hereto (the “Trade Names”);

(i) To the extent transferable, all service, maintenance, supply, marketing and management contracts in effect as of the Effective Date related to the operation of the Facilities (the “Contracts”), except for the contracts listed on Schedule [•] and except to the extent Buyer notifies Seller in accordance with the terms of Section [•] below that it does not desire to assume any of such contracts, and all contracts which Buyer agrees to assume or is deemed to have agreed to assume pursuant to Section [•] below (together, the “Assumed Contracts”); provided, however, that Buyer must assume all of Seller’s right, title and interest in and to all of the contracts listed on Schedule [•] (the “Mandatory Contracts”); and

(j) All of Seller’s right, title and interest in and to all books, records, contracts, vendor agreements, warranties, guarantees, permits and other agreements relating to the operation of the Facilities, to the extent transferable, except for any such instruments listed on Schedule [•] and except to the extent Buyer notifies Seller in accordance with the terms of Section [•] below that it does not desire to assume any such instruments (collectively the “Rights”).

The Land and the Improvements are collectively referred to herein as the “Real Property”. The Real Property, Leases, Personal Property, Permits, Trade Names, Rights, Resident Agreements, and Resident Property are referred to herein collectively as the “Property.” Notwithstanding any other provision of this Agreement, the Property will not include the Excluded Assets (as defined below).

* * * * *

__. Notwithstanding anything to the contrary set forth in this Agreement, Seller is not transferring to Buyer any of, and Buyer shall acquire no right, title or interest in or to, the following assets of Seller (the “Excluded Assets”):

(a) All cash, cash equivalents, securities and investments, and accounts receivable, notes receivable, premiums receivable, commissions receivable, and other rights to receive payments from customers or residents of the Facilities or from others, including all trade accounts receivable representing amounts payable to Seller for services rendered to such customers or residents prior to the Closing Date;

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(b) All books, records, files, and papers (whether in hard copy or computer format) that are not used in, or that do not relate to or affect, the Facilities, including sales and promotional literature, manuals and data, sales and purchase correspondence;

(c) All tax identification numbers, tax returns and rights to any tax refunds;

(d) Any governmental authorization that relate to or affect the Facilities but which are not assignable or transferable;

(e) All personnel and employment records that relate to former or current Facilities Employees (as defined below) except as provided herein or to the extent that legal requirements require such records, or copies of such records, to remain at the Facilities;

(f) All insurance policies to which Seller or any affiliate of Seller is a party;

(g) Seller or any of its affiliates’ rights to any trade names, trademarks or service marks except as provided herein;

(h) All refundable deposits paid by Seller to third parties (the “Seller Deposits”);

(i) The registered names “IWS Corporation” and “[•] Corporation” [name of Seller’s Operator, if affiliated with Seller] or any names including “IWS” or “[•]” within them, the registered IWS and [•] design logos, all of Seller’s [and Operator’s] intellectual property other than Seller’s interest in the Trade Names, including but not limited to the IWS and [•] websites and their content and any IWS or [•] employee handbooks, training manuals, human resources policies and procedures, assessment and negotiated service agreement forms and other forms, resident handbooks, operations policies and procedures, and any and all goodwill in any way relating to IWS or [•];

(j) Any loan reserves of Seller, including any reserves for maintenance, repairs, insurance and property taxes;

(k) All apparatus, equipment, appliances and other personal property described on Schedule [•] attached hereto; and

(l) Any other contract, right or property of Seller expressly described on Schedule [•] attached hereto.

Discussion:

The definitions of a skilled nursing facility set forth above suggest the components that comprise this type of asset:

• Land.

• Improvements.

• Furniture, fixtures and equipment.

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• Food and beverages.

• Medical supplies (drugs, bandages, orthotics, etc.).

• Linens, cookware, tableware, books, art supplies, games, etc.

• Occupancy agreements (resident agreements and leases to third parties, such as beauty shops).

• Entitlements and permits.

• Contracts for a wide variety of possible services (maintenance and repair, landscaping, van service, medical and rehabilitative care, etc.).

• Licenses.

• Tradenames and trademarks.

• Patient records.

• Resident deposits and funds held in trust.

• Maintenance, repair, inspection, employee, and other operating records.

Some of these components are common to nearly all types of real estate assets. Others are common to certain categories of assets, such as hospitality and general healthcare. And others are unique to skilled nursing facilities. For example, the improvements that comprise a skilled nursing facility are likely to be of little use for anything else. The residents’ rooms are not large enough or configured to accommodate senior housing for less frail elderly and a skilled nursing facility not already part of a hospital will not have the infrastructure necessary to care for the acutely ill patients served by a hospital. The FF&E in a skilled nursing facility will, like a hotel, include beds, bureaus, desks, chairs, tables, linens, glassware, tableware, and so on, but, as anyone who has visited a skilled nursing facility knows, they will not resemble very closely what one would find in a hotel, and, unlike a hotel, the FF&E of a skilled nursing facility will include wheelchairs, pharmaceuticals, and medical supplies and equipment. There are likely to be contracts for a variety of services, as well as the provision of supplies. In the acquisition of a skilled nursing facility, however, the failure to assume contracts for critical services or supplies – unless there are viable alternatives available at closing – may be more than an inconvenience to customers or guests; it can literally be a matter of life or death for frail and ill residents. Residents may have made deposits or, if the skilled nursing facility is part of a continuing care facility, residents may have paid entrance fees that ensure their access to ever higher levels of care. Residents or their families may have entrusted the skilled nursing facility with funds to be made available to the residents or used by the facility to pay for incidentals. The handling of such matters will likely be subject to state regulation. The point is simply that real estate lawyers will find much in the acquisition of a skilled nursing facility familiar, but often with healthcare or age-related characteristics.

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The purchase and sale agreement should be complete and precise in dealing with assets to be acquired. As discussed more fully in later sections on due diligence, closing conditions and transition issues, some licenses will and others will not be transferable; with the significant exception of Medicare and Medicaid certifications, a buyer likely will want to acquire all licenses that are transferable. Depending on the size of the community in which a skilled nursing facility is located, there may be many or few alternative service providers with whom a buyer can contract. For example, a small town may have only one or two businesses that provide physical or occupational therapy (if that is not a service provided by an employee of the seller). A buyer or -- as in the present hypothetical, its prospective operating company -- may have in-house expertise that will replace services that the seller obtains from third parties or provides itself. The purchase and sale agreement should therefore deal with the assignment (and assignability) of contracts that the buyer may want to acquire and the termination (and terminability) of those it does not.

The list of excluded assets provided above is reasonably typical. The treatment of accounts receivable will depend on the terms of the transaction and, in particular, whether Medicare and Medicaid provider agreements are being assumed by the buyer. (Some of the complexities related to accounts receivable in the acquisition of a skilled nursing facility are discussed in Part V below.) If a seller owns other facilities not included in the transaction that are operated under the seller’s tradename or that utilize the seller’s company-wide logos and proprietary materials, or if the facility being acquired is operated by a third-party affiliated with the seller that operates other facilities under a common tradename and utilizing common logos and proprietary materials, the purchase and sale agreement should carefully consider what intellectual property to transfer and what to exclude.

B. Liabilities to be Avoided -- Sample Provision.

Sample Provision:

Effective as of the Closing Date, Buyer shall assume, perform and discharge all obligations, duties, or liabilities of every type, known or unknown (the “Liabilities”) arising from and after the Closing Date out of or in connection with (i) the Assumed Loans, and (ii) the Property, including all Liabilities arising from or relating to the ownership of the Property or the operation of the business conducted at the Facilities on or after the Closing Date, including Liabilities relating to the Assumed Assets, any Taxes arising from or relating to the ownership of the Facilities or the operation of the business conducted at the Facilities on or after the Closing Date (including any Taxes for which Buyer is responsible pursuant to this Agreement) and any Environmental Liabilities arising from or relating to the ownership of the Property or the operation of the business conducted at the Facilities on the Real Property on or after the Closing Date, (iii) any obligations of Seller in respect of refundable deposits paid by third parties prior to the Closing Date under the Resident Agreements or under other Rights being assumed by Buyer as part of the Property, and (iv) all Liabilities arising on and after the Closing Date under the Assumed Contracts (collectively, the “Assumed Liabilities”). Effective as of the Closing Date, Buyer shall assume the Mandatory Contracts together with any other Assumed Contracts, and Buyer and Seller agree to execute, on or before the Closing, any and all documentation reasonably required to effectuate and/or evidence such assumption.

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Except as specifically provided in this Agreement, Buyer will not assume any Liabilities of Seller, and Seller will be solely liable for, and will pay, discharge and perform, all Liabilities of Seller that do not constitute Assumed Liabilities and all Liabilities arising from or relating to Seller’s ownership of the Property or operation of the business conducted at the Facilities prior to the Closing Date, including Liabilities relating to the Excluded Assets, any Taxes of Seller or arising from or relating to Seller’s ownership of the Property or operation of the business conducted at the Facilities prior to the Closing Date (including any Taxes for which Seller is responsible pursuant to this Agreement), any employment related or employee benefits related Liabilities arising from or relating to Seller’s ownership of the Property or operation of the business conducted at the Facilities prior to the Closing Date, and any Environmental Liabilities arising from or relating to the Property or operation of the business conducted at the Facilities prior to the Closing Date (collectively, the “Retained Liabilities”).

Discussion:

The purchase of a skilled nursing facility is the acquisition of an ongoing business, akin to the purchase of a hotel or resort or to a corporate acquisition. A buyer therefore will of necessity assume more of a seller’s continuing obligations than would be typical in the purchase of, say, an office building or a shopping center. As illustrated by the sample provision above, a seller typically retains and remains responsible for income and franchise taxes related to its business prior to closing, for third-party claims arising out of its operation of the facility prior to closing, for penalties associated with existing violations of law and for obligations under contracts not assumed by the buyer. Conversely, the buyer typically assumes responsibility for post-closing obligations arising out of the operation of the facility, including obligations under assumed contracts. The allocation of responsibility for accrued employee benefits will likely depend on the assumptions made in arriving at the purchase price. The allocation of the cost of dealing with post-closing corrective actions required by reason of conditions existing at closing will likely be a subject of negotiation. One treatment of this issue is discussed in Part V below.

These sorts of issues are not unusual in real estate transactions, but the regulatory overlay in acquisitions of skilled nursing facilities creates some unique concerns for buyers. If a Medicare or Medicaid provider agreement is assigned to the buyer of a skilled nursing facility, the buyer becomes subject to all of its provisions and responsible for all of the seller’s obligations and liabilities under the agreement. See 42 C.F.R. §489.18(d) (2012). A provider agreement is automatically assigned to the purchaser unless the purchaser affirmatively elects that it not be assigned. 42 C.F.R. §489.18(c) (2012).

Courts have applied this provision liberally. The leading case on the subject is U.S. v. Vernon Home Health, Inc., 21 F.3d 693 (5th Cir. 1994), cert. denied, 513 U.S. 1015 (1994). In that case, Vernon Home Health Care Agency, Inc. (“Vernon II”) in March of 1985 purchased the assets of a Medicare provider, Vernon Home Health, Inc. (“Vernon I”). By the terms of the purchase agreement, Vernon II assumed none of the liabilities of Vernon I. The federal government subsequently sued both Vernon I and Vernon II for overpayments made to Vernon I with respect to the fiscal year that ended June 30, 1984 -- eight months prior to Vernon II’s acquisition of the assets of Vernon I. The court held

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that the issue of successor liability for overpayments under the Medicare program is a subject of federal, not state, law and that federal law unambiguously provides that “any purchase of assets that involves the assignment of the provider agreement is subject to the relevant statutory and regulatory conditions,” among them that adjustments are made for overpayments. Vernon Home Health, at 696.

The Eighth Circuit reached the same conclusion in a different context in Deerbrook Pavilion, LLC v. Shalala, 235 F.3d 1100 (8th Cir. 2000). In Deerbrook Pavilion, $419,700 in civil monetary penalties were imposed in 1996 on the owner of a skilled nursing facility for violations of basic sanitary standards and neglect of residents’ needs that threatened the residents’ health and safety. The facility was eventually brought into compliance and, in January 1997, sold to Deerbrook Pavilion LLC. When the government was unable to collect the penalties from the prior operator, it sought to collect them from Deerbrook. Deerbrook then sued, alleging that the government had no authority to impose penalties on it and that to do so would be a violation of due process. The district court dismissed Deerbrook’s complaint for failure to state a cause of action and the Eighth Circuit affirmed, holding that there is no meaningful distinction between the government’s recovering an overpayment from a successor (as in Vernon Home Health) and collecting penalties imposed on a prior owner. Deerbrook Pavilion, at 1104. Significantly for this paper, the court observed that “checking a facility’s regulatory history is an important due diligence task.” Id. at 1105. See also Triad at Jeffersonville I, LLC v. Leavitt, 563 F. Supp. 2d 1 (D.D.C. 2008) (a buyer that operated five skilled nursing facilities under the seller’s provider agreements before issuance of regulatory approval process held liable to reimburse payments made after approval that duplicated payments made to the seller during the period between application and approval); BP Care, Inc. v. Thompson, 337 F. Supp. 2d 1021 (S.D. Ohio 2003)(dismissing for failure to state a cause of action the claim of a successor owner of a skilled nursing facility that liability for civil monetary penalties imposed on a prior owner was limited to assets of the prior owner).

This rule has been applied even in involuntary transfers. In two cases, landlords that took over skilled nursing facilities abandoned by their tenants and assumed the tenants’ provider agreements were held responsible for civil monetary penalties that had been imposed on the tenants. Delta Health Group, Inc. v. Dep’t of Health and Human Services, 459 F. Supp. 2d 1207 (N.D. Fla. 2006); Loess Hills Nursing and Rehabilitation Center v. CMS, Dep’t of Health and Human Services, Departmental Appeals Board, Civil Remedies Div., Dec. No. C-01-578, C-01-751 (December 6, 2001), http://www.hhs.gov/dab/decisions/cr843.html.

One commentator notes that assumed liabilities may also include liability under the False Claims Act, 31 U.S.C. § 3729 et. seq. (2003), and criminal liability, regardless of how the parties may otherwise have allocated responsibility for such matters in the transaction documents. See Thomas E. Bartrum, Healthcare Transactions & Medicare’s Change of Ownership Rules, http://www.healthlawyers.org/Events/Programs/Materials/Documents/MM09/bartrum.pdf.

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There are also other concerns related to assuming or not assuming a seller’s Medicare and Medicaid provider agreements. In In re Raintree Healthcare Corp., 431 F.3d 685 (Ninth Circuit 2005), the court held that a buyer’s assumption of its predecessor’s provider agreement did not automatically transfer the right to post-closing payments made by the government in respect of pre-closing underpayments. In contrast to the decisions in Vernon Home Health and Deerbrook Pavilion, supra, the court therefore looked to the terms of the parties’ agreement to determine the right to the additional payments. And in a Memorandum and Order entered in Oak Knoll Health Care Center v. Leavitt, No. 1:08-cv-12051-DPW (D. Mass September 22, 2011), the court held that, because it had assumed the provider number that had been used by two predecessors-in-interest for the skilled nursing facility in question, a buyer was ineligible to adopt favorable reimbursement rates under a rule that limited the rates to “new providers,” i.e., providers who had operated under a provider number for less than three years.

Numerous cases address these issues as they arise in or are affected by bankruptcy proceedings. See, e.g., In re VitalSigns Homecare, Inc., 396 B.R. 232 (Bkrptcy. D. Mass 2008), and cases cited therein.

For these reasons, the buyer of a skilled nursing facility may want the purchase and sale agreement to provide that it is not assuming the seller’s Medicare and Medicaid provider agreements. If the agreements are assumed, the buyer will have to pay particular attention in due diligence to the seller’s performance of its Medicare and Medicaid obligations and the buyer will want to address potential post-closing liabilities in the indemnity provisions of the purchase and sale agreement.

Part III: Due Diligence in the Acquisition of a Skilled Nursing Facility

Sample Provision:

__. Seller shall make available to Buyer in the data room (to the extent in Seller’s or Manager’s possession):

(a) any existing policies of title insurance in favor of Seller with respect to a Facility;

(b) any existing surveys of the Land and Improvements that comprise a Facility;

(c) any existing as-built plans for the Improvements comprising a Facility;

(d) copies of the licenses and permits for the operation of each of the Facilities, including without limitation certificates of need and certificates of occupancy;

(e) copies of environmental or property inspection reports or assessments of each of the Facilities;

(f) copies of all Contracts other than those listed on Schedule [•];

(g) the form of Resident Agreement for each Facility;

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(h) copies of the resident handbook for each Facility;

(i) copies of recent marketing materials, if any, with respect to each Facility;

(j) the Medicaid and Medicare Contract for each Facility, if applicable, together with copies of all cost reports relating to the Facilities for the preceding _______ (__) years;

(k) copies of all employee handbooks and policy statements in use or effect at the Facilities;

(l) copies of the Assumed Loan Documents;

(m) Operating statements for each Facility for 20____ and 20____ and for the period ending__________, 20___;

(n) copies of any and all written notices received by Seller or Manager within the last two (2) years from any governmental or quasi-governmental authority with respect to (i) violations or alleged violations of any Law or Permit; (ii) complaints by any Residents of the Facilities; and (iii) results of all regulatory inspections and surveys of the Facilities;

(o) A list of all pending litigation concerning Seller, Manager (if such litigation of Manager is related to any of the Facilities) or any Facility; and

(p) copies of all of the Assumed Loan Documents.

__. Upon at least twenty-four (24) hours advance notice from Buyer to Seller, with a scheduled appointment with Seller, Buyer, its agents, employees and contractors shall from the date of this Agreement until the Closing (or earlier termination of this Agreement) have the right to reasonable access to the Facilities as follows: (i) no more than ______ (__) times per Facility, during normal business hours, enter onto each of the Facilities, including the interior and exterior and structural components of the Improvements and any tenant spaces to perform any and all physical inspections of the Facilities, including, but not limited to, engineering studies, wetlands location studies, surveys, percolation tests, soil analysis, environmental tests, soil borings, feasibility studies and any other tests and investigations of a similar nature, (ii) no more than two (2) times per Property, during normal business hours, (x) review all documents stored on-site at the Facilities, including without limitation any Resident Agreements, records of all funds held in trust for Residents, tenant records, contracts, management agreements, licenses, certificates, copies of bills for utilities and other operational costs, income and expense records, architectural renderings, surveys, plans, warranties and guarantees concerning the Facilities, and (y) interview the facility manager and community care coordinator responsible for performing patient assessments at the Facility, who are listed on Exhibit [•] attached hereto, with respect to such Facility, and (iii) interview all regional managers listed on Exhibit [•]. Seller represents that the facility managers listed on Exhibit [•] are the employees of Seller with management and operational responsibilities of each of the Facilities. Seller represents that the regional managers listed on Exhibit [•] are the employees of Manager with management responsibilities of each of the Facilities. All other documentation or information required by Buyer for its evaluation of any or all of the Facilities shall be requested in writing by Buyer and if not described in subsection (i)

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or (ii) above, Seller shall provide such information as may be in Seller’s or Manager’s possession. In no event shall Buyer have any access to or contact with any residents or employees or other personnel at the Facilities, other than those listed on Exhibit [•] until after the expiration of the Due Diligence Period. Following the expiration of the Due Diligence Period, if this Agreement has not been terminated by Buyer in accordance with its terms, Buyer shall be permitted to interview employees of each Facility, so long as such interviews are coordinated with Seller’s facility manager listed on Exhibit [•] and do not unreasonably interfere with the performance of such employees’ duties at the Facilities.

Discussion:

The acquisition of a skilled nursing facility involves a number of due diligence subjects in addition to those that would customarily be covered in the investigation of other real estate assets:

1. Medicare and Medicaid. If a facility accepts residents whose charges are paid in whole or in part by Medicare or Medicaid, the facility must be certified as a Medicare or Medicaid provider. As discussed above, there are issues of successor liability that may cause a buyer not to assume a seller’s Medicare or Medicaid certification; on the other hand, as discussed below, the timing of a transaction may make it necessary to assume a seller’s provider agreements. In the latter situation, the seller’s compliance with Medicare and Medicaid requirements is a critical component of a buyer’s due diligence. And even in the former situation, regulatory compliance is important, inasmuch as the ongoing operations at the facility after closing will sooner or later come under regulatory scrutiny.

2. Certificate of Need.

In an attempt to control healthcare costs, a substantial majority of states restricts entry into the long-term care industry by requiring state authorization for the opening of a new skilled nursing facility. The authorization is often issued in the form of a “Certificate of Need.” See, e.g., Fla.. Stat. Ann. §§ 408.036, 039 (West 2002); Va. Code Ann. §32.1-102.3 (2011).

The first state statute requiring an assessment of need as a condition to the approval of a new nursing home appears to have been enacted in New York in 1964. By 1978, thirty five other states had followed suit. National Conference of State Legislatures, Certificate of Need: State Health Laws and Programs, (updated March, 2012) http://www.ncsl.org/research/health/con-certificate-of-need-state-laws.aspx (the “NCSL Report”). Between 1974 and 1987, federal law required all states to review major capital expenditures for healthcare facilities; when that requirement was repealed, fourteen states discontinued their certificate of need programs. Id. As of 2012, thirty six states, as well as Puerto Rico and the District of Columbia, still maintained some type of certificate of need program and the others in some fashion regulated entry into the industry. Id. According to the NCSL Report, of the states in the hypothetical used in this paper, only Pennsylvania does not have a certificate of need program.

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A Certificate of Need may regulate the number of beds a facility can provide, the amount and type of equipment it purchases, the services it provides and the persons it serves. In states that require one, reviewing a Certificate of Need is, obviously, a critical part of due diligence.

3. Licenses. A property must typically hold a license to be operated as a skilled nursing facility. See, e.g., 62 Pa. Cons. Stat. Ann. § 1002 (West 2010); Va. Code Ann. § 32.1-125(A) (“No person shall own, establish, conduct, maintain, manage or operate in this Commonwealth any hospital or nursing home unless such hospital or nursing home is licensed or certified as provided in this article”); Mass. Ann. Laws ch. 111, § 73 (LexisNexis 2004) (imposing monetary penalties and potential imprisonment for operating a nursing home without a license). (Whether a license may be transferred or a new license obtained is a question to be answered under state law and is discussed in Part IV below). Licenses or permits may be required for specific activities at the facility such as preparing food or handling medical waste. In addition, because of the variety of regulated services that a skilled nursing facility may provide, it may employ many types of licensed professionals:

a. Doctors.

a. Registered nurses.

b. Social workers.

c. Pharmacists.

d. Physical therapists.

e. Occupational therapists.

f. Speech/language pathologists.

g. Dieticians.

h. Beauticians.

4. Survey Results. Skilled nursing facilities are subject to periodic inspections by state and federal authorities to determine their compliance with, where applicable, their Certificates of Need, as well as applicable laws and regulations. See, e.g., 62 Pa. Cons. Stat. Ann. § 1016 (West 2010); Va. Code Ann. § 32.1-126 (2011); Mass. Ann. Laws ch. 111, §§ 72, 72.E (LexisNexis 2004). These inspections are typically called “surveys.” Surveys may identify deficiencies in the operation of a skilled nursing facility and impose required corrective actions and deadlines for completion. There can be penalties for not correcting deficiencies, some of them severe. For example, failure to satisfy the conditions of a Certificate of Need can lead to monetary penalties and revocation of the certificate. Va. Code Ann. § 32.1-102.4(C), (D) (2011). Massachusetts law provides that, after an inspection, the state Department of Public Health

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“shall . . . give the licensee of the inspected facility notice in writing of every violation of the applicable rules and regulations of the department found upon said inspection. The department in such notice shall specify a reasonable time, not more than sixty days after receipt thereof, by which time the licensee shall remedy or correct each violation cited therein; provided, that, in the case of any violation which in the opinion of the department is not capable of correction within sixty days, the department shall require only that the licensee submit a written plan for correction of the violation in a reasonable manner. The department may modify any nonconforming plan upon notice in writing to the licensee. Failure to remedy or correct a cited violation by the date specified in a written notice hereunder or failure to remedy or correct a cited violation by the date specified in a plan for correction as accepted or modified by the department, as the case may be, shall be cause for license revocation or such civil fine as may be imposed upon the licensee after complaint brought by the department . . ., unless the licensee shall demonstrate to the satisfaction of the department or the court, as the case may be, that such failure was not due to any neglect of his duty and occurred despite his attempt in good faith to make correction by the specified time. The department may pursue either remedy or both or such other sanction as the department may impose administratively upon the licensee . . .”

Mass. Ann. Laws ch.111, § 72E (LexisNexis 2004).

5. Resident Agreements and Policies. Each resident of a skilled nursing facility or the resident’s legal representative must sign an agreement with the facility that sets forth the terms of the resident’s occupancy. Written policies and procedures for resident care are required by federal and state law.

6. Resident Medical Records. The healthcare records of the residents of a skilled nursing facility are subject to the privacy requirements of the Health Insurance Portability and Accountability Act of 1996, Pub. L. No. 104-191, 110 Stat. 1936 (1996) (“HIPPA”) and may be subject to comparable requirements under state law. A buyer taking over the operation of a skilled nursing facility will want to confirm that the seller has complied with HIPPA requirements or will want to know how it must change operations at the facility to correct any violations. While patient records can be disclosed by a healthcare provider to a buyer that is also a healthcare provider, see 45 CFR §§ 164.502(a)(5)(ii)(B)(2)(iv), 164.506(a) & (c), 164.501 (2012), a buyer receiving and reviewing patient records will itself have to comply with HIPPA.

7. Resident Trust Funds. Operators of skilled nursing facilities typically hold funds in trust for the benefit of the residents. A buyer will need a careful accounting of these funds.

8. Employee Policies, Manuals and Records. In most transactions, to ensure continuity of operations and care, many or most of the seller’s employees at a skilled nursing facility will be retained, but on new terms consistent with the buyer’s, new lessee’s or new manager’s employment policies. The continued employment or, if employment is not continued, the immediate replacement of certain employees, such as

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directors of nursing and medical directors, may be required for the facility to operate lawfully.

9. Compliance with Federal Statutes. A buyer of a skilled nursing facility should be aware of a few statutes that may have an impact on the facility:

a. 42 U.S.C.A. § 1320a-7b(West 2012) --the anti-kickback law. If a facility is leased from a healthcare provider or an entity owned or controlled by a healthcare provider, the terms of the lease should be examined to make sure they do not violate the anti-kickback law. See Gregory G. Gosfield, Healthcare Facility Revenue and Funding Issues, American College of Real Estate Lawyers, Annual Meeting Program Papers, § 2.4 (October 2013).

b. Americans with Disabilities Act of 1990, 42 U.S.C.A. §§ 12101-12213 (West 2005).

c. Rehabilitation Act of 1973, 29 U.S.C.A. § 701 et. seq. (West 2008).

10. Environmental. Skilled nursing facilities may deal with blood, syringes, and bandages, and other used medical supplies that, under environmental laws, require special handling. It may therefore be appropriate to include in environmental provisions in the purchase agreement references to “medical waste” and “infectious waste.” Moreover, given the frail condition of residents, mold may be an even greater concern than it is in other real estate transactions.

Part IV: Conditions to Closing

Sample Provision:

__. Buyer’s Conditions to Closing.

(a) Approvals. All consents, approvals and other authorizations of any governmental agencies and third parties required for (i) the Buyer’s intended use of the Facilities and (ii) Buyer’s assumption of the Assumed Loans have been obtained, without the imposition of conditions unsatisfactory to Buyer in its sole discretion.

(b) Representations and Warranties. Each representation and warranty of Seller in Article [•] shall be true and correct in all respects as of the Closing Date.

(c) Absence of Litigation. No order or injunction of any court or administrative agency of competent jurisdiction nor any statute, rule, regulation or executive order promulgated by any Governmental Authority of competent jurisdiction shall be in effect as of the Closing, which has the effect of making the purchase and sale of the Facilities or the transactions contemplated herein illegal or otherwise preventing or prohibiting the purchase and sale of the Facilities or the transactions contemplated herein or otherwise restraining, enjoining, preventing, prohibiting or making illegal the purchase and sale of the Facilities or the transactions contemplated herein.

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(d) Destruction, Damage or Loss. There shall not have occurred prior to Closing, a destruction of, or damage or loss to, the Facilities or any one of them from any cause whatsoever (other than ordinary wear and tear) relative to its condition as of the Effective Date, which would cost more than $____________________, in any single instance, or more than $_________________, in the aggregate, to repair or cure. Buyer shall have the option, within thirty (30) days after receipt of written notice of any loss or losses in excess of the thresholds set forth above, to either terminate this Agreement or to purchase the Property notwithstanding such loss, without deduction or offset against the Purchase Price. If the cost to repair or cure is in excess of the thresholds set forth above and Buyer does not elect to terminate this Agreement, Buyer shall be entitled to any of Seller’s insurance proceeds applicable to any such loss.

(e) Seller Performance. Seller shall have performed, observed and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, observed and/or complied with by Seller prior to, or as of, the Closing.

(f) Title Insurance. Title Company has issued an irrevocable commitment to issue to Buyer the Title Policy together with all endorsements required by Buyer in the amount of the Purchase Price, subject only to the Permitted Exceptions.

(g) Lessor Estoppels. Seller shall have received and delivered to Buyer estoppels from the lessors of the leased Facilities in the forms approved by Buyer pursuant to Section [•] below, with no material alterations to or deviations from such approved forms and with no disclosures of materially adverse information not part of the approved forms.

(h) Non-Compete. The parties hereto shall have entered into the Covenant Not to Compete substantially in the form attached hereto as Exhibit [•].

(i) Licensure of Buyer. As of the Closing, either (i) Buyer has been licensed by the States of _____________ to operate the Facilities with the same authorization, right, and privileges that Seller currently holds, or (ii) the parties shall have entered into Operations Transfer Agreements as contemplated by Section [•] below.

Discussion:

As noted above, the operator of a skilled nursing facility must be licensed under state law and, if residents rely on Medicare or Medicaid for payment of some or all of their charges, certified as a provider under those programs. The operator that holds these licenses and certifications could be the buyer, the buyer’s manger or an operating company to which the facility is to be leased upon closing.

The requirements for transferring existing state licenses, if permitted, or obtaining new licenses and the time involved vary by state. In Florida, for example, an applicant for a new license in connection with a change of ownership must submit its application to the state Agency for Health Care Administration at least sixty days in advance. Fla. Stat. Ann. § 408.806(2)(b) (West 2002). The application must contain, among other things:

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• the name, address and social security number of the applicant, the person responsible for the day-to-day operation of the provider, and the financial officer responsible for the financial operation of the provider;

• information about each “controlling interest;”

• the name by which the provider will be known, the number of beds, and the name of the person under whose management or supervision the provider will operate; and

• “other information, including satisfactory inspection results, that the agency finds necessary to determine the ability of the applicant to carry out its responsibilities under this part, authorizing statutes, and applicable rules.” Fla. Stat. Ann. § 408.806(1) (West 2002).

The agency is required, within thirty days of receipt of an application, to notify the applicant of “any apparent errors or omissions and request any additional information required.” Fla. Stat. Ann. § 408.806(3)(a) (West 2002). The applicant must submit omitted information within twenty one days of request “or the application shall be deemed incomplete and shall be withdrawn from further consideration and the fees shall be forfeited.” Fla. Stat. Ann. § 408.806(3)(b) (West 2002). Within sixty days of its receipt of a complete application, the agency is to approve or deny the application. Fla. Stat. Ann. § 408.806(3)(c) (West 2002). No initial license can be issued unless the licensee has received a certificate of need or an exemption from the requirement for a certificate of need. Fla. Stat. § 408.806(6). For an example of another state’s regulation of the transfer of the license to operate a skilled nursing facility see Mass. Ann. Laws ch. 111, § 71 (LexisNexis 2004).

In Virginia, by contrast, the license to operate a skilled nursing facility is not transferable, so a buyer of a facility must apply for a new license. Va. Code Ann., § 32.1-125(B) (2011).

At the federal level, as discussed in Part II above, there are risks of successor liability that are associated with taking on a seller’s existing Medicare or Medicaid certification, but the timing of a transaction may necessitate that a buyer do so.

If the buyer of a facility elects to assume the seller’s provider agreements, the transaction will likely constitute a change of ownership, commonly referred to as a “CHOW.” See 42 C.F.R. § 489.18 (2012) (Medicare) and 42 C.F.R. § 442.14(b) (2012) (Medicaid). (The rules that determine what constitutes a CHOW are complicated, particularly in connection with the bankruptcy of a provider or when a transaction involves a new management or franchise agreement, the lease of a facility, a merger or consolidation of two providers, or a change in the ownership of direct or indirect interests in a provider.) For a CHOW under Medicare, the buyer and seller must complete and submit the Medicare Enrollment Application, Form CMS-855A (http://www.cms.gov/Medicare/CMS-Forms/CMS-Forms/Downloads/cms855a.pdf).

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If a buyer does not want the seller’s Medicare and Medicaid provider agreements to be assigned to it in connection with a CHOW, it must give notice to that effect in advance of closing (at least 45 days in advance under Medicare) by submitting Form CMS 855A and indicating that the agreement is not to be assumed.

The Centers for Medicare and Medicaid Services (“CMS”), the federal agency that administers the Medicare and Medicaid programs, will not process an application prior to the effective date of the CHOW, but the fiscal intermediary responsible for a facility (the “FI”) will accept and begin to review an application for a Medicare CHOW up to three months before the closing date. See Bartrum, supra, § I.G.6, citing Medicare Program Integrity Manual (Pub. 100-08), Chapter 10, §3.2A. The application is initially reviewed by the FI. The FI then submits its recommendation for approval or denial of the application to the state survey agency that oversees the facility, which conducts any necessary fact-finding and makes its recommendations to the regional CMS office. A CMS contractor then conducts a second review, as needed, to verify that a provider continues to meet the enrollment requirements prior to granting Medicare billing privileges. The regional CMS office, working with the Office of Civil Rights to obtain necessary civil rights clearances, then makes the final determination on the application. See, Triad, supra, at 7; Bartrum, supra, § III.C - F; CMS Form 855A. If approved, an applicant for a new provider agreement must then sign and return the agreement. In addition, the seller must submit a final cost report within forty five days after closing. Id., § II.B.2, citing Provider Reimbursement Manual, Part I, §1502 (http://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Paper-Based-Manuals-Items/CMS021929.html?DLPage=1&DLSort=0&DLSortDir=ascending).

The information required for Medicare licensure can be extensive, including the disclosure of those holding at least 5% direct and indirect interests in the provider, all entities with at least a 5% mortgage, deed of trust or other security interest (calculated by dividing the amount of the secured obligation by the total property an assets of the provider), all general partner interests and all limited partnership interests of 10% or more, as well as officers and directors.

(i) Delivery of Instruments. All instruments and other documents required to be delivered by Seller and described in Section [•] have been delivered to the Title Company.

(j) OpCo Lease Agreement. The OpCo Lease Agreement shall have been executed and delivered by OpCo.

