EXECUTION COPY
 
Brookdale 46 Portfolio-2011
 

 
MASTER CREDIT FACILITY AGREEMENT
 
BY AND AMONG
 
THE PARTIES LISTED ON SCHEDULE 1 ATTACHED HERETO
 
AND
 
OAK GROVE COMMERCIAL MORTGAGE, LLC
 
DATED AS OF
 
JULY 29, 2011
 

 
 

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TABLE OF CONTENTS
 
Page         
ARTICLE 1 THE LOANS
  2
Section 1.01.
Loans.
  2
Section 1.02.
Reserved.
  3
Section 1.03.
Maturity Date of Loans; Amortization; Prepayment.
  3
Section 1.04.
Interest on Loans.
  4
Section 1.05.
Notes.
  4
Section 1.06.
Reserved.
  5
Section 1.07.
Conversion from Variable Loan to Fixed Loan.
  5
Section 1.08.
Limitations on Right to Convert.
  5
Section 1.09.
Conditions to Conversion.
  6
Section 1.10.
Yield Maintenance.
  6
Section 1.11.
Interest Rate Cap.
  6
Section 1.12.
Limitation on All Loans.
  7
ARTICLE 2 THE LOAN/ALLOCABLE LOAN AMOUNTS/ADDITIONAL LOANS
  7
Section 2.01.
Rate Setting for a Loan.
  7
Section 2.02.
Reserved.
  8
Section 2.03.
Breakage and other Costs.
  8
Section 2.04.
Additional Loans.
  8
Section 2.05.
Determination of Allocable Loan Amount and Valuations.
  8
ARTICLE 3 COLLATERAL CHANGES
  9
Section 3.01.
Additional Mortgaged Properties.
  9
Section 3.02.
Reserved.
10
Section 3.03.
Right to Obtain Releases of Collateral.
10
Section 3.04.
Procedure for Obtaining Releases of Collateral.
10
Section 3.05.
Right to Substitutions.
12
Section 3.06.
Procedure for Substitutions.
12
Section 3.07.
Substitution Deposit.
13
ARTICLE 4 RESERVED
15
ARTICLE 5 RESERVED
15
ARTICLE 6 CONDITIONS PRECEDENT TO ALL REQUESTS
15
Section 6.01.
Conditions Applicable to All Requests.
15
Section 6.02.
Conditions Precedent to Initial Loan.
17
Section 6.03.
Conditions Precedent to Additional Loan.
17
Section 6.04.
Conditions Precedent to Addition of an Additional Mortgaged Property to the
Collateral Pool.
18
Section 6.05.
Conditions Precedent to Release of Property from the Collateral Pool.
19
Section 6.06.
Conditions Precedent to Substitutions.
20
Section 6.07.
Reserved.
21
Section 6.08.
Conditions Precedent to Conversion.
21
Section 6.09.
Reserved.
21
Section 6.10.
Reserved.
21

 
 
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Section 6.11.
Delivery of Opinion Relating to Loan Request, Addition Request, Substitution
Request or Conversion Request.
22
Section 6.12.
Delivery of Property-Related Documents.
22
Section 6.13.
Reserved.
23
Section 6.14.
Reserved.
23
Section 6.15.
Letters of Credit.
23
ARTICLE 7 REPRESENTATIONS AND WARRANTIES
25
Section 7.01.
Representations and Warranties of Borrower.
25
Section 7.02.
Representations and Warranties of Lender.
25
ARTICLE 8 AFFIRMATIVE COVENANTS OF BORROWER
25
Section 8.01.
Compliance with Agreements.
25
Section 8.02.
Maintenance of Existence.
26
Section 8.03.
Financial Statements; Accountants’ Reports; Other Information.
26
Section 8.04.
Access to Records; Discussions With Officers and Accountants.
30
Section 8.05.
Certificate of Compliance.
30
Section 8.06.
Maintain Licenses.
30
Section 8.07.
Inform Lender of Material Events.
31
Section 8.08.
Compliance with Applicable Law.
32
Section 8.09.
Alterations to the Mortgaged Properties.
32
Section 8.10.
Loan Document Taxes.
33
Section 8.11.
Further Assurances.
33
Section 8.12.
Transfer of Ownership Interests in Borrower.
34
Section 8.13.
Transfer of Ownership of Mortgaged Property.
35
Section 8.14.
Consent to Prohibited Transfers.
36
Section 8.15.
Date-Down Endorsements.
37
Section 8.16.
Ownership of Mortgaged Properties.
38
Section 8.17.
Reserved.
38
Section 8.18.
Reserved.
38
Section 8.19.
Default Under or Discontinuance of  Any Operating Lease or Management Agreement.
38
Section 8.20.
Single Purpose Entity.
38
Section 8.21.
ERISA.
38
Section 8.22.
Consents or Approvals.
38
Section 8.23.
Operator Security Deposits.
38
Section 8.24.
Operator Guaranty.
39
Section 8.25.
Villas at Courtyard Post-Closing Obligations.
39
Section 8.26.
Oak Tree Villas Regulatory Agreement.
39
Section 8.27.
No Other Regulatory Agreements.
39
Section 8.28.
Oil, Gas and Mineral Reservations.
39
Section 8.29.
Sterling House of Lewisville and Sterling House of Youngstown Exercise of Oil,
Gas or Mineral Rights.
40
Section 8.30.
Lodge at Paulin Creek Permits.
40
Section 8.31.
Reserved.
41
Section 8.32.
Texas Licenses.
41
Section 8.33.
Zoning.
41
Section 8.34.
Utility Easements.
41

 
 
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Section 8.35.
Estoppel Certificates; SNDAs.
42
Section 8.36.
Compliance Plan
44
Section 8.37.
Search Results.
45
Section 8.38.
Medicaid Pledge.
45
ARTICLE 9 NEGATIVE COVENANTS OF BORROWER
45
Section 9.01.
Other Activities.
45
Section 9.02.
Liens.
46
Section 9.03.
Indebtedness.
46
Section 9.04.
Principal Place of Business.
47
Section 9.05.
Condominiums.
47
Section 9.06.
Restrictions on Distributions.
47
Section 9.07.
No Hedging Arrangements.
47
Section 9.08.
Confidentiality of Certain Information.
47
Section 9.09.
Changes to Licenses, Permits.
47
Section 9.10.
Reserved.
48
Section 9.11.
Accounts.
48
Section 9.12.
Change of Operator.
48
Section 9.13.
Termination , Modification or Amendment  of Operating Lease or Management
Agreement.
48
Section 9.14.
Payments under Operating Lease or Management Agreement After Default.
48
ARTICLE 10 FEES
49
Section 10.01.
Origination Fees.
49
Section 10.02.
Legal Fees and Expenses.
49
Section 10.03.
Failure to Close any Request.
50
ARTICLE 11 EVENTS OF DEFAULT
50
Section 11.01.
Events of Default.
50
ARTICLE 12 REMEDIES
53
Section 12.01.
Remedies; Waivers.
53
Section 12.02.
Waivers; Rescission of Declaration.
54
Section 12.03.
Lender’s Right to Protect Collateral and Perform Covenants and Other
Obligations.
54
Section 12.04.
No Remedy Exclusive.
54
Section 12.05.
No Waiver.
54
Section 12.06.
No Notice.
55
ARTICLE 13 INSURANCE, REAL ESTATE TAXES AND REPLACEMENT RESERVES
55
Section 13.01.
Insurance and Real Estate Taxes.
55
Section 13.02.
Replacement Reserves.
56
Section 13.03.
Completion/Repair Reserves.
56
ARTICLE 14 LIMITS ON PERSONAL LIABILITY
56
Section 14.01.
Personal Liability to Borrower.
56
Section 14.02.
Additional Borrowers.
58
Section 14.03.
Borrower Agency Provisions.
59
Section 14.04.
Joint and Several Obligation; Cross-Guaranty.
59
Section 14.05.
Waivers With Respect to Other Borrower Secured Obligation.
60
Section 14.06.
No Impairment.
63

 
 
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Section 14.07.
Election of Remedies.
64
Section 14.08.
Subordination of Other Obligations.
64
Section 14.09.
Insolvency and Liability of Other Borrower.
65
Section 14.10.
Preferences, Fraudulent Conveyances, Etc.
66
Section 14.11.
Maximum Liability of Each Borrower.
66
Section 14.12.
Liability Cumulative; References to California Law.
67
ARTICLE 15 MISCELLANEOUS PROVISIONS
67
Section 15.01.
Counterparts.
67
Section 15.02.
Amendments, Changes and Modifications.
67
Section 15.03.
Payment of Costs, Fees and Expenses.
67
Section 15.04.
Payment Procedure.
68
Section 15.05.
Payments on Business Days.
68
Section 15.06.
Choice of Law; Consent to Jurisdiction; Waiver of Jury Trial.
68
Section 15.07.
Severability.
70
Section 15.08.
Notices.
70
Section 15.09.
Further Assurances and Corrective Instruments.
72
Section 15.10.
Term of this Agreement.
72
Section 15.11.
Assignments; Third-Party Rights.
72
Section 15.12.
Headings.
73
Section 15.13.
General Interpretive Principles.
73
Section 15.14.
Interpretation.
73
Section 15.15.
Standards for Decisions, Etc.
73
Section 15.16.
Decisions in Writing.
73
Section 15.17.
Reserved.
74
Section 15.18.
Conflicts Between Agreements.
74

 
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EXHIBITS
 
EXHIBIT A
Schedule of Initial Mortgaged Properties, Initial Allocable Loan Amounts and
Initial Valuations
EXHIBIT B
Confirmation of Guaranty
EXHIBIT C
Compliance Certificate
EXHIBIT D-1
Borrower Organizational Certificate
EXHIBIT D-2
Key Principal Organizational Certificate
EXHIBIT E
Conversion Request
EXHIBIT F
Rate Form
EXHIBIT G
Property Request
EXHIBIT H
Confirmation of Obligations
EXHIBIT I
Reserved
EXHIBIT J
Letter of Credit
EXHIBIT K-1
Bank Legal Opinion (Foreign)
EXHIBIT K-2
Bank Legal Opinion (Domestic)
EXHIBIT L
Form of Rent Roll
EXHIBIT M
Loan Request
       
SCHEDULE 1
Borrowers
SCHEDULE 2
Material Projects
SCHEDULE 3
Lodge at Paulin Creek Renovation Summary
SCHEDULE 4
Operators
   
APPENDIX I
Definitions

 
 
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MASTER CREDIT FACILITY AGREEMENT
 
THIS MASTER CREDIT FACILITY AGREEMENT is made as of the 29th day of July, 2011,
by and between the PARTIES LISTED ON SCHEDULE 1 ATTACHED HERETO (individually
and collectively, “Borrower”); and OAK GROVE COMMERCIAL MORTGAGE, LLC, a
Delaware limited liability company (“Lender”).
 
RECITALS
 
A.           Borrower owns one (1) or more Seniors Housing Facilities (unless
otherwise defined or the context clearly indicates otherwise, capitalized terms
shall have the meanings ascribed to such terms in Appendix I of this Agreement)
as more particularly described in Exhibit A to this Agreement.
 
B.           Borrower has requested that Lender make a loan in the amount of
$437,777,000 in favor of Borrower, comprised of a $109,444,000 Variable Loan,
and a $328,333,000 Fixed Loan.  Future Additional Loans may be made by Lender
under this Agreement, subject to the terms and conditions hereof.
 
C.           To secure the obligations of Borrower under this Agreement and the
other Loan Documents issued in connection with the Loans, Borrower shall create
a Collateral Pool in favor of Lender.  The Collateral Pool shall be comprised of
(i) the Seniors Housing Facilities listed on Exhibit A and (ii) any other
collateral pledged to Lender from time to time by Borrower pursuant to this
Agreement or any other Loan Documents.
 
D.           Each Note and Security Document related to the Mortgaged Properties
comprising the Collateral Pool shall be cross-defaulted (i.e., a default under
any Note, Security Document relating to the Collateral Pool or under this
Agreement shall constitute a default under each Note, Security Document and this
Agreement related to the Mortgaged Properties comprising the Collateral Pool)
and cross-collateralized (i.e., each Security Instrument shall secure all of
Borrower’s obligations under this Agreement and the other Loan Documents) and it
is the intent of the parties to this Agreement that, after an Event of Default,
Lender may accelerate any Note without needing to accelerate any other Note and
that in the exercise of its rights and remedies under the Loan Documents, Lender
may, except as provided in this Agreement, exercise and perfect any and all of
its rights and remedies in and under the Loan Documents with regard to any
Mortgaged Property without needing to exercise and perfect its rights and
remedies with respect to any other Mortgaged Property and that any such exercise
shall be without regard to the Allocable Loan Amount assigned to such Mortgaged
Property and that Lender may recover an amount equal to the full amount
outstanding in respect of any of the Notes in connection with such exercise and
any such amount shall be applied as determined by Lender in its sole and
absolute discretion.
 
E.           It is the intent of the parties that, notwithstanding anything to
the contrary herein or the existence of any cash management system maintained by
Borrower, and/or Key Principal  or its Affiliates or the provision by any
guarantor of any guaranty, Lender is making the Loan
 

 
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and extending credit to Borrower (not to Key Principal or its
Affiliates).  Lender has underwritten the Loan based on its analysis of the
value of the Collateral.  In making the Loan, Lender is relying on Borrower’s
being and maintaining itself as a Single Purpose entity whose sole asset is its
Mortgaged Property and ancillary property related thereto.  Lender acknowledges
that it views its credit risk as the performance and value of the Mortgaged
Properties.
 
F.           Subject to the terms, conditions and limitations of this Agreement,
Lender has agreed to make the Loan.
 
NOW, THEREFORE, Borrower and Lender, in consideration of the mutual promises and
agreements contained in this Agreement, hereby agree as follows:
 
ARTICLE 1
THE LOANS
 
 
Section 1.01.   Loans. 

 
(a)           Initial Loan.  Subject to the terms, conditions and limitations of
this Agreement, Lender agrees to make the Initial Loan to Borrower on the
Initial Closing Date in the maximum aggregate principal amount of $437,777,000,
comprised of a $328,333,000 Fixed Loan and a $109,444,000 Variable Loan.
 
(b)           Additional Loans with Additional Mortgaged Property.
 
Additional Loans may be made by Lender under this Agreement in conjunction with
the addition of an Additional Mortgaged Property subject to 1) Lender's
determination of the proposed property’s compliance with the Underwriting
Requirements, 2) Lender's determination that the proposed borrower, and Key
Principal if applicable, meet all of Lender's eligibility, credit, management
and other standards customarily applied by Lender in connection with the
origination or purchase of similar mortgage finance structures on similar Senior
Housing Facilities at the time of the request for the Additional Loan, and
3) mutually agreeable pricing as determined at the time of the Loan Request for
the Additional Loan.  Additional Loans are also subject to the provisions of
Section 1.12.  Each request for an Additional Loan must be in a minimum amount
of $5,000,000.  The maturity date of any Additional Loan will be no less than
five (5) years and no more than ten (10) years from the Closing Date of such
Additional Loan.  The addition of an Additional Mortgaged Property to the
Collateral Pool is subject to payment of the Addition Fee, the execution and
delivery of Addition Loan Documents and the satisfaction of such conditions
precedent as may be contained in Lender’s approval thereof, including the
conditions contained in Sections 3.01, 6.03, 6.04, 6.11, 6.12 and the General
Conditions contained in Section 6.01. An Additional Loan may be a Fixed Loan or
a Variable Loan in accordance with the terms of this Agreement.
 
(c)           Additional Loans – Borrow-Up.
 
Notwithstanding anything to the contrary in this Agreement and subject to the
provisions of Section 1.12, after the First Anniversary and not later than the
date that is one (1) year prior to the latest maturity date of any Loan
Outstanding, not more than one (1) time during the term of this Agreement,
Borrower shall be entitled to Additional Loan(s) without the addition of an
 

 
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Additional Mortgaged Property to the Collateral Pool, based on decreases in the
Aggregate Loan to Value Ratio and increases in the Aggregate Debt Service
Coverage Ratio as determined by Lender in accordance with this Agreement, and
subject to Lender’s determination that such Additional Loan(s) may be made
pursuant to Lender’s Supplemental Loan program then in effect and pursuant to
the terms and conditions of the Loan Documents; provided, however, in no event
shall any “tier-dropping” be permitted in connection with such Additional Loan
such that the Aggregate Debt Service Coverage Ratio and the Aggregate Loan to
Value Ratio fails to meet Tier 4 requirements as set forth in the DUS
Guide.  The maturity date of any such Additional Loan will be no less than five
(5) years and no more than ten (10) years from the Closing Date of such
Additional Loan.  The maximum amount of any such Additional Loan shall be equal
to the amount which, when combined with Loans already outstanding, equals the
maximum amount of Loans that could be outstanding based upon the Coverage and
LTV Tests.  The minimum amount of any such Additional Loan shall be
$5,000,000.  Borrower shall pay all reasonable costs related to such Additional
Loan requested under this Section 1.01(c) (whether or not such Additional Loan
is actually made), Lender’s nonrefundable due diligence fee of $7,000 payable at
the time the Request for such Additional Loan is made, a Borrow Up Fee payable
at the closing of the Additional Loan and all legal fees incurred by Lender and
Fannie Mae in connection with such proposed Additional Loan.  In relation to any
Additional Loan made pursuant to this Section 1.01(c), Borrower shall be
obligated to pay mutually agreeable pricing for such Additional Loan as
determined at the time of the Loan Request for the Additional Loan.  Borrower
shall request such Additional Loan by giving Lender a Loan Request in accordance
with Section 2.04.  Any Additional Loan made pursuant to this Section shall be
subject to all conditions precedent contained in Lender’s approval thereof, in
Sections 6.03, 6.11 and the General Conditions contained in Section 6.01.
 
(d)           Minimum Amount of Variable Loans. At any time (i) following the
First Anniversary or (ii) one year prior to the maturity date of any Variable
Loan Outstanding, if the minimum aggregate principal amount Outstanding of such
outstanding Variable Loans is less than $25,000,000, such Variable Loans must be
repaid (together with all associated prepayment premiums and other amounts due
under the Variable Loan Note) or converted to Fixed Loans pursuant to the terms
of Sections 1.07, 1.08 and 1.09.
 
 
Section 1.02.   Reserved.

 
 
Section 1.03.   Maturity Date of Loans; Amortization; Prepayment.

 
(a)           Variable Loan; Amortization.  The maturity date of the initial
Variable Loan shall be August 1, 2018.  The initial Variable Loan shall amortize
over the Amortization Period with the outstanding principal balance due and
owing on the maturity date of the initial Variable Loan.  Borrower may not
re-borrow any part of the initial Variable Loan that it has previously borrowed
and repaid.
 
(b)            Fixed Loan; Amortization.  The maturity date of the initial Fixed
Loan shall be August 1, 2018.  The initial Fixed Loan shall amortize over the
Amortization Period with the outstanding principal balance due and owing on the
maturity date of the initial Fixed Loan.  Borrower may not re-borrow any part of
the initial Fixed Loan that it has previously borrowed and repaid.
 
 

 
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(c)           Additional Loans; Amortization.  The maturity date of each
Additional Loan shall be specified by the Borrower for such Additional Loan and
shall be a date that is not earlier than five (5) years nor later than ten (10)
years after the Closing Date for such Additional Loan or (ii) such other
maturity date referenced in any Note executed in connection with such Additional
Loan.
 
Borrower may not re-borrow any part of an Additional Loan that it has previously
borrowed and repaid.
 
Lender shall determine at the time of the Additional Loan whether the
Indebtedness extended to Borrower hereunder through such Additional Loan shall
require amortization.
 
(d)           Prepayment.
 
(i)           Subject to the terms and conditions of the Fixed Loan Notes, the
Indebtedness extended to Borrowers hereunder through Fixed Loans is prepayable
in whole or in part pursuant to the yield maintenance provisions of the Fixed
Loan Notes.
 
(ii)           Subject to the terms and conditions of the Variable Loan Notes,
the Indebtedness extended to Borrowers hereunder through Variable Loans is
prepayable in whole or in part at any time pursuant to the fee maintenance
provisions of the Variable Loan Notes.
 
 
Section 1.04.   Interest on Loans.  

 
(a)           Partial Month Interest.  If a Loan is not made on the first day of
a calendar month, Borrower shall pay interest on the original stated principal
amount of such Loan for the partial month period commencing on the Closing Date
for such Loan and ending on the last day of the calendar month in which the
Closing Date occurs.  Borrower shall pay interest for such partial month on any
such Loan at a rate per annum equal to the greater of (i) the interest rate
described in the applicable Note, and (ii) a rate determined by Lender, based on
Lender’s cost of funds and approved in advance, in writing, by Borrower pursuant
to procedures mutually agreed upon by Borrower and Lender.
 
(b)           Variable Loans.  Each Variable Loan shall bear interest at an
Adjustable Rate which Adjustable Rate shall include the Margin.  The Adjustable
Rate with respect to each Variable Loan shall change on each Rate Change Date
until such Variable Loan is repaid in accordance with the applicable Variable
Loan Note.
 
(c)           Annual Interest Rate on Fixed Loans.  Each Fixed Loan shall bear
interest at a rate, per annum, equal to the MBS Interest Rate for such Fixed
Loan.  No Fixed Loan may be a cash execution.
 
 
Section 1.05.   Notes. 

 
(a)           Initial Loan.  The obligation of the Borrower to repay the Initial
Loan shall be evidenced by a Fixed Loan Note in the principal amount of
$328,333,000 and a Variable Loan Note in the principal amount of
$109,444,000.  Each of such Fixed Loan Note and Variable Loan
 

 
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Note shall be payable to the order of Lender and shall equal the aggregate
original principal amount of the Initial Loan to the Borrower.
 
(b)           Additional Loans.  The obligation of the Borrower to repay an
Additional Loan that is a Fixed Loan shall be evidenced by a Fixed Loan Note in
the principal amount of the Fixed Loan.  The obligation of the Borrower to repay
an Additional Loan that is a Variable Loan  shall be evidenced by a Variable
Loan Note in the principal amount of the Variable Loan.  The Notes shall be
payable to the order of Lender and shall equal the aggregate original principal
amount of the Loan to the Borrower.
 
 
Section 1.06.   Reserved.

 
 
Section 1.07.   Conversion from Variable Loan to Fixed Loan.

 
Except as provided in Section 1.08 and subject to the terms of Section 1.12,
Borrower shall have the right, from time to time during the Conversion
Availability Period, to convert all or any portion of any Variable Loan to a
Fixed Loan on the first date of a month.  If any Variable Loans are converted to
a Fixed Loan, the maturity date shall be extended to 7 or 10 years from the date
of conversion.  A new 7 year term will have either a 5 year or 6.5 year yield
maintenance period.  A new 10 year term will have either a 7 year or 9.5 year
yield maintenance period.  Borrower shall be obligated to pay an interest rate
and fees in connection with a conversion as determined in accordance with the
applicable requirements of the Fannie Mae product line then in effect.
 
(a)           Request.  To convert all or a portion of a Variable Loan to a
Fixed Loan, Borrower shall deliver a Conversion Request to Lender.  Each
Conversion Request shall designate the amount of the Variable Loan to be
converted.
 
(b)           Closing.  Subject to Section 1.08 and Section 1.12, and provided
that all conditions contained in Section 1.09 are satisfied, Lender shall permit
the requested conversion to close at offices designated by Lender on a Closing
Date selected by Lender, within thirty (30) Business Days after all of the
conditions for a conversion have been satisfied (or on such other date as
Borrower and Lender may agree).  At the closing, Lender and Borrower shall
execute and deliver, at the sole cost and expense of Borrower, in form and
substance satisfactory to Lender, the Conversion Documents.
 
(c)           Execution.  Subject to Section 1.12, if all or a portion of a
Variable Loan is converted to a Fixed Loan, the Fixed Loan resulting from such
conversion may be an MBS execution.
 
 
Section 1.08.   Limitations on Right to Convert. 

 
Borrower’s right to convert all or any portion of a Variable Loan to a Fixed
Loan is subject to the following limitations:
 
(a)           Closing Date.  The Closing Date shall occur during the Conversion
Availability Period and on the first day of a month.
 

 
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(b)           Minimum Request.  Each Conversion Request shall be in the minimum
amount of $5,000,000.
 
(c)           Failure to Underwrite.  In the event all or a portion of the
amount of the Variable Loan set forth in the Conversion Request cannot be
converted because the increased debt service on the Fixed Loan does not result
in the Collateral Pool satisfying the Coverage and LTV Tests, Borrower shall
prepay the amount of the Variable Loan that cannot be converted to a Fixed Loan
and shall pay all prepayment premiums and other fees associated with such
prepayment.
 
(d)           Alternative.  Notwithstanding the foregoing, if the test set forth
above in subsection (c) is not satisfied after the conversion, such conversion
may be permitted by Lender if the conversion improves the Collateral Pool based
on factors that are consistent with Lender’s Underwriting Requirements and
results in improvement in one or both of the following areas: the then current
Aggregate Debt Service Coverage Ratio or the then current Aggregate Loan to
Value Ratio.  Notwithstanding the foregoing, under no circumstances shall the
Aggregate Loan to Value Ratio exceed ninety percent (90%).
 
 
Section 1.09.   Conditions to Conversion.

 
The conversion of all or any portion of a Variable Loan to a Fixed Loan is
subject to the satisfaction, on or before the Closing Date for such conversion,
of (a) the conditions precedent contained in Section 6.08 and Section 6.11 and
(b) all applicable General Conditions contained in Section 6.01.
 
 
Section 1.10.   Yield Maintenance. 

 
The terms and conditions of yield maintenance and/or prepayment premiums, as
applicable, are contained in the Notes and such terms and conditions shall apply
to the prepayment in part or whole of the respective Loans during the term of
this Agreement.
 
 
Section 1.11.   Interest Rate Cap.

 
(a)           To protect against fluctuations in interest rates during the term,
pursuant to the terms of a Pledge, Interest Rate Cap Agreement, Borrower shall
make arrangements for a LIBOR-based interest rate cap in form and substance
satisfactory to Lender with a counterparty satisfactory to Lender (“Interest
Rate Cap”) to be in place and maintained at all times with respect to the
principal amount of all Variable Loans.  As set forth in the Pledge, Interest
Rate Cap Agreement, Borrower agrees to pledge its right, title and interest in
the Interest Rate Cap to Lender as additional collateral for the Indebtedness.
 
(b)           Notwithstanding the foregoing, provided the amount of all Variable
Loans Outstanding does not exceed 30% in the aggregate of the total amount of
all Loans outstanding at any time (the “30% Requirement”), Borrower’s obligation
to obtain and maintain an Interest Rate Cap shall be waived with respect to any
such Variable Loans.  Lender will monitor compliance with the 30% Requirement
once each Calendar Quarter pursuant to Section 2.05(b).
 

 
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Section 1.12.   Limitation on All Loans.

 
Notwithstanding anything in this Agreement or any other Loan Document to the
contrary, any Additional Loan, whether a Variable Loan or a Fixed Loan, and any
conversion of a Loan or any refinance of a Loan shall be subject to the
precondition that the Lender must confirm with Fannie Mae that Fannie Mae is
generally offering to purchase in the marketplace Loans of the execution type
requested by Borrower at the time of the Request and at the time of the Rate
Setting Date for the requested Loan.  In the event Fannie Mae is not purchasing
Loans of the type requested by Borrower, Fannie Mae agrees to offer, to the
extent available from Fannie Mae, alternative Loan executions based on the types
of executions Fannie Mae is generally offering to purchase in the marketplace at
that time.  Any alternative execution offered would be subject to mutually
agreeable documentation necessary to implement the terms and conditions of such
alternative execution.
 
ARTICLE 2
THE LOAN/ALLOCABLE LOAN AMOUNTS/ADDITIONAL LOANS
 
 
Section 2.01.   Rate Setting for a Loan. 

 
Subject to the provisions of Section 1.12, rates for a future Additional Loan or
a conversion from a Variable Loan to a Fixed Loan shall be set in accordance
with the following procedures:
 
(a)           Preliminary, Nonbinding Quote.  At Borrower’s request, Lender
shall quote an estimate of the interest rates for each proposed Loan.  Lender’s
quote shall be based on (i) in the case of a proposed Fixed Loan or a Variable
Loan with an MBS execution, a solicitation of bids from institutional investors
selected by Lender or, in the case of a Variable Loan with a cash execution, the
rate quoted by Fannie Mae for a cash execution and (ii) the proposed terms and
amount of the Loan selected by Borrower.  The quote shall not be binding upon
Lender.
 
(b)           Rate Setting.  If Lender allows an Additional Loan in accordance
with Section 1.01(b) or (c) or if a conversion is permitted pursuant to Section
1.07, as applicable, then Borrower may request that Lender submit to Borrower a
completed draft Rate Form in the form attached to this Agreement as Exhibit
F.  The draft Rate Form shall specify the proposed maximum interest rate for
such Loan and other terms set forth therein.  If the draft Rate Form is approved
by Borrower, Borrower shall execute and return the approved Rate Form to Lender
before 1:00 p.m. Eastern Standard Time or Eastern Daylight Savings Time, as
applicable, on any Business Day (“Rate Setting Date”).
 
(c)           Rate Confirmation.  In the case of a an MBS execution, within one
(1) Business Day after receipt of the draft Rate Form and upon satisfaction of
all of the conditions relating to the making of a Loan or converting of a Loan,
Lender shall solicit bids from institutional investors selected by Lender based
on the information in the Rate Form.  If Lender obtains a commitment (“Investor
Commitment”) on terms equivalent (or better for Borrower than) the terms in the
draft Rate Form, Lender shall then complete and countersign the Rate Form
thereby confirming the terms set forth therein, and shall immediately deliver
the confirmed
 

 
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Rate Form to Borrower (via facsimile) for the purchase of an MBS having the bid
terms described in the draft Rate Form.  In the case of a cash execution, within
one (1) Business Day after receipt of the Rate Form, Lender shall obtain a
commitment from Fannie Mae (“Fannie Mae Commitment”) for the purchase of the
proposed Loan having the terms described in the draft Rate Form.  If Lender
obtains a Cash Commitment on terms equivalent (or better for Borrower than) the
terms in the draft Rate Form, Lender shall complete and sign the Rate Form
thereby confirming the terms set forth therein and shall immediately deliver
(via facsimile) the confirmed Rate Form to Borrower.
 
 
Section 2.02.   Reserved. 

 
 
Section 2.03.   Breakage and other Costs.  

 
If Lender obtains, and then fails to fulfill, the Investor Commitment or Fannie
Mae Commitment because the Loan is not made (or the conversion does not occur,
as applicable) (for a reason other than Lender’s default), Borrower shall pay
all reasonable out-of-pocket costs payable to the potential investor and other
reasonable costs, fees and damages incurred by Lender in connection with its
failure to fulfill the Investor Commitment or Fannie Mae Commitment.  Lender
reserves the right to require Borrower to post a deposit at the time the
Investor Commitment or Fannie Mae Commitment is obtained.  Such deposit shall be
refundable to Borrower upon the delivery of the related MBS or the purchase of
the Loan for cash by Fannie Mae, as applicable.
 
 
Section 2.04.   Additional Loans.

 
Borrower may deliver a Loan Request for an Additional Loan to Lender.  Such Loan
Request shall be in the minimum amount of $5,000,000.  If Lender allows the
Additional Loan in accordance with Section 1.01(b) or 1.01(c), Lender shall make
the requested Additional Loan, at a closing to be held at offices designated by
Lender on a Closing Date selected by Lender, which date shall be not more than
three (3) Business Days after Borrower’s receipt from Lender of the confirmed
Rate Form (or on such other date as Borrower and Lender may agree).
 
 
Section 2.05.   Determination of Allocable Loan Amount and Valuations.  

 
(a)           Initial Determinations.  On the Initial Closing Date, Lender shall
determine (i) the Allocable Loan Amount and Valuation for each Initial Mortgaged
Property, and (ii) the Aggregate Debt Service Coverage Ratio and the Aggregate
Loan to Value Ratio.  Changes in Allocable Loan Amount, Valuations, the
Aggregate Debt Service Coverage Ratio, and the Aggregate Loan to Value Ratio
shall be made pursuant to Section 2.05(b).
 
