FORM OF CAPSTONE LEASE

EXHIBIT 10.22



FORM OF LEASE



THIS LEASE ("Lease") dated as of January 31, 1997 is entered into by and between ("Lessor") _____________________, and _____________________, ("Lessee").



ARTICLE I

LEASED PROPERTY; TERM



Upon and subject to the terms and conditions hereinafter set forth, Lessor leases to Lessee and Lessee rents from Lessor all of Lessor's rights and interest in and to the following real property (collectively, the "Leased Property"):



a) the real property more particularly described on Exhibit A attached hereto together with all covenants, licenses, privileges and benefits thereto belonging and any easements, rights-of-way, rights of ingress and egress or other interests of Lessor in, on or to any land, highway, street, road or avenue, open or proposed, in, on, across, in front of abutting or adjoining such real property, including all strips and gores adjacent to or lying between such real property and any adjacent real property (the "Land");



(b) all buildings, structures, Fixtures (as hereinafter defined) and other improvements of every kind (including all alleyways and connecting tunnels, crosswalks, sidewalks, landscaping, parking lots and structures and roadways appurtenant to such buildings and structures presently or hereafter situated upon the Land, and Capital Additions financed by Lessor (but specifically excluding Capital Additions financed by Lessee), drainage and all above-ground and underground utility structures) (collectively the "Leased Improvements");



(c) all permanently affixed equipment, machinery, fixtures and other items of real and/or personal property, including all components thereof, now and hereafter located in on or used in connection with and permanently affixed to or incorporated into the Leased Improvements, including all furnaces, boilers, heaters, electrical equipment, heating, plumbing, lighting, ventilating, refrigerating, incineration, air and water pollution control, waste disposal, air-cooling and air conditioning systems and apparatus, sprinkler systems and fire and theft protection equipment, carpet, moveable or immoveable walls or partitions and built-in oxygen and vacuum systems, all of which are hereby deemed by the parties hereto to constitute real estate, together with all replacements, modifications, alterations and additions thereto, but specifically excluding all items included within the category of Personal Property (collectively the "Fixtures");



(d) the Personal Property;







(e) to the extent permitted by law, all permits, approvals and other intangible property or any interest therein now or hereafter owned or held by Lessor in connection with the Leased Property, or any business or businesses now or hereafter conducted by Lessee or any Tenant or with the use thereof, including all leases, contract rights, agreements, trade names, water rights and reservations, zoning rights, business licenses and warranties (including those relating to construction or fabrication) related to the Leased Property or any part thereof, but specifically excluding the general corporate trademarks, service marks, logos, insignia or books and records of Lessor or Lessee; and



(f) all site plans, surveys, soil and substrata studies, architectural drawings, plans and specifications, engineering plans and studies, floor plans, landscape plans, and other plans and studies that relate to the Land or the Leased Improvements and are in Lessor's possession or control.



SUBJECT, HOWEVER, to the Permitted Exceptions, to have and to hold for a fixed term of 11 years (the "Initial Term") commencing on February 1, 1997 (the "Commencement Date") and ending at midnight on the last day of the 132nd month after the Commencement Date.



ARTICLE II



2.1 MINIMUM RENT AND ADJUSTMENTS TO MINIMUM RENT. Lessee shall pay to Lessor without notice, demand, set off (except as set forth in Section 30.2 or Article XXXII hereof) or counterclaim, in advance in lawful money of the United States of America, at Lessor's address set forth herein or at such other place or to such other person, firms or corporations as Lessor from time to time may designate in writing, Minimum Rent, as adjusted annually pursuant to Section 2.1(b) during the Term, as follows:



(a) Minimum Rent. Lessee will pay to Lessor as rent (as adjusted from time to time in accordance with Section 2.1(b), the "Minimum Rent") for the Leased Property the annual sum of $__________ payable in advance in 12 equal, consecutive monthly installments of $_________, on the first day of each calendar month of the Term. Minimum Rent shall be prorated as to any partial month, and is subject to adjustment as provided in Sections 2.1(b), 9.3(b)(iv) and 20.1 below; and



(b) Increases to Minimum Rent. Commencing on the first anniversary date of the Commencement Date and on each anniversary date thereafter throughout the remainder of the Initial Term and any Extended Term (each such anniversary date individually being referred to as an "Adjustment Date"), the then current Minimum Rent shall be increased annually effective as of such Adjustment Date By 125% of the increase in the Consumer Price Index for the Base Period (as defined below); provided, however, if the increase in the Consumer Price Index for









such Base Period is greater than 2.4%, Lessor and Lessee mutually agree to use their best efforts to negotiate the increase in Minimum Rent based on the fair rental value of the Leased roperty to become effective on the Adjustment Date.