Discussion:

It is common for the owner of skilled nursing (or other senior housing) facilities to lease them to an operating company that may or may not be affiliated with the owner. If that is the intent of a buyer (as has been assumed in the hypothetical facts used in this paper) and the operating company is not a party controlled by or under common control with the buyer, completing and executing appropriate leases will have to be a condition to closing. A buyer is sometimes acquiring a facility from an operating company that no longer wants to be an owner of real property. In that case, the completion and execution of an operating lease between buyer, as landlord, and seller, as tenant/operator, will

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necessarily be part of the transaction. In other circumstances, however, a seller may understandably be concerned that such a condition may extend closing or even leave open the possibility of closing not occurring for failure of a condition over which the seller may have no control. When that is the case, the potential operator may be made a party to the purchase agreement and the agreement may include a covenant to use good faith, commercially reasonable or even best efforts to complete the operating lease within an agreed period. If there is a due diligence period, the purchase agreement may provide that, if a required operating lease is not completed by the end of the due diligence period, either buyer or seller may terminate the agreement.

The details of the transfer of a skilled nursing facility, particularly when the buyer does not intend to operate the facility, are often handled in an Operations Transfer Agreement between the buyer, seller, current operator and new operator (which, depending on the structure of the transaction, could be a lessee or an operator engaged by the buyer or lessee). An Operations Transfer Agreement, or “OTA,” will address several subjects:

• Licensing. If a new operator is to assume control of a facility, then the licensing issues mentioned above will be dealt with in the OTA (though obtaining required licenses will remain a condition to closing in the purchase and sale agreement).

• Transfer of Personal Property. Depending on the arrangements between the buyer and the new operator, the OTA may provide for the transfer of personal property to the operator, rather than the buyer.

• Resident trust funds. OTAs typically provide for the delivery of an accounting of resident trust funds for which the new operator will be responsible and for the manner in which the funds are to be handed over.

• Employees. OTAs spell out how employees are to be handled in the transaction. Typically the current operator will terminate all employees at closing (in compliance with the requirements of the Worker Adjustment and Retraining Notification (or “WARN”) Act, if applicable) and the new operator will commit to offer employment to all or an agreed percentage of the employees. The parties may specify in the OTA the terms on which the new employment will be offered. For example, the new operator may be required to offer an employee a position comparable to his or her position with the current operator and to provide health insurance with no waiting period and no exclusion for pre-existing conditions. Conversely, the current operator will typically be required to pay the employees’ salary and accrued vacation, sick leave and personal time off to the date of closing. The OTA may make either the current operator or the new operator responsible for the obligation to make COBRA insurance coverage available to employees who do not accept employment with the new operator. The OTA will also provide for the transfer of employee records to the new operator.

• Accounts Receivable. In the sample provisions in Part V below, accounts receivable are handled between the buyer and seller, but, if the buyer will not be the operator of the facility, the same issues will instead be dealt with in the OTA.

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• Outstanding Violations. If there are outstanding plans of correction with respect to violations at a facility, provision will have to be made in the OTA, rather than the purchase agreement, for the transition of responsibility for completion of applicable plans of correction -- performance of the work and payment of the cost -- to the new operator.

• Representations, Warranties and Indemnities. OTAs typically include representations, warranties and indemnification provisions that help establish the parties’ agreed allocation of responsibilities and liabilities for matters affecting the operation of the facilities.

Part V: Post-Closing Matters

Sample Provision:

__. Licensing Requirements

(a) At any time following execution of this Agreement, Buyer shall submit, or cause its designated third-party manager or operator of the Facilities to submit, a completed application with schedules and required background information to the appropriate licensing authority in order to obtain all licensing approvals and other Governmental Authority approvals as deemed by Buyer to be required for Buyer or Buyer’s Manager (or their respective Affiliates) to operate each Facility, and approvals required to process a change of ownership or new application for Medicaid certification, if applicable (“Licensing Approvals”). Following submission of the completed applications and documentation, Buyer shall diligently pursue in good faith the Licensing Approvals, including without limitation, completing information requested in a timely manner, attaching required information and exhibits to the Licensing Approvals applications and promptly responding to requests made in connection with the Licensing Approvals. If Buyer does not obtain all Licensing Approvals on or before the Closing Date, Seller and Buyer shall enter into a Transition Agreement with respect to the Facilities for which Licensing Approvals are not obtained on or before the Closing Date. At least five (5) Business Days prior to the Closing Date, Buyer shall deliver to Seller a list of Facilities for which Buyer reasonably anticipates the Licensing Approvals will be received by Buyer or Buyer’s manager or operator on or before the Closing Date (so that the Transition Date will be the same date as the Closing Date). If any Licensing Approvals are not obtained on or before the expiration of twelve (12) full calendar months following the Closing, then Seller and Buyer shall renegotiate the Transition Agreements upon such terms and conditions as are reasonably acceptable to Seller and Buyer. For those Facilities in states that require that advance notice be given to residents in connection with the transactions contemplated by this Agreement, as soon as practical after the date hereof, Seller will dispatch notification letters to each resident of such Properties, in the form attached hereto as Exhibit [•], as such form may be modified to comply with and as may be required by applicable Law and containing such other information as Buyer may reasonably request, including without limitation information concerning Buyer and/or Buyer’s Manager. Following delivery by Seller of such notification letters, Buyer may deliver additional introduction or notification letters to each resident of the same Facility, in the form attached hereto as Exhibit [•]-1, as such form may be modified to comply with and as may be required by applicable Law.

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Discussion:

The timing of a transaction may not accommodate the potentially lengthy process of transferring the existing licenses for a skilled nursing facility or obtaining new licenses. If that is the case, a transitional agreement may be required under which the current licensee continues to operate the facility for the benefit of the buyer.

Sample Provision:

__. Remedying Violations of Law

(a) If an applicable licensing authority requires any repairs, construction, alterations, improvements, modifications or other changes to the physical plant of any of the Facilities, whether structural, non-structural cosmetic or otherwise (collectively, “Repairs”) (but specifically excluding any Repairs for any Licensing Approvals sought by Buyer that are for new licenses or different licenses which changes to such Facilities would not otherwise be required if Buyer were just applying for the Same Licensing Approvals, as a condition for Buyer to obtain the same or similar Licensing Approvals as the Seller or Facilities have as of the date of this Agreement (“Same Licensing Approvals”) or there are any costs to remedy any violations of Law, including, without limitation, violations of any building, safety, health, fire or zoning ordinance (whether or not related to the Licensing Approvals), Buyer and Seller shall be responsible for any and all costs and expenses associated with Repairs to comply with the requirements of the currently effective licensing Laws for the Same Licensing Approvals and with the remedying of any violations of Laws (the “Work”) as follows:

(i) Buyer shall be responsible for any and all costs associated with the Work, excluding costs of inspection and license applications and legal fees and costs related thereto, up to the first ______________________ Dollars ($______________) (the “Buyer Bucket”) of out-of-pocket costs and expenses associated with the Work in the aggregate for all Facilities.

(ii) Thereafter, Seller shall be responsible for any and all costs associated with the Work, excluding costs of inspection and license applications and legal fees and costs related thereto, up to the next ___________________ Dollars ($_____________________) (the “Seller Bucket”) of out-of-pocket costs and expenses associated with the Work in the aggregate for all Facilities after payment by Buyer of the amounts included in the Buyer Bucket.

(iii) At Closing, an amount equal to the Seller Bucket (the “Work Deposit”) shall be paid at Closing by Buyer to the Escrow Agent out of the amounts payable by Buyer pursuant to Section [•]. The Escrow Agent shall disburse the Work Deposit, or any portion thereof, in accordance with the Escrow Agreement. If the Work Deposit is not sufficient to cover all costs for which Seller is responsible pursuant to this Section __, Seller shall promptly pay any such shortfall to Buyer.

(b) Seller shall cooperate with and take all actions reasonably necessary and requested to assist Buyer and/or Manager, to obtain such Licensing Approvals and other Governmental Authority approvals, including without limitation, with respect to inspections at

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the Facilities necessary to obtain the Licensing Approvals, the assignment of any existing Medicaid provider agreements and contracts or the obtaining of new Medicaid provider agreements or contracts for Facilities with such existing agreements or contracts at Buyer’s option, at no cost to Seller, and providing notices required by applicable Law or agreements to be given to Governmental Authorities or other Persons, subject to the prior written approval of Buyer. Seller agrees that upon execution and delivery of this Agreement, Buyer is authorized to apply for all Licensing Approvals and other Governmental Authority approvals and to disclose the transactions contemplated by this Agreement to all Governmental Authorities. Notwithstanding anything to the contrary contained herein, any costs relating to Work actually paid out or included in pending claims for insurance or condemnation proceeds, which pending claims have been approved and acknowledged by the applicable company or condemnation authority respectively, shall be excluded from the calculation of amounts paid from both the Buyer Bucket and the Seller Bucket.

Discussion:

The transfer of a certification or license or the application for a new certification or license may trigger an inspection of the facility and result in the identification of violations and the imposition of requirements for corrective action. It would be typical to allocate to the seller the responsibility for addressing corrective action outstanding at the time the agreement is signed. Who bears the responsibility for corrective actions triggered by the transaction itself -- and how addressing newly-noted violations will affect the closing of the transaction -- are business points to be negotiated. In the example above, the parties arrived at a cost-sharing arrangement that permitted the transaction to close with outstanding violations unresolved. Other arrangements are of course possible, depending on what was known about a facility in setting the purchase price, and whether the violation runs afoul of any representations or covenants in the purchase agreement, and whether the violation is somehow uniquely related to the transfer of the facility, as opposed to the result simply of a current inspection. Often responsibility for violations is handled through indemnification obligations for the violation of representations and warranties, with baskets and caps that allocate the financial burden of unanticipated corrective actions.

Sample Provision:

__. Third Party Payments

In furtherance and not in limitation of the requirements set forth in paragraph [•] above, payments received by Buyer after the Closing Date from third party payors, including, but not limited to Medicaid, Medicare, managed care organizations, the U.S. Veterans Administration or any other federal or state agency, shall be handled as follows:

(i) If such payments either specifically indicate on the accompanying remittance advice, or if the parties agree, that they relate to the period prior to the Closing Date, they shall be forwarded to Seller, along with the applicable remittance advice, within ten (10) Business Days after receipt thereof;

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(ii) If such payments indicate on the accompanying remittance advice, or if the parties agree, that they relate to the period on or after the Closing Date, they shall be retained by Buyer; and

(iii) If such payments indicate on the accompanying remittance advice, or the parties agree, that they relate to periods both prior to and after the Closing Date, the portion thereof which relates to the period on and after the Closing Date shall be retained by Buyer and the balance shall be remitted to Seller within ten (10) Business Days after receipt thereof.

__. Payments Received by Seller.

Any payments received by Seller after the Closing Date which represent payments for services rendered or goods sold by Buyer from and after the Closing Date shall be forwarded to Buyer by Seller, within ten (10) Business Days after receipt thereof together with copies of applicable remittance advices.

__. Private Payments Received by Buyer.

Any private payments received by Buyer which relate to any residents discharged from a Facility prior to the Closing Date (the “Discharged Residents”) shall be forwarded to Seller within ten (10) Business Days of receipt thereof together with copies of applicable remittance advices or other information received. Buyer shall use commercially reasonable efforts to attempt to direct that such Discharged Residents remit such payments directly to Seller at a location other than the Facility. Any private payments received by Buyer after the Closing Date from or on behalf of any residents other than Discharged Residents with outstanding balances as of the Closing Date shall first be retained by Buyer to reduce any balances due for services rendered after the Closing Date, and the balance thereof shall be remitted to Seller to reduce any balances due for services rendered by Seller prior to the Closing Date.

Discussion:

Some rents for periods prior to closing from third-party tenants of a skilled nursing facility and payments from residents from their own funds or from their private long-term care insurance for pre-closing services are almost certain to arrive after closing, but these are not in substance different from accounts receivable common to other types of real estate transactions, and they can be dealt with similarly in the acquisition of a skilled nursing facility. Medicare and Medicaid payments, however, create different issues to be addressed. As an application for the assumption of an existing provider agreement or for the issuance of a new provider agreement is being processed, Medicare and Medicaid payments will continue to be made to the prior owner. See Triad, supra, at 6 - 7 (Medicare payments). Moreover, even after being made, Medicare and Medicaid payments remain subject to review and adjustment. Id. Finally, payments may be allocated between a buyer and seller under federal regulations differently than the parties may have agreed in the transaction documents. See Bartrum, supra, § II.B.7. It is therefore important that attention be paid in the purchase and sale agreement to the parties’ responsibilities with respect to the handling and allocation of governmental

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payments received by the parties and adjustments made by governmental payors after closing.

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OPERATIONS TRANSFER AGREEMENT:ANNOTATED PROVISIONS

There are often times that there is a third party operator in place that currently is operating the facility which is being sold and there are often times that a purchaser will structure a transaction to bring in a third party operator. There are many investors who like to own these types of facilities but have no understanding of how they operate.

OTAs (i.e., Operations Transfer Agreements) are not utilized in every transaction. However, when there is an existing operator whose services will be transitioned to a successor, or where there is a new operator engaged to be running the facility prospectively, then the negotiation and delivery of an OTA is a necessity as the successor operator will need certain rights and certain assurances.

The following are some typical provisions:

Section 1: What is typically transferred? The owner of the facility typically purchases the land, the improvements and the furniture, fixtures and equipment. However, the new operator will most often acquire certain equipment. The new operator may also purchase the prior receivables of the existing operator to have cash flow coming into the operations from the date the operations are transitioned – otherwise, there is typically a 90-120 day delay in cash flow which needs to be addressed by equity contributions or more typically a working capital loan.

Transferred Assets. On the Closing Date, the Transferor will transfer and convey to the New Operator all of the Transferor’s right, title and interest in and to the following assets and properties (tangible or intangible) owned by, or used by or on behalf of, the Transferor in connection with, or relating to, the Business (collectively, the “Transferred Assets”), free and clear of all claims, security interests, pledges, encumbrances or liens of any kind or nature (the “Liens”) including without limitation:

All medical apparatus, equipment and other items of personal property used by the Transferor in the Business, including, without limitation, as described on Schedule xxx.

All consumable inventories of every kind and nature whatsoever, including, but not limited to, all pharmacy supplies, medical supplies, prescription and non-prescription drugs or equipment, office supplies, other supplies and foodstuffs, which are located at the Facility on the Closing Date (collectively, the “Inventories”).

All Residents’ files, charts and records (to the extent transferable in accordance with applicable law) for those Residents of the Facility, including, without limitation, all such Resident’s records, medical records, therapy records, activity records, including a complete computer printout of all clinical records and all financial, accounting and litigation records of all such Residents, all medical staff records, policies and procedures and any other documents used in the operation of the Business (collectively, the “Records”). If any such Records have been

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removed from the Facility, such Records shall be returned to the Facility prior to the Closing (as defined in Section xxx). All deliveries of the Records made by the Transferor to the New Operator shall be made in full compliance with all applicable Laws, including HIPAA.

All rights in any Resident trust or other funds

All rights of the Transferor in or to any Contracts including any “Admission Agreement” relating to the period on or after the Closing Date transferred to the New Operator as provided in Section xxx.

All rights of the Transferor in or to any assignable or transferable Consents issued by any Governmental Authority relating to the operation of the Business.

All goodwill with respect to the Business and the rights to the use of the name “______” or any derivation thereof.

All other assets set forth on Schedule xxx.

Section 2: Service Contracts and Admission Agreement.

Transferor’s Obligations. Notwithstanding anything to the contrary contained herein, in no event shall the New Operator assume, perform or be responsible for any debts, liabilities or obligations, of the Transferor arising or relating to the period on or prior to the Closing Date, including, without limitation, the following (collectively, “Excluded Liabilities”): (a) any Obligation of the Transferor under any provider or other agreement relating to the Facility, including, any amounts determined as a result of an audit or denial of a claim to be due by the Transferor because the Transferor has been overpaid during the period prior to the Closing Date or has received payments for which it is not entitled or any violation or non-compliance with any healthcare or other Laws by the Transferor or relating to the Facility prior to the Closing Date, (b) any malpractice or other tort claim to the extent such claim is based upon acts or omissions of or on behalf of the Transferor, (c) any claim for breach of contract to the extent based on acts or omissions of the Transferor, (d) any accounts payable, Taxes, or other Obligation of the Transferor to pay money, (e) any Obligations regarding any Resident Trust Funds, and (f) any other Obligation of the Transferor with respect to the Transferred Assets, the Facility or the Business arising or relating to the period on or prior to the Closing Date, or based upon any facts, circumstances or events occurring on or prior to the Closing Date or any acts or omissions of the Transferor (or on behalf of the Transferor).

Section 3: Insurance.

Continued Insurance Coverage. In the event that the Transferor’s current professional and general liability policy is on a “claims-made” basis, the Transferor shall purchase and maintain “extended reporting” coverage under that

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policy for a term of not less than two (2) year commencing on and immediately after the Closing Date.

Section 4: Representations and Warranties.

Representations and Warranties of the Transferor

. The Transferor hereby represents and warrants to the New Operator, as of the date of this Agreement and the Closing Date, as follows:

Except as provided in Schedule xxx attached hereto, no Consent of, or registration, declaration or filing with (A) any Governmental Authority, or (B) any other Person, is required to be obtained or made by or with respect to the Transferor, in connection with the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby. All of the Consents set forth on Schedule xxx have been obtained by the Transferor (the “Required Consents”), except as specifically described on Schedule xxx.

Except as set forth on Schedule xxx attached hereto, there are no Consents necessary or required to own, operate or use the Facility or to operate the Business (the “Facility Permits”). The Transferor has a current certificate of occupancy and it and/or the Transferor’s agents have all the other Required Consents necessary or required for the ownership and operation of the Facility and the Business. All Required Consents are in full force and effect and, to the knowledge of the Transferor, are not subject to any claim, default, condition, sanction or penalty. The Transferor has delivered to the New Operator true, correct and complete copies of the most recent Required Consents necessary or required for the ownership and operation of the Facility and the Business. The Transferor does not hold or possesses any Waiver with respect to or used by the Facility. To the Transferor’s knowledge, the transfer of the Facility and the transfer of the operation thereof will not require any changes to any assets or properties of the Transferor in order for the New Operator, or its designee to obtain any Consents in its name or the name of its designee to own, manage or operate the Facility as an assisted living facility or residential care, and/or all other healthcare uses of the Facility currently conducted by the Transferor. The term “Waivers” shall mean all waivers, variances, exceptions to compliance with any Law or similar document or instrument granted, issued or approved by any Governmental Authority, including, without limitation, Ohio Department of Health, with respect to the Facility or the ownership, use or operation of the Facility as an assisted living, residential care, dementia or any other licensed health care use, including without limitation and any physical plant approved waivers, variances or exceptions to compliance.

Except as provided in Schedule xxx attached hereto, to the knowledge of the Transferor, the Transferor has substantially complied with each, and is not in violation of any, Laws to which it or the Facility or the Business is subject, and has not failed to obtain any Consent, or other governmental authorization or inspection necessary to the ownership or use of its assets or to the conduct of the

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Business, including, the Federal Medicare and Medicaid Statutes, including 42 U.S.C. sect. 1395, 1320a-7, 1320a-7(a) and 1230a-7(b). The Transferor has not received any written notice of any violations of any Law, nor does the Transferor have knowledge of any such violations relating to violations of state licensing requirements for operation of the Facility as nursing facilities, safety, handicapped accessibility, ADA, health, environmental, fire, zoning or subdivision laws, ordinances, codes and regulations.

Attached as Schedule xxx is a complete and accurate schedule of all the Residents of the Facility as of the date set forth in the Schedule. Included on Schedule xxx is a list of all Admissions Agreements, copies of which have previously been made available to the New Operator, as of the date hereof. The Transferor has not accepted any advance payment of more than thirty (30) days from any Resident.

Attached as Schedule xxx is a copy of the statement of income and cash flows of the Facility for the fiscal year ended December 31, 201_, and the statement of income and cash flows of the Facility for the period ended June 30, 201_ (the financial statements described in this sentence, collectively, the “Financial Statements”).

The Financial Statements have been prepared, in all material respects, on a basis of accounting described therein, consistently applied, and reflect the financial condition, results of operations and cash flows of the Transferor as of the respective dates thereof and for the respective periods indicated. Since December 31, 201__, there have been no changes in the Transferor’s methods of accounting for Tax or financial statement purposes. Other than as set forth in the Financial Statements or arising in the ordinary course of business since such date, there are no other material Obligations of the Transferor.

Since December 31, 201__, to the date of this Agreement, the Transferor has caused the Business to be conducted in the ordinary course and in substantially the same manner as previously conducted. Since December 31, 201__, to the date of this Agreement, except as disclosed on Schedule xxx attached hereto, the Transferor has not taken any action that, if taken after the date of this Agreement without the consent of the New Operator, would constitute a breach of Article VI.

In connection with the Facility and the Business, the Transferor and each employee or individual or entity furnishing healthcare related services under arrangement (collectively, the “Health Care Providers”), to the extent required, is, to the knowledge of the Transferor, licensed under the applicable Laws of the State of Ohio and, to the knowledge of the Transferor, each Health Care Provider has complied with all Laws, relating to the rendering of health care services.

The Transferor is in compliance in all material respects with all Laws including those respecting employment and employment practices, terms and conditions of employment, compensation, wages and hours, health and safety, labor relations and plant closings, including all applicable foreign laws, the Americans with

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Disabilities Act, the Age Discrimination in Employment Act, the Equal Pay Act, the Fair Labor Standards Act, the National Labor Relations Act, Occupational Safety and Health Act, Title VII of the Civil Rights Act of 1964, as amended, the Family and Medical Leave Act, the Worker Adjustment and Retraining Notification Act, the Consolidated Omnibus Budget Reconciliation Act, and ERISA. Neither the Facility nor the Transferor (or any Person acting on its behalf) is a party to any union or collective bargaining agreement.

Until the Closing, the Transferor will, or cause its Affiliates, to continue to employ all the employees at the Facility, subject to the Transferor’s or its Affiliate’s normal employment practices, will be responsible for and shall comply with all employment Laws effecting or with respect to such employees, and will indemnify, defend and hold harmless the New Operator from any and all Obligations with respect thereto.

Set forth on Schedule xxx is a full and complete listing of each payor or reimbursement program of any Governmental Authority in which the Transferor or the Facility participates (“Programs”). In connection with the Facility, no notice of suspension, cross-recoupment, sanction or any other offsets against future reimbursements under or pursuant to the Programs has been received by the Transferor, nor, to the Transferor’s knowledge, is there any basis therefor. With respect to the Programs, there are no pending appeals, adjustments, challenges, audits, litigation, notices of intent to recoup past or present reimbursements for any amounts. The Transferor has not been subject to or threatened with any loss as a result of any utilization review denials with respect to the Programs or any third-party payors during the past twelve (12) months, nor has the Transferor received notice of any pending, threatened or possible decertification or other loss of participation in, any of the Programs.

The Transferor has filed all material Tax Returns that it was required to file for any taxable period beginning before the Closing Date for which the statutory period of limitations for the assessment of Tax has not yet expired and all material Taxes owed by the Transferor for such taxable periods (whether or not shown as due on such returns for such Taxes (“Tax Returns”) have been paid. The Transferor has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee or independent contractor for all periods for which the statutory period of limitations for the assessment of such Tax has not yet expired and all IRS Tax Returns required with respect thereto have been properly completed and timely filed.

Representations and Warranties of the New Operator.

Except for any Facility Permits or as indicated on Schedule xxx attached hereto, to the knowledge of the New Operator, no notice to, filing or registration with, or Consent of, any Person, entity or governmental or regulatory agency is necessary or required to be obtained by the New Operator in connection with the execution, delivery or consummation by the New Operator of this Agreement or the consummation of the transactions contemplated hereby.

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Survival of Representations and Warranties. All representations and warranties made by each Party in this Agreement, in any Schedule attached hereto or in any list, certificate, document or written statement furnished or delivered by any such Party pursuant hereto shall survive the Closing, and shall remain in full force notwithstanding any investigation conducted before or after the Closing, or the decision of any Party to complete the Closing for a period of twenty-four (24) months following Closing except for Sections ___________________ and ___ which shall survive the Closing indefinitely; provided, however, that: (i) if at the expiration of the appropriate period any claim or assessment for indemnification has been asserted but not fully determined, or any audit or other proceeding with respect to any Tax matter has been initiated, such period will be extended as to such claim, assessment, audit or other proceeding until it is finally determined or concluded, and each Party hereto shall be entitled to rely upon the representations and warranties of the other Party set forth in this Agreement; and (ii) if a particular provision is stated as surviving Closing indefinitely, such survival shall have no expiration date. All covenants, indemnities and agreements shall survive the Closing indefinitely. The provisions of this Section ___ shall supersede and render null and void any right of merger or similar rule of law which would or could otherwise take effect with respect to the representations and warranties covered by this Article III.

Section 5: Employees.

Termination of Employees. The Transferor shall provide the New Operator with a list of all employees employed by the Transferor or any Affiliate of the Transferor at the Facility at least fifteen (15) Business Days prior to the Closing Date and shall permit the New Operator, in cooperation and coordination with the Transferor, to meet with the Transferor, its and their representatives and employees requested by the New Operator and to advise them of the New Operator’s proposed plans with respect to the hiring of the employees and the benefits which will be offered to the employees as employees of the New Operator. The New Operator shall have the right to offer to hire, on an “at-will basis,” all or substantially all of the active employees who work at the Facility on the Closing Date. Such employees whom the New Operator elects to hire are referred to as the “Hired Employees”. The New Operator shall not make any offer of employment to any of the Transferor’s employees except for employment at the Facility and only if Closing occurs. For benefits accrued (including without limitation benefits that are otherwise accrued but for the passage of additional time or hours worked) but not yet payable directly to the Hired Employees (as hereinafter defined) on the Closing Date, the Transferor shall pay to the New Operator the amount of such benefits on the Closing Date and the New Operator shall be responsible to pay such benefits (not in excess of the amount received) to those Hired Employees to whom such benefits pertain when due to such Hired Employees. The Transferor acknowledges and agrees that the New Operator is not assuming any of the Transferor’s Obligations to its employees under the Employee Retirement Income Security Act of 1974 (“ERISA”), Section 4980B of the Internal Revenue Code (“COBRA”) or otherwise and, in addition to the

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Obligations of the Transferor with respect to the Hired Employees, the Transferor shall retain all Obligations for any Facility employees (and their eligible dependents) who are not Hired Employees.

Section 6: Prorations.

Prorations. The following prorations shall be made between the Transferor and the New Operator at the Closing, computed as of the Closing Date. To the extent required to give effect to the prorations and provisions set forth herein, this Section xxx shall survive the Closing.

Taxes. [Reconcile with Purchase Agreement].

Utilities. Gas, water, electricity, heat, fuel, sewer and other utilities (the “Utility Expenses”) and the operating expenses under contracts that will not be canceled as of the Closing shall be prorated as of the date immediately preceding the Closing Date. If the Parties are unable to obtain final meter readings as of the Closing Date, such expenses shall be estimated as of the Closing Date on the basis of the prior operating history of the Facility, and the Parties mutually agree to cooperate in transferring all utility accounts to the New Operator’s name as of the Closing Date.

Insurance Premiums. All insurance policies relating to the Facility currently maintained by the Transferor shall be terminated on the Closing Date and the New Operator shall thereafter maintain its own policies on the Facility and its assets. If and to the extent the Transferor is entitled to any refund on the premiums paid by such the Transferor, such refunds shall be paid to and remain the property of such the Transferor.

Rents. Rents received from or on behalf of the Residents shall be prorated as of the day immediately preceding the Closing Date. The New Operator shall receive from the Transferor a credit for any Rent under a lease or agreement that is paid from Residents or from any payor Program to or on behalf of the Transferor and collected by or on behalf of the Transferor before the Closing that applies to any period after the Closing. With respect to any Rents under any Program or otherwise due prior to the Closing but unpaid as of the Closing Date, the New Operator shall immediately pay to the Transferor such Rents when received; provided that if at the time of receipt, any Resident or payor is delinquent in any rent or payment payable after the Closing, the New Operator shall to the extent permitted by law be entitled to apply such Rent or other payments under any Program received to rents receivable subsequent to the Closing and any excess remaining after such application (the “Excess Net Rents”) shall be paid to the Transferor to the extent an amount is due from such Resident to the Transferor as of the Closing Date.

Post-Closing Rents. To the extent that the Transferor or any Person acting for or on behalf of the Transferor receives after the Closing any Rent or other payment relating to the Residents, including without limitation from any Program, that

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relates to the period after the Closing Date, the Transferor shall immediately pay such amount to the New Operator or the New Operator’s designee; provided, that if any Excess Net Rents are due to the Transferor under Section xxx (after the New Operator applies any and all amounts due to the New Operator under Section xxx), then upon prior notice to the New Operator and upon the New Operator’s reasonable approval, the Transferor may retain the Excess Net Rents which are due the Transferor under Section xxx above. For a period of one (1) year after the Closing Date, each Party shall provide the other Party, upon request of and at the expenses of the other Party, access to the books and records of such Party to confirm that such Party has paid to the other Party the funds due to the other Party under this Section.

Adjustment to Prorations. In the event that any prorations, apportionments or computations made under this Section xxx shall require final adjustment, then the Parties shall use their best efforts to make the appropriate adjustments promptly when accurate information becomes available and either Party shall be entitled to an adjustment to correct the same, provided that it makes written demand on the one from whom it is entitled to such adjustment within six (6) months after the Closing Date. Any corrected adjustment or proration shall be paid in cash to the Party entitled thereto. The obligations of the New Operator and the Transferor under this Section shall survive the Closing.

Section 7: Licensure.

Licensure Approvals. The Transferor has advised the New Operator that the Transferor currently has and maintains all applicable Consents as are necessary to own and operate the Transferred Assets, the Facility and the Business at the Facility as an assisted living facility in accordance with all applicable Laws, including, but not limited to a license to operate the Facility as an assisted living facility for ______ beds/units, being the number of beds or units for which the Transferor is licensed on the date hereof (“Assisted Living License”) and to receive payment or reimbursement under any payor (commercial or governmental) Program in which the Facility participates for such number of beds or units, if applicable (collectively, the “Licensure Approvals”). Parties hereto contemplate that the Transferor and the New Operator will use their respective commercially reasonable efforts to comply with the applicable transfer of ownership provisions of the Ohio Department of Health and Ohio Medicaid Programs. The Transferor shall at its expense promptly provide in accordance with applicable Law all such notices and take such action to cause the New Operator to obtain, and the New Operator shall promptly use commercially reasonable efforts to file all applications required and use its commercially reasonable efforts thereafter to obtain, such License Approvals. The Transferor shall reasonably cooperate with the New Operator, and any manager in obtaining any such Consents, in time to permit the timely Closing on the Closing Date. The Transferor shall be solely responsible for the cost to cure any deficiencies or violations of any Law arising or relating to the period prior to the Closing Date,

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even if such violations are indentified in any post-Closing license inspection or survey.

Section 8: Continued Operations.

Conduct of Business. From the date of this Agreement and until the Closing Date and after the Closing Date:

The Transferor shall and cause its Affiliates to operate and conduct the Business in the usual, customary and ordinary course of its business. Without limiting the generality of the foregoing, from the date of this Agreement until the Closing Date, the Transferor shall:

Maintain the Business and the Facility in existence and in good standing and in compliance with all Laws;

Maintain all Facility Permits and other Consents necessary for the ownership and operation of the Facility in full force and effect, and timely file all reports, statements, renewal applications and other filings, and timely pay all fees and charges in connection therewith that are required to keep such Consents in full force and effect;

Maintain in full force and effect substantially the same public liability and casualty insurance coverage and other insurance policies now in effect with respect to its assets and the Business;

Until the Closing Date, the Transferor will continue, or cause its Affiliate to continue to, employ all the employees at the Facility, subject to such Seller’s or its Affiliate’s employment practices, will be responsible for and shall comply with all employment Laws effecting or with respect to such employees, and will indemnify, defend and hold harmless the New Operator from any and all Obligations with respect thereto;

Continue to perform all Obligations under all Service Contracts;

Maintain adequate food and medical supplies and other Inventory at the Facility as required by the State of Ohio and Federal laws, standards rules and regulations; and

Provide for and/or cure deficiencies and all violations which may be cited by the State of Ohio or any other Governmental Authority having jurisdiction over the Facility.

Section 9: Records.

Records Custodian; Access to Records

.

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At the Closing, the Transferor shall, to the extent permitted by applicable Laws, deliver to the New Operator at the Facility all of the medical records and any related financial or billing records for those Residents transferring to the New Operator (the “Transferred Records”). All other medical records and any other records of the Facility not transferred to the New Operator will remain the property and responsibility of the Transferor and the Transferor shall maintain such records as required by all applicable Laws .

The Parties each agree to comply with the applicable provisions of the Administrative Simplification sections of the Health Insurance Portability and Accountability Act of 1996, as codified at 42 U.S.C. §1320d through d-8 (“HIPAA”), and the requirements of any regulations promulgated thereunder, including, without limitation, the federal privacy regulations as contained in 45 CFR Parts 160 and 164 (the “Federal Privacy Regulations”) and the federal security standards as contained in 45 CFR Parts 160, 162 and 164 (the “Federal Security Regulations”). The Parties agree not to use or further disclose any “protected health information,” as defined in HIPAA (collectively, the “Protected Health Information”), concerning a patient other than as permitted by, or in connection with the performance of, this Agreement or permitted under the requirements of HIPAA or regulations promulgated under HIPAA regarding such Protected Health Information, including, without limitation, the Federal Privacy Regulations, Federal Security Regulations and any related state rules or regulations.

Section 10: Conditions Precedent.

Conditions Precedent to the New Operator’s Obligations. The New Operator’s obligation to consummate the transactions contemplated by this Agreement is subject to the fulfillment or satisfaction in the sole discretion of the New Operator, prior to or at the Closing, of each of the following conditions (any of which may be waived in writing in whole or in part by the New Operator):

The representations and warranties of the Transferor contained in this Agreement, the Schedules and Exhibits attached hereto and any list, certificate, document or written statement specifically referred to herein or furnished by the Transferor to the New Operator at the Closing shall be true and correct on and as of the date of this Agreement and shall be true and correct in all material respects on and as of the Closing Date with the same effect as though such representations and warranties were made on and as of the Closing Date.

The Transferor shall have performed or complied in all material respects with each of its agreements and covenants required by this Agreement to be performed or complied with by it prior to or at the Closing.

The Transferor shall have executed and delivered to the New Operator a Bill of Sale in the form of Exhibit A hereto (the “Bill of Sale”) in respect of the Transferred Assets, and a certificate dated as of the Closing Date and signed by the Transferor certifying those conditions specified in this Section xxx that have

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been fulfilled and all such other documents required to be delivered by the Transferor hereunder.

The Transferor shall have executed and delivered to the New Operator an Assignment and Assumption Agreement in the form of Exhibit B hereto (the “Assignment and Assumption Agreement”), assigning the Admissions Agreements to the New Operator, provided that the assumption of Obligations thereunder shall relate to periods arising after the Closing Date and be in accordance with this Agreement.