(b)           Monitoring Determinations.  Once each Calendar Quarter within
twenty (20) Business Days after Borrower has delivered to Lender the reports
required in Section 8.03(b)(ii), Lender shall determine the Aggregate Debt
Service Coverage Ratio, the Aggregate Loan to Value Ratio and whether Borrower
is in compliance with the other provisions set forth in the Loan Documents
including Section 1.11(b).  On the First Anniversary, and on an annual basis
thereafter, and if Lender decides that changed market or property conditions
warrant, Lender shall redetermine Allocable Loan Amounts and Valuations.  Lender
shall also redetermine Allocable Loan Amounts to take account of any addition,
substitution or release of
 

 
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Collateral or conversion of interest rate or other event that invalidates the
outstanding determinations.  In determining Valuations, Lender shall use
Capitalization Rates based on its internal survey and analysis of capitalization
rates for comparable sales in the vicinity of the Mortgaged Property, with such
adjustments as Lender deems appropriate and without any obligation to use any
information provided by Borrower.  If Lender is unable to determine a
Capitalization Rate for a Mortgaged Property, Lender shall have the right, not
more than once annually, to obtain, at Borrower’s expense, a market study in
order to establish a Capitalization Rate.  In the event Borrower fails to
consent to Lender obtaining a market study, Lender shall determine the
Capitalization Rate pursuant to the Underwriting Requirements.  Lender shall
promptly disclose any market studies obtained pursuant to this Section and
Lender’s determinations to Borrower.  Until redetermined, the outstanding
Allocable Loan Amounts and Valuations shall remain in effect.  Notwithstanding
anything in this Agreement to the contrary, no change in Allocable Loan Amounts,
Valuations, the Aggregate Loan to Value Ratio or the Aggregate Debt Service
Coverage Ratio shall result in a Potential Event of Default or Event of Default
or, unless resulting from the concurrent addition, release or substitution of
Collateral from the Collateral Pool or concurrent conversion of the interest
rate, (i) require the prepayment of any Loan in whole or in part or (ii) require
the addition of Collateral to the Collateral Pool.
 
ARTICLE 3
COLLATERAL CHANGES
 
 
Section 3.01.   Additional Mortgaged Properties. 

 
(a)           Request.  In connection with the making of an Additional Loan
pursuant to Section 1.01(b) of this Agreement, Borrower will deliver to Lender
an Addition Request to add one (1) or more Senior Housing Facilities to the
Collateral Pool.  Each Addition Request shall be accompanied by the
following:  (i) the quality and type of property-related information required by
Lender in connection with the Initial Loan made hereunder and any additional
information Lender may reasonably request; and (ii) the payment of the Addition
Fee (to be paid at the closing of the Addition of the Additional Mortgaged
Property) and all Additional Collateral Due Diligence Fees.  If a proposed
Additional Mortgaged Property charges any Entrance Fees, such Additional
Mortgaged Property may be added to the Collateral Pool subject to Borrower and
Lender agreeing to the form and substance of amendments to the Loan Documents
(or Addition Loan Documents) as may be necessary or required by Lender to
appropriately reflect the existence of, and address issues relating to, such
Entrance Fees in addition to satisfaction of all other requirements set forth in
this Agreement.
 
(b)           Underwriting.  In addition to all other conditions for the
addition of such Additional Mortgaged Property(ies) set forth in Section 1.01(b)
hereof, immediately after giving effect to the proposed addition of the
Additional Mortgaged Property into the Collateral Pool, the proposed Additional
Mortgaged Property must itself have a Debt Service Coverage Ratio of not less
than 1.70:1.00 (or with respect to any Additional Mortgaged Property with
Skilled Nursing Units, 1.80:1.00) with respect to the amount of any Fixed Loan
which equals the Allocable Loan Amount which is allocated to such Additional
Mortgaged Property and 1:50:1.00 (or with respect to any Additional Mortgaged
Property with Skilled Nursing Units, 1.60:1.00) with respect to the amount of
any Variable Loan which equals the Allocable Loan Amount which is allocated to
such Additional Mortgaged Property, and its Loan to Value Ratio must not exceed
fifty-five
 

 
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percent (55%), and, after such addition, the Collateral Pool must satisfy the
Coverage and LTV Tests.  Notwithstanding the foregoing, if any of the foregoing
tests set forth above in this subsection 3.01(b) are not satisfied after the
addition of an Additional Mortgaged Property, such addition may be permitted by
Lender only if the addition improves the Collateral Pool based on factors that
are consistent with Lender’s Underwriting Requirements and results in
improvement in one or both of the following areas: the then current Aggregate
Debt Service Coverage Ratio or the then current Aggregate Loan to Value
Ratio.  Notwithstanding the foregoing, under no circumstances shall the
Aggregate Loan to Value Ratio exceed ninety percent (90%).
 
(c)           Closing.  If in connection with an Additional Loan, Lender
determines that the proposed Additional Mortgaged Property meets the conditions
set forth in this Agreement, Borrower timely elects to add the proposed
Additional Mortgaged Property to a Collateral Pool and all conditions precedent
contained in Section 6.04, Section 6.11 and Section 6.12 and all General
Conditions contained in Section 6.01 are satisfied, the proposed Additional
Mortgaged Property will be added to the Collateral Pool, at a closing to be held
at offices designated by Lender on a Closing Date selected by Lender, occurring
within thirty (30) Business Days after all of the conditions for an addition
have been satisfied (or on such other date as Borrower and Lender may agree).
 
 
Section 3.02.   Reserved.

 
 
Section 3.03.   Right to Obtain Releases of Collateral.

 
Subject to the terms and conditions of this Article 3, Borrower shall have the
right, from time to time, to obtain a release of Collateral from the Collateral
Pool.
 
 
Section 3.04.   Procedure for Obtaining Releases of Collateral.

 
(a)           Request.  To obtain a release of Collateral from the Collateral
Pool, Borrower shall deliver a Release Request to Lender.  Borrower shall not be
permitted to re-borrow any amounts that will be prepaid in connection with the
release of Collateral.
 
(b)           Closing.  If all conditions precedent contained in Section 6.05
and all General Conditions contained in Section 6.01 are satisfied, Lender shall
cause the Release Mortgaged Property to be released, at a closing to be held at
offices designated by Lender on a Closing Date selected by Lender, and occurring
within thirty (30) days after Lender’s receipt of the Release Request (or on
such other date as Borrower and Lender may agree), by executing and delivering,
and causing all applicable parties to execute and deliver, all at the sole cost
and expense of Borrower, the Release Documents.  Borrower shall prepare the
Release Documents and submit them to Lender for its review.
 
(c)           Release Price.  The “Release Price” for each Release Mortgaged
Property means (i) if the release occurs during the first or seventh year of the
Loan which was made to finance such Release Mortgaged Property, one hundred
percent (100%) of the Allocable Loan Amount for the Release Mortgaged Property
provided that, immediately after the release, the Coverage and LTV Tests will be
satisfied and neither the Aggregate Debt Service Coverage Ratio will be reduced
nor the Aggregate Loan to Value Ratio will be increased as a result of such
release and (ii) if the release occurs during the second through sixth years of
the Loan which was
 

 
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made to finance such Release Mortgaged Property, one hundred percent (100%) of
the amount, if any, of Loans Outstanding that are required to be repaid by
Borrower to Lender in connection with the proposed release of the Release
Mortgaged Property from the Collateral Pool so that, immediately after the
release, the Coverage and LTV Tests will be satisfied.  In addition to the
Release Price, Borrower shall pay to Lender all associated prepayment premiums
and other amounts due under the Notes being repaid.  In connection with a
non-simultaneous substitution of Collateral pursuant to Section 3.06(c)(ii) of
this Agreement, Borrower shall be permitted, in lieu of paying the Release
Price, to post a Letter of Credit issued by a financial institution acceptable
to Lender and having terms and conditions acceptable to Lender, having a face
amount equal to the Substitution Deposit.
 
(d)           Application of Release Price/Voluntary Prepayments.
 
(i)           The Release Price for the Release Mortgaged Property and any other
voluntary prepayments made by Borrower shall be applied in the order selected by
Borrower, provided that (A) any amount of the Loan Outstanding which Borrower
elects to prepay must be prepaid in full, or if the Release Price is not
sufficient to do so, the Loan shall be only partially prepaid; (B) any
prepayment is permitted under the applicable Note; (C) any prepayment premium
due and owing is paid; and (D) interest is paid through the end of the
month.  If Borrower does not give Lender direction with respect to the
application of the Release Price or voluntary prepayment or if such direction
does not comply with the provisions of (A) – (B) above, then the Release Price
or voluntary prepayment shall be applied first against any Variable Loans
Outstanding so long as the prepayment is permitted under the Variable Loan Note,
until there are no further Variable Loans Outstanding (provided that, in the
event there are multiple Variable Loans Outstanding, Lender shall determine the
order of application of the Release Price or voluntary prepayment taking into
account factors including the unpaid principal balance of the Variable Loan
Notes, and which Variable Note Outstanding has the lowest prepayment costs or
highest interest rate), and then against any Fixed Loans Outstanding, so long as
the prepayment is permitted under the applicable Fixed Loan Note (provided that,
in the event there are multiple Fixed Loans Outstanding, Lender shall determine
the order of application of the Release Price or voluntary prepayment taking
into account factors including the unpaid principal balance of the Fixed Loan
Notes and which Fixed Loan Note outstanding has the lowest prepayment costs or
highest interest rate).
 
(ii)           In the event Borrower desires to release a Release Mortgaged
Property on a date (other than the last Business Day of the month) that no
Outstanding Loans may be prepaid under the terms of the Note, the Release Price
or the remainder of the Release Price, if any, shall be held by Lender (or its
appointed collateral agent) as additional collateral for the Obligations, in
accordance with a security agreement (if required by Lender) and other documents
in form and substance acceptable to Lender. Any such additional collateral shall
be used to prepay the applicable Loan on the last Business Day of the month in
which the release occurs in the order provided in Section 3.04(d)(i).
 
(e)           Release of Borrower.  Upon the release of a Mortgaged Property,
the Borrower that is the owner of such Release Mortgaged Property shall be
released of all obligations under this Agreement and the other Loan Documents
except for any provisions of this Agreement and the other Loan Documents that
are expressly stated to survive any release or
 

 
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termination or for any liabilities or obligations of such Borrower which arose
prior to the Closing Date of such release and unless such Borrower owns another
Mortgaged Property.
 
(f)           Release Upon Payment.  A Release may be effected upon payment of
the Release Price calculated pursuant to the requirements of Section
3.04(c).  Notwithstanding the foregoing, a Release may be permitted by Lender
for an amount less than the Release Price only if the release improves the
Collateral Pool based on factors that are consistent with Lender’s Underwriting
Requirements and results in improvement in one or both of the following areas:
the then current Aggregate Debt Service Coverage Ratio or the then current
Aggregate Loan to Value Ratio.
 
 
Section 3.05.   Right to Substitutions 

 
Subject to the terms and conditions of this Article 3, Borrower shall have the
right to obtain the release of one or more Mortgaged Property(ies) securing the
Loan made to Borrower (the “Release Mortgaged Property”) by replacing such
Mortgaged Property(ies) with one or more Seniors Housing Facility(ies) that
meets the requirements of this Agreement (the “Substitute Mortgaged Property”)
thereby effecting a “Substitution” of Collateral.
 
 
Section 3.06.   Procedure for Substitutions.

 
(a)           Request.  Borrower shall deliver to Lender a completed and
executed Substitution Request.  Each Substitution Request shall be accompanied
by the following:  (i) the information required by the Underwriting Requirements
with respect to the proposed Substitute Mortgaged Property and any additional
information Lender reasonably requests; and (ii) the payment of all Additional
Collateral Due Diligence Fees.
 
(b)           Underwriting.
 
(i)           Lender shall evaluate the proposed Substitute Mortgaged Property
in accordance with the Underwriting Requirements.
 
(ii)           A Substitution may be effected provided that: (A) Lender
determines that the Substitute Mortgaged Property is of similar or better
quality taking into account such factors as age of the asset, property condition
and vacancy rate and located in a similar or better market, taking into account
such factors as demographics, income levels, market occupancy rates and level of
unemployment as the released Seniors Housing Facility, (B) if the Substitution
occurs during the first or seventh Loan Year of the Loan which was made to
finance such Release Mortgaged Property, following such Substitution the
Collateral Pool satisfies the Coverage and LTV Tests and neither the Aggregate
Debt Service Coverage Ratio will be reduced nor the Aggregate Loan to Value
Ratio will be increased as a result of such Substitution or, if the Substitution
occurs in the second through sixth Loan Year of the Loan which was made to
finance such Release Mortgaged Property, immediately after giving effect to the
Substitution, the Coverage and LTV Test will be satisfied, and (C) the
Underwriting Requirements, including any level of care mix requirements, are
satisfied.  Notwithstanding the foregoing, if any of the foregoing tests set
forth above in this subsection 3.06(b)(ii) are not satisfied after the
Substitution of a proposed Substitute Mortgaged Property, such Substitution may
be permitted by Lender only if the Substitution improves the Collateral Pool
based on factors that are consistent with
 

 
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Lender’s Underwriting Requirements and result in improvement in one or more of
the following areas: the then current Valuation of the Mortgaged Properties, the
then current Aggregate Debt Service Coverage Ratio or the then current Aggregate
Loan to Value Ratio.
 
(iii)           Within thirty (30) Business Days after receipt of (A) the
Substitution Request and (B) all reports, certificates and documents required by
the Underwriting Requirements and this Agreement, including a zoning analysis
required by Lender in connection with similar loans anticipated to be sold to
Fannie Mae, Lender shall notify the applicable Borrower whether the Substitute
Mortgaged Property meets the requirements of this Section 3.06(b) and the
Underwriting Requirements and the other requirements for the Substitution of a
Mortgaged Property as set forth in this Agreement.  Within five (5) Business
Days after receipt of Lender’s written notice in response to the Substitution
Request, Borrower shall notify Lender whether it elects to proceed with the
Substitution.  If Borrower fails to respond within the period of five (5)
Business Days, it shall be conclusively deemed to have elected not to proceed
with the Substitution.
 
(c)           Closing.  If Lender determines that the Substitution Request
satisfies the conditions set forth herein, Borrower timely elects to proceed
with the substitution, and all conditions precedent contained in Section 3.05,
Section 3.06,  Section 6.05, Section 6.06, Section 6.11, Section 6.12 and all
General Conditions contained in Section 6.01 are satisfied, the proposed
Substitute Mortgaged Property shall be added in replacement of the Mortgaged
Property being released, at a closing to be held at offices designated by Lender
on a Closing Date selected by Lender and occurring --
 
(i)           if the substitution of the proposed Substitute Mortgaged Property
is to occur simultaneously with the release of the Release Mortgaged Property,
within sixty (60) days after Lender’s receipt of the applicable Borrower’s
election (or on such other date to which Borrower and Lender may agree); or
 
(ii)           if the substitution of the proposed Substitute Mortgaged Property
is to occur subsequent to the release of the Release Mortgaged Property, within
ninety (90) days after the release of such Release Mortgaged Property (the
“Property Delivery Deadline”) in accordance with the terms of this Section
3.06(c).
 
 
Section 3.07.   Substitution Deposit.

 
(a)             The Deposit.  If a Substitution of the proposed Substitute
Mortgaged Property is to occur subsequent to the release of the Release
Mortgaged Property pursuant to Section 3.06(c)(ii), at the Closing Date of the
release of the Release Mortgaged Property, Borrower shall deposit with Lender
the “Substitution Deposit” described in Section 3.07(b) in the form of cash in a
non-interest bearing account held by Lender or, in lieu of depositing cash for
the Substitution Deposit, Borrower may post a Letter of Credit issued by a
financial institution acceptable to Lender and having terms and conditions
acceptable to Lender, having a face amount equal to the Substitution Deposit.
 
(b)           Substitution Deposit Amount.  The ”Substitution Deposit” for each
proposed substitution shall be an amount equal to the sum of (i) the Release
Price, plus (ii) any
 

 
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and all fee maintenance, yield maintenance or the prepayment premium, as
applicable, for (A) such Note or Notes designated by Borrower in accordance with
the conditions set forth in Section 3.04(d) in connection with the application
of Release Price, as the Notes Borrower elects to prepay if the substitution
fails to take place or (B) if Borrower does not make such designation or such
designation does not comply with the provisions of Section 3.04(d), Lender shall
choose such Note in accordance with the provisions of Section 3.04(d) (the
“Selected Note”), calculated as of the end of the month in which the Property
Delivery Deadline occurs, as if the Selected Note were to be prepaid in such
month, plus (iii) principal and interest due and owing on the Selected Note,
which is to be prepaid through the end of the month in which the Property
Delivery Deadline occurs, plus (iv) reasonable costs, expenses and fees of
Lender pertaining to the substitution (the “Substitution Cost Deposit”).  The
amount of the Substitution Deposit shall be recalculated by Lender in the event
the Property Delivery Deadline is extended pursuant to Section 3.06(c)(ii). If a
Substitution of the last remaining asset is taking place, the cash collateral or
Letter of Credit must include, (A) any yield maintenance that would be due to
the extent that the Fixed Loan must be prepaid to effect a release at that time,
(B) any fee maintenance that would be due to the extent that the Variable Loan
must be prepaid to effect a Release at that time and (C) the full amount of
principal and interest owing under the remaining Notes.  The Substitution Cost
Deposit shall be used by Lender to cover all reasonable out-of-pocket costs and
expenses incurred by Lender and Fannie Mae, including any out-of-pocket legal
fees and expenses incurred by Fannie Mae and Lender in connection with such
substitution whether such substitution actually closes.  In the event that the
Borrower elects to post a Letter of Credit in lieu of cash for the Substitution
Deposit, Borrower shall also be obligated to make any regularly scheduled
payments of principal and interest due under the applicable Note during any
period between the closing of the Release Mortgaged Property and the earlier of
the closing of the Substitute Mortgaged Property and the date of prepayment of
the Note or the MBS, if applicable.
 
(c)           Failure to Close Substitution.  If the substitution of the
proposed Substitute Mortgaged Property does not occur by the Property Delivery
Deadline in accordance with Section 3.06(c)(ii), then such Borrower shall have
irrevocably waived its right to substitute such Release Mortgaged Property with
the proposed Substitute Mortgaged Property, and the release of the Release
Mortgaged Property shall be deemed a prepayment of the Note and the MBS, if
applicable.  The Property Delivery Deadline shall be no later than the date
ninety (90) days after the date the Lender’s lien on such Release Mortgaged
Property is released. Any MBS being prepaid shall be deemed to be prepaid as of
the end of the month in which the Property Deadline falls and the Lender, shall
follow standard Fannie Mae procedures for the prepayment of the Note or any
applicable MBS, including delivery of the Substitution Deposit (less the
Substitution Cost Deposit) to Fannie Mae in accordance with such
procedures.  Any portion of the Substitution Deposit not needed to prepay the
Note or any applicable MBS, all interest, and any prepayment fees (including any
portion of the Substitution Cost Deposit not used by Lender to cover all
reasonable out-of-pocket costs and expenses incurred by Lender and Fannie Mae,
including any out-of-pocket legal fees and expenses incurred by Fannie Mae and
Lender in connection with such Substitution) shall be promptly refunded to the
applicable Borrower after the Property Delivery Deadline.
 
(d)           Substitution Deposit Disbursement.  At closing of the
Substitution, the Lender shall disburse the Substitution Deposit (less any
portion of the Substitution Cost Deposit used by Lender to cover all reasonable
out-of-pocket costs and expenses incurred by Lender and
 

 
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Fannie Mae, including any out-of-pocket legal fees and expenses incurred by
Fannie Mae and Lender in connection with such substitution) directly to the
Borrower at such time as the conditions set forth in Sections 3.05, 3.06, 6.05,
6.06, 6.11 and 6.12 and all General Conditions contained in Section 6.01 have
been satisfied, which must occur no later than the Property Delivery Deadline.
 
ARTICLE 4
RESERVED
 
ARTICLE 5
RESERVED
 
ARTICLE 6
CONDITIONS PRECEDENT TO ALL REQUESTS
 
 
Section 6.01.   Conditions Applicable to All Requests.  

 
Borrower’s right to close the transaction requested in a Request shall be
subject to Lender’s determination that all of the following general conditions
precedent (“General Conditions”) have been satisfied, in addition to any other
conditions precedent contained in this Agreement:
 
(a)           Reserved.
 
(b)           Payment of Expenses.  The payment by Borrower of Lender’s and
Fannie Mae’s reasonable third party out-of-pocket fees and expenses payable in
accordance with this Agreement, including, but not limited to, the legal fees
and expenses described in Section 10.03.
 
(c)           No Material Adverse Change.  There has been no material adverse
change in the financial condition, business or prospects of (i) Key Principal or
(ii) other than with respect to a Release Mortgaged Property in connection with
a Release Request or a Substitution Request, Borrower or in the physical
condition, operating performance or value of any of the Mortgaged Properties
since the date of the most recent Compliance Certificate (or, with respect to
the conditions precedent to the Initial Loan, from the condition, business or
prospects reflected in the financial statements, reports and other information
obtained by Lender during its review of Borrower and Key Principal and the
Initial Mortgaged Properties).
 
(d)           No Default.  Other than a Property-Specific Event of Default with
respect to the Release Mortgaged Property in connection with a Release Request
or a Substitution Request, there shall exist no Event of Default or Potential
Event of Default unless such Event of Default or Potential Event of Default is
cured by the closing of such Request.  The closing of such Request shall not
result in an Event of Default or Potential Event of Default.
 
(e)           No Insolvency. Receipt by Lender on the Closing Date for the
Request of evidence satisfactory to Lender that neither Borrower nor Key
Principal is insolvent (within the meaning of any applicable federal or state
laws relating to bankruptcy or fraudulent transfers) or will be rendered
insolvent by the transactions contemplated by the Loan Documents, including the
making of an Additional Loan, or, after giving effect to such transactions, will
be left with an
 

 
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unreasonably small capital with which to engage in its business or undertakings,
or will have intended to incur, or believe that it has incurred, debts beyond
its ability to pay such debts as they mature or will have intended to hinder,
delay or defraud any existing or future creditor.
 
(f)           No Untrue Statements.  The Loan Documents shall not contain any
untrue or misleading statement of a material fact and shall not fail to state a
material fact necessary to make the information contained therein not
misleading.
 
(g)           Representations and Warranties.  All representations and
warranties made by Borrower in the Loan Documents shall be true and correct in
all material respects on the Closing Date for the Request with the same force
and effect as if such representations and warranties had been made on and as of
the Closing Date for the Request.
 
(h)           No Condemnation or Casualty.  Except with respect to the Release
Mortgaged Property in connection with a Release Request or a Substitution
Request, there shall not be pending or threatened any condemnation or other
taking, whether direct or indirect, against the Mortgaged Property and there
shall not have occurred any casualty to any improvements located on the
Mortgaged Property, which casualty would have a Material Adverse Effect.
 
(i)           Delivery of Closing Documents.  The receipt by Lender of the
following, each dated as of the Closing Date for the Request, in form and
substance satisfactory to Lender in all respects:
 
(i)           The Loan Documents relating to such Request;
 
(ii)           A Compliance Certificate;
 
(iii)           An Organizational Certificate; and
 
(iv)           Such other documents, instruments, approvals (and, if requested
by Lender, certified duplicates of executed copies thereof) and opinions as
Lender may reasonably request.
 
(j)           Covenants.  Borrower is in full compliance with each of the
covenants contained in Article 8 and Article 9 of this Agreement, without giving
effect to any notice and cure rights of Borrower.
 
(k)           Key Principal Financial Status.  With respect to Requests for
Additional Loans, at the time of the applicable Request, Key Principal’s Net
Worth is not less than $525,000,000 and Key Principal maintains cash and Cash
Equivalents of not less than $20,000,000, in each case as determined by
Lender.  Notwithstanding the foregoing, if either or both of the foregoing tests
in this subsection 6.01(k) are not satisfied after the transaction contemplated
by the applicable Request, such transaction may be permitted by Lender if it
improves the Collateral Pool based on factors that are consistent with Lender’s
Underwriting Requirements and results in improvement in one or more of the
following areas: the then current Valuation of the Mortgaged Properties, the
then current Aggregate Debt Service Coverage Ratio or the then current Aggregate
Loan to Value Ratio.
 

 
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Section 6.02.   Conditions Precedent to Initial Loan.

 
The obligation of Lender to make the Initial Loan on the Initial Closing Date is
subject to the following conditions precedent:
 
(a)           Receipt by Lender of the Replacement Reserve Agreement and the
Completion/Repair Security Agreement;
 
(b)           Receipt by Lender of opinions of counsel to Borrower and counsel
to Operator in form and content satisfactory to Lender;
 
(c)           Receipt by Lender of the documents and instruments required by
Sections 6.11 and 6.12;
 
(d)           Delivery to the Title Company with fully executed instructions
directing the Title Company to file and/or record in all applicable
jurisdictions, all applicable Loan Documents required by Lender to be filed or
recorded, including duly executed and delivered original copies of the Initial
Security Instruments covering the Initial Mortgaged Properties and UCC-1
Financing Statements covering the portion of the Collateral comprised of
personal property, and other appropriate instruments, in form and substance
satisfactory to Lender and in form proper for recordation, as may be necessary
in the opinion of Lender to perfect the Liens created by the applicable Security
Instruments and any other Loan Documents creating a Lien in favor of Lender, and
the payment of all taxes, fees and other charges payable in connection with such
execution, delivery, recording and filing;
 
(e)           Receipt by Lender of the Initial Origination Fee pursuant to
Section 10.01(a) and the Initial Due Diligence Fee pursuant to Section 10.01(b);
 
(f)           An Interest Rate Cap must be purchased pursuant to Section 1.11,
unless such requirement is waived by Lender pursuant to Section 1.11; and
 
(g)           Such other documents, instruments, approvals (and, if requested by
Fannie Mae and Lender, certified duplicates of executed copies thereof) and
opinions as Fannie Mae or Lender may reasonably request.
 
 
Section 6.03.   Conditions Precedent to Additional Loan..

 
The obligation of Lender to make a requested Additional Loan is subject to the
satisfaction of the following conditions precedent:
 
(a) Receipt by Lender of the fully executed Loan Request for such Additional
Loan;
 
(b) Delivery by Lender to Borrower of the Rate Form for such Additional Loan;
 
(c) If the Additional Loan is a Fixed Loan, delivery of a Fixed Loan Note, duly
executed by Borrower, in the amount and reflecting all of the terms of the Fixed
Loan;
 

 
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(d) If the Additional Loan is a Variable Loan, delivery of a Variable Loan Note,
duly executed by Borrower, in the amount and reflecting all the terms of the
Variable Loan; and
 
(e) For any Title Insurance Policy not containing a Future Advances Endorsement,
the receipt by Lender of an endorsement to the Title Insurance Policy, amending
the effective date of the Title Insurance Policy to the Closing Date for such
Additional Loan and showing no additional exceptions to coverage other than the
exceptions shown on the Effective Date, Permitted Liens and other exceptions
approved by Lender.
 
 
Section 6.04.   Conditions Precedent to Addition of an Additional Mortgaged
Property to the Collateral Pool.   

 
The addition of an Additional Mortgaged Property to the Collateral Pool on the
applicable Closing Date is subject to the satisfaction of the following
conditions precedent:
 
(a)           Immediately after giving effect to the requested addition, the
provisions of Section 3.01(b) are satisfied;
 
(b)           Receipt by Lender of the Addition Fee and the Additional
Collateral Due Diligence Fees, or if the Additional Mortgaged Property is being
added in connection with a substitution made pursuant to Section 3.05 of this
Agreement, receipt by Lender of the Substitution Fee and the Additional
Collateral Due Diligence Fees;
 
(c)           Delivery to the Title Company, with fully executed instructions
directing the Title Company to file and/or record in all applicable
jurisdictions, of all applicable Addition Loan Documents required by Lender to
be filed or recorded, including duly executed and delivered original copies of
the Security Instruments covering the Additional Mortgaged Properties and UCC-1
Financing Statements covering the portion of the Collateral comprised of
personal property, and other appropriate instruments, in form and substance
satisfactory to Lender and in form proper for recordation, as may be necessary
in the opinion of Lender to perfect the Lien created by the applicable
additional Security Instrument and any other Addition Loan Document creating a
Lien in favor of Lender, and the payment of all taxes, fees and other charges
payable in connection with such execution, delivery, recording and filing;
 
(d)           If reasonably required by Lender, (i) amendments to this
Agreement, the Notes and the Security Instruments, reflecting the addition of
the Additional Mortgaged Property to the Collateral Pool and, (ii) as to any
Security Instrument so amended, the receipt by Lender of an endorsement to each
Title Insurance Policy (or a new Title Insurance Policy, if required in the
applicable jurisdiction) (A) insuring the Security Instruments, (B) amending the
effective date of each Title Insurance Policy to the Closing Date and (C)
showing no additional exceptions to coverage other than the exceptions shown on
the Initial Closing Date, Permitted Liens and other exceptions approved by
Lender, if Lender determines that such endorsement is necessary to maintain the
priority of the Lien created in favor of Lender with respect to the Outstanding
Indebtedness or to maintain the validity of any Title Insurance Policy;
 

 
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(e)           If the Title Insurance Policy for the Additional Mortgaged
Property contains a tie-in endorsement, an endorsement to each other Title
Insurance Policy containing a tie-in endorsement, adding a reference to the
Additional Mortgaged Property;
 
(f)           Any proposed Additional Borrower meets and satisfies all of the
requirements and conditions of Section 14.02; and
 
(g)           Receipt by Lender on the Closing Date of a Confirmation of
Obligations.
 
 
Section 6.05.   Conditions Precedent to Release of Property from the Collateral
Pool.  

 
The release of a Mortgaged Property from the Collateral Pool is subject to the
satisfaction of the following conditions precedent on or before the Closing Date
of such release:
 
(a)           Receipt by Lender of the fully executed Release Request;
 
(b)           Immediately after giving effect to the requested release, the
provisions of Section 3.04(f) are satisfied;
 
(c)           Receipt by Lender of the Release Price (as the same may be
adjusted by Lender in a manner consistent with the last sentence of Section
3.04(f)) and all amounts owing under Section 3.04(c);
 
(d)           Receipt by Lender of the Release Fee;
 
(e)           Receipt  by Lender of all legal fees and expenses payable by
Borrower in connection with a Release Request;
 
(f)           Receipt by Lender on the Closing Date of one (1) or more executed,
original counterparts of each Release Document, dated as of the Closing Date,
each of which shall be in full force and effect, in form and substance
satisfactory to Lender in all respects;
 
(g)           If reasonably required by Lender, (i) amendments to this
Agreement, the Notes and the Security Instruments, reflecting the release of the
Release Mortgaged Property from the Collateral Pool and, (ii) as to any Security
Instrument or Note so amended or if Lender determines that such endorsement is
necessary to maintain the priority of the Lien created in favor of Lender with
respect to the Outstanding Indebtedness or to maintain the validity of any Title
Insurance Policy, the receipt by Lender of an endorsement to each Title
Insurance Policy (A) insuring the Security Instruments, (B) amending the
effective date of each Title Insurance Policy to the Closing Date and (C)
showing no additional exceptions to coverage other than the exceptions shown on
the Initial Closing Date, Permitted Liens and other exceptions approved by
Lender;
 
(h)           If Lender determines the Release Mortgaged Property to be one (1)
phase of a project, and one (1) or more other phases of the project are
Mortgaged Properties which will remain in the Collateral Pool (“Remaining
Mortgaged Properties”), Lender must determine that the Remaining Mortgaged
Properties can be operated separately from the Release
 

 
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Mortgaged Property and any other phases of the project which are not Mortgaged
Properties and whether any cross use agreements or easements are necessary.  In
making this determination, Lender shall evaluate access, utilities,
marketability, community services, ownership and operation of the Remaining
Mortgaged Properties and any other issues identified by Lender in connection
with similar loans anticipated to be sold to Fannie Mae;
 
(i)           Receipt by Lender of endorsements to the tie-in endorsements of
the Title Insurance Policies, if deemed necessary by Lender, to reflect the
release; and
 
(j)           Receipt by Lender on the Closing Date of a Confirmation of
Obligations.
 
 
Section 6.06.   Conditions Precedent to Substitutions.

 
The obligation of Lender to make a requested Substitution is subject to Lender’s
determination that each of the following conditions precedent has been met:
 
(a)           Receipt by Lender of the fully executed Substitution Request;
 
(b)           Receipt by Lender of the Substitution Deposit to the extent
necessary under Section 3.07;
 
(c)           Receipt by Lender of the Additional Collateral Due Diligence Fees
and Substitution Fee;
 
(d)           Such Substitute Mortgaged Property shall comply with the
provisions of Section 3.06(b) of this Agreement;
 
(e)           Delivery to the Title Company, with fully executed instructions
directing the Title Company to file and/or record in all applicable
jurisdictions, all applicable Loan Documents required by Lender to be filed or
recorded, including duly executed and delivered original copies of the Security
Instruments covering the Substitute Mortgaged Properties and UCC-1 Financing
Statements covering the portion of the Substitute Mortgaged Property comprised
of personal property, and other appropriate instruments, in form and substance
satisfactory to Lender and in form proper for recordation, as may be necessary
in the opinion of Lender to perfect the Lien created by the applicable
additional Security Instrument, and any other relevant Loan Document creating a
Lien in favor of Lender, and the payment of all taxes, fees and other charges
payable in connection with such execution, delivery, recording and filing;
 
(f)           Receipt by Lender of endorsements to the tie-in endorsements of
the Title Insurance Policies, if deemed necessary by Lender, to reflect the
substitution;
 
(g)           Receipt of all documents required for the addition of the
Substitute Mortgaged Property pursuant to the Underwriting Requirements;
 
(h)           Any proposed Additional Borrower meets and satisfies all of the
requirements and conditions of Section 14.02;
 

 
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(i)           Receipt by Lender on the Closing Date of a Confirmation of
Obligations; and
 
(j)           If reasonably required by Lender, (i) amendments to this
Agreement, the Notes and the Security Instruments, reflecting the Substitution
and, (ii) as to any Security Instrument or Note so amended, or if Lender
determines that such endorsement is necessary to maintain the priority of the
Lien created in favor of Lender with respect to the Outstanding Indebtedness or
to maintain the validity of any Title Insurance Policy, the receipt by Lender of
an endorsement to each Title Insurance Policy (A) insuring the Security
Instruments, (B) amending the effective date of each Title Insurance Policy to
the Closing Date and (C) showing no additional exceptions to coverage other than
the exceptions shown on the Initial Closing Date, Permitted Liens and other
exceptions approved by Lender, together with any reinsurance agreements required
by Lender.
 