As used herein, "Base Period" shall mean the following:



(i) For the first Adjustment Date, the twelve-month period commencing on the first day of the month that is two months prior to the Commencement Date; and



(ii) For each subsequent Adjustment Date, the Twelve month period commencing on the first day of the month that is two months prior to the previous Adjustment Date.



(c) Capital Expenditures. Lessee shall make an annual Facility upgrade expenditure in an amount equal to $200 per bed for capital improvements, such amount to be increased $50 per bed on each Adjustment Date. If requested by Lessor, Lessee shall promptly provide evidence of such capital expenditures. In the event Lessee fails to make the required capital expenditure in any Lease year, Lessee shall deposit in a money market account with an Acceptable Financial Institution amounts not less than the difference between the required capital expenditures and the amounts actually spent. Such account shall be in the name of the Lessor. Lessee shall make detailed requests for such funds in writing to Lessor in the same form as a Request pursuant to Section 9.3 hereof. Within 30 days of such Request, Lessor shall reasonably approve the amount of requested funds and make mutually agreeable arrangements for the disbursement of the funds or provide Lessee with written notice in reasonable detail specifying Lessor's objections to such Request.



(d) Lease Deposit. On the Commencement Date, Lessee must deposit with an Acceptable Financial Institution and thereafter maintain with Lessor a lease deposit equal to approximately six (6) months Minimum Rent, rounded upward to the nearest $1,000.00. Lessor reserves the right to require additional deposits if the Minimum Rents increases during the Term. Upon achievement of a Rent Coverage Ratio (as hereinafter defined), on a combined basis, of 1.25 (or greater) to 1.0, provided no Default or Event of Default (as hereinafter defined) exists, such lease deposit may be reduced upon Lessee's request to three (3) months Minimum Rent, rounded upward to the nearest $1,000.00.



(e) Payment of Minimum Rent. All payments of Minimum Rent shall be made in lawful money of the United States by wire/ACH transfer of same day funds to Lessor's account #0000041032 at First Commercial Bank, Birmingham, Alabama. ABA Routing #062003605, Attention: Todd Beard, with advice to __________ at (205) 967-2092 (or such other account or location specified by Lessor from time to time in writing) on or before 2:00 p.m., Birmingham time, on any Business Day.



2.2 CALCULATION OF INCREASES TO MINIMUM RENT. On or about each Adjustment Date Lessor will calculate the increase in the Minimum Rent pursuant to the provisions of Section 2.l(b) and will provide Lessee with written notice of same.













2.3 ADDITIONAL CHARGES. Lessee will also pay and discharge as and when due (a) all other amounts, liabilities, obligations and Impositions, which Lessee assumes or agrees to pay under this Lease including, to the extent applicable, any condominium association dues, assessments or other charges and (b) in the event of any failure on the part of Lessee to pay any of those items referred to in clause (a) above, Lessee will also promptly pay and discharge every fine, penalty, interest and cost which may be added for non-payment or late payment of such items (the items referred to in clauses (a) and (b) above being referred to herein collectively as the "Additional Charges"), and Lessor shall have all legal, equitable and contractual rights, powers and remedies provided in this Lease, by statute or otherwise, in the case of non-payment of the Additional Charges as well as the Minimum Rent. If any installment of Minimum Rent or Additional Charges (but only as to those Additional Charges which are payable directly to Lessor) shall not be paid within ten (10) days after the date when due, Lessee will pay Lessor on demand, as Additional Charges, interest (to the extent permitted by law) computed at the Overdue Rate on the amount of such installment, from the due date when due to the date of payment in full thereof. In the event Lessor provides Lessee with written notice of failure to timely pay any installment of Minimum Rent or any Additional Charges pursuant to Section 15.1(b) more than three times within any twelve-month period, Lessee shall pay an administrative fee to Lessor in the amount of $500.00 per year for such twelve-month period. To the extent that Lessee pays any Additional Charges to Lessor or the Facility Mortgagee pursuant to any requirement of this Lease, Lessee shall be relieved of its obligation to pay such Additional Charges to the entity to which such Additional Charges would otherwise be due. Additional charges shall be deemed Rent hereunder.



2.4 NET LEASE. The Rent shall be paid absolutely net to Lessor, so that this Lease shall yield to Lessor the full amount of the installments of Minimum Rent and the payments of Additional Charges throughout the Term but subject to any provisions of this Lease which expressly provide for payments by Lessor or the adjustment of the Rent or other charges.