The New Operator shall have received: (i) all Licensure Approvals effective on the Closing Date (including the Assisted Living License) to acquire the Transferred Assets and to manage and operate the Facility as an assisted living facility for ___ beds or units and to receive payment or reimbursement for the number of units and/or residents for which the Transferor was entitled to receive reimbursement immediately prior to the Closing Date under all payor Programs in which the Transferor currently participates, all in the name of the New Operator and acceptable to the New Operator; or (ii) for any Licensure Approval(s) not issued in accordance with (i) as of the Closing Date, all applicable Governmental Authorities shall have confirmed its approval for the issuance of the Consents after Closing but effective on the Closing Date in an a manner acceptable to the New Operator. The Transferor shall have given all such notices and taken such actions required under Law in connection with the change of ownership of the Business and to permit the New Operator to obtain all such Licensure Approvals on the Closing Date.

From and after this Agreement until the Closing Date, there shall have been no Material Adverse Effect in the Business of the Transferor, its assets, properties or results of operations.

In the event that the Transferor’s current professional and general liability policy is on “claims made” basis, the Transferor shall deliver to the New Operator evidence that it has purchased and will maintain extended reporting coverage under that policy for a term of not less than two (2) year commencing on and immediately after the Closing Date.

The Transferor shall have furnished the New Operator with all other documents, certificates and other instruments reasonably required to be furnished to the New Operator by the Transferor pursuant to the terms of this Agreement.

No suit, action, proceeding, or investigation shall have been instituted or threatened by any Governmental Authority, and no injunction shall have been issued and then outstanding, to restrain, prohibit or otherwise challenge the legality or validity of the transactions contemplated by this Agreement.

Closing shall have occurred under the Agreement of Sale.

The New Operator shall have executed the Lease.

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Waiver of Conditions Precedent. Except as otherwise provided herein, so long as a Party is not in default under this Agreement, if any condition to that Party’s obligations to proceed with the Closing has not been satisfied as of the Closing Date, the Party having the benefit of such condition may, in its sole discretion, terminate this Agreement by delivering written notice to the other Party on or before the Closing Date, or elect to close, notwithstanding the non-satisfaction of such condition. If the Party having the benefit of such condition elects to proceed with the Closing after being advised by the other Party that such condition has not been satisfied, then the non-satisfied condition shall not be waived by the Party having the benefit of said condition.

Section 11: Indemnities.

Indemnification by the Transferor. The Transferor shall indemnify, defend and hold harmless the New Operator and each of the directors, officers, members, agents, and employees of the New Operator and all its Affiliates, from any and all Obligations, losses, demands, judgments, actions, suits, causes of action, claims, proceedings, investigations, citations, matters, damages, penalties, sanctions, costs, expenses, and disbursements (including, without limitation, reasonable attorneys’ and consultants’ fees and expenses), whether or not subject to litigation (individually, a “Claim” and, collectively, the “Claims”), of any kind or character imposed upon, arising out of, in connection with, incurred or in any way attributable or relating to the Transferred Assets or the operation of the Business on or prior to the Closing Date, any Excluded Liabilities, the failure of the Transferor to comply with any applicable Law or the breach, non-performance or default by the Transferor of any representation, warranty, covenant or Obligation of the Transferor contained in this Agreement or contained in any other agreement, certificate or document entered into in connection with this Agreement.

Indemnification by the New Operator. The New Operator shall indemnify, defend and hold harmless the Transferor and each of the directors, officers, members, agents, and employees of the Transferor and all their Affiliates, from any and all Claims, of any kind or character imposed upon, arising out of, in connection with, incurred or in any way attributable or relating to the Assumed Liabilities, the failure of the New Operator to comply with any applicable Law or the breach, non-performance or default by the New Operator of any representation, warranty, covenant or Obligation of the New Operator that is contained in this Agreement or contained in other agreement, certificate or document entered into in connection with this Agreement.

Period of Indemnity. The aforesaid indemnities under Sections xxx and xxx shall remain in full force and effect: (a) as they relate to a Claim against the Indemnified Party for any claim or matter other than a breach of a representation or warranty, for a period equal to the applicable statute of limitation for such claim to indemnification; and (b) as they relate to breaches of representations or warranties made by Indemnifying Party, for the period provided in Section xxx; provided, however, if at the expiration of the appropriate period any Claim or

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indemnification claim or assessment for indemnification has been asserted but not fully determined, or any audit or other proceeding with respect to any tax matter has been initiated, such period will be extended as to such Claim or indemnification claim, assessment, audit or other proceeding until it is finally determined or concluded.

Notice to the Indemnifying Party. Promptly after the assertion of any Claim by a third-party against a Party hereto or of a Party learning of the occurrence of any event which may give rise to a Claim for indemnification from the other Party (the “Indemnifying Party”) under this Article VIII, such Party (the “Indemnified Party”) shall notify the Indemnifying Party in writing of such Claim (the “Indemnity Notice”) and, with respect to Claims by third parties, advise the Indemnifying Party whether the Indemnified Party intends to contest same. The right to indemnification hereunder shall not be affected by any failure or delay of or by the Indemnified Party to give an Indemnity Notice unless, and then only to the extent that, the rights and remedies of the Indemnifying Party shall have been prejudiced (including the ability of the Indemnifying Party to obtain applicable insurance coverage) as a result of the failure of the Indemnified Party to give, or delay in giving, such Indemnity Notice.

Rights of Parties to Defend and Settle. The Indemnifying Party covenants and agrees to defend the Indemnified Party on account of any Claim which may give rise to indemnification hereunder. If the right of indemnity hereunder shall arise from the Claim of a third party, the Indemnifying Party shall have the right to assume and control the defense (but not, except as otherwise provided herein, the settlement) of the Claim, including the employment of counsel of its choosing, which counsel shall be reasonably acceptable to the Indemnified Party. The Indemnifying Party shall pay all costs and expenses relative to the conduct of such defense, including attorneys’ fees and expenses, and the Indemnified Party shall cooperate fully with the Indemnifying Party in connection with the conduct of such defense. The Indemnified Party shall, nevertheless, have the right, if it so elects, to participate (at its own expense and with counsel of its choosing and at its own cost and expense) in the defense of any such Claim without relieving the Indemnifying Party of its obligation to defend the same. If the Indemnifying Party fails to timely undertake the defense of such Claim, then the Indemnified Party may take any and all necessary action to dispose of such Claim, including, without limitation, the settlement or full payment thereof upon such terms as it shall deem appropriate, in its sole discretion. Notwithstanding anything to the contrary contained herein, in the event the Indemnifying Party undertakes the defense of such Claim, the Indemnifying Party (or its insurance carrier) may settle such Claim under this Section xxx, without the Indemnified Party’s consent, so long as such settlement involves only the payment of money (for which the Indemnifying Party is entirely responsible), does not require the Indemnified Party to admit liability, responsibility or wrongdoing, and includes a full and complete release of the Indemnified Party.

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Reimbursement. At the time that the Indemnified Party shall suffer a loss because of a breach of any warranty, representation or covenant by the Indemnifying Party or at the time the amount of any liability on the part of the Indemnifying Party under this Article VIII is determined (which in the case of payments to third persons shall be the earlier of: (a) the date of such payments; or (b) the date that a court of competent jurisdiction shall enter a final judgment, order or decree (after exhaustion of appeal rights establishing such liability), the Indemnifying Party shall forthwith, upon notice from the Indemnified Party, pay to the Indemnified Party, the amount of the indemnity claim. If such amount is not paid forthwith, then the Indemnified Party may, at its option, take legal action against the Indemnifying Party for reimbursement in the amount of its indemnity claim.

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HEALTHCARE MASTER LEASE AND SECURITY AGREEMENT:ANNOTATED PROVISIONS

As a continuation to the prior section dealing with Agreement of Sale provisions, this paper uses provisions of a hypothetical master lease and security agreement to illustrate subjects of particular relevance to the acquisition of skilled nursing facilities. The provisions come from several forms of senior living/skilled nursing leases. As noted above, the goal of this paper is to alert real estate attorneys who may not work regularly in this area to issues unique to transactions involving skilled nursing facilities so that they can enlist colleagues and consultants with appropriate expertise where needed and manage the many parts of the transaction efficiently.

You may ask why a lease is necessary – leases are obviously utilized when the facility is to be operated by an unrelated third party. However, leases are also utilized when the owner (often referred to as the “Propco”) is related to the operator (often referred to as the “Opco”) in an attempt to limit liability and shelter the real estate assets from any liability that may ultimately be imposed with respect to the operations of the facility.

Section 1: What is typically leased?

As of the Effective Date, Landlord is (i) the owner of those certain real properties, all improvements thereon and all appurtenances thereto, as located, identified and more specifically described on Exhibit A-1 attached hereto (each individually, an "Owned Property" and collectively, the "Owned Properties"), the legal descriptions of which are set forth in Exhibit B attached hereto; and (ii) the tenant or subtenant of those certain real properties, all improvements thereon and all appurtenances thereto, as located, identified and more specifically described on Exhibit A-2 attached hereto (each individually a "Leased Property" and collectively, the "Leased Properties"; the Owned Properties and the Leased Properties are collectively referred to as the "Properties"), the legal descriptions of all of which Properties are set forth in Exhibit B attached hereto.

Landlord is also the owner or tenant (or subtenant) of the furniture, machinery, equipment, appliances, fixtures, supplies, inventory and other personal property located on and used in connection with the Properties (the "Landlord Personal Property").

Landlord desires to lease the Owned Properties, sublease the Leased Properties and lease and sublease the Landlord Personal Property to Tenant, and Tenant desires to lease the Owned Properties, sublease the Leased Properties and lease and sublease the Landlord Personal Property from Landlord. The Properties and Landlord Personal Property shall be referred to herein collectively as the "Premises."

NOTE: in most transactions, Landlord is also the owner of the personal property used at the Facility. Tenant is required to maintain and replace the same during

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the term of the Lease with the replacement property typically belonging to the Landlord (with exceptions).

Section 2: Definitions. Some more uncommon definitions would include the following:

Financial Covenant Definitions:

"Current Ratio" shall mean, at any time, the ratio of Current Assets at such time to Current Liabilities at such time.

"Fixed Charge Coverage Ratio" shall mean, at any time, the ratio of Excess Cash Flow at such time to Fixed Charges at such time.

"Portfolio Coverage Ratio" means, for any period, the ratio of EBITDAR for such period, to the Applicable Period Rent for such period.

"Healthcare Requirements" shall mean all applicable requirements imposed by federal, state and local statutes, rules and regulations for the maintenance and operation of the Properties as nursing homes, skilled nursing facilities, assisted living facilities or independent living facilities (collectively sometimes referred to as "Nursing Homes"), as the case may be.

"Healthcare Use" shall mean the use and operation by Tenant of the Properties as Nursing Homes.

"Junior Loan" shall mean (i) any loan secured by a subordinate priority mortgage on any of the Properties, (ii) the loan(s) pursuant to the First Mezzanine Loan Agreement and (iii) the loan(s) pursuant to the Second Mezzanine Loan Agreement.

"Licensed Bed" shall mean beds that are licensed by the applicable State for Nursing Home use that are either occupied by residents or can be made promptly available for occupancy by residents in accordance with applicable law.

"Nursing Homes" shall have the meaning set forth in the definition of Healthcare Requirements.

"Occupancy Agreement" shall mean any agreement between Tenant or Subtenant, as the provider, and an individual, as the occupant, pursuant to which such individual is entitled to occupy a bed at the applicable Property.

"Offset Rent Amount" shall mean for any period, the minimum rent payable pursuant to the Separate Lease.

"Permitted Subleases" means (a) the Occupancy Agreements which comply with the terms hereof, (b) each sublease, license, use and/or occupancy agreement entered into with Affiliates of Tenant which comply with the terms

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hereof, including, without limitation, each Sublease, and (c) each arm's length sublease, license, use and/or occupancy agreement that is not otherwise permitted by the foregoing clauses that is entered into by Tenant or any Subtenant with any Person for the provision of services to occupants of the Property (e.g., subleases for hospice services, dialysis, cafes and beauty shops); provided, however, that the Permitted Subleases under this clause (c) shall (i) be on market terms; (ii) have a term of no more than five (5) years; (ii) be subject to any terms and restrictions of the Prime Leases; (iii) not, with respect to any one Property, demise the use of more than the lesser of (A) 10% of any such Property's floor space in the aggregate or (B) 3,000 square feet in any such Property in the aggregate; and (iv) comply with the additional requirements of Section xxx.

"Second Mezzanine Loan Agreement" shall mean that certain Second Mezzanine Loan Agreement, dated as of the date hereof (as the same may be amended modified, increased, renewed or restated from time to time), among ____________________________ and _________________________, as borrowers, ____, as administrative agent and collateral agent for the Second Mezzanine Loan Lenders (as defined herein), ___ and the other financial institutions who are or hereafter become parties to the Second Mezzanine Loan Agreement as lenders (collectively, "Second Mezzanine Loan Lenders").

"Senior Loan" shall mean any loan secured by a first priority mortgage on any of the Owned Properties and Landlord's interest in the Leased Properties.

"Total Annual Rent" shall mean (i) for the First Rent Year, __________________________ Dollars ($_____________), (ii) for the second Rent Year, _____________________________________ Dollars ($_____________), and (iii) for each Rent Year after the second Rent Year during the Initial Term, an amount equal to the product of (x) the Total Annual Rent during the immediately preceding Rent Year and (y) one hundred three percent (103%).

"Working Capital Lender" shall mean any Institutional Lender (whether acting in an agency capacity for a group of lenders, or as a lender) providing a working capital loan to (i) Tenant and/or Subtenants or (ii) to Tenant Parent Entity provided that all or a portion of the proceeds of such working capital loan are made available by such Working Capital Lender or by Tenant Parent Entity to Tenant and/or its Subtenants for working capital purposes. For the avoidance of doubt, (a) _____________________ [and its Affiliates] (in its capacity as administrative agent and a lender), (b) _____________________ [and its Affiliates] (in its capacity as administrative agent and a lender) and (c) their successors and assigns (if such successors and assigns are in compliance with the first sentence of this definition) each shall be a Working Capital Lender.

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Section 3: Rent.

Renewal Term Minimum Rent. The Minimum Rent for the first year of each Renewal Term shall be reset and expressed as an annual amount but shall be payable in advance in equal monthly installments by wire transfer only on the first Business Day of each calendar month. Such annual Minimum Rent shall be equal to the product of (i) the Fair Market Value of the Premises on the date of Tenant's notice of exercise pursuant to Section xxx, and the greater of (a) a percentage equal to ______________________ (___) basis points over the ___-Year United States Treasury issues (primary issue) in effect on the date of Tenant's notice of exercise pursuant to Section xxx (provided that if the 5-Year United States Treasury issues are no longer issued as of such date, Landlord shall determine the 5-year yield to maturity on a comparable United States Treasury issue of an alternative maturity); and (b) ____ percent (__%). Notwithstanding anything to the contrary, the Renewal Term Minimum Rent shall not be less than one hundred three percent (103%) of the amount of Minimum Rent for the last year of the Initial Term of the Lease or the last year of the first Renewal Term, as applicable ("Default Renewal Rate").

Absolute Net Lease. All rent payments shall be absolutely net to Landlord free of taxes, assessments, utility charges, operating expenses, refurnishings, insurance premiums or any other charge or expense in connection with the Premises. Except as otherwise provided herein, all expenses and charges whether capital or to be expensed, whether for upkeep, maintenance, repair, refurnishing, refurbishing, restoration, replacement, insurance premiums, taxes, utilities, and other operating or other charges of a like nature or otherwise, shall be paid by Tenant. This provision is not in derogation of the specific provisions of this Lease, but in expansion thereof and as an indication of the general intentions of the parties hereto. Any present or future law to the contrary notwithstanding, this Lease shall not terminate, nor shall Tenant, except as set forth in Sections xx and xxx, be entitled to any abatement, suspension, deferment, reduction, setoff, counterclaim, or defense with respect to any part of the total rent due under this Lease, nor shall the obligations of Tenant hereunder be otherwise affected, by reason of: (1) any defect in the condition, merchantability, design, construction, quality or fitness for use of the Premises or any part thereof, or the failure of the Premises to comply with any legal requirements, including any inability to occupy or use any such Premises by reason of such non-compliance; (2) any damage to, removal, abandonment, salvage, loss, contamination of or release from, scrapping or destruction of or any requisition or taking of any portion of the Premises or any part thereof; (3) any restriction, prevention or curtailment of or interference with the construction on or any use or any portion of the Premises or any part thereof including eviction; (4) any defect in title to or rights to any portion of the Premises or any lien on such title or rights or on any portion of the Premises; (5) any change, waiver, extension, indulgence or other action or omission or breach in respect of any obligation or liability of or by Landlord or any Lender; (6) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceedings relating to Landlord, Tenant or any other

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Person, or any action taken with respect to this Lease by any trustee or receiver of Landlord, Tenant or any other Person, or by any court, in any such proceeding; (7) any claim that Tenant has or might have against any Person, including without limitation Landlord, any Senior Lender, or any vendors, manufacturer, contractor of or for any portion of the Premises, except as herein provided otherwise; (8) any failure on the part of Landlord to perform or comply with any of the terms of this Lease or of any other agreement; (9) any invalidity or unenforceability or illegality or disaffirmance of this Lease or any provision thereof or hereof against or by Landlord or Tenant or of any document or instrument executed in connection with a Loan or by the parties thereto; (10) the impossibility or illegality of performance by Landlord or Tenant; (11) any action by any court, administrative agency or other governmental authority; or (12) any other cause or circumstances whether similar or dissimilar to the foregoing and whether or not Landlord or Tenant shall have notice or knowledge of any of the foregoing. The obligations of Tenant under this Lease shall continue to be payable in all events unless such obligations shall be terminated pursuant to the express provisions of this Lease. Tenant shall continue to perform its obligations under this Lease even if Tenant claims that Tenant has been damaged by any act or omission of Landlord. Therefore, except as otherwise provided herein, Tenant shall at all times remain obligated to pay Minimum Rent under this Lease without any right of set-off, counterclaim, abatement, deduction, reduction or defense of any kind. Tenant's sole right to recover damages against Landlord by reason of a breach or alleged breach of Landlord's obligations under this Lease shall be to prove such damages in a separate action against Landlord.

Landlord Personal Property. Landlord and Tenant agree that rent attributable to Landlord Personal Property pursuant to Section 856(d) of the Code does not, in any Lease Year, exceed ten percent (10%) of the total rent payable with respect to the Premises.

NOTE: Analysis may be required of applicable State personal property tax threshold.

Section 4: Taxes, Assessments and Other Charges .

Tenant agrees to pay and discharge (including the filing of all required returns) any and all taxes (including, but not limited to, real estate and personal property taxes, business and occupational license taxes, ad valorem sales, use, intangible property, single business, gross receipts, transaction privilege, franchise taxes, business privilege, rent or other excise taxes) and other assessments levied or assessed against Tenant, any portion of the Premises or any interest therein or Landlord (with respect to this Lease and/or the Premises but excluding (i) any state or federal income tax based upon the net income or gross receipts of Landlord attributable to the Properties payable by Landlord, and (ii) any transfer tax or stamps assessed in connection with the acquisition by Landlord of its interest in any portion of the Premises) (all such taxes and assessments payable by Tenant being collectively referred to herein as "Taxes") prior to delinquency or

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imposition of any fine, penalty, interest or other cost. If (i) required by the Prime Lease, (ii) Tenant fails to pay any real property Taxes as and when required by this Section more than two (2) times during any twenty-four (24) month period or (iii) unless otherwise agreed to by Landlord and Senior Lender, Tenant shall, deposit with Landlord or Senior Lender at the time of each payment of an installment of Minimum Rent, one-twelfth (1/12) of (a) the amount sufficient to discharge the annual amount of real property

NOTE: As indicated, some Senior Loans may require the escrow of taxes and insurance. However, insurance is often time financed over a 12 month period so that the insurance portion may be waived.

Section 5: Insurance

Tail Insurance. If, during the Term, Tenant is covered by general liability, professional liability, residential healthcare malpractice or other liability insurance on a “claims made” basis, then ten (10) days before the termination of this Lease, Tenant shall procure and maintain, at Tenant’s sole cost and expense, an extended reporting endorsement or “tail” insurance coverage, with coverage limits and deductible amounts equivalent to those required and in place hereunder immediately preceding such Lease termination for such coverage for general liability and professional liability claims reported after the termination of this Lease within the applicable limitations period but concerning services provided during the Term or the claims made policy, provided such coverage is available at commercially reasonable rates. The parties acknowledge that tail insurance will not be available for liability insurance policies purchased to comply with minimum license requirements for certain States – in such case, Tenant shall provide Landlord with a certificate evidencing tail coverage no later than ten (10) days before the termination of this Lease. Tenant shall be named as the primary insured party on each policy of tail insurance and Landlord and Lenders shall be named as additional insureds.

NOTE: Often liability insurance coverage is available on a claims made vs. an occurrence based policy so that tail insurance coverage is required at the end of any lease (as well as from a predecessor operator).

Insurance Captive. Subject to Landlord's, Senior Lender's and Junior Lender's prior written approval, Tenant shall have the right to utilize a domestic or foreign insurance captive or establish and utilize its own insurance captive (the "Insurance Captive") to satisfy the professional liability and general liability insurance requirements under Article 5 on the terms and conditions of this Section. Before the use of such Insurance Captive shall be effective, Tenant shall have provided to Landlord, Senior Lender and Junior Lender such information and documentation requested by Landlord, Senior Lender and Junior Lender, including, without limitation, the following: (i) the policy forms and actual captive contracts (including any credit wrap) for the Insurance Captive, which shall be in form and substance reasonably satisfactory to Landlord, Senior Lender

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and Junior Lender; (ii) evidence that the Insurance Captive is licensed to conduct business in all jurisdictions in which the Insurance Captive is required to be licensed, and (iii) the latest regulatory fillings with the applicable insurance regulator for such Insurance Captive. On an ongoing basis during the Term, Tenant shall fully disclose and provide copies of all reports, documents and agreements pertaining to the proposed Insurance Captive (and/or the applicable "cells" used for Tenant and Subtenants) to Landlord, Senior Lender and Junior Lender, which shall include, at a minimum, (a) no later than forty-five (45) days before the proposed effective date of any such changes, any changes to the policy forms and actual captive contracts (including any credit wrap) for the Insurance Captive, which shall be in form and substance reasonably satisfactory to Landlord, Senior Lender and Junior Lender; (b) within five (5) Business Days after the due date (including extensions) for the filing with the applicable insurance regulator in the jurisdiction in which the Insurance Captive is licensed, statements required to be filed with such applicable insurance regulator, audited financial statements for the applicable reporting period and annual captive manager's report for the Insurance Captive (and/or the applicable "cells" used for Tenant and Subtenants); (c) within five (5) Business Days after such reports become available, but no later than ninety (90) days following the end of each Lease Year, all studies, opinions and reports (the "Insurance Studies") performed by an Authorized Actuary, including, but not limited to, all loss runs (including all open and closed reported claims and paid losses), all reinsurance agreements, ACORD forms (or equivalent) and quarterly loss summary versus reserve reports, for the purpose of establishing, implementing and maintaining the captive insurance program for the professional and general liability claims (or any other claims to the extent the liability is covered by the Insurance Captive) of Tenant and the Premises; and (d) within sixty (60) days after the end of each calendar quarter during the Term quarterly financial statements of the Insurance Captive. For so long as any captive insurance arrangements are used by Tenant and Subtenants, such captive insurance arrangements shall satisfy all applicable statutory and regulatory requirements and shall be funded in a commercially reasonable and actuarially sound manner.

Section 6: Use, Maintenance and Alteration of the Premises .

Without limiting Tenant's obligation to maintain the Premises under this Lease, Tenant shall be obligated to make Capital Expenditures (made in connection with the maintenance and upkeep of the Premises) in an annual amount equal to Seven Hundred Fifty Dollars ($750.00) per Licensed Bed (the "Capital Expenditure Amount"). Tenant shall pay to Landlord, or, at Landlord's election the Senior Lender, a portion of the Capital Expenditure Amount in an amount equal to one-twelfth (1/12) of Three Hundred Dollars ($300.00) per Licensed Bed ("Capital Expenditure Escrow Payment") with each installment of Minimum Rent. Such funds shall be the sole property of Landlord but may be subject to the control of the Senior Lender or any landlord under a Prime Lease, and portions thereof shall from time to time be disbursed to Tenant or third parties if Tenant submits to Landlord the Capital Expenditure Documents and such other evidence as

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Landlord may reasonably require evidencing that Tenant has incurred expenses for Capital Expenditures (made in connection with the maintenance and upkeep of the Premises) together with a request for Landlord, Senior Lender or the landlord under the applicable Prime Lease to reimburse Tenant or pay the third party entitled to payment pursuant to the Capital Expenditure Documents. Landlord shall request Senior Lender or the landlord under the applicable Prime Lease to make each such disbursement payment within thirty (30) days of the submission by Tenant of the applicable material required hereunder. Landlord shall not be obligated to disburse to Tenant any amount in excess of the escrow amount or more than once in any thirty (30) day period. On an annual basis, Tenant shall submit to Landlord the Capital Expenditure Documents for all Capital Expenditures (made in connection with the maintenance and upkeep of the Premises) made during such Lease Year and such other evidence as Landlord shall reasonably require evidencing that Tenant has incurred expenses for Capital Expenditures (made in connection with the maintenance and upkeep of the Premises) in an amount equal to the Capital Expenditure Amount. Additionally, on an annual basis, either Landlord or Senior Lender, at their option, may review Tenant's books and records to determine whether Tenant has expended the Capital Expenditure Amount for such Lease Year. If Tenant has not incurred for such Lease Year Capital Expenditures in an amount at least equal to the Capital Expenditure Amount, then Tenant shall, at Landlord's option, (i) immediately deposit with Landlord the full Capital Expenditure Amount for such Lease Year and (ii) for the remainder of the Term, Tenant shall pay to Landlord or, at Landlord's election to Senior Lender, one-twelfth (1/12) of the Capital Expenditure Amount with each installment of Minimum Rent thereafter. In such event, the total Capital Expenditure Amount shall be subject to all of the impound and disbursement provisions set forth in this Section. Any funds being held by Landlord at the expiration of the Term shall be the sole property of Landlord. Tenant shall not be entitled to a disbursement of any portion of the Capital Expenditure Amount held by Landlord (or Senior Lender) during the continuance of an Event of Default. Any Lender may, at any time and from time to time, cause to be made inspections of any Property by a qualified third party inspector. If any inspection report from any such third party inspection reasonably recommends that Capital Expenditures are required to cause the Properties to conform to standards that existed on the Effective Date (it being understood that upon performance of the work set forth on Schedule xxx1, the Properties shall be in conformance with such standards), Landlord shall provide Tenant with a written description of such needed Capital Expenditures (the "Capital Improvements") and subject to Section xxx, Tenant shall complete the required needed Capital Improvements to the reasonable satisfaction of Landlord within ninety (90) days of receipt of such description and Landlord shall disburse, or cause to be disbursed, funds hereunder to accomplish such Capital Improvements. If, pursuant to the Senior Loan documents, Senior Lender increases the amount of the Capital Expenditure Escrow Payment, Tenant shall pay such increased Capital Expenditure Escrow Payment with each installment of Minimum Rent after the

1 Schedule to be prepared by Landlord. Landlord should determine what work is necessary in order for the properties to be in conformance with the required standards.

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date that is thirty (30) days after the date of notice from Landlord that Senior Lender has required such increase, provided, however, the Capital Expenditure Escrow Payment shall never be in excess of Five Hundred Dollars ($500.00) per Licensed Bed per annum unless otherwise required by this Section. If Senior Lender decreases the amount of the Capital Expenditure Escrow Payment, Tenant may reduce the Capital Expenditure Escrow Payment with each installment of Minimum Rent after the date that is thirty (30) days after the date of notice from Landlord that Senior Lender has decreased the amount of the Capital Expenditure Escrow Payment; provided, however, that the Capital Expenditure Escrow Payment shall not be reduced to less than Three Hundred Dollars ($300.00) per Licensed Bed per annum without the prior written consent of the Lenders. Notwithstanding anything in this Section to the contrary and provided a payment Event of Default has not occurred and remains uncured or any other Event of Default has not occurred for which Landlord is exercising the remedies provided for such Event of Default under this Lease, to the extent that neither Landlord nor Senior Lender, as the case may be, disburse that portion of the Capital Expenditure Amount deposited pursuant to this Section, Tenant shall be relieved of its obligations to make Capital Expenditures with respect to the Properties in the amount equal to the undisbursed portion of the Capital Expenditure Amount.

NOTE: Many leases (and almost all loans) required an annual reserve for FF&E and improvements as well as an annual expenditure of such funds to maintain the Premises. The clause above is very comprehensive and provides for more flexibility than is typical.

Regulatory Compliance; Qualified Care. Tenant for each Property shall be solely responsible for maintaining any and all licensing necessary for the operation of each Property as the applicable Healthcare Use, with certification through the Medicare and Medicaid (or any successor) programs, if applicable. Further, Tenant shall be solely responsible for ensuring that each Property continues to be operated as the applicable Healthcare Use, licensed for not less than the applicable number of beds set forth on Schedule xxx, all without any suspension, revocation, decertification or other limitation, including without any limitation on admissions or the ability to continue to provide services, subject to any reduction in the applicable licensed and/or certified capacity resulting from the operation of any applicable law based upon occupancy levels. Notwithstanding the foregoing, Tenant shall have the right to reduce up to the lesser of five percent (5%) or ______________ (___), in the aggregate, of the licensed beds set forth on Schedule xxx at the Properties, taken as a whole (the "Bed Cap"), provided, however, the following shall not be treated as lost beds in determining whether the Bed Cap has been breached: (i) reductions due to the temporary de-licensure of beds and (ii) reductions due to (A) the termination of this Lease as to any Property due to a casualty or taking with respect to such Property, (B) a temporary or permanent loss of licensed beds resulting from a casualty or taking as anticipated by Articles xxx or xxx hereof or (C) the closure of a facility at a Property expressly consented to by Landlord. Further, Tenant

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shall not commit any act or omission that would in any way materially violate any certificate of occupancy affecting the Properties.

Tenant shall maintain such books, records and other material relating to the Properties, but not limited to patient records and records of patient funds, prior to the commencement of the Term, in the manner required by law, provided such books, records and other materials are provided to Tenant at the commencement of the Term.

All inspection fees, costs and charges associated with maintaining such licensure or certification or a change of such licensure or certification shall be borne solely by Tenant. Tenant shall be solely responsible for and shall bear all costs and expenses incurred in connection with any requirements of subsequent regulatory inspections or surveys conducted after the Effective Date and during the Term and implementing any plans of correction relating to such surveys or inspections.

Tenant represents and warrants that it or its Subtenants have in place all licensure, provider enrollment, provider certification, provider application forms, and provider agreements necessary for all payors, including Medicare and Medicaid, to reimburse Tenant or its Subtenants for program services.

Continuous Operations; Permitted Use. Tenant shall continuously use and operate each Property and Leased Property during the Term as the applicable Healthcare Use, unless changed by applicable State regulations, and for ancillary services relating thereto, and for no other purpose.

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Section 7: Landlord and Tenant Personal Property .

Landlord's Security Interest. The parties intend that if Tenant defaults under this Lease and Landlord dispossesses Tenant, then Landlord will control the Tenant Personal Property and the Intangible Property so that Landlord or its designee can operate or relet the Premises intact for use as licensed for the Healthcare Use applicable for each Property. Therefore, to implement the intention of the parties, and for the purpose of securing the payment and performance of Tenant's obligations under this Lease, (a) Tenant, as debtor, hereby grants to Landlord, as secured party, a security interest in and an express contractual lien upon, all of Tenant's right, title and interest in and to the Tenant Personal Property and in and to the Intangible Property and any and all products and proceeds thereof, in which Tenant now owns or hereafter acquires an interest or right, including any leased Tenant Personal Property and (b) Tenant hereby acknowledges that Subtenants have executed and delivered to Leasing, those certain Collateral Assignments of Intangible Property, dated as of _______________, those certain Security Agreements, each dated as of _______________ and those certain Reaffirmation Agreements of even date herewith, pursuant to which Subtenants have granted to Leasing a security interest in certain collateral described therein, as security for, among other things, Tenant's obligations under the Master Lease and Subtenants' respective obligations under the respective Subleases. This Lease constitutes a security agreement covering all such Tenant Personal Property and the Intangible Property. The security interest granted to Landlord in this Section is intended by Landlord and Tenant to be a first lien security interest in such property and shall not be inferior or subordinate to any other lien or financing except (i) for purchase money financing for the purchase of Tenant Personal Property and (ii) any lien in favor of Working Capital Lender; provided, however, as a condition to subordinating Landlord's lien to the lien of Working Capital Lender, such Working Capital Lender shall enter into an intercreditor agreement with Landlord on terms and conditions reasonably acceptable to such Working Capital Lender, Landlord, Landlord's Senior Lender and Junior Lender. This security agreement and the security interest created herein shall survive the termination of this Lease if such termination results from the occurrence of an Event of Default. The parties acknowledge and agree that the provisions set forth in this Section are subject to any existing intercreditor agreements among Landlord and one or more of and Senior Lender, Junior Lender, Working Capital Lender and Tenant in effect as of the Effective Date and as amended, restated, supplemented and otherwise modified from time to time ("Existing Intercreditor Agreements"). Any inconsistencies between this provision and the provisions in the Existing Intercreditor Agreements shall be governed by the terms and provisions of the Existing Intercreditor Agreements.

Financing Statements. Prior to the commencement of the Lease and if required by Landlord under applicable law at any other time during the Term, Tenant shall execute and deliver (and cause all Subtenants to execute and deliver) to Landlord, in a form reasonably satisfactory to Landlord, additional security agreements,

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financing statements, fixture filings and such other documents as Landlord may reasonably require to perfect or continue the perfection of Landlord's security interest in the Tenant Personal Property and the Intangible Property (and any Subtenant personal property) and any and all products and proceeds thereof now owned or hereafter acquired by Tenant (or any Subtenant). Tenant shall pay all fees and costs that Landlord may incur in filing such documents in public offices and in obtaining such record searches as Landlord may reasonably require. In the event Tenant fails to execute any financing statements or other documents for the perfection or continuation of Landlord's security interest, Tenant hereby appoints Landlord as its true and lawful attorney-in-fact to execute any such documents on its behalf, which power of attorney shall be irrevocable and is deemed to be coupled with an interest. Tenant shall give Landlord and Landlord's Agent at least thirty (30) days' prior written notice of any change in Tenant's name, identity, jurisdiction of organization or corporate structure. With respect to any such change, Tenant shall promptly (and at Tenant's sole cost and expense) execute and deliver such instruments, documents and notices and take such actions, as Landlord's Agent deems necessary or desirable to create, perfect and protect Landlord's security interests as described in Section xxx.

NOTE: There is always a struggle between security interests granted by Tenant to Landlord (which are then typically assigned to the Senior Lender) and security interests granted by Tenant to the Working Capital Lender. The Working Capital Lender will always require a first lien security interest in Tenant’s accounts receivable. Intercreditor Agreements are mandatory in these type of transactions.