 
Section 6.07.   Reserved.

 
 
Section 6.08.   Conditions Precedent to Conversion.  

 
The conversion of all or a portion of a Variable Loan to a Fixed Loan is subject
to the satisfaction of the following conditions precedent on or before the
Closing Date:
 
(a)           Receipt by Lender of the fully executed Conversion Request;
 
(b)           After giving effect to the requested conversion, the Coverage and
LTV Tests will be satisfied;
 
(c)           Prepayment by Borrower in full of any Variable Loans Outstanding
that Borrower has designated for payment, together with any associated
prepayment premiums and other amounts due with respect to the prepayment of such
Variable Loans shall be payable by Borrower;
 
(d)           If reasonably required by Lender, receipt by Lender of an
endorsement to each Title Insurance Policy, amending the effective date of the
Title Insurance Policy to the Closing Date and showing no additional exceptions
to coverage other than the exceptions shown on the Initial Closing Date,
Permitted Liens and other exceptions approved by Lender; and
 
(e)           Receipt by Lender of one (1) or more executed, original
counterparts of all Conversion Documents, dated as of the Closing Date, each of
which shall be in full force and effect and in form and substance satisfactory
to Lender in all respects.
 
 
Section 6.09.   Reserved.  

 
 
Section 6.10.   Reserved.  

 

 
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Section 6.11.   Delivery of Opinion Relating to Loan Request, Addition Request,
Substitution Request or Conversion Request.  

 
With respect to the closing of a Loan Request, Addition Request, Substitution
Request or Conversion Request, it shall be a condition precedent that Lender
receives favorable opinions of counsel (including local counsel and Operator’s
counsel, as applicable) to Borrower, as to the due organization and
qualification of Borrower, the due authorization, execution, delivery and
enforceability of each Loan Document executed in connection with the Request and
such other matters as Lender may reasonably require, each dated as of the
Closing Date for the Request, in form and substance satisfactory to Lender in
all respects.
 
 
Section 6.12.   Delivery of Property-Related Documents.  

 
With respect to each of the Initial Mortgaged Properties, an Additional
Mortgaged Property or a Substitute Mortgaged Property, it shall be a condition
precedent that Lender receive from Borrower each of the documents and reports
required by Lender pursuant to the Underwriting Requirements in connection with
the addition of such Mortgaged Property to the Collateral Pool and, each of the
following, each dated as of the applicable Closing Date for the Initial
Mortgaged Property, an Additional Mortgaged Property or a Substitute Mortgaged
Property, as the case may be, in form and substance satisfactory to Lender in
all respects:
 
(a)           A commitment for the Title Insurance Policy applicable to the
Mortgaged Property and a pro forma Title Insurance Policy based on the Loan
amount, in the amount of title insurance afforded by the Title Insurance Policy
for each Mortgaged Property in the Collateral Pool equal to (i) if tie-in
endorsements are available for all or a portion of the Mortgaged Properties, in
an aggregate amount equal to the combined Allocable Loan Amounts for all of the
Mortgaged Properties covered by the tie-in endorsements, not to exceed the
amount of the Initial Loan, or (ii) if tie-in endorsements are not available for
any of the Mortgaged Properties, then with respect to such Mortgaged Properties
not subject to the tie-in endorsement an amount equal to either 100% - 175% of
the Valuation of such Mortgaged Properties not subject to the tie-in endorsement
(or such lesser amount that is the maximum allowed by law or regulation), such
percentage to be determined by Lender at the applicable time based on the
Underwriting Requirements;
 
(b)           the Insurance Policy (or certified copy of the Insurance Policy)
applicable to the Mortgaged Property;
 
(c)           The Survey applicable to the Mortgaged Property;
 
(d)           Evidence satisfactory to Lender of compliance of the Mortgaged
Property with Applicable Laws;
 
(e)           A Replacement Reserve Agreement or an amendment thereto, providing
for the establishment of a replacement reserve account, to be pledged to Lender,
in which the owner shall (unless waived by Lender) periodically deposit amounts
for replacements for improvements at the Mortgaged Property and as additional
security for Borrower’s obligations under the Loan Documents;
 

 
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(f)           A Completion/Repair and Security Agreement or an amendment
thereto, together with required escrows, on the standard form required by
Lender;
 
(g)           A Subordination Assignment and Security Agreement for each
Mortgaged Property which is managed or operated by an Operator;
 
(h)           An Assignment of Leases and Rents, if Lender determines one to be
necessary or desirable, provided that the provisions of any such assignment
shall be substantively identical to those in the Security Instrument covering
the Collateral, with such modifications as may be necessitated by applicable
state or local law;
 
(i)           In relation to each Initial Mortgaged Property, a Security
Instrument to effectuate the addition of such Initial Mortgaged Property to the
Collateral Pool, in relation to each Additional Mortgaged Property, a Security
Instrument to effectuate the addition of such Additional Mortgaged Property to
the Collateral Pool, and in relation to each Substitute Mortgaged Property, a
Security Instrument to effectuate the addition of such Substitute Mortgaged
Property to the Collateral Pool and a Note for each Loan.  The amount secured by
each Security Instrument shall be equal to the aggregate amount of the Loans;
 
(j)           A Certificate of Borrower;
 
(k)           A Confirmation of Guaranty by any party providing a guaranty to
Lender;
 
(l)           A Contribution Agreement or an amendment thereto;
 
(m)           Any and all Operating Leases, Management Agreements or other
leases relating to the Mortgaged Property (it being acknowledged that such
Operating Leases, Management Agreements or other leases may be dated other than
as of the Closing Date); and
 
(n)           Such other documents, instruments, approvals (and, if requested by
Fannie Mae and Lender, certified duplicates of executed copies thereof) and
opinions as Fannie Mae or Lender may reasonably request.
 
 
Section 6.13.   Reserved.

 
 
Section 6.14.   Reserved.

 
 
Section 6.15.   Letters of Credit.

 
(a)           Letter of Credit Requirements.  If Borrower provides Lender with a
Letter of Credit pursuant to this Agreement, the Letter of Credit shall be in
form and substance satisfactory to Lender and Lender shall be entitled to draw
under such Letter of Credit solely upon presentation of a sight draft to the LOC
Bank.  Any Letter of Credit shall be for a term of at least 364 days.  Any
Letter of Credit shall be issued by a financial institution satisfactory to
Lender and shall have its long-term debt obligations and its short-term debt
obligations rated in accordance with the requirements of Fannie Mae then in
effect.
 

 
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(b)           Draws Under Letter of Credit.  Lender shall have the right in its
sole discretion to draw monies under the Letter of Credit:
 
(i)           upon the occurrence of (A) an Event of Default; or (B) a Potential
Event of Default of which the Borrower has knowledge has occurred and continued
for two (2) Business Days;
 
(ii)           if 30 days prior to the expiration of the Letter of Credit, the
Letter of Credit has not been extended for a term of at least 364 days; or
 
(iii)           upon the downgrading of the ratings of the long-term or
short-term debt obligations of the LOC Bank below the requirements of Fannie Mae
then in effect; or
 
(iv)    upon the failure to close a substitution pursuant to Section 3.07(c).
 
(c)           Deposit to Cash Collateral Account.  If Lender draws under the
Letter of Credit pursuant to Section 6.15(b)(ii) or (iii) above, Lender shall
deposit such draw monies into the Cash Collateral Account.
 
(d)           Default Draws.  If Lender draws under the Letter of Credit
pursuant to Section 6.15(b)(i) above, Lender shall have the right to use monies
drawn under the Letter of Credit for any of the following purposes:
 
(i)             to pay any amounts required to be paid by Borrower under the
Loan Documents (including, without limitation, any amounts required to be paid
to Lender under this Agreement);
 
(ii)             to prepay any Note (on such Borrower’s behalf, or on its own
behalf, if Lender becomes the owner of the Mortgaged Property);
 
(iii)             to make improvements or repairs to any Mortgaged Property; or
 
(iv)             to deposit monies into the Cash Collateral Account.
 
(e)           Other Draws. If Lender draws under the Letter of Credit pursuant
to Section 6.15(b)(iv) above, Lender shall have the right to use monies drawn
under the Letter of Credit to prepay a Selected Note as such term is defined in
Section 3.07(b).
 
(f)           Legal Opinion.  Prior to or simultaneous with the delivery of any
new Letter of Credit (but not the extension of any existing Letter of Credit),
such Borrower shall cause the LOC Bank’s counsel to deliver a legal opinion
substantially in the form of Exhibit K-1 or Exhibit K-2, as applicable, and in
any event satisfactory in form and substance to the Lender in the Lender’s
discretion.
 

 
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ARTICLE 7
REPRESENTATIONS AND WARRANTIES
 
 
Section 7.01.   Representations and Warranties of Borrower.  

 
The representations and warranties of the Borrower are contained in the
Certificate of Borrower.
 
For purposes of the Loan Documents, where Borrower purports to have knowledge
and without limiting the scope of the meaning of Borrower’s having actual
knowledge, Borrower will automatically and immediately be deemed to have actual
knowledge:
 
(i) of written public disclosure; or
 
(ii) in the event that Key Principal or its successors and assigns has actual
knowledge.
 
 
Section 7.02.   Representations and Warranties of Lender.  

 
Lender hereby represents and warrants to Borrower as follows as of the date
hereof:
 
(a)           Due Organization.  Lender is a limited liability company duly
organized, validly existing and in good standing under the laws of Delaware.
 
(b)           Power and Authority.  Lender has the requisite power and authority
to execute and deliver this Agreement and to perform its obligations under this
Agreement.
 
(c)           Due Authorization.  The execution and delivery by Lender of this
Agreement, and the consummation by it of the transactions contemplated thereby,
and the performance by it of its obligations thereunder, have been duly and
validly authorized by all necessary action and proceedings by it or on its
behalf.
 
ARTICLE 8
AFFIRMATIVE COVENANTS OF BORROWER
 
Borrower agrees and covenants with Lender that, at all times during the Term of
this Agreement:
 
 
Section 8.01.   Compliance with Agreements.

 
(a)           Each Borrower shall comply with all the terms and conditions of
each Loan Document to which it is a party or by which it is bound; provided,
however, that Borrower’s failure to comply with such terms and conditions shall
not be an Event of Default until the expiration of the applicable notice and
cure periods, if any, specified in the applicable Loan Document.
 
(b)           Each Borrower shall, with respect to its applicable Mortgaged
Property, comply with all the material terms and conditions of any building
permits or any conditions, easements, rights-of-way or covenants of record,
restrictions of record or any recorded or, to the
 

 
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extent Borrower has knowledge thereof, unrecorded agreement affecting or
concerning any Mortgaged Property including planned development permits,
condominium declarations, and reciprocal easement and regulatory agreements with
any Governmental Authority; provided, however, that a Borrower’s failure to
comply with such terms and conditions shall not be an Event of Default until the
expiration of the applicable notice and cure periods, if any, specified in the
applicable document.
 
 
Section 8.02.   Maintenance of Existence.

 
Each Borrower shall maintain its existence and continue to be organized under
the laws of the state of its organization. Each Borrower shall continue to be
duly qualified to do business in each jurisdiction in which such qualification
is necessary to the conduct of its business and where the failure to be so
qualified would adversely affect the validity of, the enforceability of, or the
ability to perform, its obligations under this Agreement or any other Loan
Document.
 
 
Section 8.03.   Financial Statements; Accountants’ Reports; Other Information.

 
(a)           Each Borrower shall keep and maintain, and shall cause Key
Principal to keep and maintain, at all times at the address set forth in Section
15.08 of this Agreement, or such Borrower shall cause each Operator to keep and
maintain at all times at the address set forth in Section 11 of the
Subordination, Assignment and Security Agreement or at the applicable Mortgaged
Property, and upon Lender’s request shall make available at the applicable
Mortgaged Property, complete and accurate books of accounts and records
(including copies of supporting bills and invoices) in sufficient detail to
correctly reflect (i) all of such Borrower’s and Key Principal’s financial
transactions and assets, and (ii) the results of the operation of the applicable
Mortgaged Property, and copies of all written contracts, Leases and other
instruments which affect each such Mortgaged Property (including all bills,
invoices and contracts for electrical service, gas service, water and sewer
service, waste management service, telephone service and management
services).  The books, records, contracts, Leases and other instruments shall be
subject to examination and inspection at any reasonable time by Lender.
 
(b)           In addition, Borrower (with respect to clauses (i), (ii), (iii),
(ix) and (xi) set forth below) shall furnish, or cause to be furnished, to
Lender (in each case subject to applicable Privacy Laws):
 
(i)           Annual Financial Statements.  As soon as available, and in any
event within ninety (90) days after the close of each fiscal year of Key
Principal during the Term of this Agreement, the consolidated balance sheet of
Key Principal and its subsidiaries as of the end of such fiscal year, the
consolidated statement of income, expenses, equity and retained earnings of Key
Principal’s and its subsidiaries’ operation for such fiscal year, and the
statement of cash flows of Key Principal and its subsidiaries for such fiscal
year, all in reasonable detail and stating in comparative form the respective
figures for the corresponding date and period in the prior fiscal year, prepared
in accordance with GAAP consistently applied and accompanied by a certificate of
Key Principal’s independent certified public accountants to the effect that such
financial statements have been externally prepared by and reviewed by such
accountants, and that such financial statements fairly present the results of
its operations and financial condition
 

 
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for the periods and dates indicated, with such certification to be free of
exceptions and qualifications as to the scope of the audit as to the going
concern nature of the business;
 
(ii)           Quarterly Financial Statements.  As soon as available, and in any
event within sixty (60) days after each of the first three fiscal quarters of
each fiscal year of Key Principal during the Term of this Agreement, the
unaudited balance sheet showing all assets and liabilities of Key Principal as
of the end of such fiscal quarter, the unaudited statement of income, expenses,
equity and retained earnings of Key Principal and the unaudited statement of
changes in financial position and cash flows of Key Principal for the portion of
the fiscal year ended with the last day of such quarter, and if required by
Lender, a statement of income and expenses of each Mortgaged Property for the
prior month, all prepared in accordance with GAAP and in reasonable detail and
stating in comparative form the respective figures for the corresponding date
and period in the previous fiscal year, accompanied by a certificate of an
authorized representative of Key Principal reasonably acceptable to Lender
stating that such financial statements have been prepared in accordance with
GAAP, consistently applied, and fairly present the results of its operations and
financial condition for the periods and dates indicated, subject to year end
adjustments in accordance with GAAP;
 
(iii)           Quarterly Property Statements.  As soon as available, and in any
event within forty five (45) days after each Calendar Quarter, a statement of
income and expenses of each Mortgaged Property prepared in accordance with GAAP
and accompanied by a certificate of an authorized representative of the
applicable Borrower reasonably acceptable to Lender to the effect that each such
statement of income and expenses fairly, accurately and completely presents the
operations of each such Mortgaged Property for the period indicated;
 
(iv)           Annual Property Statements.  On an annual basis within ninety
(90) days after the close of its fiscal year, an annual statement of income and
expenses of each Mortgaged Property accompanied by a certificate of an
authorized representative of the applicable Borrower reasonably acceptable to
Lender to the effect that each such statement of income and expenses fairly,
accurately and completely presents the operations of each such Mortgaged
Property for the period indicated;
 
(v)           Monthly Property Statements.  Upon Lender's request, a monthly
property management report for each Mortgaged Property in the form customarily
generated by each Borrower or Operator, as the case may be (which form has been
delivered to Lender prior to the Initial Closing Date and Lender has approved
the same), showing the number of inquiries made and rental applications received
from tenants or prospective tenants and deposits received from tenants and any
other information requested by Lender;
 
(vi)           Updated Rent Rolls.  Within one hundred twenty (120) days after
the end of each fiscal year of each Borrower, and at any other time upon
Lender’s request, a current Rent Roll for each Mortgaged Property, showing the
name of each tenant, and for each tenant, the space occupied, the lease
expiration date, the rent payable for the current month, the date through which
rent has been paid and any other information requested by Lender and accompanied
by a certificate of an authorized representative of the applicable Borrower
reasonably acceptable to Lender to the effect that each such Rent Roll fairly,
accurately and completely presents the information required therein;
 

 
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(vii)           Security Deposit Information.  Within one hundred twenty (120)
days after the end of each fiscal year of Borrower, and at any other time upon
Lender’s request, an accounting of all security deposits held in connection with
any Lease of any part of any Mortgaged Property, including the name and
identification number of the accounts in which such security deposits are held,
the name and address of the financial institutions in which such security
deposits are held and the name and telephone number of the person to contact at
such financial institution, along with any authority or release necessary for
Lender to access information regarding such accounts;
 
(viii)           Accountants’ Reports; Other Reports.  Promptly upon receipt
thereof: copies of any reports or management letters submitted to Borrower by
its independent certified public accountants in connection with the examination
of its financial statements made by such accountants (except for reports
otherwise provided pursuant to subsection (a) above); provided, however, that
Borrower shall only be required to deliver such reports and management letters
to the extent that they relate to Borrower or any Mortgaged Property;
 
(ix)           Ownership Interests.  For purposes of monitoring compliance with
Section 8.12 of this Agreement, within 120 days after the end of each fiscal
year of Borrower and Key Principal, and at any other time upon Lender’s request,
a statement that identifies all direct and indirect owners of any interest in
Borrower (other than any Persons directly or indirectly owning any public stock
of Key Principal with no other direct or indirect ownership interest in
Borrower) and the interest held by each, if Borrower is a corporation, all
officers and directors of Borrower, and if Borrower is a limited liability
company, all managers who are not members;
 
(x)           Complaints.  Within 10 Business Days after any Borrower’s receipt,
copies of any complaint filed with any court or administrative or regulatory
authority against any Borrower or any Mortgaged Property management alleging any
violation of fair housing law, handicap access or the Americans with
Disabilities Act and any final administrative or judicial dispositions of such
complaints;
 
(xi)           Resident Care Agreements.  Upon the Lender’s request, copies of
resident care agreements;
 
(xii)           Intentionally Deleted.
 
(xiii)           Regulatory or Licensing.  Within 10 Business Days after receipt
thereof, copies of all inspection reports, surveys, reviews, and certifications
prepared by, for, or on behalf of any licensing or regulatory authority relating
to any Mortgaged Property and any legal actions, orders, notices, or reports
relating to any Mortgaged Property issued by the applicable regulatory or
licensing authorities which in any instance would cause any Borrower to be in
noncompliance with any term or covenant in this Agreement;
 
(xiv)           Services and Operations.  Upon the request of Lender, copies of
all reports relating to the services and operations of each Mortgaged Property,
including, if applicable, Medicaid cost reports and records relating to account
balances due to or from Medicaid or any private insurer;
 

 
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(xv)           Other Reports.  Promptly upon receipt thereof, all schedules,
financial statements or other similar reports requested by the Lender with
respect to such Borrower's business affairs or condition (financial or
otherwise) or any of the Mortgaged Properties;
 
(xvi)           Certification.  All certifications required to be delivered
pursuant to this Agreement shall run directly to and be for the benefit of
Lender and Fannie Mae;
 
(xvii)           Books and Records.  If an Event of Default has occurred and is
continuing, Borrower shall deliver to Lender upon written demand all books and
records relating to its Mortgaged Property or its operation;
 
(xviii)           Incident Reports.  Within 10 days of submission by or to
Borrower, copies of all incident reports submitted to any liability insurance
carrier or any elderly affairs, regulatory or licensing authority;
 
(xix)           Annual Financial Statements of Operator.  Within 10 days of
submission to Borrower by Operator the financial statements, reports, documents,
communications and information delivered to Borrower by Operator pursuant to the
Operating Lease or Management Agreement as in effect on the date of this
Agreement;
 
(xx)           Annual Budgets.  Prior to the start of its fiscal year, an annual
budget for each Mortgaged Property for such fiscal year, setting forth an
estimate of all of the costs and expenses, including capital expenses, of
maintaining and operating each Mortgaged Property; and
 
(xxi)           Federal Tax Returns.  Within thirty (30) days of filing, the
Federal tax return of each Borrower and Key Principal.
 
(c)           Each of the statements, schedules and reports required by
Section 8.03 shall be certified to be complete and accurate by an individual
having authority to bind Borrower, and shall be in such form and contain such
detail as Lender may reasonably require.  If an Event of Default has occurred
and is continuing, Lender also may require that any statements, schedules or
reports be audited at Borrower's expense by independent certified public
accountants acceptable to Lender.
 
(d)  If Borrower fails to provide in a timely manner the statements, schedules
and reports required by Section 8.03, Lender shall have the right to have
Borrower's books and records audited, at Borrower's expense, by independent
certified public accountants selected by Lender in order to obtain such
statements, schedules and reports, and all related costs and expenses of Lender
shall become immediately due and payable and shall become an additional part of
the Indebtedness as provided in Section 12 of each Security Instrument.
 
(e)  Each Borrower irrevocably authorizes Lender to obtain a credit report on
such Borrower at any time.
 

 
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    Access to Records; Discussions With Officers and Accountants.  

 
To the extent permitted by law and in addition to the applicable requirements of
the Security Instruments, each Borrower shall permit Lender and shall cause its
Operator to permit Lender to:
 
(a)           inspect, make copies and abstracts of, and have reviewed or
audited, such of such Borrower’s and/or its Operator’s books and records as may
relate to the Obligations or its Mortgaged Property;
 
(b)           at any time discuss such Borrower’s affairs, finances and accounts
with such Borrower’s Senior Management or property managers and independent
public accountants; after an Event of Default, discuss such Borrower’s affairs,
finances and account with Key Principal’s officers, partners and employees;
 
(c)           discuss the Mortgaged Properties’ conditions, operations or
maintenance with the officers of the Operator of such Mortgaged Properties, the
officers and employees of such Borrower and/or the Key Principal; and
 
(d)           receive any other information that Lender reasonably deems
necessary or relevant in connection with the Loan, any Loan Document or the
Obligations from the officers and employees of such Borrower or third parties.
 
Notwithstanding the foregoing, prior to an Event of Default or Potential Event
of Default and in the absence of an emergency, all inspections shall be
conducted at reasonable times during normal business hours upon reasonable
notice to Borrower.
 
 
Section 8.05.   Certificate of Compliance.  

 
Each Borrower shall deliver to Lender concurrently with the delivery of the
financial statements and/or reports required by Section 8.03(a) and Section
8.03(b) a certificate signed by an authorized representative of such Borrower
reasonably acceptable to Lender (i) setting forth in reasonable detail the
calculations required to establish whether such Borrower and Key Principal were
in compliance with the requirements of Article 8 of this Agreement on the date
of such financial statements, and (ii) stating that, to the best knowledge of
such individual following reasonable inquiry, no Event of Default or Potential
Event of Default has occurred, or if an Event of Default or Potential Event of
Default has occurred, specifying the nature thereof in reasonable detail and the
action such Borrower is taking or proposes to take.  Any certificate required by
this Section shall run directly to and be for the benefit of Lender and Fannie
Mae.
 
 
Section 8.06.   Maintain Licenses.  

 
Each Borrower shall procure and maintain or cause its Operator to procure and
maintain in full force and effect all licenses, Permits, charters and
registrations which are material to the conduct of its business at the
applicable Mortgaged Property and shall abide by and satisfy all terms and
conditions of all such licenses, Permits, charters and registrations.
 

 
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Section 8.07.   Inform Lender of Material Events.  

 
Borrower shall promptly inform Lender in writing of any of the following (and
shall deliver to Lender copies of any related written communications,
complaints, orders, judgments and other documents relating to the following) of
which Borrower has actual knowledge:
 
(a)           Defaults.  The occurrence of any Event of Default or any Potential
Event of Default under this Agreement or any other Loan Document or any default
under the Operating Lease or the Management Agreement;
 
(b)           Regulatory Supervision or Penalty.  The commencement of any
rulemaking or disciplinary proceeding or the promulgation of any proposed or
final rule which would have, or may reasonably be expected to have, a Material
Adverse Effect; the receipt of notice from any Governmental Authority having
jurisdiction over Borrower or Operator that (A) Borrower or Operator is being
placed under regulatory supervision, (B) any License, Permit, charter,
membership or registration material to the conduct of Borrower’s or Operator’s
business or the Mortgaged Properties is to be suspended or revoked or (C)
Borrower or Operator is to cease and desist any practice, procedure or policy
employed by Borrower or Operator in the conduct of its business, and such
cessation would have, or may reasonably be expected to have, a Material Adverse
Effect;
 
(c)           Bankruptcy Proceedings.  The commencement of any proceedings by or
against Borrower, Operator or Key Principal under any applicable bankruptcy,
reorganization, liquidation, insolvency or other similar law now or hereafter in
effect or of any proceeding in which a receiver, liquidator, trustee or other
similar official is sought to be appointed for any such party;
 
(d)           Environmental Claim.  The receipt from any Governmental Authority
or other Person of any notice of violation, claim, demand, abatement, order or
other order or direction (conditional or otherwise) for any damage, including
personal injury (including sickness, disease or death), tangible or intangible
property damage, contribution, indemnity, indirect or consequential damages,
damage to the environment, pollution, contamination or other adverse effects on
the environment, removal, cleanup or remedial action or for fines, penalties or
restrictions, resulting from or based upon (i) the existence or occurrence, or
the alleged existence or occurrence, of a Hazardous Substance Activity on any
Mortgaged Property in violation of any law or (ii) the violation, or alleged
violation, of any Hazardous Materials Laws in connection with any Mortgaged
Property or any of the other assets of Borrower;
 
(e)           Material Adverse Effects.  The occurrence of any act, omission,
change or event (including the commencement or written threat of any proceedings
by or against Borrower in any Federal, state or local court, or before any
Governmental Authority, or before any arbitrator), that has, or would reasonably
be expected to have, a Material Adverse Effect, subsequent to the date of the
most recent audited financial statements of Borrower delivered to Lender
pursuant to Section 8.03;
 
(f)           Accounting Changes.  Any material change in Borrower’s accounting
policies or financial reporting practices;
 

 
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(g)           Legal and Regulatory Status.  The occurrence of any act, omission,
change or event, including any Governmental Approval, the result of which is to
change or alter in any material way the legal or regulatory status of Borrower
or Operator;
 
(h)           Change in Senior Management.  Any change in the identity of Senior
Management; and
 
(i)           Legal Proceedings.  The commencement or written threat of, or
amendment to, any proceedings by or against Borrower or any Operator in any
Federal, state or local court or before any Governmental Authority, or before
any arbitrator, which, if adversely determined, would have, or at the time of
determination may reasonably be expected to have, a Material Adverse Effect.
 
 
Section 8.08.   Compliance with Applicable Law.

 
Each Borrower shall comply and shall cause the Operator to comply in all
material respects with all Applicable Laws now or hereafter affecting the
applicable Mortgaged Property or any part of such Mortgaged Property or
requiring any alterations, repairs or improvements to such Mortgaged
Property.  Each Borrower shall procure and continuously maintain or shall cause
the Operator to procure and maintain in full force and effect, and shall abide
by and satisfy or shall cause the Operator to abide by and satisfy all material
terms and conditions of all Permits and shall comply with all written notices
from Governmental Authorities with respect to its Mortgaged Property.  Each
Borrower shall comply and shall cause the Operator to comply in all material
respects with all requirements of insurance companies or similar organizations
which have provided insurance with respect to Borrower or its Mortgaged
Property, affecting the operation or use of such Mortgaged Property or the
consummation of the transactions to be effected by this Agreement or any of the
other Loan Documents.
 
 
Section 8.09.   Alterations to the Mortgaged Properties.  

 
(a)           Except as otherwise provided in the Completion/Repair and Security
Agreement and Replacement Reserve Agreement, each Borrower shall have the right
to undertake any alteration, improvement, demolition, removal or construction
(collectively, “Alterations”) to the Mortgaged Property which it owns without
the prior consent of Lender; provided, however, that in any case, no such
Alteration shall be made to any Mortgaged Property without the prior written
consent of Lender if (i) such Alteration could reasonably be expected to
adversely affect the value of such Mortgaged Property or its operation as a
Senior Housing Facility in substantially the same manner in which it is being
operated on the date such property became Collateral, (ii) the construction of
such Alteration could reasonably be expected to result in interference to the
occupancy of tenants of such Mortgaged Property such that tenants in occupancy
with respect to five percent (5%) or more of the Leases would be permitted to
terminate their Leases or to abate the payment of all or any portion of their
rent, or (iii) such Alteration will be completed in more than twelve (12) months
from the date of commencement or in the last year of the Term of this
Agreement.  Notwithstanding the foregoing, Borrower must obtain Lender’s prior
written consent to construct Alterations with respect to the Mortgaged Property
costing in excess of, with respect to any Mortgaged Property, the number of
units in such Mortgaged Property multiplied by $2,500, but in any event, costs
in excess of $250,000 and
 

 
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Borrower must give prior written notice to Lender of its intent to construct
Alterations with respect to such Mortgaged Property costing in excess of
$150,000; provided, however, that the preceding requirements shall not be
applicable to Alterations made, conducted or undertaken by Borrower as part of
Borrower’s routine maintenance and repair of the Mortgaged Properties as
required by the Loan Documents.
 
(b)           In the event Lender’s prior written consent is required pursuant
to Section 8.09(a), the requirements set forth on Schedule 2 shall apply to
Material Projects as defined on Schedule 2.  If an Alteration does not qualify
as a Material Project and Lender consent is required pursuant to Section
8.09(a), the requirements on Schedule 2 will not have to be satisfied.
 
(c)           Lender acknowledges that construction has commenced at Lodge at
Paulin Creek.  This Alteration is a Material Project.  Lender hereby consents to
the Material Project at Lodge at Paulin Creek as described on Schedule 3
attached hereto provided that Borrower complies with the requirements of
Schedule 2 as it relates to Lodge at Paulin Creek.
 
 
Section 8.10.   Loan Document Taxes.  

 
If any tax, assessment or Imposition (other than a franchise tax or excise tax
imposed on or measured by, the net income or capital (including branch profits
tax) of Lender (or any transferee or assignee thereof, including a participation
holder)) (“Loan Document Taxes”) is levied, assessed or charged by the United
States, or any State in the United States, or any political subdivision or
taxing authority thereof or therein upon any of the Loan Documents or the
obligations secured thereby, the interest of Lender in the Mortgaged Properties,
or Lender by reason of or as holder of the Loan Documents, Borrower shall pay
all such Loan Document Taxes to, for, or on account of Lender (or provide funds
to Lender for such payment, as the case may be) as they become due and payable
and shall promptly furnish proof of such payment to Lender, as applicable.  In
the event of passage of any law or regulation permitting, authorizing or
requiring such Loan Document Taxes to be levied, assessed or charged, which law
or regulation in the opinion of counsel to Lender may prohibit Borrower from
paying the Loan Document Taxes to or for Lender, Borrower shall enter into such
further instruments as may be permitted by law to obligate Borrower to pay such
Loan Document Taxes.
 
 
Section 8.11.   Further Assurances.

 
Borrower, at the request of Lender, shall execute and deliver and, if necessary,
file or record such statements, documents, agreements, UCC financing and
continuation statements and such other instruments and take such further action
as Lender from time to time may reasonably request as reasonably necessary,
desirable or proper to carry out more effectively the purposes of this Agreement
or any of the other Loan Documents or to subject the Collateral to the lien and
security interests of the Loan Documents or to evidence, perfect or otherwise
implement, to assure the lien and security interests intended by the terms of
the Loan Documents or in order to exercise or enforce its rights under the Loan
Documents.  Borrower hereby authorizes Lender to file any such financing
statement or continuation statement without the signature of such Borrower to
the extent permitted by law. If Lender believes that an “all-asset” collateral
description, as contemplated by Section 9-504(2) of the UCC, is appropriate as
to any Collateral

 
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under any Loan Document, the Lender is irrevocably authorized to use such a
collateral description, whether in one or more separate filings or as part of
the collateral description in a filing that particularly describes the
collateral.
 