2.5 RENT COVERAGE. From and after September 30, 1997, for the Applicable Period, the Facilities (on a combined basis) must achieve and maintain the following:



(a) A Rent Coverage Ratio of not less than 1.25 to 1.0, and



(b) An Adjusted Rent Coverage Ratio of not less than 1.0 to 1.0.



From and after September 30, 1997, for the Applicable Period, the Facility must achieve and maintain a Rent Coverage Ratio of not less than 1.2 to 1.0.



"Rent Coverage Ratio" means, for each Applicable Period, the ratio of (i) Cash Flow, plus management fees as determined on an accrual basis of accounting for the Facility (or Facilities, if applicable), to (ii) the Minimum Rent payable under the Lease (or Leases, if applicable).









"Adjusted Rent Coverage Ratio" means, for each Applicable Period, the ratio of (i) Cash low to (ii) the Minimum Rent payable under the Leases.



"Cash Flow" means the pre-tax income of the Facility (or Facilities, if applicable) plus (i) lease expense with respect to the Lease (or Leases, if applicable) and (ii) non-cash expenses or allowances for depreciation and amortization with respect to the Facility (or Facilities, if applicable). In calculating "pre-tax" income, any extraordinary income or extraordinary loss shall be excluded.



Rent Coverage will be measured quarterly and the first such test shall consist of an Applicable Period of 3 months, the second such test will consist of an Applicable Period of 6 months, the third such test will consist of an Applicable Period of 9 months, and each subsequent test will consist of an Applicable Period of 12 months.



2.6 GUARANTY/GUARANTOR.



(a) The Rent and other obligations pursuant to the Lease are unlimitedly guaranteed by Balanced Care Corporation ("Guarantor") pursuant to a guaranty agreement ("Guaranty") executed simultaneously herewith which is attached hereto as Exhibit 2.6 and made a part hereof.



(b) Throughout the Term of the Lease, Guarantor shall maintain the following:



(i) a ratio of consolidated current assets to consolidated

current liabilities equal to or greater than 1.0 to 1.0.;



(ii) a tangible net worth equal to or greater than

$5,000,000, unless otherwise approved (or waived) by Lessor, approval

of which shall not be unreasonably withheld (for purposes of this

Section 2.6(b)(ii), the line item identified as "Mandatorily

Redeemable Preferred B Stock" reflected on Guarantor's consolidated

financial statement shall be included in Guarantor's shareholder's

equity).



(iii) a Consolidated Cash Flow Coverage not less than 1.0 to

1.0.



"Consolidated Cash Flow Coverage" shall mean a ratio of (i) earnings before interest, taxes, depreciation, amortization, rent and its home office expense minus an assumed five percent (5%) management fee to (ii) all interest and rent payments.







ARTICLE III



3.1 PAYMENT OF IMPOSITIONS. Subject to Article XI relating to permitted contests, Lessee will pay or cause to be paid all Impositions before any fine, penalty, interest or cost may be added for non-payment, such payments to be made directly to the taxing authorities where feasible, and Lessee will promptly, upon request, furnish to Lessor copies of official receipts or other satisfactory proof evidencing such payments. Lessee's obligation to pay such Impositions and the amount thereof shall be deemed absolutely fixed upon the date such Impositions become a lien upon the Leased Property or any part thereof. If any such Imposition may lawfully be paid in installments (whether or not interest shall accrue on the unpaid balance of such Imposition), Lessee may exercise the option to pay the same (and any accrued interest on the unpaid balance of such Imposition) in installments and, in such event, shall pay such installments during the Term hereof as the same becomes due and before any fine, penalty, premium, further interest or cost may be added thereto. Lessor, at its expense, shall, to the extent permitted by applicable law, prepare and file all tax returns and reports as may be required by governmental authorities in respect of Lessor's net income, gross receipts, franchise taxes and taxes on its capital stock. Lessee, at its expense, shall, to the extent permitted by applicable laws and regulations, prepare and file all other tax returns and reports in respect of any Imposition as may be required by governmental authorities. If any refund shall be due from any taxing authority in respect of any Imposition paid by Lessee, the same shall be paid over to or retained by Lessee if no Event of Default shall have occurred hereunder and be continuing. Any such funds retained by Lessor due to an Event of Default shall be applied as provided in Article XV. Lessor and Lessee shall, upon request of the other, provide such data as is maintained by the party to whom the request is made with respect to the Leased Property as may be necessary to prepare any required returns and reports. In the event governmental authorities classify any property covered by this Lease as personal property, Lessee shall file all personal property tax returns in such jurisdictions where filing is required. Lessor and Lessee will provide the other party, upon request, with cost and depreciation records necessary for filing returns for any property so classified as personal property. Where Lessor is legally required to file personal property tax returns, and Lessee is obligated for the same hereunder, Lessee will be provided with copies of assessment notices in sufficient time for Lessee to file a protest. Lessee may upon giving 30 days' prior written notice to Lessor, at Lessee's option and at Lessee's sole cost and expense, protest, appeal, or institute such other proceedings as Lessee may deem appropriate to effect a reduction of real estate or personal property assessments and Lessor, if requested by Lessee and at Lessee's expense as aforesaid, shall fully cooperate with Lessee in such protest, appeal, or other action. Billings for reimbursement by Lessee to Lessor of personal property taxes shall be accompanied by copies of an invoice therefor and payments thereof which identify the personal property with respect to which such payments are made. Lessor will cooperate with Lessee in order that Lessee may fulfill its obligations hereunder, including the execution of any instruments or documents reasonably requested by Lessee.