Collateral Assignment of Intangible Property. Tenant has executed and delivered to Landlord a Collateral Assignment of Intangible Property substantially in the form attached hereto as Exhibit E. Landlord agrees to, and hereby does, subordinate its foregoing contractual lien rights in favor of any purchase money lien and in favor of Working Capital Lender. Any such subordination shall be in writing, signed by all parties and in a form reasonably acceptable to Landlord, Tenant and Working Capital Lender.

Cash Management. On or before the Effective Date, Tenant shall, and shall have Subtenants, establish and maintain with a United States depository institution designated by Landlord or Senior Lender ("Account Bank") a separate and unique collection account (the "Account") into which all revenues attributable to the Premises ("Revenues") shall be deposited, commencing on the Effective Date. If any such Revenues are forwarded to Tenant, any Subtenant or any manager of either rather than directly to the Account, Tenant shall (i) deliver an irrevocable direction letter in form and substance satisfactory to Landlord to such entity and make other commercially reasonable efforts to cause such entity to forward such Revenues directly to the Account and (ii) immediately deposit such Revenues in the Account. Neither Tenant nor any Subtenant shall have any right to withdraw sums from the Account.

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So long as no Event of Default shall have occurred and be continuing, the Revenues shall be held uninvested in the Account and shall be applied daily as follows: (i) first, to the payment of any and all amounts due with respect to the Account; and (ii) second, to an account designated by Tenant.

If an Event of Default has occurred and is continuing (and following the giving of any required notice): (i) neither Tenant nor any Subtenant shall have any right to make or direct any withdrawals from the Account without the prior written consent of Landlord (it being understood that, in the case of a non-monetary default, Landlord shall not unreasonably withhold such consent for withdrawals required to be made for the payment of reasonable expenses incurred in the ordinary course of business) and each Lender and Revenues deposited in the Account shall not be applied or deposited to the account designated by Tenant pursuant to Section xxx and sums on deposit in the Account may be applied by Landlord for the payment of any amounts due Landlord pursuant to this Lease.

Contemporaneously with the creation of the Account, Landlord, Tenant, Subtenants and Account Bank shall enter into a control agreement concerning the Account and implementing the provisions of this Section.

Landlord shall waive the provisions of this Section if Tenant and/or Subtenants obtain from Working Capital Lender, pursuant to Section xxx, a working capital credit facility secured by the accounts of Tenant and/or Subtenants.

The provisions set forth in this Section shall be subject to the approval of the Lenders. Any inconsistencies between this provision and the provisions in any working capital loan from Working Capital Lender shall be governed by the terms and provisions of the working capital loan documents.

NOTE: It is typical for the Working Capital Lender to trap cash.

Section 8: Financial, Management, Litigation and Regulatory Reports and Covenants .

Monthly Property Reports. Within thirty (30) days after the end of each calendar month during the Term, Tenant shall prepare and deliver monthly financial reports to Landlord and each Lender consisting of a balance sheet, income statement, total patient days, occupancy and payor mix concerning the business conducted at each Property, a comparison of actual results versus the budget and a comparison of actual results versus the prior year results, provided that the time for delivery of said reports may be extended in the event that each Lender agrees in writing to extend same.

Quarterly Financial Statements. Within thirty (30) days of the end of each calendar quarter during the Term, Tenant shall deliver the quarterly financial statements for each Property, a comparison of actual results versus the budget and

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a comparison of actual results versus the prior year results, and on a consolidated basis to Landlord and each Lender.

Annual Financial Statements. Within one hundred ten (110) days of the end of each Lease Year, Tenant shall deliver to Landlord and each Lender the annual financial statements of Tenant substantially in the form of the financial statements attached hereto as Exhibit M, audited by the Auditors. To the extent Tenant provides Landlord combined annual financial statements, Auditors shall be permitted to opine as to a single combined annual financial statement. Notwithstanding any of the other terms of this Section, if Tenant shall become subject to any reporting requirements of the SEC during the Term, Tenant shall concurrently deliver to Landlord such reports as are delivered to the SEC by Tenant pursuant to applicable securities laws within five (5) days of filing with the SEC, provided that the time for delivery of said reports may be extended in the event that the Senior Lender agrees in writing to extend same.

Accounting Principles. All of the reports and statements required hereby shall be prepared in accordance with GAAP, as defined herein.

Regulatory Reports and Notices. Tenant shall within five (5) Business Days of receipt thereof deliver to Landlord all federal, state and local licensing and reimbursement certification surveys, inspection and other reports, notices, or requests ("Reports") received by Tenant as to any Property and the operation of business thereon, including, without limitation, state department of health licensing surveys, Medicare and Medicaid (and successor programs) certification surveys, life safety code reports, any notices of violation or requests for corrective action and any correspondence concerning same. Notwithstanding the foregoing, Tenant shall as soon as practicable deliver to Landlord copies of any Report reflecting any violation at or above the "Level 1" under the CMS system or any other violation which could lead to loss of license, suspension of operation or limitation on admissions. Within two (2) Business Days of receipt thereof, Tenant shall give Landlord written copies of any notice of any violation of any federal, state or local licensing or reimbursement certification statute or regulation, including, without limitation, Medicare or Medicaid (or successor programs), any suspension, termination or restriction placed upon Tenant or any Property, the operation of business thereon or the ability to admit residents or patients, or any violation of any other permit, approval or certification in connection with any Property or its business, by any federal, state or local authority, including, without limitation, Medicare or Medicaid (or successor programs). Tenant shall continue to provide Landlord with copies of any correspondence regarding said violation and written confirmation of the plan for correcting said violation.

Annual Operating Budget. At least ten (10) days prior to the commencement of Tenant's first full fiscal year and at least thirty (30) days prior to the commencement of each fiscal year of Tenant thereafter that this Lease is in effect, Tenant shall provide Landlord and each Lender with an annual budget covering the operations of each Property including any proposed Capital Expenditures for

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the forthcoming fiscal year. Tenant shall also provide Landlord with such other information with respect to Tenant or the operations of each Property as Landlord may reasonably request from time to time, subject to applicable patient privacy laws. At least thirty (30) days prior to the commencement of each fiscal year of Manager that this Lease is in effect, Tenant shall provide Landlord and each Lender, or cause Manager to provide Landlord and each Lender, with an annual budget covering the operations of Manager, including any proposed capital expenditures for the forthcoming fiscal year, including any proposed capital expenditure for the forthcoming fiscal year.

Financial Covenants. At all times during the Initial Term and each Renewal Term, Tenant shall comply with the following covenants:

Beginning on the Effective Date, and thereafter, on the last day of each calendar quarter, the Portfolio Coverage Ratio for the twelve month period ending on any such date shall not be less than 1.10 to 1. For purposes of calculation of the Portfolio Coverage Ratio for the first four (4) quarters after the Effective Date, Minimum Rent shall mean the Minimum Rent for the First Rent Year on an annualized basis and EBITDAR shall include pro forma adjustments mutually agreed upon by Tenant and Landlord.

Tenant shall maintain for each calendar quarter during each Lease Year a Current Ratio of not less than 1.0 to 1.

Beginning on the last day of the first full calendar quarter occurring after the Effective Date, and thereafter, on the last day of each calendar quarter, the Fixed Charge Coverage Ratio for the twelve month period ending on any such date shall not be less than 1.0 to 1. For purposes of calculation of the Fixed Charge Coverage Ratio for the first three (3) quarters after the Effective Date, the Fixed Charge Coverage Ratio shall be calculated using Excess Cash Flow and Fixed Charges for the period from the Effective Date until the last day of each of the first three (3) quarters for which such ratio is calculated.

Tenant shall provide for each calendar quarter a certificate evidencing compliance with the covenants set forth in this Section, substantially in the form of Schedule xxx. All statements required by this Section shall be certified true and correct by the chief financial officer of Tenant and the chief financial officer or the managing member of the Manager of Subtenants.

Neither Tenant nor any Subtenant shall make any Distribution to the holders of its equity securities or any Affiliate if, as of the date of such Distribution or upon giving effect to such Distribution, an Event of Default has occurred and is continuing. Moreover, neither Tenant nor any Subtenant shall make any Distribution in any Lease Year in which it has exercised its right to a rent deferral. So long as no monetary event of default exists, a Distribution made in contravention of the foregoing restrictions shall be permitted to the extent (i) such Distribution is required to pay debt service due with respect to a working

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capital loan made by a Working Capital Lender or (ii) such Distribution is made for the sole purpose of allowing equity holders to satisfy their pass-through income tax obligations with respect to income allocable to Tenant and Subtenants, as applicable, for the period relevant to such Distribution.

Section 9: Special Termination Right.

Property Termination. Upon an Event of Default related solely to events or circumstances occurring at or in connection with one or more of the Properties, Landlord, in addition to any other right or remedy it may have with respect to such Event of Default, may, at its option, immediately terminate this Lease with respect to such Property or Properties (a "Property Termination" and such terminated Property or Properties, individually, a "Separated Property" and collectively, the "Separated Properties") by providing written of such termination to Tenant.

Remaining Properties. Notwithstanding anything in this Lease to the contrary, if this Lease shall be terminated by Landlord pursuant to Section xxx with respect to any Property(ies), such termination shall not affect the remaining Term of this Lease with respect to the balance of the Properties not so terminated by Landlord, and this Lease shall continue in full force and effect with respect to such other Property(ies), except that the total Minimum Rent payable hereunder shall be reduced in accordance with Schedule xxx. In such event, Landlord and Tenant shall enter into and execute an amendment to this Lease providing that (i) the Separated Properties are removed from this Lease and (ii) the total Minimum Rent is reduced in accordance with Section xxx. Any such amendment shall also contain such other modifications to this Lease as are necessitated by the removal of such Separated Properties, as reasonably determined by the parties.

New Lease. In the event of a Property Termination, Landlord (or at Landlord's sole option, an Affiliate of Landlord to which the Separated Property or Properties has/have been transferred) and Tenant shall execute a new lease (the "New Lease") for such Separated Property(ies), effective as of the date this Lease is amended pursuant to Section xxx in the same form and substance and upon the same terms and conditions as this Lease, but with such changes as necessary to reflect the separation of the Separated Property(ies) from the balance of the Premises.

Section 10: Provisions on Termination of Term ; Transition of Premises to New Operator.

Surrender of Possession. Tenant shall, on or before the last day of the Term, or upon earlier termination of this Lease, (a) surrender to Landlord the Premises (including all resident charts and resident records along with appropriate patient and resident consents if necessary and inventories and supplies at normal operating levels) in good condition and repair, ordinary wear and tear excepted (b) upon Landlord's written request, shall to the greatest extent permitted by law,

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transfer to Landlord or its designees or assigns, the following: (i) all federal, state or municipal licenses, certifications, certificates, approvals, permits, variances, waivers, provider agreements and other authorizations certificates which relate to the operation of the healthcare business at the Properties, except for the right to the use of Tenant's name; and (ii) the names of the healthcare facilities comprising the Properties as then known to the general public, (c) prepare and file all notices required by applicable law in connection with such termination, and (d) execute (and cause each Subtenant to execute) the Exit Operations Transfer Agreement attached hereto as Exhibit F (the "Exit Agreement"). If Tenant fails or refuses to transfer any such license, certification, certificate, approval, permit, variance, waiver, provider agreement, other authorization or trade name, then this provision shall constitute an act of assignment by Tenant to Landlord or its assigns without the necessity of any further written instrument. Landlord shall have the option of taking over the operation of the healthcare business at the Properties, or to have the operation of the business taken over by a designee, in the event of a termination of this Lease for any reason, without assuming any of Tenant's liabilities or obligations. Landlord shall give Tenant written notice of Landlord's intent to exercise the right set forth above, in which event, upon the approval of the applicable State agency or agencies of the change of ownership, Tenant shall immediately turn over (and cause each Subtenant to turn over) possession and control of the healthcare business at the Properties without any further action having to be taken on the part of Landlord. Further, if an Event of Default occurs and is continuing hereunder and Tenant has not filed and served on Landlord legal action contesting the existence of such Event of Default and Landlord's right to dispossess Tenant from any portion of the Premises and relet the Premises, or any portion thereof, Tenant hereby appoints Landlord (and shall cause each Subtenant to appoint Landlord) its true and lawful attorney by this instrument and by the limited power of attorney attached to this Lease as Exhibit G, said appointment being coupled with an interest, to execute the Exit Agreement on behalf of Tenant (and any Subtenant) and to execute on behalf of Tenant (and any Subtenant) a letter of consent in a form acceptable to Landlord enabling Landlord or its designee to file applications to operate a Nursing Homes with the applicable State agencies and every other regulatory agency now or hereafter claiming jurisdiction and to operate the healthcare business at the Premises during the pendency of such application. This provision shall be enforceable in a court of law and shall be effective by operation of law.

Removal of Personal Property. Subject to Landlord's rights to purchase all or any portion of Tenant's Personal Property pursuant to Section xxx, if Tenant is not then in default hereunder Tenant shall have the right in connection with the surrender of the Premises to remove from the Premises all Tenant Personal Property but not the Landlord Personal Property (including Landlord Personal Property replaced by Tenant or required by the State in which the applicable Property is located or any other governmental entity to operate the applicable Property for the purpose set forth in Section xxx, "Governmental Required Property"); provided, however, Landlord shall pay to Tenant or Subtenant the depreciated book value in accordance with GAAP of such Governmental

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Required Property. In addition, at Landlord's option, Tenant shall remove Tenant Personal Property so designated by Landlord in writing. Any such removal shall be done in a workmanlike manner leaving the Premises in good and presentable condition and appearance, including repair of any damage caused by such removal. At the end of the Term or upon the earlier termination of this Lease, Tenant shall return (and cause each Subtenant to return) the Premises to Landlord with the Landlord Personal Property (or replacements thereof) together with the other Governmental Required Property in the same condition and utility as was delivered to Tenant at the commencement of the Term, reasonable wear and tear excepted, and, subject to the Intercreditor Agreement, dated as of the date hereof, by and between _____________________ and _____________________, collectively as the Working Capital Lender, and Senior Lender (the "Intercreditor Agreement") to transfer to Landlord all Intangible Property except for Tenant's accounts (unless this Lease was terminated because of an Event of Default by Tenant, in which event Landlord shall have the right, subject to any subordination as set forth in Section xxx, to enforce its security interests in Tenant's accounts receivable). Tenant covenants and agrees that it shall not sell, move, modify, transfer, assign, sell, relocate, pledge, secure, convey or in any other manner encumber (or permit any Subtenant to do any of the same with respect to) Landlord's Personal Property, any certificate of need or any of the licensed or Medicare and/or Medicaid certified beds at the Properties or any other Intangible Property, or attempt to do same, except for liens on Tenant Personal Property and Intangible Property in favor of the Working Capital Lender.Title to Personal Property Not Removed. Subject to the Intercreditor Agreement, title to any of Tenant Personal Property which is not removed by Tenant within thirty (30) days of the expiration of the Term shall, at Landlord's election, vest in Landlord; provided, however, that Landlord may remove and dispose at Tenant's expense of any or all of such Tenant Personal Property which is not so removed by Tenant without obligation or accounting to Tenant.

Transition of Premises. Upon the expiration or earlier termination of the Term, Landlord, upon written notice to Tenant, may inform Tenant that the responsibilities and obligations for the management and operation of the Premises shall be transferred to and assumed by a new tenant designated by Landlord, and Tenant agrees to cooperate fully (and cause Subtenants to cooperate fully) with Landlord and such new tenant to accomplish the transfer of such management and operation without interrupting the operation of the Premises. Tenant shall not commit (or permit any Subtenant to commit) any act or be remiss in the undertaking of any act reasonably requested by Landlord that would jeopardize any licensure or certification of the Property, and Tenant shall comply (and cause each Subtenant to comply) with all requests for an orderly transfer of all licenses used in the operation of the Properties, Medicare and Medicaid (or any successor program) certifications and possession of the Property at the time of any such surrender. Upon the expiration or earlier termination of the Term, Tenant shall promptly deliver copies of all of Tenant's (and Subtenant's) books and records relating to the Premises and its operations to Landlord, subject to applicable

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patient privacy laws. Tenant shall not be required to incur any out of pocket costs with respect to its cooperation hereunder.

Other Surviving Expenses. Tenant shall remain liable for the cost of all utilities used in or at the Premises and any Capital Improvements or other additions, alterations, repairs, maintenance and replacements relating to the Premises through the expiration or termination date and accrued and unpaid, whether or not then billed, as of the expiration or termination date until full payment thereof by Tenant. Tenant shall obtain directly from the companies providing such services closing statements for all services rendered through the expiration or termination date and shall promptly pay the same. If any utility statement with respect to such Property and any Capital Improvements or other additions, alterations, repairs, maintenance and replacements includes charges for a period partially prior to and partially subsequent to the expiration or termination date, such charges shall be prorated as between Landlord and Tenant, with Tenant responsible for the portion thereof (based upon a fraction the numerator of which is the number of days of service on such statement through the termination date and the denominator of which is the total number of days of service on such statement) through the expiration or termination date and Landlord shall be responsible for the balance. The party receiving any such statement which requires proration hereunder shall promptly pay such statement and the other party shall, within ten (10) days after receipt of a copy of such statement, remit to the party paying the statement any amount for which such other party is responsible hereunder.

Survival. The Provisions of this Section shall survive the termination or expiration of this Lease.

ALTERNATIVE/ADDITIONAL PROVISION:

A. The date on which (i) this Lease either terminates or expires pursuant to its terms or is terminated by either party whether pursuant to a right granted to it hereunder or otherwise, (ii) the date on which Tenant’s right to possession of the Premises is terminated pursuant to a right granted to it hereunder or otherwise, or (iii) the date on which Tenant otherwise abandons the Premises shall be referred to as the "Closing Date" in this Article. On the Closing Date, this Lease shall be deemed and construed as an absolute assignment for purposes of vesting in Landlord (or Landlord’s designee – for purposes of this Article the term Landlord shall be deemed to mean Landlord’s designee, if applicable)) all of Tenant’s right, title and interest in and to the following intangible property which is now or hereafter used in connection with the operation of the Premises (the "Intangibles") and an assumption by Landlord of Tenant’s obligations under the Intangibles from and after the Closing Date; provided that, from and after the Closing Date, Tenant shall indemnify, defend and hold harmless Landlord and the other Landlord Parties from and against any claims, losses, costs or damages, including reasonable attorneys’ fees incurred or arising by reason of Tenant’s obligations under the Intangibles prior to the Closing Date:

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(1) service contracts and equipment leases for the benefit of the Premises to which Tenant is a party, and which can be terminated without penalty by Tenant within sixty (60) or fewer days’ notice or which Landlord requests be assigned to Landlord pursuant to this Article;

(2) any provider agreements with Medicare, Medicaid or any other third-party payor programs (excluding the right to any reimbursement for periods prior to the Closing Date, as defined above) entered in connection with the Premises, to the extent assignable by Tenant;

(3) all existing agreements with residents of the Facilities and any guarantors thereof, to the extent assignable by Tenant (excluding the right to any payments for periods prior to the Closing Date) and any and all patient trust fund accounts; and

(4) at Landlord’s option, the business of Tenant as conducted at the Premises as a going concern, including but not limited to the name of the business conducted thereon and all telephone numbers presently in use therein.

B. Landlord shall be responsible for and shall pay all expenses with respect to the Premises accruing on or after 12:01 a.m. on the day of the Closing Date and shall be entitled to receive and retain all revenues from the Premises accruing on or after the Closing Date. Promptly, but in no event less than fifteen (15) business days (and in no event more than 30 days) after the Closing Date, the following adjustments and prorations shall be determined as of the Closing Date:

(1) Taxes and Assessments, if any. If the information as to the actual amount of any of the foregoing taxes and assessments are not available for the tax year in which the Closing Date occurs, the proration of such taxes shall be estimated based upon reasonable information available to the parties, including information disclosed by the local tax office or other public information, and an adjustment shall be made when actual figures are published or otherwise become available.

(2) Tenant will terminate the employment of all employees on the Closing Date and shall be and remain liable for any and all wages, accrued vacation and sick leave pay for employees of the Premises with respect to the period prior to the Closing Date. Landlord or any successor operator shall hire all or substantially all employees as of the Closing Date to avoid any requirements to comply with the WARN Act, and shall be responsible for all wages, accrued vacation, sick leave pay and other continuing benefits, if any, for employees of the Premises with respect to the period from and after the Closing Date.

(3) Landlord shall receive a credit equal to any advance payments by patients of the Facilities to the extent attributable to periods on and after the Closing Date. To the extent any delinquent patient invoices are paid after the Closing Date, they shall be applied to the applicable invoice, and if no invoice is

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referenced, they shall be applied first to Tenant’s oldest payable invoice, such application of delinquent patient invoices to Tenant’s oldest payable invoice to continue for a period of 30 days after the Closing Date.

(4) The present insurance coverage on the Premises shall be terminated as of the Closing Date and there shall be no proration of insurance premiums.

(5) All other income from, and expenses of, the Premises (other than mortgage interest and principal), including but not limited to public utility charges and deposits, maintenance charges and service charges shall be prorated between Tenant and Landlord as of the Closing Date. Tenant shall, if possible, obtain final utility meter readings as of the Closing Date. To the extent that information for any such proration is not available, Tenant and Landlord shall effect such proration within ninety (90) days after the Closing Date.

(6) Tenant shall be and remain responsible for any employee severance pay and accrued benefits which may be payable as the result of any termination of an employee’s employment on or prior to the Closing Date.

C. All necessary arrangements shall be made to provide possession of the Premises to Landlord on the Closing Date, at which time of possession Tenant shall deliver to Landlord all medical records, patient records and other personal information concerning all patients residing at the Facilities as of the Closing Date and other relevant records used or developed in connection with the business conducted at the Premises, subject to compliance with applicable law (including The Health Insurance Portability and Accountability Act of 1996 (i.e., HIPAA). Such transfer and delivery shall be in accordance with all applicable laws, rules and regulations concerning the transfer of medical records and other types of patient records.

D. For the period commencing on the Closing Date and ending on the date Landlord, or its designee, obtains any and all appropriate state or other governmental licenses and certifications required to operate the Facilities, Tenant hereby agrees that Landlord, or Landlord’s designee, shall have the right, but not the obligation, to manage and operate the Premises, on a triple net basis, and shall be entitled to all revenues of the Premises during such period, and to use any and all licenses, certifications and provider agreements issued to Tenant by any federal, state or other governmental authority for such operation of the Premises, if permitted by any such governmental authorities. If Landlord or its designee exercises the right described above in this Section: (a) the provisions of this Section shall be self-operative and shall constitute a management agreement between Tenant, on the one hand, and Landlord or its designee, on the other hand, on the terms set forth above in this Section; (b) upon the request of Landlord or its designee, Tenant shall enter into a separate management agreement on the terms set forth in this Section and on such other terms and provisions as may be specified by Landlord or its designee; and reasonably approved by Tenant, and (c)

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provided that, so long as the termination of this Lease is not due to an Event of Default by Tenant and provided further that Tenant has performed in accordance with this Article, Landlord shall indemnify, defend and hold harmless Tenant, Guarantors and their respective members, managers, officers, agents, and employees of the foregoing (“Tenant Parties”), from and against any claims, losses, costs or damages, including reasonable attorneys’ fees incurred or arising from and after the Closing Date, to the extent arising directly from the use of any and all such licenses, certifications and provider agreements issued to Tenant by any federal, state or other governmental authority for such operation of the Premises, provided that Landlord shall not be liable for any and shall not indemnify any Tenant Parties for any such claims, losses, costs or damages which are not the result of any gross negligence or willful misconduct by any Tenant Parties.

E. Tenant shall provide Landlord with an accounting within fifteen (15) days after the Closing Date of all funds belonging to patients at the Facilities which are held by Tenant in a custodial capacity. Such accounting shall set forth the names of the patients for whom such funds are held, the amounts held on behalf of each such patient and Tenant’s warranty that the accounting is true, correct and complete. Additionally, Tenant, in accordance with all applicable rules and regulations, shall make all necessary arrangements to transfer such funds to a bank account designated by Landlord, and Landlord shall in writing acknowledge receipt of and expressly assume all Tenant’s financial and custodial obligations with respect thereto. Notwithstanding the foregoing, Tenant will indemnify, defend and hold Landlord and any other Landlord Party harmless from and against all liabilities, claims and demands, including reasonable attorney’s fees, in the event the amount of funds, if any, transferred to Landlord’s bank account as provided above, did not represent the full amount of the funds then or thereafter shown to have been delivered to Tenant as custodian that remain undisbursed for the benefit of the patient for whom such funds were deposited, or with respect to any matters relating to patient funds which accrued during the Term.

F. So long as the termination of this Lease is not due to an Event of Default by Tenant hereunder and provided further that Tenant has performed in all material respects with this Article: All cash, checks and cash equivalent at the Premises and deposits in bank accounts (other than patient trust accounts) relating to the Premises prior to the Closing Date shall remain Tenant’s property after the Closing Date. Subject to the provisions of Article XXX hereof, all accounts receivable, loans receivable and other receivables of Tenant, whether derived from operation of the Premises or otherwise, shall remain the property of Tenant from and after the Closing Date. Tenant shall retain full responsibility for the collection thereof. Landlord shall assume responsibility for the billing and collection of payments on account of services rendered by it on and after the Closing Date. In order to facilitate Tenant’s collection efforts, Tenant agrees to deliver to Landlord, within a reasonable time after the Closing Date, a schedule identifying all of those private pay balances owing for the month prior to the Closing Date and Landlord agrees to apply any payments received which are

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specifically designated as being applicable to services rendered prior to the Closing Date to reduce the pre-Closing Date balances of said patients by promptly remitting said payments to Tenant. All other payments received shall be retained by Landlord as being applicable to services rendered from and after the Closing Date (except to the extent of any excess payments which shall be remitted to Tenant). Landlord shall cooperate with Tenant in Tenant’s collection of its preclosing accounts receivable. Landlord shall have no liability for uncollectible receivables and shall not be obligated to bear any expense as a result of such activities on behalf of Tenant. Subject to the provisions of Article XXX hereof, Landlord shall remit to Tenant or its assignee those portions of any payments received by Landlord which are specifically designated as repayment or reimbursement arising out of cost reports filed for the cost reporting periods ending prior to the Closing Date.

G. With respect to residents at the Facilities on the Closing Date, Landlord and Tenant agree as follows:

(1) With respect to Medicare and Medicaid residents, Landlord and Tenant agree that subject to the provisions of Article XXX hereof, payment for in-house residents covered by Medicare or Medicaid on the Closing Date will be made (on a per diem basis) by Medicare or Medicaid under current regulations directly to Tenant for services rendered at the Premises prior to the Closing Date. Said payments shall be the sole responsibility of Tenant and Landlord shall in no way be liable therefor. After the Closing Date, Landlord and Tenant shall each have the right to review supporting books, records and documentation that are in the possession of the other relating to Medicaid or Medicare payments.

(2) If, following the Closing Date, Landlord receives payment from any state or federal agency or third-party provider which represents reimbursement with respect to services provided at the Premises prior to the Closing Date, Landlord agrees that, subject to the provisions of Article XXX hereof, it shall remit such payments to Tenant. Payments by Landlord to Tenant shall be accompanied by a copy of the appropriate remittance.

(3) If, following the Closing Date, Tenant receives payment from any state or federal agency or third-party provider which represents reimbursement with respect to services provided at the Facilities on or after the Closing Date, Tenant agrees that, it shall remit such payments to Landlord. Payments by Tenant to Landlord shall be accompanied by a copy of the appropriate remittance.

H. In addition to the obligations required to be performed hereunder by Tenant and Landlord on and after the Closing Date, Tenant and Landlord agree to perform such other acts, and to execute, acknowledge, and/or deliver subsequent to the Closing Date such other instruments, documents and materials, as the other may reasonably request in order to effectuate the consummation of the transaction contemplated herein, including but not limited to any documents or filings which may be required to be delivered by Tenant to Landlord or be filed in order for the

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transaction contemplated hereunder to be in compliance with all local, state and federal laws, statutes, rules and regulations.

I. Tenant for itself, its successors and assigns hereby indemnifies and agrees to defend and hold Landlord and the other Landlord Parties and their respective successors and assigns harmless from and against any and all claims, demands, obligations, losses, liabilities, damages, recoveries and deficiencies (including interest, penalties and reasonable attorney’s fees, costs and expenses) which any of them may suffer as a result of the breach by Tenant in the performance of any of its commitments, covenants or obligations under this Article, or with respect to any suits, arbitration proceedings, administrative actions or investigations which relate to the use by Tenant of the Premises during the Term or for any liability which may arise from operation of the Premises as a nursing home during the Term, including without limitation, any amounts due or to be reimbursed to any governmental authority based upon any audit or review of Tenant or of the Facilities or the operation thereof and pertaining to the period prior to the Closing Date or any amounts recaptured under Titles XVIII or XIX based upon applicable Medicaid/Medicare recapture regulations. The rights of Landlord under this paragraph are without prejudice to any other remedies not inconsistent herewith which Landlord may have against Tenant pursuant to the terms of this Lease. The foregoing indemnity shall survive the expiration or termination of this Lease, whether due to lapse of time or otherwise.

J. So long as the termination of this Lease is not due to an Event of Default by Tenant hereunder and provided further that Tenant has performed in accordance with this Article, Landlord for itself, its successors and assigns hereby indemnifies and agrees to defend and hold Tenant and the other Tenant Parties and their respective successors and assigns, harmless from any and all claims, demands, obligations, losses, liabilities, damages, recoveries and deficiencies (including interest, penalties and reasonable attorney’s fees, costs and expenses) which any of them may suffer as a result of the breach by Landlord in the performance of any of its commitments, covenants or obligations under this Article, or with respect to any suits, arbitration proceedings, administrative actions or investigations which relate to the use of the Premises after the Term or for any liability which may arise from operation of the Premises as a nursing home after the Term. The rights of Tenant under this paragraph are without prejudice to any other remedies not inconsistent herewith which Tenant may have against Landlord pursuant to the terms of this Lease or otherwise.

K. Landlord shall have the right to offset against any monies due Tenant pursuant to the terms of this Article, any amounts due by Tenant to Landlord pursuant to this Lease or due by Tenant to any third party, including without limitation any amounts due for taxes, utilities, unemployment insurance premiums, payroll obligations or any other obligation arising from the operation of the Premises.

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L. Anything to the contrary contained in this Article notwithstanding, in the event the termination of this Lease is due to an Event of Default by Tenant hereunder, none of the provisions of this Article shall in any way limit, reduce, restrict or modify the rights granted to Landlord pursuant to Article XXX and XXX, and to the extent any monies are due to Tenant pursuant to this Article, such sums shall be applied by Landlord to any damages suffered by Landlord as a result of an Event of Default by Tenant hereunder.

M. Landlord and Tenant agree to cooperate with each other in order to effectuate the terms and provisions of this Article. Anything herein to the contrary notwithstanding, the parties will modify the terms of this Lease, as necessary, to conform to any commercially reasonable operations transfer agreement between Tenant and any successor tenant (such agreement, a “Successor OTA”). In the event any Successor OTA is executed, the terms and conditions of such Successor OTA shall control.

N. The terms of this Article shall survive the Closing Date.

NOTE: Because of the highly regulated nature of these operations and the licensing requirements (i.e., the inability to bring in a new tenant until such tenant/operator has applied for and received licensing approvals from the applicable State authority regulating senior care operations), the transition of operations from owner to owner or operator to operator requires exact compliance. Regulatory counsel is almost always required to avoid problems.

Section 11: Assignment and Subletting .

General. For the purpose of this Lease the transfer, assignment, sale, hypothecation or other disposition of any stock, membership or other equity interests of Tenant (directly or indirectly), which results in either (a) a change in the Person(s) which ultimately (directly or indirectly, voluntary or involuntary, by operation of law or otherwise) exerts effective Control over the management of the affairs of Tenant as of the Effective Date, or (b) the transfer of fifty percent (50%) or more in the aggregate of the stock, membership or other equity interests of Tenant in a single transaction or series of transactions shall be deemed to be an Assignment of this Lease requiring Landlord's prior written consent, which shall not be unreasonably withheld; provided, however, that the pledge to Working Capital Lender of the membership interests in Tenant shall not require Landlord's consent, and the exercise by Working Capital Lender of its rights under the pledge shall not require Landlord's consent so long as (in any event) the transferee of the membership interests in Tenant shall be an Approved Transferee (as defined below). Landlord acknowledges that Working Capital Lender shall have the right (subject to Lenders' consent rights under the Senior Loan and the Junior Loan documents) to submit to Landlord a list of potential transferees (with reasonable backup documentation with respect to such potential transferees) in order to request Landlord's confirmation that the potential transferees listed thereon each comprise an Approved Transferee. Within ten (10) days after

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receipt of such list, Landlord shall provide written confirmation to Working Capital Lender setting forth which listed potential transferees comprise an Approved Transferee and which listed potential transferees do not comprise an Approved Transferee (provided, however, for the avoidance of doubt, that Landlord's failure to confirm whether a potential transferee is or is not an Approved Transferee shall not be deemed to be Landlord's confirmation that the same is an Approved Transferee). For purposes of this Section, Landlord shall not withhold its consent to the extent that a transferee satisfies the following criteria (a Person satisfying all of such criteria, an "Approved Transferee"): (i) such Person (or its Affiliates exercising Control over such Person) has greater than ten (10) years of experience owning, managing or operating facilities similar to the Properties; (ii) such Person owns, operates, controls or manages more than twenty-five (25) facilities similar to the Properties at the time of the proposed change of Control; (iii) such Person has (together with its Affiliates exercising Control over such Person and providing guaranties of this Lease) a net worth of greater than Fifteen Million and 00/100 Dollars ($15,000,000), which amount shall be increased by three percent (3%) each Lease Year; (iv) such Person has (or its Affiliates exercising Control over such Person have) not filed for protection under the United States Bankruptcy Code during the five (5) years immediately preceding such proposed transfer; and (v) none of such Person, any Person with a "direct or indirect ownership interest" (as that phrase is defined in 42 C.F.R. 420.201) in such proposed transferee or any such Person having Control over the transferee, has, at any time, (A) been barred by the federal government from participating in any federal procurement or programs; (B) been excluded from Medicare, Medicaid or any other federal or state healthcare program by federal or state authorities; (C) been suspended or terminated for any reason for participating in any federal or state program, which suspension or termination has not been settled or otherwise rescinded; (D) been deemed in a binding determination by the Office of Inspector General of the Centers for Medicare and Medicaid Services to have violated any provision of Title 11 of the Social Security Act; (E) paid any civil monetary penalty, or been subject to any intermediate sanctions, under Titles 18 or 19 of the Social Security Act or any regulations (or sub-regulatory guidance) implementing the same; (F) been named as defendant in any complaint filed in any case in which a violation of the federal False Claims Act (31 U.S.C. §§3729-3731) or state false claims act (collectively, the "False Claims Acts") has been asserted, or been a target or subject or received a subpoena or civil investigative demand in any case, proceeding, investigation or audit in which a violation or potential violation of any of the False Claims Acts has been asserted or alleged against it, or executed any settlement agreement, corporate integrity agreement, system improvement agreement, consent degree or any similar document or agreement in any capacity to resolve any suit or threatened suit under any of the False Claims Acts or any administrative action taken or threatened by any state or federal agency; or (G) been convicted in any state or federal court (including any plea of nolo contendre) of any felony or a misdemeanor in any way related to the provision of healthcare services.