 
Section 8.12.   Transfer of Ownership Interests in Borrower.

 
(a)           Prohibition on Transfers.  Subject to paragraph (b) of this
Section, Borrower shall not cause or permit, and shall cause Key Principal not
to cause or permit:
 
(i)           a Transfer as described in Paragraph (1) of the definition of
“Transfer”;
 
(ii)           a Change of Control;
 
(iii)           a Transfer or change in the holder of the Licenses authorizing
the Mortgaged Property to operate as a Seniors Housing Facility.
 
(b)           Permitted Transfers.  Notwithstanding the provisions of paragraph
(a) of this Section, the following Transfers are permitted without the consent
of Lender:
 
(i)           If Borrower, any Targeted Entity or Affiliate Operator is a
partnership or a joint venture, a Transfer or Transfers of no more than 49%,
individually or in the aggregate, of the limited partnership or joint venture
interests in Borrower, any Targeted Entity or Affiliate Operator; provided,
however, that no Change of Control occurs as a result of such Transfer.
 
(ii)           If Borrower, any Targeted Entity or Affiliate Operator is a
limited liability company, a corporation or any other entity (other than a
partnership or a joint venture), a Transfer or Transfers of no more than 49%,
individually or in the aggregate, of the Ownership Interests in Borrower, any
Targeted Entity or Affiliate Operator; provided, however, that no Change of
Control occurs as a result of such Transfer.
 
(iii)           A Transfer of Ownership Interests in Key Principal; provided,
however, that no Change of Control occurs as the result of such Transfer.
 
(iv)           The issuance by Key Principal of additional stock and the
subsequent Transfer of such stock; provided, however, that no Change of Control
occurs as a result of such Transfer.
 
(v)           A merger with or acquisition of another entity by Key Principal,
provided that (1) Key Principal is the surviving entity after such merger or
acquisition, (2) no Change of Control occurs, and (3) such merger or acquisition
does not result in an Event of Default, as such terms are defined in this
Agreement.
 
(vi)           A Transfer of any Ownership Interest in Borrower, any Targeted
Entity or Affiliate Operator to a Subsidiary of Key Principal.
 

 
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(vii)           Any reconstitution of Key Principal from one type of entity to
another type of entity or any amendment, modification or any other change in the
governing instrument or instruments of Key Principal; provided, however, that
(A) no Change of Control occurs as a result of any such Transfer, (B) the
decision-making powers and rights of the board of directors of Key Principal are
not eliminated, materially impaired or materially reduced as a result of such
Transfer (provided, however, that the creation of new committees of the board of
directors that are delegated certain powers and authority of the board of
directors will not be deemed to be an elimination, material impairment or
material reduction of the decision-making powers of the board of directors so
long as the board of directors controls the composition of such committees and
has the right to rescind any such delegation) and (C) the board of directors of
Key Principal continues to exist and Control the Key Principal.
 
 
Section 8.13.   Transfer of Ownership of Mortgaged Property.

 
(a)           Prohibition on Transfers.  Subject to paragraph (b) of this
Section, Borrower shall not cause or permit, and shall cause Key Principal not
to cause or permit, a Transfer as described in Paragraph (2) of the definition
of “Transfer.”
 
(b)           Permitted Transfers.  Notwithstanding provision (a) of this
Section, the following Transfers of a Mortgaged Property by Borrower or Key
Principal are permitted and, except as set forth in subsection (iv) of this
Section 8.13(b), shall not require the consent of Lender:
 
(i)           The grant of a leasehold interest or a life estate in, or the
execution of an entrance fee agreement with respect to, individual dwelling
units or commercial spaces in accordance with the Security Instrument.
 
(ii)           A sale or other disposition of obsolete or worn out personal
property that, to the extent necessary for, or beneficial to, the operations of
the Mortgaged Property,  is contemporaneously replaced by comparable personal
property of equal or greater value that is free and clear of liens, encumbrances
and security interests other than those created by the Loan Documents or
Permitted Liens.
 
(iii)           The creation of a tax lien or a mechanic's, materialman's, or
judgment lien against a Mortgaged Property which is bonded off, released of
record, or otherwise remedied to Lender's satisfaction within 45 days after
Borrower has actual or constructive notice of the existence of such lien.
 
(iv)           The grant of an easement if, prior to the granting of the
easement, Borrower causes to be submitted to Lender all information required by
Lender to evaluate the easement, and if Lender consents to such easement based
upon Lender’s determination that the easement will not materially adversely
affect the operation of such Mortgaged Property or Lender’s interest in such
Mortgaged Property and Borrower pays to Lender, on demand, all reasonable third
party out-of-pocket costs and expenses incurred by Lender in connection with
reviewing Borrower’s request.  Lender shall not unreasonably withhold its
consent to or withhold its agreement to subordinate the lien of the Applicable
Security Instrument to (1) the grant of a utility easement serving such
Mortgaged Property to a publicly operated utility, or (2) the grant
 

 
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of an easement related to expansion or widening of roadways, provided that any
such easement is in form and substance reasonably acceptable to Lender and does
not materially and adversely affect the access, use or marketability of such
Mortgaged Property.
 
(c)           Assumption of Collateral Pool.  Notwithstanding paragraph (a) of
this Section, a Transfer of the entire Collateral Pool may be permitted with the
prior written consent of Lender if each of the following requirements is
satisfied:
 
(i)           the transferee (“New Collateral Pool Borrower”) is a
Single-Purpose entity, is not directly or indirectly owned by and is not a
Prohibited Person and executes an assumption agreement that is acceptable to
Lender pursuant to which such New Collateral Pool Borrower assumes all
obligations of Borrower under all the applicable Loan Documents;
 
(ii)           the applicable Loan Documents shall be amended and restated as
deemed necessary or appropriate by Lender to meet the then-applicable
requirements of Fannie Mae; provided, however, any waivers granted in connection
with the execution and delivery of this Agreement and/or the Loan will not be
reinstated unless specifically approved by Lender and Fannie Mae;
 
(iii)           after giving effect to the assumption, the requirements of
Section 6.05 and the General Conditions contained in Section 6.01 shall be
satisfied;
 
(iv)           New Collateral Pool Borrower shall make such deposits to the
reserves or escrow funds established under the Loan Documents, including
replacement reserves, completion/repair reserves, and all other required escrow
and reserve funds at such times and in such amounts as determined by Lender at
the time of the assumption;
 
(v)           New Collateral Pool Borrower delivers any additional collateral,
guaranties of non-recourse obligations or other credit support to mitigate any
risks concerning the proposed New Collateral Pool Borrower or the performance or
condition of the Mortgaged Properties, as Lender may require;
 
(vi)           Lender shall be the servicer of the loan; and
 
(vii)           the requirements of Section 8.14 are satisfied.
 
 
Section 8.14.   Consent to Prohibited Transfers.  

 
(a)           Consent to Prohibited Transfers.  Lender may, in its sole and
absolute discretion, consent to a Transfer that would otherwise violate Sections
8.12 and 8.13 if, prior to the Transfer, Borrower or Key Principal, as the case
may be, has satisfied each of the following requirements:
 
(i)           the submission to Lender of all information required by Lender to
make the determination required by this Section;
 
(ii)           the absence of any Event of Default;
 

 
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(iii)           the transferee and any Key Principal is not directly or
indirectly owned by and is not a Prohibited Person and meets all of the
eligibility, credit, management and other standards (including any standards
with respect to previous relationships between Lender and the transferee and the
organization of the transferee) customarily applied by Lender at the time of the
proposed Transfer to the approval of borrowers or key principals, as the case
may be, in connection with the origination or purchase of similar mortgages,
deeds of trust or deeds to secure debt on Seniors Housing Facilities;
 
(iv)           in the case of a Transfer of direct or indirect ownership
interests in Borrower or Key Principal, as the case may be, if transferor or any
other person has obligations under any Loan Documents, the execution by the
transferee or one (1) or more individuals or entities acceptable to Lender
and/or Fannie Mae of an assumption agreement, and any other required loan
documents, as applicable, that is acceptable to Lender and that, among other
things, requires the transferee to perform all obligations of transferor or such
person set forth in such Loan Document, and may require that the transferee
comply with any provisions of this Agreement or any other Loan Document which
previously may have been waived by  Lender;
 
(v)           if an MBS execution is Outstanding, the Transfer shall not cause
any adverse consequences in the taxes or accounting of the trust pursuant to
which the MBS is issued as determined by Fannie Mae;
 
(vi)           Lender’s receipt of all of the following:
 
(A)           a transfer fee equal to one (1) percent of the unpaid Outstanding
principal balance of the Loan.
 
(B)           In addition, Borrower shall be required to reimburse Lender for
all of Lender’s reasonable out-of-pocket costs (including reasonable attorneys’
fees) incurred in reviewing the Transfer request.
 
(vii)           if any MBS is Outstanding, the Transfer shall not result in a
“significant modification,”  as defined under applicable Treasury Regulations,
of any Loan that has been securitized in an MBS.
 
 
Section 8.15.   Date-Down Endorsements.  

 
Before the release or substitution of a Mortgaged Property and at any time and
from time to time that Lender has reason to believe that an additional lien may
encumber a Mortgaged Property, Lender may obtain an endorsement to each Title
Insurance Policy containing a revolving credit endorsement, amending the
effective date of each such Title Insurance Policy to the date of the title
search performed in connection with the endorsement. Borrower shall pay for the
cost and expenses incurred by Lender to the Title Company in obtaining such
endorsement, provided that, for each Title Insurance Policy, it shall not be
liable to pay for more than one (1) such endorsement in any consecutive twelve
(12) month period.
 

 
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Section 8.16.   Ownership of Mortgaged Properties.

 
Each Borrower shall be the sole owner of each of its Mortgaged Property free and
clear of any Liens other than Permitted Liens.
 
 
Section 8.17.   Reserved.

 
 
Section 8.18.   Reserved.

 
 
Section 8.19.   Default Under or Discontinuance of  Any Operating Lease or
Management Agreement.

 
Within five Business Days of Borrower’s receipt, Borrower shall give Lender
written notice of any notice or information that Borrower receives which
indicates that either Borrower or Operator is in default under the terms of any
Operating Lease or Management Agreement, or that Operator is otherwise
discontinuing its operation and management of the Mortgaged Property.
 
 
Section 8.20.   Single Purpose Entity.

 
Each Borrower, each managing member or single member of a Borrower that is a
limited liability company, each general partner of a Borrower that is a limited
partnership and any entity which solely owns a Borrower that is a corporation
shall maintain itself as a Single-Purpose entity.
 
 
Section 8.21.   ERISA.

 
Each Borrower shall at all times remain in compliance in all material respects
with all applicable provisions of ERISA, if any, and shall not incur any
liability to the PBGC on a Plan under Title IV of ERISA.  No Borrower, nor any
member of the Controlled Group is or ever has been obligated to contribute to
any Multiemployer Plan.  The assets of each Borrower do not constitute plan
assets within the meaning of Department of Labor Regulation §2510.3-101 of any
employee benefit plan subject to Title I of ERISA.
 
 
Section 8.22.   Consents or Approvals.

 
Borrower shall obtain any required consent or approval of any creditor of
Borrower, any Governmental Authority or any other Person to perform its
obligations under this Agreement and any other Loan Documents.
 
 
Section 8.23.   Operator Security Deposits.

 
Borrower shall deposit any and all cash security deposits paid by the Operator
in accordance with the Operating Lease or Management Agreement into an account
designated by Lender.
 

 
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Section 8.24.   Operator Guaranty.

 
If at any time the obligations of an Operator under an Operating Lease or
Management Agreement are guaranteed pursuant to an Operator Guaranty, the
Borrower shall remit and shall cause Operator to remit any and all payments made
under the Operator Guaranty to Lender.  Borrower and Operator will cause each
Operator Guaranty to remain in full force and effect until the Loans under this
Agreement are paid in full.  Borrower will not suffer or permit a material
non-payment default under the Operator Guaranty.
 
 
Section 8.25.   Villas at Courtyard Post-Closing Obligations.

 
Within ninety (90) days after the Initial Closing Date, Borrower shall cause the
dry sprinkler system at the property known as Villas at Courtyard to be
converted to a wet sprinkler system in a manner satisfactory to Lender.
 
 
Section 8.26.   Oak Tree Villas Regulatory Agreement.

 
Borrower hereby represents and warrants that: (1) Borrower is in full compliance
with that certain Agreement dated June 3, 1987 by and between City of Scots
Valley and Borrower affecting the property known as Oak Tree Villas and (2)
while the City of Scots Valley does not provide Borrower with verbal or written
verification of compliance with the Agreement on an annual basis, it does
provide indications of non-compliance and has not done so for the most recent
annual period.  If at any time the City of Scots Valley does provide written
verification of compliance, Borrower covenants that it shall promptly provide
such verification to Lender.  Borrower further covenants that it shall promptly
notify Lender in writing of: (1) any notice of non-compliance, whether written
or verbal, (2) the cause of Borrower’s non-compliance, (3) Borrower’s plan for
remedying its non-compliance and (4) Borrower’s proposed time period for
achieving compliance.
 
 
Section 8.27.   No Other Regulatory Agreements.

 
Borrower hereby represents and warrants that, except for the Agreement set forth
in Section 8.26 of this Agreement relating to the property known as Oak Tree
Villas, no Mortgaged Property is subject to any regulatory agreement or other
similar agreement which imposes rental restrictions on the Mortgaged Property.
 
 
Section 8.28.   Oil, Gas and Mineral Reservations.

 
(a)           Borrower hereby represents and warrants that it has not been
contacted by or on behalf of the owner, lessee, holder or beneficiary of any
grant, reservation or lease of oil, gas or mineral rights affecting any
Mortgaged Property and is not aware of (without having conducted any inquiry)
any proposed exercise of such rights by or on behalf of such owner, lessee,
holder or beneficiary, except for the exercise of such rights at the Mortgaged
Properties known as Sterling House of Lewisville and Sterling House of
Youngstown.  Borrower covenants that it shall immediately notify Lender in
writing if it is so contacted or if it becomes aware of any proposed exercise of
such rights at any other Mortgaged Property.
 

 
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(b)           Borrower covenants that it shall not enter into, make, or consent
to any lease, sublease, license, grant, reservation, or any other form of
transfer of any oil, gas, or mineral rights (each, a “Mineral Rights
Conveyance”) with respect to any Mortgaged Property without the written consent
of Lender.  Borrower agrees to promptly notify Lender in writing in the event of
any damage to any Mortgaged Property as a result of or in any way relating to
the exercise of any right under a Mineral Rights Conveyance.
 
(c)           Borrower represents and warrants that, to Borrower’s knowledge,
there has been no Mineral Rights Conveyance with respect to the Mortgaged
Properties known as Sterling House of Corsicana, Sterling House of Lewisville,
Sterling House of Mansfield, Sterling House of Weatherford, Summit at Lakeway,
Summit at Northwest Hills, Hampton at Cypress Station, and Homewood Residence at
Castle Hills (each, a “Texas Mortgaged Property”) other than those instruments
specifically enumerated in the Title Insurance Policies delivered with respect
to Sterling House of Lewisville, Summit at Lakeway, and Hampton at Cypress
Station.  If in the judgment of Lender any material damage occurs to any Texas
Mortgaged Property or any improvements located thereon as a result of or in any
way relating to (i) the exercise of any right under a Mineral Rights Conveyance
that occurs on or before the Closing Date, or (ii) any subsidence arising from
the exercise of any rights under a Mineral Rights Conveyance, then Lender may
elect, in its sole and absolute discretion, to require Borrower to release such
Texas Mortgaged Property from the Collateral Pool in accordance with Section
3.04 of this Agreement (including, without limitation, payment of the Release
Price) within thirty (30) Business Days of written notice from Lender.
 
(d)           Borrower represents and warrants that, to Borrower’s knowledge,
there has been no Mineral Rights Conveyance with respect to the Mortgaged
Property known as Sterling House of Oklahoma City West (the “Oklahoma Mortgaged
Property”).  If in the judgment of Lender any material damage occurs to the
Oklahoma Mortgaged Property or any improvements located thereon as a result of
or in any way relating to the exercise of any rights arising from a Mineral
Rights Conveyance, then Lender may elect, in its sole and absolute discretion,
to require Borrower to release the Oklahoma Mortgaged Property from the
Collateral Pool in accordance with Section 3.04 of this Agreement (including,
without limitation, payment of the Release Price) within thirty (30) days
following Lender’s delivery of written notice of such election.
 
 
Section 8.29.   Sterling House of Lewisville and Sterling House of Youngstown
Exercise of Oil, Gas or Mineral Rights.

 
Borrower hereby represents and warrants that the exercise of oil, gas or mineral
rights at the Mortgaged Properties known as Sterling House of Lewisville and
Sterling House of Youngstown is (i) horizontal drilling and not drilling on the
surface of such Mortgaged Properties and (ii) not disruptive in any manner to
the use, operations or maintenance of such Mortgaged Properties.
 
 
Section 8.30.   Lodge at Paulin Creek Permits.

 
Borrower hereby represents and warrants that it has obtained any and all Permits
necessary for the Material Project at Lodge at Paulin Creek as described on
Schedule 3 attached hereto.
 

 
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Section 8.31.   Reserved.

 
 
Section 8.32.   Texas Licenses.

 
(a)           The Borrower represents and warrants as follows:
 
(i)           Borrower has filed with the appropriate Governmental Authorities
with respect to each of the Texas Mortgaged Properties all applications and
information that is required to transfer all Licenses with respect to such
Mortgaged Properties to each respective Texas Limited Liability Company
Borrower, effective retroactively to the Closing Date.
 
(ii)           Borrower has no reason to believe that any such application will
be denied or that any such License will be limited or qualified in any respect.
 
(iii)           Borrower expects all Licenses to be transferred within three
months of the Closing Date.
 
(iv)           Each Borrower and its Operator are legally authorized to operate
each Texas Mortgaged Property as a Senior Housing Facility between the Closing
Date and the transfer or date of issuance of new Licenses to each Texas Limited
Liability Company Borrower.
 
(b)           Within three (3) months of the Closing Date, Borrower shall cause
all Licenses relating to the operation of each of the Texas Mortgaged Properties
to be transferred to, or cause such Licenses to be issued or re-issued to, the
respective Texas Limited Liability Company Borrower of each such Texas Mortgaged
Property.  Each Texas Limited Liability Company Borrower shall hold in its name
all Licenses pertaining to the operation of the respective Texas Mortgaged
Property owned by such entity which are required to be held in such entity’s
name under Applicable Law and cooperate with Lender in effectuating these
transactions.  Borrower shall deliver copies of such licenses and customary
corporate and licensing legal opinions satisfactory to Lender promptly after
such Licenses are issued.
 
 
Section 8.33.   Zoning.

 
(a)           If (i) a condemnation or casualty occurs with respect to either of
the Mortgaged Properties known as Sterling House of Corsicana and Sterling House
of Panama City, and (ii) the improvements on either Mortgaged Property cannot be
reconstructed and operated as a Senior Housing Facility, pursuant to Applicable
Law, then Borrower will be obligated to release such Mortgaged Property from the
Collateral Pool in accordance with Section 3.04 of this Agreement (including,
without limitation, payment of the Release Price) within thirty (30) days of
such casualty or condemnation.

 
Section 8.34.   Utility Easements.

 
(a)           Reference is hereby made to (i) that Easement dated as of August
28, 1997 in favor of Florida Power & Light Company recorded in Book 1555 at page
1078 of the Charlotte County, Florida land records, which affects the Mortgaged
Property know as Sterling House at Port Charlotte, and (ii) that Property Line
Adjustment Survey for Nationwide Health Prop., Inc. dated May, 1996 recorded as
instrument number 96052856 in the Ada County, Idaho land

 
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records, which affects the Mortgaged Properties know as Wynwood at River Place
and Villas at River Place (collectively, the “Utility Easements”).  From and
after the Closing Date, Borrower shall use diligent, commercially reasonable
efforts to cause the Utility Easements to be amended, which amendments shall be
approved by Lender, in its reasonable discretion (each, an “Easement
Amendment”), to provide that:

 
 
(i)
the easement-holders and other beneficiaries of the Utility Easements may not
cause improvements comprising the Senior Living Facilities to be removed from
the easement areas established pursuant to the Utility Easements; and

 
 
(ii)
any damage to the improvements comprising the Senior Living Facilities caused by
the easement-holders and other beneficiaries of the Utility Easements arising
from the exercise of their rights pursuant to the Utility Easements shall be
promptly repaired to the state that existed prior to the occurrence of such
damage.

 
(b)           Borrower shall provide Lender with Monthly Progress Reports
describing the status of its efforts with respect to each of the Easement
Amendments, which Monthly Progress Report shall include, but shall not be
limited to, copies of correspondence with the applicable easement-holder or
beneficiary and such other information as Lender may reasonably request.  No
later than ten (10) Business Days following the execution of an Easement
Amendment, Borrower shall (i) deliver to Lender a copy of the same, along with
any additional information reasonably requested by Lender, and (ii) shall cause
the Easement Amendment to be recorded among the applicable land records.
 
(c)           If Borrower reasonably believes that the beneficiary or
easement-holder of a Utility Easement will not agree to an Easement Amendment
for a Mortgaged Property, then Borrower shall promptly notify Lender in
writing.  Lender may then elect, in its sole discretion, to either (i) waive the
requirements of clauses (a) and (b) above with respect to that Mortgaged
Property, or (ii) require the Borrower to request additional information or take
additional, reasonable steps described by Lender.  Borrower shall promptly, but
in no event later than the next Monthly Report, provide Lender with evidence
reasonably acceptable to Lender that it has requested such information or is
diligently pursuing such additional steps, as applicable until such time as
Lender elects to waive the requirements of clauses (a) and (b) above with
respect to the Mortgaged Property or until an Easement Amendment is executed and
delivered.
 
(d)           If (i) Borrower is unable to obtain an Easement Amendment with
respect to any of the Mortgaged Properties described therein, and (ii) in the
judgment of Lender any material damage to the improvements comprising the Senior
Living Facilities occurs as a result of or in any way relating to the exercise
of any rights under either of the Utility Easements, then Borrower will be
obligated to release such Mortgaged Property from the Collateral Pool in
accordance with Section 3.04 of this Agreement (including, without limitation,
payment of the Release Price) within ten (10) Business Days of written notice
from Lender.

 
Section 8.35.   Estoppel Certificates; SNDAs.

 
(a)           Reference is hereby made to the (i) Declaration of Covenants,
Conditions and Restrictions recorded among the land records of Orange County,
California in Book 14092 at

 
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page 1797 affecting the Mortgaged Property known as Inn at the Park, (ii)
Declaration of Covenants, Conditions, Restrictions and Property Owner’s
Association recorded among the land records of Alachua County, Florida in Book
1850 at page 2450 affecting the Mortgaged Properties known as Clare Bridge of
Gainesville and Sterling House of Gainesville, and (iii) restrictions recorded
among the map records of Harris County, Texas in Volume 336 at page 145
affecting the Mortgaged Property known as Hampton at Cypress Station
(collectively, the “Subject Instruments”).  Borrower hereby represents and
warrants that (1) to Borrower’s knowledge, no default has occurred under any of
the Subject Instruments and no event has occurred which, with the passage of
time or the giving of notice, or both, would constitute a default under any of
the Subject Instruments and (2) Borrower has not received any notice of
assessments or other notice requiring payment under any of the Subject
Instruments.
 
(b)           Reference is hereby made to that certain Building and Rooftop
Lease Agreement dated as of November 13, 2001 by and between ARC Northwest
Hills, L.P., a Tennessee limited partnership, and Nextel of Texas, Inc., a Texas
corporation, and that certain Building and Rooftop Lease Agreement dated as of
February 22, 2002 by and between ARC Northwest Hills, L.P., a Tennessee limited
partnership, and Dallas MTA, L.P., d/b/a Verizon Wireless (the “Verizon Lease”),
each affecting the Mortgaged Property known as Summit at Northwest Hills
(collectively, the “Subject Leases”).  Borrower hereby represents and warrants
that, to Borrower’s knowledge (1) each of the Subject Leases is valid and in
full force and effect on the date hereof and (2) no default has occurred under
either of the Subject Instruments and no event has occurred which, with the
passage of time or the giving of notice, or both, would constitute a default
under either of the Subject Instruments.
 
(c)           From and after the Closing Date, Borrower shall use diligent,
commercially reasonable efforts to obtain an estoppel certificate (collectively,
the “Tenant Estoppels”) and a subordination, non-disturbance and attornment
agreement (collectively, the “SNDAs”) from each of the tenant under the Verizon
Lease in a form reasonably acceptable to Lender.  No later than ten (10)
Business Days following the execution of a Tenant Estoppel or SNDA, Borrower
shall (i) deliver to Lender a copy of the same, along with any additional
information reasonably requested by Lender, and (ii) shall cause any SNDA to be
recorded among the applicable land records.
 
(d)           If Borrower reasonably believes that the tenant under the Verizon
Lease will not agree to a Tenant Estoppel or SNDA, then Borrower shall promptly
notify Lender in writing.  Lender may then elect, in its sole discretion, to
either (i) waive the requirements of clause (c) above with respect to such
Tenant Estoppel or SNDA, or (ii) require the Borrower to request additional
information or take additional, reasonable steps described by Lender.  Borrower
shall promptly provide Lender with evidence reasonably acceptable to Lender that
it has requested such information or is diligently pursuing such additional
steps, as applicable until such time as Lender elects to waive the requirements
of clause (c) above with respect to the Tenant Estoppel or SNDA or until the
Tenant Estoppel or SNDA is executed and delivered.
 
(e)           Reference is hereby made to that certain Lease, dated as of July
15, 1983, evidenced by that Short Form of Lease for Recordation, recorded August
8, 1983 as Instrument No. 83-911074 (the “Ground Lease”).  Borrower hereby
represents and warrants that (i) three of

 
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the four partners that comprise RSZ Partnership, a general partnership that is
the landlord under the Ground Lease (“Ground Lessor”), have executed an estoppel
certificate in a form approved by Lender (the “Ground Lessor Estoppel”), (ii)
the remaining partner in Ground Lessor has requested additional information and
has not executed the Ground Lessor Estoppel, (iii) the remaining partner in
Ground Lessor has not asserted to Borrower or its representatives that a default
has occurred under the Ground Lease or any other matter that is contrary to the
representations contained in the Ground Lessor Estoppel, and (iv) Tenant has
delivered to Lender a true copy of its correspondence with Landlord requesting
the Ground Lessor Estoppel.
 
(f)           From and after the Closing Date, Borrower shall use diligent,
commercially reasonable efforts to cause the remaining partner in Ground Lessor
to execute the Ground Lessor Estoppel; provided, however, that such efforts
shall not require Borrower to pay to Ground Lessor (or any partner comprising
Ground Lessor) any sums that are not required to be paid pursuant to the Ground
Lease.  No later than ten (10) Business Days following the execution of the
Ground Lessor Estoppel by the remaining partner in Ground Lessor, Borrower shall
deliver to Lender a copy of the same, along with any additional information
reasonably requested by Lender.
 
(g)           If Borrower reasonably believes that remaining partner in Ground
Lessor will not agree to execute the Ground Lessor Estoppel, then Borrower shall
promptly notify Lender in writing.  Lender may then elect, in its sole
discretion, to either (i) waive the requirements of clause (f) above, or (ii)
require the Borrower to request additional information or take additional,
reasonable steps described by Lender.  Borrower shall promptly provide Lender
with evidence reasonably acceptable to Lender that it has requested such
information or is diligently pursuing such additional steps, as applicable until
such time as Lender elects to waive the requirements of clause (f) above or
until the Ground Lessor Estoppel is executed and delivered.

 
Section 8.36.   Compliance Plan

 
(a)           Reference is hereby made to that certain Oak Tree Villa Facility
#445294156 Compliance Plan effective as of August 1, 2011 through July 31, 2013,
affecting the Mortgaged Property known as Oak Tree Villa (the “Compliance
Plan”).  Borrower hereby represents and warrants that (i) Borrower submitted the
Compliance Plan to the California Department of Social Services, Community Care
Licensing Department (the “DSS”) on July 27, 2011, (ii) the Compliance Plan
incorporates the requirements set forth in the Non-Compliance Conference of July
1, 2011, and (iii) Borrower has no knowledge of any reason why the DSS would
materially reject the Compliance Plan. 
 
(b)           From and after the Closing Date, Borrower shall use diligent,
commercially reasonable efforts to respond to any requests for modification of
the Compliance Plan required by the DSS, implement the Compliance Plan and any
supplemental requirements of the DSS related thereto and comply with the terms
thereof.  No later than ten (10) Business Days following receipt of any material
communication by the DSS with respect to the Compliance Plan, Borrower shall
deliver to Lender a copy of the same, along with any additional information
reasonably requested by Lender.

 
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Section 8.37.   Search Results.

 
No later than five (5) Business Days after the Closing Date, Borrower shall
deliver to Lender the results of the following searches (collectively, the
“Searches”) to be run against Brookdale Lakeway, LLC, Brookdale Northwest Hills,
LLC, Brookwood Cypress Station, LLC, and Brookwood Hills, LLC (collectively, the
“Texas Borrowers”): (i) petitions with the U.S. Bankruptcy court located in the
district of the Mortgaged Property owned by the applicable Texas Borrower, (ii)
litigation in the U.S. District Court located in the district of the Mortgaged
Property owned by the applicable Texas Borrower, (iii) federal and state tax
liens, fixture files, judgment liens, and litigation in the county where the
Mortgaged Property owned by the applicable Texas Borrower is located, (iv)
judgment liens and litigation in the county where the applicable Texas Borrower
resides or was formed, (v) litigation in the U.S. District Court located in the
district where the applicable Texas Borrower resides or was formed, and (vi)
Uniform Commercial Code financing statements with the Secretary of State in the
state where the applicable Texas Borrower was formed.  The results of the
searches and any matter disclosed thereby must be satisfactory to Lender.
 
 
Section 8.38.   Medicaid Pledge.

 
The pledge to the Lender of the Medicaid payments in the manner contemplated by
the Loan Documents does not violate the provisions of 42 U.S.C. §§ 1395g(c) or
1396a(a)(32) or the laws of the jurisdictions where the Mortgaged Properties are
located applicable to the reassignment of Medicaid payments.
 
ARTICLE 9
NEGATIVE COVENANTS OF BORROWER
 
Borrower agrees and covenants with Lender that, at all times during the Term of
this Agreement:
 
 
Section 9.01.   Other Activities.

 
(a)           No Targeted Entity shall amend its Organizational Documents in any
material respect, including without limitation the allocation of decision-making
rights among the members and partners, without the prior written consent of
Lender;
 
(b)           Reserved;
 
(c)           Reserved;
 
(d)           Borrower shall not use, or permit to be used, any Mortgaged
Property for any uses or purposes other than as a Seniors Housing Facility and
ancillary uses consistent with Seniors Housing Facilities including, without
limitation, therapy services.
 

 
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Section 9.02.   Liens.

 
Borrower shall not create, incur, assume or suffer to exist any Lien on
Borrower’s interest in any Mortgaged Property or any part of any Mortgaged
Property, except the Permitted Liens.
 
 
Section 9.03.   Indebtedness.

 
Borrower shall not incur or be obligated at any time with respect to any
Indebtedness (other than the Loan and any Permitted Indebtedness) in connection
with any of the Mortgaged Properties.  Neither Borrower nor any owner of
Borrower shall incur any “mezzanine debt,” issue any preferred equity or incur
any similar Indebtedness or equity with respect to any Mortgaged
Property.  Notwithstanding the foregoing, Borrower may receive an Intercompany
Loan,  provided that such Intercompany Loan is subordinated to the Loans and all
amounts owing under this Master Agreement or any other Loan Document in
accordance with the following provisions:
 
Key Principal or the applicable Affiliate making such Intercompany Loan must
irrevocably and unconditionally agree that all amounts payable from time to time
to Key Principal or such Affiliate in connection with any such Intercompany Loan
(the “Affiliate Subordinated Obligations”), and such rights, claims and
indebtedness, are deferred, postponed and fully subordinated in time and right
of payment to the prior payment, performance and satisfaction in full of all
obligations owing by any such Borrower under the Master Agreement or any other
Loan Documents (the “Senior Obligations”); provided, however, payments may be
received by Key Principal or the applicable Affiliate in accordance with, and
only in accordance with paragraph (b) below.
 
