$167,000,000
 
 
AMENDED AND RESTATED CREDIT AGREEMENT
 
Dated as of December 11, 2006
 
among
 
BREA EMERITUS LLC AND EACH OF ITS SUBSIDIARIES,
as Borrowers
 

 
THE LENDERS PARTY HERETO
 
and
 
GENERAL ELECTRIC CAPITAL CORPORATION,
 
as Administrative Agent and Collateral Agent
 
 
♦ ♦ ♦
 
GE CAPITAL MARKETS, INC.,
 
as Sole Lead Arranger
 

 

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TABLE OF CONTENTS
                                                                                                                                                                   Page

 
ARTICLE I DEFINITIONS, INTERPRETATION AND ACCOUNTING TERMS

 
Section 1.1
Defined Terms
1
 
Section 1.2
UCC Terms
26
 
Section 1.3
Accounting Terms and Principles
26
 
Section 1.4
Payments.
27
 
Section 1.5
Interpretation.
27

ARTICLE II THE FACILITIES
 

 
Section 2.1
Term Loan Commitment, Borrowing Procedures and Escrow Requirement.
28
 
Section 2.2
Termination of the Commitments, Maturity Date and Repayment
     
of Loans. (a) Termination of Term Loan Commitments.
32
 
Section 2.3
Optional Prepayments.
32
 
Section 2.4
Mandatory Payments.
33
 
Section 2.5
Interest.
34
 
Section 2.6
Application of Payments.
34
 
Section 2.7
Payments and Computations.
35
 
Section 2.8
Evidence of Debt.
36
 
Section 2.9
Suspension of Eurodollar Rate.
37
 
Section 2.10
Breakage Costs; Increased Costs; Capital Requirements.
38
 
Section 2.11
Taxes.
39
 
Section 2.12
Substitution of Lenders.
41
 

 
ARTICLE III CONDITIONS TO LOANS
 

 
Section 3.1
Conditions Precedent to Funding.
42
 
Section 3.2
Determinations of Initial Borrowing Conditions.
45

 
 
ARTICLE IV REPRESENTATIONS AND WARRANTIES

 
Section 4.1
Corporate Existence; Compliance with Law.
46
 
Section 4.2
Loan and Related Documents.
47
 
Section 4.3
Ownership of the Borrowers
48
 
Section 4.4
Financial Statements
48
 
Section 4.5
Material Adverse Effect.
49
 
Section 4.6
Solvency.
49
 
Section 4.7
Litigation.
49
 
Section 4.8
Taxes.
49
 
Section 4.9
Margin Regulations
50
 
Section 4.10
No Burdensome Obligations; No Defaults
50
 
Section 4.11
Single Purpose Entity
50
 
Section 4.12
Labor Matters
50
 
Section 4.13
ERISA
50
 
Section 4.14
Environmental Matters
51
 
Section 4.15
Intellectual Property
51

 
 
 
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Section 4.16
Title; Real Property
52
 
Section 4.17
Full Disclosure
53
 
Section 4.18
Operation
53
 
Section 4.19
Estoppel Certificates
54

 
ARTICLE V FINANCIAL COVENANTS
 

 
Section 5.1
Minimum Consolidated Project Yield
54

 
 
ARTICLE VI REPORTING COVENANTS
 

 
Section 6.1
Financial Statements
55
 
Section 6.2
Other Events
57
 
Section 6.3
Copies of Notices and Reports
57
 
Section 6.4
Taxes
57
 
Section 6.5
Labor Matters
58
 
Section 6.6
ERISA Matters
58
 
Section 6.7
Environmental Matters
58
 
Section 6.8
Other Information
58

 
 
ARTICLE VII AFFIRMATIVE COVENANTS
 

 
Section 7.1
Maintenance of Corporate Existence
59
 
Section 7.2
Compliance with Laws and Healthcare Matters, Etc.
59
 
Section 7.3
Payment of Obligations
60
 
Section 7.4
Maintenance of Property
60
 
Section 7.5
Maintenance of Insurance
60
 
Section 7.6
Keeping of Books
62
 
Section 7.7
Access to Books and Property
62
 
Section 7.8
Environmental
63
 
Section 7.9
Use of Proceeds
63
 
Section 7.10
Additional Collateral, Subsidiaries and Further Assurances
63
 
Section 7.11
Deposit Accounts; Securities Accounts
64
 
Section 7.12
Interest Rate Contracts
64

 
 
ARTICLE VIII NEGATIVE COVENANTS
 

 
Section 8.1
Indebtedness
64
 
Section 8.2
Liens
65
 
Section 8.3
Investments
65
 
Section 8.4
Transfers
66
 
Section 8.5
Restricted Payments
67
 
Section 8.6
Prepayment of Indebtedness
67
 
Section 8.7
Fundamental Changes
67
 
Section 8.8
Change in Nature of Business
68
 
Section 8.9
Transactions with Affiliates
68
 
Section 8.10
Third-Party Restrictions on Indebtedness, Liens, Investments or
     
Restricted Payments
68
 
Section 8.11
Modification of Certain Documents
68
 
Section 8.12
Accounting Changes; Fiscal Year
69

 
 
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(continued)                                                                                     Page
 

 
Section 8.13
Margin Regulations
69
 
Section 8.14
Compliance with ERISA
69
 
Section 8.15
Hazardous Materials
69

 
 
ARTICLE IX EVENTS OF DEFAULT
 

 
Section 9.1
Definition
69
 
Section 9.2
Remedies
71

 
 
ARTICLE X THE ADMINISTRATIVE AGENT
 

 
Section 10.1
Appointment and Duties
71
 
Section 10.2
Binding Effect
72
 
Section 10.3
Use of Discretion
73
 
Section 10.4
Delegation of Rights and Duties
73
 
Section 10.5
Reliance and Liability
73
 
Section 10.6
Administrative Agent Individually
74
 
Section 10.7
Lender Credit Decision
75
 
Section 10.8
Expenses; Indemnities
75
 
Section 10.9
Resignation of Administrative Agent
75
 
Section 10.10
Release of Collateral
76
 
Section 10.11
Additional Secured Parties
77

 
 
ARTICLE XI MISCELLANEOUS
 

 
Section 11.1
Amendments, Waivers, Etc.
77
 
Section 11.2
Assignments and Participations; Binding Effect
79
 
Section 11.3
Costs and Expenses
81
 
Section 11.4
Indemnities
82
 
Section 11.5
Survival
82
 
Section 11.6
Limitation of Liability for Certain Damages
83
 
Section 11.7
Lender-Creditor Relationship
83
 
Section 11.8
Right of Setoff
83
 
Section 11.9
Sharing of Payments, Reinstatement Etc.
83
 
Section 11.10
Marshaling; Payments Set Aside
84
 
Section 11.11
Notices
84
 
Section 11.12
Electronic Transmissions
86
 
Section 11.13
Governing Law
87
 
Section 11.14
Jurisdiction
87
 
Section 11.15
Waiver of Jury Trial
87
 
Section 11.16
Severability
87
 
Section 11.17
Execution in Counterparts
88
 
Section 11.18
Entire Agreement
88
 
Section 11.19
Use of Name
88
 
Section 11.20
Non-Public Information; Confidentiality
88
 
Section 11.21
Patriot Act Notice
89
 
Section 11.22
Limitation of Liability
89
 
Section 11.23
Existing Agreements Superseded; Exhibits and Schedules
89

 
 
 

 

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TABLE OF CONTENTS
                                                                              
(continued)                                                                                     Page

   
SCHEDULES
Schedule I
-
Commitments
Schedule 2.1
-
Repairs, Replacements and Improvements
Schedule 4.2
-
Consents
Schedule 4.3
-
Ownership of the Borrowers
Schedule 4.7
-
Litigation
Schedule 4.12
-
Labor Matters
Schedule 4.13
-
List of Plans
Schedule 4.14
-
Environmental Matters
Schedule 4.16
-
Real Property, Allocated Loan Amount and Beds
Schedule 7.2
-
Provider Agreements and Licenses
Schedule 8.1
-
Existing Indebtedness
Schedule 8.2
-
Existing Liens
Schedule 8.3
-
Existing Investments
Schedule 8.7
-
Permitted Acquisitions
     
EXHIBITS
 
EXHIBITS
Exhibit A
-
List of Borrowers
Exhibit B
-
Form of Assignment
Exhibit C
-
Form of Compliance Certificate
Exhibit D
-
Corporate Chart
Exhibit E
-
Form of Note
Exhibit F
-
Notice of Borrowing

 

iv

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This AMENDED AND RESTATED CREDIT AGREEMENT, dated as of December 11, 2006, is
entered into among BREA EMERITUS LCC, a Delaware limited liability company (the
“Parent”), and each of its subsidiaries listed on Exhibit A hereto (each an
“SPE” and collectively with the Parent, the “Borrowers”), the Lenders (as
defined below), GENERAL ELECTRIC CAPITAL CORPORATION (“GE Capital”), as
administrative agent and collateral agent for the Lenders (in such capacity, and
together with its successors and permitted assigns, the “Administrative Agent”)
and GE CAPITAL MARKETS, INC., as sole lead arranger.
 
WHEREAS, in order to correct certain scrivener’s errors and to add Merrill Lynch
Capital, a Division of Merrill Lynch Business Financial Services Inc. as a
Lender hereunder, the parties have agreed to amend and restate that certain
Credit Agreement, dated as of December 1, 2006, among the Parent, the other
Borrowers, the Administrative Agent and GE Capital Markets, Inc. (the “Original
Credit Agreement”).
 
NOW, THEREFORE, in consideration of the promises and covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties covenant and agree as
follows:
 
 
ARTICLE I  
 
 

 
 
DEFINITIONS, INTERPRETATION AND ACCOUNTING TERMS
 
 
Section 1.1  Defined Terms As used in this Agreement, the following terms have
the following meanings: 
 
“Acquisition” means the acquisition of each Facility and the assets related
thereto of the Seller and its Subsidiaries to the extent such Facility is
acquired pursuant to the terms of the Acquisition Agreement.
 
“Acquisition Agreement” means that certain Purchase and Sale Agreement, among
the Seller and the Borrowers.
 
“Administrative Agent” has the meaning specified in the preamble hereto.
 
“Affected Lender” has the meaning specified in Section 2.12.
 
“Affiliate” means, with respect to any Person, each officer, director, general
partner or joint-venturer of such Person and any other Person that directly or
indirectly controls, is controlled by, or is under common control with, such
Person; provided, however, that no Secured Party shall be an Affiliate of any
Borrower. For purpose of this definition, “control” means the possession of
either (a) the power to vote, or the beneficial ownership of, 10% or more of the
Voting Interests of such Person or (b) the power to direct or cause the
direction of the management and policies of such Person, whether by contract or
otherwise.
 
“Agreement” means this Credit Agreement.
 
“Applicable Margin” means 2.35%; provided, however, from and after the first
five (5) Fiscal Quarters immediately following the Closing Date and provided no
Event of Default has occurred and is continuing, the Applicable Margin will be
reduced as follows for the then current

1

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Fiscal Quarter if the Consolidated Project Yield (based on the average end of
quarter balance for the immediately preceding four (4) quarters) for each of the
two (2) immediately preceding Fiscal Quarters then most recently ended for which
a Compliance Certificate has been delivered (and if no Compliance Certificate is
delivered, it shall not be reduced as follows), (a) is greater than or equal to
10% and less than 11%, then the Applicable Margin for the period for which the
determination is being made shall be equal to 2.20%, or (b) is greater than or
equal to 11%, then the Applicable Margin for the period for which the
determination is being made shall be equal to 2.00%.

Each date of determination for the “Applicable Margin” shall be the date that is
3 Business Days after delivery by the Borrowers to the Administrative Agent of a
new Compliance Certificate pursuant to Section 6.1(d). Notwithstanding anything
to the contrary set forth in this Agreement (including the then effective
Consolidated Project Yield), the Applicable Margin shall equal 2.35%, effective
immediately upon (x) the occurrence of any Event of Default under
Section 9.1(e)(ii) or (y) the delivery of a notice by the Administrative Agent
to the Parent during the continuance of any other Event of Default and, in each
case, for as long as such Event of Default shall be continuing.
 
“Approved Fund” means, with respect to any Lender, any Person (other than a
natural Person) that (a) is or will be engaged in making, purchasing, holding or
otherwise investing in commercial loans and similar extensions of credit in the
ordinary course of its business and (b) is advised or managed by (i) such
Lender, (ii) any Affiliate of such Lender or (iii) any Person (other than an
individual) or any Affiliate of any Person (other than an individual) that
administers or manages such Lender.
 
“Assignment” means an assignment agreement entered into by a Lender, as
assignor, and any prospective assignee thereof and accepted by the
Administrative Agent, in substantially the form of Exhibit B.
 
“As-Built Survey” shall mean an “as-built” survey of the Real Property, showing
all of the Improvements situated thereon, which shall (i) be in the form of an
ALTA/ACSM “as-built” Survey, be made in accordance with the 2005 Minimum
Standard Detailed Requirements for such surveys, shall include items 1 through
4, 6, 7(a), 7(b)(1), 7(c), 8, 9, 10, 11(a), 13, 16, 17 and 18 of Table A, and be
in accordance with the then-current “Accuracy Standards for ALTA/ACSM Land Title
Surveys” as adopted by the American Land Title Association, American Congress on
Surveying & Mapping and National Society of Professional Surveyors, (ii) be
certified to Lender and the Title Company, and (iii) set forth such other
information as Lender may reasonably require.
 
“Base Rate” means, at any time, a rate per annum equal to the higher of (a) the
rate last quoted by The Wall Street Journal as the “base rate on corporate loans
posted by at least 75% of the nation’s largest banks” in the United States or,
if The Wall Street Journal ceases to quote such rate, the highest per annum
interest rate published by the Federal Reserve Board in Federal Reserve
Statistical Release H.15 (519) (Selected Interest Rates) as the “bank prime
loan” rate or, if such rate is no longer quoted therein, any similar rate quoted
therein (as determined by the Administrative Agent) or any similar release by
the Federal Reserve Board (as determined by the Administrative Agent) and (b)
the sum of 0.5% per annum and the Federal Funds Rate.
 

2

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“Benefit Plan” means any employee benefit plan as defined in Section 3(3) of
ERISA (whether governed by the laws of the United States or otherwise) to which
any Borrower incurs or otherwise has any obligation or liability.
 
“Blackstone” means Blackstone Real Estate Associates V L.P.
 
“Borrowers” has the meaning specified in the preamble hereto.
 
“Borrowers’ Accountants” means KPMG LLP or other nationally-recognized
independent registered certified public accountants acceptable to the
Administrative Agent.
 
“Boynton” means that certain healthcare facility known as The Gardens, formerly
known as Cypress Gardens at Boynton Village, and located at 1935 South Federal
Highway, Boynton Beach, Florida.
 
“Business Day” means any day of the year that is not a Saturday, Sunday or a day
on which banks are required or authorized to close in New York City and, when
determined in connection with notices and determinations in respect of any
Eurodollar Rate or Eurodollar Rate Loan or any funding, conversion,
continuation, Interest Period or payment of any Eurodollar Rate Loan, that is
also a day on which dealings in Dollar deposits are carried on in the London
interbank market.
 
“Capital Expenditures” means, for any Person for any period, the aggregate of
all expenditures, whether or not made through the incurrence of Indebtedness, by
such Person and its Subsidiaries during such period for the acquisition, leasing
(pursuant to a Capital Lease), construction, replacement, repair, substitution
or improvement of fixed or capital assets or additions to equipment, in each
case required to be capitalized under GAAP on a Consolidated balance sheet of
such Person, excluding (a) interest capitalized during construction and (b) any
expenditure to the extent, for purpose of the definition of Permitted
Acquisition, such expenditure is part of the aggregate amounts payable in
connection with, or other consideration for, any Permitted Acquisition
consummated during or prior to such period.
 
“Capital Improvement Holdback” has the meaning given such term in Section
2.1(b)(i).
 
“Capital Lease” means, with respect to any Person, any lease of, or other
arrangement conveying the right to use, any property (whether real, personal or
mixed) by such Person as lessee that has been or should be accounted for as a
capital lease on a balance sheet of such Person prepared in accordance with
GAAP.
 
“Cash Equivalents” means (a) any readily-marketable securities (i) issued by, or
directly, unconditionally and fully guaranteed or insured by the United States
federal government or (ii) issued by any agency of the United States federal
government the obligations of which are fully backed by the full faith and
credit of the United States federal government, (b) any readily-marketable
direct obligations issued by any other agency of the United States federal
government, any state of the United States or any political subdivision of any
such state or any public instrumentality thereof, in each case having a rating
of at least “A-1” from S&P or at least “P-1” from Moody’s, (c) any commercial
paper rated at least “A-1” by S&P or “P-1” by Moody’s and issued by any Person
organized under the laws of any state of the United States, (d) any
Dollar-denominated time deposit, insured certificate of deposit, overnight bank
deposit or bankers’
 

3

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acceptance issued or accepted by (i) any Lender or (ii) any commercial bank that
is (A) organized under the laws of the United States, any state thereof or the
District of Columbia, (B) “adequately capitalized” (as defined in the
regulations of its primary federal banking regulators) and (C) has Tier 1
capital (as defined in such regulations) in excess of $250,000,000 and (e)
shares of any United States money market fund that (i) has substantially all of
its assets invested continuously in the types of investments referred to in
clause (a), (b), (c) or (d) above with maturities as set forth in the proviso
below, (ii) has net assets in excess of $500,000,000 and (iii) has obtained from
either S&P or Moody’s the highest rating obtainable for money market funds in
the United States; provided, however, that the maturities of all obligations
specified in any of clauses (a), (b), (c) and (d) above shall not exceed 365
days.
 
“CERCLA” means the United States Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. §§ 9601 et seq.).
 
“Change of Control” means the occurrence of any of the following: (a) the
Permitted Investors shall cease to own at least 51% and control legally and
beneficially all of the economic and voting rights of Parent, (b) Parent shall
cease to own and control legally and beneficially all of the economic and voting
rights any SPE, or (c) any Facility ceases to be managed or operated by a
Qualified Manager.
 
“Closing Date” means December 1, 2006.
 
“Code” means the U.S. Internal Revenue Code of 1986.
 
“Collateral” means all property and interests in property and proceeds thereof
now owned or hereafter acquired by any Borrower in or upon which a Lien is
granted or purported to be granted pursuant to any Loan Document.
 
“Commitment” means, with respect to each Lender, the commitment of such Lender
to make Term Loans to the Borrowers, which commitment is in the amount set forth
opposite such Lender’s name on Schedule I under the caption “Commitment”, as
amended to reflect Assignments and as such amount may be reduced pursuant to
this Agreement. The aggregate amount of the Commitments on the date hereof
equals $167,000,000.
 
“Compliance Certificate” means a certificate substantially in the form of
Exhibit C.
 
“Consolidated” means, with respect to any Person, the accounts of such Person
and its Subsidiaries consolidated in accordance with GAAP.
 
“Consolidated Current Assets” means, at any date, the total Consolidated current
assets of the Parent at such date other than cash, Cash Equivalents and any
Indebtedness owing to the Parent or any of its Subsidiaries by Affiliates of the
Parent.
 
“Consolidated Current Liabilities” means, at any date, all liabilities of the
Parent and its Subsidiaries at such date that should be classified as current
liabilities on a Consolidated balance sheet of the Parent; provided, however,
that “Consolidated Current Liabilities” shall exclude the principal amount of
the Loans then outstanding.
 

4

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“Consolidated EBITDA” means, for any period, (a) the Consolidated Net Income of
the Parent for such period plus (b) the sum of, in each case to the extent
included in the calculation of such Consolidated Net Income but without
duplication, (i) any provision for United States federal income taxes or other
taxes measured by net income, (ii) Consolidated Interest Expense,
amortization of debt discount and commissions and other fees and charges
associated with Indebtedness (except amortization and expenses related to the
consummation of Term Loan on the Closing Date and the Related Transactions and
the payment of all fees, costs and expenses associated with the foregoing),
(iii) Consolidated Rent Expense, (iv) an amount equal to any Management Fee
actually paid, (v) any loss from extraordinary items, (vi) any depreciation,
depletion and amortization expense, (vii) any aggregate net loss on the Transfer
of property (other than accounts (as defined under the applicable UCC) and
inventory) outside the ordinary course of business and (viii) any other non-cash
expenditure, charge or loss for such period (other than any non-cash
expenditure, charge or loss relating to write-offs, write-downs or reserves with
respect to accounts and inventory), including the amount of any compensation
deduction as the result of any grant of Equity Interests or Equity Equivalents
to employees, officers, directors or consultants and minus (c) the sum of, in
each case to the extent included in the calculation of such Consolidated Net
Income and without duplication, (i) any credit for United States federal income
taxes or other taxes measured by net income, (ii) any interest income, (iii) a
capital replacement reserve in an amount per annum equal to $300 per bed, (iv)
management fees, which for the purposes of this definition shall be deemed to be
an amount per annum equal to five percent (5%) of the aggregate total operating
revenue generated from the Facilities, for the full twelve (12) month period
immediately preceding the date of determination, (v) the value of any impact of
definitive Medicare/Medicaid changes imposed by any Governmental Authority, as
reasonably determined by the Administrative Agent, (vi) any gain from
extraordinary items and any other non-recurring gain, (vii) any aggregate net
gain from the Transfer of property (other than accounts (as defined in the
applicable UCC) and inventory) out of the ordinary course of business by the
Parent, (viii) any other non-cash gain, including any reversal of a charge
referred to in clause (b)(viii) above by reason of a decrease in the value of
any Equity Interest or Equity Equivalent, and (vi) any other cash payment in
respect of expenditures, charges and losses that have been added to Consolidated
EBITDA of the Parent pursuant to clause (b)(viii) above in any prior period;
provided, however, if the actual occupancy of all of the Facilities, taken as a
whole, exceeds 95%, Consolidated Adjusted EBITDA shall be proportionately
reduced assuming an occupancy of 95%.
 
“Consolidated Interest Coverage Ratio” means, for any period, the ratio of (a)
Consolidated EBITDA for such period to (b) Consolidated Interest Expense for
such period.
 
“Consolidated Interest Expense” means, for any period, (a) Consolidated total
interest expense of the Parent and its Subsidiaries for such period and
including, in any event, (i) interest capitalized during such period and net
costs under Interest Rate Contracts for such period and (ii) all fees, charges,
commissions, discounts and other similar obligations (other than reimbursement
obligations) with respect to letters of credit, bank guarantees, banker’s
acceptances, surety bonds and performance bonds (whether or not matured) payable
by such Person and its Subsidiaries during such period minus (b) the sum of (i)
Consolidated net gains of the Parent and its Subsidiaries under Interest Rate
Contracts for such period and (ii) Consolidated interest income of the Parent
and its Subsidiaries for such period.
 
“Consolidated Project Yield” means, for any period, the ratio of (a)
Consolidated EBITDA for such period to (b) the Consolidated Total Debt for such
period.
 

5

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“Consolidated Net Income” means, for any period, the Consolidated net income (or
loss) of the Parent and its Subsidiaries for such period; provided, however,
that the following shall be excluded: (a) the net income of any other Person in
which the Parent or one of its Subsidiaries has a joint interest with a
third-party (which interest does not cause the net income of such other Person
to be Consolidated into the net income of the Parent), except to the extent of
the amount of dividends or distributions paid to such Person or Subsidiary, (b)
the net income of any Subsidiary of the Parent that is, on the last day of such
period, subject to any restriction or limitation on the payment of dividends or
the making of other distributions, to the extent of such restriction or
limitation, except restrictions or limitations set forth herein, and (c) the net
income of any other Person arising prior to such other Person becoming a
Subsidiary of the Parent or merging or consolidating into the Parent or its
Subsidiaries.
 
“Consolidated Rent Expense” means the Consolidated rent expense of the Parent
and its Subsidiaries for such period.
 
“Consolidated Total Debt” of any Person means all Indebtedness of a type
described in clause (a), (b), (c)(i), (d) or (f) of the definition thereof and
all Guaranty Obligations with respect to any such Indebtedness, in each case of
such Person and its Subsidiaries on a Consolidated basis.
 
“Constituent Documents” means, with respect to any Person, collectively and, in
each case, together with any modification of any term thereof, (a) the articles
of incorporation, certificate of incorporation, constitution or certificate of
formation of such Person, (b) the bylaws, operating agreement or joint venture
agreement of such Person, (c) any other constitutive, organizational or
governing document of such Person, whether or not equivalent, and (d) any other
document setting forth the manner of election or duties of the directors,
officers or managing members of such Person or the designation, amount or
relative rights, limitations and preferences of any Equity Interest of such
Person.
 
“Contractual Obligation” means with respect to any Person, any provision of any
Security issued by such Person or of any document or undertaking to which such
Person is a party or by which it or any of its property is bound or to which any
of its property is subject, in each case, other than a Loan Document.
 
“Control Agreement” means, with respect to any deposit account, any securities
account, commodity account, securities entitlement or commodity contract, an
agreement, in form and substance satisfactory to the Administrative Agent, among
the Administrative Agent, the financial institution or other Person at which
such account is maintained or with which such entitlement or contract is carried
and the Borrower maintaining such account, effective to grant “control” (as
defined under the applicable UCC) over such account to the Administrative Agent.
 
“Controlled Deposit Account” means each deposit account (including all funds on
deposit therein) that is the subject of an effective Control Agreement and that
is maintained by any Borrower with a financial institution approved by the
Administrative Agent.
 
“Controlled Securities Account” means each securities account or commodity
account (including all financial assets held therein and all certificates and
instruments, if any, representing or evidencing such financial assets) that is
the subject of an effective Control Agreement and that
 

6

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is maintained by any Borrower with a securities intermediary or commodity
intermediary approved by the Administrative Agent.
 
“Copyrights” means all rights, title and interests (and all related IP Ancillary
Rights) arising under any Requirement of Law in or relating to copyrights and
all mask work, database and design rights, whether or not registered or
published, all registrations and recordations thereof and all applications in
connection therewith.
 
“Corporate Chart” means a document in form reasonably acceptable to the
Administrative Agent, and the form delivered to Administrative Agent prior to
the date hereof and attached as Exhibit D hereto, setting forth, as of a date
set forth therein, for each Person that is a Borrower, Emeritus and Blackstone
and any direct or indirect Subsidiary of Emeritus and Blackstone that owns or
holds any Equity Interest in any Borrower, but excluding any limited partners of
Blackstone or its Affiliates, (a) the full legal name of such Person, (b) the
jurisdiction of organization and any organizational number and tax
identification number of such Person, and (c) the number of shares or
percentage, as the case may be, of each class of Equity Interests of such
Person, and, with respect to Emeritus only, the authorized, number outstanding
and number and percentage of such outstanding shares for each such class owned,
directly or indirectly, by any Borrower, such Subsidiary, Emeritus or
Blackstone.
 
“Customary Permitted Liens” means, with respect to any Person, any of the
following:
 
(a) Liens (i) with respect to the payment of taxes, assessments or other
governmental charges or (ii) of suppliers, carriers, materialmen, warehousemen,
workmen or mechanics and other similar Liens, in each case imposed by law or
arising in the ordinary course of business, and, for each of the Liens in
clauses (i) and (ii) above for amounts that are not yet due or that are being
contested in good faith by appropriate proceedings diligently conducted and with
respect to which, if being contested, adequate reserves or other appropriate
provisions are maintained on the books of such Person in accordance with GAAP;
 
(b) Liens of a collection bank on items in the course of collection arising
under Section 4-208 of the UCC as in effect in the State of New York or any
similar section under any applicable UCC or any similar Requirement of Law of
any foreign jurisdiction;
 
(c) pledges or cash deposits made in the ordinary course of business (i) in
connection with workers’ compensation, unemployment insurance or other types of
social security benefits (other than any Lien imposed by ERISA), (ii) to secure
the performance of bids, tenders, leases (other than Capital Leases) sales or
other trade contracts (other than for the repayment of borrowed money) or
(iii) made in lieu of, or to secure the performance of, surety, customs,
reclamation or performance bonds (in each case not related to judgments or
litigation);
 
(d) judgment liens (other than for the payment of taxes, assessments or other
governmental charges) securing judgments and other proceedings not constituting
an Event of Default under Section 9.1(e) and pledges or cash deposits made in
lieu of, or to secure the performance of, judgment or appeal bonds in respect of
such judgments and proceedings;
 
(e) Liens (i) arising by reason of zoning restrictions, easements, licenses,
reservations, restrictions, covenants, rights-of-way, encroachments, minor
defects or irregularities in title (including leasehold title) and other similar
encumbrances on the use of real property or
 

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(ii) consisting of leases, licenses or subleases granted by a lessor, licensor
or sublessor on its property (in each case other than Capital Leases) otherwise
permitted under Section 8.4(b) that, for each such Liens, do not, in the
aggregate, materially (x) impair the value or marketability of such real
property or (y) interfere with the ordinary conduct of the business conducted
and proposed to be conducted at such real property; and
 
(f) the title and interest of a lessor or sublessor in and to personal property
leased or subleased (other than through a Capital Lease), in each case extending
only to such personal property.
 
“Default” means any Event of Default and any event that, with the passing of
time or the giving of notice or both, would become an Event of Default.
 
“Disclosure Documents” means, collectively, (a) all confidential information
memoranda and related materials prepared in connection with the syndication of
the Facilities and (b) all other documents filed by any Borrower with the United
States Securities and Exchange Commission.
 
“Dollars” and the sign “$” each mean the lawful money of the United States of
America.
 
“Domestic Person” means any “United States person” under and as defined in
Section 770l(a)(30) of the Code.
 
“Electronic Fax” means any system used to receive or transmit faxes
electronically.
 
“Electronic Signature” means the process of attaching to or logically
associating with an Electronic Transmission an electronic symbol, encryption,
digital signature or process (including the name or an abbreviation of the name
of the party transmitting the Electronic Transmission) with the intent to sign,
authenticate or accept such Electronic Transmission.
 
“Electronic System” means any electronic system, including Intralinks® and any
other Internet or extranet-based site, whether such electronic system is owned,
operated or hosted by the Administrative Agent, any of its Related Persons or
any other Person, providing for access to data protected by passcodes or other
security system.
 
“Electronic Transmission” means each document, instruction, authorization, file,
information and any other communication transmitted, posted or otherwise made or
communicated by electronic mail or Electronic Fax, or otherwise to or from an
Electronic System or other equivalent service.
 
“Emeritus” means Emeritus Corporation, a Washington corporation.
 
“Environmental Indemnity” means one or more agreements pursuant to which
Emeritus and the Borrowers provide an environmental indemnity, (i) recourse to
Emeritus with such recourse limited to the top 10% of the Loan Amount
($16,700,000) and (ii) which indemnity is fully recourse to the Borrowers.
 
“Environmental Laws” means all Requirements of Law and Permits imposing
liability or standards of conduct for or relating to the regulation and
protection of human health, safety, the environment and natural resources,
including CERCLA, the SWDA, the Hazardous Materials
 

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Transportation Act (49 U.S.C. §§ 5101 et seq.), the Federal Insecticide,
Fungicide, and Rodenticide Act (7 U.S.C. §§ 136 et seq.), the Toxic Substances
Control Act (15 U.S.C. §§ 2601 et seq.), the Clean Air Act (42 U.S.C. §§ 7401 et
seq.), the Federal Water Pollution Control Act (33 U.S.C. §§ 1251 et seq.), the
Occupational Safety and Health Act (29 U.S.C. §§ 651 et seq.), the Safe Drinking
Water Act (42 U.S.C. §§ 300(f) et seq.), all regulations promulgated under any
of the foregoing, all analogous Requirements of Law and Permits and any
environmental transfer of ownership notification or approval statutes, including
the Industrial Site Recovery Act (N.J. Stat. Ann. §§ 13:1K-6 et seq.).
 
“Environmental Liabilities” means all Liabilities (including costs of Remedial
Actions, natural resource damages and costs and expenses of investigation and
feasibility studies) that may be imposed on, incurred by or asserted against any
Borrower as a result of, or related to, any claim, suit, action, investigation,
proceeding or demand by any Person, whether based in contract, tort, implied or
express warranty, strict liability, criminal or civil statute or common law or
otherwise, arising under any Environmental Law or in connection with any Release
and resulting from the ownership, lease, sublease or other operation or
occupation of property by any Borrower, whether on, prior or after the date
hereof.
 
“Equity Equivalents” means all securities convertible into or exchangeable for
any Equity Interest or any other Equity Equivalent and all warrants, options or
other rights to purchase, subscribe for or otherwise acquire any Equity Interest
or any other Equity Equivalent, whether or not presently convertible,
exchangeable or exercisable.
 
“Equity Interest” means all shares of capital stock (whether denominated as
common stock or preferred stock), equity interests, beneficial, partnership or
membership interests, joint venture interests, participations or other ownership
or profit interests in or equivalents (regardless of how designated) of or in a
Person (other than an individual), whether voting or non-voting.
 
“ERISA” means the United States Employee Retirement Income Security Act of 1974.
 
“ERISA Affiliate” means, collectively, any Borrower, and any Person under common
control, or treated as a single employer, with any Borrower, within the meaning
of Section 414(b), (c), (m) or (o) of the Code.
 
“ERISA Event” means any of the following: (a) a reportable event described in
Section 4043(b) of ERISA (or, unless the 30-day notice requirement has been duly
waived under the applicable regulations, Section 4043(c) of ERISA) with respect
to a Title IV Plan, (b) the withdrawal of any ERISA Affiliate from a Title IV
Plan subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer, as defined in Section 4001(a)(2) of ERISA, (c) the
complete or partial withdrawal of any ERISA Affiliate from any Multiemployer
Plan, (d) with respect to any Multiemployer Plan, the filing of a notice of
reorganization, insolvency or termination (or treatment of a plan amendment as
termination) under Section 4041A of ERISA, (e) the filing of a notice of intent
to terminate a Title IV Plan (or treatment of a plan amendment as termination)
under Section 4041 of ERISA, (f) the institution of proceedings to terminate a
Title IV Plan or Multiemployer Plan by the PBGC, (g) the failure to make any
required contribution to any Title IV Plan or Multiemployer Plan when due, (h)
the imposition of a lien under Section 412 of the Code or Section 302 or 4068 of
ERISA on any property (or rights to property, whether real or personal) of any
ERISA Affiliate, (i) the failure of a Benefit Plan or any trust thereunder
intended to qualify for tax exempt status under Section 401 or 501 of the Code
or
 

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other Requirements of Law to qualify thereunder and (j) any other event or
condition that might reasonably be expected to constitute grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Title IV Plan or Multiemployer Plan or for the imposition of any
liability upon any ERISA Affiliate under Title IV of ERISA other than for PBGC
premiums due but not delinquent.
 