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Notwithstanding anything herein to the contrary, (a) any (i) transfer, assignment, sale, hypothecation or other disposition of any stock, membership or other equity interests of Tenant or any Controlling Person or any agreement requiring Landlord's consent pursuant to this Section (each individually, a "Restricted Transfer") or (ii) any Permitted Transfer, shall be permitted only if a guarantor (which guarantor (1) shall be a publicly traded company to the extent that such transfer is to an entity owned directly or indirectly by a publicly traded company and (2) shall have a net worth (as calculated in accordance with GAAP, consistently applied) as of the date of such transfer and immediately thereafter that is not less than the net worth of Guarantor (as calculated in accordance with GAAP, consistently applied) as of the date hereof) shall execute a written guaranty of Tenant's obligations under this Lease in a form identical in all material respects to the Guaranty and (b) any transfer, whether a Restricted Transfer, Permitted Transfer or as otherwise contemplated in this Article, shall be permitted only if such transferee is in compliance with Section xxx above and the applicable transaction will not cause a violation thereof. For the avoidance of doubt, the guarantor referenced in clause (ii) of this Section shall be added as "Guarantor" for purposes of this Lease.

Agreements with Residents. Tenant and Subtenant may enter into Occupancy Agreements with residents of the Properties without the prior written consent of Landlord; provided that, other than for certain isolated de minimis exceptions, (a) the Occupancy Agreements do not provide for lifecare services; (b) the Occupancy Agreements do not contain any type of rate lock provision or rate guaranty for more than one calendar year; (c) the Occupancy Agreements do not provide for any rent reduction or waiver other than for an introductory period not to exceed (6) six months; (d) Tenant and Subtenant do not collect rent under the Occupancy Agreements for more than one month in advance; and (e) all residents of the applicable Property are accurately shown in accounting records for the applicable Property. From time to time upon request of Landlord, Tenant shall provide Landlord with copies of its then current form(s) of resident occupancy agreement. Landlord shall recognize the rights of the residents under the Occupancy Agreements. The termination of this Lease by Landlord shall not affect the residents' rights under the Occupancy Agreements. The foregoing provisions will be self operative, and no further instrument will be required in order to effect them.

Section 12: Management Agreement.

Tenant shall have the right to engage a Manager to operate the Premises pursuant to a management agreement reasonably acceptable to Landlord. Management fees or management costs payable by Tenant and Subtenants shall be subordinate to the payment of Minimum Rent and to all other payments required under this Lease. At Landlord's request, Tenant shall cause Manager to enter into a subordination agreement reasonably acceptable to Landlord and each Lender. During the Term, neither Tenant nor any Subtenant may change the Manager or engage a new Manager to manage any portion of the Premises, or amend or

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modify in any material respect or replace any management agreement without Landlord's prior written consent, which will not be unreasonably withheld; provided, however, Landlord may withhold consent to any proposed change to any provision requiring the subordination of payment of the management fee or management cost to the payment of Minimum Rent and to all other payments required under this Lease. Each Lender shall be an intended third party beneficiary of the provisions of this Article 40 subordinating management fees and management costs to the payment of Minimum Rent and all other payments required under this Lease.

Section 13: Special Purpose Entity Covenants.

At all times during the Term of the Lease, Tenant shall adhere to the following covenants: (a) Tenant shall preserve and keep in full force and effect its existence as a single purpose entity; (b) without Landlord's consent, which shall not be unreasonably withheld, Tenant shall not change its organizational structure; (c) Tenant shall maintain its separateness as an entity, including maintaining separate books, records, and accounts and observing corporate and partnership formalities independent of any other entity; and (d) Tenant shall pay its obligations with its own funds and shall not commingle funds or assets with those of any other entity form. In addition, Tenant shall cause all subtenants and operators of the Properties to abide by similar covenants and to include those covenants in the organizational documents of Tenant, all subtenants and operators of the Properties.

NOTE: Often times Landlords and Senior Lenders insert greater and more detailed language with respect to SPE compliance.

Section 14: Lender Approval.

Tenant acknowledges that this Lease is subject to each Lender's approval. Tenant hereby agrees to enter into modifications to this Lease requested by Landlord's Senior Lender or Junior Lender provided, that such Lease modification (i) shall not decrease Landlord's obligations under this Lease, (ii) increase Tenant's obligations under this Lease or (iii) decrease any of Tenant's rights under this Lease, except in each case to a de minimis extent.

Section 15: True Lease.

This Lease is intended as, and shall constitute, an agreement of lease, and nothing herein shall be construed as conveying to Tenant any right, title or interest in or to the Premises or to any remainder or reversionary estates in the Properties held by any Person, except, in each instance, as a tenant. Under no circumstances shall this Lease be regarded as an assignment of all of Landlord's interest in and to the Properties; instead Landlord and Tenant shall have the relationship between them of landlord and tenant, pursuant to the provisions of this Lease. In no event shall Tenant or any affiliate of Tenant claim depreciation, amortization or interest

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deductions as owner of any Property for United States federal, state or local income tax purposes (except as to alterations not financed by Landlord).

Section 16: ERISA Compliance.

The parties acknowledge that Landlord is a direct or indirect controlled subsidiary of an entity (the "Landlord Parent") that is intended to qualify as a "real estate operating company" (a "REOC") within the meaning of US Department of Labor Plan Assets Regulations (29 C.F.R. 25.10.3-101) and that it is intended that Landlord will have the right, pursuant to this Lease, to substantially participate directly in the management and development of the Properties as set forth in this Article 50. Landlord may assign to each Landlord Parent, individually, without the consent of Tenant, the rights set forth in this Article 50. Without limiting the generality of the foregoing, notwithstanding any other provision of this Lease, Tenant agrees to: (i) permit Landlord to visit and inspect the Properties and inspect and copy the books and records of Tenant related to the maintenance of the Properties, at such times as Landlord shall reasonably request; (ii) periodically (at least quarterly) provide Landlord with information and reports regarding Tenant's operation and management of the Properties and the performance of its duties under this Lease with respect to renovations, alterations, general maintenance, repairs and development activities that Tenant has engaged in or intends to engage in with respect to the Properties; (iii) periodically (at least quarterly and with the right of Landlord to call special meetings at reasonable times) consult with Landlord with respect to the maintenance and condition of the Properties, including, without limitation, with respect to matters relating to renovations, alterations, general maintenance, repairs and development activities with respect to the Properties; and (iv) provide Landlord with such other rights of participation in maintaining and developing the Properties as may reasonably be determined by Landlord to be necessary to enable the Landlord Parent to qualify as a REOC, provided such additional rights do not materially adversely affect Tenant's ability to perform its duties under this Lease or the economic benefits enjoyed by Tenant under this Lease. Tenant agrees to consider, in good faith, the recommendations of Landlord in connection with the matters on which it is consulted as described above.

Section 17: HUD Cooperation.

Notwithstanding the provisions of Section (which shall not be applicable to a Senior Loan of the type described herein), if Landlord seeks to obtain a Senior Loan sponsored or insured by HUD and HUD requires the following as a condition to the issuance of a commitment for, or the making of, such Senior Loan, Tenant hereby agrees (i) to sever this Lease into up to sixty-four (64) separate leases (each a "Severed Lease") for each of the Properties, with the terms of such Severed Leases being identical to this Lease including, but not limited to, the definition of Event of Default in the Lease, except that the financial obligations and the Bed Cap will be appropriately pro-rated in each such Severed Lease, certain covenants (including, without limitation, covenants relating to

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Portfolio Coverage Ratio, Current Ratio, Fixed Charge Coverage Ratio and regulatory defaults) will continue to be assessed on an aggregate basis for all the Properties (notwithstanding the splitting up of this Lease into Severed Leases), and each such Severed Lease will only be cross-defaulted with this Lease and the other Severed Leases to the extent the underlying event giving rise to an Event of Default under the applicable Severed Lease would have comprised an Event of Default under this Lease had this Lease remained a single lease with no Severed Leases having been created; (ii) to enter into modifications of this Lease requested by HUD; provided, such modifications shall not (a) increase Tenant's obligations, decrease Tenant's rights or decrease Landlord's obligations, other than in each case, to a de minimis extent (collectively, the "Modification Conditions"), (b) impose any restrictions on Tenant's ability to incur indebtedness secured solely by its accounts receivable and related intangible personal property, (c) require the posting of any additional guaranty except to the extent such guaranty is to be provided by Landlord, (d) require Tenant to establish reserves, except to the extent such reserves are funded by Landlord or are otherwise required from Tenant by the terms of this Lease (e) require a waiver of Tenant's right to a non-disturbance agreement from each lender (it being understood that if Tenant desires to seek modifications to HUD's requirements Landlord agrees to reasonably cooperate with Tenant to pursue such modifications, but the receipt of such modifications shall not be a condition precedent to Tenant's cooperation under this Article); (iii) enter into a Lease Addendum (and cause each Subtenant to enter into a Lease Addendum) required by HUD provided such Lease Addendum does not violate the Modification Conditions; and (iv) to execute any lessee regulatory agreement and other documents and instruments (and to cause its Affiliates, including, Subtenants and Manager, to execute such documents and instruments) as may be required by HUD on HUD's then-current form, subject to satisfaction of the Modification Conditions; provided, further, that in the event of any of the foregoing, Landlord agrees that it shall reimburse Tenant for Tenant's out-of-pocket, third party costs associated with complying with the provisions of this Section, including without limitation, reasonable attorneys' and accountants' fees and expenses.

NOTE: Because of the lower interest rates, many landlords try to refinance loans through a HUD backed mortgage. This process takes additional time.

Section 18: Recognition of Master Lease; Irrevocable Waiver Of Certain Rights.

Tenant is estopped from asserting to the contrary that: (a) this Lease is a single lease pursuant to which the collective Premises are demised as a whole to Tenant, (b) this Lease is a unitary, indivisible, unseverable instrument pertaining to all but not less than all of the Premises; (c) neither this Lease nor the duties, obligations or rights of Tenant may be allocated or otherwise divided among the Premises by Tenant; (d) this Lease does not in any manner make Tenant the partner, joint venturer or agent of Landlord; (e) if this Lease were to be determined or found to be in any proceeding, action or arbitration under state or federal bankruptcy, insolvency, debtor-relief or other applicable laws to constitute multiple leases

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demising multiple properties, that such multiple leases could not, by the debtor, trustee, or any other party, be selectively or individually assumed or rejected; (f) this Lease is a "true lease" and not a financing lease, mortgage, equitable mortgage, deed of trust, trust agreement or other financing or trust arrangement; the economic realities of this Lease are those of a true lease; and the business relationship created by this Lease and any related documents is solely that of a long-term commercial lease between Landlord and Tenant and has been entered into by both parties in reliance on the economic and legal bargains contained herein and agrees that even if deemed to be a residential lease, the parties intend that it be regarded as a commercial lease and that upon making a motion for assumption or rejection of the Lease in the event of bankruptcy, Landlord shall have such rights as are applicable to non-residential real estate; (g) the Term is less than the remaining economic life of the Premises; (h) the portions of the Premises leased pursuant to this Lease constitute one economic unit and that the rent and all other provisions have been negotiated and agreed to based on a demise of all of the portions of the Premises covered by this Lease as a single, composite, inseparable transaction; that all provisions of this Lease shall apply equally and uniformly to all the Premises as one unit and are not severable; that the economic terms of this Lease would have been substantially different had separate leases for a "divisible" lease been acceptable to Landlord; that a default in any of the terms or conditions of this Lease occurring with respect to any portion of the Premises shall be a default under this Lease with respect to all of the Premises; and that the provisions of this Lease shall at all times be construed, interpreted and applied such that the intention of Landlord and Tenant to create a unitary Lease shall be preserved and maintained. Further, Tenant waives and relinquishes any and all rights under or benefits of the provisions of the United States Bankruptcy Code Section 365 (11 U.S.C. § 365), or any successor or replacement thereof or any analogous state law, to selectively or individually assume or reject the multiple leases comprising this Lease following a determination or finding in the nature of that described in the foregoing Section   (e) .

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LOAN AGREEMENT: IDENTIFICATION OF MAJOR MEZZANINE LOAN ISSUES AND

ANNOTATED LOAN AGREEMENT PROVISIONS

Major Mezzanine Loan Issues The assumptions on which these issues are based are as follows:

The mezz lender will require a pledge of the membership interests in borrower.The mezz lender may also require a second deed of trust.

The mezz lender's position will be subordinated to the first (senior) mortgage The mezz lender's remedy is to foreclose on the borrower's membership interests and/or

deed of trust and perform the obligations of borrower.If borrower is a holding company, regulatory approval or notice of change of ownership (Chow) is requiredIf borrower is a licensed operator, approval of its transfer of its license by state authorities is also required, which implicates a timing concern because that process may take 90-180 days Although HUD may permit a membership pledge, formal approval of transfer is required.

The mezz lender's second deed of trust can be wiped out by foreclosure of the senior lender's security.

Lockbox issues:No second lockbox is allowed on a HUD deposit account control agreement (DACA) or a deposit account instructions and service agreement (DAISA).Subordinated lock boxes are possible on Fannie, Freddie or private finance deals with the consent of the lender.This does not provide much protection.

Subordinated security interestsAn intercreditor agreement with the senior lender will be required HUD has a pre-approved form of intercreditor agreement which will be required.HUD pre-approved form of intercreditor agreement assures the mezz lender that it can step in and foreclose on the membership interests as a permitted transfer.

The intercreditor agreement will provide basically the following provisions: a provision that the mezz loan is expressly subordinate to the senior loan, including bankruptcy protections for the senior lender; representations and covenants of the mezz loan lender with respect to the mezz loan, including no modifications to the mezz loan documents, no default by the borrower under the mezz loan, all payments have been made, no negative amortization of the mezz loan, and no prepayment fee or penalty in connection with acceleration of the mezz loan; notice and cure rights in favor of the senior lender, appropriative rights in the senior lender with respect to borrower distributions and payments after an event of default under the senior loan; and the senior lender's consent to the mezz loan and limitations on such matters as modification of the mezz loan, further encumbrances, and transfer restrictions on the borrower.

Due diligence should also assure that strong provisions providing for transfer of operations include transfer of the Medicare and Medicaid provider numbers is in place through an operations transfer agreement.

The mezz lender may also require that the borrowing entity be a special purpose entity (SPE) and bankruptcy remote.

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The mezz lender may also require a guaranty from the parent of the borrower or other entity or affiliate.

Senior lender issues:The issues facing the senior lender are substantially similar to those that need to be dealt with by the mezz lender.Obviously, since it is in a superior position with an appropriate intercreditor agreement, it will always have superior rights to the mezz lender.

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ADVANCES, PAYMENT AND INTERESTCollections; Repayment; Lockbox

(a) Borrower shall execute and deliver, or cause to be executed and delivered by any Operator, a Lockbox Agreement with a Lockbox Bank, together with such other agreements as Lender may require, providing for the establishment and maintenance of a Lockbox and a Lockbox Account. Borrower shall (i) notify or cause to be notified each Insurer that all checks and explanations of benefit be sent directly to the Lockbox and that all wire or automatic clearing house (“ACH”) transfers be wired or sent directly into the Lockbox Account and (ii) receive in trust for the benefit of Lender and deposit or cause to be deposited into the Lockbox Account, immediately upon receipt, any and all other collections on Accounts received by Borrower or Operator. Borrower agrees and, pursuant to the terms of the Lockbox Agreement the Operator must agree, that neither Borrower nor Operator has or shall have any dominion or control over the Lockbox or the Lockbox Account or any funds held therein and each disclaims or shall disclaim any right of any nature whatsoever to control or otherwise direct or make any claim against the funds held in the Lockbox or Lockbox Account from time to time.

(b) [OPTIONAL] Borrower shall (i) notify or cause to be notified each Facility Lessee that all rents and additional rent, as defined in the Facility Lease payable with respect to the Facility, must be wired or deposited directly into the Lockbox Account and (ii) receive in trust for the benefit of Lender and deposit or cause to be deposited into the Lockbox Account, immediately upon receipt, any and all rents and additional rent received by Borrower].

(c) Borrower shall execute and deliver, or cause to be executed and delivered by any Operator, a Government Lockbox Agreement with Lockbox Bank, together with such other agreements as Lender may require, providing for the establishment and maintenance of the Government Lockbox and the Government Lockbox Account. Borrower shall deliver or cause to be delivered a notice to governmental entities instructing all Medicaid/Medicare Account Debtors that all checks and explanations of benefit be sent to the Government Lockbox and that all wire or ACH transfers from Medicaid/Medicare Account Debtors be wired or sent directly to the Government Lockbox Account. Lender agrees and confirms that the Borrower or Operator, as applicable, has sole dominion and control over the Government Lockbox, the Government Lockbox Account and all funds held therein and Lender disclaims any right of any nature whatsoever to control or otherwise direct or make any claim against the funds held in the Government Lockbox Account from time to time.

(d) Under the terms of the Lockbox Agreement, Lockbox Bank shall on each Business Day, immediately upon receipt, transfer all available and collected funds deposited into the Lockbox Account into the Concentration Account.

(e) Under the terms of the Government Lockbox Account, Lockbox Bank shall, on each Business Day, transfer all available and collected funds on deposit in the Government Lockbox Account into the Concentration Account. Borrower agrees and, pursuant to the terms of the Government Lockbox Agreement any Operator must agree, that neither Borrower nor Operator has or shall have any dominion or control over the Concentration Account or any funds held therein and each disclaims or shall disclaim any right of any nature whatsoever to control or

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otherwise direct or make any claim against the funds held in the Concentration Account from time to time.

(f) Borrower acknowledges and agrees that time is of the essence in compliance by Borrower and Operator with the terms and conditions of this Section and that such compliance is an essential term of this Agreement. In addition to and notwithstanding any other rights or remedies available to Lender under this Agreement, any other Loan Document or under applicable law or in equity, if Borrower or any Operator fails timely to comply with its obligations under this Section, the Lockbox Agreement or the Government Lockbox Agreement, the Applicable Interest Rate shall be increased by two percent (2%) for the period of noncompliance as compensation to Lender for the additional risk entailed with such noncompliance.

(g) On each Payment Date, and on any other Business Day as Lender deems appropriate, Lender shall apply all collected funds deposited into the Concentration Account to amounts due under this Agreement, or the other Loan Documents (including without limitation, principal, interest and reserves) in such order and manner as is determined by Lender. Any uncollected funds applied to reduce the Obligations, shall be finally credited against the Obligations only when collected. If, after payment of all Obligations due and payable, and the deposit of all Reserves, in each case in collected funds, a credit balance exists within the Concentration Account on a Payment Date, then upon written request from Borrower, so long as no Default has occurred and is continuing and no Event of Default has occurred, such credit balance shall not accrue interest in favor of Borrower or any Operator, as applicable, but shall be released to Borrower.

(h) [OPTIONAL PROVISION – TO BE USED WHERE BORROWER LEASES TO UNRELATED THIRD PARTY AND NO REVOLVER IS IN PLACE.] Borrower and Lender have, of even date herewith, entered into the Cash Management Agreement. Borrower shall, contemporaneously herewith, deliver to each Facility Lessee written notice that all rents and other payments now or hereafter due and payable under each Facility Lease shall be delivered directly to Lender until any such Facility Lessee receives written notice from Lender to the contrary. All funds delivered to Lender by any such Facility Lessee shall be held, applied and disbursed by Lender in accordance with the terms and conditions of the Cash Management Agreement.]

Grant of Security Interest

To secure the payment and performance of the Obligations, Borrower hereby grants to Lender a continuing security interest in and lien upon, and pledges to Lender, all Borrower’s real and personal property, including without limitation all of its right, title and interest in and to the following:

(i) all of Borrower’s tangible personal property, including without limitation all present and future Inventory and Equipment (including items of equipment which are or become Fixtures), now owned or hereafter acquired;

(ii) all of Borrower’s intangible personal property, including without limitation all present and future Accounts, contract rights, General Intangibles, Chattel Paper,

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Documents, Instruments, Deposit Accounts, Investment Property, Letter-of-Credit Rights, Supporting Obligations, rights to the payment of money or other forms of consideration of any kind, tax refunds, insurance proceeds, now owned or hereafter acquired, and all intangible and tangible personal property relating to or arising out of any of the foregoing;

(iii) all of Borrower’s present and future Government Contracts and rights thereunder and the related Government Accounts and proceeds thereof, now or hereafter owned or acquired by Borrower; provided, however, that Lender shall not have a security interest in any rights under any Government Contract of Borrower or in the related Government Account where the taking of such security interest is a violation of an express prohibition contained in the Government Contract (for purposes of this limitation, the fact that a Government Contract is subject to, or otherwise refers to, Title 31, § 203 or Title 41, § 15 of the United States Code shall not be deemed an express prohibition against assignment thereof) or is prohibited by applicable law, unless in any case consent is otherwise validly obtained; and

(iv) any and all additions and accessions to any of the foregoing, and any and all replacements, products and proceeds (including insurance proceeds) of any of the foregoing.

Notwithstanding the foregoing provisions of this Section, such grant of a security interest shall not extend to, and the term “Collateral” shall not include, any General Intangibles of Borrower to the extent that (i) such General Intangibles are not assignable or capable of being encumbered as a matter of law or under the terms of any license or other agreement applicable thereto (but solely to the extent that any such restriction shall not be rendered ineffective pursuant to the UCC or any other applicable law) without the consent of the licensor thereof or other applicable party thereto, and (ii) such consent has not been obtained; provided, however, that the foregoing grant of a security interest shall extend to, and the term “Collateral” when used in this Agreement shall include, each of the following: (a) any General Intangible which is in the nature of an Account or a right to the payment of money or a proceed of, or otherwise related to the enforcement or collection of, any Account or right to the payment of money, or goods which are the subject of any Account or right to the payment of money, (b) any and all proceeds of any General Intangible that is otherwise excluded to the extent that the assignment, pledge or encumbrance of such proceeds is not so restricted, and (c) upon obtaining the consent of any such licensor or other applicable party with respect to any such otherwise excluded General Intangible, such General Intangible as well as any and all proceeds thereof that might theretofore have been excluded from such grant of a security interest and from the term “Collateral.”

Interest Rate Cap Agreement

(i) Within fifteen (15) days after a request therefor by Lender, Borrower shall obtain, or cause to be obtained, and shall thereafter maintain in effect, an interest rate cap agreement (the “Interest Rate Cap Agreement”) with an Acceptable Counterparty, which shall be coterminous with, or beyond, the Term Loan and have a notional amount which shall not at any time be less than the outstanding principal balance of the Term Loan and which shall at all times have a strike rate less than or equal to the Strike Rate. The Counterparty shall be obligated under the Interest Rate Cap Agreement to make monthly payments on the applicable Payment Date equal to the excess of one (1) month LIBOR over the Strike Rate, calculated on the notional amount.

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(ii) Borrower shall collaterally assign to Lender pursuant to an assignment of interest rate cap agreement in form and substance acceptable to Lender, all of its right, title and interest to receive any and all payments under the Interest Rate Cap Agreement (and any related guarantee, if any) and shall deliver to Lender an executed counterpart of such Interest Rate Cap Agreement and notify the Counterparty of such collateral assignment (either in such Interest Rate Cap Agreement or by separate instrument). The Counterparty shall agree in writing to make all payments it is required to make under the Interest Rate Cap Agreement directly to Lender. At such time as the Loan is repaid in full, all of Lender’s right, title and interest in the Interest Rate Cap Agreement shall terminate and Lender shall promptly execute and deliver at Borrower’s sole cost and expense, such documents as may be required to evidence Lender’s release of the Interest Rate Cap Agreement and to notify the Counterparty of such release.

(iii) Borrower shall comply with all of its obligations under the terms and provisions of the Interest Rate Cap Agreement. All amounts paid by the Counterparty under the Interest Rate Cap Agreement shall be paid to Lender. Borrower shall take all actions reasonably requested by Lender to enforce Lender’s rights under the Interest Rate Cap Agreement in the event of a default by the Counterparty and shall not waive, amend or otherwise modify any of its rights thereunder.

(iv) In the event of any downgrade, withdrawal or qualification of the rating of the Counterparty below the ratings required in the definition of Applicable Counterparty by the Rating Agency, Borrower shall replace the Interest Rate Cap Agreement with a Replacement Interest Rate Cap Agreement with an Acceptable Counterparty not later than ten (10) Business Days following receipt of notice from Lender of such downgrade, withdrawal or qualification.

(v) In the event that Borrower fails to purchase and deliver to Lender the Interest Rate Cap Agreement or any Replacement Interest Cap Agreement as and when required hereunder, Lender may purchase such Interest Rate Cap Agreement and the cost incurred by Lender in purchasing such Interest Rate Cap Agreement shall be paid by Borrower to Lender with interest thereon at the Default Interest Rate from the date such cost was incurred by Lender until such cost is paid by Borrower to Lender.

(vi) Each Interest Rate Cap Agreement shall contain the following language or its equivalent: “In the event of any downgrade, withdrawal or qualification of the rating of the Counterparty below the ratings required in the definition of Applicable Counterparty by the Rating Agency, the Counterparty must, within 30 days, either (x) post collateral on terms acceptable to the Rating Agency or (y) find a replacement Acceptable Counterparty, at the Counterparty’s sole cost and expense, acceptable to the Rating Agency (notwithstanding the foregoing, if the Counterparty’s rating downgraded to “A” or lower, only the option described in clause (y) will be acceptable); provided that, notwithstanding such a downgrade, withdrawal or qualification, unless and until the Counterparty transfers the Interest Rate Cap Agreement to a replacement Acceptable Counterparty pursuant to the foregoing clause (y), the Counterparty will continue to perform its obligations under the Interest Rate Cap Agreement. Failure to satisfy the foregoing shall constitute an Additional Termination Event as defined by Section 5(b)(v) of the ISDA Master Agreement, with the Counterparty as the Affected Party.”

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(vii) In connection with an Interest Rate Cap Agreement, Borrower shall obtain and deliver to Lender an opinion of counsel from counsel for the Counterparty (upon which Lender and its successors and assigns may rely) which shall provide, in relevant part, that:

(1) the Counterparty is duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation and has the organizational power and authority to execute and deliver, and to perform its obligations under, the Interest Rate Cap Agreement;

(2) the execution and delivery of the Interest Rate Cap Agreement by the Counterparty, and any other agreement which the Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been and remain duly authorized by all necessary action and do not contravene any provision of its certificate of incorporation or by-laws (or equivalent organizational documents) or any law, regulation or contractual restriction binding on or affecting it or its property;

(3) all consents, authorizations and approvals required for the execution and delivery by the Counterparty of the Interest Rate Cap Agreement, and any other agreement which the Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been obtained and remain in full force and effect, all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with any governmental authority or regulatory body is required for such execution, delivery or performance; and

(4) the Interest Rate Cap Agreement, and any other agreement which the Counterparty has executed and delivered pursuant thereto, has been duly executed and delivered by the Counterparty and constitutes the legal, valid and binding obligation of the Counterparty, enforceable against the Counterparty in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

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FEES AND OTHER CHARGES; RESERVES; CASH MANAGEMENT

CapEx Reserve

As additional security for the payment and performance of the Obligations, Borrower shall establish and maintain in effect until indefeasible payment in full of the Obligations a reserve funded by Borrower and held by Lender for payment of costs and expenses associated with Capital Improvements (the “CapEx Reserve”). As of the Closing Date, Borrower has deposited with Lender $____________ to be held in the CapEx Reserve. On each Payment Date, Borrower shall deliver to Lender, in addition to the monthly payments due hereunder, an amount equal to $____________________ (the “CapEx Reserve Payment”) to be deposited into the CapEx Reserve. The CapEx Reserve Payment represents the sum of {Four Hundred Dollars ($400)] per annum per licensed bed/unite. S of the date hereof, Borrower represents and warrants the aggregate number of licensed beds/units at the Facility _______. If the aggregate number of licensed beds/units shall increase, the CapEx Reserve Payment shall be adjusted accordingly. If at any time Lender notifies Borrower in writing that Lender has reasonable grounds to believe that amounts on deposit in the CapEx Reserve are or are anticipated to be inadequate to cover Capital Improvements reasonably anticipated by Lender to be necessary, the CapEx Reserve Payment shall be increased to the amount specified by Lender in such notice and Borrower shall deliver to Lender such increased CapEx Reserve Payment on each Payment Date occurring after the date which is thirty (30) days after the date of such notice. So long as no Default has occurred and is continuing and no Event of Default has occurred, Lender shall disburse to Borrower from the CapEx Reserve (but in no event to exceed amounts on deposit in the CapEx Reserve), within ten (10) days after Borrower's written request (and provision to Lender of any supporting documentation required by Lender), the costs and expenses of installing or constructing any Capital Improvement, provided such written notice includes a detailed description of the Capital Improvements installed or constructed together with (i) a certification by Borrower that the Capital Improvements have been completed in accordance with applicable legal requirements, and (ii) such additional supporting evidence as may be requested by Lender in its judgment, including such items as invoices, receipts or other evidence verifying the cost of the Capital Improvements, affidavits and/or lien waivers from those providing work or supplies, a certification from an inspecting architect or other third party acceptable to Lender describing the completed Capital Improvements and verifying their completion and value, and evidence that all necessary or required approvals or consents from Governmental Authorities have been obtained. Lender shall not be required to make disbursements from the CapEx Reserve more than once in any thirty (30) day period. In making any disbursement from the CapEx Reserve, Lender shall be entitled to rely on Borrower's written request and supporting documentation without any inquiry into the accuracy, validity or contestability of any such amount or the nature or necessity of the materials provided or the work performed. Lender may, at any time and from time to time, but shall have no obligation to, at Borrower’s expense, make or cause to be made inspections of the Facility. In the event that any inspection report from any such inspection reasonably recommends that Capital Improvements are required, Lender shall provide Borrower with a written description of such Capital Improvements and Borrower shall complete those Capital Improvements to the reasonable satisfaction of Lender within ninety (90) days after the receipt of such description from Lender.

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Tax and Insurance Reserve

(a) Borrower shall establish and maintain at all times until indefeasible payment in full of the Obligations a reserve (the “Tax and Insurance Reserve”) with Lender for payment of real estate taxes and assessments and casualty insurance on the Property and as additional security for the Obligations. Borrower shall deposit in the Tax and Insurance Reserve an amount determined by Lender to be sufficient (when added to the monthly deposits described herein) to pay the next due annual installment of real estate and other taxes and assessments on the Property at least one (1) month prior to the delinquency date thereof (if paid in one installment) and the next due annual casualty insurance premiums with respect to the Property at least one (1) month prior to the due date thereof (if paid in one installment); provided, at all times, the amount on deposit in the Tax and Insurance Reserve shall not be less than the amount determined by Lender. As of the Effective Date, Lender is holding $________ for purposes of taxes and $________ for purposes of insurance, which represents _______[proportion] of the annual tax assessment and/or insurance premium, as applicable. Commencing on the First Payment Date, and continuing thereafter on each successive Payment Date, Borrower shall pay to Lender, concurrently with the monthly payments due hereunder, deposits in an amount equal to one-twelfth (1/12) of the amount of the annual real estate and other taxes and assessments that will next become due and payable on the Property, plus one-twelfth (1/12) of the amount of the annual premiums that will next become due and payable on casualty insurance policies which Borrower is required to maintain hereunder, each as estimated and determined by Lender. No interest on funds contained in the Tax and Insurance Reserve shall be paid by Lender to Borrower and any interest or other earnings on funds deposited in the Tax and Insurance Reserve shall be solely for the account of Lender. Borrower shall pay, on or prior to the respective due date for the payment thereof, all taxes assessments and insurance premiums required to be paid by Borrower hereunder, and so long as no Default has occurred and is continuing and no Event of Default has occurred, Lender shall reimburse Borrower for the payment of any such taxes, assessments and casualty insurance premiums within thirty (30) days after the receipt by Lender from Borrower of paid receipts therefor by Lender to the extent of available funds for such purpose in the Tax and Insurance Reserve; provided, at all times, the amount on deposit in the Tax and Insurance Reserve shall not be less than the amount determined by Lender to be sufficient to pay the next due annual installment of real estate taxes and assessments on the Property at least one (1) month prior to the delinquency date thereof (if paid in one installment) and the next due annual casualty insurance premiums with respect to the Property at least one (1) month prior to the due date thereof (if paid in one installment).

(b) Lender, at any time upon notice to Borrower, may elect (but shall have no obligation) to assume responsibility for payments of real estate taxes and assessments and insurance premiums from the Tax and Insurance Reserve in accordance with this Section. In the event Lender makes said election, so long as no Default has occurred and is continuing and no Event of Default has occurred, all sums in the Tax and Insurance Reserve shall be held by Lender in the Tax and Insurance Reserve to pay said taxes, assessments and insurance premiums in one installment before the sums become delinquent. In the event Lender makes such election, Borrower shall be responsible for ensuring the receipt by Lender, at least thirty (30) days prior to the respective due date for the payment thereof, of all bills, invoices and statements for all taxes, assessments and insurance premiums to be paid from the Tax and Insurance Reserve, and so long as no Default has occurred and is continuing and no Event of Default has occurred, Lender shall pay the Governmental Authority or other party entitled thereto directly to the extent funds are

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available for such purpose in the Tax and Insurance Reserve. In making any payment from the Tax and Insurance Reserve, Lender shall be entitled to rely on any bill, statement or estimate procured from the appropriate public office or insurance company or agent without any inquiry into the accuracy of such bill, statement or estimate and without any inquiry into the accuracy, validity, enforceability or contestability of any tax, assessment, valuation, sale, forfeiture, tax lien or title or claim thereof. If the total funds in the Tax and Insurance Reserve shall exceed the amount of payments actually applied by Lender for the purposes of the Tax and Insurance Reserve, such excess may be credited by Lender on subsequent payments to be made hereunder or, at the option of Lender, refunded to Borrower. If, however, the Tax and Insurance Reserve shall not contain sufficient funds to pay the sums required when the same shall become due and payable, Borrower shall, within ten (10) days after receipt of written notice thereof, deposit with Lender the full amount of any such deficiency.

Debt Service Reserve Account

Contemporaneously with the execution of this Agreement, as additional security for the payment and performance of the Obligations, Borrower has deposited with Lender the amount of $_________ (“Debt Service Reserve”) [OPTIONAL: to be placed into a debt service reserve account (“Debt Service Reserve Account”) and held pursuant to the Deposit Account Control Agreement]. Notwithstanding anything contained in the Loan Documents to the contrary, Lender may apply amounts held in the Debt Service Reserve to the Obligations at such times and in such amounts as Lender shall from time to time determine in its discretion without regard to whether a Default or Event of Default exists hereunder. It is the parties’ intention that at all times until indefeasible payment in full of the Obligations the Debt Service Reserve must hold funds sufficient to satisfy two (2) months’ of debt service under the Term Loan, and upon written demand from Lender, Borrower shall deposit additional amounts into the Debt Service Reserve such that the foregoing level is at all times maintained. Borrower understands and agrees that, notwithstanding the establishment of the Debt Service Reserve, all proceeds of the Term Loan have been and shall be considered fully disbursed and shall bear interest and be payable on the terms provided under the Note.