3.2 PRORATION OF IMPOSITIONS. Impositions imposed in respect of the tax-fiscal period during which the Term terminates shall be prorated between Lessor and Lessee, whether or not such Imposition is imposed before or after such termination, and Lessee's and Lessor's obligation to pay their respective prorated shares thereof shall survive such termination.





3.3 UTILITY CHARGES. Lessee will, or will cause Tenants to, contract for, in its own name, and will pay or cause to be paid all charges for, electricity, power, gas, oil, water and other utilities used in the Leased Property during the Term.



3.4 INSURANCE PREMIUMS. Lessee will contract for, in its own name, and will pay or cause to be paid all premiums for, the insurance coverage required to be maintained by Lessee pursuant to Article XII during the Term.



ARTICLE IV

NO TERMINATION



Except as provided in this Lease and to the extent provided by law, Lessee shall remain bound by this Lease in accordance with its terms and shall neither take any action without the consent of Lessor to modify surrender or terminate the same, nor seek nor be entitled to any abatement, deduction, deferment or reduction of Rent, or set-off against the Rent, nor shall the respective obligations of Lessor and Lessee be otherwise affected by reason of (a) any damage to, or destruction of, the Leased Property or any portion thereof from whatever cause or any Taking of the Leased Property or any portion thereof, except as otherwise provided in Articles XIII or XIV, (b) the lawful or unlawful prohibition of or restriction upon, Lessee's use of the Leased Property, or any portion thereof, or the interference with such use by any person, corporation, partnership or other entity or by reason of eviction by paramount title, (c) any claim which Lessee has or might have against Lessor or by reason of any default or breach of any warranty by Lessor under this Lease or any other agreement between Lessor and Lessee or to which Lessor and Lessee are parties, (d) any bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding up or other proceedings affecting Lessor or any assignee or transferee of Lessor, or (e) for any other cause whatsoever whether similar or dissimilar to any of the foregoing. Lessee hereby specifically waives all rights arising from any occurrence whatsoever which may now or hereafter be conferred upon it by law to (i) modify, surrender or terminate this Lease or quit or surrender the Leased Property or any portion thereof, or (ii) entitle Lessee to any abatement, reduction, suspension or deferment of the Rent or other sums payable by Lessee hereunder, except as otherwise specifically provided in this Lease. The obligations of Lessor and Lessee hereunder shall be separate and independent covenants and agreements and the Rent and all other sums payable by Lessee hereunder shall continue to be payable in all events unless the obligations to pay the same shall be terminated pursuant to the express provisions of this Lease. Notwithstanding the foregoing, Lessee shall have the right by separate and independent action to pursue any claim or seek any damages it may have against Lessor as a result of a breach by Lessor of the terms of this Lease.







ARTICLE V

OWNERSHIP OF LEASED PROPERTY



5.1 OWNERSHIP OF THE PROPERTY. Lessee acknowledges that the Leased Property is the property of Lessor and that Lessee has only the right to the possession and use of the Leased Property upon the terms and conditions of this Lease.



5.2 PERSONAL PROPERTY. Lessee may (and shall as provided hereinbelow) at its expense, install, affix or assemble or place on any parcels of the Land or in any of the Leased Improvements any items of the Personal Property, and may remove, replace or substitute for the same from time to time in the Ordinary Course of Business. Lessee shall provide and maintain during the entire Term all such Personal Property as shall be necessary in order to operate the Facility in compliance with all licensure and certification requirements, in compliance with all applicable Legal Requirements and Insurance Requirements and otherwise in accordance with customary practice in the industry for the Primary Intended Use. Lessee shall provide Lessor with a list of Personal Property provided by Lessee, updated at least semi-annually for all items of Personal Property with a value in excess of $50,000.