“Eurodollar Base Rate” means, with respect to any Interest Period for any
Eurodollar Rate Loan, the rate determined by the Administrative Agent to be the
offered rate for deposits in Dollars for the applicable Interest Period
appearing on the Dow Jones Markets Telerate Page 3750 as of 11:00 a.m. (London
time) on the second full Business Day next preceding the first day of each
Interest Period. In the event that such rate does not appear on the Dow Jones
Markets Telerate Page 3750 (or otherwise on the Dow Jones Markets screen) at
such time, the “Eurodollar Base Rate” shall be determined by reference to such
other comparable publicly available service for displaying the offered rate for
deposit in Dollars in the London interbank market as may be selected by the
Administrative Agent and, in the absence of availability, such other method to
determine such offered rate as may be selected by the Administrative Agent in
its sole discretion.
 
“Eurodollar Rate” means, with respect to any Interest Period and for any
Eurodollar Rate Loan, an interest rate per annum determined as the ratio of (a)
the Eurodollar Base Rate with respect to such Interest Period for such
Eurodollar Rate Loan to (b) the difference between the number one and the
Eurodollar Reserve Requirements with respect to such Interest Period and for
such Eurodollar Rate Loan.
 
“Eurodollar Rate Loan” means any Loan that bears interest based on the
Eurodollar Rate.
 
“Eurodollar Reserve Requirements” means, with respect to any Interest Period and
for any Eurodollar Rate Loan, a rate per annum equal to the aggregate, without
duplication, of the maximum rates (expressed as a decimal number) of reserve
requirements in effect 2 Business Days prior to the first day of such Interest
Period (including basic, supplemental, marginal and emergency reserves) under
any regulations of the Federal Reserve Board or other Governmental Authority
having jurisdiction with respect thereto dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as “eurocurrency
liabilities” in Regulation D of the Federal Reserve Board) maintained by a
member bank of the United States Federal Reserve System.
 
“Event of Default” has the meaning specified in Section 9.1.
 
“Excess Cash Escrow” has the meaning specified in Section 2.2(a).
 
“Excess Cash Flow” means, for any period, (a) Consolidated EBITDA for such
period, minus (b) without duplication, (i) any principal payments made in cash
on the Loans during such period other than any mandatory prepayment required
pursuant to Section 2.4(a) because of the existence of Excess Cash Flow paid
during such period but applicable to the prior period, (ii) any scheduled or
other cash principal payment made by any Borrower during such period on any
Indebtedness, (iii) any Capital Expenditure made by any Borrower during such
period to the extent permitted by this Agreement, excluding (A) any long-term
Indebtedness other than the Obligations and (B) any Capital Expenditure to the
extent reimbursed from the Capital Improvement Holdback, (iv) the Consolidated
Interest Expense for such period, (v) any cash losses from extraordinary items,
(vi) any cash payment made during such period by any Borrower
 

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to satisfy obligations for United States federal income taxes or other taxes
measured by net income and (vii) any increase in the Working Capital of Parent
during such period (measured on a Consolidated basis as the excess of such
Working Capital at the end of such period over such Working Capital at the
beginning of such period) and plus (c) without duplication, (i) to the extent
included in the calculation of Consolidated EBITDA pursuant to clause (b)(i) of
the definition thereof, any provision for United States federal income taxes or
other taxes measured by net income, (ii) any decrease in the Working Capital of
Parent during such period (measured on a Consolidated basis as the excess of
such Working Capital at the beginning of such period over such Working Capital
at the end thereof), and (iii) provided no Event of Default as set forth in
Section 9.1(a) shall have occurred and is continuing, management fees, which for
the purposes of this definition shall be deemed to be an amount per annum equal
to five percent (5%) of the aggregate total operating revenue generated from the
Facilities for the full twelve (12) month period immediately preceding the date
of determination.
 
“Excluded Property” means each healthcare facility (and its allocated loan
amount) identified on Schedule 8.7.
 
“Facilities” means, collectively, all long term care facilities, nursing homes,
rehabilitation facilities, assisted living facilities, independent living
facilities, hospice facilities or other healthcare facilities owned and operated
by any Borrower, as listed on Schedule 4.16 hereto.
 
“Federal Funds Rate” means, for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the rates
on overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, as determined by the Administrative
Agent in its sole discretion.
 
“Federal Reserve Board” means the Board of Governors of the United States
Federal Reserve System and any successor thereto.
 
“Fee Letter” means the letter agreement, dated as of the date hereof, addressed
to the Borrowers from the Administrative Agent and accepted by the Borrowers,
with respect to certain fees to be paid from time to time to the Administrative
Agent and its Related Persons.
 
“Financial Statement” means each financial statement delivered pursuant to
Section 4.4 or 6.1.
 
“First Extension Notice” has the meaning specified in Section 2.2(b).
 
“First Extension Period” has the meaning specified in Section 2.2(b).
 
“Fiscal Quarter” means each 3 calendar month period ending on March 31, June 30,
September 30 or December 31.
 
“Fiscal Year” means the twelve month period ending on December 31.
 
“GAAP” means generally accepted accounting principles in the United States of
America, as in effect from time to time, set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants, in the statements and pronouncements of the
Financial Accounting Standards Board and in such other
 

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statements by such other entity as may be in general use by significant segments
of the accounting profession that are applicable to the circumstances as of the
date of determination. Subject to Section 1.3, all references to “GAAP” shall be
to GAAP applied consistently with the principles used in the preparation of the
Financial Statements described in Section 4.4(a).
 
“GE Capital” has the meaning specified in the preamble hereto.
 
“Governmental Authority” means any nation, sovereign or government, any state or
other political subdivision thereof, any agency, authority or instrumentality
thereof and any entity or authority lawfully exercising executive, legislative,
taxing, judicial, regulatory or administrative functions of or pertaining to
government, including any central bank, stock exchange, regulatory body,
arbitrator, public sector entity, supra-national entity (including the European
Union and the European Central Bank) and any self-regulatory organization
(including the National Association of Insurance Commissioners).
 
“Guaranty Obligation” means, as applied to any Person, any direct or indirect
liability, contingent or otherwise, of such Person for any Indebtedness, lease,
dividend or other obligation (the “primary obligation”) of another Person (the
“primary obligor”), if the purpose or intent of such Person in incurring such
liability, or the economic effect thereof, is to guarantee such primary
obligation or provide support, assurance or comfort to the holder of such
primary obligation or to protect or indemnify such holder against loss with
respect to such primary obligation, including (a) the direct or indirect
guaranty, endorsement (other than for collection or deposit in the ordinary
course of business), co-making, discounting with recourse or sale with recourse
by such Person of any primary obligation, (b) the incurrence of reimbursement
obligations with respect to any letter of credit or bank guarantee in support of
any primary obligation, (c) the existence of any Lien, or any right, contingent
or otherwise, to receive a Lien, on the property of such Person securing any
part of any primary obligation and (d) any liability of such Person for a
primary obligation through any Contractual Obligation (contingent or otherwise)
or other arrangement (i) to purchase, repurchase or otherwise acquire such
primary obligation or any security therefor or to provide funds for the payment
or discharge of such primary obligation (whether in the form of a loan, advance,
stock purchase, capital contribution or otherwise), (ii) to maintain the
solvency, working capital, equity capital or any balance sheet item, level of
income or cash flow, liquidity or financial condition of any primary obligor,
(iii) to make take-or-pay or similar payments, if required, regardless of
non-performance by any other party to any Contractual Obligation, (iv) to
purchase, sell or lease (as lessor or lessee) any property, or to purchase or
sell services, primarily for the purpose of enabling the primary obligor to
satisfy such primary obligation or to protect the holder of such primary
obligation against loss or (v) to supply funds to or in any other manner invest
in, such primary obligor (including to pay for property or services irrespective
of whether such property is received or such services are rendered); provided,
however, that “Guaranty Obligations” shall not include (x) endorsements for
collection or deposit in the ordinary course of business and (y) product
warranties given in the ordinary course of business. The outstanding amount of
any Guaranty Obligation shall equal the outstanding amount of the primary
obligation so guaranteed or otherwise supported or, if lower, the stated maximum
amount for which such Person may be liable under such Guaranty Obligation.
 
“Hazardous Material” means any substance, material or waste that is classified,
regulated or otherwise characterized under any Environmental Law as hazardous,
toxic, a contaminant or a
 

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pollutant or by other words of similar meaning or regulatory effect, including
petroleum or any fraction thereof, asbestos, polychlorinated biphenyls and
radioactive substances.
 
“Healthcare Laws” has the meaning specified in Section 7.2.
 
“Hedging Agreement” means any Interest Rate Contract, foreign exchange, swap,
option or forward contract, spot, cap, floor or collar transaction, any other
derivative instrument and any other similar speculative transaction and any
other similar agreement or arrangement designed to alter the risks of any Person
arising from fluctuations in any underlying variable.
 
“HIPAA” has the meaning specified in Section 7.2.
 
“HIPAA Compliance Date” has the meaning specified in Section 7.2.
 
“HIPAA Compliance Plan” has the meaning specified in Section 7.2.
 
“HIPAA Compliant” has the meaning specified in Section 7.2.
 
“Indebtedness” of any Person means, without duplication, any of the following,
whether or not matured: (a) all indebtedness for borrowed money, (b) all
obligations evidenced by notes, bonds, debentures or similar instruments, (c)
all reimbursement and all obligations with respect to (i) letters of credit,
bank guarantees or bankers’ acceptances or (ii) surety, customs, reclamation or
performance bonds (in each case not related to judgments or litigation) other
than those entered into in the ordinary course of business, (d) all obligations
to pay the deferred purchase price of property or services, other than trade
payables incurred in the ordinary course of business, (e) all obligations
created or arising under any conditional sale or other title retention
agreement, regardless of whether the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or sale
of such property, (f) all obligations, whether or not contingent, to purchase,
redeem, retire, defease or otherwise acquire for value any of its own Equity
Interests or Equity Equivalents (or any Equity Interest or Equity Equivalent of
a direct or indirect parent entity thereof) prior to the date that is 180 days
after the Scheduled Maturity Date, valued at, in the case of redeemable
preferred Equity Interest, the greater of the voluntary liquidation preference
and the involuntary liquidation preference of such Equity Interest plus accrued
and unpaid dividends, (g) all payments that would be required to be made in
respect of any Hedging Agreement in the event of a termination (including an
early termination) on the date of determination and (h) all Guaranty Obligations
for obligations of any other Person constituting Indebtedness of such other
Person; provided, however, that the items in each of clauses (a) through (h)
above shall constitute “Indebtedness” of such Person solely to the extent,
directly or indirectly, (x) such Person is liable for any part of any such item,
(y) any such item is secured by a Lien on such Person’s property or (z) any
other Person has a right, contingent or otherwise, to cause such Person to
become liable for any part of any such item or to grant such a Lien.
 
“Indemnified Matter” has the meaning specified in Section 11.4.
 
“Indemnitee” has the meaning specified in Section 11.4.
 
“Independent Director”, “Independent Manager”, or “Independent Member” shall
mean a Person who is not and will not be while serving and has never been (i) a
member, Partner, Equity Interest holder, manager, director, employee, attorney,
or counsel of any Borrower or its
 

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Affiliates, (ii) a customer, supplier or other Person who derives more than 1%
of its purchases or revenues from its activities with any Borrower or its
Affiliates, (iii) a direct or indirect legal or beneficial owner in such entity
or any of its Affiliates, (iv) a member of the immediate family of any member,
manager, employee, attorney, customer, supplier or other Person referred to
above, or (v) a person Controlling or under the Common Control of anyone listed
in (i) through (iv) above. A Person that otherwise satisfies the foregoing shall
not be disqualified from serving as an Independent Director or Independent
Manager or Independent Member if such individual is at the time of initial
appointment, or at any time while serving as such, is an Independent Director or
Independent Manager or Independent Member, as applicable, of a Single Purpose
Entity affiliated with any Borrower. Additionally, a natural person who
satisfies the foregoing definition other than clause (ii) above shall not be
disqualified from serving as an Independent Director, Independent Manager or
Independent Manager if such individual is an independent director, manager or
member provided by a nationally-recognized company that provides professional
independent directors, managers and members and that also provides other
corporate services in the ordinary course of its business. For the purpose of
this definition, “Control” shall mean (i) the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting interests, by contract
or otherwise and (ii) the ownership, direct or indirect, of no less than 51% of
the voting interests of such Person, and the terms Controlled, Controlling and
Common Control shall have correlative meanings.
 
“Initial Projections” means those financial Projections, dated September 1,
2006, covering the Fiscal Years ending in 2006 through 2009 and delivered to the
Administrative Agent by the Parent prior to the date hereof.
 
“Intellectual Property” means all rights, title and interests in or relating to
intellectual property and industrial property arising under any Requirement of
Law and all IP Ancillary Rights relating thereto, including all Copyrights,
Patents, Trademarks, Internet Domain Names, Trade Secrets and IP Licenses.
 
“Interest Holdback” has the meaning given such term in Section 2.1(b)(i).
 
“Interest Period” means, with respect to any Eurodollar Rate Loan, the period
commencing on the Closing Date or on the day after the last day of the
immediately preceding Interest Period and, in each case, except with respect to
clause (c) below, ending on the day before the 1 month anniversary of the
applicable commencement date; provided, however, that (a) if any Interest Period
would otherwise end on a day that is not a Business Day, such Interest Period
shall be extended to the next succeeding Business Day, unless the result of such
extension would be to extend such Interest Period into the next calendar month,
in which case such Interest Period shall end on the immediately preceding
Business Day, (b) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall end on the last
Business Day of the immediately succeeding a calendar month, (c) no Interest
Period shall end after the Scheduled Maturity Date.
 
“Interest Rate Contracts” means all interest rate swap agreements, interest rate
cap agreements, interest rate collar agreements and interest rate insurance.
 

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“Internet Domain Names” means all rights, title and interests (and all related
IP Ancillary Rights) arising under any Requirement of Law in or relating to
Internet domain names.
 
“Investment” means, with respect to any Person, directly or indirectly, (a) to
own, purchase or otherwise acquire, in each case whether beneficially or
otherwise, any investment in, including any interest in, any Security of any
other Person (other than any evidence of any Obligation), (b) to purchase or
otherwise acquire, whether in one transaction or in a series of transactions,
all or a significant part of the property of any other Person or a business
conducted by any other Person or all or substantially all of the assets
constituting the business of a division, branch, brand or other unit operation
of any other Person, (c) to incur, or to remain liable under, any Guaranty
Obligation for Indebtedness of any other Person, to assume the Indebtedness of
any other Person or to make, hold, purchase or otherwise acquire, in each case
directly or indirectly, any deposit, loan, advance, commitment to lend or
advance, or other extension of credit (including by deferring or extending the
date of, in each case outside the ordinary course of business, the payment of
the purchase price for Transfers of property or services to any other Person, to
the extent such payment obligation constitutes Indebtedness of such other
Person), excluding deposits with financial institutions available for withdrawal
on demand, prepaid expenses, accounts receivable and similar items created in
the ordinary course of business, (d) to make, directly or indirectly, any
contribution to the capital of any other Person or (e) to Transfer any property
for less than fair market value (including a disposition of cash or Cash
Equivalents in exchange for consideration of lesser value); provided, however,
that such Investment shall be valued at the difference between the value of the
consideration for such Transfer and the fair market value of the property
Transferred.
 
“IP Ancillary Rights” means, with respect to any other Intellectual Property, as
applicable, all foreign counterparts to, and all divisionals, reversions,
continuations, continuations-in-part, reissues, reexaminations, renewals and
extensions of, such Intellectual Property and all income, royalties, proceeds
and Liabilities at any time due or payable or asserted under or with respect to
any of the foregoing or otherwise with respect to such Intellectual Property,
including all rights to sue or recover at law or in equity for any past, present
or future infringement, misappropriation, dilution, violation or other
impairment thereof, and, in each case, all rights to obtain any other IP
Ancillary Right.
 
“IP License” means all Contractual Obligations (and all related IP Ancillary
Rights), whether written or oral, granting any right title and interest in or
relating to any Intellectual Property.
 
“IRS” means the Internal Revenue Service of the United States and any successor
thereto.
 
“Leases” means all leases and subleases or similar document affecting the use,
enjoyment or occupancy of the Real Property, including without limitation,
resident care agreements and service agreements that include an occupancy
agreement, whether now existing or hereafter arising.
 
“Lender” means any financial institution or other Person that (a) is listed on
the signature pages hereof as a “Lender” or (b) from time to time becomes a
party hereto by execution of an Assignment, in each case together with its
successors.
 

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“Liabilities” means all claims, actions, suits, judgments, actual damages (not
consequential damages), actual losses, liability, obligations, responsibilities,
fines, penalties, sanctions, costs, fees, taxes, commissions, charges,
disbursements and expenses, in each case of any kind or nature (including
interest accrued thereon or as a result thereto and fees, charges and
disbursements of financial, legal and other advisors and consultants), whether
joint or several, whether or not indirect, contingent, consequential, actual,
punitive, treble or otherwise.
 
“Licenses” has the meaning specified in Section 7.2.
 
“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment,
charge, deposit arrangement, encumbrance, easement (or other Agreement granting
rights or restricting the use of any Real Property or Facility), lien (statutory
or other), security interest or other security arrangement and any other
preference, priority or preferential arrangement of any kind or nature
whatsoever, including any conditional sale contract or other title retention
agreement, the interest of a lessor under a Capital Lease and any synthetic or
other financing lease having substantially the same economic effect as any of
the foregoing.
 
“Limited Recourse Guaranty” means that certain Limited Guaranty, dated as of
December 1, 2006, between Emeritus and Administrative Agent, as it may be
amended, restated or modified from time to time, pursuant to which the Loan is
(i) fully recourse for losses attributable to (A) fraud or intentional
misrepresentation by Borrowers under and in connection with the Loan Documents;
(B) Borrowers’ misappropriation or intentional misapplication of rents received
by Borrowers in violation of the Loan Documents; (C) Borrowers’ intentional
misapplication or misappropriation of security deposits or rents collected in
advance; (D) Borrowers’ misappropriation or intentional misapplication of
insurance proceeds or condemnation awards in violation of the Loan Documents;
(E) Borrowers’ failure to pay real estate taxes (except to the extent that sums
sufficient to pay such amounts have been deposited in escrow with Lender
pursuant to the terms of the Loan Documents), but only to the extent that the
Facilities are generating income sufficient to permit Borrowers to pay the same
when due; (F) any act of actual intentional physical waste by Borrowers; (G) the
failure of Borrowers to keep each Facility insured in accordance with the terms
of the Loan Documents; and (H) Borrowers’ failure to comply with the single
purpose entity provisions contained in the Loan Documents; (ii) fully recourse
for (x) any Borrower’s voluntary (or involuntary that is not duly contested by
the Borrower) bankruptcy or assignment for the benefit of creditors, or similar
event or proceedings; and (y) Borrowers’ failure to comply with the transfer
provisions contained in the Loan Documents.
 
“Loan” means any loan made or deemed made by any Lender hereunder.
 
“Loan Documents” means, collectively, this Agreement, any Notes, the Security
Agreement, the Mortgages, the Control Agreements, the Fee Letter, the Secured
Hedging Agreements, the Limited Recourse Guaranty, Environmental Indemnities
and, when executed, each document executed by a Borrower and delivered to the
Administrative Agent, any Lender in connection with or pursuant to any of the
foregoing or the Obligations, together with any modification of any term, or any
waiver with respect to, any of the foregoing.
 
“Management Agreement” means each property management agreement, dated on or
before the date hereof, between the applicable SPE, as owner, and Emeritus or a
replacement Qualified Manager (or an interim manager with respect to any
Facility acquired pursuant to a
 

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sale/leaseback or similar temporary arrangement), as manager, in form and
substance reasonably acceptable to the Administrative Agent, as it may be
amended, supplemented, restated or otherwise modified from time to time with the
prior consent of the Administrative Agent.
 
“Management Fee” means any and all fees, expenses and other monies due and
payable (other than reimbursement of reasonable out-of-pocket third party
expenses as contemplated by the applicable Management Agreement), from time to
time, by any Borrower to the manager under the applicable Management Agreement,
which shall not, in the aggregate, exceed 5% of the gross operating revenue of
the Facilities per Fiscal Year.
 
“Material Adverse Effect” means an effect that results in or causes, or could
reasonably be expected to result in or cause, a material adverse change in any
of (a) the condition (financial or otherwise), business, performance, prospects,
operations or property of the Borrowers, taken as a whole, (b) the ability of
any Borrower to perform its obligations in any material respect under any Loan
Document and (c) the validity or enforceability of any Loan Document or the
rights and remedies of the Administrative Agent, the Lenders and the other
Secured Parties under any Loan Document.
 
“Material Environmental Liabilities” means Environmental Liabilities exceeding
$100,000 in the aggregate.
 
“Maturity Date” means, subject to certain extension options set forth in Section
2.2(b), the earlier to occur of (i) Scheduled Maturity Date, (ii) the date on
which the Obligations otherwise become due as a result of acceleration of the
Obligations as provided for under this Agreement or any other Loan Document, and
(iii) the effective date of any earlier termination of this Agreement in
accordance with its terms.
 
“MLC” means Merrill Lynch Capital, a Division of Merrill Lynch Business
Financial Services Inc.
 
“Moody’s” means Moody’s Investors Service, Inc.
 
“Mortgage” means any mortgage, deed of trust or other document executed or
required herein to be executed by any Borrower and granting a security interest
over real property in favor of the Administrative Agent as security for the
Obligations.
 
“Mortgage Supporting Documents” means, with respect to any Mortgage for a parcel
of real property, each document (including assignments of leases and rents,
subordination agreements, title policies or marked-up unconditional insurance
binders (in each case, together with copies of all documents referred to
therein), maps, ALTA (or TLTA, if applicable), environmental assessments,
As-Built Surveys, and evidence regarding recording and payment of fees,
insurance premium and taxes) that the Administrative Agent may reasonably
request, to create, register, perfect, maintain, evidence the existence,
substance, form or validity of or enforce a valid lien on such parcel of real
property in favor of the Administrative Agent for the benefit of the Secured
Parties, subject only to such Liens as the Administrative Agent may approve,
provided that any Mortgage Supporting Documents related to any Permitted
Acquisition that are substantially similar in form and content to those
delivered in connection with the initial funding of the Loan, modified to
reflect the particulars of the applicable Facility, shall be deemed approved by
Lender.
 

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“Multiemployer Plan” means any multiemployer plan, as defined in
Section 400l(a)(3) of ERISA, to which any ERISA Affiliate incurs or otherwise
has any obligation or liability.
 
“Net Cash Proceeds” means proceeds received in cash from any Transfer of, or
Property Loss Event with respect to, any real or personal property, net of (a)
actual third-party out-of-pocket costs, fees and expenses paid or required to be
paid in connection therewith and (b) taxes paid or reasonably estimated to be
payable as a result thereof .
 
“Non-Funding Lender” has the meaning specified in Section 2.1(a).
 
“Non-U.S. Lender Party” means each of the Administrative Agent, each Lender,
each SPV and each participant, in each case that is not a Domestic Person.
 
“Note” means a promissory note of the Borrowers, in substantially the form of
Exhibit E, payable to the order of a Lender in a principal amount equal to the
amount of such Lender’s Commitment.
 
“Notice of Borrowing” has the meaning specified in Section 2.1(a).
 
“Obligations” means, with respect to any Borrower, all amounts, obligations,
liabilities, covenants and duties of every type and description owing by such
Borrower to the Administrative Agent, any Lender, any other Indemnitee, any
participant, any SPV or, in the case of any Secured Hedging Agreement, any
Affiliate of any of them arising out of, under, or in connection with, any Loan
Document, whether direct or indirect (regardless of whether acquired by
assignment), absolute or contingent, due or to become due, whether liquidated or
not, now existing or hereafter arising and however acquired, and whether or not
evidenced by any instrument or for the payment of money, including, without
duplication, (a) if such Borrower is the Borrower, all Loans, (b) all interest,
whether or not accruing after the filing of any petition in bankruptcy or after
the commencement of any insolvency, reorganization or similar proceeding, and
whether or not a claim for post-filing or post-petition interest is allowed in
any such proceeding, and (c) all other fees, expenses (including fees, charges
and disbursement of counsel), interest, commissions, charges, costs,
disbursements, indemnities and reimbursement of amounts paid and other sums
chargeable to such Borrower under any Loan Document.
 
“Original Credit Agreement” has the meaning specified in the preamble hereto.
 
“Other Taxes” has the meaning specified in Section 2.11(c).
 
“Parent” has the meaning specified in the preamble hereto.
 
“Patents” means all rights, title and interests (and all related IP Ancillary
Rights) arising under any Requirement of Law in or relating to letters patent
and applications therefor.
 
“PBGC” means the United States Pension Benefit Guaranty Corporation and any
successor thereto.
 
“Permit” means, with respect to any Person, any permit, approval, authorization,
license, registration, certificate (including certificates of need and
certificates of occupancy), concession, grant, franchise, variance or permission
from, and any other Contractual Obligations with, any
 

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Governmental Authority, in each case whether or not having the force of law and
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.
 
“Permitted Acquisition” means any acquisition of any Excluded Property; provided
such acquisition satisfies each of the following conditions: (a) the aggregate
amounts payable in connection with such acquisition (in each case, excluding all
related transaction costs) shall not exceed the allocated purchase price as set
forth on Schedule 8.7 for the respective Excluded Property, (b) such acquisition
shall occur on or before the earlier of (i) 30 days following the Westlake
Facility Closing Date, as such term is defined in the Acquisition Agreement and
(ii) the six (6) month anniversary of the Closing Date, (c) the Administrative
Agent and MLC shall have received reasonable advance notice of such Permitted
Acquisition including a reasonably detailed description thereof at least 5
Business Days prior to the consummation of such acquisition (or such later date
as may be agreed by the Administrative Agent and MLC), (d) as of the date of
consummation of any transaction as part of such acquisition and after giving
effect to all transactions to occur on such date as part of such acquisition,
all conditions set forth in Section 3.1(a) shall be satisfied in all material
respects or duly waived and, after giving effect to such Permitted Acquisition,
Parent shall be in compliance with the financial covenants set forth in
Article V on a Pro Forma Basis as of the relevant period, and (e) there shall be
no Event of Default then existing under this Agreement. Upon the closing of such
Permitted Acquisition, Schedule 4.16 shall be deemed updated to include such
Excluded Facility.
 
“Permitted Acquisition Closing Date” has the meaning given such term in Section
2.1(a).
 
“Permitted Investors” means, collectively Emeritus and Blackstone, or any direct
or indirect Subsidiary thereof.
 
“Permitted Indebtedness” means any Indebtedness of any Borrower that is not
prohibited by Section 8.1 or any other provision of any Loan Document.
 
“Permitted Investment” means any Investment of any Borrower that is not
prohibited by Section 8.3 or any other provision of any Loan Document.
 
“Permitted Lien” means any Lien on or with respect to the property of any
Borrower that is not prohibited by Section 8.2 or any other provision of any
Loan Document.
 
“Permitted Refinancing” means Indebtedness constituting a refinancing or
extension of Permitted Indebtedness that (a) has an aggregate outstanding
principal amount not greater than the aggregate principal amount of such
Permitted Indebtedness outstanding at the time of such refinancing or extension,
(b) has a weighted average maturity (measured as of the date of such refinancing
or extension) and maturity no shorter than that of such Permitted Indebtedness,
(c) is not secured by any property or any Lien other than those securing such
Permitted Indebtedness and (d) is otherwise on terms no less favorable to the
Borrowers, taken as a whole, than those of such Permitted Indebtedness;
provided, however, that, notwithstanding the foregoing, (x) the terms of such
Permitted Indebtedness may be modified as part of such Permitted Refinancing if
such modification would have been permitted pursuant to Section 8.11 and (y) no
Guaranty Obligation for such Indebtedness shall constitute part of such
Permitted Refinancing unless similar Guaranty Obligations with respect to such
Permitted Indebtedness existed and constituted Permitted Indebtedness prior to
such refinancing or extension.
 

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“Permitted Reinvestment” means, with respect to the Net Cash Proceeds of any
Transfer or Property Loss Event, to acquire (or make Capital Expenditures to
finance the acquisition, repair, improvement or construction of), to the extent
otherwise permitted hereunder, property useful in the business of any Borrower
(including through a Permitted Acquisition) or, if such Property Loss Event
involves loss or damage to property, to repair such loss or damage.
 
“Person” means any individual, partnership, corporation (including a business
trust and a public benefit corporation), joint stock company, estate,
association, firm, enterprise, trust, limited liability company, unincorporated
association, joint venture and any other entity or Governmental Authority.
 
“Pro Forma Basis” means, with respect to any determination for any period and
any Pro Forma Transaction, that such determination shall be made by giving pro
forma effect to each such Pro Forma Transaction, as if each such Pro Forma
Transaction had been consummated on the first day of such period, based on
historical results accounted for in accordance with GAAP and, to the extent
applicable, reasonable assumptions that are specified in detail in the relevant
Compliance Certificate, Financial Statement or other document provided to the
Administrative Agent or any Lender in connection herewith in accordance with
Regulation S-X of the Securities Act of 1933.
 
“Pro Forma Transaction” means any transaction consummated as part of the
Acquisition or any Permitted Acquisition, together with each other transaction
relating thereto and consummated in connection therewith, including any
incurrence or repayment of Indebtedness.
 
“Projections” means, collectively, the Initial Projections and any document
delivered pursuant to Section 6.1(f).
 
“Property Loss Event” means, with respect to any property, any loss of or damage
to such property or any taking of such property or condemnation thereof.
 
“Pro Rata Outstandings”, of any Lender at any time, means the outstanding
principal amount of the Term Loans owing to such Lender.
 
“Pro Rata Share” means, with respect to any Lender at any time, the percentage
obtained by dividing (a) the sum of the Commitments (or, if such Commitments are
terminated, the Pro Rata Outstandings therein) of such Lender then in effect by
(b) the sum of the Commitments (or, if such Commitments are terminated, the Pro
Rata Outstandings therein) of all Lenders then in effect; provided, however,
that, if there are no Commitments and no Pro Rata Outstandings, such Lender’s
Pro Rata Share shall be determined based on the Pro Rata Share most recently in
effect, after giving effect to any subsequent assignment and any subsequent
non-pro rata payments of any Lender pursuant to Section 2.12.
 
“Qualified Manager” means a reputable and experienced professional management
organization that (a) manages, together with its affiliates, at least ten (10)
senior housing facilities and with no less than an aggregate of 1500 units in
such senior housing facilities of similar quality to the applicable Facility in
the State in which the applicable Facility is located and (b) is approved by the
Lenders in accordance with their reasonable standards with respect to (i)
previous relationships between such Lender and the proposed manager and its
principals, (ii) the reputation for integrity, honesty and veracity of the
proposed manager and its principals, owners, officers and directors, and (ii)
OFAC, money-laundering, anti-terrorism, SEC, healthcare laws
 

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and regulations, and other similar regulations and activities, which approval
shall not be unreasonably withheld, conditioned or delayed (provided that the
Borrowers provide timely information reasonably requested by Lenders with
respect to such proposed manager), it being understood that Emeritus shall be
deemed to be a Qualified Manager.
 
“Real Property” means any “property” (including improvements thereon) subject
to, and described in, a Mortgage from any Borrower in favor of the
Administrative Agent.
 
“Register” has the meaning specified in Section 2.8(b).
 
“Reinvestment Prepayment Amount” means, with respect to any Net Cash Proceeds on
the Reinvestment Prepayment Date therefor, the amount of such Net Cash Proceeds
less any amount paid or required to be paid by any Borrower to make Permitted
Reinvestments with such Net Cash Proceeds pursuant to a Contractual Obligation
entered into prior to such Reinvestment Prepayment Date with any Person that is
not an Affiliate of any Borrower.
 
“Reinvestment Prepayment Date” means, with respect to any portion of any Net
Cash Proceeds of any Transfer or Property Loss Event, the earliest of (a) the
180th day after the completion of the portion of such Transfer or Property Loss
Event corresponding to such Net Cash Proceeds, (b) the date that is 5 Business
Days after the date on which any Borrower shall have notified the Administrative
Agent of such Borrower’s determination not to make Permitted Reinvestments with
such Net Cash Proceeds, (c) the occurrence of any Event of Default set forth in
Section 9.1(e)(ii) and (d) 5 Business Days after the delivery of a notice by the
Administrative Agent to the Parent during the continuance of any other Event of
Default.
 
“Related Documents” means, collectively, the Acquisition Agreement, each
document executed in connection with the Required Investors’ Equity Investment
and each other document executed with respect to the foregoing.
 
“Related Person” means, with respect to any Person, each Affiliate of such
Person and each director, officer, employee, agent, trustee, representative,
attorney, accountant and each insurance, environmental, legal, financial and
other advisor (including those retained in connection with the satisfaction or
attempted satisfaction of any condition set forth in Article III) and other
consultants and agents of or to such Person or any of its Affiliates, together
with, if such Person is the Administrative Agent, each other Person or
individual designated, nominated or otherwise mandated by or helping the
Administrative Agent pursuant to and in accordance with Section 10.4 or any
comparable provision of any Loan Document.
 
“Related Transactions” means, collectively, the consummation of the Acquisition,
the consummation of the Required Investors’ Equity Investment, the execution and
delivery of all Related Documents and the payment of all related fees, costs and
expenses.
 