(b)           Until the Senior Obligations have been finally paid in full or
fully performed and the Loan Documents have been terminated, Key Principal and
any such Affiliate irrevocably and unconditionally agrees it will not ask,
demand, sue for, take or receive, directly or indirectly, by set-off,
redemption, purchase or in any other manner whatsoever, any payment with respect
to, or any security or guaranty for, the whole or any part of the Affiliate
Subordinated Obligations, and Key Principal and any such Affiliate agrees that
it will not receive any payment of any kind on account of the Affiliate
Subordinated Obligations, so long as any of the Senior Obligations are
outstanding or any of the terms and conditions of any of the Loan Documents are
in effect; provided, however, that, notwithstanding anything to the contrary
contained in this Agreement, if no Potential Event of Default or Event of
Default has occurred and is continuing under the Loan Documents then payments
may be received by Key Principal or the applicable Affiliate in respect of the
Affiliate Subordinated Obligations.  Except as aforesaid, Key Principal and the
applicable Affiliate agrees not to accept any payment or satisfaction of any
kind in respect of the Affiliate Subordinated Obligations and agrees to assign
such rights to Lender, including the right to file proofs of claim and to vote
thereon in connection with any case under the Bankruptcy Code, including the
right to vote on any plan of reorganization.  In the event that any payment on
account of Affiliate Subordinated Obligations is received by Key Principal or
the applicable Affiliate in violation of the foregoing, such payment is held in
trust for the benefit of Lender and, until the Senior Obligations have been
finally paid in full and all the Loan Documents have been terminated, is paid to
Lender for application to the Senior Obligations.
 

 
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Section 9.04.   Principal Place of Business.

 
Borrower shall not change its principal place of business, state of formation,
legal name or the location of its books and records, each as set forth in the
Certificate of Borrower, without first giving thirty (30) days’ prior written
notice to Lender.
 
 
Section 9.05.   Condominiums.

 
Borrower shall not submit any Mortgaged Property to a condominium regime during
the Term of this Agreement.
 
 
Section 9.06.   Restrictions on Distributions.

 
Borrower shall not make any distributions of any nature or kind whatsoever to
the owners of its Ownership Interests as such if, at the time of such
distribution, (i) a Potential Event of Default or an Event of Default has
occurred and remains uncured or (ii) a Bankruptcy Event has occurred with
respect to the owners of its Ownership Interests or Key Principal.
 
 
Section 9.07.   No Hedging Arrangements.

 
Without the prior written consent of Lender, or unless otherwise required or
permitted by the Pledge Interest Rate Cap Agreement, Borrower will not enter
into or guarantee, provide security for or otherwise undertake any form of
contingent obligation with respect to any Hedging Arrangement.
 
 
Section 9.08.   Confidentiality of Certain Information.  

 
Borrower shall not disclose any terms, conditions, underwriting requirements or
underwriting procedures of this Agreement or any of the Loan Documents;
provided, however, that such confidential information may be disclosed (A) as
required by law or pursuant to generally accepted accounting procedures, (B) to
officers, directors, employees, agents, partners, attorneys, accountants,
engineers and other consultants of Borrower or Key Principal who need to know
such information, provided such Persons are instructed to treat such information
confidentially, (C) to any regulatory authority having jurisdiction over a
Borrower, any Operator or Key Principal, (D) in connection with any filings of
Borrower or Key Principal with the Securities and Exchange Commission or other
Governmental Authorities, or (E) to any other Person to which such delivery or
disclosure may be necessary or appropriate (1) in compliance with any law, rule,
regulation or order applicable to a Borrower, or (2) in response to any subpoena
or other legal process or information investigative demand.  Borrower permits
Lender to disclose all financial and other information received from or on
behalf of Borrower to Fannie Mae in connection with the assignment of the Loan.
 
 
Section 9.09.   Changes to Licenses, Permits.

 
Borrower shall not and shall cause the Operator not to, without the prior
written consent of the Lender, amend, modify or otherwise change the Licenses or
Permits to add Skilled Nursing Units at any Mortgaged Property.
 

 
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Section 9.10.   Reserved.

 
 
Section 9.11.    Accounts.

 
Borrower agrees not to, without Lender’s prior written consent, (i) permit its
own funds to be deposited into any account (other than Key Principal’s
centralized cash management account) in which any Person has a security
interest, pledge, lien or right of set-off, or which is controlled in any manner
by any other Person (other than Lender); and (ii) allow or suffer any Operator
to deposit its own funds generated from or relating to any Mortgaged Property
into any account (other than Key Principal’s centralized cash management
account) in which any Person has a security interest, pledge, lien or right of
set-off, or which is controlled in any manner by any other Person (other than
Lender).  Borrower agrees to cause Key Principal not to allow any Person to have
a security interest, pledge, lien or right of set-off (other than for ordinary
course fees and charges with respect to the deposit account and settlement and
charge back rights of the depositary bank for returned checks) in Key
Principal’s centralized cash management account or to allow any other Person to
control such cash management account.
 
 
Section 9.12.   Change of Operator.

 
Borrower shall not transfer responsibility for the operation or management of
any Mortgaged Property to any other Person (the “Replacement Manager”) or enter
into an Operating Lease or Management Agreement without obtaining the prior
written consent of Lender, which consent shall be given in Lender’s sole
discretion; provided, however, that Lender’s prior written consent shall not be
required if Borrower transfers responsibility for the operation or management of
the applicable Mortgaged Property to an Affiliate thereof.  Prior to any such
transfer, Borrower shall be required to deliver to Lender a fully executed
Subordination, Assignment and Security Agreement, which shall be executed by
Borrower, the Replacement Manager, Lender and/or any other necessary party
thereto, and shall be in form and substance satisfactory to Lender.
 
 
Section 9.13.   Termination , Modification or Amendment  of Operating Lease or
Management Agreement.

 
Borrower shall not terminate, amend or modify any of the terms or provisions of
the Operating Lease or Management Agreement, without the prior written consent
of Lender.
 
 
Section 9.14.   Payments under Operating Lease or Management Agreement After
Default.

 
After Borrower receives notice (or otherwise has actual knowledge) of an Event
of Default, Borrower shall not make any payment under or pursuant to the
Operating Lease or Management Agreement without Lender’s prior written consent.
 

 
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ARTICLE 10
FEES
 
 
Section 10.01.   Origination Fees.

 
(a)           Origination Fee.  Borrower shall pay to Lender on or before the
Initial Closing Date an origination fee (“Initial Origination Fee”) equal to
$2,188,885.00.
 
(b)           Due Diligence Fees.
 
(i)           Initial Due Diligence Fees.  Borrower has paid to Lender
non-refundable due diligence fees (“Initial Due Diligence Fees”) with respect to
each Initial Mortgaged Property in an amount equal to $4,000 per Initial
Mortgaged Property.  All Initial Due Diligence Fees, third party costs and
out-of-pocket fees and expenses incurred by Lender and Fannie Mae shall be paid
by Borrower on the Initial Closing Date (or, if the proposed Initial Mortgaged
Properties do not become part of the Collateral Pool, on demand).  Any portion
of the Initial Due Diligence Fee paid to Lender not actually used by Lender to
cover reasonable due diligence expenses shall be promptly refunded to Borrower.
 
(ii)           Additional Due Diligence Fees for Additional Collateral. 
Borrower shall pay to Lender non-refundable additional due diligence fees (the
“Additional Collateral Due Diligence Fees”) with respect to each proposed
Additional Mortgaged Property or Substitute Mortgaged Property, as applicable,
in an amount equal to a $7,000.00 deposit per Additional Mortgaged Property or
Substitute Mortgaged Property, as applicable, which represents the estimated
cost for due diligence expenses.  All Additional Collateral Due Diligence Fees,
third party costs and out-of-pocket fees and expenses incurred by Lender and
Fannie Mae shall be paid by Borrower on the applicable Closing Date (or if the
relevant proposed Additional Mortgaged Property or Substitute Mortgaged
Property, as applicable, does not become part of a Collateral Pool, on demand)
for the Additional Mortgaged Property or Substitute Mortgaged Property, as
applicable.  Any portion of the Additional Collateral Due Diligence Fees paid to
Lender and not actually used by Lender to cover reasonable due diligence
expenses shall be promptly refunded to Borrower.
 
 
Section 10.02.   Legal Fees and Expenses.

 
(a)           Initial Legal Fees.  Borrower shall pay, or reimburse Lender for,
all reasonable out-of-pocket third party legal fees and expenses incurred by
Lender and by Fannie Mae in connection with the preparation, review and
negotiation of this Agreement and any other Loan Documents executed on the date
of this Agreement.
 
(b)           Fees and Expenses Associated with Requests.  Borrower shall pay,
or reimburse Lender for, all reasonable out-of-pocket third party costs and
expenses incurred by Lender, including the out-of-pocket legal fees and expenses
incurred by Lender in connection with the preparation, review and negotiation of
all documents, instruments and certificates to be executed and delivered in
connection with each Request, the performance by Lender of any of its
obligations with respect to the Request, the satisfaction of all conditions
precedent to Borrower’s rights or Lender’s obligations with respect to the
Request, and all transactions related to any of the foregoing, including the
cost of title insurance premiums and applicable recordation and
 

 
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transfer taxes and charges and all other reasonable costs and expenses in
connection with a Request.  The obligations of Borrower under this subsection
shall be absolute and unconditional, regardless of whether the transaction
requested in the Request actually occurs.  Borrower shall pay such costs and
expenses to Lender on the Closing Date for the Request (including any request
for an Additional Loan), or, as the case may be, after demand by Lender when
Lender determines that such Request will not close.
 
 
Section 10.03.   Failure to Close any Request.

 
If Borrower makes a Request and fails to close on the Request for any reason
other than the default by Lender, then Borrower shall pay to Lender and Fannie
Mae all actual damages incurred by Lender and Fannie Mae in connection with the
failure to close including, without limitation, any breakage costs and
reasonable attorney’s fees. 
 
ARTICLE 11
EVENTS OF DEFAULT
 
 
Section 11.01.   Events of Default.  

 
Each of the following events shall constitute an “Event of Default” under this
Agreement, whatever the reason for such event and whether it shall be voluntary
or involuntary, or within or without the control of Borrower or be effected by
operation of law or pursuant to any judgment or order of any court or any order,
rule or regulation of any Governmental Authority:
 
(a)           the occurrence of a default under any Loan Document beyond the
cure period, if any, set forth therein or an Event of Default under and as
defined in any Loan Document; or
 
(b)           the failure by Borrower to pay when due any amount payable by
Borrower under any Note, any Security Instrument, this Agreement or any other
Loan Document, including any fees, costs or expenses; or
 
(c)           the failure by Borrower to perform or observe any covenant
contained in Sections 8.02, 8.07, 8.12, 8.13, 8.14, 8.16, 8.19, 8.20, 8.21,
8.22, 8.23, 8.24, 8.25, 8.26, 8.28, 8.31, 8.32, 8.33, 8.34, 8.35, 8.36, 8.37 and
Article 9; or
 
(d)           any warranty, representation or other written statement made by or
on behalf of any Borrower or Key Principal contained in this Agreement, any
other Loan Document or in any instrument furnished in compliance with or in
reference to any of the foregoing, is false or misleading in any material
respect on any date when made or deemed made; or
 
(e)           (i)           any Targeted Entity shall (A) commence a voluntary
case (or, if applicable, or joint case) under any Chapter of the Bankruptcy Code
(as now or hereafter in effect) or otherwise, (B) file a petition seeking to
take advantage of any other laws, domestic or foreign, relating to bankruptcy,
insolvency, reorganization, debt adjustment, winding up or composition or
adjustment of debts, (C) consent to or fail to contest in a timely and
appropriate manner any petition filed against it in an involuntary case under
such bankruptcy laws or other
 

 
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laws, (D) apply for or consent to, or fail to contest in a timely and
appropriate manner, the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of a substantial part of
its property, domestic or foreign, (E) admit in writing its inability to pay, or
generally not be paying, its debts as they become due, (F) make a general
assignment for the benefit of creditors, (G) assert that any Borrower or any
guarantor (solely with respect to any guaranty given by such guarantor) has no
liability or obligations under this Agreement or any other Loan Document to
which it is a party; or (H) take any action for the purpose of effecting any of
the foregoing; or
 
(ii)           a case or other proceeding shall be commenced against any
Targeted Entity in any court of competent jurisdiction seeking (A) relief under
the Federal bankruptcy laws (as now or hereafter in effect) or under any other
laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization,
winding upon or composition or adjustment of debts, or (B) the appointment of a
trustee, receiver, custodian, liquidator or the like of any Targeted Entity or
of all or a substantial part of the property, domestic or foreign, of any
Targeted Entity and any such case or proceeding shall continue undismissed or
unstayed for a period of sixty (60) consecutive calendar days, or any order
granting the relief requested in any such case or proceeding against any
Targeted Entity (including an order for relief under such Federal bankruptcy
laws) shall be entered; or
 
(iii)           any Targeted Entity files an involuntary petition against
Borrower under any Chapter of the Bankruptcy Code or under any other bankruptcy,
insolvency, reorganization, arrangement or readjustment of debt, dissolution,
liquidation or similar proceeding relating to Borrower under the laws of any
jurisdiction.
 
(f)                      both (i) an involuntary petition under any Chapter of
the Bankruptcy Code is filed against Borrower or Borrower directly or indirectly
becomes the subject of any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, liquidation or similar proceeding relating to
it under the laws of any jurisdiction, or in equity, and (ii) any Targeted
Entity has acted in concert or conspired with such creditors of Borrower (other
than Lender) to cause the filing thereof.
 
(g)           if any provision of this Agreement or any other Loan Document or
the lien and security interest purported to be created hereunder or under any
Loan Document shall at any time for any reason cease to be valid and binding in
accordance with its terms on Borrower or Key Principal, or shall be declared to
be null and void, or the validity or enforceability hereof or thereof or the
validity or priority of the lien and security interest created hereunder or
under any other Loan Document shall be contested by any Targeted Entity seeking
to establish the invalidity or unenforceability hereof or thereof, or Borrower,
Key Principal or any guarantor (solely with respect to any guaranty given by
such guarantor) shall deny that it has any further liability or obligation
hereunder or thereunder; or
 
(h)           (i) the execution by Borrower of a chattel mortgage or other
security agreement on any materials, fixtures or articles used in the
construction or operation of the improvements located on any Mortgaged Property
or on articles of personal property located therein (other than in connection
with any Permitted Liens), or (ii) if any such materials, fixtures or articles
are purchased pursuant to any conditional sales contract or other security
agreement or
 

 
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otherwise so that the ownership thereof will not vest unconditionally in
Borrower free from encumbrances (other than in connection with Permitted Liens),
or (iii) if Borrower does not furnish to Lender upon request the contracts,
bills of sale, statements, receipted vouchers and agreements, or any of them,
under which Borrower claims title to such materials, fixtures, or articles; or
 
(i)           the failure by Borrower to comply with any requirement of any
Governmental Authority by the shorter of (A) the time period required by such
Governmental Authority and (B) within thirty (30) days after written notice of
such requirement shall have been given to Borrower by such Governmental
Authority; provided that, if action is commenced and diligently pursued by
Borrower within such thirty (30) days, then Borrower shall have an additional
thirty (30) days to comply with such requirement; or
 
(j)           a dissolution or liquidation for any reason (whether voluntary or
involuntary) of any Targeted Entity; or
 
(k)           any judgment against Borrower or Key Principal, any attachment or
other levy against any portion of Borrower’s or Key Principal’s assets with
respect to a claim or claims in an amount, in the case of Borrower, in excess of
$250,000 in the aggregate and, in the case of Key Principal, in excess of
$1,000,000 in the aggregate, remains unpaid, unstayed on appeal undischarged,
unbonded, not fully insured or undismissed for a period of ninety (90) days; or
 
(l)           reserved;
 
(m)           reserved;
 
(n)           reserved;
 
(o)           reserved;
 
(p)           reserved; or
 
(q)           the failure by Borrower or Key Principal or any guarantor to
perform or observe any material term, covenant, condition or agreement
hereunder, other than as contained in subsections (a) through (l) above, or in
any other Loan Document, within thirty (30) days after receipt of notice from
Lender identifying such failure, provided such period shall be extended for up
to thirty (30) additional days if Borrower, in the discretion of Lender, is
diligently pursuing a cure of such default within thirty (30) days after receipt
of notice from Lender.
 
Notwithstanding anything to the contrary herein or in any other Loan Document,
if an Event of Default shall occur hereunder or under any other Loan Document
because a representation, warranty, affirmative covenant, negative covenant or
other provision hereunder or thereunder shall be breached or violated that in
Lender’s sole and exclusive judgment is with respect to a particular Mortgaged
Property (other than any misappropriation of funds collected in respect thereof)
(each, a “Property-Specific Event of Default”), such Event of Default shall be
deemed cured if Borrower shall satisfy all of the conditions set forth in
Section 3.04 of this Agreement relating to the release of such Mortgaged
Property from the Collateral Pool within thirty (30) days of Borrower acquiring
knowledge of such Event of Default (the “Release Cure
 

 
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Period”). During the Release Cure Period, Lender agrees that it shall not have
the right to exercise the remedy set forth in Section 12.01(a) of this
Agreement; provided, however, that the foregoing shall not impair Lender’s right
to exercise the remedies set forth in Sections 12.01(c) and (d) of this
Agreement during such Release Cure Period.  If Lender shall elect to exercise
any such remedies during such period, and if Borrower releases such Mortgaged
Property pursuant to the provisions of Section 3.04 of this Agreement as
described in the preceding sentence and at the time of such release no other
Event of Default has occurred and is continuing, Lender shall cease exercising
such remedies with respect to the applicable Property-Specific Event of Default
and discontinue any proceedings it may have initiated in connection therewith,
and the parties shall be restored to their former positions and rights
hereunder; provided, however, that if Borrower shall fail to satisfy all of the
conditions set forth in Section 3.04 of this Agreement relating to the release
of such Mortgaged Property from the Collateral Pool during the Release Cure
Period, Lender may thereafter exercise any and all remedies available to it
under Article 12 of this Agreement, including, without limitation, the remedy
set forth in Section 12.01(a).
 
ARTICLE 12
REMEDIES
 
 
Section 12.01.   Remedies; Waivers.  

 
Upon the occurrence of an Event of Default, Lender may do any one or more of the
following (without presentment, protest or notice of protest, all of which are
expressly waived by Borrower):
 
(a)           by written notice to Borrower, to be effective upon dispatch,
terminate the Loan and declare the principal of, and interest on, the Loan and
all other sums owing by Borrower to Lender under any of the Loan Documents
forthwith due and payable, whereupon the Loan will terminate and the principal
of, and interest on, the Loan and all other sums owing by Borrower to Lender
under any of the Loan Documents will become forthwith due and payable.
 
(b)           accelerate any Note without needing to accelerate any other Note
and in the exercise of its rights and remedies under the Loan Documents, Lender
may, except as provided in this Agreement, exercise and perfect any and all of
its rights and remedies in and under the Loan Documents with regard to any
Mortgaged Property without needing to exercise and perfect its rights and
remedies with respect to any other Mortgaged Property, provided that any such
exercise shall be without regard to the Allocable Loan Amount assigned to such
Mortgaged Property and provided, further, that Lender may recover an amount
equal to the full amount outstanding in respect of any of the Notes in
connection with such exercise and any such amount shall be applied as determined
by Lender in its sole and absolute discretion.
 
(c)           Lender shall have the right to pursue any other remedies available
to it under any of the Loan Documents.
 
(d)           Lender shall have the right to pursue all remedies available to it
at law or in equity, including obtaining specific performance and injunctive
relief.
 

 
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Section 12.02.   Waivers; Rescission of Declaration.  

 
Lender shall have the right, to be exercised in its complete discretion, to
waive any breach hereunder (including the occurrence of an Event of Default), by
a writing setting forth the terms, conditions, and extent of such waiver signed
by Lender and delivered to Borrower.  Unless such writing expressly provides to
the contrary, any waiver so granted shall extend only to the specific event or
occurrence which gave rise to the waiver and not to any other similar event or
occurrence which occurs subsequent to the date of such waiver.  This provision
shall not be construed to permit the waiver of any condition to a Request
otherwise provided for herein.
 
 
Section 12.03.   Lender’s Right to Protect Collateral and Perform Covenants and
Other Obligations.  

 
If Borrower or Key Principal fails to perform the covenants and agreements
contained in this Agreement or any of the other Loan Documents, then Lender at
Lender’s option may make such appearances, disburse such sums and take such
action as Lender deems necessary, in its sole discretion, to protect Lender’s
interest, including (i) disbursement of reasonable attorneys’ fees, (ii) entry
upon the Mortgaged Property to make repairs and replacements, (iii) procurement
of satisfactory insurance as provided in Section 5 of the Security Instrument
encumbering the Mortgaged Property, and (iv) if the Security Instrument is on a
leasehold, exercise of any option to renew or extend the ground lease on behalf
of Borrower and the curing of any default of Borrower in the terms and
conditions of the ground lease.  Any amounts disbursed by Lender pursuant to
this Section, with interest thereon, shall become additional indebtedness of
Borrower secured by the Loan Documents.  Unless Borrower and Lender agree to
other terms of payment, such amounts shall be immediately due and payable and
shall bear interest from the date of disbursement at the weighted average, as
determined by Lender, of the interest rates in effect from time to time for the
Loan unless collection from Borrower of interest at such rate would be contrary
to Applicable Law, in which event such amounts shall bear interest at the
highest rate which may be collected from Borrower under Applicable Law.  Nothing
contained in this Section shall require Lender to incur any expense or take any
action hereunder.
 
 
Section 12.04.   No Remedy Exclusive.  

 
Unless otherwise expressly provided, no remedy herein conferred upon or reserved
is intended to be exclusive of any other available remedy, but each remedy shall
be cumulative and shall be in addition to other remedies given under the Loan
Documents or existing at law or in equity.
 
 
Section 12.05.   No Waiver.  

 
No delay or omission to exercise any right or power accruing under any Loan
Document upon the happening of any Event of Default or Potential Event of
Default shall impair any such right or power or shall be construed to be a
waiver thereof, but any such right and power may be exercised from time to time
and as often as may be deemed expedient.
 

 
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Section 12.06.   No Notice.  

 
To entitle Lender to exercise any remedy reserved to Lender in this Article, it
shall not be necessary to give any notice, other than such notice as may be
required under the applicable provisions of this Agreement or any of the other
Loan Documents.
 
ARTICLE 13
INSURANCE, REAL ESTATE TAXES AND REPLACEMENT RESERVES
 
 
Section 13.01.   Insurance and Real Estate Taxes.  

 
(a)           Insurance and Tax Escrow; Waiver.  Borrower shall establish funds
for taxes, insurance premiums and certain other charges for each Mortgaged
Property in accordance with Section 7(a) of the Security Instrument for each
Mortgaged Property.  Notwithstanding the foregoing, so long as no Event of
Default or Potential Event of Default has occurred, Lender hereby waives the
obligations of Borrower under Section 7(a) of each Security Instrument with
respect to the escrow of premiums for insurance (the “Required Insurance Escrow
Payments”).  During any period in which the obligation to pay the Required
Insurance Escrow Payments has been waived pursuant to this Section 13.01,
Borrower shall:  (i) pay insurance premiums with respect to the insurance policy
meeting the requirements of the Security Instrument for each Mortgaged Property,
(ii) send Lender invoices and paid receipts, or other documentation satisfactory
to Lender, evidencing payment of such insurance premiums on the earlier of (A)
the date that each such premium is due and payable and (B) thirty (30) days
prior to then current expiration date of the insurance policy, (iii) at least
fifteen (15) days prior to the expiration of an insurance policy, deliver or
shall cause any Operator to deliver to Lender the original (or a duplicate
original) of a renewal policy in form satisfactory to Lender, and (iv) include
all payments of insurance premiums and taxes in its quarterly and annual
property income and expense data.
 
(b)           Revocation of Waiver.  Lender’s waiver of the Required Insurance
Escrow Payments shall, at the option of Lender, be revoked upon the occurrence
of any of the following events:
 
(i)           the occurrence of an Event of Default or a Potential Event of
Default; or
 
(ii)           any Borrower shall fail to perform its obligations under Section
13.01(a).
 
(iii)           failure by any Borrower to (A) participate in a blanket
insurance policy that complies with Fannie Mae’s insurance requirements and (B)
annually furnish signed insurance binders to Lender within fifteen (15) days
prior to the insurance renewal date.
 
(c)           Upon Lender’s revocation of its waiver of the Required Escrow
Payments, Borrower’s obligations under Section 7(a) of each of the Security
Instruments shall immediately be reinstated.
 

 
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Section 13.02.   Replacement Reserves.  

 
Each Borrower shall execute the Replacement Reserve Agreement for the Mortgaged
Properties and shall (unless waived by Lender) make all deposits for replacement
reserves for its applicable Mortgaged Property in accordance with the terms of
the Replacement Reserve Agreement.
 
 
Section 13.03.   Completion/Repair Reserves.

 
Each Borrower shall execute the Completion/Repair and Security Agreement for the
Mortgaged Properties and shall (unless waived by Lender) make all deposits for
reserves for its applicable Mortgaged Property in accordance with the terms of
the Completion/Repair and Security Agreement.
 
ARTICLE 14
LIMITS ON PERSONAL LIABILITY
 
 
Section 14.01.   Personal Liability to Borrower.

 
Except as otherwise provided in this Article 14, Borrower shall have no personal
liability under the Loan Documents for the repayment of any Indebtedness or for
the performance of any other Obligations of Borrower under the Loan Documents,
and Lender’s only recourse for the satisfaction of the Indebtedness and the
performance of such Obligations shall be Lender’s exercise of its rights and
remedies with respect to the Mortgaged Properties and any other Collateral held
by Lender as security for the Indebtedness.
 
(a)           Exceptions to Limits on Personal Liability.  Borrower shall be
personally liable to Lender for the repayment of a portion of the Loan and other
amounts due under the Loan Documents equal to any loss, expense, cost, liability
or damage suffered by Lender as a result of or in any manner relating to (i)
failure of Borrower to pay to Lender upon demand after an Event of Default all
Rents to which Lender is entitled under Section 3(a) of the Security Instrument
encumbering the applicable Mortgaged Property and the amount of all security
deposits held by Borrower from tenants then in residence; (ii) failure of
Borrower to apply all insurance proceeds, condemnation proceeds or security
deposits from tenants as required by the Security Instrument encumbering the
Mortgaged Property; (iii) failure of such Borrower to comply with its
obligations under the Loan Documents with respect to the delivery of books and
records and financial statements; (iv) fraud or written material
misrepresentation by Borrower or any officer, director, partner, member or
employee of Borrower in connection with the application for or creation of the
Obligations or any request for any action or consent by Lender; (v) waste or
abandonment of a Mortgaged Property by Borrower; (vi) failure to apply Gross
Revenue, first, to the payment of reasonable Operating Expenses and then to
amounts (“Obligated Amounts”) payable or necessary to be paid to perform its
Obligations under the Loan Documents (except that Borrower will not be
personally liable (1) to the extent that Borrower lacks the legal right to
direct the disbursement of such sums because of a bankruptcy, receivership or
similar judicial proceeding, or (2) with respect to Gross Revenue of a Mortgaged
Property that are distributed in any Calendar Quarter if Borrower has paid all
Operating Expenses and Obligated Amounts for that Calendar Quarter); (vii) the
transfer or issuance of or
 

 
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failure to transfer or issue new Licenses to the Texas Limited Liability Company
Borrowers pursuant to Section 8.32(b); (viii) a violation of Section 8.28(c);
(ix) any damage to any Texas Mortgaged Property or any improvements located
thereon as a result of (i) the exercise of any right under a Mineral Rights
Conveyance that occurs on or before the Closing Date, or (ii) any subsidence
arising from the exercise of any rights under a Mineral Rights Conveyance; or
(x) any damage to any Oklahoma Mortgaged Property or any improvements located
thereon as a result of the exercise of any rights arising from a Mineral Rights
Conveyance.  Borrower shall also be personally liable to Lender for the payment
of the Release Price pursuant to Sections 8.28, 8.31, 8.33 or 8.34.
 
(b)           Full Recourse.  Borrower shall be personally liable to Lender for
the payment and performance of all Obligations upon the occurrence of any of the
following Events of Default: (i) failure of Borrower to maintain itself as a
Single-Purpose entity; or (ii) a Transfer that is not permitted under Section
8.12 or 8.13 of this Agreement; or (iii) a failure to satisfy any and all
indemnification obligations contained in Section 18 of any Security Instrument
or (iv) a Bankruptcy Event.
 
(c)           As used in this Subsection, the term “Bankruptcy Event” means any
one or more of the following events:
 
 
(A)
Any Borrower (i) commences a voluntary case (or, if applicable, a joint case)
under any chapter of the Bankruptcy Code or otherwise or consents to or fails to
contest in a timely and appropriate manner any petition filed against it in an
involuntary case under any chapter of the Bankruptcy Code or otherwise, (ii)
institutes (by petition, application, answer, consent or otherwise) any other
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to it under the laws of
any jurisdiction, (iii) makes a general assignment for the benefit of creditors,
(iv) applies for, consents to or acquiesces in the appointment of any receiver,
liquidator, custodian, sequestrator, trustee or similar officer for it or for
all or any substantial part of the Mortgaged Properties or (v) admits in writing
its inability to pay its debts generally as they mature.

 
 
(B)
Any Borrower, any Affiliate of Borrower, any Key Principal or any Affiliate of
Key Principal, files an involuntary petition against any Borrower under any
chapter of the Bankruptcy Code or under any other bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, dissolution, liquidation or
similar proceeding relating to Borrower under the laws of any jurisdiction.

 
 
(C)
Both (1) an involuntary petition under any chapter of the Bankruptcy Code is
filed against any Borrower, or any Borrower directly or indirectly becomes the
subject of any bankruptcy, insolvency, reorganization, arrangement, readjustment
of debt, dissolution, liquidation or similar proceeding relating to it under the
laws of any jurisdiction, or in equity, and (ii) any Borrower, any Affiliate of
Borrower, any Key Principal or any Affiliate of Key Principal has acted in
concert or conspired with such creditors of Borrower (other than Fannie Mae or
Lender) to cause the filing thereof.

 

 
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(d)           Miscellaneous.  To the extent that Borrower has personal liability
under this Section, or any guarantor has liability under any guaranty, such
liability shall be joint and several and Lender may exercise its rights against
Borrower personally without regard to whether Lender has exercised any rights
against the Mortgaged Property or any other security, or pursued any rights
against Key Principal or any guarantor, if applicable, or pursued any other
rights available to Lender under the Loan Documents or Applicable Law.  For
purposes of this Article, the term “Mortgaged Property” shall not include any
funds that (i) have been applied by Borrower as required or permitted by the
Loan Documents prior to the occurrence of an Event of Default, or (ii) are owned
by Borrower and which Borrower or any guarantor was unable to apply as required
or permitted by the Loan Documents because of a bankruptcy, receivership, or
similar judicial proceeding.
 
 
Section 14.02.   Additional Borrowers.

 
If the owner of an Additional Mortgaged Property or a Substitute Mortgaged
Property is an Additional Borrower, the owner of such Additional Mortgaged
Property or Substitute Mortgaged Property, as the case may be, must demonstrate
to the satisfaction of Lender that:
 
(i)           the Additional Borrower is a Single-Purpose entity; and
 
(ii)           the Additional Borrower is directly or indirectly wholly-owned by
Key Principal.
 
In addition, on the Closing Date of the addition of an Additional Mortgaged
Property or a Substitute Mortgaged Property, the owner of such Additional
Mortgaged Property or such Substitute Mortgaged Property, as the case may be, if
such owner is an Additional Borrower, shall become a party to the Contribution
Agreement in a manner satisfactory to Lender, shall deliver a Certificate of
Borrower in form and substance satisfactory to Lender, and in the case of an
addition of a Mortgaged Property execute and deliver, along with the other
Borrowers, Variable Loan Notes and/or Fixed Loan Notes and in the case of a
Substitution shall become a party to any Variable Loan Notes and/or Fixed Loan
Notes.  Any Additional Borrower of an Additional Mortgaged Property or a
Substitute Mortgaged Property, as the case may be, which becomes added to the
Collateral Pool shall be a Borrower for purposes of this Agreement and shall
execute and deliver to Lender an amendment adding such Additional Borrower as a
party to this Agreement and revising the Exhibits hereto, as applicable, to
reflect the Additional Mortgaged Property or Substitute Mortgaged Property and
Additional Borrower, in each case satisfactory to Lender.
 
Upon the release of a Mortgaged Property, the Borrower that owns such Release
Mortgaged Property shall automatically without further action be released from
its obligations under this Agreement and the other Loan Documents (unless such
Borrower owns any other Mortgaged Property) except for any liabilities or
obligations of such Borrower which arose prior to the Closing Date of such
release or for any provisions of this Agreement and the other Loan Documents
that are expressly stated to survive any release or termination.
 

 
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Section 14.03.    Borrower Agency Provisions.