Repair and Remediation Reserve

Prior to the execution of this Agreement, Lender has caused the Property to be inspected and such inspection has revealed that the Property is in need of certain maintenance, repairs and/or remedial or corrective work. Contemporaneously with the execution hereof, Borrower has established with the Lender a reserve in the amount of $_________________ (the “Repair and Remediation Reserve”), which amount represents 125% of the estimated cost to complete such items of Required Work, by depositing such amount with Lender. Borrower shall cause each of the items described in that certain engineering report (the “Engineering Report”) dated _________________ and prepared by _________________, relative to the Property, a copy of which has been provided to, and receipt of which is hereby acknowledged by, Borrower (the “Required Work”) to be completed, performed, remediated and corrected to the satisfaction of Lender and as necessary to bring the Property into compliance with all applicable laws, ordinances, rules and regulations on or before one year from the date hereof, as such time period may be extended by Lender in its discretion. So long as no Default has occurred and is continuing and no Event of Default has occurred (i) all sums in the Repair and Remediation Reserve shall be held by Lender in the Repair and Remediation Reserve to pay the costs and

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expenses of completing the Required Work, and (ii) Lender shall, to the extent funds are available for such purpose in the Repair and Remediation Reserve, disburse to Borrower the amount paid or incurred by Borrower in completing, performing, remediating or correcting the Required Work upon (a) the receipt by Lender of a written request from Borrower for disbursement from the Repair and Remediation Reserve which shall include a certification by Borrower that the applicable item of Required Work has been completed in accordance with the terms of this Agreement, (b) delivery to Lender of invoices, receipts or other evidence satisfactory to Lender verifying the costs of the Required Work to be reimbursed, (c) for any single Required Work item in excess of $20,000.00 (or for any Required Work item structural in nature) and prior to disbursement of the final $20,000.00, delivery to Lender of a certification from an inspecting architect, engineer or other consultant reasonably acceptable to Lender describing the completed work, verifying the completion of the work and the value of the completed work and, if applicable, certifying that the Property is, as a result of such work, in compliance with all applicable laws, ordinances, rules and regulations relating to the Required Work so performed, and (d) delivery to Lender of affidavits, lien waivers or other evidence reasonably satisfactory to Lender showing that all materialmen, laborers, subcontractors and any other parties who might or could claim statutory or common law liens and are furnishing or have furnished materials or labor to the Property have been paid all amounts due for such labor and materials furnished to the Property. Lender shall not be required to make advances from the Repair and Remediation Reserve more frequently than one time in any calendar month. In making any payment from the Repair and Remediation Reserve, Lender shall be entitled to rely on such request from Borrower without any inquiry into the accuracy, validity or contestability of any such amount. No interest or other earnings on the funds contained in the Repair and Remediation Reserve shall be paid to Borrower and any interest or other earnings on funds deposited into the Repair and Remediation Reserve shall be solely for the account of Lender. In the event that the amounts on deposit or available in the Repair and Remediation Reserve are inadequate to pay the costs of the Required Work, Borrower shall pay the amount of such deficiency.

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Security Interest In Reserves

As additional security for the payment and performance of the Obligations, Borrower hereby unconditionally and irrevocably assigns, conveys, pledges, mortgages, transfers, delivers, deposits, sets over and confirms unto Lender, and hereby grants to Lender a security interest in all sums on deposit or due under the Loan Documents including, without limitation, (i) the CapEx Reserve, Tax and Insurance Reserve, [the Performance Reserve], the Debt Service Reserve, and the Repair and Remediation Reserve (collectively, the “Reserves”), (ii) the accounts into which the Reserves have been deposited, (iii) all insurance on said accounts, (iv) all accounts, contract rights and general intangibles or other rights and interests pertaining thereto, (v) all sums now or hereafter therein or represented thereby, (vi) all replacements, substitutions or proceeds thereof, (vii) all instruments and documents now or hereafter evidencing the Reserves or such accounts, (viii) all powers, options, rights, privileges and immunities pertaining to the Reserves (including the right to make withdrawals therefrom), and (ix) all proceeds of the foregoing. Borrower hereby authorizes and consents to the account into which the Reserves have been deposited being held in Lender’s name or the name of any entity servicing the Term Loan for Lender and hereby acknowledges and agrees that Lender, or at Lender’s election, such servicing agent, shall have exclusive control over said account. Notice of the assignment and security interest granted to Lender herein may be delivered by Lender at any time to the financial institution wherein the Reserves have been established, and Lender, or such servicing entity, shall have possession of all passbooks or other evidences of such accounts. Borrower hereby holds Lender harmless with respect to all risk of loss regarding amounts on deposit in the Reserves, except to the extent that any such loss is caused by the gross negligence or intentional misconduct of Lender. Borrower hereby knowingly, voluntarily and intentionally stipulates, acknowledges and agrees that the advancement of the funds from the Reserves as set forth herein is at Borrower’s direction and is not the exercise by Lender of any right of set-off or other remedy upon a Default or Event of Default. Upon the occurrence of an Event of Default, Lender may, without notice or demand on Borrower, at its option: (A) withdraw any or all of the funds (including, without limitation, interest) then remaining in the Reserves and apply the same, after deducting all costs and expenses of safekeeping, collection and delivery (including, but not limited to, reasonable attorneys’ fees, costs and expenses) to the Obligations in such manner as Lender shall deem appropriate in its discretion, and the excess, if any, shall be paid to Borrower, (B) exercise any and all rights and remedies of a secured party under any applicable Uniform Commercial Code, or (C) exercise any other remedies available at law or in equity. No such use or application of the funds contained in the Reserves shall be deemed to cure any Default or Event of Default.

The Reserves are solely for the protection of Lender and entail no responsibility on Lender’s part beyond the payment of the respective costs and expenses in accordance with the terms of this Agreement and beyond the allowing of due credit for the sums actually received. Upon assignment of the Security Instrument by Lender, any funds in the Reserves shall be turned over to the assignee and any responsibility of Lender, as assignor, with respect thereto shall terminate. The Reserves shall not, unless otherwise explicitly required by applicable law, be or be deemed to be escrow or trust funds, but, at Lender’s option and in Lender’s discretion, may either be held in a separate account or be commingled by Lender with the general funds of Lender. Upon full payment of the Obligations in accordance with the terms of this Agreement or at such earlier time as Lender may elect, the balance in the Reserves then in Lender’s possession shall be paid over to Borrower and no other party shall have any right or claim thereto. Any

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amounts received by Lender from Borrower may be invested by Lender (or its servicer) for Lender’s benefit, and Lender shall not be obligated to pay, or credit, any interest earned thereon to Borrower except as may be otherwise specifically provided herein.

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CONDITIONS PRECEDENT

Conditions to Funding of Term Loan and Closing

The obligations of Lender to consummate the transactions contemplated herein and to advance the Loan Amount are subject to the satisfaction, in Lender’s discretion, of the following:

(a) All Loan Documents shall have been duly executed by an authorized signatory of all parties (and notarized, if applicable) and delivered.

(b) Lender shall have received the following items in form and content satisfactory to Lender: (i) searches of appropriate governmental records for UCC financing statements, tax and judgment lien searches showing no Liens against any Facility or any Loan Party (other than Permitted Liens) and (ii) evidence of the filing, registration or recordation and of the payment of any necessary fee, tax or expense relating thereto as to each document required by any Loan Document or under law or otherwise requested by Lender to be filed, registered or recorded to create in favor of Lender, a perfected first priority lien and security interest against the Property or any part thereof,

(c) Lender shall have received, all in form and substance satisfactory to Lender, a copy of all organizational documentation of each Loan Party deemed necessary by Lender, certified by an authorized officer of such Loan Party as being true, complete and correct, including without limitation (i) charter, incorporation, existence and good standing documents, (ii) incumbency certificate, [(iii) a certificate executed by each member of the applicable Loan Party dated as of the Closing Date and certifying that (A) the membership interests in such Loan Party have been transferred to Lender in the books and records of the applicable Loan Party and attaching copies of such Loan Party’s books and records evidencing the same and (B) that the operating agreement of such Loan Party does not provide that the membership interests in such Loan Party are subject to Article 8 of the UCC and (C) that such Loan Party has not certificated any interests in such Loan Party at any time between its date of formation and the Closing Date], and (iv) legal opinions of counsel for each Loan Party as may be required by Lender;

(d) Lender shall have received a certificate of solvency executed by an authorized representative of each Loan Party, in form and substance satisfactory to Lender (each, a “Solvency Certificate”), certifying (i) the solvency of such Person after giving effect to the transactions and the Indebtedness contemplated by the Loan Documents and (ii) as to such Person’s financial resources and ability to meet its obligations and liabilities as they become due, to the effect that as of the Closing Date and after giving effect to such transactions and Indebtedness; (A) the assets of such Person, at a Fair Valuation, exceed the total liabilities) (including contingent, subordinated, unmatured and unliquidated liabilities) of such Person, and (B) such Person has sufficient capital with which to engage in its anticipated business exists with respect to such Person;

(e) Each Loan Party shall have delivered to Lender, not later than fifteen (15) days prior to Closing, and Lender shall have completed such examinations, the results of which shall be satisfactory in form and substance to Lender, of the Facilities, the financial statements,

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and the books, records, business, obligations, financial condition, operations, and state of each Loan Party and of the operating statements, statements of sources and uses of capital and such other books and records and financial information concerning a Loan Party or the Facilities as Lender shall have required, demonstrating to Lender’s satisfaction that (i) the operations of each Loan Party comply with all applicable legal requirements, (ii) the operations of each Loan Party are not the subject of any governmental investigation or any remedial action which could result in any expenditure or liability deemed material by Lender, and (iii) no Loan Party has any Indebtedness or other liability (whether contingent or otherwise) that is deemed material by Lender;

(f) Borrower shall have delivered to Lender all fees, charges and expenses payable to Lender on or prior to the Closing Date pursuant to the Loan Documents, including without limitation those amounts payable to Lender pursuant to Article III herein.

(g) Borrower shall have delivered to Lender, all in form and substance satisfactory to Lender, such consents, approvals and agreements, including, without limitation, any applicable Subordination Agreements from all Loan Parties and third parties as Lender shall determine are necessary or desirable with respect to (i) the Loan Documents and/or the transactions contemplated thereby, and/or (ii) claims against any Loan Party or the Property or any portion thereof;

(h) Borrower shall have delivered to Lender, not later than fifteen (15) days prior to Closing, evidence to Lender's satisfaction that all insurance requirements under the Loan Documents are satisfied, including without limitation (i) original certificates and/or endorsements of such insurance policies required under Section *** of this Agreement confirming that they are in effect and that the premiums due and owing with respect thereto have been paid in full and naming Lender as sole beneficiary, mortgagee, loss payee and/or additional insured, as appropriate; provided, however, if Borrower shall not have delivered such evidence to Lender prior to Closing, Lender may, in Lender’s discretion, require Borrower (at Borrower’s sole cost and expense) to place insurance with such companies in such amounts as will satisfy the requirements of this Loan Agreement (the “Placed Insurance”), which Placed Insurance must remain in place until Borrower otherwise satisfies the requirements of Section *** of this Agreement. All certificates of insurance required shall be written on ACORD forms (with respect to any property insurance required hereunder, on ACORD Form 28 and with respect to any liability insurance, in ACORD Form 25) and shall include a provision that such policies of insurance shall not be cancelled, materially modified or terminated without at least thirty (30) days prior written notice to Lender. Additionally, the words “endeavor to” shall be stricken from the “Cancellation” section of the ACORD forms;

(i) all corporate, limited liability company and other proceedings, documents, instruments and other legal matters in connection with the transactions contemplated by the Loan Documents (including, but not limited to, those relating to corporate and capital structures of each Loan Party) shall be satisfactory to Lender;

(j) Lender shall have received, in form and substance satisfactory to Lender, (i) evidence of the repayment in full and termination of obligations and Liens with respect to all of those Persons set forth in Schedule ***(j) and all related documents, agreements and instruments and of all Liens, security interests and UCC financing statements relating thereto,

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and (ii) release and termination of any and all Liens, security interest and/or UCC financing statements in, on, against or with respect to any of the Property (other than Permitted Liens);

(k) Borrower shall have delivered to Lender the initial deposit required under each of the Reserves;

(l) Title Company shall have unconditionally committed to issue to Lender the Title Insurance Policy(ies) and Borrower shall have paid to Title Company all fees and premiums in connection therewith ;

(m) Each Loan Party shall have executed and delivered to Lender an IRS Form 8821 and shall have delivered evidence satisfactory to Lender that said form has been filed with the appropriate service center of the Internal Revenue Service;

(n) Lender shall have received and approved, in Lender's discretion, all inspections, investigations, tests, studies, appraisals, environmental studies, structural and mechanical investigations, surveys and other reports, documents, materials and analyses required by Lender;

(o) Lender shall have received such other documents, certificates, information or legal opinions as Lender may request, all in form and substance satisfactory to Lender;

(p) each of the representations and warranties made by each Loan Party in the Loan Documents shall be accurate in all material respects;

(q) no Default or Event of Default shall have occurred or be continuing or would exist after giving effect to the funding of the Term Loan;

(r) except as disclosed in the financial statements delivered to Lender pursuant to Section ***, there shall be no liabilities or obligations with respect to any Loan Party which, either individually or in the aggregate, could reasonably be expected to (i) have a Material Adverse Effect or (ii) cause a Liability Event; and

(s) RESERVED FOR ADDITIONAL CLOSING CONDITIONS]

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REPRESENTATIONS AND WARRANTIES

Other Agreements

Except for the Charter and Good Standing Documents of each of the Loan Parties and as otherwise set forth on Schedule ***, there are no existing or proposed agreements, arrangements, understandings or transactions affecting the Borrower, Property or Facility among Borrower and/or any Loan Party and any Loan Party’s officers, members, managers, directors, stockholders, partners, other interest holders, employees or Affiliates or any members of their respective immediate families.

Insurance

All insurance policies required pursuant to Section ** are in full force and effect. All such insurance policies are as listed and described on Schedule **.

Names; Location of Offices, Records and Collateral

During the preceding five years, no Loan Party has conducted business under or used any name (whether corporate, partnership or assumed) other than its current name, except as shown on Schedule   ** . Each Loan Party is the sole owner of its current name and of any names listed on Schedule   ** , and any and all business done and invoices issued in such names are such Loan Party’s sales, business and invoices. Each trade name of a Loan Party represents a division or trading style of such Loan Party. Each Loan Party maintains its places of business and chief executive offices only at the locations set forth on Schedule **, and all Accounts of each Loan Party arise, originate and are located, and all of the Collateral and all books and records in connection therewith or in any way relating thereto or evidencing the Collateral are located and shall be located only in and at such locations. All of the Collateral is located only in the continental United States.

Non-Subordination

The Obligations are not subordinated in any way to any other obligations of any Loan Party or to the rights of any other Person.

Healthcare Matters

(a) All Licenses and Permits have been obtained and are in full force and effect. Borrower and/or Operator owns and/or possesses, and holds free from restrictions or conflicts with the rights of others, all such Licenses and Permits;

(b) Each Facility is duly licensed as the type of facility on Schedule *** as required under the applicable laws of the state specified on Schedule ***. The licensed bed capacity of each Facility is as specified on Schedule *** . None of Borrower, Facility Lessee or any Operator has applied to reduce the number of licensed or certified beds or to move the right to any and all of the licensed or certified beds to any other location and there are no proceedings pending or contemplated to move or reduce the number of licensed or certified beds. Schedule *** lists each Facility Lessee, each Operator and the Facility operated by such Operator.

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(c) Borrower and, if applicable, Operator (and, in any event, the operation of the Facility) is/are in compliance with all applicable provisions of the laws, ordinances, statutes, regulations, orders, standards, policies, restrictions or rules of any Governmental Authority having jurisdiction over the operation of the Facility, including, without limitation, (1) health and fire safety codes and (2) Medicare, Medicaid, or other federal, state, local or intermediary laws, rules, regulations or published interpretations or policies relating to the prevention of fraud, abuse, false claims, neglect or mistreatment. Borrower and Operator are in compliance with the requirements for participation in the Medicare and Medicaid Programs. Borrower and Operator, as applicable, are in conformance with all insurance, reimbursement and cost reporting requirements, and has a current provider agreement under Title XVIII and/or XIX of the Social Security Act or any other applicable laws or regulations for reimbursement for the types of care or services provided at the Facility.

(d) No Loan Party is a target of, participant in, or subject to any action, proceeding, suit, audit, investigation or sanction by any Governmental Authority or any other administrative or investigative body or entity or any other third party or any patient or resident (including, without limitation, whistleblower suits, or suits brought pursuant to federal or state False Claims Acts, and Medicaid/Medicare/State fraud/abuse laws) which may result in the imposition of a fine, penalty, alternative, interim or final sanction, a lower rate certification, recoupment, recovery, suspension or discontinuance of all or part of reimbursement from any Governmental Authority, third-party payor, insurance carrier or private payor, a lower reimbursement rate for services rendered to eligible patients, or any other civil or criminal remedy, or which could have a material adverse effect on any Loan Party or the operation of any Facility, or which could result in the appointment of a receiver or manager, or in the revocation, transfer, surrender, suspension or other impairment of a License or Permit, nor has any such action, proceeding, suit, investigation proceeding or audit been threatened.

(e) There are no agreements with residents of any Facility, or with any other persons or organizations which deviate in any adverse respect from, or which conflict with, any legal requirements. All resident records at each Facility, including patient and/or resident account records, are maintained at the subject Facility and are true and correct in all respects.

(f) Neither the execution and delivery of the Loan Documents, nor any Loan Party’s performance thereunder, the recordation of any Security Instrument nor the exercise of any remedies by Lender (i) will adversely affect any Loan Party’s right to receive Medicaid, Medicare, insurance company, managed care company, or other third-party insurance payments or reimbursements or to receive private payor payments or reimbursements, (ii) will materially reduce the Medicaid, Medicare, insurance company, managed care company, or other third-party insurance payments or reimbursements or materially reduce private payor payments or reimbursements which such Loan Party is receiving as of the date hereof, or (iii) will adversely affect the Licenses or Permits.

(g) No Loan Party is a participant in any federal, state or local program whereby any federal, state or local government or quasi-governmental body, or any intermediary, agency, board or other authority or entity may have the right to recover funds by reason of the advance of federal, state or local funds, including, without limitation, those authorized under the Hill-Burton Act (42 U.S.C. 291, et seq.), other than the Medicare and Medicaid programs. No Loan Party has received notice of, and no Loan Party is aware of, any violation of applicable antitrust laws.

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(h) Operators’ private payor, Medicaid, Medicare, and/or managed care company, insurance company or other third-party insurance accounts receivable are free of any liens.

(i) No Loan Party is a party to any collective bargaining agreement or other labor contract applicable to persons employed by it and there are no threatened or pending labor disputes at the Facility. No Loan Party is or has been involved in any labor dispute, strike, walkout or union organization which could reasonably be expected to have a Material Adverse Effect.

(j) Each Loan Party has maintained in all material respects all records required to be maintained by the Joint Commission, the Food and Drug Administration, Drug Enforcement Agency and State Boards of Pharmacy and the federal and state Medicare and Medicaid programs as required by the Healthcare Laws and there are no presently existing circumstances which could reasonably be expected to result in material violations of the Healthcare Laws, except where any of the foregoing could not reasonably be expected to result in or have a Material Adverse Effect. No event has occurred which constitutes or could constitute a Liability Event.

First Priority Lien

Upon the execution, delivery, filing and/or recordation of the Security Instruments, Lender will have a good, valid and perfected first priority Lien and security interest in the Property, subject to no transfer or other restrictions or Liens of any kind in favor of any other person except for Permitted Liens. No financing statement relating to any of the Collateral is on file in any public office except those on behalf of Lender.

Special-Purpose Entity; Independent Manager/Director

(a) Notwithstanding anything to the contrary contained elsewhere in this Agreement, so long as any portion of the Obligations remains outstanding, Borrower shall be a Special-Purpose Entity whose sole asset is the Facility which it owns and the personal property utilized in the ownership or operation thereof.

(b) [OPTIONAL] For so long as any portion of the Obligations remains outstanding, the managing member or general partner of each of Borrower and Guarantor shall have no less than one (1) Independent Manager, and the organizational documents shall so require (or, if Borrower and/or Guarantor is a corporation, the board of directors of Borrower or Guarantor, as the case may be, shall have no less than one (1) director who satisfies the requirements of an Independent Manager).

Bankruptcy.

No bankruptcy or insolvency proceedings are pending or contemplated by Borrower or any other Loan Party or, to Borrower's Knowledge, any Operator.

Survival; Diligent Inquiry

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Borrower makes the representations and warranties contained in this Agreement and the other Loan Documents with the knowledge and intention that Lender is relying and will rely thereon, and having made all diligent inquiry of each of the Loan Parties referenced herein. All such representations and warranties will survive the execution and delivery of this Agreement and the funding of the Term Loan.

Anti-Terrorism; OFAC

(a) No Loan Party, nor any Person controlling or controlled by any Loan Party, nor any Person having a beneficial interest in any Loan Party, nor any Person for whom any Loan Party is acting as agent or nominee in connection with this transaction (“Transaction Persons”) (i) is a Person whose property or interest in property is blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)), (ii) engages in any dealings or transactions prohibited by Section 2 of such executive order, or is otherwise associated with any such Person in any manner violative of Section 2 of such executive order, or (iii) is a Person on the list of Specially Designated Nationals and Blocked Persons or is in violation of the limitations or prohibitions under any other OFAC regulation or executive order.

(b) No part of the proceeds of the Term Loan will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.

(c) Each Loan Party acknowledges by executing this Agreement that Lender has notified the Loan Parties that, pursuant to the requirements of the Patriot Act, Lender is required to obtain, verify and record such information as may be necessary to identify the Loan Parties (including, without limitation) the name and address of each Loan Party) in accordance with the Patriot Act.

Environmental Matters

Borrower hereby represents and warrants to Lender, after due inquiry and investigation, that, as of the date hereof: (i) each Facility, including the operations conducted thereat, is in full compliance with, and each such Facility has, at all times while operated by Borrower or an Affiliate of Borrower and, to Borrower’s actual knowledge at all other times, been in full compliance with, all Environmental Laws; (ii) no Hazardous Substances are or have been located on, handled, manufactured, generated, stored, treated, recycled, processed at, or transported to or from, or disposed of on or Released, threatened to be Released, or discharged from any Facility (including soil and groundwater beneath the Facility), except for Permitted Substances (which Permitted Substances have not been disposed of, Released or discharged on or from any Facility); (iii) none of the Facilities, Borrower or any person for whose acts or omissions Borrower may be responsible is subject to any private or governmental lien or judicial, administrative or other notice, action, claim or demand relating to Hazardous Substances or noncompliance with or liability under Environmental Laws, including with respect to off-site waste disposal, nor is Borrower aware of any basis for such lien, notice or action; (iv) except as

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disclosed in Schedule ***, there are no underground storage tanks or other underground storage receptacles (whether active or abandoned) on or under the Real Estate; (v) except as disclosed in Schedule ***, Borrower has received no notice of, there does not exist any, inquiry, investigation, action, proceeding or claim or demand by any agency, authority or unit of government or by any third party which could result in any liability, penalty, sanction or judgment under any Environmental Laws with respect to any condition, use or operation of or at any Facility, nor does Borrower know of any basis for such inquiry, investigation, action, proceeding or claim; (vi) except as disclosed in Schedule ***, Borrower has received no notice that, and to Borrower’s Knowledge, there has been no claim by any party that, any use, operation or condition of or at the Facility has caused any nuisance, trespass or any other liability or adverse condition on any other property, nor does Borrower know of any basis for such notice or claim; and (vii) there are no present environmental conditions or events or, to Borrower’s Knowledge, past environmental conditions or events on or near any Facility that could be reasonably anticipated to materially adversely affect the value of or operations at such Facility.

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AFFIRMATIVE COVENANTS:

Financial Statements, Reports and Other Information

(a) Financial Reports . Borrower shall furnish or cause to be furnished to Lender (i) as soon as available and in any event within one hundred and twenty (120) calendar days after the end of each fiscal year of Borrower, unaudited (or audited, if available) annual consolidated financial statements of Borrower, Manager and each Operator including the notes thereto, consisting of a consolidated balance sheet at the end of such completed fiscal year and the related consolidated statements of income and expense for such completed fiscal year, which financial statements shall be prepared and certified without qualification by an authorized officer of Borrower, and (ii) as soon as available and in any event within thirty (30) calendar days after the end of each calendar month, unaudited consolidated financial statements with respect to each of the Borrower and the Facility consisting of a balance sheet and statements of income, retained earnings, cash flows, owner's equity, and expense relating to the Facility. In addition, Borrower shall cause Guarantor to furnish to Lender as soon as available and in any event within one hundred and twenty (120) calendar days after the end of each fiscal year of Guarantor, (i) audited annual consolidated financial statements of Guarantor, including the notes thereto, consisting of a consolidated balance sheet at the end of such completed fiscal year and the related consolidated statements of income and expense for such completed fiscal year, which financial statements shall be prepared and certified without qualification by an independent certified public accounting firm satisfactory to Lender and accompanied by related management letters, if available, and (ii) personal financial statements of each Guarantor that is an individual, in form and substance reasonably satisfactory to Lender, [and (iii) such financial statements and other financial information regarding Manager as Lender shall reasonably request]. All such financial statements shall be prepared in accordance with GAAP consistently applied with prior periods. With each such financial statement, Borrower shall also deliver (and shall cause Guarantor to deliver) a certificate of its chief financial officer or manager, or other authorized representative as appropriate, in the form attached hereto as Schedule *** together with such calculations as are necessary to show compliance with the financial covenants in a form satisfactory to the Lender.

(b) Other Materials . Borrower shall furnish or cause to be furnished to Lender as soon as available, and in any event within ten (10) calendar days after the preparation or issuance thereof or at such other time as set forth below: (i) copies of such financial statements (other than those required to be delivered pursuant to Section (a) above, prepared by, for or on behalf of a Loan Party and any other notes, reports and other materials related thereto, including, without limitation, any pro forma financial statements, (ii) any reports, returns, information, notices and other materials that such Loan Party shall send to its stockholders, members, partners or other equity owners at any time, (iii) all Medicare and Medicaid cost reports and other documents and materials relating to any Facility filed by any Loan Party and any other reports, materials or other information regarding or otherwise relating to Medicaid and Medicare relating to any Facility prepared by, for or on behalf of a Loan Party including without limitation, (A) copies of licenses and permits required by any applicable federal, state, foreign or local law, statute, ordinance or regulation or Governmental Authority for the operation of each Facility, (B) Medicare and Medicaid provider numbers and agreements relating to each Facility, (C) state surveys pertaining to each Facility and (D) participating agreements relating to medical plans relating to each Facility, (iv) within fifteen (15) calendar days after the end of each calendar

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month for such month, (A) a report of the status of all payments, denials and appeals of all Medicare and/or Medicaid Accounts relating to each Facility, (B) a sales and collection report and accounts receivable and accounts payable aging schedule for each Facility, including a report of sales, credits issued and collections received, all such reports showing a reconciliation to the amounts reported in the monthly financial statements, (v) promptly upon receipt thereof, copies of any reports submitted to any Loan Party by its independent accountants relating to each Facility and in connection with any interim audit of the books of such Person or any of its Affiliates and copies of each management control letter provided by such independent accountants, (vi) a report of census and occupancy for the applicable Facility by payor type and (vii) such additional information, documents, statements, reports and other materials relating to the Facility as Lender may reasonably request from a credit or security perspective or otherwise from time to time.

(c) Notices . Borrower shall promptly, and in any event within two (2) calendar days after any Loan Party or any authorized officer, member, manager or employee of such Loan Party obtains knowledge thereof, notify Lender in writing (i) with respect to any Loan Party, of any pending or threatened litigation, suit, investigation, arbitration, dispute resolution proceeding or administrative proceeding brought or initiated by any Loan Party or otherwise affecting or involving or relating to any Loan Party or any of its property or assets (including without limitation, any Facility) to the extent (A) the amount in controversy exceeds One Hundred Thousand Dollars ($100,000), or (B) to the extent any of the foregoing seeks injunctive relief, (ii) with respect to any Loan Party, of any of the matters set forth in subparagraph (i) which could reasonably be expected to have or result in a Material Adverse Effect or a Liability Event, (iii) of any Default or Event of Default, which notice shall specify the nature and status thereof, the period of existence thereof and what action is proposed to be taken with respect thereto, (iv) of any other development, event, fact, circumstance or condition that could reasonably be expected to have a Material Adverse Effect or cause a Liability Event, in each case describing the nature and status thereof and the action proposed to be taken with respect thereto, (v) of any notice received by a Loan Party from any payor of a claim, suit or other action such payor has, claims or has filed against any Loan Party where any of the foregoing (A) relate to any Facility or Collateral or could reasonably be expected to have or result in, individually or in the aggregate, a Material Adverse Effect or Liability Event, (vi) of any matter(s) affecting the value, enforceability or collectability of any of the Collateral, including, without limitation, claims or disputes in the amount of One Hundred Thousand Dollars ($100,000) or more, singly or in the aggregate, in existence at any one time, (vii) of any notice given by a Loan Party to any other lender of Borrower and shall furnish to Lender a copy of such notice, (viii) of receipt of any notice or request from any Governmental Authority or governmental payor regarding any liability or claim of liability, (ix) of receipt of any notice by any Loan Party or Operator regarding termination of any manager of any facility owned by Borrower or owned or managed by Operator, the effect of which could reasonably be expected to have a Material Adverse Effect and/or (ix) if any Account relating to any of the Facilities becomes evidenced or secured by an Instrument or Chattel Paper.

(d) Consents . Borrower shall obtain and deliver from time to time all required consents, approvals and agreements from such third parties as Lender shall determine are necessary or desirable in its discretion and that are satisfactory to Lender with respect to (i) the Loan Documents and the transactions contemplated thereby and (ii) (A) claims against any Loan Party or the Collateral, and/or (B) any agreements, consents, documents or instruments to which

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any Loan Party is a party or by which any properties or assets of any Loan Party or any of the Collateral is or are bound or subject, including, without limitation, the Subordination Agreements and the Pledge and Security Agreements.

(e) Operating Budget . Borrower shall (and shall cause each Operator to) furnish to Lender on or prior to the Closing Date and for each fiscal year of Borrower or Operator thereafter not less than thirty (30) calendar days prior to the commencement of such fiscal year, consolidated month by month projected operating budgets, annual projections, profit and loss statements, balance sheets and cash flow reports of and for each Facility for such upcoming fiscal year (including an income statement for each month and a balance sheet as at the end of the last month in each fiscal quarter), in each case prepared in accordance with GAAP consistently applied with prior periods.

(f) Provider Agreements . Borrower shall furnish Lender, within thirty (30) days of the receipt by Borrower or any other Loan Party, with complete copies of the annual Medicaid and Medicare provider agreement(s) and the annual Medicaid and Medicare reimbursement rate sheets related to each Facility.

(g) Accreditation Report, etc. Borrower shall furnish Lender, within five (5) days after receipt by Borrower or any other Loan Party, with a complete copy of any Medicare, Medicaid or other licensing or accreditation or ranking agency or entity survey, report, warning letter, or notice, and any statement of deficiencies, and within the time period required by the particular agency for furnishing a plan of correction also furnish or cause to be furnished to Lender a copy of the plan of correction generated from such survey, report, warning letter, or notice, and any correspondence related thereto, and correct or cause to be corrected any deficiency, the curing of which is a condition of continued licensure or of full participation in Medicare or Medicaid or a care program offered by an insurance company, managed care company, or other third-party payor by the date required for cure by such agency or entity (plus extensions granted by such agency or entity).

(h) Notices of Non-Compliance . Borrower shall furnish Lender, within ten (10) days after receipt by Borrower or any other Loan Party with complete copies of any other notices or charges issued relating to the non-compliance by any Loan Party or any Facility with any Governmental Authority, insurance company, managed care company, or other third-party payor laws, regulations, requirements, licenses, permits, certificates, authorizations or approvals and any other reports, materials or other information regarding or otherwise relating to Medicaid or Medicare prepared by, for, or on behalf of Borrower or any other Loan Party or relating to any Facility.

(i) Non-Compliance Fee and Special Remedy . If any of the aforementioned materials are not furnished to Lender within the applicable time periods, Borrower shall pay to Lender a late fee of $250.00 upon each occurrence for each item not timely delivered. Further, if any of the aforementioned materials are not furnished to Lender within the applicable time periods, or Lender has objections to the form, manner of preparation or methodology of any of the foregoing, and, in any of such events, such matter is not addressed to Lender’s reasonable satisfaction within ten (10) days after written notice from Lender to Borrower, specifying the objections in reasonable detail, then, addition to any other rights and remedies of Lender contained herein, Lender shall have the right, but not the obligation, to obtain the same by means

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of an audit by an independent certified public accountant selected by Lender, in which event Borrower agrees to pay, or to reimburse Lender for, any expense of such audit and further agrees to provide all necessary information to said accountant and to otherwise cooperate in the making of such audit. Borrower agrees that any and all materials furnished hereunder may be released and made available to such parties as Lender or Lender’s servicer deems appropriate, including any Rating Agency responsible for rating securities issued in any Secondary Market Transaction.

Insurance

Borrower shall, at Borrower's sole expense, maintain or cause to be maintained the following insurance coverages with respect to the Property at all times while any portion of the Obligations remains outstanding:

(a) Insurance against loss or damage to the Property by fire, casualty and other hazards as now or subsequently may be covered by an “all-risk” policy, with coverage for earthquake in amounts and in form satisfactory to Lender, and such endorsements as Lender may from time to time reasonably require and which are customarily required by institutional lenders of similar properties similarly situated, and which coverage shall also meet the following requirements:

(i) The amount of such property insurance shall be not less than one hundred percent (100%) of the full replacement cost of the Improvements, furniture, furnishings, fixtures, equipment and other items (whether personally or fixtures) included in the Property and owned by Lender from time to time, without reduction for depreciation. The determination of the replacement cost amount shall be adjusted annually to comply with the requirements of the Insurer issuing such coverage or, at Lender's election, by reference to such indexes, appraisals or information as Lender determines in its discretion. Full replacement cost, as used herein, means, with respect to the Improvements, the cost of replacing the Improvements without regard to deduction for depreciation, exclusive of the cost of excavations, foundations and footings below the lowest basement floor, and means, with respect to such furniture, furnishings, fixtures, equipment and other items, the cost of replacing the same.

(ii) Each such policy or policies of property insurance shall contain the following provisions, all subject to Lender's approval in firm and content: (i) a replacement cost endorsement; (ii) either an agreed amount endorsement (to waive the operation of any coinsurance provisions) or a waiver of any co-insurance provisions; (iii) law and ordinance coverage in an amount satisfactory to Lender; and (iv) coverage for interruption in utility services.

(b) Business Income including rental value and Extra Expense insurance covering the same perils of loss as are required to be covered by the property insurance required pursuant to Section (a) above and meeting the following requirements:

(i) The amount of such insurance shall be not less than the projected gross revenue from each Facility for a period of one (1) year. The amount of such insurance shall be determined prior to the date hereof and at least once each year thereafter based on the Borrower’s reasonable estimate of the gross revenue from the Facility for the succeeding 36-

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month period; or, at Lender’s election in its discretion, by reference to such indexes, appraisals or information as Lender determines.