“Release” means any release, threatened release, spill, emission, leaking,
pumping, pouring, emitting, emptying, escape, injection, deposit, disposal,
discharge, dispersal, dumping, leaching or migration of Hazardous Material into
or through the environment.
 
“Remedial Action” means all actions required to (a) clean up, remove, treat or
in any other way address any Hazardous Material in the indoor or outdoor
environment, (b) prevent or minimize any Release so that a Hazardous Material
does not migrate or endanger or threaten to
 

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endanger public health or welfare or the indoor or outdoor environment or (c)
perform pre-remedial studies and investigations and post-remedial monitoring and
care with respect to any Hazardous Material.
 
“Required Investors’ Equity Investment” means the cash equity contribution from
the Permitted Investors and certain co-investors disclosed to the Administrative
Agent and the Lenders to the Borrowers in Dollars in an aggregate amount equal
to $35,320,000.
 
“Required Lenders” means, at any time, Lenders having at such time in excess of
66 2/3% of the aggregate Term Loan Commitments (or, if such Commitments are
terminated, the Pro Rata Outstandings) then in effect, ignoring, in such
calculation, the Commitments and Pro Rata Outstandings of any Non-Funding
Lender.
 
“Requirements of Law” means, with respect to any Person, collectively, the
common law and all federal, state, local, foreign, multinational or
international laws, statutes, codes, treaties, standards, rules and regulations,
guidelines, ordinances, orders, judgments, writs, injunctions, decrees
(including administrative or judicial precedents or authorities) and the
interpretation or administration thereof by, and other determinations,
directives, requirements or requests of, any Governmental Authority published or
otherwise publicly-announced or of which Borrowers have received notice or have
actual knowledge, in each case whether or not having the force of law and that
are applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.
 
“Responsible Officer” means, with respect to any Person, any of the president,
chief executive officer, treasurer, assistant treasurer, controller, managing
member or general partner of such Person, or its member or general partner, or
its member’s or general partner’s member or general partner, as the case may be,
but, in any event, with respect to financial matters, any such natural person
that is responsible for preparing and approving the Financial Statements
delivered hereunder and, with respect to the Corporate Chart and other documents
delivered pursuant to Section 6.1(e), documents delivered on the Closing Date
and documents delivered pursuant to Section 7.10, the secretary or assistant
secretary of such Person or any other such natural person responsible for
maintaining the corporate and similar records of such Person.
 
“Restatement Closing Date” means December 11, 2006.
 
“Restricted Payment” means (a) any dividend, return of capital, distribution or
any other payment or Transfer of property for less than fair market value,
whether direct or indirect (including through the use of Hedging Agreements, the
making, repayment, cancellation or forgiveness of Indebtedness and similar
Contractual Obligations) and whether in cash, securities or other property, on
account of any Equity Interest or Equity Equivalent of any Borrower, in each
case now or hereafter outstanding, including with respect to a claim for
rescission of a Transfer of such Equity Interest or Equity Equivalent and (b)
any redemption, retirement, termination, defeasance, cancellation, purchase or
other acquisition for value, whether direct or indirect (including through the
use of Hedging Agreements, the making, repayment, cancellation or forgiveness of
Indebtedness and similar Contractual Obligations), of any Equity Interest or
Equity Equivalent of any Borrower, now or hereafter outstanding, and any payment
or other transfer setting aside funds for any such redemption, retirement,
termination, cancellation, purchase or other acquisition, whether directly or
indirectly and whether to a sinking fund, a similar fund or otherwise.
 

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“S&P” means Standard & Poor’s Rating Services.
 
“Scheduled Maturity Date” means the 5th anniversary of the Closing Date.
 
“Second Extension Notice” has the meaning specified in Section 2.2(b).
 
“Second Extension Period” has the meaning specified in Section 2.2(b).
 
“Secured Hedging Agreements” means any Hedging Agreement that is entered into by
any Borrower and any Person that, at the time such Person entered into such
Hedging Agreement, was the Administrative Agent, a Lender or an Affiliate of a
Lender.
 
“Secured Parties” means the Lenders, the Administrative Agent, each other
Indemnitee and any other holder of any Obligation of any Borrower.
 
“Security” means all Equity Interests, Equity Equivalents, voting trust
certificates, bonds, debentures, instruments and other evidence of Indebtedness,
whether or not secured, convertible or subordinated, all certificates of
interest, share or participation in, all certificates for the acquisition of,
and all warrants, options and other rights to acquire, any Security.
 
“Security Agreement” means that certain Pledge and Security Agreement, dated as
of December 1, 2006, among the Administrative Agent and each Borrower from time
to time party thereto as it may be amended, restated or otherwise modified from
time to time.
 
“Seller” means, collectively, PITA General Corporation, a Illinois corporation,
AHC Tenants, Inc, a Delaware corporation, and their Affiliates.
 
“Single Purpose Entity” shall mean a Person, other than an individual, which
(i) is formed or organized solely for the purpose of owning, holding,
developing, using, operating and financing, directly a Facility, or, in the case
of Parent, indirectly, an ownership interest in a Facility, (ii) does not engage
in any business unrelated to such Facility or with respect to the Parent,
indirectly, all of the Facilities and the ownership, development, use, operation
and financing thereof, (iii) has not and will not have any assets other than
those related to its interest in such Facility or with respect to the Parent,
indirectly, all of the Facilities or the operation, management and financing
thereof or any Indebtedness other than the Permitted Indebtedness, (iv) except
if Consolidated with other Borrowers, maintains its own separate books and
records and its own accounts, in each case, which are separate and apart from
the books and records and accounts of any other Person, (v) holds itself out as
being a Person, separate and apart from any other Person, (vi) does not and will
not commingle its funds or assets with those of any other Person, (vii) conducts
its own business in its own name, (viii) except if Consolidated with other
Borrowers, maintains separate financial statements, (ix) pays its own
liabilities out of its own funds, (x) observes all limited liability company
formalities, (xi) pays the salaries of its own employees, if any, and maintains
a sufficient number of employees, if any, in light of its contemplated business
operations, (xii) except as expressly permitted under the Loan Documents, or to
the other Borrowers with respect to the Loan, does not guarantee or otherwise
obligate itself with respect to the debts of any other Person (other than by
endorsements of negotiable instruments for deposit or collection in the ordinary
course of business) or hold out its credit as being available to satisfy the
obligations of any other Person, (xiii) does not acquire obligations or
securities of its partners, members or shareholders, (xiv) allocates fairly and
reasonably shared
 

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expenses, including, without limitation, any overhead for shared office space,
if any, (xv) uses separate stationery, invoices, and checks, (xvi) maintains an
arm’s length relationship with its Affiliates, (xvii) other than pursuant to the
Loan Documents does not and will not pledge its assets for the benefit of any
other Person or make any loans or advances to any other Person, (xviii) does and
will continue to use commercially reasonable efforts to correct any known
misunderstanding regarding its separate identity, (xix) maintains adequate
capital in light of its contemplated business operations; provided, however,
this provision shall not require any member of any Borrower, or any other party,
to make any capital contributions to any Borrower, and (xx) has not and will not
engage in, seek, or consent to the dissolution, winding up, liquidation,
consolidation or merger and except as otherwise permitted in this Agreement, has
not and will not engage in, seek or consent to any asset sale, transfer or
partnership, membership or shareholder interests, or amendments of its
Constituent Documents. In addition, if such Person is a partnership, (1) all
general partners of such Person shall be Single Purpose Entities (owning nothing
other than its general partnership interests); and (2) if such Person has more
than one general partner, then the Constituent Documents shall provide that such
Person shall continue (and not dissolve) for so long as a solvent general
partner exists. In addition, if such Person is a corporation, then, at all
times: (a) such Person shall have at least one (1) Independent Director and
(b) the board of directors of such Person may not take any action requiring the
unanimous affirmative vote of 100% of the members of the board of directors
unless all of the directors, including the Independent Directors, shall have
participated in such vote. In addition, if such Person is a limited liability
company, (A) such Person shall have at least one (1) Independent Manager or
Independent Member, (B) if such Person is managed by a board of managers, the
board of managers of such Person may not take any action requiring the unanimous
affirmative vote of 100% of the members of the board of managers unless all of
the managers, including the Independent Managers, shall have participated in
such vote, (C) if such Person is not managed by a board of managers, the members
of such Person may not take any action requiring the affirmative vote of 100% of
the members of such Person unless all of the members, including the Independent
Members, shall have participated in such vote, (D) except in the case of the
Parent, each managing member shall be a Single Purpose Entity and, in the case
of the Parent, shall own nothing other than the Equity Interests in the SPEs,
and (E) its Constituent Documents shall provide that until all of the
Indebtedness and Obligations are paid in full such entity will not dissolve. In
addition, the Constituent Documents of such Person shall provide that such
Person without the unanimous consent of all of the partners, managers, directors
or members, as applicable, shall not with respect to itself or to any other
Person in which it has a direct or indirect legal or beneficial interest
(A) seek or consent to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator, custodian or other similar official for the benefit of
the creditors of such Person or all or any portion of such Person’s properties,
(B) take any action that could reasonably be expected to cause such Person to
become insolvent, petition or otherwise institute insolvency proceedings or
otherwise seek any relief under any laws relating to the relief from debts or
the protection of debtors generally, “or” (C) take any action that would cause
such Person not to satisfy the requirements set forth herein for a Single
Purpose Entity.
 
“Solvent” means, with respect to any Person as of any date of determination,
that, as of such date, (a) the value of the assets of such Person (both at fair
value and present fair saleable value) is greater than the total amount of
liabilities (including contingent and unliquidated liabilities) of such Person,
(b) such Person is able to pay its aggregate liabilities of such Person, as such
liabilities mature and (c) such Person does not have unreasonably small capital
in light of its intended operations. In computing the amount of contingent or
unliquidated liabilities at any time, such liabilities shall be computed at the
amount that, in light of all the facts and
 

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circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.
 
“SPE” has the meaning specified in the preamble hereto.
 
“SPV” means any special purpose funding vehicle identified as such in a writing
by any Lender to the Administrative Agent.
 
“Subordinated Debt” means any Indebtedness that is subordinated to the payment
in full of the Obligations on terms and conditions satisfactory to the
Administrative Agent.
 
“Subsidiary” means, with respect to any Person, any corporation, partnership,
joint venture, limited liability company, association or other entity, the
management of which is, directly or indirectly, controlled by, or of which an
aggregate of more than 50% of the outstanding Voting Interest is, at the time,
owned or controlled directly or indirectly by, such Person or one or more
Subsidiaries of such Person.
 
“Substitute Lender” has the meaning specified in Section 2.12(a).
 
“SWDA” means the Solid Waste Disposal Act (42 U.S.C. §§ 6901 et seq.).
 
“Tax Affiliate” means, (a) any Borrower and (b) any Affiliate of any Borrower
with which any Borrower files or is eligible to file consolidated, combined or
unitary tax returns.
 
“Tax Return” has the meaning specified in Section 4.8.
 
“Taxes” has the meaning specified in Section 2.11(a).
 
“Term Loan” has the meaning specified in Section 2.1(a).
 
“Terrorism” has the meaning specified in Section 7.5(b).
 
“Third-Party Payor Program” has the meaning specified in Section 4.1(b).
 
“Title IV Plan” means a pension plan subject to Title IV of ERISA, other than a
Multiemployer Plan, to which any ERISA Affiliate incurs or otherwise has any
obligation or liability.
 
“Trademarks” means all rights, title and interests (and all related IP Ancillary
Rights) arising under any Requirement of Law in or relating to trademarks, trade
names, corporate names, company names, business names, fictitious business
names, trade styles, service marks, logos and other source or business
identifiers and, in each case, all goodwill associated therewith, all
registrations and recordations thereof and all applications in connection
therewith.
 
“Trade Secrets” means all right, title and interest (and all related IP
Ancillary Rights) arising under any Requirement of Law in or relating to trade
secrets.
 
“Transfer” means, with respect to any property, to sell, convey, transfer,
assign, license, lease or otherwise dispose of, any interest therein or to
permit any Person to acquire any such interest, including, in each case, through
a sale, factoring at maturity, collection of or other
 

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disposal, with or without recourse, of any notes or accounts receivable.
Conjugated forms thereof and the noun “Transfer” have correlative meanings.
 
“UCC” means the Uniform Commercial Code of any applicable jurisdiction and, if
the applicable jurisdiction shall not have any Uniform Commercial Code, the
Uniform Commercial Code as in effect in the State of New York.
 
“United States” means the United States of America.
 
“U.S. Lender Party” means each of the Administrative Agent, each Lender, each
SPV and each participant, in each case that is a Domestic Person.
 
“Voting Interest” means Equity Interests of any Person having ordinary power to
vote in the election of members of the board of directors, managers, trustees or
other controlling Persons, of such Person (irrespective of whether, at the time,
Equity Interests of any other class or classes of such entity shall have or
might have voting power by reason of the occurrence of any contingency).
 
“Westlake” means that certain healthcare facility known as The Gardens at
Westlake and formerly known as Cypress Gardens at Westlake and located at 27569
Detroit Road, Westlake, Ohio.
 
“Whittier Residence” means that certain single family home located at the
Facility known as The Gardens at Whittier and formerly known as Cypress Gardens
at Whittier located in Whittier California.
 
“Withdrawal Liability” means, at any time, any liability incurred (whether or
not assessed) by any ERISA Affiliate and not yet satisfied or paid in full at
such time with respect to any Multiemployer Plan pursuant to Section 4201 of
ERISA.
 
“Working Capital” means, for any Person at any date, its Consolidated Current
Assets at such date minus its Consolidated Current Liabilities at such date.
 
 
Section 1.2  UCC Terms. The following terms have the meanings given to them in
the applicable UCC: “commodity account”, “commodity contract”, “commodity
intermediary”, “deposit account”, “entitlement holder”, “entitlement order”,
“equipment”, “financial asset”, “general intangible”, “goods”, “instruments”,
“inventory”, “securities account”, “securities intermediary” and “security
entitlement”.
 
 
Section 1.3  Accounting Terms and Principles. (a) GAAP. All accounting
determinations required to be made pursuant hereto shall, unless expressly
otherwise provided herein, be made in accordance with GAAP. No change in the
accounting principles used in the preparation of any Financial Statement
hereafter adopted by Parent shall be given effect if such change would affect a
calculation that measures compliance with any provision of Article V or VIII
unless the Borrowers, the Administrative Agent and the Required Lenders agree to
modify such provisions to reflect such changes in GAAP and, unless such
provisions are modified, all Financial Statements, Compliance Certificates and
similar documents provided hereunder shall be provided together with a
reconciliation between the calculations and amounts set forth therein before and
after giving effect to such change in GAAP. 
 
 
 
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Section 1.4  Payments. The Administrative Agent may set up standards and
procedures to determine or redetermine the equivalent in Dollars of any amount
expressed in any currency other than Dollars and otherwise may, but shall not be
obligated to, rely on any determination made by any Borrower. Any such
determination or redetermination by the Administrative Agent shall be conclusive
and binding for all purposes, absent manifest error. No determination or
redetermination by any Secured Party or Borrower and no other currency
conversion shall change or release any obligation of any Borrower or of any
Secured Party (other than the Administrative Agent and its Related Persons)
under any Loan Document, each of which agrees to pay separately for any
shortfall remaining after any conversion and payment of the amount as converted.
The Administrative Agent may round up or down to the nearest 1,000th, and may
set up appropriate mechanisms to round up or down to the nearest 1,000th.
 
 
Section 1.5  Interpretation. (a) Certain Terms. Except as set forth in any Loan
Document, all accounting terms not specifically defined herein shall be
construed in accordance with GAAP (except for the term “property”, which shall
be interpreted as broadly as possible, including, in any case, cash, securities,
other assets, rights under Contractual Obligations and Permits and any right or
interest in any property). The terms “herein”, “hereof” and similar terms refer
to this Agreement as a whole. In the computation of periods of time from a
specified date to a later specified date in any Loan Document, the terms “from”
means “from and including” and the words “to” and “until” each mean “to but
excluding” and the word “through” means “to and including.” In any other case,
the term “including” when used in any Loan Document means “including without
limitation.” The term “documents” means all writings, however evidenced and
whether in physical or electronic form, including all documents, instruments,
agreements, notices, demands, certificates, forms, financial statements,
opinions and reports. The term “incur” means incur, create, make, issue, assume
or otherwise become directly or indirectly liable in respect of or responsible
for, in each case whether directly or indirectly, and the terms “incurrence” and
“incurred” and similar derivatives shall have correlative meanings. The word
“will” shall be construed to have the same meaning and effect as the word
“shall”. The definitions in this Agreement shall apply equally to singular and
plural forms of the defined terms and, whenever the context may require, any
pronoun shall include the corresponding masculine feminine and neuter forms.
 
(b) Certain References. Unless otherwise expressly indicated, references (i) in
this Agreement to an Exhibit, Schedule, Article, Section or clause refer to the
appropriate Exhibit or Schedule to, or Article, Section or clause in, this
Agreement and (ii) in any Loan Document, to (A) any agreement shall include,
without limitation, all exhibits, schedules, appendixes and annexes to such
agreement and, unless the prior consent of any Secured Party required therefor
is not obtained, any modification to any term of such agreement, (B) any statute
shall be to such statute as modified from time to time and to any successor
legislation thereto, in each case as in effect at the time any such reference is
operative and (C) any time of day shall be a reference to New York time. Titles
of articles, sections, clauses, exhibits, schedules and annexes contained in any
Loan Document are without substantive meaning or content of any kind whatsoever
and are not a part of the agreement between the parties hereto. Unless otherwise
expressly indicated, the meaning of any term defined (including by reference) in
any Loan Document shall be equally applicable to both the singular and plural
forms of such term.
 
 
 
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ARTICLE II  
 
 

 
 
THE FACILITIES
 
 
Section 2.1  Term Loan Commitment, Borrowing Procedures and Escrow Requirement.
(a) Term Loan Commitment and Borrowing Procedures. (i) On the terms and subject
to the conditions contained in this Agreement, each Lender severally, but not
jointly, agrees to make loans (each a “Term Loan”) in Dollars to the Borrowers
in a maximum amount not to exceed such Lender’s Term Loan Commitment, and the
aggregate of all Commitments in a maximum aggregate amount not to exceed
$167,000,000. An initial advance was made by Administrative Agent on the Closing
Date in an amount equal to $139,940,000. Upon any Permitted Acquisition, subject
to the Interest Holdback and the Capital Improvement Holdback, advances shall be
made in an amount not to exceed the amount set forth on Schedule 8.7 for each
respective healthcare facility being acquired. Advances related to the Interest
Holdback and the Capital Improvement Holdback shall be made pursuant to Section
2.1(b)(i). Amounts of Term Loans repaid may not be reborrowed. Amounts
over-advance shall be immediately repaid by Borrowers.
 
(ii)  Borrowing Procedures. Each advance under the Term Loan shall be made on
notice given by the Borrowers to the Administrative Agent not later than
11:00 a.m. on the third Business Day prior to the date of the proposed advance.
Each such notice may be made in a writing substantially in the form of Exhibit F
(a “Notice of Borrowing”) duly completed or by telephone if confirmed promptly.
Loans shall be made as Eurodollar Rate Loans.
 
The Administrative Agent shall give to each Lender prompt notice of the
Administrative Agent’s receipt of a Notice of Borrowing and including the
applicable interest rate not later than 11:00 a.m. on the second Business Day
prior to the proposed advance. Each Lender shall, before 11:00 a.m. on the date
of the proposed Borrowing, make available to the Administrative Agent at its
address referred to in Section 11.11, such Lender’s Pro Rata Share of such
proposed Borrowing. Upon fulfillment or due waiver (i) on the Closing Date, or
(ii) on the date of the closing of any Permitted Acquisition (a “Permitted
Acquisition Closing Date”), of the applicable conditions set forth in
Section 3.1, the Administrative Agent shall make such funds available to the
Borrower.
 
Non-Funding Lenders. Unless the Administrative Agent shall have received notice
from any Lender prior to the date such Lender is required to make any payment
hereunder with respect to any Loan that such Lender will not make such payment
(or any portion thereof) available to the Administrative Agent, the
Administrative Agent may assume that such Lender has made such payment available
to the Administrative Agent on the date such payment is required to be made in
accordance with this Article II and the Administrative Agent may, in reliance
upon such assumption, make available to the Borrower on such date a
corresponding amount. Any Lender that shall not have made available to the
Administrative Agent any portion of any payment described above (any such
Lender, a “Non-Funding Lender”) agrees to pay such amount to the Administrative
Agent on demand together with interest thereon (such amount plus such interest,
the “Non-Funded Amount”), for each day from the date such amount is made
available to the Borrower until the date such amount is repaid to the
Administrative Agent (either by such Non-Funding Lender or by a Substitute
Lender under Section 2.12), at the Federal Funds
 

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Rate for the first Business Day and thereafter at the interest rate applicable
at the time to such Term Loan. Such repayment shall then constitute the funding
of the corresponding Term Loan (including any Loan deemed to have been made
hereunder with such payment) or participation. In the event a Non-Funding Lender
fails to pay the Non-Funded Amount, the Administrative Agent shall have the
right, but not the obligation, to become a Substitute Lender pursuant to Section
2.12 and increase its Commitment by the Non-Funded Amount, in which case such
Non-Funded Amount shall constitute a funding by Administrative Agent of the
corresponding Term Loan. If Administrative Agent chooses not to become a
Substitute Lender for the Non-Funded Amount, it shall notify Borrowers of such
Lender’s failure to make payment hereunder. Borrower agrees to repay to the
Administrative Agent the Non-Funded Amount together with interest thereon for
each day from the date such amount is made available to the Borrower until the
date such amount is repaid to the Administrative Agent, at the interest rate
applicable to the Obligation that would have been created when the
Administrative Agent made available such amount to the Borrower had such Lender
made a corresponding payment available; provided, however, that such payment
shall not relieve such Lender of any obligation it may have to the
Borrower. Such repayment by Borrower shall be made not later than 30 days
following the receipt of such notice. The existence of any Non-Funding Lender
shall not relieve any other Lender of its obligations under any Loan Document,
but no other Lender shall be responsible for the failure of any Non-Funding
Lender to make any payment required under any Loan Document.
 
(b) Holdbacks, Reserves and Escrows.
 
(i)  Holdbacks. (A) A portion of the proceeds of the Term Loan in an amount
equal to Three Million Two Hundred Thousand Dollars and No/100 Dollars
($3,200,000) (the “Interest Holdback”) shall be retained by the Administrative
Agent as a holdback, which amount shall be advanced by Administrative Agent to
pay any shortfall in the interest due hereunder that cannot be paid out of
Consolidated EBITDA; provided, however, at such time as the Consolidated
Interest Coverage Ratio on any date of documentation shall be greater than or
equal 1.10 to 1.00 for each of the immediately preceding twelve (12) months, the
Interest Holdback shall no longer be required and, provided no Event of Default
has occurred and is continuing, the balance of the Interest Holdback shall be
refunded to Borrowers. Absent the existence of any Event of Default hereunder or
under any of the other Loan Documents, to the extent any such shortfall exists,
Administrative Agent shall make disbursements on the applicable due date for the
payment of interest due on the Loan, in accordance with Sections 2.2(b). Such
disbursements under the Interest Holdback shall not exceed, in the aggregate,
the amount of the Interest Holdback set forth above and shall be deemed to be a
Term Loan made hereunder. Nothing in this Section 2.1(b)(i)(A) shall be deemed
to relieve Borrowers of their obligation to timely pay all principal and
interest which comes due.
 
(B) A portion of the proceeds of the Term Loan in an amount equal to Five
Million One Hundred Thirty Thousand Dollars and No/100 Dollars ($5,130,000) (the
“Capital Improvement Holdback”) shall be retained by the Administrative Agent,
which amount shall be advanced by Administrative Agent to pay costs and expenses
related to the repairs, improvements, and replacements identified on Schedule
2.1. Absent the existence of any Event of Default hereunder or under any of the
other Loan Documents, upon evidence of the completion of, and verification of
the cost associated with, such repair, improvement or replacement (whether
authorized for
 

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payment or actually paid by Borrowers), Administrative Agent shall make
disbursements under the Term Loan in an amount not to exceed 82.5% of such cost
to reimburse Borrowers for such repair, improvement or replacement. To the
extent any payment is authorized for payment or actually paid by Borrowers prior
to completion of any repair, improvement or replacement, upon submittal of
invoices associated with such partial payments and absent the existence of any
Event of Default hereunder, Administrative Agent shall reimburse Borrowers no
more frequently than on time per month, in an amount not to exceed 82.5% (less
customary holdbacks to ensure completion) of such partial cost to reimburse
Borrowers for such repair, improvement or replacement. Disbursements under the
Capital Improvement Holdback shall not exceed, in the aggregate, the amount of
the Capital Improvement Holdback set forth above and shall be deemed to be a
Term Loan made hereunder. To the extent funds are advanced for invoices not
already paid by Borrowers, (i) Borrowers shall provide Administrative Agent with
evidence that each such invoice was paid in full and (ii) until such time as the
paid invoices are received by Administrative Agent, Administrative Agent shall
only, upon Borrowers’ request, reimburse Borrowers for invoices actually paid.
Borrowers shall be obligated to make the repairs, improvements and replacements
identified on Schedule 2.1 on the respective dates set forth therein. Upon
completion of all items on Schedule 2.1, the balance of the Capital Improvement
Holdback shall be refunded to Borrowers.
 
(ii)  Replacement Reserve. At or before the initial advance under the Term Loan,
the Borrowers shall deposit with the Administrative Agent a sum of money in an
amount equal to TWENTY FIVE DOLLARS ($25) per bed (the “Monthly Replacement
Reserve Deposit”), and shall thereafter make a deposit equal to the Monthly
Replacement Reserve Deposit each month, contemporaneously with its payment of
interest due hereunder, provided, however, at such time as the amount in such
replacement reserve is equal to or greater than 12 times the Monthly Replacement
Reserve Deposit (the “Maximum Reserve Amount”), the Borrowers shall not be
obligated to make any further Monthly Replacement Reserve Deposits until such
time as the amount in such reserve is less than the Maximum Reserve Amount.
Administrative Agent shall release funds from this reserve to reimburse the
Borrowers, or pay directly if a request is made for an amount in excess of
$20,000, for capital expenditures for, and replacement of furniture, fixtures
and equipment used in connection with, the Facilities, promptly following the
Borrowers’ request therefore, which request shall be accompanied by invoices or
other reasonable evidence of the payment or obligations for which a release is
being requested.
 
(iii)  Tax Escrow. The Borrowers shall deposit monthly with the Administrative
Agent or the Administrative Agent’s designee, a sum of money equal to equal to
one-twelfth (1/12th) of the annual charges for real estate taxes, assessments
and impositions relating to the Facilities as reasonably estimated by
Administrative Agent. At or before the initial advance under the Term Loan, the
Borrowers shall deposit with the Administrative Agent a sum of money which
together with such monthly installments will be sufficient to make such tax
payments thirty (30) days prior to the date any delinquency or penalty becomes
due. Provided sufficient funds are available in the foregoing tax reserve,
Administrative Agent shall use such funds to pay real estate taxes, assessments
and impositions relating to the Facilities prior to the date same are due, and
 

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any obligations of the Borrowers hereunder to pay same shall be deemed satisfied
if sufficient funds to pay same are in such reserve.
 
(iv)  Insurance Escrow. To the extent non-captive insurance is utilized and a
third party collects a premium for such insurance coverage, the Borrowers shall
deposit monthly with the Administrative Agent or Administrative Agent’s
designee, a sum of money equal to equal to one-twelfth (1/12th) of the annual
charges for insurance premiums relating to the insurance coverages required by
this Agreement as reasonably estimated by Administrative Agent. At or before the
initial advance under the Loan, the Borrowers shall deposit with the
Administrative Agent a sum of money which together with such monthly
installments will be sufficient to make such insurance payments thirty (30) days
prior to the date any delinquency or penalty becomes due. Provided sufficient
funds are available in the foregoing insurance reserve, Administrative Agent
shall use such funds to pay insurance premiums relating to the Facilities prior
to the date same are due, and any obligations of the Borrowers hereunder to pay
same shall be deemed satisfied if sufficient funds to pay same are in such
reserve.
 
(v)  Disbursement and Interest. After the Closing Date, deposits in respect of
the escrows described in clauses (iii) - (iv) above shall be made on the basis
of the Administrative Agent’s reasonable estimate from time to time of the
charges for the current year (or other applicable period). All funds deposited
pursuant to clause (iii) - (iv) shall be held by the Administrative Agent. These
sums may be commingled with the general funds of the Administrative Agent and
shall not be deemed to be held in trust for the benefit of the Borrowers. So
long as no Event of Default exists hereunder, the Administrative Agent shall
credit for the Borrowers’ account interest on such funds held by the
Administrative Agent from time to time at the money market account rate
announced from time to time by The Northern Trust Company or any other national
banking association selected by the Administrative Agent in its sole discretion
(the “Money Market Rate”). All interest paid on such funds shall be deemed to be
a part of the respective escrow and shall be applied in accordance with this
Section 2.1(b). The Borrowers hereby grant to the Administrative Agent for the
benefit of Lender and the Administrative Agent a security interest in all funds
so deposited with the Administrative Agent for the purpose of securing the
Obligations. While an Event of Default exists, the funds deposited may be
applied in payment of the charges for which such funds have been deposited, or
to the payment of the Obligations or any other charges affecting the security of
the Administrative Agent, as the Administrative Agent may elect, but no such
application shall be deemed to have been made by operation of law or otherwise
until actually made by the Administrative Agent. The Borrowers shall furnish the
Administrative Agent with bills for the charges for which such escrows are
required promptly upon the Borrowers’ receipt thereof. If at any time the amount
in escrow with the Administrative Agent, together with amounts to be deposited
by the Borrowers before such charges are payable, is insufficient to pay such
charges, the Borrowers shall deposit any deficiency with the Administrative
Agent immediately upon demand. The Administrative Agent shall promptly pay such
charges, when the amount in escrow with the Administrative Agent is sufficient
to pay such charges and the Administrative Agent has received a bill for such
charges, if applicable.
 
 
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Section 2.2  Termination of the Commitments, Maturity Date and Repayment of
Loans. (a)Termination of Term Loan Commitments. Outstanding Term Loan
Commitments in an amount equal to the amount of any Term Loan actually advanced
shall terminate on the date of such advance (after giving effect to the Term
Loan occurring on such date). The balance of all outstanding Term Loan
Commitments shall terminate on the six (6) month anniversary of the Closing
Date.
 
(b)  Maturity Date and Repayment of the Term Loans. Commencing on January 2,
2007, the Borrowers shall pay interest in arrears on the first day of each month
until all amounts due under the Loan Documents are paid in full. If the first
day of the month is not a Business Day, then the applicable payment due
hereunder shall be made on the first Business Day of such month. The Borrowers
promise to repay all outstanding principal and accrued but unpaid interest,
costs, expenses and fees under or related to the Term Loans on the Maturity
Date.
 
The Borrowers may extend the Maturity Date to the first anniversary of the
Scheduled Maturity Date (the “First Extension Period”) provided the following
conditions are satisfied: (i) Borrowers have given the Administrative Agent
written notice (the “First Extension Notice”) of such extension not less than
thirty (30) days nor more than ninety (90) days prior to the Scheduled Maturity
Date; (ii) no Event of Default has occurred and is continuing at the time of, or
at any time after the delivery of, the First Extension Notice; (iii) if the
Consolidated Project Yield as of the commencement of the First Extension Period
would not be greater than or equal to 10%, the Borrowers shall, prior to the
commencement of the First Extension Period, deposit with Administrative Agent,
to be held in escrow (the “Cash Collateral Escrow”), an amount which, if applied
against to the outstanding principal balance of the Term Loan would cause the
Consolidated Project Yield as of the commencement of the First Extension Period
to be equal to 10%; (iv) an Interest Rate Contract, reasonably acceptable to the
Administrative Agent, shall be in full force and effect and (v) there shall have
been no material adverse change in the business or financial condition of the
Borrowers taken as a whole, which determination shall be made in the sole and
absolute discretion of the Administrative Agent.

In addition to the First Extension Period, the Borrowers may further extend the
Loan for the twelve (12) month period ending on the second anniversary of the
Scheduled Maturity Date (the “Second Extension Period”), provided the following
conditions are satisfied: (i) Borrowers has given the Administrative Agent
written notice (the “Second Extension Notice”) of such extension not less than
thirty (30) days nor more than ninety (90) days prior to the expiration of First
Extension Period; (ii)  no Event of Default has occurred and is continuing at
the time of, or at any time after the delivery of, the Second Extension Notice;
(iii) if the Consolidated Project Yield as of the commencement of the Second
Extension Period would not be greater than or equal to 10%, the Borrowers shall,
prior to the commencement of the Second Extension Period, deposit into the Cash
Collateral Escrow, an amount which, if applied against to the outstanding
principal balance of the Term Loan would cause the Consolidated Project Yield as
of the commencement of the Second Extension Period to be equal to 10%; and (iv)
an Interest Rate Contract, reasonably acceptable to the Administrative Agent,
shall be in full force and effect and (v) there shall have been no material
adverse change in the business or financial condition of the Borrowers taken as
a whole, which determination shall be made in the sole and absolute discretion
of the Administrative Agent.
 
Section 2.3  Optional Prepayments. The Borrowers may not prepay any of the
outstanding principal balance of the Term Loans in whole or in part prior to the
1st anniversary of the Closing Date other than as may be permitted pursuant to
Section 8.4(d) in respect of the sale of Westlake or Boynton or the Whittier
Residence. From and after the first anniversary of                         
 
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   the Closing Date, the Borrowers may prepay the outstanding principal amount
of the Term Loans and other Obligations in whole but not in part at any time,
without premium or penalty, other than as set forth in Section 2.10(a).
 