 
(a)           Each Borrower shall irrevocably designate the Borrower Agent to be
its agent and in such capacity to receive on behalf of the Borrower all
proceeds, receive all notices on behalf of Borrower under this Agreement, make
all requests under this Agreement, and execute, deliver and receive all
instruments, certificates, requests, documents, writings and further assurances
now or hereafter required hereunder, on behalf of such Borrower, and hereby
authorizes the Lender to pay over all loan proceeds hereunder in accordance with
the request of the Borrower Agent.  Each Borrower hereby acknowledges that all
notices required to be delivered by Lender to any Borrower shall be delivered to
the Borrower Agent and thereby shall be deemed to have been received by such
Borrower.
 
(b)           The handling of this credit facility as a co-borrowing facility
with a Borrower Agent in the manner set forth in this Agreement is solely as an
accommodation to each of Borrower and Key Principal and is at their mutual
request.  Lender shall not incur liability to Borrower or Key Principal as a
result thereof.  To induce Lender to do so and in consideration thereof, each
Borrower hereby indemnifies the Lender and holds Lender harmless from and
against any and all liabilities, expenses, losses, damages and claims of damage
or injury asserted against Lender by any Person arising from or incurred by
reason of the Borrower Agent handling of the financing arrangements of Borrower
as provided herein, reliance by Lender on any request or instruction from
Borrower Agent or any other action taken by the Lender with respect to this
Section 14.03 except due to willful misconduct or gross negligence of the
indemnified party.
 
 
Section 14.04.   Joint and Several Obligation; Cross-Guaranty.

 
Notwithstanding anything contained in this Agreement or the other Loan Documents
to the contrary (but subject to the provisions of Section 14.01, the last
sentence of this Section 14.04 and the provisions of Section 14.11), each
Borrower shall have joint and several liability for all
Obligations.  Notwithstanding the intent of all of the parties to this Agreement
that all Obligations of each Borrower under this Agreement and the other Loan
Documents shall be joint and several Obligations of each Borrower, each
Borrower, on a joint and several basis, hereby irrevocably guarantees on a
non-recourse basis, subject to the exceptions to non-recourse provisions of
Section 14.01, to Lender and its successors and assigns, the full and prompt
payment (whether at stated maturity, by acceleration or otherwise) and
performance of, all Obligations owed or hereafter owing to Lender by each other
Borrower.  Each Borrower agrees that its non-recourse guaranty obligation
hereunder is an unconditional guaranty of payment and performance and not merely
a guaranty of collection.  The Obligations of each Borrower under this Agreement
shall not be subject to any counterclaim, set-off, recoupment, deduction,
cross-claim or defense based upon any claim any Borrower may have against Lender
or any other Borrower; provided, however, that upon the release of a Mortgaged
Property, the Borrower which owns such Release Mortgaged Property shall
automatically without further action be released from its obligations under this
Agreement and the other Loan Documents, except for any liabilities or
obligations of such Borrower which arose prior to the Closing Date of such
release or for any provisions of this Agreement and the other Loan Documents
that are expressly stated to survive any release or termination.
 

 
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Section 14.05.    Waivers With Respect to Other Borrower Secured Obligation.

 
To the extent that a Security Instrument or any other Loan Document executed by
one Borrower secures an Obligation of another Borrower (the “Other Borrower
Secured Obligation”), and/or to the extent that a Borrower has guaranteed the
debt of another Borrower pursuant to Article 14, Borrower who executed such Loan
Document and/or guaranteed such debt (the “Waiving Borrower”) hereby agrees as
follows:
 
(a)           The Waiving Borrower hereby waives any right it may now or
hereafter have to require the beneficiary, assignee or other secured party under
such Loan Document, as a condition to the exercise of any remedy or other right
against it thereunder or under any other Loan Document executed by the Waiving
Borrower in connection with the Other Borrower Secured Obligation: (i) to
proceed against the other Borrower or any other person, or against any other
collateral assigned to Lender by either Borrower or any other person; (ii) to
pursue any other right or remedy in Lender’s power; (iii) to give notice of the
time, place or terms of any public or private sale of real or personal property
collateral assigned to Lender by the other Borrower or any other person (other
than the Waiving Borrower), or otherwise to comply with Section 9615 of the
California Commercial Code (as modified or recodified from time to time) with
respect to any such personal property collateral located in the State of
California; or (iv) to make or give (except as otherwise expressly provided in
the Security Documents) any presentment, demand, protest, notice of dishonor,
notice of protest or other demand or notice of any kind in connection with the
Other Borrower Secured Obligation or any collateral (other than the Collateral
described in such Security Document) for the Other Borrower Secured Obligation.
 
(b)           The Waiving Borrower hereby waives any defense it may now or
hereafter have that relates to: (i) any disability or other defense of the other
Borrower or any other person; (ii) the cessation, from any cause other than full
performance, of the Other Borrower Secured Obligation; (iii) the application of
the proceeds of the Other Borrower Secured Obligation, by the other Borrower or
any other person, for purposes other than the purposes represented to the
Waiving Borrower by the other Borrower or otherwise intended or understood by
the Waiving Borrower or the other Borrower; (iv) any act or omission by Lender
which directly or indirectly results in or contributes to the release of the
other Borrower or any other person or any collateral for any Other Borrower
Secured Obligation; (v) the unenforceability or invalidity of any Security
Document or Loan Document (other than the Security Instrument executed by the
Waiving Borrower that secures the Other Borrower Secured Obligation) or guaranty
with respect to any Other Borrower Secured Obligation, or the lack of perfection
or continuing perfection or lack of priority of any Lien (other than the Lien of
such Security Instrument) which secures any Other Borrower Secured Obligation;
(vi) any failure of Lender to marshal assets in favor of the Waiving Borrower or
any other person; (vii) any modification of any Other Borrower Secured
Obligation, including any renewal, extension, acceleration or increase in
interest rate; (viii) any and all rights and defenses arising out of an election
of remedies by Lender, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for a guaranteed obligation,
has destroyed the Waiving Borrower’s rights of subrogation and reimbursement
against the principal by the operation of Section 580d of the California Code of
Civil Procedure or otherwise; (ix) any law which provides that the obligation of
a surety or a guarantor must neither be larger in amount nor in other respects
more burdensome than that of the principal or which reduces a surety’s or
guarantor’s obligation in proportion to the principal obligation; (x)
 

 
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any failure of Lender to file or enforce a claim in any bankruptcy or other
proceeding with respect to any person; (xi) the election by Lender, in any
bankruptcy proceeding of any person, of the application or non-application of
Section 1111(b)(2) of the Bankruptcy Code; (xii) any extension of credit or the
grant of any lien under Section 364 of the Bankruptcy Code; (xiii) any use of
cash collateral under Section 363 of the Bankruptcy Code; or (xiv) any agreement
or stipulation with respect to the provision of adequate protection in any
bankruptcy proceeding of any person.  The Waiving Borrower further waives any
and all rights and defenses that it may have because the Other Borrower Secured
Obligation is secured by real property; this means, among other things,
that:  (A) Lender may collect from the Waiving Borrower without first
foreclosing on any real or personal property collateral pledged by the other
Borrower; (B) if Lender forecloses on any real property collateral pledged by
the other Borrower, then (1) the amount of the Other Borrower Secured Obligation
may be reduced only by the price for which that collateral is sold at the
foreclosure sale, even if the collateral is worth more than the sale price, and
(2) Lender may foreclose on the real property encumbered by the Security
Instrument executed by the Waiving Borrower and securing the Other Borrower
Secured Obligation even if Lender, by foreclosing on the real property
collateral of the Other Borrower, has destroyed any right the Waiving Borrower
may have to collect from the Other Borrower.  Subject to the last sentence of
Section 14.04, the foregoing sentence is an unconditional and irrevocable waiver
of any rights and defenses the Waiving Borrower may have because the Other
Borrower Secured Obligation is secured by real property.  These rights and
defenses being waived by the Waiving Borrower include, but are not limited to,
any rights or defenses based upon Section 580a, 580b, 580d or 726 of the
California Code of Civil Procedure.  Without limiting the generality of the
foregoing or any other provision hereof, the Waiving Borrower further expressly
waives, except as provided in Section 14.05(g) below, to the extent permitted by
law any and all rights and defenses that might otherwise be available to it
under California Civil Code Sections 2787 to 2855, inclusive, 2899 and 3433, or
under California Code of Civil Procedure Sections 580a, 580b, 580d and 726, or
any of such sections.
 
(c)           The Waiving Borrower hereby waives any and all benefits and
defenses under California Civil Code Section 2810 and agrees that by doing so
the Security Instrument executed by the Waiving Borrower and securing the Other
Borrower Secured Obligation shall be and remain in full force and effect even if
the other Borrower had no liability at the time of incurring the Other Borrower
Secured Obligation, or thereafter ceases to be liable.  The Waiving Borrower
hereby waives any and all benefits and defenses under California Civil Code
Section 2809 and agrees that by doing so the Waiving Borrower’s liability may be
larger in amount and more burdensome than that of the other Borrower.  The
Waiving Borrower hereby waives the benefit of all principles or provisions of
law that are or might be in conflict with the terms of any of its waivers, and
agrees that the Waiving Borrower’s waivers shall not be affected by any
circumstances that might otherwise constitute a legal or equitable discharge of
a surety or a guarantor.  The Waiving Borrower hereby waives the benefits of any
right of discharge and all other rights under any and all statutes or other laws
relating to guarantors or sureties, to the fullest extent permitted by law,
diligence in collecting the Other Borrower Secured Obligation, presentment,
demand for payment, protest, all notices with respect to the Other Borrower
Secured Obligation that may be required by statute, rule of law or otherwise to
preserve Lender’s rights against the Waiving Borrower hereunder, including
notice of acceptance, notice of any amendment of the Loan Documents evidencing
the Other Borrower Secured Obligation, notice of the occurrence of any default
or Event of Default, notice of intent to accelerate, notice of
 

 
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acceleration, notice of dishonor, notice of foreclosure, notice of protest,
notice of the incurring by the other Borrower of any obligation or indebtedness
and all rights to require Lender to (i) proceed against the other Borrower, (ii)
proceed against any general partner of the other Borrower, (iii) proceed against
or exhaust any collateral held by Lender to secure the Other Borrower Secured
Obligation, or (iv) if the other Borrower is a partnership, pursue any other
remedy it may have against the other Borrower, or any general partner of the
other Borrower, including any and all benefits under California Civil Code
Sections 2845, 2849 and 2850.
 
(d)           The Waiving Borrower understands that the exercise by Lender of
certain rights and remedies contained in a Security Instrument executed by the
Other Borrower (such as a nonjudicial foreclosure sale) may affect or eliminate
the Waiving Borrower’s right of subrogation against the Other Borrower and that
the Waiving Borrower may therefore incur a partially or totally nonreimburseable
liability.  Nevertheless, the Waiving Borrower hereby authorizes and empowers
Lender to exercise, in its sole and absolute discretion, any right or remedy, or
any combination thereof, that may then be available, since it is the intent and
purpose of the Waiving Borrower that its waivers shall be absolute, independent
and unconditional under any and all circumstances.
 
(e)           In accordance with Section 2856 of the California Civil Code, the
Waiving Borrower also waives any right or defense based upon an election of
remedies by Lender, even though such election (e.g., nonjudicial foreclosure
with respect to any collateral held by Lender to secure repayment of the Other
Borrower Secured Obligation) destroys or otherwise impairs the subrogation
rights of the Waiving Borrower to any right to proceed against the other
Borrower for reimbursement, or both, by operation of Section 580d of the
California Code of Civil Procedure or otherwise.
 
(f)           Subject to the last sentence of Section 14.04, in accordance with
Section 2856 of the California Civil Code, the Waiving Borrower waives any and
all other rights and defenses available to the Waiving Borrower by reason of
Sections 2787 through 2855, inclusive, of the California Civil Code, including
any and all rights or defenses the Waiving Borrower may have by reason of
protection afforded to the other Borrower with respect to the Other Borrower
Secured Obligation pursuant to the antideficiency or other laws of the State of
California limiting or discharging the Other Borrower Secured Obligation,
including Sections 580a, 580b, 580d, and 726 of the California Code of Civil
Procedure.
 
(g)           In accordance with Section 2856 of the California Civil Code and
pursuant to any other Applicable Law, the Waiving Borrower agrees to withhold
the exercise of any and all subrogation, contribution and reimbursement rights
against Borrower, against any other person, and against any collateral or
security for the Other Borrower Secured Obligation, including any such rights
pursuant to Sections 2847 and 2848 of the California Civil Code, until the Other
Borrower Secured Obligation has been indefeasibly paid and satisfied in full,
all obligations owed to Lender under the Loan Documents have been fully
performed, and Lender has released, transferred or disposed of all of its right,
title and interest in such collateral or security.
 
(h)           Each Borrower hereby irrevocably and unconditionally agrees that,
notwithstanding Section 14.05(g) hereof, in the event, and to the extent, that
its agreement and
 

 
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waiver set forth in Section 14.05(g) is found by a court of competent
jurisdiction to be void or voidable for any reason and such Borrower has any
subrogation or other rights against any other Borrower, any such claims, direct
or indirect, that such Borrower may have by subrogation rights or other form of
reimbursement, contribution or indemnity, against any other Borrower or to any
security or any such Borrower, shall be, and such rights, claims and
indebtedness are hereby, deferred, postponed and fully subordinated in time and
right of payment to the prior payment, performance and satisfaction in full of
the Obligations.  Until payment and performance in full with interest (including
post-petition interest in any case under any chapter of the Bankruptcy Code) of
the Obligations, each Borrower agrees not to accept any payment or satisfaction
of any kind of Indebtedness of any other Borrower in respect of any such
subrogation rights arising by virtue of payments made pursuant to this Article
14, and hereby assigns such rights or indebtedness to Lender, including (i) the
right to file proofs of claim and to vote thereon in connection with any case
under any chapter of the Bankruptcy Code and (ii) the right to vote on any plan
of reorganization.  In the event that any payment on account of any such
subrogation rights shall be received by any Borrower in violation of the
foregoing, such payment shall be held in trust for the benefit of Lender, and
any amount so collected should be turned over to Lender for application to the
Obligations.
 
(i)           At any time without notice to the Waiving Borrower, and without
affecting or prejudicing the right of Lender to proceed against the Collateral
described in any Loan Document executed by the Waiving Borrower and securing the
Other Borrower Secured Obligation, (i) the time for payment of the principal of
or interest on, or the performance of, the Other Borrower Secured Obligation may
be extended or the Other Borrower Secured Obligation may be renewed in whole or
in part; (ii) the time for the other Borrower’s performance of or compliance
with any covenant or agreement contained in the Loan Documents evidencing the
Other Borrower Secured Obligation, whether presently existing or hereinafter
entered into, may be extended or such performance or compliance may be waived;
(iii) the maturity of the Other Borrower Secured Obligation may be accelerated
as provided in the related Note or any other related Loan Document; (iv) the
related Note or any other related Loan Document may be modified or amended by
Lender and the Other Borrower in any respect, including an increase in the
principal amount; and (v) any security for the Other Borrower Secured Obligation
may be modified, exchanged, surrendered or otherwise dealt with or additional
security may be pledged or mortgaged for the Other Borrower Secured Obligation.
 
(j)           It is agreed among each Borrower and Lender that all of the
foregoing waivers are of the essence of the transaction contemplated by this
Agreement and the Loan Documents and that but for the provisions of this Article
14 and such waivers Lender would decline to enter into this Agreement.
 
 
Section 14.06.    No Impairment.

 
Each Borrower agrees that the provisions of this Article 14 are for the benefit
of Lender and their successors, transferees, endorsees and assigns, and nothing
herein contained shall impair, as between any other Borrower and Lender, the
obligations of such other Borrower under the Loan Documents.
 

 
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Section 14.07.   Election of Remedies.

 
(a)           Lender, in its discretion, may (a) subject to Section 14.01, bring
suit against any one or more Borrowers, jointly and severally, without any
requirement that Lender first proceed against any other Borrower or any other
Person; (b) compromise or settle with any one or more Borrowers, or any other
Person, for such consideration as Lender may deem proper; (c) release one or
more Borrowers, or any other Person, from liability; and (d) otherwise deal with
any Borrower and any other Person, or any one or more of them, in any manner, or
resort to any of the Collateral at any time held by it for performance of the
Obligations or any other source or means of obtaining payment of the
Obligations, and no such action shall impair the rights of Lender to collect
from any Borrower any amount guaranteed by any Borrower under this Article 14.
 
(b)           If, in the exercise of any of its rights and remedies, Lender
shall forfeit any of its rights or remedies, including its rights to enter a
deficiency judgment against any Borrower or any other Person, whether because of
any Applicable Law pertaining to “election of remedies” or the like, each
Borrower hereby consents to such action by Lender and waives any claim based
upon such action, even if such action by Lender shall result in a full or
partial loss of any rights of subrogation that each Borrower might otherwise
have had but for such action by Lender.  Any election of remedies that results
in the denial or impairment of the right of Lender to seek a deficiency judgment
against any Borrower shall not impair any other Borrower’s obligation to pay the
full amount of the Obligations.  In the event Lender shall bid at any
foreclosure or trustee’s sale or at any private sale permitted by law or any of
the Loan Documents, Lender may bid all or less than the amount of the
Obligations and the amount of such bid need not be paid by Lender but shall be
credited against the Obligations.  The amount of the successful bid at any such
sale, whether Lender or any other party is the successful bidder, shall be
conclusively deemed to be fair market value of the Collateral and the difference
between such bid amount and the remaining balance of the Obligations shall be
conclusively deemed to be amount of the Obligations guaranteed under this
Article 14, notwithstanding that any present or future law or court decision or
ruling may have the effect of reducing the amount of any deficiency claim to
which Lender might otherwise be entitled but for such bidding at any such sale.
 
 
Section 14.08.   Subordination of Other Obligations.  

 
(a)           Each Borrower hereby irrevocably and unconditionally agrees that
all amounts payable from time to time to such Borrower by any other Borrower
pursuant to any agreement, whether secured or unsecured, whether of principal,
interest or otherwise, other than the amounts referred to in this Article 14
(collectively, the “Subordinated Obligations”), shall be and such rights, claims
and indebtedness are, hereby deferred, postponed and fully subordinated in time
and right of payment to the prior payment, performance and satisfaction in full
of the Obligations; provided, however, that payments may be received by any
Borrower in accordance with, and only in accordance with, the provisions of
Section 14.08 (b) hereof.
 
(b)           Until the Obligations under all the Loan Documents have been
finally paid in full or fully performed and all the Loan Documents have been
terminated, each Borrower irrevocably and unconditionally agrees it will not
ask, demand, sue for, take or receive, directly or indirectly, by set-off,
redemption, purchase or in any other manner whatsoever, any payment
 

 
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with respect to, or any security or guaranty for, the whole or any part of the
Subordinated Obligations, and in issuing documents, instruments or agreements of
any kind evidencing the Subordinated Obligations, each Borrower hereby agrees
that it will not receive any payment of any kind on account of the Subordinated
Obligations, so long as any of the Obligations under all the Loan Documents are
outstanding or any of the terms and conditions of any of the Loan Documents are
in effect; provided, however, that, notwithstanding anything to the contrary
contained herein, if no Potential Event of Default or Event of Default has
occurred and is continuing under any of the Loan Documents, then payments may be
received by such Borrower in respect of the Subordinated Obligations in
accordance with the stated terms thereof.  Except as aforesaid, each Borrower
agrees not to accept any payment or satisfaction of any kind of indebtedness of
any other Borrower in respect of the Subordinated Obligations and hereby assigns
such rights or indebtedness to Fannie Mae, including the right to file proofs of
claim and to vote thereon in connection with any case under any chapter of the
Bankruptcy Code, including the right to vote on any plan of reorganization.  In
the event that any payment on account of Subordinated Obligations shall be
received by any Borrower in violation of the foregoing, such payment shall be
held in trust for the benefit of Lender, and any amount so collected shall be
turned over to Lender upon demand.
 
 
Section 14.09.   Insolvency and Liability of Other Borrower.  

 
So long as any of the Obligations are outstanding, if a petition under any
chapter of the Bankruptcy Code is filed by or against any Borrower (the “Subject
Borrower”), each other Borrower (each, an “Other Borrower”) agrees to file all
claims against the Subject Borrower in any bankruptcy or other proceeding in
which the filing of claims is required by law in connection with indebtedness
owed by the Subject Borrower and to assign to Lender all rights thereunder up to
the amount of such indebtedness.  In all such cases, the Person or Persons
authorized to pay such claims shall pay to Lender the full amount thereof and
Lender agrees to pay such Other Borrower any amounts received in excess of the
amount necessary to pay the Obligations.  Each Other Borrower hereby assigns to
Lender all of such Other Borrower’s rights to all such payments to which such
Other Borrower would otherwise be entitled but not to exceed the full amount of
the Obligations.  In the event that, notwithstanding the foregoing, any such
payment shall be received by any Other Borrower before the Obligations shall
have been finally paid in full, such payment shall be held in trust for the
benefit of and shall be paid over to Lender upon demand.  Furthermore,
notwithstanding the foregoing, the liability of each Borrower hereunder shall in
no way be affected by:
 
(a)           the release or discharge of any other Borrower in any creditors’,
receivership, bankruptcy or other proceedings; or
 
(b)           the impairment, limitation or modification of the liability of any
other Borrower or the estate of any other Borrower in bankruptcy resulting from
the operation of any present or future provisions of any chapter of the
Bankruptcy Code or other statute or from the decision in any court.
 

 
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Section 14.10.   Preferences, Fraudulent Conveyances, Etc.   

 
If Lender is required to refund, or voluntarily refunds, any payment received
from any Borrower because such payment is or may be avoided, invalidated,
declared fraudulent, set aside or determined to be void or voidable as a
preference, fraudulent conveyance, impermissible setoff or a diversion of trust
funds under the bankruptcy laws or for any similar reason, including without
limitation any judgment, order or decree of any court or administrative body
having jurisdiction over any Borrower or any of its property, or upon or as a
result of the appointment of a receiver, intervenor, custodian or conservator
of, or trustee or similar officer for, any Borrower or any substantial part of
its property, or otherwise, or any statement or compromise of any claim effected
by Lender with any Borrower or any other claimant (a “Rescinded Payment”), then
each other Borrower’s liability to Lender shall continue in full force and
effect, or each other Borrower’s liability to Lender shall be reinstated and
renewed, as the case may be, with the same effect and to the same extent as if
the Rescinded Payment had not been received by Lender, notwithstanding the
cancellation or termination of any of the Loan Documents, and regardless of
whether Lender contested the order requiring the return of such payment.  In
addition, each other Borrower shall pay, or reimburse Lender for, all expenses
(including all reasonable attorneys’ fees, court costs and related
disbursements) incurred by Lender in the defense of any claim that a payment
received by Lender in respect of all or any part of the Obligations must be
refunded.  The provisions of this Section 14.10 shall survive the termination of
the Loan Documents and any satisfaction and discharge of any Borrower by virtue
of any payment, court order or any federal or state law.
 
 
Section 14.11.   Maximum Liability of Each Borrower.  

 
Notwithstanding anything contained in this Agreement or any other Loan Document
to the contrary, if the obligations of any Borrower under this Agreement or any
of the other Loan Documents or any Security Instruments granted by any Borrower
are determined to exceed the reasonably equivalent value received by such
Borrower in exchange for such obligations or grant of such Security Instruments
under any Fraudulent Transfer Law (as hereinafter defined), then the liability
of such Borrower shall be limited to a maximum aggregate amount equal to the
largest amount that would not render its obligations under this Agreement or all
the other Loan Documents subject to avoidance as a fraudulent transfer or
conveyance under Section 548 of Title 11 of the United States Code or any
applicable provisions of comparable state law including, without limitation,
§48-16-401 of Tennessee Annotated Code (collectively, the “Fraudulent Transfer
Laws”), in each case after giving effect to all other liabilities of such
Borrower, contingent or otherwise, that are relevant under the Fraudulent
Transfer Laws (specifically excluding, however, any liabilities of such Borrower
in respect of Indebtedness to any other Borrower or any other Person that is an
Affiliate of the other Borrower to the extent that such Indebtedness would be
discharged in an amount equal to the amount paid by such Borrower in respect of
the Obligations) and after giving effect (as assets) to the value (as determined
under the applicable provisions of the Fraudulent Transfer Laws) of any rights
to subrogation, reimbursement, indemnification or contribution of such Borrower
pursuant to Applicable Law or pursuant to the terms of any agreement including
the Contribution Agreement.
 

 
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Section 14.12.   Liability Cumulative; References to California Law. 

 
The liability of each Borrower under this Article 14 is in addition to and shall
be cumulative with all liabilities of such Borrower to Lender under this
Agreement and all the other Loan Documents to which such Borrower is a party or
in respect of any Obligations of any other Borrower.
 
All references in Article 14 to California law are only applicable if any
Mortgaged Property is located in California.
 
ARTICLE 15
MISCELLANEOUS PROVISIONS
 
 
Section 15.01.   Counterparts.  

 
To facilitate execution, this Agreement may be executed in any number of
counterparts.  It shall not be necessary that the signatures of, or on behalf
of, each party, or that the signatures of all persons required to bind any
party, appear on each counterpart, but it shall be sufficient that the signature
of, or on behalf of, each party, appear on one (1) or more counterparts.  All
counterparts shall collectively constitute a single agreement.  It shall not be
necessary in making proof of this Agreement to produce or account for more than
the number of counterparts containing the respective signatures of, or on behalf
of, all of the parties hereto.
 
 
Section 15.02.   Amendments, Changes and Modifications.  

 
This Agreement may be amended, changed, modified, altered or terminated only by
written instrument or written instruments signed by all of the parties hereto.
 
 
Section 15.03.   Payment of Costs, Fees and Expenses.  

 
In addition to the payments required by Article 10 of this Agreement, Borrower
shall pay, within five (5) days following demand therefor, all reasonable third
party out-of-pocket fees, costs, charges or expenses (including the fees and
expenses of attorneys, accountants and other experts) incurred by Lender in
connection with:
 
(a)           Any amendment, consent or waiver to this Agreement or any of the
Loan Documents (whether or not any such amendments, consents or waivers are
entered into).
 
(b)           Defending or participating in any litigation arising from actions
by third parties and brought against or involving Lender with respect to (i) any
Mortgaged Property, (ii) any event, act, condition or circumstance in connection
with any Mortgaged Property or (iii) the relationship between Lender and
Borrower and Key Principal  in connection with this Agreement or any of the
transactions contemplated by this Agreement.
 
(c)           The administration or enforcement of, or preservation of rights or
remedies under, this Agreement or any other Loan Documents or in connection with
the foreclosure upon, sale of or other disposition of any Collateral granted
pursuant to the Loan Documents including the filing of UCC financing and
continuation statements.
 

 
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(d)           Any disclosure documents, including the reasonable fees and
expenses of Lender’s attorneys and accountants.
 
Borrower shall also pay, on demand, any transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by reason of the
execution, delivery, filing, recordation, performance or enforcement of any of
the Loan Documents or the Loan.  However, Borrower will not be obligated to pay
any franchise, excise, estate, inheritance, income, excess profits or similar
tax on Lender.  Any attorneys’ fees and expenses payable by Borrower pursuant to
this Section shall be recoverable separately from and in addition to any other
amount included in such judgment, and such obligation is intended to be
severable from the other provisions of this Agreement and to survive and not be
merged into any such judgment.  Any amounts payable by Borrower pursuant to this
Section, with interest thereon if not paid when due, shall become additional
indebtedness of Borrower secured by the Loan Documents.  Such amounts shall bear
interest from the date such amounts are due until paid in full at the weighted
average, as determined by Lender, of the interest rates in effect from time to
time for the Loan unless collection from Borrower of interest at such rate would
be contrary to Applicable Law, in which event such amounts shall bear interest
at the highest rate which may be collected from Borrower under Applicable
Law.  The provisions of this Section are cumulative with, and do not exclude the
application and benefit to Lender of, any provision of any other Loan Document
relating to any of the matters covered by this Section.
 
 
Section 15.04.   Payment Procedure.  

 
All payments to be made to Lender pursuant to this Agreement or any of the Loan
Documents shall be made in lawful currency of the United States of America and
in immediately available funds by wire transfer to an account designated by
Lender before 1:00 p.m. (Eastern Standard Time) on the date when due.
 
 
Section 15.05.   Payments on Business Days.  

 
In any case in which the date of payment to Lender or the expiration of any time
period hereunder occurs on a day which is not a Business Day, then such payment
or expiration of such time period need not occur on such date but may be made on
the next succeeding Business Day with the same force and effect as if made on
the day of maturity or expiration of such period, except that interest shall
continue to accrue for the period after such date to the next Business Day.
 
 
Section 15.06.   Choice of Law; Consent to Jurisdiction; Waiver of Jury Trial.

 
NOTWITHSTANDING ANYTHING IN THE NOTES, THE SECURITY DOCUMENTS OR ANY OF THE
OTHER LOAN DOCUMENTS TO THE CONTRARY, EACH OF THE TERMS AND PROVISIONS, AND
RIGHTS AND OBLIGATIONS OF BORROWER UNDER THIS AGREEMENT AND THE NOTES AND
BORROWER UNDER THE OTHER LOAN DOCUMENTS, SHALL BE GOVERNED BY, INTERPRETED,
CONSTRUED AND ENFORCED PURSUANT TO AND IN ACCORDANCE WITH THE LAWS OF THE
DISTRICT OF COLUMBIA (EXCLUDING THE LAW APPLICABLE TO CONFLICTS OR CHOICE OF
LAW) EXCEPT TO THE EXTENT OF PROCEDURAL AND
 

 
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SUBSTANTIVE MATTERS RELATING ONLY TO (i) THE CREATION, PERFECTION AND
FORECLOSURE OF LIENS AND SECURITY INTERESTS, AND ENFORCEMENT OF THE RIGHTS AND
REMEDIES, AGAINST THE MORTGAGED PROPERTIES, WHICH MATTERS SHALL BE GOVERNED BY
THE LAWS OF THE JURISDICTION IN WHICH THE MORTGAGED PROPERTY IS LOCATED, (ii)
THE PERFECTION, THE EFFECT OF PERFECTION AND NON-PERFECTION AND FORECLOSURE OF
SECURITY INTERESTS ON PERSONAL PROPERTY, WHICH MATTERS SHALL BE GOVERNED BY THE
LAWS OF THE JURISDICTION DETERMINED BY THE CHOICE OF LAW PROVISIONS OF THE
UNIFORM COMMERCIAL CODE IN EFFECT FOR THE JURISDICTION IN WHICH THE BORROWER IS
ORGANIZED.  BORROWER AGREES THAT ANY CONTROVERSY ARISING UNDER OR IN RELATION TO
THE NOTES, THE SECURITY DOCUMENTS (OTHER THAN THE SECURITY INSTRUMENTS) OR ANY
OTHER LOAN DOCUMENT SHALL BE, EXCEPT AS OTHERWISE PROVIDED HEREIN, LITIGATED IN
THE DISTRICT OF COLUMBIA.  THE LOCAL AND FEDERAL COURTS AND AUTHORITIES WITH
JURISDICTION IN THE DISTRICT OF COLUMBIA SHALL, EXCEPT AS OTHERWISE PROVIDED
HEREIN, HAVE JURISDICTION OVER ALL CONTROVERSIES WHICH MAY ARISE UNDER OR IN
RELATION TO THE LOAN DOCUMENTS, INCLUDING THOSE CONTROVERSIES RELATING TO THE
EXECUTION, JURISDICTION, BREACH, ENFORCEMENT OR COMPLIANCE WITH THE NOTES, THE
SECURITY DOCUMENTS (OTHER THAN THE SECURITY INSTRUMENTS) OR ANY OTHER ISSUE
ARISING UNDER, RELATING TO, OR IN CONNECTION WITH ANY OF THE LOAN
DOCUMENTS.  BORROWER IRREVOCABLY CONSENTS TO SERVICE, JURISDICTION, AND VENUE OF
SUCH COURTS FOR ANY LITIGATION ARISING FROM THE NOTES, THE SECURITY DOCUMENTS OR
ANY OF THE OTHER LOAN DOCUMENTS, AND WAIVES ANY OTHER VENUE TO WHICH IT MIGHT BE
ENTITLED BY VIRTUE OF DOMICILE, HABITUAL RESIDENCE OR OTHERWISE.  NOTHING
CONTAINED HEREIN, HOWEVER, SHALL PREVENT LENDER FROM BRINGING ANY SUIT, ACTION
OR PROCEEDING OR EXERCISING ANY RIGHTS AGAINST BORROWER AND AGAINST THE
COLLATERAL IN ANY OTHER JURISDICTION.  INITIATING SUCH SUIT, ACTION OR
PROCEEDING OR TAKING SUCH ACTION IN ANY OTHER JURISDICTION SHALL IN NO EVENT
CONSTITUTE A WAIVER OF THE AGREEMENT CONTAINED HEREIN THAT THE LAWS OF THE
DISTRICT OF COLUMBIA SHALL GOVERN THE RIGHTS AND OBLIGATIONS OF BORROWER AND
LENDER AS PROVIDED HEREIN OR THE SUBMISSION HEREIN BY BORROWER TO PERSONAL
JURISDICTION WITHIN THE DISTRICT OF COLUMBIA.  BORROWER (I) COVENANTS AND AGREES
NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING UNDER ANY OF THE
LOAN DOCUMENTS TRIABLE BY A JURY AND (II) WAIVES ANY RIGHT TO TRIAL BY JURY TO
THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST.  THIS WAIVER IS
INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE
RIGHT TO A JURY TRIAL WOULD OTHERWISE ACCRUE.  FURTHER, BORROWER HEREBY
CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER (INCLUDING, BUT NOT LIMITED
TO, LENDER’S COUNSEL) HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO BORROWER THAT
LENDER WILL NOT SEEK TO ENFORCE THE PROVISIONS OF THIS SECTION. THE FOREGOING
PROVISIONS WERE KNOWINGLY, WILLINGLY
 

 
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AND VOLUNTARILY AGREED TO BY BORROWER UPON CONSULTATION WITH INDEPENDENT LEGAL
COUNSEL SELECTED BY BORROWER’S FREE WILL.
 