(ii) Each such policy or policies shall contain the following provisions, all subject to Lender’s approval in form and content: (i) either an agreed amount endorsement (to waive the operation of any co-insurance provisions) or a waiver of any co-insurance provisions; (ii) law and ordinance coverage in an amount satisfactory to Lender; (iii) an extended period of indemnity endorsement providing that after the repair of any physical loss to the Property, the continued loss of income will be insured until the earlier of the time that (a) such income returns to the same level as it was at prior to the date on which the physical loss occurred or (b) twelve (12) months from the date that the Property is repaired or replaced and operations are resumed in the manner that such operations were conducted prior to the date of the physical loss to the Property giving rise to such insurance obligation, which payments shall be made notwithstanding the expiration of the policy prior to the end of such period.

(c) Broad form boiler and machinery insurance covering the major components of the central heating, air conditioning and ventilating systems, boilers, other pressure vessels, high pressure piping and machinery, elevators and escalators, if any, and other similar equipment installed in the Improvements, in an amount equal to one hundred percent (100%) of the full replacement cost of the Improvements. Such policy or policies shall insure against physical damage to and loss of occupancy and use of the Improvements arising out of an accident or breakdown covered thereunder and shall include all of the following coverage: (A) business interruption including rental value, (B) extra expense, (C) consequential damage and (D) interruption in utility services power supply.

(d) If the Real Estate or any part thereof is identified by the Secretary of Housing and Urban Development as being situated in an area now or subsequently designated as having special flood hazards (including, without limitation, those areas designated as Zone A or Zone V), flood insurance in an amount equal to one hundred percent (100%) of the lesser of the (A) replacement value of the Improvements or (B) maximum amount of flood insurance available.

(e) During the period of any construction on the Real Estate or renovation or alteration of the Improvements, a so-called “Builder's All-Risk Completed Value” or “Course of Construction” insurance policy in non-reporting form for any improvements under construction, including, without limitation, for demolition and increased cost of construction or renovation, in an amount equal to one hundred percent (100%) of the estimated replacement cost on the date of completion, including “soft cost” coverage, and Workers' Compensation and Employers Liability insurance covering all persons engaged in such construction, in an amount at least equal to the minimum required by law. In addition, each contractor and subcontractor shall be required to provide Borrower with a certificate of insurance for (i) workers' compensation and employers liability insurance covering all persons engaged by such contractor or subcontractor in such construction in an amount at least equal to the minimum required by law, and (ii) general liability insurance showing minimum limits of at least $5,000,000, including coverage for premises/operations and products and completed operations. Each contractor and subcontractor also shall cover Lender and Borrower as additional insureds under such liability policy and shall defend, indemnify and hold Lender and Borrower harmless from and against any and all claims,

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damages, liabilities, costs and expenses arising out of, relating to or otherwise in connection with the performance by each contractor and subcontractor of such construction.

(f) Commercial general liability insurance using an “occurrence” based form meeting the following requirements:

(i) The amount of such liability insurance shall be not less than $1,000,000 per occurrence, $3,000,000 per location aggregate or such lesser amount as Lender in Lender’s discretion may accept, for bodily injury, personal and advertising injury and property damage. Lender hereby retains the right to periodically review the amount of said liability insurance being maintained by Borrower and to require an increase in the amount of said liability insurance should Lender deem an increase to be reasonably prudent under then existing circumstances.

(ii) Each such policy or policies of liability insurance shall (i) provide coverage for claims for personal injury, advertising injury, bodily injury, death and property damage liability with respect to the applicable Facility and operations related thereto, whether on or off the Real Estate; (ii) include broad form contractual liability coverage including coverage for the indemnities contained in Section ** of this Loan Agreement.

(g) Professional liability and malpractice insurance using an “occurrence” based form with limits of at least $1,000,000 per occurrence (claim)/$3,000,000 in the aggregate, and covering acts occurring prior to the date of the Term Loan. Borrower shall cause, and cause Operator to cause, that each physician or nurse practitioner with clinical privileges at the Facility to carry professional liability and malpractice insurance with limits of not less than $1,000,000.00 per occurrence (claim)/$3,000,000.00 in the aggregate. Lender hereby retains the right to periodically review the amount of said liability insurance and to require an increase in the amount of the same should Lender deem an increase to be reasonably prudent under then existing circumstances.

(h) Motor vehicle (auto) liability coverage for all owned hired and non-owned automobiles, including rented and leased automobiles, containing minimum limits per occurrence of greater of $1,000,000.00 or at such amounts as are in force as of the date hereof.

(i) Workers' compensation and employers liability insurance or other similar insurance which may be required by governmental authorities or applicable legal requirements in an amount at least equal to the minimum required by law.

(j) With respect to the Property insurance for certified and uncertified acts of terrorism, insurance in such amounts as are requested by Lender.

(k) Crime coverage providing blanket employee dishonesty insurance with limits of not less than $500,000.

(l) Such other insurance on the Property or on any replacements, supplements or substitutions thereof or additions thereto as may from time to time be required by Lender against other insurable hazards or casualties which at the time are commonly insured

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against in the case of property similarly situated, due regard being given to the height and type of buildings, their construction, location, use and occupancy.

All such insurance required pursuant to this Section shall (i) be issued by companies approved by Lender and licensed to do business in the state where the Real Estate is located, with a claims paying ability rating of “A” or better by A.M. Best Company; (ii) contain the complete address of the Real Estate (or a complete legal description), (iii) be for a term of at least one year, (iv) contain deductibles no greater than $10,000 or as otherwise required by Lender, and (v) be subject to the approval of Lender as to insurance companies, amounts, content, forms of policies, method by which premiums are paid and expiration dates, and, in addition, Borrower shall comply with, or cause to be complied with, each of the following with respect to the insurance policies required to be maintained pursuant hereto:

(1) Borrower shall as of the date hereof deliver to Lender certified copies of such insurance policies or such other evidence of insurance as Lender in its discretion may accept; and evidence satisfactory to Lender in its discretion that said insurance policies have been paid current as of the date hereof. Thereafter, Borrower shall deliver to Lender certified copies of any such insurance policies promptly upon request.

(2) With respect to insurance policies which require payment of premiums annually, not less than thirty (30) days prior to the expiration dates of the insurance policies obtained pursuant to this Loan Agreement, Borrower shall pay such amount. Not less than thirty (30) days prior to the expiration dates of the insurance policies obtained pursuant to this Loan Agreement, Borrower shall deliver to Lender certified copies of the renewals of such policies (or other evidence of renewal satisfactory to Lender) bearing notations evidencing the payment of premiums or accompanied by other evidence of payment satisfactory to Lender. Thereafter, Borrower shall deliver to Lender certified copies of any such insurance policies promptly upon request.

(3) No premiums for any policies or policies of insurance required hereunder or otherwise held with respect to the Property, whether by Borrower or Operator or otherwise, shall be paid by Borrower, Operator or by any third party through or by means of any financing arrangement with any third party lender.

(4) All policies required hereunder shall contain: (a) a provision that such policies shall not be canceled or amended, including without limitation, any amendment that would reduce the scope or limits of coverage or remove any endorsement to such policy or cause the same to no longer be in full force and effect, or failed to be renewed, without at least thirty (30) days prior written notice to Lender in each instance; and (b) a waiver of all rights of subrogation against Lender.

(5) All policies required or contemplated by Sections (a)-(e) above shall name Lender as mortgagee and loss payee, shall provide for all losses to be payable directly to Lender, and shall contain: a standard noncontributing mortgagee provision or endorsement or its equivalent providing that any loss shall be payable to Lender notwithstanding (a) any negligent or willful acts or omissions of Borrower which might otherwise result in forfeiture of such insurance; (b) occupancy or use of the Facility for purposes more hazardous than those permitted by the terms of such policy; (c) any foreclosure or other action taken by Lender

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pursuant to the Security Instrument upon the occurrence of an Event of Default; or (d) any change in title or ownership of the Property.

(6) All Policies required or contemplated by Sections (f)-(h) above shall name Lender as an additional insured.

(7) The delivery to Lender of the insurance policies or other evidence of insurance as provided above shall constitute an assignment of all proceeds payable under such insurance policies arising out of or related to the applicable Facility by Borrower to Lender as further security for the Obligations. In the event of foreclosure of one or more of the Security Instrument, or other transfer of title to the Property in extinguishment in whole or in part of the Obligations, all right, title and interest of Borrower in and to all proceeds payable under such policies then in force concerning the Property shall thereupon vest in the purchaser at such foreclosure, or in Lender or other transferee in the event of such other transfer of title.

(8) Approval of any insurance by Lender shall not be a representation of the solvency of any Insurer or the sufficiency of any amount of insurance.

(9) In the event Borrower fails to provide, maintain, keep in force or deliver and furnish to Lender the policies of insurance required by this Loan Agreement or evidence of their renewal as required herein, Lender may, but shall not be obligated to, procure such insurance and Borrower shall pay all amounts advanced by Lender, together with interest thereon at the Default Interest Rate from and after the date advanced by Lender until actually repaid by Borrower, promptly upon demand by Lender. Any amounts so advanced by Lender, together with interest thereon, shall be secured by this Security Instrument and by all of the other Loan Documents securing all or any part of the Obligations. Lender shall not be responsible for nor incur any liability for the insolvency of the Insurer or other failure of the Insurer to perform, even though Lender has caused the insurance to be placed with the Insurer after failure of Borrower to furnish such insurance.

Collateral Documents; Security Interest in Collateral

Borrower shall and shall cause each Loan Party to (i) execute, obtain, deliver, file, register and/or record any and all financing statements, continuation statements, stock powers, instruments and other documents, or cause the execution, filing, registration, recording or delivery of any and all of the foregoing, that are necessary or required under law or otherwise or reasonably requested by Lender to be executed, filed, registered, obtained, delivered or recorded to create, maintain, perfect, preserve, validate or otherwise protect the pledge of the Collateral to Lender and Lender’s perfected first priority Lien on the Collateral (and Borrower irrevocably grants Lender the right, at Lender’s option, to file any or all of the foregoing), (ii) as soon as reasonably practicable upon learning thereof, report to Lender any reclamation, return or repossession of goods in excess of Ten Thousand Dollars ($10,000.00) (individually or in the aggregate), and (iii) defend the Collateral and Lender’s perfected first priority Lien thereon against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to Lender, and pay all costs and expenses (including, without limitation, in-house documentation and diligence fees and legal expenses and reasonable attorneys’ fees and expenses) in connection with such defense, which may at Lender’s discretion be added to the Obligations.

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Casualty and Condemnation.

(a) Borrower shall give Lender prompt written notice of the occurrence of any casualty affecting, or the institution of any proceedings for eminent domain or for the condemnation of, the Property or any portion thereof (each, a “Casualty/Condemnation Event”). All insurance proceeds on the Property, and all causes of action, claims, compensation, awards and recoveries for any damage, condemnation or taking of all or any part of the Property or for any damage or injury to it for any loss or diminution in value of the Property, are hereby assigned to and shall be paid to Lender. Lender may participate in any suits or proceedings relating to any such proceeds, causes of action, claims, compensation, awards or recoveries and Lender is hereby authorized, in its own name or in Borrower’s name, to adjust any loss covered by insurance or any condemnation claim or cause of action, and to settle or compromise any claim or cause of action in connection therewith, and Borrower shall from time to time deliver to Lender any instruments required to permit such participation; provided, however, that Lender shall not have the right to participate in the adjustment of any loss which is not in excess of the lesser of (i) five percent (5%) of the then outstanding principal balance of the Term Loan, and (ii) $50,000.00. Provided no Default has occurred and is continuing and no Event of Default has occurred, Lender shall apply any sums received by it under this Section first to the payment of all of its costs and expenses (including, but not limited to, reasonable legal fees and disbursements) incurred in obtaining those sums, and then, as follows:

(b) In the event that Lender receives insurance proceeds or condemnation awards upon the occurrence of a Casualty/Condemnation Event in an amount not in excess of the lesser of (i) five percent (5%) of the then outstanding principal balance of the Term Loan and (ii) $250,000.00 (collectively, the “Threshold Amount”), Lender shall, to the extent such insurance proceeds or condemnation awards are available for such purpose, disburse to Borrower the amount paid or incurred by Borrower as a result of any such Casualty/Condemnation Event for costs and expenses incurred by Borrower to repair or restore the Property (collectively, the “Repairs”) pursuant to disbursement provisions as determined by Lender.

(c) In the event that proceeds or awards from a Casualty/Condemnation Event exceed the Threshold Amount, Lender may elect, in Lender’s discretion and without regard to the adequacy of Lender’s security, to (i) accelerate the maturity date of the Term Loan and declare the Obligations to be immediately due and payable and apply the remainder of such sums received pursuant to this Section to the payment of the Obligations in whatever order Lender directs in its discretion, with any remainder being paid to Borrower, or (ii) make insurance or condemnation proceeds available to Borrower for repair or restoration if Borrower establishes to the satisfaction of Lender, in its discretion, that Borrower otherwise satisfies the requirements of Section (d) below. Should Lender make the election described immediately above in item (ii) of this Section. Borrower shall be obligated to undertake restoration and repair of the damaged Improvements consistent with the provisions of this Section.

(d) In the event Lender elects to otherwise make the insurance proceeds or condemnation award available to Borrower for repair or restoration pursuant to Section (b) above, then if:

(i) the Property can, in Lender’s reasonable judgment, with diligent restoration or repair, be returned to a condition at least equal to the condition thereof that existed

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prior to the casualty or partial taking causing the loss or damage by the earlier to occur of the following dates: (i) six (6) months after the receipt of insurance proceeds or condemnation awards by either Borrower or Lender, and (ii) six (6) months prior to the Maturity Date, and

(ii) all necessary governmental approvals can be obtained to allow the rebuilding and reoccupancy of the Property as described in subsection (c)(1) above, and

(iii) there are sufficient sums available (through insurance proceeds or condemnation awards and contributions by Borrower, the full amount of which shall at Lender’s option have been deposited with Lender) for such restoration or repair (including, without limitation, for any reasonable costs and expenses of Lender to be incurred in administering said restoration or repair) and for payment of principal and interest to become due and payable under this Agreement during such restoration or repair, and

(iv) the economic feasibility of the Improvements after such restoration or repair will be such that income from their operation is reasonably anticipated to be sufficient to pay operating expenses of the Property and debt service on the Term Loan in full with the same coverage ratio considered by Lender in its determination to make the Term Loan, and

(v) Borrower shall have delivered to Lender, at Borrower’s sole cost and expense, an appraisal report from an appraiser, in form and substance, satisfactory to Lender appraising the value of the Property as proposed to be restored or repaired to be not less than an appraised value of the Property such that the outstanding principal amount of the Term Loan is not greater than 75% of such appraised value,

then, upon satisfaction of each of the foregoing requirements, Lender shall, solely for the purposes of such restoration or repair, advance so much of the remainder of such sums as may be required to facilitate such restoration or repair, and any funds deposited by Borrower therefor, to Borrower in the manner and upon such terms and conditions as would be required by a prudent interim construction lender, including, but not limited to, the prior approval by Lender of plans and specifications, contractors and the form of construction contracts and the furnishing to Lender of permits, bonds, lien waivers, invoices, receipts and affidavits from contractors and subcontractors in form and substance reasonably satisfactory to Lender. Any remaining proceeds shall be applied by Lender for payment of the Obligations in whatever order as Lender directs, or released to Borrower, in its discretion. Borrower shall, in good faith, undertake reasonable efforts to cause the conditions described in this Section to be fully satisfied (e.g., Borrower shall timely make applications for necessary governmental permits, shall order an appropriate appraisal report, etc.). If such conditions are satisfied, Borrower shall be obligated to undertake restoration and repair of the damaged Improvements subject to the terms of this Section.

Any disbursement pursuant to this clause (c) of sums by Lender shall, subject to Borrower’s satisfaction of the provisions hereof, be in a manner to promptly facilitate the restoration or repair of the Property. In the event Borrower fails to meet the requirements of this clause (c), then Lender may elect in its discretion and without regard to the adequacy of Lender’s security, to accelerate the Maturity Date and declare any and all of the Obligations to be immediately due and payable and apply the remainder of such sums to the payment of the Obligations in whatever order Lender directs in its discretion, with any remainder being paid to Borrower.

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Any reduction in the Obligations resulting from Lender’s application of any sums received by it hereunder shall take effect only when Lender actually receives such sums and elects to apply such sums to the Obligations and, in any event, the unpaid portion of the Obligations shall remain in full force and effect and Borrower shall not be excused in the payment thereof. Partial payments received by Lender, as described in the preceding sentence, shall be applied to the payment of the Obligations in whatever order Lender directs in its discretion, with any remainder being paid to Borrower. If Borrower undertakes to restore or repair the Property after the occurrence of a casualty or partial taking of the Property as provided above, Borrower shall promptly and diligently, at Borrower’s sole cost and expense and regardless of whether the insurance proceeds or condemnation award, as appropriate, shall be sufficient for the purpose, restore, repair, replace and rebuild the Property as nearly as possible to their value, condition and character immediately prior to such casualty or partial taking in accordance with the foregoing provisions and Borrower shall pay to Lender all costs and expenses of Lender incurred in administering said rebuilding, restoration or repair, provided that Lender makes such proceeds or award available for such purpose. Borrower agrees to execute and deliver from time to time such further instruments as may be requested by Lender to confirm the foregoing assignment to Lender of any award, damage, insurance proceeds, payment or other compensation. Borrower hereby irrevocably constitutes and appoints Lender the attorney-in-fact of Borrower (which power of attorney shall be irrevocable so long as any of the Obligations are outstanding, shall be deemed coupled with an interest, shall survive the voluntary or involuntary dissolution of Borrower and shall not be affected by any disability or incapacity suffered by Borrower subsequent to the date hereof), with full power of substitution, subject to the terms of this Section, to settle for, collect and receive any such awards, damages, insurance proceeds, payments or other compensation from the parties or authorities making the same, to appear in and prosecute any proceedings therefor and to give receipts and acquittance therefor.

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NEGATIVE COVENANTS

Distributions; Redemptions

Borrower shall not (i) declare, pay or make any dividend or distribution on any shares of capital stock or other securities or membership, economic or other interests (other than dividends or distributions payable in its stock, or split-ups or reclassifications of its stock), (ii) apply any of its funds, property or assets to the acquisition, redemption or other retirement of any capital stock or other securities or membership, economic or other interests or of any options to purchase or acquire any of the foregoing (provided, however, that Borrower may redeem its capital stock from terminated employees pursuant to, but only to the extent required under, the terms of the related employment agreements as long as no Default or Event of Default has occurred and is continuing or would be caused by or result therefrom) and (iii) otherwise make any payments or Distributions to any stockholder, member, partner or other equity owner in such Person’s capacity as such; [OPTIONAL: provided, however, that after any Payment Date, Borrower shall have the right to make Distributions, only to the extent of Excess Cash Flow, if any, so long as (i) all amounts due on such Payment Date or otherwise then due under the Loan Documents have been paid and (ii) no Default has occurred and is continuing or would be caused by or result therefrom and no Event of Default has occurred or would be caused by or result therefrom]. Borrower shall not, and with respect to the ownership or operation of the Facility, shall cause Operator not to, make any payment of any management, service or related or similar fee to any Person or with respect to any facility owned, operated or leased by Borrower or Operator except in the manner permitted under any Management Fee Subordination Agreement, provided that all payments under any Management Agreement or any management agreement related to the Facility shall not exceed five percent (5%) of any Facility’s revenues for any calendar year during the Term, provided further that Borrower shall not make or suffer to exist any Distribution or payment under any Management Agreement if a Default or Event of Default has occurred and is continuing or would result therefrom.

Charter Documents; Fiscal Year; Dissolution; Use of Proceeds

Borrower shall not (i) amend, modify, restate or change its articles of incorporation or formation, bylaws, operating agreements or similar charter documents or any Charter Documents [in a manner that would be adverse to Lender or that would impair or affect Lender’s valid, perfected, first priority security interest in the Property or that would violate this Agreement or any requirements of Borrower's qualification as a Special Purpose Entity], (ii) shall not allow any of its interests to be certificated, (iii) change its fiscal year unless Borrower demonstrates to Lender’s satisfaction compliance with the covenants contained herein for both the fiscal year in effect prior to any change and the new fiscal year period by delivery to Lender of appropriate interim and annual pro forma, historical and current compliance certificates for such periods and such other information as Lender may reasonably request, (iv) amend, alter or suspend or terminate or make provisional in any material way, any License or Permit without the prior written consent of Lender, which consent shall not be unreasonably withheld, (v) wind up, liquidate or dissolve (voluntarily or involuntarily) or commence or suffer any proceedings seeking or that would result in any of the foregoing, (vi) change its name or jurisdiction of organization without the prior written consent of Lender or (vii) use any proceeds of the Term Loan for “purchasing” or “carrying” “margin stock” as

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defined in Regulations U, T or X of the Board of Governors of the Federal Reserve System or for any other purpose which would be inconsistent with such Regulations T, U or X or any other regulations of such Board of Governors, or for any purpose prohibited by legal requirements or by the terms and conditions of the Loan Documents.

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Events of Default

The occurrence of any one or more of the following shall constitute an “Event of Default” hereunder and under the other Loan Documents:

(a) Borrower shall fail to pay any amount on the Obligations or provided for in any Loan Document when the same becomes due (whether on any payment date, at maturity, by reason of acceleration, by notice of intention to prepay, by required prepayment or otherwise);

(b) (i) any fact, circumstance, or condition was not as represented or warranted in any material respect in any representation, statement or warranty at the time made or deemed made by any Loan Party in any Loan Document or in any other certificate, document, instrument, report or opinion delivered in conjunction with any Loan Document to which it is a party (whether or not delivered to Lender), regardless of whether such representation or warranty was qualified to the knowledge of the representing or warranting party, or (ii) any fact, circumstance or condition ceases to be as represented or warranted in any material respect after the date of the representation or warranty or (iii) any representation or warranty of any Operator contained in the Management Fees Subordination Agreement, Lease Estoppel and Agreement or other similar document delivered to Lender in connection with the Term Loan shall prove to have been incorrect or untrue in any material respect when made or deemed made;

(c) any Loan Party or other party thereto other than Lender shall be in violation, breach or default of, or shall fail timely to perform, observe or comply with any covenant, obligation or agreement set forth in, any Loan Document to the extent not otherwise separately identified as an Event of Default; provided only that in the case of the affirmative covenants contained in Article VI hereof (other than the covenants contained in Sections ___, ___, ___, ___. ___ and ___, for which no cure right is provided), Borrower shall have the opportunity to cure any default, breach or failure of performance under Article within fifteen (15) days after the first to occur of (1) Lender's written notice of such default, breach or failure of performance or (2) Borrower's discovery of such default, breach or failure of performance;

(d) any of the Loan Documents ceases to be in full force and effect, or any Lien created under this Agreement or any Security Document ceases to constitute a valid perfected first priority Lien on the Property in accordance with the terms thereof, or Lender ceases to have a valid perfected first priority security interest or Lien in any of the Property;

(e) one or more tax assessments, judgments or decrees is rendered against (i) any Borrower or (ii) Operator with respect to the Facility, in an amount in excess of Ten Thousand Dollars ($10,000) individually or Fifty Thousand Dollars ($50,000) in the aggregate or (ii) Guarantor or any Operator (with respect to facilities other than the Facility) or any Pledging Entity which individually or in the aggregate could reasonably be expected to have or result in a Material Adverse Effect;

(f) (i)  any default occurs (x) in the payment of any Indebtedness (other than the Obligations) of Borrower in excess of $10,000, (y) in the payment of any Indebtedness of Operator or any Loan Party other than Borrower which could reasonably be anticipated to result in the occurrence of a Material Adverse Effect or (z) in the performance, observance or fulfillment of any provision contained in any agreement, contract, document or instrument to

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which Operator or any Loan Party is a party or to which any of their properties or assets are subject or bound where such default could reasonably be expected to have a Material Adverse Effect;

(g) Borrower, any other Loan Party or Operator shall (i) be unable to pay its debts generally as they become due, (ii) have total liabilities (including contingent, subordinated, unmatured and unliquidated liabilities) that exceed its assets, at a Fair Valuation, (iii) have an unreasonably small capital base with which to engage in its anticipated business, (iv) file a petition under any insolvency statute, (iii) make a general assignment for the benefit of its creditors, (v) commence a proceeding for the appointment of a receiver, trustee, liquidator or conservator of itself or of the whole or any substantial part of its property, or (vi) file a petition seeking reorganization or liquidation or similar relief under any Debtor Relief Law or any other applicable law or statute;

(h) (i) a court of competent jurisdiction shall (A) enter an order, judgment or decree appointing a custodian, receiver, trustee, liquidator or conservator of any Loan Party or of Operator or the whole or any substantial part of any such Person’s properties, which shall continue unstayed and in effect for a period of thirty (30) calendar days, (B) shall approve a petition filed against any Loan Party or Operator seeking reorganization, liquidation or similar relief under any Debtor Relief Law or any other applicable law or statute, which is not dismissed within thirty (30) calendar days or, (C) under the provisions of any Debtor Relief Law or other applicable law or statute, assume custody or control of any Loan Party or Operator or of the whole or any substantial part of any such Person’s properties, which is not irrevocably relinquished within thirty (30) calendar days, or (ii) there is commenced against any Loan Party or Operator any proceeding or petition seeking reorganization, liquidation or similar relief under any Debtor Relief Law or any other applicable law or statute, which (A) is not unconditionally dismissed within thirty (30) calendar days after the date of commencement, or (B) with respect to which such Loan Party or Operator takes any action to indicate its approval of or consent to any such proceeding or petition;

(i) Without limiting the provisions of Section ** above, either (i) any Change of Control occurs or any agreement or commitment to cause or that may result in any such Change of Control is entered into, (ii) any Material Adverse Effect or Material Adverse Change occurs or is reasonably expected to occur, (iii) any Liability Event occurs or is reasonably expected to occur or (iv) any Loan Party or Operator ceases any portion of its business operations as currently conducted or anticipated to be conducted, except if such cessation is with respect to Guarantor and such cessation could not reasonably be expected to result in or have a Material Adverse Effect;

(j) Lender receives any indication or evidence that any Loan Party or Operator may have directly or indirectly been engaged in any type of activity which, in Lender’s judgment, might result in forfeiture of any property relating to the Facility or the Collateral to any Governmental Authority which shall have continued unremedied for a period of ten (10) calendar days after written notice from Lender;

(k) a default occurs under any other Loan Document and such default is not cured within any applicable cure period;

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(l) uninsured damage to, or loss, theft or destruction of, any portion of the Property occurs that exceeds One Hundred Thousand Dollars ($100,000) in the aggregate if such portion of the Property is not repaired or replaced within thirty (30) days of such loss, theft or destruction;

(m) any Loan Party or Operator or any of their respective members, managers, directors or officers is criminally indicted or convicted under any law that could lead to a forfeiture of any Collateral or any Licenses or Permits;

(n) the issuance of any process for levy, attachment or garnishment or execution upon or prior to any judgment against any property or assets of any Loan Party that, individually or in the aggregate, could be reasonably be expected to have or result in a Material Adverse Effect;

(o) failure of Borrower to pay to Lender any sum with respect to any of the Reserves when due;

(p) any material default under the Facility Lease is not cured within the applicable cure period by Borrower or Facility Lessee, as applicable or any material default occurs under any Management Agreement which is not cured within the applicable cure period thereunder by Borrower or Manager, as applicable, or Borrower does not terminate the Management Agreement and enter into a new Management Agreement in form and substance and with a new manager acceptable to Lender in Lender's discretion within thirty (30) days of the occurrence of such default;

(q) any portion of the Term Loan is not used for the purpose for which it was advanced;

(r) any Loan Party challenges the validity or enforceability of any of the Loan Documents;

(s) any insurance required hereunder is terminated or lapsed; or

(t) any failure to comply with any of the financial covenants set forth on Exhibit A attached hereto;

(u) if Borrower or Operator shall fail to cure or abate any violation of any law, order, ordinance, rule or regulation pertaining to the operation of the Facility that is claimed by any Governmental Authority, or any officer acting on behalf thereof, within the time permitted by such authority for such cure or abatement;

(v) if any proceedings shall be instituted against any Loan Party by any Governmental Authority which would or are reasonably likely to result in (i) the revocation of any license granted for the operation of the Facility, (ii) if applicable, the decertification of the Facility from participation on the Medicaid or Medicate reimbursement program or (iii) the issuance of a stop placement order with respect to the Facility; or

(w) [OPTIONAL]. any default under the Revolving Loan Agreement that is not cured within any applicable cure period thereunder.

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Remedies

(a) Upon the occurrence of any Event of Default, Lender may, without notice or demand, take any or all of the following actions either individually or in conjunction with one another: (i) declare all or any portion of the outstanding principal balance of the Term Loan, all interest thereon and all other Obligations to be due and payable immediately, in each case without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or further notice of any kind, all of which are hereby expressly waived by Borrower, (ii)  apply any Reserves held by Lender and any and all sums on deposit in the Concentration Account to reduce the Obligations, (iii) foreclose the Liens created under the Security Documents, (iv) realize upon, take possession of and/or sell any collateral or securities pledged (other than collateral consisting of Accounts owed or owing by Medicaid/Medicare Account Debtors absent a court order or compliance with applicable law) with or without judicial process, (v) exercise all rights and powers with respect to the Property as any Borrower, as applicable, might exercise (other than with respect to collateral consisting of Accounts owed or owing by Medicaid/Medicare Account Debtors absent a court order or compliance with applicable law), (vi) collect and send notices regarding the Property (other than with respect to collateral consisting of Accounts owed or owing by Medicaid/Medicare Account Debtors absent a court order or compliance with applicable law), with or without judicial process, (vii) by its own means or with judicial assistance, enter any premises at which the personal property collateral and/or pledged securities are located, or render any of the foregoing unusable or dispose of the personal property collateral and/or pledged securities on such premises without any liability for rent, storage, utilities, or other sums, and no Borrower shall resist or interfere with such action, (viii) at Borrower’s expense, require that all or any part of the personal property collateral be assembled and made available to Lender at any place designated by Lender, (ix) prohibit any action permitted to be taken hereunder and (x) exercise any and all other remedies available to Lender hereunder, under the Security Documents, under any of the other Loan Documents, under the UCC or otherwise at law or in equity. Lender may take one or more of the actions set forth in the preceding sentence, the exercise of all or each of which shall not waive any right that Lender may have to exercise any other rights or remedies set forth herein, in any Loan Document or available to Lender at law, in equity or under the UCC.

(b) Borrower agrees that notice received by it at least ten (10) calendar days before the time of any intended public sale, or the time after which any private sale or other disposition of personal property collateral is to be made, shall be deemed to be reasonable notice of such sale or other disposition. If permitted by applicable law, any perishable personal property collateral which threatens to speedily decline in value or which is sold on a recognized market may be sold immediately by Lender without prior notice to Borrower. At any sale or disposition of personal property collateral or securities pledged, Lender may (to the extent permitted by applicable law) purchase all or any part thereof free from any right of redemption by any Borrower which right is hereby waived and released. Borrower covenants and agrees not to, and not to permit or cause any of its Subsidiaries to, interfere with or impose any obstacle to Lender’s exercise of its rights and remedies with respect to the personal property collateral or the Property. Lender, in dealing with or disposing of the personal property collateral or any part thereof, shall not be required to give priority or preference to any item of collateral or otherwise to marshal assets or to take possession or sell any collateral with judicial process.

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Advances to Protect Property

Without limiting or waiving any other rights and remedies of Lender hereunder, if Lender determines that Borrower is not adequately performing or has failed to perform any of its obligations, covenants or agreements contained herein or in any of the other Loan Documents and such inadequacy or failure is not cured within any applicable grace or cure period, or if any action or proceeding of any kind (including, but not limited to, any bankruptcy, insolvency, arrangement, reorganization or other debtor relief proceeding) is commenced which might affect Lender’s interest in the Property or Lender’s right to enforce its security, then Lender may, at its option, with or without notice to Borrower, make any appearances, disburse or advance any sums and take any actions as may be necessary or desirable to protect or enforce the security of the Security Documents or to remedy the failure of Borrower to perform its covenants and agreements (without, however, waiving any Default or Event of Default). Without limitation of the foregoing, Lender, in its discretion, shall have the right, at any time that Borrower fails to do so, and from time to time, without prior notice (i) to obtain insurance covering any of the Property to the extent insurance is required hereunder, (ii) to pay for the performance of any of the Obligations, (iii) to discharge taxes or Liens on any of the Property that are in violation of any Loan Document, and (iv) to pay for the maintenance and preservation of the Property. Borrower agrees to pay on demand all expenses of Lender reasonably incurred with respect to the foregoing (including, but not limited to, fees and disbursements of counsel), together with interest thereon at the Default Interest Rate from and after the date on which Lender incurs such expenses until reimbursement thereof by Borrower. Any expenses so incurred by Lender, together with interest thereon as provided above, shall be additional indebtedness of Borrower secured by the Security Documents and by all of the other Loan Documents securing all or any part of the Obligations. The necessity for any such actions and of the amounts to be paid shall be determined by Lender in its discretion. Lender is hereby empowered to enter and to authorize others to enter upon the Property or any part thereof for the purpose of performing or observing any such defaulted term, covenant or condition without thereby becoming liable to Borrower or any person in possession holding under Borrower. Borrower hereby acknowledges and agrees that the remedies set forth in this Section shall be exercisable by Lender, and any and all payments made or costs or expenses incurred by Lender in connection therewith shall be secured by the Security Documents and shall, without demand, be immediately repaid by Borrower with interest thereon at the Default Interest Rate, notwithstanding the fact that such remedies were exercised and such payments made and costs incurred by Lender after the filing by any Loan Party of a voluntary case or the filing against Borrower of an involuntary case pursuant to or within the meaning of the Bankruptcy Reform Act of 1978, as amended (the “Act”), Title 11 U.S.C., or after any similar action pursuant to any other Debtor Relief Law (whether statutory, common law, case law or otherwise) of any jurisdiction whatsoever, now or hereafter in effect, which may be or become applicable to any Loan Party, Lender, any guarantor or indemnitor, the obligations or any of the Loan Documents. This indemnity shall survive payment in full of the Obligations. This Section shall not be construed to require Lender to incur any expenses, make any appearances or take any actions.