Section 2.4  Mandatory Payments. (a) Excess Cash Flow. For any quarter ending
after the 2nd anniversary of the Closing Date, if the Consolidated Project Yield
shall be less than 10% (for the relevant period as set forth in Section 5.1),
the Borrowers shall pay or cause to be paid to the Administrative Agent, within
five (5) Business Days after the last date Financial Statements can be delivered
pursuant to Section 6.1(b) for such quarter, an amount equal to 100% of the
Excess Cash Flow for such quarter and continuing thereafter on the last Business
Day of each calendar month, which amount shall be held in the Cash Collateral
Escrow; provided, however, if the Consolidated Project Yield shall, for two (2)
consecutive quarters, be equal to or greater than 10% (for the relevant period
as set forth in Section 5.1), the mandatory payment of Excess Cash Flow required
pursuant to this Section 2.4 shall be suspended, but only for so long as the
Consolidated Project Yield shall remain equal to or greater than 10% (for the
relevant period as set forth in Section 5.1).
 
(c)  Cash Collateral Escrow. All funds held in the Cash Collateral Escrow shall
be additional collateral to secure the Borrowers Obligations hereunder.
Notwithstanding the other provisions of this Agreement, the Borrowers shall have
the right, but not the obligation, at any time when there shall exist a positive
balance in the Cash Collateral Escrow, to repay a portion of the outstanding
principal balance of the Term Loan, subject to Section 2.3, up to the amount
held in the Cash Collateral Escrow. In such event, within ten (10) days of such
repayment, Administrative Agent shall cause an amount equal to the amount so
repaid to be released to the Borrowers from the Cash Collateral Escrow.
 
(d)  Asset Sales and Property Loss Events. Upon receipt on or after the Closing
Date by any Borrower of Net Cash Proceeds arising from (i) any Transfer by any
Borrower of any of its property other than Transfers of its own Equity Interests
and Transfers of property permitted hereunder in reliance upon any of clauses
(a) through (c) of Section 8.4 or (ii) any Property Loss Event with respect to
any property of any Borrower to the extent resulting, in the aggregate with all
other such Property Loss Events, in the receipt by any of them of Net Cash
Proceeds in excess of $50,000, such Borrower shall immediately pay or cause to
be paid to the Administrative Agent an amount equal to 100% of such Net Cash
Proceeds; provided, however, that, in the case of clause (ii) above, upon any
such receipt, as long as no Event of Default shall be continuing, any Borrower
may make Permitted Reinvestments with such Net Cash Proceeds and such Borrower
shall not be required to make or cause such payment to the extent (x) such Net
Cash Proceeds are intended to be or are actually used to make Permitted
Reinvestments and (y) on each Reinvestment Prepayment Date for such Net Cash
Proceeds, such Borrower shall pay or cause to be paid to the Administrative
Agent an amount equal to the Reinvestment Prepayment Amount applicable to such
Reinvestment Prepayment Date.
 
(e)  Application of Payments. Any payments made to the Administrative Agent
pursuant to this Section 2.4 shall be applied to the Obligations in accordance
with Section 2.6(b).
 
 
 
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Section 2.5  Interest. (a) Rate. The Term Loans and the outstanding amount of
all other Obligations (other than pursuant to Secured Hedging Agreements) shall
bear interest, in the case of the Term Loans, on the unpaid principal amount
thereof from the date such Term Loan is made, and, in the case of such other
Obligations, from the date such other Obligations are due and payable until, in
each case, paid in full, except as otherwise provided in clause (c) below, as
follows: (i) in the case of Eurodollar Rate Loans, at a rate per annum equal to
the sum of the Eurodollar Rate plus the Applicable Margin, each as in effect for
the applicable Interest Period, and (iii) in the case of other Obligations, at a
rate per annum equal to the Base Rate as in effect from time to time.
 
(b)  Default Interest. Notwithstanding the rates of interest specified in
clause (a) above or elsewhere in any Loan Document, effective immediately upon
(A) the occurrence of any Event of Default under Section 9.1(e)(ii) or (B) the
delivery of a notice by the Administrative Agent at the direction of the
Required Lenders to any Borrower during the continuance of any other Event of
Default and, in each case, for as long as such Event of Default shall be
continuing, the principal balance of all Obligations (including any Obligation
that bears interest by reference to the rate applicable to any other Obligation)
then due and payable shall bear interest at a rate that is 4% per annum in
excess of the interest rate applicable to such Obligations from time to time,
payable on demand or, in the absence of demand, on the date that would otherwise
be applicable. 
 
(c)  Additional Fees. The Borrowers shall pay to the Administrative Agent and
its Related Persons its reasonable and customary fees and expenses in connection
with any payments made pursuant to Section 2.10(a) (Breakage Costs) and have
agreed to pay the additional fees described in the Fee Letter.
 
 
Section 2.6  Application of Payments. (a) Application of Voluntary Prepayments.
Unless otherwise provided in this Section 2.6 or elsewhere in any Loan Document,
all payments and any other amounts received by the Administrative Agent from or
for the benefit of the Borrowers shall be applied to repay the Obligations the
Borrowers designate, and shall be paid pro rata by the Administrative Agent to
the Lenders.
 
(b)  Application of Mandatory Prepayments. Subject to the provisions of clause
(c) below with respect to the application of payments during the continuance of
an Event of Default, any payment made by any Borrower to the Administrative
Agent pursuant to Section 2.4 or any other prepayment of the Obligations
required to be applied in accordance with this clause (b) shall be applied to
repay the outstanding principal balance of the Term Loans.
 
(c)  Application of Payments During an Event of Default. Each Borrower hereby
irrevocably waives, and agrees to cause each other Borrower and each other
Borrower to waive, the right to direct the application during the continuance of
an Event of Default of any and all payments in respect of any Obligation and any
proceeds of Collateral and agrees that, during the continuance of an Event of
Default, notwithstanding the provisions of clause (a) above, the Administrative
Agent may, and, upon either (A) the direction of the Required Lenders or (B) the
termination of any Commitment or the acceleration of any Obligation pursuant to
Section 9.2 as a result of such Event of Default, shall, apply all payments in
respect of any Obligation, all funds on deposit in any escrow established
pursuant to Section 2.1(b) and all other proceeds of Collateral (i) first, to
pay Obligations in respect of any cost or expense reimbursements, fees or
indemnities then due to the Administrative Agent, (ii) second, to pay
Obligations in respect of
 

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any cost or expense reimbursements, fees or indemnities then due to the Lenders,
(iii) third, to pay interest then due and payable in respect of the Loans, and
(iv) fourth, to repay the outstanding principal amounts of the Loans, (v) fifth,
to pay amounts owing with respect to Secured Hedging Agreements and (vi) sixth,
to the ratable payment of all other Obligations.
 
(d)  Application of Payments Generally. All repayments of Term Loans shall be
applied first, to repay such Loans outstanding as Base Rate Loans and then, to
repay such Loans outstanding as Eurodollar Rate Loans. All repayments of Term
Loans shall be applied to reduce the remaining installments of such outstanding
principal amounts of the Term Loans in the order of their maturities. Any
priority level set forth in this Section 2.6 that includes interest shall
include all such interest, whether or not accruing after the filing of any
petition in bankruptcy or the commencement of any insolvency, reorganization or
similar proceeding, and whether or not a claim for post-filing or post-petition
interest is allowed in any such proceeding.
 
 
Section 2.7  Payments and Computations. (a) Procedure. The Borrowers shall make
each payment under any Loan Document not later than 2:00 p.m. on the day when
due to the Administrative Agent by wire transfer to the following account (or at
such other account or by such other means to such other address as the
Administrative Agent shall have notified the Borrowers in writing within a
reasonable time prior to such payment) in immediately available Dollars and
without setoff or counterclaim:
 
ABA No. 021-001-033
 
Account Number 502-695-34
 
Deutsche Bank Trust Company Americas, New York, New York
 
Account Name: GECC/Healthcare Financial Collections Depository,
 
Reference: BREA Emeritus LLC
 
The Administrative Agent shall promptly thereafter cause to be distributed
immediately available funds relating to the payment of principal, interest or
fees to the Lenders, in accordance with the application of payments set forth in
Section 2.6. The Lenders shall make any payment under any Loan Document in
immediately available Dollars and without setoff or counterclaim.
 
(b)  Computations of Interests and Fees. All computations of interest and of
fees shall be made by the Administrative Agent on the basis of a year of 360
days (or, in the case of Base Rate Loans whose interest rate is calculated based
on the rate set forth in clause (a) of the definition of “Base Rate”, 365/366
days), in each case for the actual number of days (including the first day but
excluding the last day) occurring in the period for which such interest and fees
are payable. Each determination of an interest rate or the amount of a fee
hereunder shall be made by the Administrative Agent (including determinations of
a Eurodollar Rate or Base Rate in accordance with the definitions of “Eurodollar
Rate” and “Base Rate”, respectively) and shall be conclusive, binding and final
for all purposes, absent manifest error.
 
(c)  Payment Dates. Whenever any payment hereunder shall be stated to be due on
a day other than a Business Day, the due date for such payment shall be extended
to the next succeeding Business Day without any increase in such payment as a
result of additional interest or fees; provided, however, that such interest and
fees shall continue accruing as a result of such extension of time.
 
 
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(d)  Advancing Payments. Unless the Administrative Agent shall have received
notice from the Borrowers to the Lenders prior to the date on which any payment
is due hereunder that such Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrowers has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the
extent that the Borrowers shall not have made such payment in full to the
Administrative Agent, each Lender shall repay to the Administrative Agent on
demand such amount distributed to such Lender together with interest thereon (at
the Federal Funds Rate for the first Business Day and thereafter, at the rate
applicable to Base Rate Loans) for each day from the date such amount is
distributed to such Lender until the date such Lender repays such amount to the
Administrative Agent.
 
 
Section 2.8  Evidence of Debt. (a) Records of Lenders. Each Lender shall
maintain in accordance with its usual practice accounts evidencing Indebtedness
of the Borrowers to such Lender resulting from each Loan of such Lender from
time to time, including the amounts of principal and interest payable and paid
to such Lender from time to time under this Agreement. In addition, each Lender
having sold a participation in any of its Obligations or having identified an
SPV as such to the Administrative Agent, acting as agent of the Borrowers solely
for this purpose and solely for tax purposes, shall establish and maintain at
its address referred to in Section 11.11 (or at such other address as such
Lender shall notify the Borrowers) a record of ownership, in which such Lender
shall register by book entry (A) the name and address of each such participant
and SPV (and each change thereto, whether by assignment or otherwise) and
(B) the rights, interest or obligation of each such participant and SPV in any
Obligation, in any Commitment and in any right to receive any payment hereunder.
 
(b)  Records of Administrative Agent. The Administrative Agent, acting as agent
of the Borrowers solely for tax purposes and solely with respect to the actions
described in this Section 2.8, shall establish and maintain at its address
referred to in Section 11.11 (or at such other address as the Administrative
Agent may notify the Borrowers) (A) a record of ownership (the “Register”) in
which the Administrative Agent agrees to register by book entry the interests
(including any rights to receive payment hereunder) of the Administrative Agent,
each Lender and any assignment of any such interest, obligation or right and
(B) accounts in the Register in accordance with its usual practice in which it
shall record (1) the names and addresses of the Lenders (and each change thereto
pursuant to Section 2.12 (Substitution of Lenders) and Section 11.2 (Assignments
and Participations; Binding Effect)), (2) the Commitments of each Lender, (3)
the amount of each Loan and each funding of any participation described in
clause (A) above, for Eurodollar Rate Loans, the Interest Period applicable
thereto, (4) the amount of any principal or interest due and payable or paid,
and (5) any other payment received by the Administrative Agent from the
Borrowers and its application to the Obligations. 
 
(c)  Registered Obligations. Notwithstanding anything to the contrary contained
in this Agreement, the Loans (including any Notes evidencing such Loans) are
registered obligations, the right, title and interest of the Lenders and their
assignees in and to such Loans shall be transferable only upon notation of such
transfer in the Register and no assignment thereof shall be effective until
recorded therein. This Section 2.8 and Section 11.2 shall be construed so that
the Loans are at all times maintained in “registered form” within the meaning of
Sections 163(f), 871(h)(2) and 881(c)(2) of the Code and any related regulations
(and any successor provisions).
 
 
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(d)  Prima Facie Evidence. The entries made in the Register and in the accounts
maintained pursuant to clauses (a) and (b) above shall, to the extent permitted
by applicable Requirements of Law, be prima facie evidence of the existence and
amounts of the obligations recorded therein; provided, however, that no error in
such account and no failure of any Lender or the Administrative Agent to
maintain any such account shall affect the obligations of any Borrower to repay
the Loans in accordance with their terms. In addition, the Borrowers, the
Administrative Agent and the Lenders shall treat each Person whose name is
recorded in the Register as a Lender, as applicable, for all purposes of this
Agreement. Information contained in the Register with respect to any Lender
shall be available for access by each Borrower, the Administrative Agent, and
such Lender at any reasonable time and from time to time upon reasonable prior
notice. No Lender shall, in such capacity, have access to or be otherwise
permitted to review any information in the Register other than information with
respect to such Lender unless otherwise agreed by the Administrative Agent.
 
(e)  Notes. Upon any Lender’s request, made through the Administrative Agent,
the Borrowers shall promptly execute and deliver Notes to such Lender evidencing
the Loans of such Lender and substantially in the form of Exhibit E; provided,
however, that only one Note shall be issued to each Lender, except (i) to an
existing Lender exchanging existing Notes to reflect changes in the Register
relating to such Lender, in which case the new Notes delivered to such Lender
shall be dated the date of the original Notes and the Note being replaced shall
be voided and returned to the Borrowers, and (ii) in the case of loss,
destruction or mutilation of existing Notes and similar circumstances, provided
that such Lender provides Borrowers with a lost note affidavit and indemnity
related thereto. Each Note, if issued, shall only be issued as means to evidence
the right, title or interest of a Lender or a registered assignee in and to the
related Loan, as set forth in the Register, and in no event shall any Note be
considered a bearer instrument or obligation.
 
 
Section 2.9  Suspension of Eurodollar Rate. Notwithstanding any provision to the
contrary in this Article II, the following shall apply:
 
(a)  Interest Rate Unascertainable, Inadequate or Unfair. In the event that (A)
the Administrative Agent determines that adequate and fair means do not exist
for ascertaining the applicable interest rates by reference to which the
Eurodollar Rate is determined or (B) the Required Lenders notify the
Administrative Agent that the Eurodollar Rate for any Interest Period will not
adequately reflect the cost to the Lenders of making or maintaining such Loans
for such Interest Period, the Administrative Agent shall promptly so notify the
Parent and the Lenders, whereupon the obligation of each Lender to make or to
continue Eurodollar Rate Loans shall be suspended as provided in clause (c)
below until the Administrative Agent shall notify the Parent that the Required
Lenders have reasonably determined that the circumstances causing such
suspension no longer exist.
 
(b)  Illegality. If any Lender determines that the introduction of, or any
change in or in the interpretation of, any Requirement of Law after the date of
this Agreement shall make it unlawful, or any Governmental Authority shall
assert that it is unlawful, for any Lender or its applicable lending office to
make Eurodollar Rate Loans or to continue to fund or maintain Eurodollar Rate
Loans, then, on notice thereof and demand therefor by such Lender to the
Borrowers through the Administrative Agent, the obligation of such Lender to
make or to continue Eurodollar Rate Loans shall be suspended as provided in
clause (c) below until such
 

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Lender shall, through the Administrative Agent, notify the Borrowers that it has
determined that it may lawfully make Eurodollar Rate Loans.
 
(c)  Effect of Suspension. If the obligation of any Lender to make or to
continue Eurodollar Rate Loans is suspended, (A) such Lender shall make a Base
Rate Loan at any time such Lender would otherwise be obligated to make a
Eurodollar Rate Loan, (B) the Borrowers may revoke any pending Notice of
Borrowing to make any Eurodollar Rate Loan and (C) each existing Eurodollar Rate
Loan of such Lender shall automatically and immediately (or, in the case of any
suspension pursuant to clause (a) above, on the last day of the current Interest
Period thereof) be converted into a Base Rate Loan.
 
 
Section 2.10  Breakage Costs; Increased Costs; Capital Requirements. (a)
Breakage Costs. The Borrowers shall compensate each Lender, upon demand from
such Lender to the Borrowers (with copy to the Administrative Agent), for all
Liabilities (including, in each case, those incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such Lender
to prepare to fund, to fund or to maintain the Eurodollar Rate Loans of such
Lender to the Borrowers but excluding any loss of the Applicable Margin on the
relevant Loans) that such Lender may incur (A) to the extent any Eurodollar Rate
Loan is paid (whether through a scheduled, optional or mandatory prepayment) or
converted to a Base Rate Loan (including because of Section 2.09) on a date that
is not the last day of the applicable Interest Period or (B) as a consequence of
any failure by the Borrowers to repay Eurodollar Rate Loans when required by the
terms hereof. For purposes of this clause (a), each Lender shall be deemed to
have funded each Eurodollar Rate Loan made by it using a matching deposit or
other borrowing in the London interbank market.
 
(b) Increased Costs. If at any time any Lender reasonably determines that, after
the date hereof, the adoption of, or any change in or in the interpretation,
application or administration of, or compliance with, any Requirement of Law
(other than any imposition or increase of Eurodollar Reserve Requirements) from
any Governmental Authority shall have the effect of (i) increasing the cost to
such Lender of making, funding or maintaining any Eurodollar Rate Loan or to
agree to do so or of participating, or agreeing to participate, in extensions of
credit or (ii) imposing any other cost to such Lender with respect to compliance
with its obligations under any Loan Document, then, upon demand by such Lender
(with copy to the Administrative Agent), the Borrowers shall pay to the
Administrative Agent for the account of such Lender amounts sufficient to
compensate such Lender for such increased cost.
 
(c) Increased Capital Requirements. If at any time any Lender determines that,
after the date hereof, the adoption of, or any change in or in the
interpretation, application or administration of, or compliance with, any
Requirement of Law (other than any imposition or increase of Eurodollar Reserve
Requirements) from any Governmental Authority, regarding capital adequacy,
reserves, special deposits, compulsory loans, insurance charges against property
of, deposits with or for the account of, Obligations owing to, or other credit
extended or participated in by, any Lender or any similar requirement (in each
case other than any imposition or increase of Eurodollar Reserve Requirements)
shall have the effect of reducing the rate of return on the capital of such
Lender as a consequence of its obligations under or with respect to any Loan
Document to a level below that which, taking into account the capital adequacy
policies of such Lender, such Lender could have reasonably achieved but for such
adoption or change, then, upon demand from time to time by such Lender (with a
copy of such demand to the
 

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Administrative Agent), the Borrowers shall pay to the Administrative Agent for
the account of such Lender amounts sufficient to compensate such Lender for such
reduction.
 
(d)  Compensation Certificate. Each demand for compensation under this
Section 2.10 shall be accompanied by a certificate of the Lender claiming such
compensation, setting forth the amounts to be paid hereunder, which certificate
shall be conclusive, binding and final for all purposes, absent manifest error.
In determining such amount, such Lender may use any reasonable averaging and
attribution methods.
 
 
Section 2.11  Taxes. (a) Payments Free and Clear of Taxes. Except as otherwise
provided in this Section 2.11, each payment by any Borrower under any Loan
Document shall be made free and clear of all present or future taxes, levies,
imposts, deductions, charges or withholdings and all liabilities with respect
thereto (and without deduction for any of them) (collectively, but excluding the
taxes set forth in clauses (i) and (ii) below, the “Taxes”) other than for (i)
taxes measured by net income (including branch profits taxes) and franchise
taxes imposed in lieu of net income taxes, in each case imposed on any Secured
Party as a result of a present or former connection between such Secured Party
and the jurisdiction of the Governmental Authority imposing such tax or any
political subdivision or taxing authority thereof or therein (other than such
connection arising solely from any Secured Party having executed, delivered or
performed its obligations or received a payment under, or enforced, any Loan
Document) or (ii) taxes that are directly attributable to either (a) the failure
(other than as a result of a change in any Requirement of Law that occurs after
the date a Secured Party becomes a “Secured Party” under this Agreement) by any
Secured Party to deliver the documentation required to be delivered by a
Non-U.S. Lending Party claiming to be exempt from, or subject to a reduced rate
for, United States withholding tax, pursuant to clause (f) below or (b) if the
Non-U.S. Lender indicates in the documentation that they are only claiming a
reduced rate for United States withholding, taxes up to the claimed rate of
withholding with respect to the type of income for which the reduced rate is
claimed.
 
(b)  Gross-Up. If any Taxes shall be required by law to be deducted from or in
respect of any amount payable under any Loan Document (other than any Secured
Hedging Agreement) to any Secured Party (i) such amount shall be increased as
necessary to ensure that, after all required deductions for Taxes are made
(including deductions applicable to any increases to any amount under this
Section 2.11), such Secured Party receives the amount it would have received had
no such deductions been made, (ii) the Borrowers shall make such deductions,
(iii) the Borrowers shall timely pay the full amount deducted to the relevant
taxing authority or other authority in accordance with applicable Requirements
of Law and (iv) within thirty (30) days after such payment is made, the
Borrowers shall deliver to the Administrative Agent an original or certified
copy of a receipt evidencing such payment; provided, however, that no such
increase shall be made with respect to, and no Borrower shall be required to
indemnify any such Secured Party pursuant to clause (d) below for, withholding
taxes to the extent that the obligation to withhold amounts existed on the date
that such Secured Party became a “Secured Party” under this Agreement in the
capacity under which such Secured Party makes a claim under this clause (b),
except in each case to the extent such Secured Party is a direct or indirect
assignee (other than pursuant to Section 2.12 (Substitution of Lenders)) of any
other Secured Party that was entitled, at the time the assignment of such other
Secured Party became effective, to receive additional amounts under this clause
(b).
 
 
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(c)  Other Taxes. In addition, the Borrowers agree to pay, and authorize the
Administrative Agent to pay in their names, any stamp, documentary, excise or
property tax, transfer, mortgage, recording charges or similar levies imposed by
any applicable Requirement of Law or Governmental Authority and all Liabilities
with respect thereto (including by reason of any delay in payment thereof), in
each case arising from the execution, delivery or registration of, or otherwise
with respect to, any Loan Document or any transaction contemplated therein
(collectively, “Other Taxes”). Within 30 days after the date of any payment of
Taxes or Other Taxes by any Borrower, such Borrower shall furnish to the
Administrative Agent, at its address referred to in Section 11.11, the original
or a certified copy of a receipt evidencing payment thereof.
 
(d)  Indemnification. The Borrowers shall reimburse and indemnify, within thirty
(30) days after receipt of demand therefor from the Administrative Agent, each
Secured Party for all Taxes and Other Taxes (including any Taxes and Other Taxes
imposed by any jurisdiction on amounts payable under this Section 2.11) actually
paid by such Secured Party and any Liabilities arising therefrom or with respect
thereto. A certificate of the Secured Party (or of the Administrative Agent on
behalf of such Secured Party) claiming any compensation under this clause (d),
setting forth the amounts to be paid thereunder and delivered to the Borrowers
with copy to the Administrative Agent, shall be conclusive, binding and final
for all purposes, absent manifest error.
 
(e)  Mitigation. Any Lender claiming any additional amounts payable pursuant to
this Section 2.11 shall use its reasonable efforts (consistent with its internal
policies and Requirements of Law) to change the jurisdiction of its lending
office if such a change would reduce any such additional amounts (or any similar
amount that may thereafter accrue) and would not, in the reasonable
determination of such Lender, be otherwise disadvantageous to such Lender.
 
(f)  Tax Forms. (i) Each Non-U.S. Lender Party shall (w) on or prior to the date
such Non-U.S. Lender Party becomes a “Non-U.S. Lender Party” hereunder, (x) on
or prior to the date on which any such form or certification expires or becomes
obsolete, (y) after the occurrence of any event requiring a change in the most
recent form or certification previously delivered by it pursuant to this
clause (i) and (z) from time to time if requested by any Borrower or the
Administrative Agent (or, in the case of a participant or SPV, the relevant
Lender), provide the Administrative Agent and the Borrowers (or, in the case of
a participant or SPV, the relevant Lender) with two completed originals of each
of the following, as applicable: (A) Forms W-8ECI (claiming exemption from U.S.
withholding tax because the income is effectively connected with a U.S. trade or
business), W-8BEN (claiming exemption from U.S. withholding tax under an income
tax treaty) and/or W-8IMY (claiming exemption from U.S. withholding tax for any
portion of any sums paid or payable to such Non-U.S. Lender Party under any of
the Loan Documents for which it does not act or ceases to act for its own
account with respect to thereto) or any successor forms, (B) in the case of a
Non-U.S. Lender Party claiming exemption under Sections 871(h) or 881(c) of the
Code, Form W-8BEN (claiming exemption from U.S. withholding tax under the
portfolio interest exemption) or any successor form and a certificate in form
and substance acceptable to the Administrative Agent and the Borrowers that such
Non-U.S. Lender Party is not (1) a “bank” within the meaning of Section
881(c)(3)(A) of the Code, (2) a “10 percent shareholder” of any Borrower within
the meaning of Section 881(c)(3)(B) of the Code or (3) a “controlled foreign
corporation” described in Section 881(c)(3)(C) of the Code or (C) any other
applicable document prescribed by the IRS certifying as to the entitlement of
such
 

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Non-U.S. Lender Party to such exemption from United States withholding tax with
respect to all payments to be made to such Non-U.S. Lender Party under the Loan
Documents. Unless the Borrowers and the Administrative Agent have received forms
or other documents satisfactory to them indicating that payments under any Loan
Document to or for a Non-U.S. Lender Party are not subject to United States
withholding tax, the Borrowers and the Administrative Agent shall withhold
amounts required to be withheld by applicable Requirements of Law from such
payments at the applicable statutory rate.
 
(i)  Each U.S. Lender Party shall (A) on or prior to the date such U.S. Lender
Party becomes a “U.S. Lender Party” hereunder, (B) on or prior to the date on
which any such form or certification expires or becomes obsolete, (C) after the
occurrence of any event requiring a change in the most recent form or
certification previously delivered by it pursuant to this clause (f) and (D)
from time to time if requested by any Borrower or the Administrative Agent (or,
in the case of a participant or SPV, the relevant Lender), provide the
Administrative Agent and the Borrowers (or, in the case of a participant or SPV,
the relevant Lender) with two completed originals of Form W-9 (certifying that
such U.S. Lender Party is entitled to an exemption from U.S. backup withholding
tax) or any successor form.
 
(ii)  Each Lender having sold a participation in any of its Obligations or
identified an SPV as such to the Administrative Agent shall collect from such
participant or SPV the documents described in this clause (f) and provide them
to the Administrative Agent.
 
 
Section 2.12  Substitution of Lenders. (a) Substitution Right. In the event that
any Lender that is not an Affiliate of the Administrative Agent (an “Affected
Lender”) (i) makes a claim under clause (b) (Increased Costs) or (c) (Increased
Capital Requirements) of Section 2.10, (ii) notifies the Parent pursuant to
Section 2.9(b) (Illegality) that it becomes illegal for such Lender to continue
to fund or make any Eurodollar Rate Loan, (iii) makes a claim for payment
pursuant to Section 2.11(b) (Taxes), (iv) becomes a Non-Funding Lender or (v)
does not consent to any amendment, waiver or consent to any Loan Document for
which the consent of the Required Lenders is obtained but that requires the
consent of other Lenders, the Borrowers may either pay in full such Affected
Lender without premium or penalty with respect to amounts due with the consent
of the Administrative Agent or substitute for such Affected Lender any Lender or
any Affiliate or Approved Fund of any Lender or any other Person acceptable
(which acceptance shall not be unreasonably withheld or delayed) to the
Administrative Agent (in each case, a “Substitute Lender”). Upon Borrowers’
request, the Administrative Agent shall solicit and obtain a Substitute Lender.
 
(b)  Procedure. To substitute such Affected Lender or pay in full the
Obligations owed to such Affected Lender, the Borrowers shall deliver a notice
to the Administrative Agent and such Affected Lender. The effectiveness of such
payment or substitution shall be subject to the delivery to the Administrative
Agent by the Borrowers (or, as may be applicable in the case of a substitution,
by the Substitute Lender) of (i) payment for the account of such Affected
Lender, of, to the extent accrued through, and outstanding on, the effective
date for such payment or substitution, all Obligations owing to such Affected
Lender (including interest through the end of the applicable Interest Period
that will be owed because of such payment), and (ii) in the case of a
substitution, (A) except in the event the Affected Lender
 

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is a Non-Funding Lender, payment of the assignment fee set forth in
Section 11.2(c) and (B) an assumption agreement in form and substance reasonably
satisfactory to the Administrative Agent whereby the Substitute Lender shall,
among other things, agree to be bound by the terms of the Loan Documents and
assume the Commitment of the Affected Lender.
 
(c)  Effectiveness. Upon satisfaction of the conditions set forth in clause (b)
above, the Administrative Agent shall record such substitution or payment in the
Register, whereupon (i) in the case of any payment in full, such Affected
Lender’s Commitments shall be terminated and (ii) in the case of any
substitution, (A) the Affected Lender shall sell and be relieved of, and the
Substitute Lender shall purchase and assume, all rights and claims of such
Affected Lender under the Loan Documents, except that the Affected Lender shall
retain such rights expressly providing that they survive the repayment of the
Obligations and the termination of the Commitments, (B) the Substitute Lender
shall become a “Lender” hereunder having a Commitment in the amount of such
Affected Lender’s Commitment and (C) the Affected Lender shall execute and
deliver to the Administrative Agent an Assignment to evidence such substitution
and deliver any Note in its possession; provided, however, that the failure of
any Affected Lender to execute any such Assignment or deliver any such Note
shall not render such sale and purchase (or the corresponding assignment)
invalid.
 
 
ARTICLE III  
 
 

 
 
CONDITIONS TO LOANS
 
 
Section 3.1  Conditions Precedent to Funding. The obligation of each Lender to
make any advance under the Term Loan is subject to the satisfaction or due
waiver by Administrative Agent and each Lender of each of the following
conditions precedent on or before the Closing Date and on each Permitted
Acquisition Closing Date, as applicable:
 
(a)  Certain Documents. The Administrative Agent and MLC shall have received on
or prior to the Closing Date or the applicable Permitted Acquisition Closing
Date, each of the following, each dated the Closing Date or the applicable
Permitted Acquisition Closing Date, unless otherwise agreed by the
Administrative Agent and MLC, in form and substance satisfactory to the
Administrative Agent and each Lender:
 
(i)  this Agreement duly executed by each Borrower and, for the account of each
Lender having requested the same by notice to the Administrative Agent and the
Borrowers received by each at least 1 Business Days prior to the Closing Date
(or such later date as may be agreed to by the Borrowers), Notes conforming to
the requirements set forth in Section 2.8(e);
 
(ii)  the Security Agreement, duly executed by each Borrower, together with (A)
copies of UCC, Intellectual Property and other appropriate search reports and of
all effective prior filings listed therein, together with evidence of the
termination of such prior filings and other documents with respect to the
priority of the security interest of the Administrative Agent in the Collateral,
in each case as may be reasonably requested by the Administrative Agent, (B) all
documents representing all Equity Interests being pledged pursuant to such
Security Agreement and related undated powers or endorsements duly executed in
blank and (C) all Control Agreements that, in the reasonable judgment of the
Administrative Agent, are required for the Borrowers to
 

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comply with the Loan Documents as of the Closing Date, each duly executed by, in
addition to the applicable Borrower, the applicable financial institution;
 
(iii)  Mortgages, duly executed by each respective Borrower, for each Facility
(except as may be otherwise agreed to by the Administrative Agent), together
with all Mortgage Supporting Documents relating thereto;
 
(iv)  The Limited Recourse Guaranty, duly executed by Emeritus;
 
(v)  One or more Environmental Indemnities, duly executed by Emeritus and the
Borrowers;
 
(vi)  The state of title to the Real Property shall be satisfactory to the
Administrative Agent and the Mortgages shall be insured by a mortgagee title
insurance policy (or binding commitment therefor) in form and substance and from
a title insurer, all reasonably acceptable to the Administrative Agent. Except
for variances approved by the Administrative Agent prior to the Closing Date
(which approval shall be evidenced by the Administrative Agent’s execution and
delivery of this Agreement), on or before the Closing Date, such title insurance
policy shall be on an American Land Title Association (“ALTA”) form designated
by the Administrative Agent, but subject to the local customs in the
jurisdiction in which such Real Property exists, shall specifically contain no
exception as to survey matters or creditors rights, must contain affirmative
coverage against mechanics’, contractors’, suppliers’ and/or materialmen’s
liens, filed or unfiled, must affirmatively insure that the security instrument
is a valid first lien against the fee simple, marketable estate, insuring the
Administrative Agent for the benefit of Lenders for a sum not less than the
maximum principal amount of all financing hereunder and must contain such
endorsements as may be required by the Administrative Agent (including, but not
limited to and subject to availability in the jurisdiction in which the Real
Property is located, endorsements covering zoning (ALTA 3.1 with parking),
variable interest rates, no violations of covenants, conditions and restrictions
of record, street address, no usury violation, environmental liens, tie-in,
access, contiguity, encroachment, tax parcel, doing business, mortgage tax,
first loss and last dollar). Fee simple title to the Real Property and to the
fixtures, equipment, furniture and personal property encumbered by the Loan
Documents shall be marketable, and free and clear of all defects, liens,
encumbrances, security interests, assessments, restrictions and easements which
are not acceptable to the Administrative Agent, in the Administrative Agent’s
reasonable discretion. If access to the Real Property is by means of easements
or leases, said easements or leases shall be reasonably satisfactory in form and
substance to the Administrative Agent, shall be insured under the mortgagee’s
title insurance policy issued to the Administrative Agent as part of the insured
estate and shall not be subject to any prior liens or encumbrances. A search of
the state and local public records shall disclose no conditional sales
contracts, chattel mortgages, leases of personalty, financing statements or
title retention agreements filed and/or recorded against any Borrower or the
property other than liens which are expressly permitted under this Agreement.
 