 
Section 15.07.   Severability.  

 
In the event any provision of this Agreement or in any other Loan Document shall
be held invalid, illegal or unenforceable in any jurisdiction, such provision
will be severable from the remainder hereof as to such jurisdiction and the
validity, legality and enforceability of the remaining provisions will not in
any way be affected or impaired in any jurisdiction.
 
 
Section 15.08.   Notices.

 
(a)           Manner of Giving Notice.  Each notice, direction, certificate or
other communication hereunder (in this Section referred to collectively as
“notices” and singularly as a “notice”) which any party is required or permitted
to give to the other party pursuant to this Agreement shall be in writing and
shall be deemed to have been duly and sufficiently given if:
 
(i)           personally delivered with proof of delivery thereof (any notice so
delivered shall be deemed to have been received at the time so delivered);
 
(ii)           sent by Federal Express (or other similar reputable overnight
courier) designating morning delivery (any notice so delivered shall be deemed
to have been received on the Business Day it is delivered by the courier);
 
(iii)           sent by telecopier or facsimile machine which automatically
generates a transmission report that states the date and time of the
transmission, the length of the document transmitted, and the telephone number
of the recipient’s telecopier or facsimile machine (to be confirmed with a copy
thereof sent in accordance with paragraphs (i) or (ii) above within two Business
Days) (any notice so delivered shall be deemed to have been received (1) on the
date of transmission, if so transmitted before 5:00 p.m. (local time of the
recipient) on a Business Day, or (2) on the next Business Day, if so transmitted
on or after 5:00 p.m. (local time of the recipient) on a Business Day or if
transmitted on a day other than a Business Day);
 
(iv)           with respect to Fannie Mae only, sent by e-mail to
Structured_AM@fanniemae.com (any notice so delivered shall be deemed to have
been received upon receipt);
 
addressed to the parties as follows:
 

 
As to Borrower:
c/o Brookdale Senior Living Inc.
111 Westwood Place, Suite 400
Brentwood, TN  37027
     
Attention:
General Counsel
     
Telecopy:
(615) 564-8204
   
          and
               
c/o Brookdale Senior Living Inc.
6737 W. Washington Street, Suite 2300
 

 

 
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Milwaukee WI 53214-5650
     
Attention:
Kristin A. Ferge, Executive Vice President and
       
Treasurer
     
Telecopy:
(414) 918-5055
 

 
With a copy to
       
Rogers & Hardin LLP
2700 International Tower
229 Peachtree Street NE
Atlanta, GA 30303
     
Attention:
Carolyn B. Dobbins, Esq.
     
Telecopy:
(404) 230-0937
 

 

 
As to Lender:
Oak Grove Commercial Mortgage, LLC
2177 Youngman Avenue, Suite 300
St. Paul, MN 55116
     
Attention:
Servicing Department
     
Telecopy:
(763) 656-4440
 

 

 
As to Fannie Mae:
Fannie Mae
3900 Wisconsin Avenue, N.W.
Washington, D.C.  20016-2899
     
Attention:
Vice President for
       
Multifamily Asset Management
 

 
with a copy to
       
Arent Fox LLP
1675 Broadway
New York, NY 10019
     
Attention:
David L. Dubrow, Esq.
 

   
Telecopy No.:  
(212) 484-3990
 

 
(b)           Change of Notice Address.  Any party may, by notice given pursuant
to this Section, change the person or persons and/or address or addresses, or
designate an additional person or persons or an additional address or addresses,
for its notices, but notice of a change of address shall only be effective upon
receipt.  Each party agrees that it shall not refuse or reject delivery of any
notice given hereunder, that it shall acknowledge, in writing, receipt of the
same upon request by the other party and that any notice rejected or refused by
it shall be deemed for all purposes of this Agreement to have been received by
the rejecting party on the date so refused or rejected, as conclusively
established by the records of the U.S. Postal Service, the courier service or
facsimile.
 

 
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Section 15.09.   Further Assurances and Corrective Instruments.

 
(a)           Further Assurances.  To the extent permitted by law, the parties
hereto agree that they shall, from time to time, execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered, such supplements
hereto and such further instruments as Lender or Borrower may reasonably request
and as may be required in the opinion of Lender or its counsel to effectuate the
intention of or facilitate the performance of this Agreement or any Loan
Document.
 
(b)           Further Documentation.  Without limiting the generality of
subsection (a), in the event any further documentation or information is
required by Lender to correct patent mistakes in the Loan Documents, materials
relating to the Title Insurance Policies or the funding of the Loan, Borrower
shall provide, or cause to be provided to Lender, at Borrower’s cost and
expense, such documentation or information.  Borrower shall execute and deliver
to Lender such documentation, including but not limited to any amendments,
corrections, deletions or additions to the Notes, the Security Instruments or
the other Loan Documents as is reasonably required by Lender.
 
(c)           Compliance with Investor Requirements.  Without limiting the
generality of subsection (a), Borrower shall do anything necessary to comply
with the reasonable requirements of Lender to enable Lender to sell the MBS
backed by a Loan; provided, however, that unless required to correct a patent
mistake in the Loan Documents, Borrower shall not be required to do anything
that has the effect of (a) changing the economic terms of the Loans, (b)
imposing greater personal liability under the Loan Documents than that set forth
in the Loan Documents or (c) increasing Borrower’s obligations or decreasing
Borrower’s rights under the Loan Documents.
 
 
Section 15.10.   Term of this Agreement.  

 
This Agreement shall continue in effect until the Termination Date.
 
 
Section 15.11.   Assignments; Third-Party Rights.  

 
No Borrower shall assign this Agreement, or delegate any of its obligations
hereunder, without the prior written consent of Lender.  Lender may assign its
rights and/or obligations under this Agreement separately or together, without
Borrower’s consent, only to Fannie Mae or other entity if such assignment is
made with the intent that such entity will further assign such rights to Fannie
Mae, but may not delegate its obligations under this Agreement unless it first
receives Fannie Mae’s written approval.  Lender shall first assign its rights
under this Agreement separately or together, without Borrower’s consent, to
Fannie Mae.  By virtue of the assignment to Fannie Mae, Fannie Mae will not be
obligated to perform the obligations of Lender under this Agreement, including
but not limited to, Lender’s obligation to make the Loan (it being understood
that such obligation and all other obligations of Lender under the Loan
Documents not assumed by Fannie Mae remain the obligation of
Lender).  Notwithstanding anything herein to the contrary, the assignment shall
not include an assignment of Lender’s right, title and interest in and to the
Loan Documents in its capacity as loan servicer of the Loan. Upon assignment to
Fannie Mae, Fannie Mae shall be permitted to further assign its rights under
this

 
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Agreement, without Borrower’s consent.  Fannie Mae shall be permitted to hold,
sell or securitize Loans made hereunder without Borrower’s consent.

 
Section 15.12.   Headings.

 
Article and Section headings used herein are for convenience of reference only,
are not part of this Agreement and are not to affect the construction of, or to
be taken into consideration in interpreting, this Agreement.
 
 
Section 15.13.   General Interpretive Principles.  

 
For purposes of this Agreement, except as otherwise expressly provided or unless
the context otherwise requires, (i) the terms defined in Appendix I and
elsewhere in this Agreement have the meanings assigned to them in this Agreement
and include the plural as well as the singular, and the use of any gender herein
shall be deemed to include the other genders; (ii) accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
GAAP; (iii) references herein to “Articles,” “Sections,” “subsections,”
“paragraphs” and other subdivisions without reference to a document are to
designated Articles, Sections, subsections, paragraphs and other subdivisions of
this Agreement; (iv) a reference to a subsection without further reference to a
Section is a reference to such subsection as contained in the same Section in
which the reference appears, and this rule shall also apply to paragraphs and
other subdivisions; (v) a reference to an Exhibit or a Schedule without a
further reference to the document to which the Exhibit or Schedule is attached
is a reference to an Exhibit or Schedule to this Agreement; (vi) the words
“herein,” “hereof,” “hereunder” and other words of similar import refer to this
Agreement as a whole and not to any particular provision; and (vii) the word
“including” means “including, but not limited to.”
 
 
Section 15.14.   Interpretation.  

 
The parties hereto acknowledge that each party and their respective counsel have
participated in the drafting and revision of this Agreement and the Loan
Documents.  Accordingly, the parties agree that any rule of construction that
disfavors the drafting party shall not apply in the interpretation of this
Agreement and the Loan Documents or any amendment or supplement or exhibit
hereto or thereto.
 
 
Section 15.15.   Standards for Decisions, Etc.  

 
Unless otherwise provided herein, if Lender’s approval is required for any
matter hereunder, such approval may be granted or withheld in Lender’s sole and
absolute discretion.  Unless otherwise provided herein, if Lender’s designation,
determination, selection, estimate, action or decision is required, permitted or
contemplated hereunder, such designation, determination, selection, estimate,
action or decision shall be made in Lender’s sole and absolute discretion.
 
 
Section 15.16.   Decisions in Writing.   

 
Any approval, designation, determination, selection, action or decision of
Lender or Borrower must be in writing to be effective.
 

 
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Section 15.17.   Reserved.   

 
 
Section 15.18.   Conflicts Between Agreements.

 
Any terms and conditions contained in this Agreement that may also be contained
in another Loan Document are not, to the extent reasonably practicable, to be
construed to be in conflict with each other but rather is construed as
duplicative, confirming, additional, or cumulative provisions.  To the extent
that, in the interpretation of this Agreement, any ultimate conflict between the
terms and conditions of this Agreement and those set forth in another Loan
Document is determined to exist, the terms and conditions of this Agreement are
to control.
 

 
(Signatures appear on following pages)
 

 
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IN WITNESS WHEREOF, each Borrower has caused this Agreement to be duly executed
and delivered by the undersigned, as the authorized officer of each Borrower, as
of the Effective Date.

BORROWER:

ARC Bahia Oaks, Inc.
ARC Tarpon Springs, Inc.
ARC Scottsdale, LLC
ARC Sweet Life Shawnee, LLC
ARC Westlake Village, Inc.
ARCLP-Charlotte, LLC
ARC Wilora Assisted Living, LLC
Brookdale Castle Hills, LLC
Brookdale Cypress Station, LLC
Brookdale Lakeway, LLC
Brookdale Northwest Hills, LLC
FIT REN Pacific Inn LP
By: FIT REN Holdings GP Inc., its general partner
FIT REN Ocean House LP
By: FIT REN Holdings GP Inc., its general partner
FIT REN Oak Tree LP
By: FIT REN Holdings GP Inc., its general partner
FIT REN Nohl Ranch LP
By: FIT REN Holdings GP Inc., its general partner
FIT REN Mirage Inn LP
By: FIT REN Holdings GP Inc., its general partner
FIT REN Paulin Creek LP
By: FIT REN Holdings GP Inc., its general partner
FIT REN Park LP
By: FIT REN Holdings GP Inc., its general partner
FIT REN The Gables LP
By: FIT REN Holdings GP Inc., its general partner
AHC Clare Bridge of Gainesville, LLC
AHC Sterling House of Brighton, LLC
AHC Sterling House of Corsicana, LLC
AHC Sterling House of Fairfield, LLC
AHC Sterling House of Gainesville, LLC
AHC Sterling House of Greenville, LLC
AHC Sterling House of Jacksonville, LLC
AHC Sterling House of Lewisville, LLC
AHC Sterling House of Mansfield, LLC
AHC Sterling House of Newark, LLC
AHC Sterling House of Oklahoma City West, LLC
AHC Sterling House of Panama City, LLC
AHC Sterling House of Port Charlotte, LLC
AHC Sterling House of Punta Gorda, LLC
AHC Sterling House of Urbana, LLC
AHC Sterling House of Venice, LLC
AHC Sterling House of Washington Township, LLC

 
 
S-1

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AHC Sterling House of Weatherford, LLC
AHC Sterling House of Youngstown, LLC
AHC Villas of Albany Residential, LLC
AHC Villas of the Atrium, LLC
AHC Villas-Wynwood of Courtyard Albany, LLC
AHC Villas-Wynwood of River Place, LLC
AHC Wynwood of Rogue Valley, LLC
Flint Michigan Retirement Housing L.L.C.

  By:
    /s/ George T. Hicks                                   
 

 
Name:
George T. Hicks

 
Title:
Executive Vice President of each Borrower or its general partner

 
 
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IN WITNESS WHEREOF, the Lender has executed this Agreement as of the day and
year first above written.

LENDER:

OAK GROVE COMMERCIAL MORTGAGE, LLC, a Delaware limited liability company
 

By:         /s/ Beverly D. Berquam                              
Name:         Beverly D. Berquam
Title:           Assistant Vice President

 
 
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APPENDIX I
 
DEFINITIONS
 
For all purposes of the Agreement, the following terms shall have the respective
meanings set forth below:
 
“Acquiring Person” means a “person” or “group of persons” within the meaning of
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended.
 
“Addition Fee” means, with respect to an Additional Loan made in accordance with
Section 1.01(b), a fee payable by Borrower equal to the product of 50 basis
points multiplied by the amount of the Additional Loan.
 
“Addition Loan Documents” means the Security Instrument covering an Additional
Mortgaged Property and any other documents, instruments or certificates
reasonably required by Lender in form and substance satisfactory to Lender and
Borrower in connection with the addition of the Additional Mortgaged Property to
the Collateral Pool pursuant to Article 3.
 
“Addition Request” means a written request, substantially in the form of Exhibit
G to the Agreement, to add Additional Mortgaged Properties to the Collateral
Pool as set forth in Section 3.01(a).
 
“Additional Borrower” means the owner of an Additional Mortgaged Property or a
Substitute Mortgaged Property, which entity has been approved by Lender and
becomes a Borrower under the Agreement and the applicable Loan Documents, and
their permitted successors and assigns.
 
“Additional Collateral Due Diligence Fees” means the due diligence fees paid by
Borrower to Lender with respect to each Additional Mortgaged Property or
Substitute Mortgaged Property, as set forth in Section 10.01(b)(ii).
 
“Additional Loan” means a Loan made after the Initial Closing Date.
 
“Additional Mortgaged Property” means each Seniors Housing Facility owned by
Borrower or Additional Borrower (either in fee simple or as tenant under a
ground lease meeting all of Lender’s requirements for similar loans anticipated
to be sold to Fannie Mae) and added to the Collateral Pool after the Initial
Closing Date.
 
“Adjustable Rate” in connection with a particular Variable Loan has the meaning
given such term in the applicable Variable Loan Note.
 
 “Affiliate” means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with, that
Person.  For the purposes of this definition, “control” (including with
correlative meanings, the terms “controlling,” “controlled
 

 
 
Appendix I-1

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

 

 
by” and “under common control with”), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management (other than property management) and policies of
that Person, whether through the ownership of voting securities, partnership
interests or by contract or otherwise.
 
“Affiliate Subordinated Obligations” shall have the meaning set forth in Section
9.03.
 
“Aggregate Debt Service Coverage Ratio” means, for any specified date, the ratio
(expressed as a percentage) of--
 
(a)           the aggregate of the Net Operating Income for the Mortgaged
Properties for the preceding number of months as determined pursuant to the
Underwriting Requirements
 
to
 
(b)           the Facility Debt Service on the specified date.
 
“Aggregate Loan to Value Ratio” means, for any specified date, the ratio
(expressed as a percentage) of--
 
 
(a)
the amount of the Loans Outstanding on the specified date,

 
 to
 
 
(b)
the aggregate of the Valuations most recently obtained prior to the specified
date for all of the Mortgaged Properties.

 
 “Agreement” means this Master Credit Facility Agreement, as it may be amended,
restated, supplemented or otherwise modified from time to time, including all
Recitals and Exhibits to the Agreement, each of which is hereby incorporated
into the Agreement by this reference.
 
“Allocable Loan Amount” means the portion of the Loan allocated to a particular
Mortgaged Property by Lender in accordance with the Agreement.
 
“Alzheimer/Dementia Units” shall mean all such units that are licensed to and
operate as Alzheimers or dementia care units in a Seniors Housing Facility.
 
“Amortization Period” means a period of thirty (30) years.
 
“Applicable Law” means (a) all applicable provisions of all constitutions,
statutes, rules, regulations and orders of all governmental bodies, all
Governmental Approvals and all orders, judgments and decrees of all courts and
arbitrators, (b) all zoning, building, environmental and other laws, ordinances,
rules, regulations and restrictions of any Governmental Authority affecting the
ownership, management, use, operation, maintenance or repair of any Mortgaged
Property, including the Americans with Disabilities Act (if applicable), the
Fair Housing Amendment Act of 1988 and Hazardous Materials Laws (as defined in
the Security Instrument), (c) any building permits or any conditions, easements,
rights-of-way, covenants, restrictions of
 

 
 
Appendix I-2

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

 

 
record or any recorded or unrecorded agreement affecting or concerning any
Mortgaged Property including planned development permits, condominium
declarations, and reciprocal easement and regulatory agreements with any
Governmental Authority, (d) all laws, ordinances, rules and regulations, whether
in the form of rent control, rent stabilization or otherwise, that limit or
impose conditions on the amount of rent that may be collected from the units of
any Mortgaged Property, and (e) requirements of insurance companies or similar
organizations, affecting the operation or use of any Mortgaged Property or the
consummation of the transactions to be effected by the Agreement or any of the
other Loan Documents.
 
“Appraisal” means an appraisal of a Seniors Housing Facility conforming to the
requirements of Lender for similar loans anticipated to be sold to Fannie Mae
and accepted by Lender.
 
“Appraised Value” means the value set forth in an Appraisal.
 
“Assignment of Leases and Rents” means an Assignment of Leases and Rents,
required by Lender and satisfying Lender’s requirements, as the same may be
amended, restated, modified or supplemented from time to time.
 
“Assisted Living Units” shall mean all such units that are licensed to and
operate as assisted living care units in a Seniors Housing Facility.
 
“Bankruptcy Code” means Title 11 of the United States Code entitled “Bankruptcy”
as now and hereafter in effect, or any successor statute.
 
“Bankruptcy Event” shall have the meaning set forth in Section 14.01(b).
 
“Borrower” means individually and collectively, the Initial Borrower and any
Additional Borrower becoming a party to this Agreement and any other Loan
Documents, together with their permitted successors and assigns.
 
“Borrower Agent” means Brookdale Senior Living Inc.
 
 “Borrow-Up Fee” means an amount equal to the product of 50 basis points
multiplied by the amount of the Additional Loan made pursuant to Section
1.01(c).
 
“Business Day” means a day on which Fannie Mae and Servicer are open for
business.
 
“Calendar Quarter” means, with respect to any year, any of the following three
month periods:  (a) January-February-March; (b) April-May-June; (c)
July-August-September; and (d) October-November-December.
 
“Calendar Year” means the 12-month period from the first day of January to and
including the last day of December, and each 12-month period thereafter.
 

 
 
Appendix I-3

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“Capital Lease” means a lease of property, real or personal, the obligations of
the lessee in respect of which are required by GAAP to be capitalized on a
balance sheet of the lessee or to be otherwise disclosed as such in a note to
such balance sheet.
 
“Capitalization Rate” means, for each Mortgaged Property, a capitalization rate
selected by Lender for use in determining the Valuations, which rate is
determined as set forth in Section 2.05(b).
 
“Cash Collateral Account” means the cash collateral account established pursuant
to the Cash Collateral Agreement.
 
“Cash Collateral Agreement” means a cash collateral pledge, security and custody
agreement by and among Fannie Mae, Borrower and Servicer in the form attached as
Exhibit O to the Agreement, as the same may be amended, modified or supplemented
from time to time.
 
“Cash Equivalents” means Permitted Investments having maturities of not more
than twelve (12) months from the date of acquisition of such Permitted
Investments.
 
“Certificate of Borrower” means the Master Certificate of Borrower executed by
the Borrower as of the date hereof, and which must be executed and delivered by
the Borrower to Lender from time to time in accordance with the terms of this
Agreement, the form of which certificate shall be the same or substantially
similar to which the Borrower execute as of the date hereof.
 
“Certificate of Operator” means any Certificate of Operator executed and
delivered by an Operator in connection with the Initial Closing or the addition
of an Additional Mortgaged Property or Substitute Mortgaged Property to the
Collateral Pool.
 
“Change of Control” means the occurrence of any of the following events: (i) Key
Principal ceases to Control Borrower or any Person that directly or indirectly
Controls Borrower; (ii) Key Principal or an Affiliate of Key Principal in which
Key Principal owns at least 51% of the Ownership interests ceases to own at
least fifty-one percent (51%) of the Ownership Interests in Borrower or any
Person that directly or indirectly Controls Borrower; (iii) any Person who is
required to be approved by Lender hereunder and is not approved in writing by
Lender becomes the Operator of any Mortgaged Property, including, without
limitation, any assignee of any Operator under any Management Agreement or
Operating Lease; and (iv) the replacement (other than solely by reason of
retirement at age sixty-five or older, death or disability) of more than fifty
percent (50%) (or such lesser percentage as is required for decision-making by
the board of directors or an equivalent governing body) of the members of the
board of directors or an equivalent governing body of the Key Principal over a
one-year period from the directors who constituted such board of directors at
the beginning of such period and such replacement shall not have been nominated
or approved by a vote of at least a majority of the board of directors of the
Key Principal then still in office who either were members of such board of
directors at the beginning of such one-year period or whose election or
nomination as members of the board of directors was previously so approved (it
being understood and agreed that in the case of any entity governed by a
trustee, board of managers, or other similar governing body, the foregoing

 
 
Appendix I-4

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clause (d) shall apply thereto by substituting such governing body and the
members thereof for the board of directors and members thereof, respectively).
 
“Closing Date” means the Initial Closing Date and each date after the Initial
Closing Date on which the funding or other transaction requested in a Request is
required to take place.
 
“Collateral” means the Mortgaged Properties and other collateral from time to
time or at any time encumbered by the Security Instruments, or any other
property securing Borrower’s obligations under the Loan Documents.
 
“Collateral Pool” means all of the Collateral.
 
“Completion Guaranty” means the Completion Guaranty executed by the Key
Principal as of the date hereof.
 
“Completion/Repair and Security Agreement” means a Master Completion/Repair and
Security Agreement required by Lender and satisfying Lender’s requirements, as
the same may be amended, restated, modified or supplemented from time to time.
 
“Compliance Certificate” means a certificate of Borrower substantially in the
form of Exhibit C to the Agreement.
 
“Confirmation of Guaranty” means a confirmation of any guaranty executed by a
guarantor in connection with any Request after the Initial Closing,
substantially in the form of Exhibit B to the Agreement.
 
“Confirmation of Obligations” means a Confirmation of Obligations delivered in
connection with any Request after the Initial Closing Date, pursuant to which
Borrower and Key Principal and any other guarantor confirms their obligations
under the Loan Documents substantially in the form of Exhibit H to the
Agreement.
 
“Contribution Agreement” means the Contribution Agreement by and among Initial
Borrower and each Additional Borrower, required by Lender and satisfying
Lender’s requirements, as the same may be amended, restated, modified or
supplemented from time to time.
 
“Control” (or any variation of such term) of one entity (the “controlled
entity”) by another (the “controlling entity”) means that the controlling entity
has the power and authority, directly or indirectly, to direct or cause the
direction of the management and policies of the controlled entity, by contract
or otherwise.
 
“Controlled Group” means all members of a controlled group of corporations and
all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower, are treated as a single employer under
Section 414 of the Internal Revenue Code.
 

 
 
Appendix I-5

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“Conversion Availability Period” means the period commencing on the first day
following the First Anniversary and ending on the first day of the third month
prior to the maturity date of the Variable Loan being converted.
 
“Conversion Date” means the date on which a Variable Loan is converted to a
Fixed Loan.
 
“Conversion Documents” means an amendment to each Security Document if required
by Lender, an amendment to the Variable Loan Note and other applicable Loan
Documents, in form and substance satisfactory to Lender, reflecting the
conversion of a Variable Loan to a Fixed Loan pursuant to Section 1.08.
 
“Conversion Request” means a written request, substantially in the form of
Exhibit E to the Agreement, to convert all or any portion of a Variable Loan to
the Fixed Loan pursuant to Section 1.07.
 
“Coverage and LTV Tests” mean, for any specified date, each of the following
financial tests:
 
(i) The Aggregate Debt Service Coverage Ratio is not less than 1:70:1 (and with
respect to Mortgaged Properties with Skilled Nursing Units, 1.80:1) with respect
to the amount of any Fixed Loan, and not less than 1.50:1 (and with respect to
Mortgaged Properties with Skilled Nursing Units, 1.60:1) with respect to the
amount of any Variable Loan; and
 
(ii)  The Aggregate Loan to Value Ratio does not exceed 55 percent (55%).
 
“Debt Service Coverage Ratio” means, for any Mortgaged Property, for any
specified date, the ratio (expressed as a percentage) of --
 
(a)           the Net Operating Income for the subject Mortgaged Property for
the preceding number of months as determined pursuant to the Underwriting
Requirements
 
to
 
(b)           the Facility Debt Service on the specified date, assuming, for the
purpose of calculating the Facility Debt Service for this definition, that Loans
Outstanding shall be the Allocable Loan Amount for the subject Mortgaged
Property.
 
“DUS Guide” means the Fannie Mae Multifamily Selling and Servicing Guide,
including any exhibits, appendices or other referenced forms, as such guide is
modified, amended, supplemented, superseded or extended from time to time. The
Fannie Mae Multifamily Selling and Servicing Guide currently contains only Part
I − the Glossary, Part II – Lender Contractual Relationship, Part III –
Underwriting, consisting of three (3) Subparts: Part IIIA – Base Underwriting
Requirements, Part IIIB – Underwriting for Special Asset Classes, and Part IIIC
– Underwriting for Special Product Features or Executions, and Part V –
Servicing and Asset Management. Additional Parts may be published by Fannie Mae
from time to time. Until the entirety of the Fannie Mae Multifamily Selling and
Servicing Guide is published and as to Parts
 

 
 
Appendix I-6

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not yet contained in the Fannie Mae Multifamily Selling and Servicing Guide, the
term “Guide” also includes the Fannie Mae Delegated Underwriting and Servicing
Guide.
 
“Entrance Fees” means any up-front fees or payments required to be made by any
resident of a Mortgaged Property upon or in connection with such resident
executing a residency or occupancy agreement relating to such Mortgaged
Property.
 
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended
from time to time, and the regulations promulgated thereunder.
 
“Event of Default” means any event defined to be an “Event of Default” under
Article 11.
 
“Event of Default has occurred and is continuing” shall mean that an Event of
Default has occurred which has not been cured to the satisfaction of Lender,
provided however, that nothing shall be construed to require Lender to accept
any cure, or grant any cure period not otherwise provided for in this Agreement.
 
“Facility Debt Service” means –
 
(a)           For use in determining the additional borrowing capacity for the
making of Additional Loans pursuant to Section 1.01(b) or (c) and in the context
of Substitutions, the sum of the amount of interest and principal amortization,
as determined pursuant to the Underwriting Requirements, with respect to the
Loans Outstanding on the specified date and Loans to be obtained as a result of
the addition of Mortgaged Properties, on the specified date, except that, for
these purposes:
 
 
(A)
each Variable Loan Outstanding or to be obtained shall be deemed to require
level monthly payments of principal and interest (at an interest rate equal to
the higher of (X) (1) the LIBOR rate plus (2) the Variable Rate Margin plus (3)
a stressed underwriting margin of 300 basis points or if the Underwriting
Requirements change to specify a new stressed underwriting margin which is a
specific number of basis points with no range or discretion in its amount (the
“New Stressed Margin”) then such New Stressed Margin, as applicable, plus
(4) any monthly cap escrow payment as determined pursuant to the Underwriting
Requirements and (Y) the interest rate calculated pursuant to Subsection (C)
below, whether or not a Fixed Loan is to be obtained) in an amount necessary to
fully amortize the original principal amount of the Variable Loan over the
Amortization Period with such amortization to commence on the first day of the
period determined pursuant to the Underwriting Requirements; and

 
 
(B)
each Fixed Loan Outstanding shall require level monthly payments of principal
and interest (at a rate set forth in the Fixed Loan Note for such Fixed Loan) in
an amount necessary to fully amortize the original principal amount of such
Fixed Loan over the Amortization Period, with

 

 
 
Appendix I-7

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such amortization to commence on the first day of the period determined pursuant
to the Underwriting Requirements; and

 
 
(C)
each Fixed Loan to be obtained shall be deemed to require level monthly payments
of principal and interest (at an interest rate equal to (1) the base United
States Treasury Index Rate for securities having a maturity substantially
similar to the maturity of such Fixed Loan, plus (2) the Fixed Rate Margin (as
determined by Lender) for an actual/360 execution for loans having similar
characteristics as such Fixed Loan) in an amount necessary to fully amortize the
original principal amount of such Fixed Loan over the Amortization Period with
such amortization to commence on the first day of the period determined pursuant
to the Underwriting Requirements.

 
  (b)           For use in determining the Aggregate Debt Service Coverage
Ratio, for purposes of monitoring pursuant to Section 2.05(b) and for
determining compliance with the Coverage and LTV Tests and tests for releases
and for other ongoing monitoring purposes, and for purposes of determining
Release Prices pursuant to Section 3.04(c) as of any specified date, the sum of
the amount of interest and principal amortization, during the preceding number
of months as determined pursuant to the Underwriting Requirements, with respect
to Loans Outstanding and on the specified date, except that, for these purposes:
 
 
 (A)
each Variable Loan shall be deemed to require level monthly payments of
principal and interest (at an interest rate equal to the higher of (X) (1) the
LIBOR rate plus (2) the Variable Rate Margin plus (3) a stressed underwriting
margin of 300 basis points or the New Stressed Margin plus (4) any monthly cap
escrow payment as determined pursuant to the Underwriting Requirements and (Y)
the interest rate calculated pursuant to Subsection (B) below) in an amount
necessary to fully amortize the original principal amount of the Variable Loan
over the Amortization Period, with such amortization deemed to commence on the
first day of the period determined pursuant to the Underwriting Requirements;
and

 
 
(B)
each Fixed Loan shall require level monthly payments of principal and interest
(at the Interest Rate as set forth in the Fixed Loan Note) in an amount
necessary to fully amortize the original principal amount of the Fixed Loan over
the Amortization Period, with such amortization to commence on the first day of
the period determined pursuant to the Underwriting Requirements.

 
"Fannie Mae" means the corporation duly organized under the Federal National
Mortgage Association Charter Act, as amended, 12 U.S.C. §1716 et seq. and duly
organized and existing under the laws of the United States.

 
 
Appendix I-8

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“Fees” means Addition Fee, Additional Collateral Due Diligence Fees,  Initial
Due Diligence Fees, Initial Origination Fee, Release Fee, Substitution Fee,
Borrow Up Fee, Variable Loan Fee, and any and all other fees specified in the
Agreement.
 
“First Anniversary” means the date that is one year after the Initial Closing
Date.
 
“Fixed Loan” means the fixed loan made by Lender to the Borrower on the Initial
Closing Date in the initial principal amount of $328,333,000, an Additional Loan
which is a fixed loan, each of which shall be evidenced by a Fixed Loan Note,
and a Loan which has been converted from a Variable Loan to a Fixed Loan, as
evidenced by an amendment to the applicable Note.
 
“Fixed Loan Note” means a promissory note (together with all schedules, riders,
allonges, addenda, renewals, extensions, amendments and modifications thereto)
which will be issued by Borrower to Lender, concurrently with the funding of a
Fixed Loan.
 
“Fixed Rate Margin” means the total spread for MBS fixed rate loans utilized by
Lender at the time.
 
 “GAAP” means generally accepted accounting principles in the United States in
effect from time to time, consistently applied.
 
“General Conditions” shall have the meaning set forth in Article 6.
 