Application of Proceeds

In addition to any other rights, options and remedies Lender has under the Loan Documents, the UCC, at law or in equity, all dividends, interest, rents, issues, profits, fees, revenues, income and other proceeds collected or received from collecting, holding, managing,

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renting, selling, or otherwise disposing of all or any part of the Property or any proceeds thereof upon exercise of its remedies hereunder shall be applied in the following order of priority: (i) first, to the payment of all costs and expenses of such collection, storage, lease, holding, operation, management, sale, disposition or delivery and of conducting Borrower’s business and of maintenance, repairs, replacements, alterations, additions and improvements of or to the Property, and to the payment of all sums which Lender may be required or may elect to pay, if any, for taxes, assessments, insurance and other charges upon the Property or any part thereof, and all other payments that Lender may be required or authorized to make under any provision of this Agreement (including, without limitation, in each such case, in-house documentation and diligence fees and legal expenses, search, audit, recording, professional and filing fees and expenses and reasonable attorneys' fees and all expenses, liabilities and advances made or incurred in connection therewith); (ii) second, to the payment of all Obligations as provided herein; (iii) third, to the satisfaction of Indebtedness secured by any subordinate security interest of record in the Property if written notification of demand therefor is received before distribution of the proceeds is completed, provided, that, if requested by Lender, the holder of a subordinate security interest shall furnish reasonable proof of its interest, and unless it does so, Lender need not address its claims; and (iv) fourth, to the payment of any surplus then remaining to Borrower, unless otherwise provided by law or directed by a court of competent jurisdiction, provided that Borrower shall be liable for any deficiency if such proceeds are insufficient to satisfy the Obligations or any of the other items referred to in this section.

Rights of Lender to Appoint Receiver

Without limiting and in addition to any other rights, options and remedies Lender has under the Loan Documents, the UCC, at law or in equity, upon the occurrence and during the continuance of any Event of Default, Lender shall have the right to apply for and have a receiver appointed by a court of competent jurisdiction in any action taken by Lender to enforce its rights and remedies in order to manage, protect and preserve the Property and continue the operation of the business of Borrower and to collect all revenues and profits thereof and apply the same to the payment of all expenses and other charges of such receivership including the compensation of the receiver and to the payments as aforesaid until a sale or other disposition of such Property shall be finally made and consummated.

Rights and Remedies not Exclusive

Lender shall have the right in its discretion to determine which rights, Liens and/or remedies Lender may at any time pursue, relinquish, subordinate or modify, and such determination will not in any way modify or affect any of Lender’s rights, Liens or remedies under any Loan Document, applicable law or equity. The enumeration of any rights and remedies in any Loan Document is not intended to be exhaustive, and all rights and remedies of Lender described in any Loan Document are cumulative and are not alternative to or exclusive of any other rights or remedies which Lender otherwise may have. The partial or complete exercise of any right or remedy shall not preclude any other further exercise of such or any other right or remedy.

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FINANCIAL COVENANTS

Minimum EBITDAR

The Facility(ies)’s EBITDAR shall be a minimum of $____________ on an annualized basis for the first Test Period after the Closing Date and for each subsequent Test Period thereafter.

Fixed Charge Coverage Ratio (EBITDA/Fixed Charges)

The Fixed Charge Coverage Ratio shall be a minimum of ____:1.00 for the first Test Period after the Closing Date and for each subsequent Test Period thereafter.

Minimum Census

The average aggregate combined census levels at the Facilities shall not be less than __________ percent (_____%) of licensed UNITS/BEDS for the first Test Period after the Closing Date and for each subsequent Test Period thereafter.

Net Interest Coverage Ratio (EBITDAR/Interest Expense)

The Net Interest Coverage Ratio shall not be less than ___ to 1.0 for the first Test Period after the Closing Date and for each subsequent Test Period thereafter.

Net Leverage Ratio (Total Debt to EBITDA)

The Net Leverage Ratio shall not exceed ____ to 1.0 for the first Test Period after the Closing Date and for each subsequent Test Period thereafter.

Net Worth

Borrower, on a consolidated basis, will maintain a Tangible Net Worth at all times of not less than $____________.

Cash Collections

Cash revenues of the Facility shall not be less than ninety-five percent (95%) of net revenues (determined in accordance with GAAP) that are utilized in determining Net Income for the first Test Period after the Closing Date and for each subsequent Test Period thereafter.

For purposes of the covenants set forth herein, the terms listed below shall have the following meanings:

“Capital Expenditures” means, for any Test Period, the sum (without duplication) of all expenditures (whether paid in cash or accrued as liabilities) during the Test Period, that are or should be treated as capital expenditures under GAAP.

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“Closing Date” means , 200__.

“EBITDA” means, for any Test Period, the sum, without duplication, of the following, on a consolidated basis: Net Income determined in accordance with GAAP, plus, (a) Interest Expense, (b) taxes on income, whether paid, payable or accrued, (c) depreciation expense, and (d) amortization expense, all of the foregoing determined in accordance with GAAP, minus (a) gains from any sale of assets, other than sales in the ordinary course of business and (b) other extraordinary or non-recurring gains.

“Facilities EBITDAR” means, for any Test Period, the sum without duplication of the following for Operator, on a consolidated basis: Net Income determined in accordance with GAAP, plus, (a) Interest Expense, (b) taxes on income, whether paid, payable or accrued, (c) depreciation expense, (d) amortization expense and (e) the amount of rent paid pursuant to a facility master lease, all of the foregoing determined in accordance with GAAP, minus, (a) gains from any sale of assets, other than sales in the ordinary course of business and (b) other extraordinary or non-recurring gains.

“GAAP” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.

“Fixed Charge Coverage Ratio” means, at any date of determination, the ratio of (a) EBITDA of Borrower for the Test Period, to (b) Fixed Charges of Borrower for the Test Period.

“Fixed Charges” means, the sum of the following: (a) Total Debt Service, (b) Capital Expenditures (to the extent not already deducted in the calculation of Net Income or paid from amounts on deposit in the CapEx Reserve), (c) income taxes paid in cash or accrued, and (d) dividends or Distributions paid or accrued or declared.

“Indebtedness” of any Person means (without duplication) (a) all items which, in accordance with GAAP, would be included in determining total liabilities as shown on the liability side of the balance sheet of such Person as of the date as of which Indebtedness, (b) all indebtedness secured by any mortgage, pledge, security, Lien or conditional sale or other title retention agreement to which any property or asset owned or held by such Person is subject, whether or not the indebtedness secured thereby shall have been assumed, (c) all indebtedness of others which such Person has directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business), discounted or sold with recourse or agreed (contingently or otherwise) to purchase or repurchase or otherwise acquire, or in respect of which such Person has agreed to supply or advance funds (whether by way of loan, stock, equity or other ownership interest purchase, capital contribution or otherwise) or otherwise to become directly or indirectly liable.

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“Intangible Assets” means all intangible assets (determined in conformity with GAAP) including, without limitation, goodwill, intellectual property, licenses, organizational costs, deferred amounts, covenants not to compete, unearned income, restricted funds, investments in Subsidiaries, intercompany receivables and accumulated depreciation.

“Interest Expense” means, for any Test Period, total interest expense (including attributable to Capital Leases in accordance with GAAP) fees with respect to all outstanding Indebtedness including capitalized interest but excluding commissions, discounts and other fees owed with respect to letters of credit and bankers’ acceptance financing and net costs under Interest Rate Agreements.

“Interest Rate Agreement” means any interest rate swap, cap or collar agreement or other similar agreement or arrangement designed to hedge the position with respect to interest rates.

“Net Income” means, the net income (or loss) determined in conformity with GAAP, provided that there shall be excluded (i) the income (or loss) of any Person in which any other Person (other than any Borrower) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to a Borrower by such Person, (ii) the income (or loss) of any Person accrued prior to the date it becomes a Borrower or is merged into or consolidated with a Borrower or that Person’s assets are acquired by a Borrower, (iii) the income of any Subsidiary of Borrower to the extent that the declaration or payment of dividends or similar distributions of that income by that Subsidiary is not at the time permitted by operation of the terms of the charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, (iv) compensation expense resulting from the issuance of capital stock, stock options or stock appreciation rights issued to former or current employees, including officers, of a Borrower, or the exercise of such options or rights, in each case to the extent the obligation (if any) associated therewith is not expected to be settled by the payment of cash by a Borrower or any affiliate thereof, and (v) compensation expense resulting from the repurchase of capital stock, options and rights described in clause (iv) of this definition of Net Income. Further, to the extent not already deducted in the determination of net income, Net Income shall be reduced by the following amounts: (a) with respect to management fees attributable to the Facility, at least five percent (5%) of the revenue of the Facility, (b) with respect to replacement costs, at least $400 per UNIT/BED per annum for each Facility, and (c) with respect to insurance costs, at least $_______ per UNIT/BED per annum for each skilled nursing facility and at least $_______ per UNIT/BED per annum for each assisted living facility.

“Net Interest Coverage Ratio” means, at any date of determination, the ratio of (i) Facilities EBITDAR for the Test Period to (ii) Interest Expense of Borrower and Operator for the Test Period most recently ended before such date (taken as one accounting period).

“Net Leverage Ratio” means, at any date of determination, the ratio of (i) Total Debt of Borrower on such date to (ii) annualized Facilities EBITDAR for the Test Period most recently ended before such date (taken as one accounting period).

“Person” means an individual, a partnership, a corporation, a limited liability company, a business trust, a joint stock company, a trust, an unincorporated association, a joint venture, a governmental authority or any other entity of whatever nature.

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“Tangible Net Worth” means assets (excluding Intangible Assets) less liabilities (determined in conformity with GAAP).

“Test Period” means a period ending on the last day of each calendar month and comprised of the three most recent calendar months then ended (taken as one accounting period) unless some other period is specified in the Agreement or any Appendix thereto; provided that, if the Facility was not operated by the Borrower prior to the Closing Date the first Test Period following the Closing Date shall consist of the first full calendar month following the Closing Date (on an annualized basis) and the second Test Period following the Closing Date shall consist of the first and second full calendar months following the Closing Date (on an annualized basis).

“Total Debt” “shall mean, at any date of determination, for Borrower individually and collectively on a consolidated and consolidating basis, the total Indebtedness on such date less cash and unrestricted Cash Equivalents held on such date [(except any revolving credit facility provided by Lender)].

“Total Debt Service” means the sum of (i) scheduled or other required payments of principal on Indebtedness, and (ii) Interest Expense, in each case for such period.

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OTHER DEFINITIONS

“Special-Purpose Entity” means a corporation, limited liability company, or limited partnership which at all times while the Obligations are outstanding complies with the following:

(i) Purpose. Such entity was organized solely for the purpose of  owning, financing and/or leasing the Facility as a SKILLED NURSING FACILITY/UNIT ASSISTED LIVING FACILITY/CONTINUING CARE RETIREMENT FACILITY, as appropriate and selling such Facility.

(ii) No Other Business. Such entity has not and will not engage in any business unrelated to owning, financing or leasing such Facility as a SKILLED NURSING FACILITY/UNIT ASSISTED LIVING FACILITY/CONTINUING CARE RETIREMENT FACILITY, as appropriate and selling the Facility

(iii) No Other Assets. Such entity has not and will not have any assets other than those related to its owning, financing or leasing such Facility as a SKILLED NURSING FACILITY/UNIT ASSISTED LIVING FACILITY/CONTINUING CARE RETIREMENT FACILITY, as appropriate and selling such Facility.

(iv) No Other Indebtedness. Such entity has no and will not have indebtedness other than the Obligations and liabilities in the ordinary course of business relating to owning, financing or leasing such Facility as a SKILLED NURSING FACILITY/UNIT ASSISTED LIVING FACILITY/CONTINUING CARE RETIREMENT FACILITY, as appropriate and selling such Facility.

(v) Misunderstandings. Such entity has not and will not fail to correct any known misunderstanding regarding the separate identity of such entity.

(vi) Separate Accounts. Such entity has maintained and will maintain its accounts, books and records separate from any other person or entity; provided, however, that Borrower’s assets and operations may be included in a consolidated financial statement provided that appropriate notation shall be made on such consolidated financial statement to indicate that Borrower is its own separate entity.

(vii) Official Records. Such entity has maintained and will maintain its books, records, resolutions and agreements as official records, and will not amend, modify, or alter its articles of organization, certificate of formation, bylaws or other organizational documents without the prior written consent of Lender.

(viii) Commingling. Such entity has not and will not commingle its funds or assets with those of any other entity, and such entity has held and will hold its assets in its own name.

(ix) Own Name. Such entity has conducted and will conduct its business in its own name.

(x) Separate Records. Such entity has maintained and will maintain its financial statements, accounting records and other entity documents separate from any other person or entity; provided, however, that Borrower’s assets and operations may be included in a consolidated financial statement provided that appropriate notation shall be made on such consolidated financial statement to indicate that Borrower is its own separate entity.

(xi) Own Liabilities. Such entity has paid and will pay its own liabilities out of its own funds and assets; provided, however, that Borrower’s entry into this Agreement and payment and performance of the Obligations shall not be deemed a violation of this paragraph.

(xii) Formalities. Such entity has observed and will observe all partnership, corporate or limited liability company formalities, as applicable.

(xiii) Guarantees. Such entity has not and will not assume or guarantee or become obligated for the debts of any other entity or hold out its credit as being available to satisfy the obligations of any other entity except for liabilities permitted by the Lender to be guaranteed and the Obligations.

(xiv) Affiliate Securities. Such entity has not and will not acquire obligations or securities of its partners, members or shareholders.

(xv) Allocations. Such entity has allocated and will allocate fairly and reasonably any overhead for shared office space and uses, invoices and checks.

(xvi) Pledges. Except as otherwise permitted in this Agreement, such entity has not and will not pledge its assets for the benefit of any other person or entity other than Lender, other than in connection with any loans consented to in writing by Lender, which may be granted or withheld in Lender’s discretion and other than pledges and liens permitted under this Agreement.

(xvii) Identification. Such entity has held and identified itself and will hold itself out and identify itself as a separate and distinct entity under its own name and not as a division or part of any other person or entity.

(xviii) Loans. Such entity has not made and will not make loans to any person or entity.

(xix) No Dissolution. Such entity has not and will not engage in, seek or consent to any dissolution, winding up, liquidation, consolidation, merger, asset sale, transfer of membership interest, or amendment of its certificate of formation or operating agreement.

(xx)  Organizational Documents. (1) its articles of organization, certificate of formation and/or operating agreement, as applicable, shall provide that the vote of a majority-in-interest of the remaining members is sufficient to continue the life of the limited liability company if a termination event occurs, such as a bankruptcy of any managing member; and (2) if the vote of a majority-in-interest of the remaining members is not obtained to continue the life of the limited liability company upon a termination event, its articles of organization, certificate of

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formation and/or operating agreement as applicable, provide that the limited liability company may not liquidate collateral without the consent of Lender.

(xxi) Bankruptcy Filing. Such entity, without the unanimous consent of all of the members, shall not file a bankruptcy or insolvency petition or otherwise institute insolvency proceedings with respect to itself or to any other entity in which it has a direct or indirect legal or beneficial ownership interest, dissolve, liquidate, consolidate, merge, or sell all or substantially all of its assets or any other entity in which it has a direct or indirect legal or beneficial ownership interest, engage in any other business activity, or amend its organizational documents.

(xxii) Divisions. Such entity has not and will not identify its members, or any affiliates of either of them as a division or part of it.

(xxiii) Arm’s-length Transactions. Such entity has not entered and will not enter into or be a party to, any transaction with its members or its affiliates except in the ordinary course of its business and on terms which are intrinsically fair and are not less favorable to it than would be obtained in a comparable arm’s-length transaction with an unrelated third party.

(xxiv) Independent Manager. Such entity shall at all times during the Term include an Independent Manager.

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CLOSING CHECKLISTS: TERM LOAN AND REVOLVING CREDIT LOAN

$________ TERM LOAN BY [NAME OF SENIOR AGENT] TO

[BORROWER] AND ITS SUBSIDIARIES

CLOSING BINDER

Index of Parties:

“Senior Agent”

“Lenders”

“Parent”

_____________________________,and all its Affiliates and Subsidiaries who are borrowers under the Loan Agreement “Borrower”

[Operators of facilities as defined in theLoan Agreement “Guarantors”]

“Asset Manager”

“Manager”

“Title Company”

“Senior Agent’s Counsel”

“Borrower’s Counsel”

Except as otherwise provided for herein, all documents are dated as of ______________, 201__.

--------------------------------------------------------------------------------------------------------------------------

A. Loan Documents

1. Loan Commitment Letter dated ___________, 200__, from Lenders.

2. Term Loan and Security Agreement between Borrower and Senior Agent.

1 of xx99999-8083/LEGAL28163802.1

3. Consent and Joinder from Guarantors.

4. UCC Financing Statements naming Borrower, as debtor.

5. [Guaranty from Guarantors to Senior Agent.]

6. [Security Agreement from Guarantors.]

7. [UCC Financing Statements naming Guarantors, as debtor.]

8. Pledge and Security Agreement from Parent to Senior Agent.

9. UCC Financing Statement naming Parent, as debtor.

10. Stock Pledge and Security Agreement from __________________________ to Senior Agent.

11. UCC Financing Statement from __________________ to Senior Agent.

12. Environmental Indemnity Agreement from Borrower to Senior Agent.

13. Solvency Certificate from Borrower.

14. Collateral Assignment of Agreements affecting Real Estate from Borrower.

15. Asset Management Fees Subordination Agreement between Borrower and Asset Manager.

16. [Subordination and Standstill Agreement between Parent and Senior Agent (re: any intercompany loans)].

17. [Copy of Intercompany Note between Borrower and Parent.]

18. Application of Funds Agreement between Senior Agent and Mezzanine Agent

19. [Two-Party] Intercreditor Agreement between Senior Agent and Mezzanine Agent (re: senior and mezzanine loans).

20. [Three Party] Intercreditor Agreement between Senior Agent, Mezzanine Agent and Revolving Credit Lender (re: term and revolver loans).

21. UCC Authorizations to profile.

22. Agreement Regarding Post Closing Matters between Borrower, Operator and Senior Agent.

23. IRS Form 8821.

24. Organizational Chart for Borrowers and their constituent entities.

25. Closing Statement.

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B. Mortgage Documents

26. Mortgage, Security Agreement and Fixture Filing from Borrower to Senior Agent recorded in the following counties and states: [INSERT INFORMATION].

27. Assignment of Leases and Rents from Borrower to Senior Agent recorded in the following counties and states: [INSERT INFORMATION].

28. UCC Financing Statements naming Borrower, as debtor, and Senior Agent, as secured party, recorded in the following counties and states: [INSERT INFORMATION].

29. Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing from Borrower to Senior Agent recorded in the following counties and states: [INSERT INFORMATION].

30. Assignment of Leases and Rents from Borrower to Senior Agent recorded in the following counties and states: [INSERT INFORMATION].

31. UCC Financing Statement naming Borrower, as debtor, and Senior Agent, as secured party, recorded in the following counties and states: [INSERT INFORMATION].

32. Open-End Mortgage, Security Agreement and Fixture Filing recorded in the following counties and states: [INSERT INFORMATION].

33. Assignment of Leases and Rents from Borrower to Senior Agent recorded in the following counties and states: [INSERT INFORMATION].

34. UCC Financing Statement naming Borrower, as debtor, and Senior Agent, as secured party, recorded in the following counties and states: [INSERT INFORMATION].

35. Leasehold Mortgage, Security Agreement and Fixture Filing from Borrower to Senior Agent recorded in the following counties and states: [INSERT INFORMATION].

36. Leasehold Assignment of Leases and Rents from Borrower to Senior Agent recorded in recorded in the following counties and states: [INSERT INFORMATION].

37. UCC Financing Statement naming Borrower, as debtor, and Senior Agent, as secured party, recorded in the following counties and states: [INSERT INFORMATION].

38. Confession of Judgment Explanation and Disclosure of Rights/Waivers acknowledged by Borrower [PENNSYLVANIA].

C. Legal Opinions

39. Legal Opinions from: [INSERT INFORMATION] (General Corporate Opinions, Local Counsel Opinions, etc.).

40. Regulatory Healthcare Status Opinion.

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41. [Special Legal Opinions (e.g., Substantive Non-Consolidation Opinions, True Lease Opinions)]

D. Corporation Documentation

42. Corporate Documentation (e.g., good standing certificates, qualifications to do business, secretaries’ certificates, incumbency certificates, etc.).

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REVOLVING CREDIT FACILITYPRELIMINARY CLOSING AGENDA

Lender:

Borrowers:

Guarantors:

Credit Facility: $[____________] Revolving Credit Facility

Date:

Documents Responsible Party

Status

1. Revolving Credit and Security Agreement

Schedules to Revolving Credit and Security Agreement

2. Pledge Agreement

3. Guaranty

4. UCC-1 Financing Statements

5. UCC Authorization to Pre-File

6. Lock Box Agreement/ Blocked Account Control Agreements

(a) Commercial(b) Governmental(c) Deposit Accounts

7. Solvency Certificate

8. Officer’s Certificate

9. Subordination Agreements

(a) [Management Fees]

(b) [Others]

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Documents Responsible Party

Status

10. Intercreditor Agreements

(a) [Landlord]

(b) [Secured Term Lenders]

11. Certificate of Secretary for [Borrowers and Guarantors]

(a) Certified Certificate of Formation(b) Operating Agreement/Bylaws(c) Resolutions (d) Good Standing Certificate(e) Incumbency Certificate

12. Opinion of Counsel for Borrowers and Guarantors

(a) Corporate(b) Regulatory

13. Initial Borrowing Certificate

14. Landlord Waivers

(a) [Locations]

15. UCC, Judgment and Federal and State Tax Lien Searches against each Borrower and Guarantor

16. Copies of corporate, governmental, judicial and third party licenses, Borrower permits, authorizations, consents and/or approvals necessary in connection with Borrower’s operations

17. Copies of Licenses, Accreditations and Certifications and Medicare and Medicaid Contracts, Surveys, Census Data and Participation Agreements

18. Copies of all Intercompany Agreements, Management Agreements, Documents related to Borrowed Money, Capital Leases, Occupancy Leases and other Material Contracts

Page 6 of 18

Documents Responsible Party

Status

19. Transfer of Assets to New Operators

(a) Operations Transfer Agreement (“OTA”)(b) Bill of Sale/Asset Purchase Agreement

20. [Collateral Assignment of OTA]

21. Copies of executed Master Leases and Subleases

(a) Master Lease Agreement(b) Subleases

22. Payoff Letters and Lien Termination Documents

23. Duplicate Original Policies of Insurance with appropriate Lender Loss Payee and Additional Insured Endorsements (Acord Form-27)

24. Disbursement Memorandum

25. Payment of fees and expenses of Lender

Page 7 of 18

DUE DILIGENCE CHECKLISTPROJECT X DUE DILIGENCE CHECKLIST

Due Diligence Item Request Date

Receipt Date

Responsible Party

Notes

I. ORGANIZATION DOCUMENTSOrganizational and governance documents (e.g., Articles and Bylaws), in each case as amended to date, if any.All minute book records including minutes of all meetings of the stockholders, boards of directors and/or committees of such bodies, since inception.List of jurisdictions where the Company and each of its subsidiaries, if any, are qualified or licensed to do business.A description of any contracts, financing arrangements and material transactions between or among the Company and any of its subsidiaries or affiliates and any shareholder, director, officer, or related party (e.g., leases, shared services and facilities, etc.).All currently enforceable agreements or other documents which restrict the transfer of the assets of the Company, or which require the consent of another to such transfer.List of any subsidiaries and affiliates of the Company (whether or not wholly owned, and whether or not in the form of investments in other entities or joint ventures) and the jurisdiction of in Company of each.

II. EMPLOYMENT AND EMPLOYEE BENEFIT MATTERSAll employee benefit plans and/or agreements including any pension, bonus, profit sharing, stock options, deferred compensation, health insurance, and similar plans or agreements.Other personnel policies, including fringe benefits, holidays, and vacation in which employees of the Company participate.All employment contracts, producer

Page 8 of 18

PROJECT X DUE DILIGENCE CHECKLISTDue Diligence Item Request

DateReceipt

DateResponsible

PartyNotes

contracts, management incentive or bonus arrangements, broker contracts, consulting agreements, noncompetition, nonsolicitation and nonpiracy agreements to which the Company is a party, policies and arrangements with or applicable to all officers, employees or sales representatives (including employee handbooks, personnel policies, etc.) and all standard employee forms.Organization chart and employee list of the Company with name, job title, current salary, most recent date of hire, work location, hours of work and responsibilities for all personnel.All agreements with and correspondence and communications to or from labor unions, if any, including, without limitation, any collective bargaining agreements.List of all workers compensation claims outstanding or made during the past three (3) years.

III. CONTRACTSAll agreements of the Company for mergers or acquisitions of other businesses, and the purchase or sale of assets, if closed within the last five (5) years; and pending agreements with respect to proposed mergers or acquisitions or purchases or sales of assets.All agreements with customers and suppliers, and all information, documents, and materials pertaining to any current or pending negotiations with customers and suppliers.All non-compete, non-solicitation or other restrictive covenants or agreements and all non-disclosure or confidentiality agreements binding upon or benefiting the Company.All loan agreements, lines of credit,

Page 9 of 18

PROJECT X DUE DILIGENCE CHECKLISTDue Diligence Item Request

DateReceipt

DateResponsible

PartyNotes

indentures, mortgages, deeds of trust, security agreements, notes or other debt instruments, including any guaranties of indebtedness by the Company for benefit of others or by others for benefit of the Company.All agreements of the Company requiring or in any way obligating the Company to pay (whether previously or in the future) any deposit, performance bond or similar prepaid amount.All agreements with vendors, service providers, software licenses and distribution agreements.Standard form agreements (i.e., purchase or sale orders, invoices, requisitions, etc.).All joint venture or partnership agreements to which the Company is a party, if any.Any other contract, commitment or obligation entered into other than in the ordinary course of business of the Company with any related party, such as a director, officer, shareholder, employee or affiliate.All other agreements material to the business of the Company.

IV. INSURANCEAll insurance policies, including, but not limited to, liability, property damage, pollution, director and officer, errors and omissions, and life insurance policies on which the Company pays the premium or with respect to which the Company is a named insured or beneficiary (please provide copies of declarations pages).List of all claims under any of the Company’s insurance policies which are outstanding or were made during the past three (3) years. Copies of material documents related to the foregoing

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PROJECT X DUE DILIGENCE CHECKLISTDue Diligence Item Request

DateReceipt

DateResponsible

PartyNotes

claims.

V. REAL PROPERTYDocuments relating to all real estate (including fixed assets and improvements) owned or leased by or to the Company, or any shareholder or affiliate of the Company, and used in connection with the business of the Company, including (i) all documents giving any party (including affiliates of the Company) the right to enter upon, use and/or occupy such real estate, (ii) all deeds, leases, license agreements, appraisals, title insurance commitments and/or title policies, mortgages, deeds of trust, surveys, and easements, and (iii) building certificates/permits, including certificates of occupancy.List of any real estate used, owned or leased by the Company but not currently used by the Company in connection with the business of the Company and covered in V.1 above.All documents showing certification of compliance with, or any deficiencies with respect to, regulatory standards, environmental protection standards, OSHA standards, by the Company.Copies of all environmental reports or audits obtained or performed to date with respect to the properties and copies of all correspondence from environmental regulatory authorities and correspondence relating to any environmental investigation.List of all deposits, prepaid rent or other prepaid expenses under any real property lease.Any other material information or matter relating to the real estate used in connection with the business of the Company, its zoning or its continued use.

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PROJECT X DUE DILIGENCE CHECKLISTDue Diligence Item Request

DateReceipt

DateResponsible

PartyNotes

VI. PERSONAL PROPERTYSchedule of all property, plant and equipment owned or leased by the Company and such Schedule shall include the following information: (i) with respect to all items, specify whether they are owned or leased and also specify if they are subject to any lien or security interest; (ii) with respect to all titled vehicles, list each such vehicle’s Vehicle Identification Number, year, make and model, and body type; and (iii) with respect to all untitled vehicles and heavy equipment, list each such unit’s year, make and model, and hours in serviceCopies of all documents relating to any contracts to sell or lease, licenses, permits to use, liens, charges, encumbrances, conditional sales or other security interests.

VI. INTELLECTUAL PROPERTYCopies of all United States and foreign patents, patent applications, copyrights, trademarks, service marks, trade names, and all registrations and applications owned or licensed by the Company (please provide list).Description of all material claims which have been made or threatened against the Company that any of its operations, activities, business, products or publications infringe the patents, trademarks, trade names, copyrights or other intellectual property rights of others, or that the Company is illegally using the trade secrets or other property rights of others.Copies of software license agreements.List of software applications/modules and associated documentation of functionality of those modules that are computerized (i.e., payroll, inventory, general ledger, etc.) and all databases.

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PROJECT X DUE DILIGENCE CHECKLISTDue Diligence Item Request

DateReceipt

DateResponsible

PartyNotes

List of all fictitious, trade or assumed names by or under which the Company has operated within the last five (5) years.

VII. LITIGATIONAll pending litigation files and documents pending against or relating to the Company, its directors, officers, employees, properties or business, including pleadings, opinions of counsel, correspondence, settlement offers, and analysis of litigation, and a list of any threatened litigation or administrative actions and any letters related thereto (please provide list of cases by jurisdiction and case number with index of pleadings and names and telephone numbers of counsel and copies of any summaries).Documents relating to any threatened material litigation or administrative action with respect to the Company, its directors, officers, employees, properties or business.Description of government investigations, fines, penalties, decrees, judgments or settlements involving compliance of the Company with federal, state, local (city, county or otherwise) or foreign laws regulating business practices within the past five (5) years and documents related thereto.List of all environmental, health or safety claims which have been or are likely to be asserted against the Company, its directors, officers, employees, shareholders, properties or business and documents related thereto.List of all environmental, health or safety conditions which are or may be in violation of applicable statutes, regulations, consent orders or agreements and documents related thereto in a manner so as to be material to the

Page 13 of 18

PROJECT X DUE DILIGENCE CHECKLISTDue Diligence Item Request

DateReceipt

DateResponsible

PartyNotes

Company and/or could result in a fine or enforcement action.List of any violations of any statutes, laws or regulations by the Company which are or could become material to the Company.List of any violations of any statutes, laws or regulations by the Company which are or could become material to the Company.

VIII. REGULATORYList of all material governmental approvals, permits, qualifications, exemptions, authorizations, security clearances and licenses required in the conduct of the business of the Company and whether they are currently in full force and effect.All reports to and correspondence with federal, state or local regulatory, licensing and enforcement agencies in the last three (3) years.List of any governmental or other (e.g., under loan agreements, leases, etc.) approvals required for, or defaults which may be caused by, the transfer of the business of the Company or of the assets of the Company.Copies of all business licenses and evidence of payment of property and sales and use taxes to date in all localities in which the Company conducts its business operations.

IX. TAX AND FINANCIALAnnual financial statements for the Company and all subsidiaries and affiliates (including all companies, entities and businesses acquired by the Company within the last three (3) years) for the last five (5) years, including, without limitation, balance sheets,

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PROJECT X DUE DILIGENCE CHECKLISTDue Diligence Item Request

DateReceipt

DateResponsible

PartyNotes

income statements, sources and uses of funds, and changes in shareholders’ equity.Quarterly balance sheets and income statements for the Company and all subsidiaries and affiliates (including all companies, entities and businesses acquired by the Company within the last three (3) years) for the last five (5) years.Comparison of 200_ actual annual results as compared against 200_ annual budget.200_ detail budgets, including monthly breakdowns.State and Federal tax returns for the five (5) most recent fiscal years, any Internal Revenue Service determination letters relating thereto (as used herein, the term “tax” means all forms of taxation by any federal, state or local taxing authority including income, franchise, sales and use and real and personal property taxes).Documents related to any tax audits, tax claims or significant tax matters by or against the Company and tax payments or refunds due for 200_ through present.Audit reports, including those of internal audits, management letters and documents related to audit procedures for the five (5) most recent fiscal years (to the extent available) and access to review audit work papers. Contact names, telephone numbers and addresses of your CPA firm.Lists of the following: (i) prepaid expenses of more than $10,000 in value, (ii) any unrecorded assets and liabilities, (iii) accrued vacation liability, (vi) goodwill and a breakout of other intangibles, and (v) deposits.Detailed schedule of notes and mortgages receivable including the principal terms thereof, interest rates, payment frequency, maturity date and any related security or collateral, reconciled to the

Page 15 of 18

PROJECT X DUE DILIGENCE CHECKLISTDue Diligence Item Request

DateReceipt

DateResponsible

PartyNotes

financial statements. Also note amount and number of principal and interest payments in arrears, or state that payments are current according to terms.Detailed schedules of accounts payable, premiums payable (including reconciliations to insurance company records), withholdings payable, and all other accrued liabilities, reconciled to the financial statements (along with a brief description of method of calculation). Attach support for any accruals which are calculated and exceed $10,000.Detailed schedule of lines of credit and notes payable, if any, and related documents, showing terms, interest rates, related security, and next five (5) years and thereafter maturity, reconciled to the financial statements.Detailed ageings of accounts receivable of the Company, reconciled to the financials (and reconciliation work papers, if any), as of the most recent date available and a schedule of prebilled accounts receivable.Summary of accounts receivable allowance and of bad debt write-offs by the Company of greater than $ 10,000 for the last five (5) years.A copy of any accounting manuals, policy and procedure statements, flow charts, etc. If no such documentation exists, at a minimum, a write-up covering procedures and controls regarding billings, collections and payment to carriers should be provided.Detail of receivables sold with recourse, or pledged, as of December 31, 200_, or subsequent thereto.All documents pertaining to any receivables from or payables to any director, officer, shareholder or affiliate of the Company.Schedule of any non-operating assets

Page 16 of 18

PROJECT X DUE DILIGENCE CHECKLISTDue Diligence Item Request

DateReceipt

DateResponsible

PartyNotes

(e.g., real properly not used in the business, long term investments, retirement plan funds) recorded on balance sheet as of December 31, 200_, or subsequent thereto.Schedule of any non-recurring income and/or expense items and of any one-time charges during the last fifteen (15) months.Provide a list of statutes of limitations extensions granted and tax years that remain open, indicating which years remain under active audit.Provide a written description of procedures and controls related to the consolidation of monthly financial information. This should include an indication of software utilized, timeframe, method and information submitted, review procedures utilized, and any other relevant information.Accountants review letters for the last five (5) years, if any.

X. BANKING/INDEBTEDNESSList of all banks with which the Company has a relationship, including description of type(s) of accounts, account number(s), bank address, bank and book balances and any reconciliation statements, along with support for each.All contracts and documents relating to the borrowing or lending of money (including letters of credit, loan agreements, notes, deeds of trust, mortgages, and industrial revenue bonds).A summary schedule of borrowings, showing lender, amount, interest rate, payment terms, balance reconciled to financial statements, collateral or security, guarantees, restrictive financial covenants, and principal maturities over each of the next five (5) years and thereafter. Note number and amount of

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PROJECT X DUE DILIGENCE CHECKLISTDue Diligence Item Request

DateReceipt

DateResponsible

PartyNotes

principal and interest payments in arrears, if any, or state that payments are current.A summary schedule of loans by the Company similar to above.All material guarantees of indebtedness or performance (both guarantees by the Company and guarantees by others of Company’s indebtedness or performance).A list and all supporting agreements and other documentation for any escrow arrangements which are currently open or pursuant to which the Company is obligated in any fashion currently or in the future.Schedule of any changes in shareholders’ equity since December 31, 200_, along with detail support.Bank letters and agreements confirming lines of credit currently in effect of the Company.All documents and agreements evidencing other material financing arrangements, including sale and leaseback arrangements, installment purchases, etc.Any other agreements of the Company which contain operating restrictions or financial covenants.Significant correspondence with lenders of the Company for the last five (5) years, including all compliance certificates or reports (including any related schedules) submitted by the Company or its independent auditors.

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