(vii)  The Administrative Agent shall have received the following, all in form
and substance reasonably satisfactory to the Administrative Agent and MLC in its
sole and absolute discretion:
 
 
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(A)  such property appraisals, property As-Built Surveys, environmental reports,
physical and structural inspection reports and other third party reports as the
Administrative Agent shall deem necessary or appropriate;
 

(B)  evidence, in the form of letters from municipalities, if available,
As-Built Surveys, or other reasonable evidence , that the Real Property and all
improvements thereon comply in all material respects with applicable codes,
regulations and ordinances, are zoned for their current use, are adequately
served by public utilities, are completed free of mechanics and materialmen’s
liens, are not the subject to any pending litigation, are not the subject of any
pending condemnation proceeding and have not been materially damaged by fire or
other casualty;
 
(C)  copies of all Leases pertaining to the Real Property;
 
(D)  copies of all recent real estate tax bills, with proof of payment if due,
together with evidence that each parcel of Real Property is a separately
identifiable tax lot; and
 
(E)  evidence, which evidence may be provided in the form of surveys required
under clause (A) above, reasonably satisfactory to the Administrative Agent that
the improvements on the Real Property are not within a special flood hazard area
and is not eligible for flood insurance under the U. S. Flood Disaster
Protection Act of 1973, as amended.
 
(viii)  duly executed favorable opinions of counsel to the Borrowers in New York
and in each state in which a Facility being acquired is located, each addressed
to the Administrative Agent and the Lenders and addressing such matters as the
Administrative Agent may reasonably request including a non-consolidation
opinion;
 
(ix)  a copy of each Constituent Document of each Borrower that is on file with
any Governmental Authority in any jurisdiction, certified as of a recent date by
such Governmental Authority or a Responsible Officer, together with, if
applicable, certificates from such Governmental Authority attesting to the good
standing of such Borrower in such jurisdiction and each other jurisdiction where
such Borrower is qualified to do business as a foreign entity or where such
qualification is necessary (and, if appropriate in any such jurisdiction,
related tax certificates);
 
(x)  a certificate of a Responsible Officer of each Borrower in charge of
maintaining books and records of such Borrower certifying as to (A) the names
and signatures of each Responsible Officer of such Borrower authorized to
execute and deliver any Loan Document, (B) the Constituent Documents of such
Borrower attached to such certificate are complete and correct copies of such
Constituent Documents as in effect on the date of such certification (or, for
any such Constituent Document delivered pursuant to clause (v) above, that there
have been no changes from such Constituent Document so delivered) and (C) if
applicable, the resolutions of such Borrower’s board
 

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of directors or other appropriate governing body approving and authorizing the
execution, delivery and performance of each Loan Document to which such Borrower
is a party;
 
(xi)  a certificate of a Responsible Officer of each Borrower to the effect that
(A) after giving effect to the Term Loan, (1) the representations and warranties
set forth in any Loan Document are true and correct in all material respects as
of the Closing Date or the Permitted Acquisition Closing Date, and (2) no Event
of Default shall be continuing, and (B) the Borrowers taken as a whole are
Solvent after giving effect to the Term Loans, the application of the proceeds
thereof in accordance with Section 7.9 and the payment of all estimated legal,
accounting and other fees and expenses related hereto and thereto; and
 
(xii)  insurance certificates in form and substance satisfactory to the
Administrative Agent demonstrating that the insurance policies required by
Section 7.5 are in full force and effect and have all endorsements required by
such Section 7.5.
 
(xiii)  such other documents and information with respect to the Facilities or
the Borrowers as any Lender through the Administrative Agent may reasonably
request.
 
(b)  Escrows, Reserves, Fees and Expenses. Borrowers shall have funded all
escrows and reserves and paid to the Administrative Agent, for the account of
the Administrative Agent, its Related Persons or any Lender, as the case may be,
all fees and all reimbursements of costs or expenses, in each case due and
payable under any Loan Document.
 
(c)  Consents. Each Borrower shall have received all consents and authorizations
required pursuant to any material Contractual Obligation with any other Person
and shall have obtained all Permits of, and effected all notices to and filings
with, any Governmental Authority, in each case, as may be necessary in
connection with the consummation of the transactions contemplated in any Loan
Document or Related Document.
 
(d)  Related Transactions. The Administrative Agent shall be satisfied that, (i)
subject only the funding of the Term Loans hereunder and the use of proceeds
thereof, (A) as certified to the Administrative Agent, all conditions precedent
to the consummation of the applicable Acquisition will have been satisfied or
duly waived with the consent of the Administrative Agent and such Acquisition
will have been consummated in accordance with the Acquisition Agreement and (B)
the applicable Collateral shall be free and clear of all Liens other than Liens
permitted pursuant to Section 8.2, and (ii) the Required Investors’ Equity
Investment will have been made.
 
 
Section 3.2  Determinations of Initial Borrowing Conditions. For purposes of
determining compliance with the conditions specified in Section 3.1, each Lender
shall be deemed to be satisfied with each document and each other matter
required to be satisfactory to such Lender unless, prior to the Closing Date,
the Permitted Acquisition Closing Date, or any subsequent advance under the Term
Loan, the Administrative Agent receives notice from such Lender specifying such
Lender’s objections and such Lender has not made available its Pro Rata Share of
the Term Loan to be made on such date.
 
 
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ARTICLE IV  
 
 

 
 
REPRESENTATIONS AND WARRANTIES
 
To induce the Lenders and the Administrative Agent to enter into the Loan
Documents, each Borrower represents and warrants to each of them each of the
following on and as of the Closing Date, on the Restatement Closing Date and on
and as of each date on which a Permitted Acquisition shall occur, the following:
 
 
Section 4.1  Corporate Existence; Compliance with Law. (a) Each Borrower (i) is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (ii) is duly qualified to do business as a
foreign entity and in good standing under the laws of each jurisdiction where
such qualification is necessary, except where the failure to be so qualified or
in good standing would not, in the aggregate, have a Material Adverse Effect,
(iii) has all requisite power and authority and the legal right to own, pledge,
mortgage and operate its property, to lease or sublease any property it operates
under lease or sublease and to conduct its business as now or currently proposed
to be conducted, (iv) is in compliance with its Constituent Documents, (v) is in
compliance with all applicable Requirements of Law, except, in each case, where
the failure to be in compliance would not have a Material Adverse Effect, (vi)
with respect to any Facility then being acquired, has, or upon completion of the
Acquisition and completion of any required post closing procedures which are
preconditions thereto shall have, all necessary Permits from or by, has made all
necessary filings with, and has given all necessary notices to, each
Governmental Authority having jurisdiction, to the extent required for such
ownership, lease, sublease, operation, occupation or conduct of business, except
where the failure to obtain such Permits, make such filings or give such notices
would not, in the aggregate, have a Material Adverse Effect, and (vii) is not a
foreign person within the meaning of § 1445(f)(3) of the Code.
 
(b)  With respect to any Facility then being acquired, each Facility (i) is
being operated as an assisted living, skilled nursing, independent senior
housing or Alzheimer’s facility, having the number of licensed beds/units as set
forth on Schedule 4.16, attached hereto (as modified from time to time with
Administrative Agent’s consent), (ii) is in conformance in all material respects
with all insurance, reimbursement and cost reporting requirements, and, if
applicable, has a current provider agreement that is in full force and effect
under Medicare and Medicaid, and (iii) is in compliance with all applicable
Requirements of Law, except, in each case, where the failure to be in compliance
would not materially (x) impair the value or marketability of such Facility or
(y) interfere with the ordinary conduct of the business conducted and proposed
to be conducted at such Facility. There is no threatened in writing, existing or
pending revocation, suspension, termination, probation, restriction, limitation,
or nonrenewal proceeding by any third-party payor, including Medicare, Medicaid,
Blue Cross, Blue Shield or any other private commercial insurance managed care
and employee assistance program (such programs, the “Third-Party Payor
Programs”), to which any Borrower may presently be subject with respect to any
Facility.
 
(c)  With respect to any Facility then being acquired, all Licenses necessary or
desirable for using and operating the Facilities for the uses described in
clause (a), above, are held by, or will be held by, Borrowers, in the name of
the applicable Borrower, as required under applicable law, and are in full force
and effect, or upon completion of the Acquisition and completion of any required
post closing procedures which are preconditions to the issuance of
 

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such Licenses, provided, however, that if such Facility is being acquired
pursuant to a sale/leaseback or similar arrangement, such Licenses may be held
in the names of the prior owners or operators of the Facility and used by the
Borrowers pursuant to such sale/leaseback or similar arrangement.
 
(d)  To the Borrowers’ knowledge, with respect to any Facility then being
acquired, there are no proceedings by any Governmental Authority or notices
thereof that would, directly or indirectly, or with the passage of time (i)
have a material adverse impact on Borrowers’ ability to accept and/or retain
patients or residents or operate such Facility for its current use or result in
the imposition of a fine, a sanction, a lower rate certification or a lower
reimbursement rate for services rendered to eligible patients or residents, (ii)
modify, limit or result in the transfer, suspension, revocation or imposition of
probationary use of any of the Licenses, other than a transfer of such License
to the Borrowers if such License is not already held by such Borrowers; or (iii)
affect any Borrower’s continued participation in the Medicaid or Medicare
programs or any other Third-Party Payors Programs, or any successor programs
thereto.
 
(e)  With respect to any Facility then being acquired, except as reviewed and
approved by Administrative Agent, no Facility has received a violation, and no
statement of charges or deficiencies has been made or penalty enforcement action
has been undertaken against any Facility, Borrower or against any officer,
director, partner, member or stockholder of any Borrower, by any Governmental
Authority during the last five calendar years, and there have been no violations
over the past five years which have threatened any Facility’s, or any Borrower’s
certification for participation in Medicare or Medicaid or the other Third-Party
Payor Programs.
 
(f)  With respect to any Facility then being acquired, there are no current,
pending or outstanding Third-Party Payor Programs reimbursement audits, appeals
or recoupment efforts pending at any Facility, and there are no years that are
subject to audit in respect of any Third-Party Payor Program that would, in each
case, adversely affect any Borrower, other than audit rights pursuant to
Medicare and Medicaid programs.
 
(g)  No Borrower is a participant in any federal program whereby any
Governmental Authority may have the right to recover funds by reason of the
advance of federal funds, including those authorized under the Hill-Burton Act
(42 U.S.C. 291, et seq.), as it may be amended.
 
(h)  With respect to any Facility then being acquired, substantially all of the
patient and resident care agreements conform in all material respects with the
form patient or resident care agreements that have been delivered to
Administrative Agent.
 
 
Section 4.2  Loan and Related Documents. (a) Power and Authority. The execution,
delivery and performance by each Borrower of the Loan Documents and Related
Documents to which it is a party (i) are within such Borrower’s corporate or
similar powers and, at the time of execution thereof, have been duly authorized
by all necessary corporate and similar action (including, if applicable, consent
of holders of its Equity Interests), (ii) do not (A) contravene such Borrower’s
Constituent Documents, (B) violate any applicable Requirement of Law,
(C) conflict with, contravene, constitute a default or breach under, or result
in or permit the termination or acceleration of, any material Contractual
Obligation of any Borrower (including other Related Documents or Loan Documents)
other than those that would not, in the aggregate,
 

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have a Material Adverse Effect and are not created or caused by, or constitute a
conflict, breach, default or termination or acceleration event under, any Loan
Document or (D) result in the imposition of any Lien (other than a Permitted
Lien) upon any property of any Borrower or any of its Subsidiaries and (iii) to
any Borrower’s knowledge, do not require any Permit of, or filing with, any
Governmental Authority or any consent of, or notice to, any Person, other than
(A) with respect to the Loan Documents, the filings required to perfect the
Liens created by the Loan Documents, (B) those listed on Schedule 4.2 and that
have been, or will be prior to the Closing Date, obtained or made, copies of
which have been, or will be prior to the Closing Date, delivered to the
Administrative Agent, and each of which on the Closing Date will be in full
force and effect and (C) with respect to the Acquisition, those that, (1) if not
obtained, would not, in the aggregate, have a Material Adverse Effect, or (2)
will be obtained upon completion of the Acquisition and completion of any
required post closing procedures or undertakings that are preconditions thereto.
 
(b) Due Execution, Delivery and Enforceability. From and after its delivery to
the Administrative Agent, each Loan Document and Related Document has been duly
executed and delivered to the other parties thereto by each Borrower party
thereto, is the legal, valid and binding obligation of such Borrower and is
enforceable against such Borrower in accordance with its terms.
 
(c) Related Documents. Each representation and warranty in each Related Document
is true and correct in all material respects and no default, or event that, with
the giving of notice or lapse of time or both, would constitute a default, has
occurred thereunder. As of the Closing Date, all applicable waiting periods in
connection with the Acquisition have expired or have been terminated without any
action being taken by any Governmental Authority (including any requisite
waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976).
 
 
Section 4.3  Ownership of the Borrowers. The information set forth on the
Corporate Chart is complete and accurate as of the Closing Date. All outstanding
Equity Interests of each Person listed thereon have been validly issued, are
fully paid and non-assessable (to the extent applicable). The Equity Interests
of each Borrower are free and clear of all Liens other than the security
interests created by the Loan Documents and, in the case of joint ventures,
Permitted Liens. There are no Equity Equivalents with respect to the Equity
Interests of any Borrower (other than the Parent), as of the Closing Date,
except as set forth on Schedule 4.3. There are no Equity Equivalents with
respect to the Equity Interests of Parent. There are no Contractual Obligations
or other understandings to which any Borrower is a party with respect to
(including any restriction on) the issuance, voting, Transfer or pledge of any
Equity Interest or Equity Equivalent of any Borrower.
 
 
Section 4.4  Financial Statements. (a) To Borrowers’ knowledge each of (i) the
audited Consolidated balance sheet of the Seller as at December 31, 2005 and the
related Consolidated statements of income, retained earnings and cash flows of
the Seller for the Fiscal Year then ended and (ii) subject to the absence of
footnote disclosure and normal recurring year end audit adjustments, the
unaudited Consolidated balance sheets of the Seller as at September 30, 2006 and
the related Consolidated statements of income, retained earnings and cash flows
of the Seller for the 3 months then ended, copies of each of which have been
furnished to the Administrative Agent, fairly present in all material respects
the Consolidated financial position,
 

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results of operations and cash flow of the Seller as at the dates indicated and
for the periods indicated in accordance with GAAP.
 
(b)  Prior to the Closing Date, the Borrowers had no property (other than, in
the case of Parent, the Equity Interests of the SPEs), liabilities or
Contractual Obligations other than the Loan Documents and the Related Documents
and no Borrower had any Subsidiary (other than, in the case of Parent, the
Equity Interests of the SPEs).
 
(c)  The Initial Projections have been prepared by the Borrowers in light of the
past operations of the business of the Seller and its Subsidiaries and reflect
Projections for the 3 year period beginning December, 2006 on a quarterly basis
for the first year and on a year by year basis thereafter. As of the Closing
Date, the Initial Projections are based upon estimates and assumptions stated
therein, all of which the Borrowers believe to be reasonable and fair in light
of conditions and facts known to the Borrowers as of the Closing Date and
reflect the good faith, reasonable and fair estimates by the Borrowers of the
future Consolidated financial performance of the Parent and the other
information Projections therein for the periods set forth therein.
 
 
Section 4.5  Material Adverse Effect. Since the Closing Date, to any Borrower’s
knowledge, there have been no events, circumstances, developments or other
changes in facts with respect to the Facilities or Borrowers that would, in the
aggregate, have a Material Adverse Effect.
 
 
Section 4.6  Solvency. Both before and after giving effect to (a) the Term Loan
made on or prior to the date this representation and warranty is made, (b) the
disbursement of the proceeds of such Term Loan, (c) the consummation of the
Related Transactions, and (d) the payment and accrual of all transaction costs
in connection with the foregoing, the Borrowers, taken as a whole, are Solvent.
 
 
Section 4.7  Litigation. There are no pending (or, to the knowledge of any
Borrower, threatened) actions, investigations, suits, proceedings, audits,
claims, demands, orders or disputes affecting any Borrower with, by or before
any Governmental Authority other than those that cannot reasonably be expected
to affect the Obligations, the Loan Documents, the Related Documents and would
not, in the aggregate, have a Material Adverse Effect. 
 
 
Section 4.8  Taxes. All federal, state, local and foreign income and franchise
and other material tax returns, reports and statements (collectively, the “Tax
Returns”) required to be filed by any Tax Affiliate have been filed with the
appropriate Governmental Authorities in all jurisdictions in which such Tax
Returns are required to be filed, all such Tax Returns are true and correct in
all material respects, and all taxes, charges and other impositions reflected
therein or otherwise due and payable have been paid prior to the date on which
any Liability may be added thereto for non-payment thereof except for those
contested in good faith by appropriate proceedings diligently conducted and for
which adequate reserves are maintained on the books of the appropriate Tax
Affiliate in accordance with GAAP. No Tax Return is under audit or examination
by any Governmental Authority and no notice of such an audit or examination or
any assertion of any claim for Taxes has been given or made by any Governmental
Authority. Proper and accurate amounts have been withheld by each Tax Affiliate
from their respective employees for all periods in full and complete compliance
with the tax, social security and unemployment withholding provisions of
applicable Requirements of Law and such withholdings have been timely paid to
the respective Governmental Authorities. No Tax Affiliate has
 

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participated in a “reportable transaction” within the meaning of Treasury
Regulation Section 1.6011-4(b) or has been a member of an affiliated, combined
or unitary group other than the group of which a Tax Affiliate is the common
parent.
 
All Other Taxes required to be paid in connection with the transfer of the Real
Property to Borrower and the granting of the security interest under the Loan
Documents (including recording of the Mortgage, Mortgage Supporting Documents,
and other Loan Documents required to be filed in connection with the Loan) have
been paid or will be paid on the Closing Date or the Permitted Acquisition
Closing Date, as applicable.
 
 
Section 4.9  Margin Regulations. Other than in the Related Documents, no
Borrower is engaged in the business of extending credit for the purpose of, and
no proceeds of any Loan or other extensions of credit hereunder will be used for
the purpose of, buying or carrying margin stock (within the meaning of
Regulation U of the Federal Reserve Board) or extending credit to others for the
purpose of purchasing or carrying any such margin stock, in each case in
contravention of Regulation T, U or X of the Federal Reserve Board.
 
 
Section 4.10  No Burdensome Obligations; No Defaults. No Borrower is a party to
any Contractual Obligation, no Borrower has Constituent Documents containing
obligations, and, to the knowledge of any Borrower, there are no applicable
Requirements of Law, in each case the compliance with which would have, in the
aggregate, a Material Adverse Effect. No Borrower (and, to the knowledge of each
Borrower, no other party thereto) is in default under or with respect to any
Contractual Obligation of any Borrower, other than those that would not, in the
aggregate, have a Material Adverse Effect.
 
 
Section 4.11  Single Purpose Entity. Each Borrower is and has at all times since
its formation been a Single Purpose Entity. All of the assumptions made in the
non-consolidation opinion delivered on the Closing Date, including, but not
limited to, any exhibits attached thereto, are true and correct in all respects.
Each Borrower has complied with all of the assumptions made with respect to it
in such non-consolidation opinion.
 
 
Section 4.12  Labor Matters. There are no strikes, work stoppages, slowdowns or
lockouts existing, pending (or, to the knowledge of any Borrower, threatened)
against or involving any Borrower, except, for those that would not, in the
aggregate, have a Material Adverse Effect. Except as set forth on Schedule 4.12,
as of the Closing Date, (a) there is no collective bargaining or similar
agreement with any union, labor organization, works council or similar
representative covering any employee of any Borrower, (b) no petition for
certification or election of any such representative is existing or pending with
respect to any employee of any Borrower and (c) no such representative has
sought certification or recognition with respect to any employee of any
Borrower.
 
 
Section 4.13  ERISA. Except for those that would not, in the aggregate, have a
Material Adverse Effect, each Benefit Plan, and each trust thereunder, intended
to qualify for tax exempt status under Section 401 or 501 of the Code has been
maintained in compliance with the requirements thereof. Except for those that
would not, in the aggregate, have a Material Adverse Effect, (x) each Benefit
Plan is in compliance with applicable provisions of ERISA, the Code and other
Requirements of Law, (y) there are no existing or pending (or to the knowledge
of any Borrower, threatened) claims (other than routine claims for benefits in
the normal course), sanctions, actions, lawsuits or other proceedings or
investigation involving any Benefit Plan to
 

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which any Borrower incurs or otherwise has or could have an obligation or any
Liability and (z) no ERISA Event is reasonably expected to occur. On the Closing
Date, no ERISA Event has occurred in connection with which obligations and
liabilities remain outstanding that could reasonably be expected to have a
Material Adverse Effect. No ERISA Affiliate would have any Withdrawal Liability
as a result of a complete withdrawal from any Multiemployer Plan on the date
this representation is made that could reasonably be expected to have a Material
Adverse Effect.
 
 
Section 4.14  Environmental Matters. Except as set forth on Schedule 4.14, (a)
the operations of each Borrower are and have been in compliance with all
applicable Environmental Laws, including obtaining, maintaining and complying
with all Permits required by any applicable Environmental Law, other than
non-compliances that, in the aggregate, would not have a reasonable likelihood
of resulting in Material Environmental Liabilities, (b) no Borrower is party to,
and no Borrower and no real property currently (or to the knowledge of any
Borrower previously) owned, leased, subleased, operated or otherwise occupied by
or for any Borrower is subject to or the subject of, any pending (or, to the
knowledge of any Borrower, threatened) order, action, investigation, suit,
proceeding, audit, claim, demand, dispute or notice of violation or of potential
liability or similar notice under or pursuant to any Environmental Law other
than those that, in the aggregate, are not reasonably likely to result in
Material Environmental Liabilities, (c) no Lien in favor of any Governmental
Authority securing, in whole or in part, Environmental Liabilities has attached
to any property of any Borrower and, to the knowledge of any Borrower, no facts,
circumstances or conditions exist that could reasonably be expected to result in
any such Lien attaching to any such property, (d) no Borrower has caused or
suffered to occur a Release of Hazardous Materials at, to or from any real
property of any Borrower and, to the knowledge of any Borrower, each such real
property is free of contamination by any Hazardous Materials except for such
Release or contamination that could not reasonably be expected to result, in the
aggregate, in Material Environmental Liabilities, (e) no Borrower (i) is or has
been engaged in, or has permitted any current or former tenant to engage in,
operations, or (ii) knows of any facts, circumstances or conditions, including
receipt of any information request or notice of potential responsibility under
CERCLA or similar Environmental Laws, that, in the aggregate, would have a
reasonable likelihood of resulting in Material Environmental Liabilities and (f)
each Borrower has made available to the Administrative Agent copies of all
existing environmental reports, reviews and audits and all documents pertaining
to actual or potential Environmental Liabilities, in each case to the extent
such reports, reviews, audits and documents are in their possession, custody or
control.
 
 
Section 4.15  Intellectual Property. Each Borrower owns or licenses, or uses
pursuant to a Management Agreement, all Intellectual Property that is necessary
for the operations of its businesses. To the knowledge of each Borrower, (a) the
conduct and operations of the businesses of each Borrower does not infringe,
misappropriate, dilute, violate or otherwise impair any Intellectual Property
owned by any other Person and (b) no other Person has contested any right, title
or interest of any Borrower in, or relating to, any Intellectual Property, other
than, in each case, as cannot reasonably be expected to affect the Loan
Documents and the transactions contemplated therein and would not, in the
aggregate, have a Material Adverse Effect. In addition, (x) there are no pending
(or, to the knowledge of any Borrower, threatened) actions, investigations,
suits, proceedings, audits, claims, demands, orders or disputes affecting any
Borrower with respect to, (y) no judgment or order regarding any such claim has
been rendered by any competent Governmental Authority, no settlement agreement
or similar Contractual Obligation has been entered into by any Borrower, with
respect to and (z) no Borrower knows or
 

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has any reason to know of any valid basis for any claim based on, any such
infringement, misappropriation, dilution, violation or impairment or contest,
other than, in each case, as cannot reasonably be expected to affect the Loan
Documents and the transactions contemplated therein and would not, in the
aggregate, have a Material Adverse Effect.
 
 
Section 4.16  Title; Real Property. (a) Set forth on Schedule 4.16 is, as of the
Closing Date, (i) a complete and accurate list of all real property owned in fee
simple by any Borrower or in which any Borrower owns a leasehold interest
setting forth, for each such real property, the current street address
(including, where applicable, county, state and other relevant jurisdictions),
the record owner thereof and, where applicable, each lessee and sublessee
thereof, (ii) any lease, sublease, license or sublicense of such real property
by any Borrower and (iii) for each such real property that the Administrative
Agent has requested be subject to a Mortgage or that is otherwise material to
the business of any Borrower, each Contractual Obligation by any Borrower,
whether contingent or otherwise, to Transfer such real property.
 
(b) Each Borrower has good and marketable fee simple title to all owned real
property and valid leasehold interests in all leased real property, and owns all
personal property, in each case that is purported to be owned or leased by it,
including those reflected on the most recent Financial Statements delivered by
the Borrower, and none of such property is subject to any Lien except Permitted
Liens. All such real and personal property represents all of the property used
in the operation of the business located on the Real Property.
 
(c) No condemnation has been commenced or, to the Borrowers’ knowledge, is
contemplated with respect to all or any portion of any Facility or for the
relocation of roadways providing access to any Facility.
 
(d) Each Facility has adequate rights of access to public ways and is served by
adequate water, sewer sanitary sewer and storm drain facilities. All public
utilities necessary or convenient to the full use and enjoyment of each Facility
is located in the public right-of-way abutting each Facility or in a duly
recorded easement, and all such utilities are connected so as to serve such
Facility without passing over other property, except to the extent such other
property is subject to a recorded easement for such utility. Except as shown on
the As-Built Surveys, all roads necessary for the full utilization of each
Facility for its current purpose have been completed and dedicated to public use
and accepted by all government authorities.
 
(e) All real estate taxes and assessments, special or otherwise, which are due
and payable with respect to each parcel of Real Property has been paid in full
and there are no pending or, to Borrowers’ knowledge, proposed special or other
assessments for public improvements or otherwise affecting the Real Property,
nor are there any contemplated improvements to the Real Property that may result
in such special or other assessments.
 
(f) No improvements on any parcel of Real Property is within a special flood
hazard area nor is eligible for flood insurance under the U. S. Flood Disaster
Protection Act of 1973, as amended or as a wetlands area by any governmental
entity having jurisdiction over any Real Property.
 
(g) The Real Property for each Facility is comprised of one (1) or more
contiguous parcels that constitute a separate tax lot or lots and does not
constitute or include a portion of any other tax lot not a part of such Real
Property.
 

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(h) To Borrower’s knowledge and except as expressly disclosed in any report
addressing the physical condition of the Real Property, such Real Property,
including, without limitation, all buildings, improvements, parking facilities,
sidewalks, storm drainage systems, roofs, plumbing systems, HVAC systems, fire
protection systems, electrical systems, equipment, elevators, exterior sidings
and doors, landscaping, irrigation systems and all structural components, are in
good condition, order and repair in all material respects; to Borrower’s
knowledge and except as disclosed in such report, there exists no structural or
other material defects or damages in or to the Real Property, whether latent or
otherwise, and Borrower has not received any written notice from any insurance
company or bonding company of any defects or inadequacies in the Property, or
any part thereof, which would adversely affect the insurability of the same or
cause the imposition of extraordinary premiums or charges thereon or of any
termination or threatened termination of any policy of insurance or bond.
 
(i) Each Lease associated with a Facility, other than any resident care
agreement or any Lease pursuant to which the Facility is leased back to its
prior owner after purchase by the Borrower, is terminable upon 30 days’ notice
by Borrower to the tenant thereunder.
 
 
Section 4.17  Full Disclosure. The information prepared or furnished by or on
behalf of any Borrower in connection with any Loan Document or Related Document
(including the information contained in any Financial Statement or Disclosure
Document), does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements contained therein, in
light of the circumstances when made, not misleading; provided, however, that
Projections contained therein are not to be viewed as factual and that actual
results during the periods covered thereby may differ from the results set forth
in such Projections by a material amount. All Projections that are part of such
information (including those set forth in any Projections delivered subsequent
to the Closing Date) are based upon good faith estimates and stated assumptions
believed to be reasonable and fair as of the date made in light of conditions
and facts then known and, as of such date, reflect good faith, reasonable and
fair estimates of the information projected for the periods set forth therein.
All facts known to any Borrower and material to an understanding of the
financial condition, business, property or prospects of the Borrower taken as
one enterprise have been disclosed to the Lenders. The foregoing representation
shall be limited to the Borrowers’ knowledge with respect to any reports or
information furnished by a third party unless such third party has been engaged
by the Borrowers to prepare such information for or on behalf of the Borrowers.
 
 
Section 4.18  Operation. Each Borrower shall, and shall cause the manager under
any Management Agreement to, (i) promptly perform and/or observe all of the
covenants and agreements required to be performed and observed by it under the
applicable Management Agreement in all material respects and do all things
necessary to preserve and to keep unimpaired its material rights thereunder;
(ii) promptly notify the Administrative Agent of any “event of default” under
the applicable Management Agreement of which it is aware; (iii) promptly deliver
to the Administrative Agent a copy of each financial statement, capital
expenditures plan, property improvement plan and any other accounting report
received by it under the applicable Management Agreement; and (iv) enforce in a
commercially reasonable manner the performance and observance of all of the
material covenants and agreements required to be performed and/or observed by
such Manager under the applicable Management Agreement.
 

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Section 4.19  Estoppel Certificates
 
. Borrowers shall, from time to time, upon thirty (30) days’ prior written
request from the Administrative Agent, execute, acknowledge and deliver to the
Administrative Agent, an Officer’s Certificate, stating that this Agreement and
the other Loan Documents are unmodified and in full force and effect (or, if
there have been modifications, that this Agreement and the other Loan Documents
are in full force and effect as modified and setting forth such modifications),
stating the amount of accrued and unpaid interest and the outstanding principal
amount of the Note and containing such other information with respect to the
Borrowers, the Property and the Loan as the Administrative Agent shall
reasonably request. The estoppel certificate shall also state either that to any
Borrower’s knowledge no Default exists hereunder or, if any Default shall exist
hereunder, specify such Default and the steps being taken to cure such Default.
 
 
ARTICLE V  
 
 

 
 
FINANCIAL COVENANTS
 
Each Borrower agrees with the Lenders and the Administrative Agent to the
following, as long as any Obligation or any Commitment remains outstanding:
 
 
Section 5.1  Minimum Consolidated Project Yield
 
. Parent shall not have, on the last day of each period set forth below, a
Consolidated Project Yield less than the minimum ratio set forth opposite such
period:
 
 
PERIOD
 
 
MINIMUM FACILITY YIELD
 
 
The three (3) month period ending
 
 
December 31, 2008
 
 
10.00%
 
 
The six (6) month period ending
 
 
March 31, 2009
 
10.00%
 
The nine (9) month period ending
 
 
June 30, 2009
 
10.00%
 
The twelve (12) month period ending
 
 
September 30, 2009 and each twelve (12) month period ending each Fiscal Quarter
thereafter
 
10.00%

 
ARTICLE VI  
 
 

 
 
REPORTING COVENANTS
 
Each Borrower agrees with the Lenders and the Administrative Agent to each of
the following, as long as any Obligation or any Commitment remains outstanding:
 
 
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Section 6.1  Financial Statements. The Borrowers shall deliver to the
Administrative Agent and MLC each of the following:
 
(a)  Monthly Reports. (i) As soon as available, and in any event within 30 days
after the end of each of the first two fiscal months in each Fiscal Quarter, the
Consolidated and consolidating unaudited balance sheet of Parent as of the close
of such fiscal month and related Consolidated and consolidating statements of
income and cash flow for such fiscal month and that portion of the Fiscal Year
ending as of the close of such fiscal month, setting forth in comparative form
the figures for the corresponding period in the prior Fiscal Year, in each case
certified by a Responsible Officer of the Parent as fairly presenting in all
material respects the Consolidated financial position, results of operations and
cash flow of Parent as at the dates indicated and for the periods indicated in
accordance with GAAP (subject to the absence of footnote disclosure and normal
year-end audit adjustments).
 
(ii) As soon as available, and in any event within 30 days after the end of each
calendar month, for such calendar month, statements of the operations of each
Facility (including a current occupancy report, operating statement) as of the
last day of such calendar month; and aged accounts receivable.
 
(b)  Quarterly Reports. As soon as available, and in any event within 45 days
after the end of each of the first three Fiscal Quarters of each Fiscal Year,
(i) the Consolidated and consolidating unaudited balance sheet of Parent as of
the close of such Fiscal Quarter and related Consolidated and consolidating
statements of income and cash flow for such Fiscal Quarter and that portion of
the Fiscal Year ending as of the close of such Fiscal Quarter, setting forth in
comparative form the figures for the corresponding period in the prior Fiscal
Year and the figures contained in the latest Projections, in each case certified
by a Responsible Officer of the Parent as fairly presenting in all material
respects the Consolidated financial position, results of operations and cash
flow of Parent as at the dates indicated and for the periods indicated in
accordance with GAAP (subject to the absence of footnote disclosure and normal
year-end audit adjustments). 
 
(c)  Annual Reports. As soon as available, and in any event within 90 days after
the end of each Fiscal Year, the Consolidated and consolidating balance sheet of
the Parent as of the end of such year and related Consolidated and consolidating
statements of income, stockholders’ equity and cash flow for such Fiscal Year,
each prepared in accordance with GAAP, together with a certification by the
Borrowers’ Accountants that (i) such Consolidated Financial Statements fairly
present in all material respects the Consolidated financial position, results of
operations and cash flow of the Parent as the dates indicated and for the
periods indicated therein in accordance with GAAP without qualification as to
the scope of the audit or as to going concern and without any other similar
qualification and (ii) in the course of the regular audit of the businesses of
the Borrowers, which audit was conducted in accordance with the standards of the
United States’ Public Company Accounting Oversight Board (or any successor
entity), such Borrowers’ Accountants have obtained no knowledge that a Default
in respect of any financial covenant contained in Article V is continuing or, if
in the opinion of the Borrowers’ Accountants such a Default is continuing, a
statement as to the nature thereof.
 