ARTICLE VI

CONDITION AND USE OF LEASED PROPERTY



6.1 CONDITION OF THE LEASED PROPERTY. Lessee acknowledges receipt and delivery of possession of the Leased Property and that Lessee has examined and otherwise acquired knowledge of the condition of the Leased Property prior to the execution and delivery of this Lease and has found the same to be in good order and repair and satisfactory for its purpose hereunder. Lessee is leasing the Leased Property "as is" in its present condition. Lessee waives any claim or action against Lessor in respect of the condition of the Leased Property. LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, SUITABILITY, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, OR AS TO QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES THAT THE LEASED PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS SATISFACTORY TO IT IN ALL RESPECTS.



6.2 USE OF THE LEASED PROPERTY.



(a) After the Commencement Date and during the entire Term, Lessee shall use or cause to be used the Leased Property and the improvements thereon as a personal care facility and for such other uses as may be necessary in connection with or incidental to such use (the "Primary Intended Use"). Lessee shall not use the Leased Property or any portion thereof for





any other use without the prior written consent of Lessor, which consent shall not be unreasonably withheld or delayed.



(b) Lessee covenants that it will obtain and maintain all material approvals needed to use and operate the Leased Property and the Facility for the Primary Intended Use in compliance with all applicable Legal Requirements.



(c) Lessee covenants and agrees that during the Term it will use its reasonable best efforts to operate continuously the Leased Property in accordance with its Primary Intended Use and to maintain its certifications for reimbursement, if any, and licensure and its accreditation, if compliance with accreditation standards is required to maintain the operations of the Facility and if a failure to comply would adversely affect operations of the Facility.



(d) Lessee shall not commit or suffer to be committed any waste (ordinary wear and tear excepted) on the Leased Property or in the Facility or cause or permit any nuisance thereon.



(e) Lessee shall neither suffer nor permit the Leased Property or any portion thereof, including any Capital Addition whether or not financed by Lessor, to be used in such a manner as (i) might reasonably tend to impair Lessor's estate therein or in any portion thereof, or (ii) may reasonably result in a claim or claims of adverse usage or adverse possession by the public, as such, or of implied dedication of the Leased Property or any portion thereof.



(f) Lessee will not utilize any Hazardous Materials on the Leased Property except in accordance with applicable Legal Requirements and will not permit any contamination which may require remediation under any applicable Hazardous Materials Law. Lessee agrees not to dispose of any Hazardous Materials or substances within the sewerage system of the Leased Property, and that it will handle all "red bag" wastes in accordance with applicable Hazardous Materials Laws.



6.3 MANAGEMENT OF FACILITY. Unless otherwise agreed to in writing by Lessor (i) Lessee shall cause the Facility to be managed (including any leasing activities) at all times by Lessee or an Affiliate of Lessee, (ii) Lessee shall not enter into any agreement (oral or written) with respect to such management and leasing activities unless the terms thereof and the proposed manager or leasing agent have been approved in writing by Lessor, (iii) all such management or leasing agreements must be in writing, and (iv) all management or leasing agreements with an Affiliate of Lessee must contain provisions to the effect that (A) the obligation of Lessee to pay management fees is subordinate to its obligation to pay the Rent, and (B) the manager shall not have the right to collect any management fees during the continuance of an Event of Default.



6.4 LESSOR TO GRANT EASEMENTS. Lessor will, from time to time, at the request of Lessee and at Lessee's cost and expense, but subject to the approval of Lessor (a) grant easements and other rights in the nature of easements, (b) release existing easements or other rights in the nature of easements which are for the benefit of the Leased Property, (c) dedicate or





transfer unimproved portions of the Leased Property for road, highway or other public purposes, (d) execute petitions to have the Leased Property annexed to any municipal corporation or utility district, (e) execute amendments to any covenants and restrictions affecting the Leased Property, and (f) execute and deliver to any person such instruments as may be necessary or appropriate to confirm or effect such grants, releases, dedications and transfers (to the extent of its interest in the Leased Property), but only upon delivery to Lessor of an Officer's Certificate stating (and such other information as Lessor may reasonably require confirming) that such grant, release, dedication, transfer, petition or amendment has no adverse effect on the Primary Intended Use of the Leased Property and does not reduce the value thereof.



ARTICLE VII

LEGAL, INSURANCE AND FINANCIAL REQUIREMENTS



7.1 COMPLIANCE WITH LEGAL AND INSURANCE REQUIREMENTS. Subject to Article XI relating to permitted contests, Lessee, at its expense, will promptly (a) comply with all material Legal Requirements and Insurance Requirements in respect of the use, operation, maintenance, repair and restoration of the Leased Property, whether or not compliance therewith shall require structural change in any of the ...