(d)  Compliance Certificate. Together with each delivery of any Financial
Statement pursuant to clause (b) or (c) above, a Compliance Certificate duly
executed by a Responsible Officer of the Parent that, among other things, (i)
shows in reasonable detail the
 

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calculations used in determining the Consolidated Project Yield and, if
delivered together with any Financial Statement pursuant to clause (c) above,
the calculations used in determining Excess Cash Flow, (ii) demonstrates
compliance, or failure to comply, if applicable, with each financial covenant
contained in Article V that is tested at least on a quarterly basis and (iii)
states that no Event of Default is continuing as of the date of delivery of such
Compliance Certificate or, if a Event of Default is continuing, states the
nature thereof and the action that the relevant Borrower proposes to take with
respect thereto.
 
(e)  Corporate Chart and Other Collateral Updates. As part of the Compliance
Certificate delivered pursuant to clause (d) above, each in form and substance
reasonably satisfactory to the Administrative Agent, a certificate by a
Responsible Officer of the Parent that (i) the Corporate Chart attached thereto
(or the last Corporate Chart delivered pursuant to this clause (e)) is correct
and complete as of the date of such Compliance Certificate, (ii) the Borrowers
have delivered all documents (including updated schedules as to locations of
Collateral and acquisition of Intellectual Property or real property) they are
required to deliver pursuant to any Loan Document on or prior to the date of
delivery of such Compliance Certificate and (iii) complete and correct copies of
all documents modifying any term of any Constituent Document of any Borrower or
any Subsidiary or joint venture thereof on or prior to the date of delivery of
such Compliance Certificate have been delivered to the Administrative Agent or
are attached to such certificate.
 
(f)  Additional Projections. As soon as available and in any event not later
than 30 days after the end of each Fiscal Year, any significant revisions to,
(i) the annual business plan of the Borrowers for the Fiscal Year next
succeeding such Fiscal Year and (ii) forecasts prepared by management of the
Parent (A) for each Fiscal Quarter in such next succeeding Fiscal Year and (B)
for each other succeeding Fiscal Year through the Fiscal Year containing the
Scheduled Maturity Date, in each case including in such forecasts (x) a
projected year-end Consolidated balance sheet, income statement and statement of
cash flows, (y) a statement of all of the material assumptions on which such
forecasts are based and (z) substantially the same type of financial information
as that contained in the Initial Projections.
 
(g)  Management Discussion and Analysis. Together with each delivery of any
Compliance Certificate pursuant to clause (d) above, a discussion and analysis
of the financial condition and results of operations of the Borrowers for the
portion of the Fiscal Year then elapsed and discussing the reasons for any
significant variations from the Projections for such period and the figures for
the corresponding period in the previous Fiscal Year.
 
(h)  Intercompany Loan Balances. Together with each delivery of any Compliance
Certificate pursuant to clause (d) above, a summary of the outstanding balances
of all significant intercompany Indebtedness as of the last day of the Fiscal
Quarter covered by such Financial Statement, certified as complete and correct
by a Responsible Officer of the Parent as part of the Compliance Certificate
delivered in connection with such Financial Statements.
 
(i)  Audit Reports, Management Letters, Etc. Together with each delivery of any
Financial Statement for any Fiscal Year pursuant to clause (c) above, copies of
each management letter, audit report or similar letter or report received by any
Borrower from any independent registered certified public accountant (including
the Borrowers’ Accountants) in connection with such Financial Statements or any
audit thereof, each certified to be complete and
 

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correct copies by a Responsible Officer of the Parent as part of the Compliance
Certificate delivered in connection with such Financial Statements.
 
(j)  Insurance. Together with each delivery of any Financial Statement for any
Fiscal Year pursuant to clause (c) above, each in form and substance
satisfactory to the Administrative Agent and certified as complete and correct
by a Responsible Officer of the Parent as part of the Compliance Certificate
delivered in connection with such Financial Statements, to the extent that there
have been changes in any such material insurance coverage since last delivered
to the Administrative Agent, a summary of all changes to any material insurance
coverage maintained as of the date thereof by any Borrower, together with such
other related documents and information as the Administrative Agent may
reasonably require.
 
 
Section 6.2  Other Events. The Borrowers shall give the Administrative Agent and
MLC notice of each of the following (which may be made by telephone if promptly
confirmed in writing) promptly after any Responsible Officer of any Borrower
knows or has reason to know of it: (a)(i) any Default and (ii) any event that
would have a material adverse impact on any Borrower or any Facility,
specifying, in each case, the nature and anticipated effect thereof and any
action proposed to be taken in connection therewith, (b) any event (other than
any event involving loss or damage to property) and any material Property Loss
Event reasonably expected to result in a mandatory payment of the Obligations
pursuant to Section 2.4, stating the material terms and conditions of such
transaction and estimating the Net Cash Proceeds thereof, (c) the commencement
of, or any material developments in, any action, investigation, suit,
proceeding, audit, claim, demand, order or dispute with, by or before any
Governmental Authority affecting any Borrower or any property of any Borrower
that (i) seeks injunctive or similar relief, (ii) in the reasonable judgment of
such Borrower, exposes any Borrower to liability in an aggregate amount in
excess of $100,000 or (iii) if adversely determined would have a material
adverse impact on any Borrower or any Facility, and (d) the acquisition of any
material real property or the entering into any material lease (and for purposes
hereof, resident care agreements shall not be deemed to be material leases).
 
 
Section 6.3  Copies of Notices and Reports. The Borrowers shall promptly deliver
to the Administrative Agent and MLC copies of each of the following: (a) all
reports that Parent transmits to its security holders generally, (b) all
documents that any Borrower files with the Securities and Exchange Commission,
the National Association of Securities Dealers, Inc., any securities exchange or
any Governmental Authority exercising similar functions, (c) all press releases
not made available directly to the general public, and (d) any material document
transmitted or received pursuant to, or in connection with, the Related
Transaction or any Contractual Obligation governing Indebtedness of any
Borrower.
 
 
Section 6.4  Taxes. The Borrowers shall give the Administrative Agent and MLC
notice of each of the following (which may be made by telephone if promptly
confirmed in writing) promptly after any Responsible Officer of any Borrower
knows or has reason to know of it: (a) the creation, or filing with the IRS or
any other Governmental Authority, of any Contractual Obligation or other
document extending, or having the effect of extending, the period for assessment
or collection of any taxes with respect to any Tax Affiliate and (b) the
creation of any Contractual Obligation of any Tax Affiliate, or the receipt of
any request directed to any Tax Affiliate, to make any adjustment under Section
481(a) of the Code, by reason of a change in accounting method or otherwise,
which would have a Material Adverse Effect.
 
 
 
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Section 6.5  Labor Matters. The Borrowers shall give the Administrative Agent
and MLC notice of each of the following (which may be made by telephone if
promptly confirmed in writing), promptly after, and in any event within 30 days
after any Responsible Officer of any Borrower knows or has reason to know of it:
(a) the commencement of any material labor dispute to which any Borrower is or
may become a party, including any strikes, lockouts or other disputes relating
to any of such Person’s plants and other facilities and (b) the incurrence by
any Borrower of any Worker Adjustment and Retraining Notification Act or related
or similar liability incurred with respect to the closing of any plant or other
facility of any such Borrower (other than, in the case of this clause (b), those
that would not, in the aggregate, have a material adverse impact on any Borrower
or any Facility).
 
 
Section 6.6  ERISA Matters. In the event a Borrower knows or has reason to know
thereof, such Borrower shall give the Administrative Agent and MLC (a) on or
prior to any filing by any ERISA Affiliate of any notice of intent to terminate
any Title IV Plan, a copy of such notice and (b) promptly, and in any event
within 30 days, after any Responsible Officer of any ERISA Affiliate knows or
has reason to know that a request for a minimum funding waiver under Section 412
of the Code has been filed with respect to any Title IV Plan or Multiemployer
Plan, a notice (which may be made by telephone if promptly confirmed in writing)
describing such waiver request and any action that any ERISA Affiliate proposes
to take with respect thereto, together with a copy of any notice filed with the
PBGC or the IRS pertaining thereto.
 
 
Section 6.7  Environmental Matters. (a)The Borrowers shall provide the
Administrative Agent and MLC notice of each of the following (which may be made
by telephone if promptly confirmed by the Administrative Agent in writing)
promptly after any Responsible Officer of any Borrower knows or has reason to
know of it (and, upon reasonable request of the Administrative Agent, documents
and information in connection therewith): (i)(A) unpermitted Releases, (B) the
receipt by any Borrower of any notice of violation of or potential liability or
similar notice under, or the existence of any condition that could reasonably be
expected to result in violations of or liabilities under, any Environmental Law
or (C) the commencement of, or any material change to, any action,
investigation, suit, proceeding, audit, claim, demand, dispute alleging a
violation of or liability under any Environmental Law, that, for each of clauses
(A), (B) and (C) above (and, in the case of clause (C), if adversely
determined), could reasonably be expected to result in Material Environmental
Liabilities, and (ii) the receipt by any Borrower of notification that any
property of any Borrower is subject to any Lien in favor of any Governmental
Authority securing, in whole or in part, Environmental Liabilities.
 
(b) Upon request of the Administrative Agent, each Borrower, as applicable,
shall provide the Administrative Agent a report containing an update as to the
status of any environmental, health or safety compliance, hazard or liability
issue identified in any document, in each case, delivered to any Secured Party
pursuant to any Loan Document or as to any condition reasonably believed by the
Administrative Agent to result in Material Environmental Liabilities.
 
 
Section 6.8  Other Information. Each Borrower, as applicable, shall provide the
Administrative Agent and MLC with such other documents and information with
respect to the business, property, condition (financial or otherwise), financial
or corporate or similar affairs or operations of such Borrower as the
Administrative Agent or such Lender through the Administrative Agent may from
time to time reasonably request; provided, however, Borrower shall have no
obligation to provide any Constituent Documents or financial reports of any
Person
 

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owning any Equity Interests in the Parent, except to the extent required to
evidence compliance with Article VIII.
 
 
ARTICLE VII  
 
 

 
 
AFFIRMATIVE COVENANTS
 
Each Borrower agrees with the Lenders and the Administrative Agent to each of
the following, as long as any Obligation or any Commitment remains outstanding:
 
 
Section 7.1  Maintenance of Corporate Existence. Each Borrower shall
(a) preserve and maintain its legal existence as a Single Purpose Entity, except
in the consummation of transactions expressly permitted by Sections 8.4 and 8.7,
and (b) preserve and maintain it rights (charter and statutory), privileges,
franchises and Permits necessary or desirable in the conduct of its business,
except, in the case of this clause (b), where the failure to do so would not
have a Material Adverse Effect on any Borrower or any Facility.
 
 
Section 7.2  Compliance with Laws and Healthcare Matters, Etc. (a) Each Borrower
shall comply with all applicable Requirements of Law, Contractual Obligations
and Permits, except for such failures to comply that would not have a material
adverse impact on any Borrower or any Facility. 
 
(b) Without limiting the generality of the forgoing or any other provision of
this Agreement, each Borrower and their employees and contractors (other than
contracted agencies) in the exercise of their duties on behalf of any Borrower
(with respect to its operation of the Facilities) shall be in compliance with
all applicable Requirements of Law relating to patient healthcare and/or patient
healthcare information, including without limitation (to the extent that any
Borrower is a “covered entity” as defined therein) the Health Insurance
Portability and Accountability Act of 1996, as amended, and the rules and
regulations promulgated thereunder (“HIPAA”) (collectively, “Healthcare Laws”)).
Each Borrower shall maintain in all material respects all records required to be
maintained by any Governmental Authority or otherwise under the Healthcare Laws.
Each Borrower shall maintain all Governmental Approvals necessary under
applicable Requirements of Law to own and/or operate the Facilities, as
applicable (including such Governmental Approvals as are required under such the
Healthcare Laws).
 
(c) Intentionally Omitted.
 
(d) If required under applicable Requirements of Law, each Borrower shall
maintain in full force and effect a valid certificate of need or similar
certificate, license, or approval issued by the State Regulator for the
requisite number of licensed beds and units in the Facilities (as shown on
Schedule 4.16, attached hereto), and a provider agreement or other required
documentation of approved provider status for each provider payment or
reimbursement program listed in Schedule 7.2, attached hereto. All required
Government Approvals necessary for operation of the Facilities are listed on
Schedule 7.2 hereto (collectively with all certificates of need, if applicable,
the “Licenses”). Each Borrower shall operate the Facilities in accordance with
and shall maintain in full force and effect, all Licenses. True and complete
copies of the Licenses have been delivered to Administrative Agent.
 

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(e) Each Facility has in full force and effect all necessary Medicare and
Medicaid provider agreements and similar agreements with other third party
payors and shall be operated in compliance with all requirements for
participation in all Medicare, Medicaid, Blue Cross and/or Blue Shield, and any
other private commercial insurance managed care and employee assistance program
(such programs, the “Third-Party Payor Programs”) Third-Party Payor Programs.
 
(f) No Borrower, other than in the normal course of business, shall change the
terms of any Third-Party Payor Program now or hereinafter in effect or their
normal billing payment or reimbursement policies and procedures with respect
thereto (including the amount and timing of finance charges, fees and
write-offs). All cost reports and financial reports submitted by any Borrower to
any third party payor will be materially accurate and complete and have not been
and will not be misleading in any material respects and all patient or resident
records, including patient or resident trust fund accounts, will remain true and
correct in all material respects.
 
(g) Intentionally Omitted.
 
(h) No patient or resident care agreements entered into after the Permitted
Acquisition Closing Date for such Facility, shall deviate in any material
adverse respect from the form patient or resident care agreements which have
been delivered to Administrative Agent, except to the extent necessary to comply
with applicable law.
 
 
Section 7.3  Payment of Obligations. Each Borrower shall pay or discharge before
they become delinquent (a) all material claims, taxes, assessments, charges and
levies imposed by any Governmental Authority and (b) all other lawful claims
that if unpaid would, by the operation of applicable Requirements of Law, become
a Lien upon any property of any Borrower, except, in each case, for those whose
amount or validity is being contested in good faith by proper proceedings
diligently conducted and for which adequate reserves are maintained by the
appropriate Borrower.
 
 
Section 7.4  Maintenance of Property. Each Borrower shall maintain and preserve,
in compliance with all Requirements of Law, (a) in good working order and
condition all of its property necessary in the conduct of its business and (b)
all rights, permits, licenses, approvals and privileges (including all Permits)
necessary, used or useful, whether because of its ownership, lease, sublease or
other operation or occupation of property or other conduct of its business, and
shall make all necessary or appropriate filings with, and give all required
notices to, Government Authorities, except for such failures to maintain and
preserve the items set forth in clauses (a) and (b) above for each Facility,
that would not materially (x) impair the value or marketability of such Facility
or (y) interfere with the ordinary conduct of the business conducted and
proposed to be conducted at such Facility.
 
 
Section 7.5  Maintenance of Insurance. (a) Property. The Borrowers shall keep
the Real Properties insured against damage by fire and the other hazards covered
by a standard extended coverage and “special perils” insurance policy (including
a separate policy for broad form boiler and machinery coverage (without
exclusion for explosion)) for the full insurable value thereof, the term “full
insurable value” to mean the actual replacement cost of the improvements and the
personal property (without taking into account depreciation or co-insurance),
and shall maintain such other casualty insurance as reasonably required by the
 

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Administrative Agent, including, without limitation, ordinance or law coverage,
in amounts and in form approved by the Administrative Agent as of the Closing
Date which amounts and form shall not be changed without the prior written
consent of the Administrative Agent. The Borrowers shall keep the Facilities
insured against loss by flood if any Facility is located in an area identified
by the Federal Emergency Management Agency as an area having special flood
hazards and in which flood insurance has been made available under the National
Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973 and the
National Flood Insurance Reform Act of 1994 (and any successor acts thereto) in
an amount at least equal to the amount approved by the Administrative Agent as
of the Closing Date. The proceeds of insurance paid on account of any damage or
destruction to any Facility shall be paid to the Administrative Agent to be
applied as provided in Section 2.6(b).
 
(b) Liability. The Borrowers shall maintain (i) commercial general liability
insurance with respect to the Facilities; (ii) worker’s compensation insurance
and employer’s liability insurance covering employees at the Facilities employed
by the Borrowers (to the extent required, and in the amounts required by
applicable laws); (iii) business interruption insurance, including use and
occupancy, rental income loss and extra expense, against all periods covered by
the Borrowers’ property insurance; (iv) umbrella liability, (v) builder’s risk
insurance, as applicable, and (vi) Terrorism insurance (subject to the
requirements of this Section 7.5). All of the above shall be maintained at all
times during the term of the Loan with coverages, in the amounts and forms and
with limits approved by the Administrative Agent as of the Closing Date which
amounts, limits and form shall not be changed or reduced without the prior
written consent of the Administrative Agent. Without limiting the foregoing and
notwithstanding anything to the contrary contained in this Agreement, if on the
Closing Date, Terrorism is an exclusion from coverage in any such insurance
policy with respect to any Facility, then the Borrowers shall, upon the
Administrative Agent’s request, obtain a separate policy insuring specifically
against Terrorism; provided, that such coverage is (A) customarily obtained by
owners of property of similar size and quality of such Facility and (B) readily
available at a cost that, in Administrative Agent’s reasonable opinion, is
commercially reasonable.
 
(c) Intentionally Omitted.
 
(d) Form and Quality. All insurance policies shall be endorsed in form and
substance acceptable to the Administrative Agent to name the Administrative
Agent as an additional insured, loss payee or mortgagee thereunder, as its
interest may appear, with loss payable to the Administrative Agent, without
contribution, under a standard New York (or local equivalent) mortgagee clause.
All such insurance policies and endorsements shall be fully paid for and contain
such provisions and expiration dates and be in such form and issued by such
insurance companies licensed to do business in the State where each Facility is
located, with a rating of “A-IX” or better as established by Best’s Rating Guide
(or an equivalent rating approved in writing by the Administrative Agent). Each
policy shall provide that such policy may not be cancelled or materially changed
except upon thirty (30) days’ prior written notice (or ten (10) days’ prior
written notice if for non-payment) of intention of non-renewal, cancellation or
material change to the Administrative Agent and that no act or thing done by the
Borrowers shall invalidate any policy as against the Administrative Agent. The
Borrowers shall deliver copies of all original policies certified to the
Administrative Agent by the insurance company or authorized agent as being true
copies, together with the endorsements required hereunder. The proceeds of
insurance policies coming into the possession of the Administrative Agent shall
be deemed trust funds, and the Administrative Agent shall be entitled to apply
such proceeds as herein provided.
 

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The Borrowers shall not maintain any separate or additional property insurance
which is contributing in the event of loss unless it is properly endorsed and
otherwise satisfactory to the Administrative Agent in all respects.
 
(e) Adjustments. The Borrowers shall give immediate written notice of any loss
to the insurance carrier and to the Administrative Agent. During any Event of
Default, the Borrowers hereby irrevocably authorize and empower the
Administrative Agent, as attorney-in-fact for the Borrowers coupled with an
interest, to make proof of loss, to adjust and compromise any claim under
insurance policies, to appear in and prosecute any action arising from such
insurance policies, to collect and receive insurance proceeds, and to deduct
therefrom the Administrative Agent’s reasonable expenses incurred in the
collection of such proceeds. Nothing contained in this Section 7.5, however,
shall require the Administrative Agent to incur any expense or take any action
hereunder, provided if the Administrative Agent commences to make proof of loss,
adjust or compromise any such claim, then it shall be obligated to complete
same.
 
(f) The Administrative Agent’s Right to Purchase Insurance. In the event the
Borrowers fail to provide the Administrative Agent with evidence of the
insurance coverage required by this Agreement, upon notice to Borrowers, the
Administrative Agent may purchase insurance at the Borrowers’ expense to protect
the Administrative Agent’s interests in the Facilities. This insurance may, but
need not, protect the Borrowers’ interests. The coverage purchased by the
Administrative Agent may not pay any claim made by any Borrower or any claim
that is made against any Borrower in connection with the Facilities. The
Borrowers may later cancel, or request the Administrative Agent to cancel, which
the Administrative Agent shall promptly do, any insurance purchased by the
Administrative Agent, but only after providing the Administrative Agent with
evidence that the Borrowers have obtained insurance as required by this
Agreement. If the Administrative Agent purchases insurance for the Facilities,
the Borrowers will be responsible for all out-of-pocket costs of such insurance
(regardless of whether or not Borrower is able to procure insurance at a lower
cost), including interest and other charges imposed by the Administrative Agent
in connection with the placement of the insurance, until the effective date of
the cancellation or expiration of the insurance. The costs of the insurance may
be added to the Loan, and the Administrative Agent shall provide a copy of the
policy to the Borrowers.
 
 
Section 7.6  Keeping of Books. The Borrowers shall keep proper books of record
and account, in which full, true and correct entries shall be made in accordance
with GAAP and all other applicable Requirements of Law of all financial
transactions and the assets and business of each Borrower.
 
 
Section 7.7  Access to Books and Property. Each Borrower shall permit the
Administrative Agent and MLC, at any reasonable time during normal business
hours and with reasonable advance notice (except that, during the continuance of
an Event of Default, no such notice shall be required) to (a) visit and, subject
to the rights of the tenants under the Leases, inspect the property of each
Borrower including, without limitation, each Facility, and examine and make
copies of and abstracts from, the corporate (and similar), financial, operating
and other books and records of each Borrower, and (b) discuss the affairs,
finances and accounts of each Borrower with any officer or director of any
Borrower; provided, however, so long as no Default then exists, the combined
total of such visits and inspections by Administrative Agent and MLC shall not
exceed more than two (2) such visits or inspections in any 12 month period.
 
 
 
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Section 7.8  Environmental. Each Borrower shall comply with, and maintain
its real property, whether owned, leased, subleased or otherwise operated or
occupied, in compliance with, all applicable Environmental Laws (including by
implementing any Remedial Action necessary to achieve such compliance or that is
required by orders and directives of any Governmental Authority) except for
failures to comply that would not, in the aggregate, have a material adverse
impact on any Borrower or any Facility. Without limiting the foregoing, if an
Event of Default is continuing or if the Administrative Agent at any time has a
reasonable basis to believe that there exist violations of Environmental Laws by
any Borrower or that there exist any Environmental Liabilities, in each case,
that would have a material adverse impact on any Borrower or any Facility, then
such Borrower shall, promptly upon receipt of request from the Administrative
Agent, cause the performance of, and allow the Administrative Agent and its
Related Persons access to such Real Property for the purpose of conducting, by
reputable environmental consulting firms, such environmental audits and
assessments, including, if recommended by a phase I environmental assessment,
subsurface sampling of soil and groundwater, and cause the preparation of such
reports, in each case as the Administrative Agent may from time to time
reasonably request. Such audits, assessments and reports shall be conducted and
prepared only by reputable environmental consulting firms reasonably acceptable
to the Administrative Agent and shall be in form and substance reasonably
acceptable to the Administrative Agent.
 
 
Section 7.9  Use of Proceeds. The proceeds of the Loans shall be used by the
Borrowers (and, to the extent distributed to them by the Borrowers, each other
Borrower) solely (a) to consummate the Acquisitions and for the payment of
related transaction costs, fees and expenses, (b) for the payment of transaction
costs, fees and expenses incurred in connection with the Loan Documents and the
transactions contemplated therein, and (c) for the reserves and distribution
thereof as contemplated by Section 2.1(b).
 
 
Section 7.10  Additional Collateral, Subsidiaries and Further Assurances. To the
extent not delivered to the Administrative Agent on or before the Closing Date
(including in respect of any Permitted Acquisition or after-acquired property
and Persons that become Subsidiaries of any Borrower after the Closing Date),
each Borrower shall, promptly, do each of the following, unless otherwise agreed
by the Administrative Agent:
 
(a)  deliver to the Administrative Agent such modifications to the terms of the
Loan Documents (or, to the extent applicable as determined by the Administrative
Agent, such other documents), in each case in form and substance reasonably
satisfactory to the Administrative Agent and as the Administrative Agent deems
necessary or advisable in order to ensure the following:
 
(i)  each Subsidiary of any Borrower shall become a Borrower under this
Agreement and shall assume all of the Obligations hereunder and be bound as if
it had been an original signatory hereto; and
 
(ii)  each Borrower (including any Person required to become a Borrower pursuant
to clause (i) above) shall effectively grant to the Administrative Agent, for
the benefit of the Secured Parties, a valid and enforceable security interest in
all of its real and personal property, including all of its Equity Interests and
Equity Equivalents and other securities, as security for the Obligations of such
Borrower.
 
 
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(b)  deliver to the Administrative Agent all documents, if any, representing all
Equity Interests, Equity Equivalents and other securities pledged pursuant to
the documents delivered pursuant to clause (a) above, together with undated
powers or endorsements duly executed in blank;
 
(c)  deliver to the Administrative Agent a Mortgage on any real property owned
or leased by any Borrower, together with all Mortgage Supporting Documents
relating thereto and shall comply with the conditions set forth in Sections
3.1(a) with respect thereto; 
 
(d)  to take all other actions, or cause the Permitted Investors to take all
actions, reasonably necessary or advisable to ensure the validity or continuing
validity of any guaranty for any Obligation or any Lien securing any Obligation,
to perfect, maintain, evidence or enforce any Lien securing any Obligation or to
ensure such Liens have the same priority as that of the Liens on similar
Collateral set forth in the Loan Documents executed on the Closing Date,
including the filing of UCC financing statements in such jurisdictions as may be
required by the Loan Documents or applicable Requirements of Law or as the
Administrative Agent may otherwise reasonably request; and
 
(e)  deliver to the Administrative Agent legal opinions similar to those
delivered to the Administrative Agent on the Closing Date.
 
 
Section 7.11  Deposit Accounts; Securities Accounts. Each Borrower shall (i)
deposit all of its cash in deposit accounts that are Controlled Deposit
Accounts, provided, however, that each Borrower may maintain zero-balance
accounts for the purpose of managing local disbursements and may maintain
payroll, withholding tax and other fiduciary accounts, (ii) deposit all of its
Cash Equivalents in securities accounts that are Controlled Securities Accounts.
 
 
Section 7.12  Interest Rate Contracts. Each Borrower shall, within 30 days after
the Closing Date, enter into and thereafter maintain Interest Rate Contracts on
terms and with counterparties reasonably satisfactory to the Administrative
Agent, to provide protection against fluctuation of interest rates until the
Scheduled Maturity Date for a notional amount that, when added to the aggregate
principal amount of Consolidated Total Debt of Parent bearing interest at a
fixed rate, equals at least 75% of the aggregate principal amount of the
Consolidated Total Debt of Parent.
 
 
ARTICLE VIII  
 
 

 
 
NEGATIVE COVENANTS
 
Each Borrower agrees with the Lenders and the Administrative Agent to each of
the following, as long as any Obligation or any Commitment remains outstanding:
 
 
Section 8.1  Indebtedness
 
. No Borrower shall, directly or indirectly, incur or otherwise remain liable
with respect to or responsible for, any Indebtedness except for the following:
 
(a)  the Obligations;
 
 
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(b)  Indebtedness existing on the date hereof and set forth on Schedule 8.1,
together with any Permitted Refinancing of any Indebtedness permitted hereunder
in reliance upon this clause (b);
 
(c)  intercompany loans owing to any Borrower and constituting Permitted
Investments of such Borrower;
 
(d)  obligations under Interest Rate Contracts entered into to comply with
Section 7.12; 
 
(e)  unsecured trade payables and operational debt not evidenced by a note, and
equipment and vehicle lease obligations, and in an aggregate amount per Borrower
not exceeding $100,000; and
 
(f)  Guaranty Obligations of any Borrower with respect to Indebtedness of any
other Borrower (other than Indebtedness permitted hereunder in reliance upon
clause (b) above, for which Guaranty Obligations may be permitted to the extent
set forth in such clauses).
 
 
Section 8.2  Liens. No Borrower shall incur, maintain or otherwise suffer to
exist any Lien upon or with respect to any of its real or personal property
including all Licenses, whether now owned or hereafter acquired, or assign any
right to receive income or profits, except for the following:
 
(a)  Liens created pursuant to any Loan Document;
 
(b)  Customary Permitted Liens of the Borrowers;
 
(c)  Liens existing on the date hereof and set forth on Schedule 8.2; and
 
(d)  Liens on the property of any Borrower securing the Permitted Refinancing of
any Indebtedness secured by any Lien on such property permitted hereunder in
reliance upon clause (c) or this clause (d) without any change in the property
subject to such Liens.
 
 
Section 8.3  Investments. No Borrower shall make or maintain, directly or
indirectly, any Investment except for the following:
 
(a)  Investments existing on the date hereof and set forth on Schedule 8.3;
 
(b)  Investments in cash and Cash Equivalents;
 
(c)  endorsements for collection or deposit in the ordinary course of business;
and
 
(d)  Investments made as part of a Permitted Acquisition.
 
 
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Section 8.4  Transfers. No Borrower shall Transfer any of its real or personal
property or issue or cause or permit a direct or indirect Transfer or Lien upon
its own direct or indirect Equity Interests, except for the following:
 
(a)  In each case to the extent entered into in the ordinary course of business
and made to a Person that is not an Affiliate of any Borrower, (i) Transfers of
Cash Equivalents for property or services of equivalent value, (ii) inventory or
property that has become obsolete or worn out and (iii) non-exclusive licenses
of Intellectual Property;
 
(b)  (i) any Transfer of any personal property (other than their own Equity
Interests or Equity Equivalents) by any Borrower to any other Borrower to the
extent any resulting Investment constitutes a Permitted Investment, (ii) any
Restricted Payment by any Borrower permitted pursuant to Section 8.5, (iii) any
distribution by Parent of the proceeds of Restricted Payments from any other
Borrower to the extent permitted in Section 8.5, and (iv) any transaction
permitted pursuant to Section 8.9;
 
(c)  so long as no (x) monetary Default or other Event of Default has occurred
and is continuing, (y) no Change of Control shall result therefrom and (z) upon
at least thirty (30) days’ prior written notice to the Administrative Agent, (i)
Transfer by any Borrower (other than Parent) of its own Equity Interests to
Parent, (ii) any direct or indirect Transfer by Parent of its own Equity
Interests or Transfer of Parent’s Equity Interests among the Permitted
Investors, (iii) any direct or indirect Transfer by Parent of its own Equity
Interests to any Person other than the Permitted Investors; provided, however,
in the case of this clause (iii), if such Transfer consists of the Transfer of
greater than 20% of such interests of Parent (with the express understanding
that no Transfer is permitted if a Change of Control shall result therefrom),
such Transfer shall be subject to the approval of the Lenders in accordance with
their reasonable standards with respect to (A) previous relationships between
such Lender and the proposed transferee, (B) the reputation for integrity,
honesty and veracity of the proposed transferee and its principals, owners,
officers and directors, and (C) OFAC, money-laundering, anti-terrorism, SEC,
healthcare laws and regulations, and other similar regulations and activities,
which approval shall not be unreasonably withheld, conditioned or delayed
(provided that the Borrowers provide timely information reasonably requested by
Lenders with respect to such proposed manager). Notwithstanding anything in any
Loan Document to the contrary, the following Transfers are permitted: (i) the
trading or issuance of Equity Interests of Emeritus or Blackstone in the public
or private markets, (ii) issuance, transfer or sale of Equity Interests of
Emeritus or Blackstone in connection with the merger, reorganization or
consolidation of Emeritus or Blackstone, (iii) transfers of the limited
partnership interests of Blackstone and its Affiliates, and (iv) any merger or
consolidation of Emeritus or Blackstone into or with, or a sale of substantially
all of the asset of Emeritus or Blackstone to any Person; provided, however, the
managing member or manager, as the case may be, shall not be transferred.
 
(d)  the Transfer for value of Westlake or Boynton, or the Parent’s interest in
the related Borrowers, or the Whittier Residence; provided that all Net Cash
Proceeds of such Transfer be applied to the outstanding principal of the Term
Loans in accordance with Section 2.6(b);
 
(e)  entering into, modifying, amending, renewing, terminating in the ordinary
course of business any resident care agreement or service agreement for
ancillary services; and
 
 
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(f)  entering into, modifying or amending any Lease (other than resident care
agreements and service agreements for ancillary services) in the ordinary course
on market terms; provided, however, the total square footage of all such leases
shall not exceed 2,500 square feet at any Facility without Lender’s consent.
 
 
Section 8.5  Restricted Payments. No Borrower shall directly or indirectly,
declare, order, pay, make or set apart any sum for any Restricted Payment except
for the following:
 
(a)  Restricted Payments by any Borrower to any other Borrower;
 
(b)  dividends and distributions declared and paid on the common (or common
equivalent) Equity Interests of the Parent ratably to the holders of such common
(or common equivalent) Equity Interests and payable only in common (or common
equivalent) Equity Interests of Parent; and
 
(c)  cash dividends on the Equity Interests of the Parent to its members paid
and declared solely for the purpose of funding, subject to the requirements of
Section 2.4, Excess Cash Flow.
 
(d) Term Loan proceeds actually advanced in respect of any Permitted
Acquisition, to the extent not paid to Seller for such Permitted Acquisition.
 
 
Section 8.6  Prepayment of Indebtedness. Subject to Section 2.3, no Borrower
shall (x) prepay, redeem, purchase, defease or otherwise satisfy prior to the
scheduled maturity thereof any Indebtedness, (y) set apart any property for such
purpose, whether directly or indirectly and whether to a sinking fund, a similar
fund or otherwise, or (z) make any payment in violation of any subordination
terms of any Indebtedness; provided, however, that each Borrower may, to the
extent otherwise permitted by the Loan Documents, do each of the following:
 
(a)  (i) prepay the Obligations, and (ii) consummate a Permitted Refinancing;
 
(b)  prepay, redeem, purchase, defease or otherwise satisfy prior to the
scheduled maturity thereof (or set apart any property for such purpose) any
Indebtedness owing to any other Borrower; and
 
(c)  make regularly scheduled or otherwise required repayments or redemptions of
Indebtedness but only, in the case of Subordinated Debt, to the extent permitted
by the subordination provisions thereof.
 
 
Section 8.7  Fundamental Changes. Except as set forth in Section 8.4(c), no
Borrower shall (a) merge, consolidate or amalgamate with any Person, (b) acquire
all or substantially all of the Equity Interests or Equity Equivalents of any
Person or (c) acquire any brand or all or substantially all of the assets of any
Person or all or substantially all of the assets constituting any line of
business, division, branch, operating division or other unit operation of any
Person, in each case, except for the following: (i) any Permitted Acquisition,
(ii) the merger, consolidation or amalgamation of any Borrower into any other
Borrower and (iii) the merger, consolidation or amalgamation of any Borrower for
the sole purpose, and with the sole material effect, of changing its State of
organization within the United States; provided, however, that in the case of
any merger, consolidation or amalgamation involving any Borrower for the purpose
of
 

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changing its State of organization, all actions required to maintain the
perfection of the Lien of the Administrative Agent on the Equity Interests, or
other real or personal property of such Borrower shall have been made.
 
 
Section 8.8  Change in Nature of Business. No Borrower shall carry on any
business, operations or activities (whether directly, through a joint venture,
in connection with a Permitted Acquisition or otherwise) substantially different
from those carried on, or intended to be carried on, by such Borrowers as of the
date hereof and business, operations and activities reasonably related thereto.
 
 
Section 8.9  Transactions with Affiliates. No Borrower shall, except as
otherwise expressly permitted herein, enter into any other transaction directly
or indirectly with, or for the benefit of, any Affiliate of any Borrower that is
not a Borrower (including Guaranty Obligations with respect to any obligation of
any such Affiliate), except for (a) transactions in the ordinary course of
business on a basis no less favorable to such Borrower as would be obtained in a
comparable arm’s length transaction with a Person not an Affiliate of any
Borrower, (b) Restricted Payments, the proceeds of which, if received by any
Person other than any Borrower, are used as required by Section 8.5, (c)
reasonable salaries and other reasonable director or employee compensation to
officers and directors of any Borrower, and (d) Management Fees, provided that,
in the case of this clause (d), such Management Fees shall be paid last in
priority and only after the payment of all other current operating expenses of
the Borrowers and the Facilities (including, all current debt service and other
interest payments on any Indebtedness permitted hereunder and the funding of all
escrows and reserved required hereunder).
 
 
Section 8.10  Third-Party Restrictions on Indebtedness, Liens, Investments or
Restricted Payments. No Borrower shall incur or otherwise suffer to exist or
become effective or remain liable on or responsible for any Contractual
Obligation limiting the ability of (a) any Borrower to make Restricted Payments
to, or Investments in, or repay Indebtedness to or otherwise Transfer property
to, any other Borrower or (b) any Borrower to incur or suffer to exist any Lien
upon any property of any Borrower, whether now owned or hereafter acquired,
securing any of its Obligations (including any “equal and ratable” clause and
any similar Contractual Obligation requiring, when a Lien is granted on any
property, another Lien to be granted on such property or any other property),
except, in each case (x) pursuant to the Loan Documents and (y) limitations on
Liens (other than those securing any Obligation) on any property whose
acquisition or repair is financed by purchase money Indebtedness or Permitted
Refinancings permitted hereunder in reliance upon Section (b) set forth in the
Contractual Obligations governing such Indebtedness or Permitted Refinancing or
Guaranty Obligations with respect thereto.
 
 
Section 8.11  Modification of Certain Documents. No Borrower shall do any of the
following: 
 
(a)  waive or otherwise modify any term of any Related Document (other than the
terms of any Subordinated Debt) or any Constituent Document of, or otherwise
change the capital structure of, any Borrower (including the terms of any of
their outstanding Equity Interests or Equity Equivalents), in each case except
for those modifications and waivers that (x) do not elect, or permit the
election, to treat the Equity Interests or Equity Equivalents of any limited
liability company (or similar entity) as certificated, (y) do not materially
affect the rights and privileges of any Borrower and (z) do not materially
affect the interests of any Secured Party under the Loan Documents or in the
Collateral;
 
 
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(b)  waive or otherwise modify any term of any Subordinated Debt if the effect
thereof on such Subordinated Debt is to (i) increase the interest rate, (ii)
change the due dates for principal or interest, other than to extend such dates,
(iii) modify any default or event of default, other than to delete it or make it
less restrictive, (iv) add any covenant with respect thereto, (v) modify any
subordination provision, (vi) modify any redemption or prepayment provision,
other than to extend the dates therefor or to reduce the premiums payable in
connection therewith or (vii) materially increase any obligation of any Borrower
or confer additional material rights to the holder of such Subordinated Debt in
a manner adverse to any Borrower or any Secured Party.
 
 
Section 8.12  Accounting Changes; Fiscal Year. No Borrower shall change its (a)
accounting treatment or reporting practices, except as required by GAAP or any
Requirement of Law, or (b) its fiscal year or its method for determining fiscal
quarters or fiscal months.
 
 
Section 8.13  Margin Regulations. No Borrower shall use all or any portion of
the proceeds of any credit extended hereunder to purchase or carry margin stock
(within the meaning of Regulation U of the Federal Reserve Board) in
contravention of Regulation U of the Federal Reserve Board.
 
 
Section 8.14  Compliance with ERISA. No ERISA Affiliate shall cause or suffer to
exist (a) any event that could result in the imposition of a Lien on any asset
of any Borrower with respect to any Title IV Plan or Multiemployer Plan or (b)
any other ERISA Event, that would, in the aggregate, have a Material Adverse
Effect.
 
 
Section 8.15  Hazardous Materials. No Borrower shall cause or suffer to exist
any Release of any Hazardous Material at, to or from any real property owned,
leased, subleased or otherwise operated or occupied by any Borrower that would
violate any Environmental Law, form the basis for any Environmental Liabilities
or otherwise adversely affect the value or marketability of any real property
(whether or not owned by any Borrower), other than such violations,
Environmental Liabilities and effects that would not, in the aggregate, have a
material adverse impact on any Borrower or any Facility.
 
 
ARTICLE IX  
 
 

 
 
EVENTS OF DEFAULT
 
 
Section 9.1  Definition. Each of the following shall be an “Event of Default”:
 
(a)  The Borrowers shall fail to pay (i) any principal of any Loan when the same
becomes due and payable or (ii) any interest on any Loan, any fee under any Loan
Document or any other Obligation (other than those set forth in clause (i)
above) and, in the case of this clause (ii), such non-payment continues for a
period of 5 Business Days after the due date therefor; or
 
(b)  any representation, warranty or certification made or deemed made by or on
behalf of any Borrower (or any Responsible Officer thereof) in, or in connection
with, any Loan Document (including in any document delivered in connection with
any Loan Document) shall prove to have been incorrect in any material respect
when made or deemed made; or
 
 
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(c)  any Borrower shall fail to comply with (i) any provision of Article VI,
Sections 7.1 (Maintenance of Corporate Existence), 7.5 (Insurance), 7.7 (Access
to Books and Property), 7.9 (Use of Proceeds), 7.11 (Deposit Accounts) or
Article VIII (Negative Covenants) or (ii) any other provision of any Loan
Document (other than Section 5.1 (Minimum Consolidated Project Yield)) if, in
the case of this clause (ii), such failure shall remain unremedied for thirty
(30) days after the earlier of (A) the date on which a Responsible Officer of
such Borrower becomes aware of such failure and (B) the date on which notice
thereof shall have been given to such Borrower by the Administrative Agent,
provided, that in the case of clause (ii), if such failure cannot be cured
within such 30 day period but during such 30 day period Borrowers have commenced
to cure such failure and thereafter have demonstrated to Administrative Agent
that they have diligently pursued same to completion, such 30 day period shall
be extended for an additional 30 days; or
 
(d)  (i) any Borrower shall fail to make any payment when due (whether due
because of scheduled maturity, required prepayment provisions, acceleration,
demand or otherwise) on any Indebtedness of any Borrower (other than the
Obligations or any Hedging Agreement) and, in each case, such failure relates to
Indebtedness having a principal amount of $100,000 or more, (ii) any other event
shall occur or condition shall exist under any Contractual Obligation relating
to any such Indebtedness, if the effect of such event or condition is to
accelerate, or to permit the acceleration of, the maturity of such Indebtedness
or (iii) any such Indebtedness shall become or be declared to be due and
payable, or be required to be prepaid, redeemed, defeased or repurchased (other
than by a regularly scheduled required prepayment), prior to the stated maturity
thereof; or
 
(e)  (i) any Borrower shall generally not pay its debts as such debts become
due, shall admit in writing its inability to pay its debts generally or shall
make a general assignment for the benefit of creditors, (ii) any proceeding
shall be instituted by or against (without contest) any Borrower seeking to
adjudicate it a bankrupt or insolvent or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, composition of it
or its debts or any similar order, in each case under any Requirement of Law
relating to bankruptcy, insolvency or reorganization or relief of debtors or
seeking the entry of an order for relief or the appointment of a custodian,
receiver, trustee, conservator, liquidating agent, liquidator, other similar
official or other official with similar powers, in each case for it or for any
substantial part of its property and, in the case of any such proceedings
instituted against (but not by or with the consent of) any Borrower, either such
proceedings shall remain undismissed or unstayed for a period of 60 days or more
or any action sought in such proceedings shall occur or (iii) any Borrower shall
take any corporate or similar action or any other action to authorize any action
described in clause (i) or (ii) above; or
 
(f)  one or more judgments, orders or decrees (or other similar process) shall
be rendered against any Borrower (i)(A) in the case of money judgments, orders
and decrees, involving an aggregate amount (excluding amounts adequately covered
by insurance payable to any Borrower, to the extent the relevant insurer has not
denied coverage therefore or for with Borrowers have set aside adequate
reserves) in excess of $250,000 or (B) otherwise, that would have, in the
aggregate, a Material Adverse Effect and (ii)(A) enforcement proceedings shall
have been commenced by any creditor upon any such judgment, order or decree or
(B) such judgment, order or decree shall not have been vacated or discharged for
a period of 60 consecutive days and there shall not be in effect (by reason of a
pending appeal or otherwise) any stay of enforcement thereof; or
 
 
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(g)  except pursuant to a valid, binding and enforceable termination or release
permitted under the Loan Documents and executed by the Administrative Agent or
as otherwise expressly permitted under any Loan Document, (i) any provision of
any Loan Document shall, at any time after the delivery of such Loan Document,
fail to be valid and binding on, or enforceable against, any Borrower party
thereto or (ii) any Loan Document purporting to grant a Lien to secure any
Obligation shall, at any time after the delivery of such Loan Document, fail to
create a valid and enforceable Lien on any Collateral purported to be covered
thereby or such Lien shall fail or cease to be a perfected Lien with the
priority required in the relevant Loan Document, or any Borrower shall state in
writing that any of the events described in clause (i) or (ii) above shall have
occurred; or
 
(h)  there shall occur any Change of Control; or
 
(i)  there shall occur any uninsured damage to or loss, theft or destruction of
any Facility or portion of the Collateral that exceeds $250,000 in the
aggregate; or
 
(j)  intentionally omitted
 
(k)  with respect to three (3) or more Facilities, any state or federal
regulatory agency shall have either revoked the licenses or, in the case of any
skilled nursing facility, has issued a denial of payment for new admissions, at
such Facilities and all applicable appeal periods related to such revocation
shall have expired.
 
 
Section 9.2  Remedies. During the continuance of any Event of Default, the
Administrative Agent may, and, at the request of the Required Lenders, shall, in
each case by notice to the Parent and in addition to any other right or remedy
provided under any Loan Document or by any applicable Requirement of Law, do
each of the following: (a) declare all or any portion of the Commitments
terminated, whereupon the Commitments shall immediately be reduced by such
portion or, in the case of a termination in whole, shall terminate together with
any obligation any Lender may have hereunder to make any Loan or (b) declare
immediately due and payable all or part of any Obligation (including any accrued
but unpaid interest thereon), whereupon the same shall become immediately due
and payable, without presentment, demand, protest or further notice or other
requirements of any kind, all of which are hereby expressly waived by the Parent
and the other Borrowers (and, to the extent provided in any other Loan Document,
other Borrowers); provided, however, that, effective immediately upon the
occurrence of the Events of Default specified in Section 9.1(e)(ii), (x) the
Commitments of each Lender to make Loans shall each automatically be terminated
and (y) each Obligation (including in each case any accrued all accrued but
unpaid interest thereon) shall automatically become and be due and payable,
without presentment, demand, protest or further notice or other requirement of
any kind, all of which are hereby expressly waived by Parent and the other
Borrowers (and, to the extent provided in any other Loan Document, any other
Borrower).
 
 
ARTICLE X  
 
 

 
 
THE ADMINISTRATIVE AGENT
 
 
Section 10.1  Appointment and Duties. (a) Appointment of Administrative Agent.
Each Lender hereby appoints GE Capital (together with any successor
Administrative Agent pursuant to Section 10.9) as the Administrative Agent
hereunder and authorizes the
 

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Administrative Agent to (i) accept delivery thereof on its behalf from any
Borrower, (ii) take such action on its behalf and to exercise all rights, powers
and remedies and perform the duties as are expressly delegated to the
Administrative Agent under such Loan Documents and (iii) exercise such powers as
are reasonably incidental thereto.
 
(b) Duties as Collateral and Disbursing Agent. Without limiting the generality
of clause (a) above, the Administrative Agent shall have the sole and exclusive
right and authority (to the exclusion of the Lenders), and is hereby authorized
on behalf of the Lenders, to (i) act as the disbursing and collecting agent for
the Lenders with respect to all payments and collections arising in connection
with the Loan Documents (including in any proceeding described in
Section 9.1(e)(ii) or any other bankruptcy, insolvency or similar proceeding),
and each Person making any payment in connection with any Loan Document to any
Secured Party is hereby authorized to make such payment to the Administrative
Agent, (ii) file and prove claims and file other documents necessary or
desirable to allow the claims of the Secured Parties with respect to any
Obligation in any proceeding described in Section 9.1(e)(ii) or any other
bankruptcy, insolvency or similar proceeding (but not to vote, consent or
otherwise act on behalf of such Secured Party), (iii) act as collateral agent
for each Secured Party for purposes of the perfection of all Liens created by
such agreements and all other purposes stated therein, (iv) manage, supervise
and otherwise deal with the Collateral, (v) take such other action as is
necessary or desirable to maintain the perfection and priority of the Liens
created or purported to be created by the Loan Documents, (vi) except as may be
otherwise specified in any Loan Document, exercise all remedies given to the
Administrative Agent and the other Secured Parties with respect to the
Collateral, whether under the Loan Documents, applicable Requirements of Law or
otherwise and (vii) execute any amendment, consent or waiver under the Loan
Documents on behalf of any Lender that has consented in writing to such
amendment, consent or waiver; provided, however, that the Administrative Agent
hereby appoints, authorizes and directs each Lender to act as collateral
sub-agent for the Administrative Agent and the Lenders for purposes of the
perfection of all Liens with respect to the Collateral, including any deposit
account maintained by a Borrower with, and cash and Cash Equivalents held by,
such Lender, and may further authorize and direct the Lenders to take further
actions as collateral sub-agents for purposes of enforcing such Liens or
otherwise to transfer the Collateral subject thereto to the Administrative
Agent, and each Lender hereby agrees to take such further actions to the extent,
and only to the extent, so authorized and directed.
 
(c) Limited Duties. Under the Loan Documents, the Administrative Agent (i) is
acting solely on behalf of the Lenders (except to the limited extent provided in
Section 2.8(b) with respect to the Register and in Section 10.11), with duties
that are entirely administrative in nature, notwithstanding the use of the
defined term “Administrative Agent”, the terms “agent”, “administrative agent”
and “collateral agent” and similar terms in any Loan Document to refer to the
Administrative Agent, which terms are used for title purposes only, (ii) is not
assuming any obligation under any Loan Document other than as expressly set
forth therein or any role as agent, fiduciary or trustee of or for any Lender or
any other Secured Party and (iii) shall have no implied functions,
responsibilities, duties, obligations or other liabilities under any Loan
Document, and each Lender hereby waives and agrees not to assert any claim
against the Administrative Agent based on the roles, duties and legal
relationships expressly disclaimed in clauses (i) through (iii) above.
 
 
Section 10.2  Binding Effect. Each Lender agrees that (i) any action taken by
the Administrative Agent or the Required Lenders (or, if expressly required
hereby, a greater
 

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proportion of the Lenders) in accordance with the provisions of the Loan
Documents, (ii) any action taken by the Administrative Agent in reliance upon
the instructions of Required Lenders (or, where so required, such greater
proportion) and (iii) the exercise by the Administrative Agent or the Required
Lenders (or, where so required, such greater proportion) of the powers set forth
herein or therein, together with such other powers as are reasonably incidental
thereto, shall be authorized and binding upon all of the Secured Parties.
 
 
Section 10.3  Use of Discretion. (a) No Action without Instructions. The
Administrative Agent shall not be required to exercise any discretion or take,
or to omit to take, any action, including with respect to enforcement or
collection, except any action it is required to take or omit to take (i) under
any Loan Document or (ii) pursuant to instructions from the Required Lenders
(or, where expressly required by the terms of this Agreement, a greater
proportion of the Lenders).
 
(b) Right Not to Follow Certain Instructions. Notwithstanding clause (a) above,
the Administrative Agent shall not be required to take, or to omit to take, any
action (i) unless, upon demand, the Administrative Agent receives an
indemnification satisfactory to it from the Lenders (or, to the extent
applicable and acceptable to the Administrative Agent, any other Secured Party)
against all Liabilities that, by reason of such action or omission, may be
imposed on, incurred by or asserted against the Administrative Agent or any
Related Person thereof or (ii) that is, in the opinion of the Administrative
Agent or its counsel, contrary to any Loan Document or applicable Requirement of
Law.
 
 
Section 10.4  Delegation of Rights and Duties. The Administrative Agent may,
upon any term or condition it specifies, delegate or exercise any of its rights,
powers and remedies under, and delegate or perform any of its duties or any
other action with respect to, any Loan Document by or through any trustee,
co-agent, employee, attorney-in-fact and any other Person (including any Secured
Party). Any such Person shall benefit from this Article X to the extent provided
by the Administrative Agent.
 
 
Section 10.5  Reliance and Liability. (a) The Administrative Agent may, without
incurring any liability hereunder to Lenders, (i) treat the payee of any Note as
its holder until such Note has been assigned in accordance with Section 11.2(e),
(ii) rely on the Register to the extent set forth in Section 2.8, (iii) consult
with any of its Related Persons and, whether or not selected by it, any other
advisors, accountants and other experts (including advisors to, and accountants
and experts engaged by, any Borrower) and (iv) rely and act upon any document
and information (including those transmitted by Electronic Transmission) and any
telephone message or conversation, in each case believed by it to be genuine and
transmitted, signed or otherwise authenticated by the appropriate parties.
 
(b) None of the Administrative Agent and its Related Persons shall be liable to
Lenders for any action taken or omitted to be taken by any of them under or in
connection with any Loan Document, and each Lender and each Borrower, hereby
waives and shall not assert any right, claim or cause of action based thereon,
except to the extent of liabilities resulting primarily from the gross
negligence or willful misconduct of the Administrative Agent or, as the case may
be, such Related Person (each as determined in a final, non-appealable judgment
by a court of competent jurisdiction) in connection with the duties expressly
set forth herein. Without limiting the foregoing, the Administrative Agent:
 
 
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(i)  shall not be responsible or otherwise incur liability to Lenders for any
action or omission taken in reliance upon the instructions of the Required
Lenders or for the actions or omissions of any of its Related Persons selected
with reasonable care (other than employees, officers and directors of the
Administrative Agent, when acting on behalf of the Administrative Agent); 
 
(ii)  shall not be responsible to any Secured Party for the due execution,
legality, validity, enforceability, effectiveness, genuineness, sufficiency or
value of, or the attachment or priority of any Lien created or purported to be
created under or in connection with, any Loan Document;
 
(iii)  makes no warranty or representation, and shall not be responsible, to any
Secured Party for any statement, document, information, representation or
warranty made or furnished by or on behalf of any Related Person or any Borrower
in connection with any Loan Document or any transaction contemplated therein or
any other document or information with respect to any Borrower, whether or not
transmitted or (except for documents expressly required under any Loan Document
to be transmitted to the Lenders) omitted to be transmitted by the
Administrative Agent, including as to completeness, accuracy, scope or adequacy
thereof, or for the scope, nature or results of any due diligence performed by
the Administrative Agent in connection with the Loan Documents; and
 
(iv)  shall not have any duty to ascertain or to inquire as to the performance
or observance of any provision of any Loan Document, whether any condition set
forth in any Loan Document is satisfied or waived, as to the financial condition
of any Borrower or as to the existence or continuation or possible occurrence or
continuation of any Default or Event of Default and shall not be deemed to have
notice or knowledge of such occurrence or continuation unless it has received a
notice from any Borrower, any Lender describing such Default or Event of Default
clearly labeled “notice of default” (in which case the Administrative Agent
shall promptly give notice of such receipt to all Lenders);
 
and, for each of the items set forth in clauses (i) through (iv) above, each
Lender and each Borrower hereby waives and agrees not to assert (and each
Borrower shall cause each other Borrower to waive and agree not to assert) any
right, claim or cause of action it might have against the Administrative Agent
based thereon, except with respect to the gross negligence or willful misconduct
of the Administrative Agent or any Lender.
 
 
Section 10.6  Administrative Agent Individually. The Administrative Agent and
its Affiliates may make loans and other extensions of credit to, acquire Equity
Interests and Equity Equivalents of, engage in any kind of business with, any
Borrower or Affiliate thereof as though it were not acting as the Administrative
Agent and may receive separate fees and other payments therefor. To the extent
the Administrative Agent or any of its Affiliates makes any Loan or otherwise
becomes a Lender hereunder, it shall have and may exercise the same rights and
powers hereunder and shall be subject to the same obligations and liabilities as
any other Lender and the terms “Lender”, “Required Lender” and any similar terms
shall, except where otherwise expressly provided in any Loan Document, include,
without limitation, the Administrative Agent
 

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or such Affiliate, as the case may be, in its individual capacity as Lender or
as one of the Required Lenders.
 
 
Section 10.7  Lender Credit Decision. Each Lender acknowledges that it shall,
independently and without reliance upon the Administrative Agent, any Lender or
any of their Related Persons or upon any document (including the Disclosure
Documents) solely or in part because such document was transmitted by the
Administrative Agent or any of its Related Persons, conduct its own independent
investigation of the financial condition and affairs of each Borrower and make
and continue to make its own credit decisions in connection with entering into,
and taking or not taking any action under, any Loan Document or with respect to
any transaction contemplated in any Loan Document, in each case based on such
documents and information as it shall deem appropriate. Except for documents
expressly required by any Loan Document to be transmitted by the Administrative
Agent to the Lenders, the Administrative Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, prospects, operations, property, financial and other
condition or creditworthiness of any Borrower or any Affiliate of any Borrower
that may come in to the possession of the Administrative Agent or any of its
Related Persons.
 
 
Section 10.8  Expenses; Indemnities. (a) Each Lender agrees to reimburse the
Administrative Agent and each of its Related Persons (to the extent not
reimbursed by any Borrower) promptly upon demand for such Lender’s Pro Rata
Share with respect to the Facilities of any costs and expenses (including fees,
charges and disbursements of financial, legal and other advisors and Other Taxes
paid in the name of, or on behalf of, any Borrower) that may be incurred by the
Administrative Agent or any of its Related Persons in connection with the
preparation, execution, delivery, administration, modification, consent, waiver
or enforcement (whether through negotiations, through any work-out, bankruptcy,
restructuring or other legal or other proceeding or otherwise) of, or legal
advice in respect of its rights or responsibilities under, any Loan Document.
 
(b) Each Lender further agrees to indemnify the Administrative Agent and each of
its Related Persons (to the extent not reimbursed by any Borrower), from and
against such Lender’s aggregate Pro Rata Share with respect to the Facilities of
the Liabilities (including taxes, interests and penalties imposed for not
properly withholding or backup withholding on payments made to on or for the
account of any Lender) that may be imposed on, incurred by or asserted against
the Administrative Agent or any of its Related Persons in any matter relating to
or arising out of, in connection with or as a result of any Loan Document, any
Related Document or any other act, event or transaction related, contemplated in
or attendant to any such document, or, in each case, any action taken or omitted
to be taken by the Administrative Agent or any of its Related Persons under or
with respect to any of the foregoing; provided, however, that no Lender shall be
liable to the Administrative Agent or any of its Related Persons to the extent
such liability has resulted primarily from the gross negligence or willful
misconduct of the Administrative Agent or, as the case may be, such Related
Person, as determined by a court of competent jurisdiction in a final
non-appealable judgment or order.
 
 
Section 10.9  Resignation of Administrative Agent. (a) The Administrative Agent
may resign at any time by delivering notice of such resignation to the Lenders
and the Parent, effective on the date set forth in such notice or, if not such
date is set forth therein, upon the date such notice shall be effective. If the
Administrative Agent delivers any such notice, the Required Lenders shall have
the right to appoint a successor Administrative Agent. If, within 30 days after
 

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the retiring Administrative Agent having given notice of resignation, no
successor Administrative Agent has been appointed by the Required Lenders that
has accepted such appointment, then the retiring Administrative Agent shall, on
behalf of the Lenders, appoint a successor Administrative Agent from among the
Lenders. Each appointment under this clause (a) shall be subject to the prior
consent of the Borrowers, which may not be unreasonably withheld but shall not
be required during the continuance of a Default.
 
(b) Effective immediately upon its resignation, (i) the retiring Administrative
Agent shall be discharged from its duties and obligations under the Loan
Documents, (ii) the Lenders shall assume and perform all of the duties of the
Administrative Agent until a successor Administrative Agent shall have accepted
a valid appointment hereunder, (iii) the retiring Administrative Agent and its
Related Persons shall no longer have the benefit of any provision of any Loan
Document other than with respect to any actions taken or omitted to be taken
while such retiring the Administrative Agent was, or because such Administrative
Agent had been, validly acting as the Administrative Agent under the Loan
Documents and (iv) subject to its rights under Section 10.3, the retiring
Administrative Agent shall take such action as may be reasonably necessary to
assign to the successor Administrative Agent its rights as Administrative Agent
under the Loan Documents. Effective immediately upon its acceptance of a valid
appointment as Administrative Agent, a successor Administrative Agent shall
succeed to, and become vested with, all the rights, powers, privileges and
duties of the retiring Administrative Agent under the Loan Documents.
 
 
Section 10.10  Release of Collateral. Each Lender hereby consents to the release
and hereby directs the Administrative Agent to release (or, in the case of
clause (b)(ii) below, release or subordinate) the following:
 
(a)  any Borrower from its Obligations hereunder if all of the Equity Interests
of such Borrower are disposed of in a Transfer permitted under the Loan
Documents (including pursuant to a waiver or consent), provided, after giving
effect to such Transfer, Borrowers have complied with the requirements of
Section 7.10; and
 
(b)  any Lien held by the Administrative Agent for the benefit of the Secured
Parties against (i) any Collateral that is disposed of by a Borrower in a
Transfer permitted by the Loan Documents (including pursuant to a valid waiver
or consent), to the extent all Liens required to be granted in such Collateral
pursuant to Section 7.10 after giving effect to such Transfer have been granted,
(ii) any property subject to a Lien permitted hereunder in reliance upon
Section 8.2(c) or (d), (iii) all of the Collateral and all the Borrowers, upon
(A) termination of the Commitments, (B) payment and satisfaction in full of all
Loans and all other Obligations that the Administrative Agent has been notified
in writing are then due and payable, (C) deposit of cash collateral with respect
to all contingent Obligations, in amounts and on terms and conditions and with
parties satisfactory to the Administrative Agent and each Indemnitee that is
owed such Obligations and (D) to the extent requested by the Administrative
Agent, receipt by the Secured Parties of liability releases from the Borrowers
each in form and substance acceptable to the Administrative Agent, and (iv) any
Lien on the Collateral related to Westlake, Boynton and the Whittier Residence
upon the sale of same as permitted hereunder.
 
Each Lender hereby directs the Administrative Agent, and the Administrative
Agent hereby agrees, upon receipt of reasonable advance notice from any
Borrower, to execute and deliver or
 
 
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file such documents and to perform other actions reasonably necessary to release
the guaranties and Liens when and as directed in this Section 10.10.
 
 
Section 10.11  Additional Secured Parties. The benefit of the provisions of the
Loan Documents directly relating to the Collateral or any Lien granted
thereunder shall extend to and be available to any Secured Party that is not a
Lender as long as, by accepting such benefits, such Secured Party agrees, as
among the Administrative Agent and all other Secured Parties, that such Secured
Party is bound by (and, if requested by the Administrative Agent, shall confirm
such agreement in a writing in form and substance acceptable to the
Administrative Agent) this Article X, Section 11.8 (Right of Setoff),
Section 11.9 (Sharing of Payments) and Section 11.20 (Confidentiality) and the
decisions and actions of the Administrative Agent and the Required Lenders (or,
where expressly required by the terms of this Agreement, a greater proportion of
the Lenders) to the same extent a Lender is bound; provided, however, that,
notwithstanding the foregoing, (a) such Secured Party shall be bound by
Section 10.8 only to the extent of Liabilities, costs and expenses with respect
to or otherwise relating to the Collateral held for the benefit of such Secured
Party, in which case the obligations of such Secured Party thereunder shall not
be limited by any concept of Pro Rata Share or similar concept, (b) each of the
Administrative Agent and the Lenders shall be entitled to act at its sole
discretion, without regard to the interest of such Secured Party, regardless of
whether any Obligation to such Secured Party thereafter remains outstanding, is
deprived of the benefit of the Collateral, becomes unsecured or is otherwise
affected or put in jeopardy thereby, and without any duty or liability to such
Secured Party or any such Obligation and (c) such Secured Party shall not have
any right to be notified of, consent to, direct, require or be heard with
respect to, any action taken or omitted in respect of the Collateral or under
any Loan Document.
 
 
ARTICLE XI  
 
 

 
 
MISCELLANEOUS
 
 
Section 11.1  Amendments, Waivers, Etc. (a) No amendment or waiver of any
provision of any Loan Document (other than the Fee Letter, the Control
Agreements and the Secured Hedging Agreements) and no consent to any departure
by any Borrower therefrom shall be effective unless the same shall be in writing
and signed (1) in the case of an amendment, consent or waiver to cure any
ambiguity, omission, defect or inconsistency, by the Administrative Agent and
the Parent, (2) in the case of an amendment granting a new Lien for the benefit
of the Secured Parties or extending an existing Lien over additional property,
by the Administrative Agent and each Borrower directly affected thereby, (3) in
the case of any other waiver or consent, by the Required Lenders (or by the
Administrative Agent with the consent of the Required Lenders), and (4) in the
case of any other amendment, by the Required Lenders (or by the Administrative
Agent with the consent of the Required Lenders) and the Borrowers; provided,
however, that no amendment, consent or waiver described in clause (3) or (4)
above shall, unless in writing and signed by each Lender directly affected
thereby (or by the Administrative Agent with the consent of such Lender), in
addition to any other Person the signature of which is otherwise required
pursuant to any Loan Document, do any of the following:
 
(i)  waive any condition specified in Section 3.1, except any condition
referring to any other provision of any Loan Document;
 
 
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(ii)  increase the Commitment of such Lender or subject such Lender to any
additional obligation;
 
(iii)  reduce (including through release, forgiveness, assignment or otherwise)
(A) the principal amount of, the interest rate on, or any obligation of any
Borrower to repay (whether or not on a fixed date), any outstanding Loan owing
to such Lender, or (B) any fee or accrued interest payable to such Lender;
provided, however, that this clause (iii) does not apply to (x) any change to
any provision increasing any interest rate or fee during the continuance of an
Event of Default or to any payment of any such increase or (y) any modification
to any financial covenant set forth in Article V or in any definition set forth
therein or principally used therein;
 
(iv)  waive or postpone any scheduled maturity date or other scheduled date
fixed for the payment, in whole or in part, of principal of or interest on any
Loan or fee owing to such Lender or for the reduction of such Lender’s
Commitment; provided, however, that this clause (iv) does not apply to any
change to mandatory prepayments, including those required under Section 2.4, or
to the application of any payment, including as set forth in Section 2.6;
 
(v)  except as provided in Section 10.10, release any material portion of the
Collateral (it being acknowledged and understood that any Facility shall be
deemed a material portion of the Collateral); 
 
(vi)  reduce or increase the proportion of Lenders required for the Lenders (or
any subset thereof) to take any action hereunder or change the definition of the
terms “Required Lenders”, “Pro Rata Share” or “Pro Rata Outstandings”; or
 
(vii)  amend Section 10.10 (Release of Collateral), Section 11.9 (Sharing of
Payments) or this Section 11.1;
 
and provided, further, that (x)(A) any waiver of any payment applied pursuant to
Section 2.6(b) (Application of Mandatory Prepayments) to, and any modification
of the application of any such payment to, the Term Loans shall require the
consent of the Required Lenders, (B) any change to the definition of the term
“Required Lender” shall require the consent of the Required Lenders and (y) no
amendment, waiver or consent shall affect the rights or duties under any Loan
Document of, or any payment to, the Administrative Agent (or otherwise modify
any provision of Article X or the application thereof), any SPV that has been
granted an option pursuant to Section 11.2(f) unless in writing and signed by
the Administrative Agent, such SPV in addition to any signature otherwise
required and (z) the consent of the Borrowers shall not be required to change
any order of priority set forth in Section 2.6.
 
(b)  Each waiver or consent under any Loan Document shall be effective only in
the specific instance and for the specific purpose for which it was given. No
notice to or demand on any Borrower shall entitle any Borrower to any notice or
demand in the same, similar or other circumstances. No failure on the part of
any Secured Party to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof, nor shall any single or partial
 

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exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right.
 
 
Section 11.2  Assignments and Participations; Binding Effect. (a) Binding
Effect. This Agreement shall become effective when it shall have been executed
by Parent, the other Borrowers and the Administrative Agent and when the
Administrative Agent shall have been notified by each Lender that such Lender
has executed it. Thereafter, it shall be binding upon and inure to the benefit
of, but only to the benefit of, Parent, the other Borrowers (in each case except
for Article X), the Administrative Agent, each Lender and, to the extent
provided in Section 10.11, each other Indemnitee and Secured Party and, in each
case, their respective successors and permitted assigns. Except as expressly
provided in any Loan Document (including in Section 10.9), none of Parent, the
other Borrowers or the Administrative Agent shall have the right to assign any
rights or obligations hereunder or any interest herein.
 
(b) Right to Assign. Each Lender may sell, transfer, negotiate or assign all or
a portion of its rights and obligations hereunder (including all or a portion of
its Commitments and its rights and obligations with respect to Loans) to (i) any
existing Lender, (ii) any Affiliate or Approved Fund of any existing Lender or
(iii) any other Person acceptable (which acceptance shall not be unreasonably
withheld or delayed) to the Administrative Agent and, as long as no Event of
Default is continuing, the Borrowers; provided, however, that (x) such Transfers
do not have to be ratable between the Facilities but must be ratable among the
obligations owing to and owed by such Lender and (y) the aggregate outstanding
principal amount (determined as of the effective date of the applicable
Assignment) of the Loans, Commitments subject to any such Transfer shall be an
integral multiple of $1,000,000, unless such Transfer is made to an existing
Lender or an Affiliate or Approved Fund of any existing Lender, is of the
assignor’s (together with its Affiliates and Approved Funds) entire interest or
is made with the prior consent of the Parent and the Administrative Agent.
 
(c) Procedure. The parties to each Transfer made in reliance on clause (b) above
(other than those described in clause (e) or (f) below) shall execute and
deliver to the Administrative Agent (which shall keep a copy thereof) an
Assignment, together with any existing Note subject to such Transfer (or any
affidavit of loss therefor acceptable to the Administrative Agent), any tax
forms required to be delivered pursuant to Section 2.11(f) and payment by the
assignee to the Administrative Agent of an assignment fee in the amount of
$3,500. Upon receipt of all the foregoing, and conditioned upon such receipt and
upon the Administrative Agent consenting to such Assignment, from and after the
effective date specified in such Assignment, the Administrative Agent shall
record or cause to be recorded in the Register the information contained in such
Assignment.
 
(d) Effectiveness. Effective upon the entry of such record in the Register,
(i) such assignee shall become a party hereto and, to the extent that rights and
obligations under the Loan Documents have been assigned to such assignee
pursuant to such Assignment, shall have the rights and obligations of a Lender,
(ii) any applicable Note shall be transferred to such assignee through such
entry and (iii) the assignor thereunder shall, to the extent that rights and
obligations under this Agreement have been assigned by it pursuant to such
Assignment, relinquish its rights (except for those surviving the termination of
the Commitments and the payment in full of the Obligations) and be released from
its obligations under the Loan Documents, other than those relating to events or
circumstances occurring prior to such assignment (and, in the case of an
Assignment covering all or the remaining portion of an
 

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assigning Lender’s rights and obligations under the Loan Documents, such Lender
shall cease to be a party hereto except that each Lender agrees to remain bound
by Article X, Section 11.8 (Right of Setoff) and Section 11.9 (Sharing of
Payments) to the extent provided in Section 10.11 (Additional Secured Parties)).
 
(e) Grant of Security Interests. In addition to the other rights provided in
this Section 11.2, each Lender may grant a security interest in, or otherwise
assign as collateral, any of its rights under this Agreement, whether now owned
or hereafter acquired (including rights to payments of principal or interest on
the Loans), to (A) any federal reserve bank (pursuant to Regulation A of the
Federal Reserve Board), without notice to the Administrative Agent or (B) any
holder of, or trustee for the benefit of the holders of, such Lender’s
securities by notice to the Administrative Agent; provided, however, that no
such holder or trustee, whether because of such grant or assignment or any
foreclosure thereon (unless such foreclosure is made through an assignment in
accordance with clause (b) above), shall be entitled to any rights of such
Lender hereunder and no such Lender shall be relieved of any of its obligations
hereunder.
 
(f) Participants and SPVs. In addition to the other rights provided in this
Section 11.2, each Lender may, at no cost to the Borrowers (unless such
assignment or participation is undertaken at the request of Borrowers, which
costs and expense in the case of syndication to MLC shall be less than or equal
to $15,000), (x) with notice to the Administrative Agent, grant to an SPV the
option to make all or any part of any Loan that such Lender would otherwise be
required to make hereunder (and the exercise of such option by such SPV and the
making of Loans pursuant thereto shall satisfy the obligation of such Lender to
make such Loans hereunder) and such SPV may assign to such Lender the right to
receive payment with respect to any Obligation and (y) without notice to or
consent from the Administrative Agent or the Parent, sell participations to one
or more Persons in or to all or a portion of its rights and obligations under
the Loan Documents (including all its rights and obligations with respect to the
Term Loans); provided, however, that, whether as a result of any term of any
Loan Document or of such grant or participation, (i) no such SPV or participant
shall have a commitment, or be deemed to have made an offer to commit, to make
Loans hereunder, and, except as provided in the applicable option agreement,
none shall be liable for any obligation of such Lender hereunder, (ii) such
Lender’s rights and obligations, and the rights and obligations of the Borrowers
and the Secured Parties towards such Lender, under any Loan Document shall
remain unchanged and each other party hereto shall continue to deal solely with
such Lender, which shall remain the holder of the Obligations in the Register,
except that (A) each such participant and SPV shall be entitled to the benefit
of Sections 2.10 (Breakage Costs; Increased Costs; Capital Requirements) and
2.11 (Taxes), but only to the extent such participant or SPV delivers the tax
forms such Lender is required to collect pursuant to Section 2.11(f) and then
only to the extent of any amount to which such Lender would be entitled in the
absence of any such grant or participation and (B) each such SPV may receive
other payments that would otherwise be made to such Lender with respect to Loans
funded by such SPV to the extent provided in the applicable option agreement and
set forth in a notice provided to the Administrative Agent by such SPV and such
Lender, provided, however, that in no case (including pursuant to clause (A) or
(B) above) shall an SPV or participant have the right to enforce any of the
terms of any Loan Document, and (iii) the consent of such SPV or participant
shall not be required (either directly, as a restraint on such Lender’s ability
to consent hereunder or otherwise) for any amendments, waivers or consents with
respect to any Loan Document or to exercise or refrain from exercising any
powers or rights such Lender may have under or in respect of the Loan Documents
(including the right to enforce or direct enforcement of the Obligations),
except for those described in clauses (iii) and (iv) of
 

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Section 11.1(a) with respect to amounts, or dates fixed for payment of amounts,
to which such participant or SPV would otherwise be entitled and, in the case of
participants, except for those described in Section 11.1(a)(v) (or amendments,
consents and waivers with respect to Section 10.10 to release all or
substantially all of the Collateral). No party hereto shall institute (and each
Borrower shall cause each other Borrower not to institute) against any SPV
grantee of an option pursuant to this clause (f) any bankruptcy, reorganization,
insolvency, liquidation or similar proceeding, prior to the date that is one
year and one day after the payment in full of all outstanding commercial paper
of such SPV; provided, however, that each Lender having designated an SPV as
such agrees to indemnify each Indemnitee against any Liability that may be
incurred by, or asserted against, such Indemnitee as a result of failing to
institute such proceeding (including a failure to get reimbursed by such SPV for
any such Liability). The agreement in the preceding sentence shall survive the
termination of the Commitments and the payment in full of the Obligations.
 
 
Section 11.3  Costs and Expenses. Any action taken by any Borrower under or with
respect to any Loan Document, even if required under any Loan Document or at the
request of any Secured Party, shall be at the expense of such Borrower, and no
Secured Party shall be required under any Loan Document to reimburse any
Borrower therefor except as expressly provided therein. In addition, each
Borrower agrees to pay or reimburse upon demand (a) the Administrative Agent for
all reasonable out-of-pocket costs and expenses incurred by it or any of its
Related Persons in connection with the investigation, development, preparation,
negotiation, execution (but not, unless undertaken at the request of Borrowers,
syndication (which costs and expenses, in the case of syndication to MLC, shall
be less than or equal to $15,000), interpretation, administration or servicing
fees unless specifically set forth in this Agreement or the other Loan
Documents) of, any modification of any term of or termination of, any Loan
Document, any commitment or proposal letter therefor, any other document
prepared in connection therewith or the consummation of any transaction
contemplated therein (including periodic audits in connection therewith and
environmental audits and assessments), in each case including the reasonable
fees, charges and disbursements of legal counsel to the Administrative Agent or
such Related Persons, fees, costs and expenses incurred in connection with
Intralinks® or any other Electronic System and allocated to the Facilities by
the Administrative Agent in its sole discretion and fees, charges and
disbursements of the auditors, appraisers, printers and other of their Related
Persons retained by or on behalf of any of them or any of their Related Persons,
(b) the Administrative Agent for all reasonable costs and expenses incurred by
it or any of its Related Persons in connection with internal audit reviews,
field examinations and Collateral examinations (which shall be reimbursed, in
addition to the out-of-pocket costs and expenses of such examiners, at the per
diem rate per individual charged by the Administrative Agent for its examiners)
and (c) each of the Administrative Agent, its Related Persons, and each Lender
for all costs and expenses incurred in connection with (i) any refinancing or
restructuring of the credit arrangements provided hereunder in the nature of a
“work-out”, (ii) the enforcement or preservation of any right or remedy under
any Loan Document, any Obligation, with respect to the Collateral or any other
related right or remedy or (iii) the commencement, defense, conduct of,
intervention in, or the taking of any other action with respect to, any
proceeding (including any bankruptcy or insolvency proceeding) related to any
Borrower, Loan Document, Obligation (or the response to and preparation for any
subpoena or request for document production relating thereto), including fees
and disbursements of counsel (including allocated costs of internal counsel).
 
 
 
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Section 11.4  Indemnities. (a) Each Borrower agrees to indemnify, hold harmless
and defend the Administrative Agent, each Lender, each Person (other than the
Borrowers) that is a party to a Secured Hedging Agreement, and each of their
respective Related Persons (each such Person being an “Indemnitee”) from and
against all Liabilities (including brokerage commissions, fees and other
compensation) that may be imposed on, incurred by or asserted against any such
Indemnitee in any matter relating to or arising out of, in connection with or as
a result of (i) any Loan Document, any Related Document, any Disclosure
Document, any Obligation (or the repayment thereof), the use or intended use of
the proceeds of any Loan, any Related Transaction, or any securities filing of,
or with respect to, any Borrower, (ii) any commitment letter, proposal letter or
term sheet with any Person or any Contractual Obligation, arrangement or
understanding with any broker, finder or consultant, in each case entered into
by or on behalf of the Seller, any Borrower or any Affiliate of any of them in
connection with any of the foregoing and any Contractual Obligation entered into
in connection with any Electronic Systems or other Electronic Transmissions,
(iii) any actual or prospective investigation, litigation or other proceeding,
whether or not brought by any such Indemnitee or any of its Related Persons, any
holders of securities or creditors (and including attorneys’ fees in any case),
whether or not any such Indemnitee, Related Person, holder or creditor is a
party thereto, and whether or not based on any securities or commercial law or
regulation or any other Requirement of Law or theory thereof, including common
law, equity, contract, tort or otherwise, or (iv) any other act, event or
transaction related, contemplated in or attendant to any of the foregoing
(collectively, the “Indemnified Matters”); provided, however, that each Borrower
shall not have any liability under this Section 11.4 to any Indemnitee with
respect to any Indemnified Matter, and no Indemnitee shall have any liability
with respect to any Indemnified Matter other than (to the extent otherwise
liable), to the extent such liability has resulted primarily from the gross
negligence or willful misconduct of any Indemnitee. Furthermore, each Borrower
waives and agrees not to assert against any Indemnitee, and shall cause each
other Borrower to waive and not assert against any Indemnitee, any right of
contribution with respect to any Liabilities that may be imposed on, incurred by
or asserted against any Related Person.
 
(b) Without limiting the foregoing, “Indemnified Matters” includes all
Environmental Liabilities, including those arising from, or otherwise involving,
or any actual, alleged or prospective damage to property or natural resources or
harm or injury alleged to have resulted from any Release of Hazardous Materials
on, upon or into such property or natural resource or any property on or
contiguous to any real property of any Borrower, whether or not, with respect to
any such Environmental Liabilities, any Indemnitee is a mortgagee pursuant to
any leasehold mortgage, a mortgagee in possession, or the successor-in-interest
to any Related Person, in each case except to the extent such Environmental
Liabilities (i) are incurred solely following foreclosure by any Secured Party
or following any Secured Party having become the successor-in-interest to any
Borrower and (ii) are attributable solely to acts of such Indemnitee.
 
 
Section 11.5  Survival. Any indemnification or other protection provided to any
Indemnitee pursuant to any Loan Document (including pursuant to Section 2.11
(Taxes), Section 2.10 (Breakage Costs; Increased Costs; Capital Requirements),
Article X (The Administrative Agent), Section 11.3 (Costs and Expenses),
Section 11.4 (Indemnities) or this Section 11.5 and also including Guaranty
Obligations for which Lender has recourse to the party obligated thereunder) and
all representations and warranties made in any Loan Document shall (A) survive
the termination of the Commitments and the payment in full of other Obligations
and (B) inure to the benefit of any Person that at any time held a right
thereunder (as an Indemnitee or otherwise) and, thereafter, its successors and
permitted assigns, other than any person who has
 

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taken an interest herein or in the Facilities through foreclosure, deed-in-lieu
or similar transaction, unless such person taking such interest through
foreclosure, deed-in-lieu or similar transaction is a Lender, the Administrative
Agent or any of their Affiliates.
 
 
Section 11.6  Limitation of Liability for Certain Damages. In no event shall any
Indemnitee be liable on any theory of liability for any special, indirect,
consequential or punitive damages (including any loss of profits, business or
anticipated savings). Each Borrower hereby waives, releases and agrees (and
shall cause each other Borrower to waive, release and agree) not to sue upon any
such claim for any special, indirect, consequential or punitive damages, whether
or not accrued and whether or not known or suspected to exist in its favor.
 
 
Section 11.7  Lender-Creditor Relationship. The relationship between the Lenders
and the Administrative Agent, on the one hand, and the Borrowers, on the other
hand, is solely that of lender and creditor. No Secured Party has any fiduciary
relationship or duty to any Borrower arising out of or in connection with, and
there is no agency, tenancy or joint venture relationship between the Secured
Parties and the Borrowers by virtue of, any Loan Document or any transaction
contemplated therein.
 
 
Section 11.8  Right of Setoff. Each of the Administrative Agent, each Lender and
each Affiliate (including each branch office thereof) of any of them is hereby
authorized, without notice or demand (each of which is hereby waived by each
Borrower), at any time and from time to time during the continuance of any Event
of Default and to the fullest extent permitted by applicable Requirements of
Law, to set off and apply any and all deposits (whether general or special, time
or demand, provisional or final) at any time held and other Indebtedness, claims
or other obligations at any time owing by the Administrative Agent, such Lender
or any of their respective Affiliates to or for the credit or the account of any
Borrower against any Obligation of any Borrower now or hereafter existing,
whether or not any demand was made under any Loan Document with respect to such
Obligation and even though such Obligation may be unmatured. Each of the
Administrative Agent, each Lender agrees promptly to notify the Borrowers and
the Administrative Agent after any such setoff and application made by such
Lender or its Affiliates; provided, however, that the failure to give such
notice shall not affect the validity of such setoff and application. The rights
under this Section 11.8 are in addition to any other rights and remedies
(including other rights of setoff) that the Administrative Agent, the Lenders
and their Affiliates and other Secured Parties may have.
 
 
Section 11.9  Sharing of Payments, Reinstatement Etc. If any Lender, directly or
through an Affiliate or branch office thereof, obtains any payment of any
Obligation of any Borrower (whether voluntary, involuntary or through the
exercise of any right of setoff or the receipt of any Collateral or “proceeds”
(as defined under the applicable UCC) of Collateral) other than pursuant to
Sections 2.10 (Breakage Costs; Increased Costs; Capital Requirements), 2.11
(Taxes) and 2.12 (Substitution of Lenders) and such payment exceeds the amount
such Lender would have been entitled to receive if all payments had gone to, and
been distributed by, the Administrative Agent in accordance with the provisions
of the Loan Documents, such Lender shall purchase for cash from other Secured
Parties such participations in their Obligations as necessary for such Lender to
share such excess payment with such Secured Parties to ensure such payment is
applied as though it had been received by the Administrative Agent and applied
in accordance with this Agreement (or, if such application would then be at the
discretion of the Borrowers, applied to repay the Obligations in accordance
herewith); provided, however, that (a) if such payment is rescinded or otherwise
recovered from such Lender in whole or in part, such
 

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purchase shall be rescinded and the purchase price therefor shall be returned to
such Lender without interest and (b) such Lender shall, to the fullest extent
permitted by applicable Requirements of Law, be able to exercise all its rights
of payment (including the right of setoff) with respect to such participation as
fully as if such Lender were the direct creditor of such Borrower in the amount
of such participation.
 
If any payments of money or transfers of property made to Administrative Agent
(for the benefit of Lenders) by any Borrower should for any reason subsequently
be declared to be, or in Administrative Agent’s counsel’s good faith opinion be
determined to be, fraudulent (within the meaning of any state or federal law
relating to fraudulent conveyances), preferential or otherwise voidable or
recoverable in whole or in part for any reason (hereinafter collectively called
“voidable transfers”) under the Bankruptcy Code or any other federal or state
law and Administrative Agent or any Lender is required to repay or restore, or
in Administrative Agent’s counsel’s opinion may be so liable to repay or
restore, any such voidable transfer, or the amount or any portion thereof, then
as to any such voidable transfer or the amount repaid or restored and all
reasonable costs and expenses (including reasonable attorneys’ fees) of
Administrative Agent and Lenders related thereto, such Borrower’s liability
hereunder shall automatically be revived, reinstated and restored and shall
exist as though such voidable transfer had never been made.
 
 
Section 11.10  Marshaling; Payments Set Aside. No Secured Party shall be under
any obligation to marshal any property in favor of any Borrower or any other
party or against or in payment of any Obligation. To the extent that any Secured
Party receives a payment from any Borrower, from the proceeds of the Collateral,
from the exercise of its rights of setoff, any enforcement action or otherwise,
and such payment is subsequently, in whole or in part, invalidated, declared to
be fraudulent or preferential, set aside or required to be repaid to a trustee,
receiver or any other party, then to the extent of such recovery, the obligation
or part thereof originally intended to be satisfied, and all Liens, rights and
remedies therefor, shall be revived and continued in full force and effect as if
such payment had not occurred.
 
 
Section 11.11  Notices. (a) Addresses. All notices, demands, requests,
approvals, consents, directions and other communications required or expressly
authorized to be made by this Agreement shall, whether or not specified to be in
writing but unless otherwise expressly specified to be given by any other means,
be given in writing and (i) addressed to:
 
if to the Borrowers: BREA Emeritus LLC
345 Park Avenue
New York, New York 10154
Attention: David Roth
Tel: (212) 583-5885
Fax: (212) 583-5202

 
with copy to: Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
Attention: Eric Mendelsohn
Tel: (206) 301-4493
Fax: (206) 357-7388

 

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and: Pircher, Nichols & Meeks
900 North Michigan Avenue, Suite 1050
Chicago, Illinois 60611
Attention: Real Estate Notices (JDL-CHI/SAC-LA)
Tel: (312) 915-3112
Fax: (312) 915-3348

 
and  Foster Pepper PLLC
1111 Third Avenue
Seattle, Washington 98101-3299
Attention: Laura McClellan, Esq.
Tel: (206) 447-2871
Fax: (206) 749-1917,

 
if to the
Administrative Agent: GE Capital
500 West Monroe Street
Chicago, IL 60661
Attention: John Cobb, Senior Managing Director
Tel: (312) 441-7421
Fax: (866) 252-2015

 
with copy to: 5804 Trailridge Drive
Austin, TX 78731
Attention: Diana Pennington, Senior Vice President & Chief Counsel
Tel: (512) 458-8625
Fax: (866) 221-0433

 
or (ii) addressed to such other address as shall be notified in writing (A) in
the case of any Borrower, the Administrative Agent, to the other parties hereto
and (B) in the case of all other parties, to the Parent and the Administrative
Agent.
 
(b) Effectiveness. All communications described in clause (a) above and all
other notices, demands, requests and other communications made in connection
with this Agreement shall be effective and be deemed to have been received (i)
if delivered by hand, upon personal delivery, (ii) if delivered by overnight
courier service, one Business Day after delivery to such courier service, (iii)
if delivered by United States mail, 5 days after being deposited in the mails,
and (iv) if delivered by facsimile, upon sender’s receipt of confirmation of
proper transmission,; provided, however, that no communications to the
Administrative Agent pursuant to Article II or Article X shall be effective
until received by the Administrative Agent, and any communications delivered
pursuant to clause (iv) shall be immediately followed by a hard copy sent
pursuant to clauses (i), (ii) or (iii).
 
 
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Section 11.12  Electronic Transmissions. (a) Authorization. Subject to the
provisions of Section 11.11(a), each of the Administrative Agent, the Borrowers,
the Lenders and each of their Related Persons is authorized (but not required)
to transmit, post or otherwise make or communicate, in its sole discretion,
Electronic Transmissions in connection with any Loan Document and the
transactions contemplated therein. Each Borrower and each Secured Party hereby
acknowledges and agrees, and each Borrower shall cause each other Borrower to
acknowledge and agree, that the use of Electronic Transmissions is not
necessarily secure and that there are risks associated with such use, including
risks of interception, disclosure and abuse and each indicates it assumes and
accepts such risks by hereby authorizing the transmission of Electronic
Transmissions.
 
(b) Signatures. Subject to the provisions of Section 11.11(a), (i)(A) no posting
to any Electronic System shall be denied legal effect merely because it is made
electronically, (B) each Electronic Signature on any such posting shall be
deemed sufficient to satisfy any requirement for a “signature” and (C) each such
posting shall be deemed sufficient to satisfy any requirement for a “writing”,
in each case including pursuant to any Loan Document, any applicable provision
of any UCC, the federal Uniform Electronic Transactions Act, the Electronic
Signatures in Global and National Commerce Act and any substantive or procedural
Requirement of Law governing such subject matter, (ii) each such posting that is
not readily capable of bearing either a signature or a reproduction of a
signature may be signed, and shall be deemed signed, by attaching to, or
logically associating with such posting, an Electronic Signature, upon which
each Secured Party and each Borrower may rely and assume the authenticity
thereof, (iii) each such posting containing a signature, a reproduction of a
signature or an Electronic Signature shall, for all intents and purposes, have
the same effect and weight as a signed paper original and (iv) each party hereto
or beneficiary hereto agrees not to contest the validity or enforceability of
any posting on any Electronic System or Electronic Signature on any such posting
under the provisions of any applicable Requirement of Law requiring certain
documents to be in writing or signed; provided, however, that nothing herein
shall limit such party’s or beneficiary’s right to contest whether any posting
to any Electronic System or Electronic Signature has been altered after
transmission.
 
(c) Separate Agreements. All uses of an Electronic System shall be governed by
and subject to, in addition to Section 11.11 and this Section 11.12, separate
terms and conditions posted or referenced in such Electronic System and related
Contractual Obligations executed by Secured Parties and Borrowers in connection
with the use of such Electronic System.
 
(d) Limitation of Liability. All Electronic Systems and Electronic Transmissions
shall be provided “as is” and “as available”. None of Administrative Agent or
any of its Related Persons warrants the accuracy, adequacy or completeness of
any Electronic Systems or Electronic Transmission, and each disclaims all
liability for errors or omissions therein. No Warranty of any kind is made by
the Administrative Agent or any of its Related Persons in connection with any
Electronic Systems or Electronic Communication, including any warranty of
merchantability, fitness for a particular purpose, non-infringement of
third-party rights or freedom from viruses or other code defects.  Each Borrower
and each Secured Party agrees (and each Borrower shall cause each other Borrower
to agree) that the Administrative Agent has no responsibility for maintaining or
 

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providing any equipment, software, services or any testing required in
connection with any Electronic Transmission or otherwise required for any
Electronic System.
 
 
Section 11.13  Governing Law. This Agreement, each other Loan Document that does
not expressly set forth its applicable law, and the rights and obligations of
the parties hereto and thereto shall be governed by, and construed and
interpreted in accordance with, the law of the State of New York.
 
 
Section 11.14  Jurisdiction. (a) Submission to Jurisdiction. Any legal action or
proceeding with respect to any Loan Document may be brought in the courts of the
State of New York located in the City of New York, Borough of Manhattan, or of
the United States of America for the Southern District of New York and, by
execution and delivery of this Agreement, each Borrower hereby accepts for
itself and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. The parties hereto (and, to the extent set
forth in any other Loan Document, each other Borrower) hereby irrevocably waive
any objection, including any objection to the laying of venue or based on the
grounds of forum non conveniens, that any of them may now or hereafter have to
the bringing of any such action or proceeding in such jurisdictions.
 
(b) Service of Process. Each Borrower (and, to the extent set forth in any other
Loan Document, each other Borrower) hereby irrevocably waives personal service
of any and all legal process, summons, notices and other documents and other
service of process of any kind and consents to such service in any suit, action
or proceeding brought in the United States of America with respect to or
otherwise arising out of or in connection with any Loan Document by any means
permitted by applicable Requirements of Law, including by the mailing thereof
(by registered or certified mail, postage prepaid) to the address of the
Borrowers specified in Section 11.11 (and shall be effective when such mailing
shall be effective, as provided therein). Each Borrower (and, to the extent set
forth in any other Loan Document, each other Borrower) agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
 
(c) Non-Exclusive Jurisdiction. Nothing contained in this Section 11.14 shall
affect the right of the Administrative Agent or any Lender to serve process in
any other manner permitted by applicable Requirements of Law.
 
 
Section 11.15  Waiver of Jury Trial. Each party hereto hereby irrevocably waives
trial by jury in any suit, action or proceeding with respect to, or directly or
indirectly arising out of, under or in connection with, any Loan Document or the
transactions contemplated therein or related thereto (whether founded in
contract, tort or any other theory). Each party hereto (A) certifies that no
other party and no Related Person of any other party has represented, expressly
or otherwise, that such other party would not, in the event of litigation, seek
to enforce the foregoing waiver and (B) acknowledges that it and the other
parties hereto have been induced to enter into the Loan Documents, as
applicable, by the mutual waivers and certifications in this Section 11.15.
 
 
Section 11.16  Severability. Any provision of any Loan Document being held
illegal, invalid or unenforceable in any jurisdiction shall not affect any part
of such provision not held
 

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illegal, invalid or unenforceable, any other provision of any Loan Document or
any part of such provision in any other jurisdiction.
 
 
Section 11.17  Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement. Signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart. Delivery of an executed signature page of this Agreement by
facsimile transmission or Electronic Transmission shall be as effective as
delivery of a manually executed counterpart hereof.
 
 
Section 11.18  Entire Agreement. The Loan Documents embody the entire agreement
of the parties and supersede all prior agreements and understandings relating to
the subject matter thereof and any prior letter of interest, commitment letter,
confidentiality and similar agreements involving any Borrower and any of the
Administrative Agent, any Lender or any of their respective Affiliates relating
to a financing of substantially similar form, purpose or effect. In the event of
any conflict between the terms of this Agreement and any other Loan Document,
the terms of this Agreement shall govern (unless such terms of such other Loan
Documents are necessary to comply with applicable Requirements of Law, in which
case such terms shall govern to the extent necessary to comply therewith).
 
 
Section 11.19  Use of Name. Each Borrower agrees, and shall cause each other
Borrower to agree, that it shall not, and none of its Affiliates shall, issue
any press release or other public disclosure (other than any document filed with
any Governmental Authority relating to a public offering of the Equity Interests
of any Borrower) using the name, logo or otherwise referring to GE Capital or of
any of its Affiliates, the Loan Documents or any transaction contemplated
therein to which the Secured Parties are party without at least 2 Business Days’
prior notice to GE Capital and without the prior consent of GE Capital except to
the extent required to do so under applicable Requirements of Law and then, only
after consulting with GE Capital prior thereto.
 
 
Section 11.20  Non-Public Information; Confidentiality. (a) Each Lender
acknowledges and agrees that it may receive material non-public information
hereunder concerning the Borrowers and their Affiliates and securities and
agrees to use such information in compliance with all relevant policies,
procedures and Contractual Obligations and applicable Requirements of Laws
(including United States federal and state security laws and regulations).
 
(b) Each Lender and the Administrative Agent agrees to use all reasonable
efforts to maintain, in accordance with its customary practices, the
confidentiality of information obtained by it pursuant to any Loan Document and
designated in writing by any Borrower as confidential, except that such
information may be disclosed (i) with such Borrower’s consent, (ii) to Related
Persons of such Lender or the Administrative Agent, as the case may be, that are
advised of the confidential nature of such information and are instructed to
keep such information confidential, (iii) to the extent such information
presently is or hereafter becomes available to such Lender or the Administrative
Agent, as the case may be, on a non-confidential basis from a source other than
any Borrower, (iv) to the extent disclosure is required by applicable
Requirements of Law or other legal process or requested or demanded by any
Governmental Authority, (v) to the National Association of Insurance
Commissioners or any similar organization, any examiner or any nationally
recognized rating agency or otherwise to the extent
 

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consisting of general portfolio information that does not identify Borrowers,
(vi) to current or prospective assignees, SPVs grantees of any option described
in Section 11.2(f) or participants, direct or contractual counterparties to any
Hedging Agreement permitted hereunder and to their respective Related Persons,
in each case to the extent such assignees, participants, counterparties or
Related Persons agree to be bound by provisions substantially similar to the
provisions of this Section 11.20 and (vii) in connection with the exercise of
any remedy under any Loan Document.  In the event of any conflict between the
terms of this Section 11.20 and those of any other Contractual Obligation
entered into with any Borrower (whether or not a Loan Document), the terms of
this Section 11.20 shall govern.
 
 
Section 11.21  Patriot Act Notice. Each Lender subject to the USA Patriot Act of
2001 (31 U.S.C. 5318 et seq.) hereby notifies each Borrower that, pursuant to
Section 326 thereof, it is required to obtain, verify and record information
that identifies each Borrower, including the name and address of such Borrower
and other information allowing such Lender to identify such Borrower in
accordance with such act.
 
 
Section 11.22  Limitation of Liability. Notwithstanding anything to the contrary
contained in this Agreement, except as expressly set forth in the Limited
Recourse Guaranty or the Environmental Indemnity, no present or future
“Constituent Partner” in or of any Borrower and no present or future advisor,
trustee, director, officer, employee, beneficiary, member, shareholder,
participant, advisor, principal or agent in or of any Borrower shall have any
personal liability, directly or indirectly, under or in connection with this
Agreement, and Lenders and their successors and assigns and, without limitation,
all other persons and entities, hereby waive any and all such personal
liability. “Constituent Partner” means any person or entity that is a partner
in, member or shareholder of any Borrower, or any person or entity that directly
or indirectly through one or more limited liability companies, partnership or
other entities, is a partner in, member or shareholder of any Borrower;
provided, however, in no event shall the Parent be a “Constituent Partner”.
 
 
Section 11.23  Existing Agreements Superseded; Exhibits and Schedules. (a) The
Original Credit Agreement, including the schedules thereto, is superseded by
this Agreement, including the schedules hereto, which has been executed in
renewal, amendment, restatement and modification of, but not in novation or
extinguishment of, the obligations under the Original Credit Agreement. Any and
all outstanding amounts under the Original Credit Agreement including, but not
limited to principal, accrued interest, fees and other charges, as of the date
hereof shall be carried over and deemed outstanding under this Agreement.
 
(b) Each Borrower reaffirms its obligations under each Loan Document to which it
is a party, including but not limited to the Security Agreement and the
schedules thereto, the Environmental Indemnity, each Mortgage and each Mortgage
Supporting Document.
 
(c) Each Borrower agrees that each Loan Document (other than this Agreement) to
which it is a party shall remain in full force and effect following the
execution and delivery of this Agreement and that all references in any of the
Loan Documents to the “Credit Agreement” shall be deemed to refer to this
Amended and Restated Credit Agreement.
 

 
[SIGNATURE PAGES FOLLOW]

 

89

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
 
BORROWERS
 
BREA Emeritus LLC, a Delaware limited liability company

By: Emeritus Corporation, a Washington  corporation, its Administrative Member

By: /s/ Raymond R. Brandstrom
Name: Raymond R. Brandstrom
Title: Vice President of Finance

S-1

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BREA East Mesa LLC
BREA Peoria LLC
BREA Sun City West LLC
BREA Tucson LLC
BREA Brea LLC
BREA Citrus Heights LLC
BREA Whittier LLC
BREA Denver LLC
BREA Colorado Springs LLC
BREA Boynton Beach LLC
BREA Sarasota LLC
BREA Dunedin LLC
BREA Palmer Ranch LLC
BREA Decatur LLC
BREA Atlanta Gardens LLC
BREA Atlanta Court LLC
BREA Smyrna LLC
BREA Overland Park LLC
BREA Charlotte LLC
BREA Wayne LLC
BREA Emerson LLC
BREA West Orange LLC
BREA Reno LLC
BREA Westlake LLC
BREA Roanoke LLC,
each a Delaware limited liability company

By: BREA Emeritus LLC, a Delaware  limited liability company, its sole  member

By: Emeritus Corporation, a Washington  corporation, its Administrative  Member

By: _/s/ Raymond R. Brandstrom __
Name: Raymond R. Brandstrom
Title: Vice President of Finance

S-2

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Merrill Lynch Capital, a Division of Merrill Lynch Business Financial Services
Inc.
 
as a Lender

 
By: /s/ Michael A. Levin
                                Name: Michael A. Levin
                                Title: Vice President
 
 

S-3

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General Electric Capital Corporation
 
as Administrative Agent and a Lender
 

 

 
By: /s/ Jim McMahon
Name:Jim McMahon
Title:Vice President and
Duly Authorized Signatory
 

GE Capital Markets, Inc.,

   
as Lead Arranger

By: /s/ Jim McMahon
Name:Jim McMahon
Title:Vice President and
Duly Authorized Signatory
 

 

S-4

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