“Governmental Approval” means an authorization, permit, consent, approval,
license, registration or exemption from registration or filing with, or report
to, any Governmental Authority.
 
“Governmental Authority” means any court, board, agency, commission, office or
authority of any nature whatsoever for any governmental unit (federal, state,
county, district, municipal, city or otherwise) whether now or hereafter in
existence.
 
“Gross Revenues” means, for any specified period, with respect to any Seniors
Housing Facility, all income of Borrower in respect of such Seniors Housing
Facility as reflected on the certified operating statement for such specified
period as adjusted to exclude unusual income (e.g. temporary or nonrecurring
income), income not allowed by Lender for similar loans anticipated to be sold
to Fannie Mae (e.g. interest income, furniture income, etc.), and the value of
any unreflected concessions.  “Gross Revenues” shall not include any income of
non-Borrower Affiliates generated at a Mortgaged Property such as therapy
services or other services provided by third parties.
 
“Hazardous Substance Activity” means, with respect to any Mortgaged Property,
any storage, holding, existence, release, spill, leaking, pumping, pouring,
injection, escaping, deposit, disposal, dispersal, leaching, migration, use,
treatment, emission, discharge, generation, processing, abatement, removal,
disposition, handling or transportation of any Hazardous Materials (as defined
in the Security Instrument) from, under, into or on such Mortgaged Property in
violation of Hazardous Materials Laws (as defined in the Security Instrument),
 
 
 
Appendix I-9

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

 
 
 
including the discharge of any Hazardous Materials emanating from such Mortgaged
Property in violation of Hazardous Materials Laws through the air, soil, surface
water, groundwater or property and also including the abandonment or disposal of
any barrels, containers and other receptacles containing any Hazardous Materials
from or on such Mortgaged Property in violation of Hazardous Materials Laws, in
each case whether sudden or nonsudden, accidental or nonaccidental.
 
“Hedging Arrangement” means any interest rate swap, interest rate cap or other
arrangement, contractual or otherwise, which has the effect of an interest rate
swap or interest rate cap or which otherwise (directly or indirectly,
derivatively or synthetically) hedges interest rate risk associated with being a
debtor of variable rate debt or any agreement or other arrangement to enter into
any of the above on a future date or after the occurrence of one or more events
in the future.
 
“Highest Rating Category” means, with respect to a Permitted Investment, that
the Permitted Investment is rated by S&P or Moody’s in the highest rating given
by that rating agency for that general category of security.
 
“HIPAA” means the Health Insurance Portability and Accountability Act.
 
“Impositions” means, with respect to any Mortgaged Property, all (1) water and
sewer charges which, if not paid, may result in a lien on all or any part of the
Mortgaged Property, (2) premiums for fire and other hazard insurance, rent loss
insurance and such other insurance as Lender may require under any Security
Instrument, (3) Taxes, and (4) amounts for other charges and expenses which
Lender at any time reasonably deems necessary to protect the Mortgaged Property,
to prevent the imposition of liens on the Mortgaged Property, or otherwise to
protect Lender’s interests.
 
“Indebtedness” means, with respect to any Person, as of any specified date,
without duplication, all:
 
(a) indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (other than (i) current trade liabilities incurred
in the ordinary course of business and payable in accordance with customary
practices, and (ii) for construction of improvements to property, if such person
has a non-contingent contract to purchase such property);
 
(b) other indebtedness of such Person that is evidenced by a note, bond,
debenture or similar instrument;
 
(c) obligations of such Person under any lease of property, real or personal,
the obligations of the lessee in respect of which are required by GAAP to be
capitalized on a balance sheet of the lessee or to be otherwise disclosed as
such in a note to such balance sheet;
 
(d) obligations of such Person in respect of acceptances (as defined in Article
3 of the Uniform Commercial Code of the District of Columbia) issued or created
for the account of such Person;

 
 
Appendix I-10

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(e) liabilities secured by any Lien on any property owned by such Person even
though such Person has not assumed or otherwise become liable for the payment of
such liabilities; and
 
(f) as to any Person (“guaranteeing person”), any obligation of (a) the
guaranteeing person or (b) another Person (including any bank under any letter
of credit) to induce the creation of a primary obligation (as defined below)
with respect to which the guaranteeing person has issued a reimbursement,
counterindemnity or similar obligation, in either case guaranteeing, or in
effect guaranteeing, any indebtedness, lease, dividend or other obligation
(“primary obligations”) of any third person (“primary obligor”) in any manner,
whether directly or indirectly, including any obligation of the guaranteeing
person, whether or not contingent, to (1) purchase any such primary obligation
or any property constituting direct or indirect security therefor, (2) advance
or supply funds for the purchase or payment of any such primary obligation or to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency of the primary obligor, (3) purchase
property, securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation, or (4) otherwise assure or hold harmless the
owner of any such primary obligation against loss in respect of the primary
obligation, provided, however, that the term “Contingent Obligation” shall not
include endorsements of instruments for deposit or collection in the ordinary
course of business.  The amount of any Contingent Obligation of any guaranteeing
person shall be deemed to be the lesser of (i) an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made and (ii) the maximum amount for which such
guaranteeing person may be liable pursuant to the terms of the instrument
embodying such Contingent Obligation, unless such primary obligation and the
maximum amount for which such guaranteeing person may be liable are not stated
or determinable, in which case the amount of such Contingent Obligation shall be
such guaranteeing person’s maximum reasonably anticipated liability in respect
thereof as determined by such person in good faith.
 
“Independent Living Units” shall mean all such units that are licensed to and
operate as independent living care units in a Seniors Housing Facility.
 
“Initial Allocable Loan Amount” means the initial Allocable Loan Amount for each
of the Initial Mortgaged Properties is as set forth in Exhibit A to this
Agreement.
 
“Initial Borrower” means each Borrower under this Agreement as of the Initial
Closing Date.
 
“Initial Closing Date” means the date of the Agreement.
 
“Initial Due Diligence Fees” shall have the meaning set forth in Section
10.01(b)(i).
 
“Initial Loan” means, collectively, the Fixed Loan made on the Initial Closing
Date in the original principal amount of $328,333,000 and the Variable Loan made
on the Initial Closing Date in the original principal amount of $109,444,000.

 
 
Appendix I-11

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 “Initial Mortgaged Properties” means the Seniors Housing Facilities described
on Exhibit A to the Agreement and which represent the Seniors Housing Facilities
which are made part of the Collateral Pool on the Initial Closing Date.
 
“Initial Origination Fee” shall have the meaning set forth in Section 10.01(a).
 
“Initial Security Instruments” means the Security Instruments covering the
Initial Mortgaged Properties.
 
“Initial Valuation” means, when used with reference to specified Collateral, the
Valuation initially performed for the Collateral as of the date on which the
Collateral was added to the Collateral Pool.  The Initial Valuation for each of
the Initial Mortgaged Properties is as set forth in Exhibit A to the Agreement.
 
 “Insurance Policy” means, with respect to a Mortgaged Property, the insurance
coverage and insurance certificates evidencing such insurance required to be
maintained pursuant to the Security Instrument encumbering the Mortgaged
Property.
 
“Intercompany Loan” means a loan made by Key Principal to Borrower, Borrower to
Key Principal, Borrower to an Affiliate or an Affiliate to Borrower in the
ordinary course of business.
 
“Interest Rate Cap” shall have the meaning set forth in Section 1.12.
 
“Interest Rate Cap Documents” means the Pledge, Interest Rate Cap Agreement and
any and all other documents required pursuant thereto or hereto or as Lender
shall require from time to time in connection with Borrower’s obligation to
maintain an Interest Rate Cap when a Variable Loan is Outstanding.
 
 “Internal Revenue Code” means the Internal Revenue Code of 1986, as
amended.  Each reference to the Internal Revenue Code shall be deemed to include
(a) any successor internal revenue law and (b) the applicable regulations
whether final, temporary or proposed.
 
“Investor Commitment” shall have the meaning set forth in Section 2.01(c).
 
“Key Principal” means Brookdale Senior Living Inc. and any Person that becomes a
Key Principal in connection with this Agreement.
 
“Lease” means any lease, any sublease or subsublease, license, concession,
residency agreement, occupancy agreement, admission agreement, care agreement,
entrance fee agreement, skilled nursing admission agreement or other agreement
(whether written or oral and whether now or hereafter in effect) pursuant to
which any Person is granted a possessory interest in, or right to use or occupy
all or any portion of any space in any Mortgaged Property, and every
modification, amendment or other agreement relating to such lease, sublease,
subsublease or other agreement entered into in connection with such lease,
sublease or subsublease, license, concession, residency agreement, occupancy
agreement, admission agreement, care agreement, entrance fee agreement, skilled
nursing admission agreement  or other agreement, and every

 
 
Appendix I-12

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guarantee of the performance and observance of the covenants, conditions and
agreements to be performed and observed by the other party thereto.
 
“Lender” shall have the meaning set forth in the first paragraph of the
Agreement, but shall refer to any replacement Lender designated by Fannie Mae,
and its successors and assigns.
 
“Letter of Credit” means a letter of credit issued by an LOC Bank satisfactory
to Fannie Mae naming Fannie Mae as beneficiary, in form and substance as
attached hereto as Exhibit J.
 
“LIBOR” means the London Inter-Bank Offered Rate for 1-month U.S.
Dollar-denominated deposits as reported by Reuters through electronic
transmission.  If such publication is no longer available, or is no longer
posted through electronic transmission, Lender will choose a new index that is
based upon comparable information and provide notice thereof to Borrower.
 
“Licenses” means any operating license, certificates of occupancy, health
department licenses, food service licenses, certificates of need, business
licenses, permits, registrations, certificates, authorizations, approvals, and
similar documents required by applicable laws and regulations for the operation
of the Mortgaged Property as a Seniors Housing Facility, including replacements
and additions thereto.
 
“Lien” means any mortgage, deed of trust, deed to secure debt, security interest
or other lien or encumbrance (including both consensual and non-consensual liens
and encumbrances).
 
“Limited Guaranty” means the Limited Guaranty executed by the Key Principal as
of the date hereof.
 
“Liquidity” means, at any time, the amount of cash and Cash Equivalents owned by
a Person.
 
“Loan” means, collectively, the Initial Loan and any Additional Loan that may be
made under this Agreement.
 
“Loan Document Taxes” shall have the meaning set forth in Section 8.10.
 
“Loan Documents” means the Agreement, the Notes, the Security Documents, the
Completion Guaranty, the Limited Guaranty, all documents executed by Borrower or
Key Principal or any guarantor pursuant to the General Conditions set forth in
Section 6.01 of the Agreement and any other documents executed by Borrower or
Key Principal or any guarantor from time to time in connection with the
Agreement or the transactions contemplated by the Agreement.
 
“Loan Request” means a written request, substantially in the form of Exhibit M
to the Agreement for an Additional Loan as set forth in Section 1.01(b) or
Section 1.01(c).
 
“Loan to Value Ratio” means, for a Mortgaged Property, for any specified date,
the ratio (expressed as a percentage) of --

 
 
Appendix I-13

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(a)           the Allocable Loan Amount of the subject Mortgaged Property on the
specified date,
 
to
 
(b)           the Valuation most recently obtained prior to the specified date
for the subject Mortgaged Property.
 
“LOC Bank” means any financial institution issuing the Letter of Credit and
meeting the requirements set forth in Section 6.15(a).
 
“Management Agreement” means any agreement for management services as amended,
modified or supplemented from time to time, preapproved by Lender, under which
daily management or operation with respect to the Mortgaged Property as a
Seniors Housing Facility has been granted to any individual or entity other than
the Borrower.”
 
“Material Adverse Effect” means, with respect to any circumstance, act,
condition or event of whatever nature (including any adverse determination in
any litigation, arbitration, or governmental investigation or proceeding),
whether singularly or in conjunction with any other event or events, act or
acts, condition or conditions, or circumstance or circumstances, whether or not
related, a material adverse change in or a materially adverse effect upon any of
(a) the business, operations, property or condition (financial, physical or
otherwise) of Borrower or Key Principal, as applicable, to the extent
specifically referred to in the applicable provision of the applicable Loan
Document, (b) the present or future ability of Borrower to perform the
Obligations for which it is liable, or of any guarantor to perform its
obligations under any guaranty, as the case may be, to the extent specifically
referred to in the applicable provision of the applicable Loan Document, (c) the
validity, priority, perfection or enforceability of the Agreement or any other
Loan Document or the rights or remedies of Lender under any Loan Document, or
(d) the value of, or Lender’s ability to have recourse against, any Mortgaged
Property.
 
“MBS” means a mortgage-backed security issued by Fannie Mae which is “backed” by
a Loan and has an interest in the Notes and the Collateral Pool securing the
Notes, which interest permits the holder of the MBS to participate in the Notes
and the Collateral Pool to the extent of such Loan.
 
“MBS Delivery Date” means the date on which an MBS is delivered by Fannie Mae.
 
“MBS Interest Rate” in connection with a particular Loan with an MBS execution
shall be the “Interest Rate” set forth in the applicable Note.
 
 “MBS Issue Date” means the date on which an MBS is issued by Fannie Mae.
 
“Medicaid” means the medical assistance program established by Title XIX of the
Social Security Act (42 U.S.C. Secs. 1396 et seq.) and any statutes succeeding
thereto.
 
 
 
Appendix I-14

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“Medicare” means the health insurance program for the aged and disabled
established by Title XVIII of the Social Security Act (42 U.S.C. Secs. 1395 et
seq.) and any statutes succeeding thereto.
 
“Moody’s” means Moody’s Investors Service, Inc., a corporation organized and
existing under the laws of the State of Delaware, and its successors and
assigns, if such successors and assigns shall continue to perform the functions
of a securities rating agency.
 
“Mortgaged Properties” means, collectively, the Additional Mortgaged Properties,
the Substitute Mortgaged Properties, and the Initial Mortgaged Properties, but
excluding each Release Mortgaged Property from and after the date of its release
from the Collateral Pool.
 
“Multiemployer Plan” shall have the meaning set forth in Section 4001(a)(3) of
ERISA.
 
“Net Operating Income” means, for any specified period, with respect to any
Mortgaged Property, the aggregate net income during such period equal to Gross
Revenues during such period less the aggregate Operating Expenses during such
period.  If a Mortgaged Property is not owned by a Borrower or an Affiliate of a
Borrower for the entire specified period, the Net Operating Income for the
Mortgaged Property for the time within the specified period during which the
Mortgaged Property was owned by a Borrower or an Affiliate of a Borrower shall
be the Mortgaged Property’s pro forma net operating income determined by Lender
in accordance with the underwriting procedures set forth by Lender for similar
loans anticipated to be sold to Fannie Mae.
 
“Net Worth” means, as of any specified date, for any Person, the excess of the
Person’s assets over the Person’s liabilities, determined in accordance with
GAAP on a consolidated basis, provided that all real property shall be valued on
an undepreciated basis.
 
“New Collateral Pool Borrower” shall have the meaning set forth in Section
8.13(c).
 
“Note” means any Fixed Loan Note or any Variable Loan Note.
 
“Obligated Amounts” shall have the meaning set forth in Section 14.01(a).
 
“Obligations” means the aggregate of the obligations of Borrower under the
Agreement and the other Loan Documents.
 
“Operating Expenses” means, for any period, with respect to any Mortgaged
Property, all expenses in respect of such Mortgaged Property, as determined by
Lender based on the certified operating statement for such specified period as
adjusted to provide for the following: (i) all appropriate types of expenses,
including a management fee, deposits for the replacement reserves (whether
funded or not), and deposits for completion/repair reserves are included in the
total operating expense figure; (ii) upward adjustments to individual line item
expenses to reflect market norms or actual costs and correct any unusually low
expense items, which could not be replicated by a different owner or manager
(e.g., a market rate management fee will be included regardless of whether or
not a management fee is charged, market rate payroll will be included regardless
of whether shared payroll provides for economies, etc.); and (iii) downward

 
 
Appendix I-15

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adjustments to individual line item expenses to reflect unique or aberrant costs
(e.g., non-recurring capital costs, non-operating borrower expenses,
etc.).  “Operating Expenses” shall not include debt service, depreciation,
amortization and/or other similar items that would be treated as capital
expenses under GAAP.
 
“Operating Lease” means any operating lease, master lease, lease, sublease and
management agreement or similar document as amended, supplemented or modified
from time to time, preapproved by Lender, under which control of the occupancy,
use, operation, maintenance and administration of the Mortgaged Property as a
Seniors Housing Facility has been granted by Borrower as lessor to any Person
(other than the Borrower) as lessee.
 
“Operator” means the Person responsible for the operation or management of the
Mortgaged Property pursuant to an Operating Lease or Management Agreement with
the Borrower.  As of the date of this Agreement, the Operator for each Mortgaged
Property is set forth on Schedule 4.
 
“Operator Guaranty” means any and all guaranties of Operator’s obligations under
an Operating Lease or Management Agreement.
 
“Organizational Certificate” means, collectively, certificates from Borrower and
Key Principal to Lender, in the form of Exhibits D-1 and D-2 to the Agreement,
certifying as to certain organizational matters with respect to Borrower and Key
Principal.
 
“Organizational Documents” means all certificates, instruments and other
documents pursuant to which an organization is organized or operates, including
but not limited to, (i) with respect to a corporation, its articles of
incorporation and bylaws, (ii) with respect to a limited partnership, its
limited partnership certificate and partnership agreement, (iii) with respect to
a general partnership or joint venture, its partnership or joint venture
agreement and (iv) with respect to a limited liability company, its articles of
organization and operating agreement.
 
“Outstanding” or “outstanding” means, when used in connection with promissory
notes, other debt instruments or Loans, for a specified date, promissory notes
or other debt instruments which have been issued, or Loan which has been made,
to the extent not repaid in full as of the specified date.
 
“Ownership Interests” means, with respect to any entity, any ownership interests
in the entity and any economic rights (such as a right to distributions, net
cash flow or net income) to which the owner of such ownership interests is
entitled.
 
“PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding
to any or all of its functions under ERISA.
 
“Permits” means all permits, or similar licenses or approvals issued and/or
required by an applicable Governmental Authority or any Applicable Law in
connection with the ownership, use, occupancy, leasing, management, operation,
repair, maintenance or rehabilitation of any Mortgaged Property or any
Borrower’s business.

 
 
Appendix I-16

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“Permitted Indebtedness” means with respect to each Mortgaged Property, (i)
Indebtedness of up to $25,000 in the aggregate outstanding at any time for any
purchase-money obligations and/or Capital Lease obligations, (ii) Indebtedness
incurred by any Borrower pursuant to the Contribution Agreement, (iii) any
Additional Loan and (iv) any Intercompany Loan made in accordance with this
Agreement.
 
“Permitted Investments” means one or more of the following:
 
(i)           Certificates of deposit issued by financial institutions rated in
the Highest Rating Category;
 
(ii)           Government or U.S. Treasury securities of any maturity rated in
the Highest Rating Category;
 
(iii)           Fannie Mae, Freddie Mac and Ginnie Mae agency mortgage-backed
securities (single family or multifamily), provided that the value allocated to
such securities will be discounted by three percent (3%);
 
(iv)           Fannie Mae guaranteed investment contracts; or
 
(v)           Any other investment approved in writing by Lender.
 
“Permitted Liens” means, with respect to a Mortgaged Property, (i) the
exceptions to title to the Mortgaged Property set forth in the Title Insurance
Policy for the Mortgaged Property which are approved by Lender, (ii) the
Security Instrument encumbering the Mortgaged Property, (iii) any other Liens
approved by Lender, (iv) mechanics liens provided the same is removed or bonded
within thirty (30) days of notice of filing, (v) real estate taxes and water and
sewer and other utility charges that are a lien but not yet due and payable,
(vi) rights of residents at the Mortgaged Property pursuant to residency
agreements, occupancy agreements, admission agreements or care agreements and
(vii) liens securing indebtedness permitted under clause (i) of definition of
Permitted Indebtedness.
 
“Person” means an individual, an estate, a trust, a corporation, a partnership,
a limited liability company or any other organization or entity (whether
governmental or private).
 
“Plan” means at any time an employee pension benefit plan which is covered by
Title IV of ERISA or subject to the minimum funding standards under Section 412
of the Internal Revenue Code and is either (i) maintained by a member of the
Controlled Group for employees of any member of the Controlled Group or
(ii) maintained pursuant to a collective bargaining agreement or any other
agreement under which more than one employer makes contributions and to which a
member of the Controlled Group is then making or accruing an obligation to make
contributions or has within the preceding five (5) plan years made
contributions.
 
“Pledge, Interest Rate Cap Agreement” means a Pledge, Interest Rate Cap Reserve
and Security Agreement executed by the Borrower and Lender in form and substance
satisfactory to Lender in connection with a Variable Loan or a variable rate
Additional Loan, as the same may be amended, restated, modified or supplemented
from time to time.
 
 
 
Appendix I-17

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“Potential Event of Default” means any event that, with the giving of notice or
the passage of time, or both, would constitute an Event of Default.
 
“Potential Event of Default has occurred and is continuing” shall mean that
Potential Event of Default has occurred which has not been cured to the
satisfaction of Lender, provided however, that nothing shall be construed to
require Lender to accept any cure, or grant any cure period not otherwise
provided for in this Agreement.
 
“Privacy Laws” mean any federal, state and local laws and regulations applicable
to resident and tenancy privacy, including but not limited to HIPAA.
 
“Prohibited Person” means
 
(a)           any Person with whom Lender or Fannie Mae is prohibited from doing
business pursuant to any law, rule, regulation, judicial proceeding or
administrative directive; or
 
(b)           any Person identified on the United States Department of Housing
and Urban Development’s “Limited Denial of Participation, HUD Funding
Disqualifications and Voluntary Abstentions List,” or on the General Services
Administration’s “Excluded Parties List System,” each of which may be amended
from time to time, and any successor or replacement thereof; or
 
(c)           any Person that is determined by Fannie Mae to pose an
unacceptable credit risk due to the aggregate amount of debt of such Person
owned or held by Fannie Mae; or
 
(d)           any Person that has caused any unsatisfactory experience of a
material nature with Fannie Mae or Lender, such as a default, fraud, intentional
misrepresentation, litigation, arbitration or other similar act;
 
provided, however, in no event shall any Persons directly or indirectly owning
any public stock of Key Principal with no other direct or indirect ownership
interest in Borrower  be deemed a “Prohibited Person” for purposes of this
Agreement or any other Loan Document.
 
“Property” means any estate or interest in any kind of property or asset,
whether real, personal or mixed, and whether tangible or intangible.
 
“Property-Specific Event of Default” shall have the meaning set forth in Section
11.01.
 
“Rate Change Date”, in connection with a Variable Loan, has the meaning set
forth in the Variable Loan Note.
 
“Rate Form” means the completed and executed document from Borrower to Lender
pursuant to Section 2.01(b), substantially in the form of Exhibit F to the
Agreement, specifying the terms and conditions of the Loan, and the MBS to be
issued for the requested Loan.
 
“Rate Setting Date” shall have the meaning set forth in Section 2.01(b).
 
“Release Cure Period” shall have the meaning set forth in Section 11.01.
 
 
 
Appendix I-18

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“Release Documents” mean instruments releasing the applicable Security
Instrument as a Lien on a Mortgaged Property, and UCC-3 Termination Statements
terminating the UCC-1 Financing Statements, and such other documents and
instruments to evidence the release of such Mortgaged Property from the
Collateral Pool.
 
“Release Fee” means with respect to any Release effected in accordance with
Section 3.04(c), a fee in the amount of $20,000 per Release Mortgaged Property.
 
“Release Mortgaged Property” means the Mortgaged Property to be released
pursuant to Article 3.
 
“Release Price” shall have the meaning set forth in Section 3.04(c).
 
“Release Request” means a written request, substantially in the form of Exhibit
G to the Agreement, to obtain a release of Collateral from the Collateral Pool
pursuant to Section 3.04(a).
 
“Remaining Mortgaged Properties” shall have the meaning set forth in Section
6.05(f).
 
“Rent Roll” means, with respect to any Seniors Housing Facility, a rent roll
prepared and certified by the Operator or the owner of the Seniors Housing
Facility, on Fannie Mae Form 4243 or on another form approved by Lender and
containing substantially the same information as Form 4243 requires, it being
acknowledged that the forms attached hereto as Exhibit L are satisfactory to
Lender.
 
“Replacement Reserve Agreement” means a Master Replacement Reserve and Security
Agreement required by Lender, and satisfying Lender’s requirements, as the same
may be amended, modified or supplemented from time to time.
 
“Request” means a Loan Request, an Addition Request, a Release Request, a
Substitution Request and a Conversion Request or any request for a consent to
Transfer pursuant to Section 8.14.
 
“Required Insurance Escrow Payments” has the meaning given that term in Section
13.01(a).
 
“Rescinded Payment” has the meaning given that term in Section 14.02.
 
“S&P” shall mean Standard & Poor’s Credit Markets Services, a division of The
McGraw-Hill Companies, Inc., a New York corporation, and its successors and
assigns, if such successors and assigns shall continue to perform the functions
of a securities rating agency.
 
“Security” means a “security” as set forth in Section 2(1) of the Securities Act
of 1933, as amended.
 
“Security Documents” means the Security Instruments, the Subordination,
Assignment and Security Agreements, the Replacement Reserve Agreement, the
Completion/Repair and Security Agreement and any other documents executed by
Borrower from time to time to secure
 
 
 
Appendix I-19

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any of Borrower’s obligations under the Loan Documents as the same may be
amended, restated, modified or supplemented from time to time.
 
“Security Instrument” means, for each Mortgaged Property, a Multifamily
Mortgage, Deed of Trust or Deed to Secure Debt, Assignment of Leases and Rents
and Security Agreement given by a Borrower to or for the benefit of Lender to
secure the obligations of Borrower under the Loan Documents.  With respect to
each Mortgaged Property owned by a Borrower, the Security Instrument shall be
substantially in the form published by Fannie Mae for use in the state in which
the Mortgaged Property is located.  The amount secured by the Security
Instrument shall be equal to the Loan amount.
 
“Senior Management” means the Chief Executive Officer, the Chief Financial
Officer, the President, the Co-President and the Executive Vice President of
Finance in each case of Key Principal, and each of their successors.
 
“Senior Obligations” shall have the meaning set forth in Section 9.03.
 
“Seniors Housing Facility” means a residential housing facility that qualifies
as “housing for older persons” under the Fair Housing Amendments Act of 1988 and
the Housing for Older Persons Act of 1995 comprised of independent living units,
assisted living units and/or Alzheimer’s/dementia care units, or skilled nursing
units, as applicable.
 
“Servicer” means a servicer approved by Fannie Mae, which initially shall be Oak
Grove Commercial Mortgage, LLC and any permitted successor or assign.
 
“Single-Purpose” means, with respect to a Person that is any form of
partnership, real estate investment trust or corporation or limited liability
company, that such Person at all times since the date of this Agreement:
 
 
(i)
has been a duly formed and existing partnership, real estate investment trust or
corporation or limited liability company, as the case may be;

 
 
(ii)
has been duly qualified in each jurisdiction in which such qualification was at
such time necessary for the conduct of its business;

 
 
(iii)
has complied with the provisions of its organizational documents and the laws of
its jurisdiction of formation in all respects;

 
 
(iv)
has observed all customary formalities regarding its partnership, real estate
investment trust, corporate or limited liability company existence, as the case
may be;

 
 
(v)
has accurately maintained its financial statements, accounting records and other
partnership, corporate, or limited liability company documents, as the case may
be, separate from those of any other Person;

 
 
 
Appendix I-20

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(vi)
has not commingled its assets or funds with those of any other Person other than
with Key Principal and Affiliates as part of a centralized cash management
system operated in the ordinary course of business (provided each Borrower’s
assets and funds will be separately accounted for in the books and records of
Key Principal and Key Principal can identify such Person’s individual assets and
liabilities from those of any other Person);

 
 
(vii)
has identified itself in all dealings with creditors (other than trade creditors
in the ordinary course of business and creditors for the construction of
improvements to property on which such Person has a non-contingent contract to
purchase such property) under its own name and as a separate and distinct
entity;

 
 
(viii)
has been adequately capitalized in light of its contemplated business
operations, provided however, in the event Gross Revenues are insufficient to
pay all Operating Expenses and Obligated Amounts, Key Principal is not obligated
to capitalize Borrower in order for Borrower to pay such amounts;

 
 
(ix)
has not assumed, guaranteed or become obligated for the liabilities of any other
Person (except in connection with the Loan and Permitted Indebtedness, or the
endorsement of negotiable instruments in the ordinary course of business) or
held out its credit as being available to satisfy the obligations of any other
Person (except in connection with the Loan and Permitted Indebtedness);

 
 
(x)
has not acquired obligations or securities of any other Person (provided,
however, that the member or general partner or shareholder of Borrower shall not
fail to qualify as a Single-Purpose entity because of its ownership of
membership interests, partnership interest or shares in Borrower);

 
 
(xi)
in relation to a Borrower, has not made loans or advances to any other Person
except for any Intercompany Loan;

 
 
(xii)
has not entered into and was not a party to any transaction with any Affiliate
of such Borrower, except (a) in the ordinary course of business and on terms
which are no less favorable to such Borrower than would be obtained in a
comparable arm’s-length transaction with an unrelated third party or (b) in
connection with Permitted Indebtedness;

 
 
(xiii)
has paid the salaries of its own employees, if any, and maintained a sufficient
number of employees in light of its contemplated business operations, provided
however, in the event Gross Revenues are insufficient to pay all Operating
Expenses, including salaries of employees, if any, and Obligated Amounts, Key
Principal is not obligated to capitalize Borrower in order for Borrower to pay
such amounts;

 
 
(xiv)
has not engaged in any business or activity other than the leasing, ownership,
operation, financing and maintenance of the Mortgaged Properties, and activities
incidental thereto;

 
 
 
Appendix I-21

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(xv)
shall not acquire or own any assets other than (A) the Mortgaged Properties
and/or equity interests in a Person that owns the Mortgaged Properties and (B)
such incidental personal property as may be necessary to conduct the business
and activities permitted under clause (xiv) above;

 
 
 (xvi)
shall not maintain its assets in such a manner that it will be costly or
difficult to segregate, ascertain or identify its individual assets from those
of any other Person;

 
 
(xvii)
has not failed to hold itself out to the public as a legal entity separate and
distinct from any other Person or to conduct its business solely in its own name
or fail to correct any known misunderstanding regarding its separate identity;

 
 
(xviii)
has allocated fairly and reasonably any overhead for shared office space; and

 
 
(xix)
has not engaged in a non-exempt prohibited transaction described in Section 406
of ERISA or Section 4975 of the Internal Revenue Code.

 
“Skilled Nursing Units” shall mean all such facilities or units that are
licensed to operate as Skilled Nursing facilities or units in a Seniors Housing
Facility.
 
“Subordination, Assignment and Security Agreement” means a Subordination,
Assignment and Security Agreement, executed by an Operator, in form and
substance satisfactory to the Lender, as the same may be amended, restated,
modified and supplemented from time to time.
 
“Substitute Mortgaged Property” means the Mortgaged Property to be substituted
pursuant to Article 3.
 
“Substitution” shall have the meaning set forth in Section 3.05(a).
 
“Substitution Deposit” shall have the meaning set forth in Section 3.07(a).
 
“Substitution Fee” means with respect to any Substitution effected in accordance
with Section 3.05, a fee equal to the greater of: (i) 35 basis points of the
Allocated Loan Amount for the Substitute Mortgaged Property or (ii) $25,000 per
Substitute Mortgaged Property.
 
“Substitution Request” means the written request, substantially in the form of
Exhibit G to the Agreement, to add a Substitute Mortgaged Property to the
Collateral Pool pursuant to Section 3.05, Section 3.06 and Section 3.07.
 
“Survey” means the as-built survey of each Mortgaged Property prepared in
accordance with Lender’s requirements for similar loans that are anticipated to
be sold to Fannie Mae.
 
“Targeted Entity” means individually and collectively, Borrower and/or any
direct or indirect owner of Borrower, including Key Principal but excluding any
Persons directly or
 
 
 
Appendix I-22

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indirectly owning any public stock of Key Principal with no other direct or
indirect ownership interest in Borrower.
 
 “Taxes” means all taxes, assessments, vault rentals and other charges, if any,
general, special or otherwise, including all assessments for schools, public
betterments and general or local improvements, which are levied, assessed or
imposed by any public authority or quasi-public authority, and which, if not
paid, will become a lien, on the Mortgaged Properties.
 
“Term of this Agreement” shall be determined as provided in Section 15.10.
 
“Termination Date” means the latest maturity date for any Loan Outstanding.
 
“Texas Limited Liability Company Borrower” means individually, Brookdale
Lakeway, LLC, Brookdale Northwest Hills, LLC, Brookdale Cypress Station, LLC and
Brookdale Castle Hills, LLC, each a Delaware limited liability company.
 
“Texas Mortgaged Properties” means the Mortgaged Properties known as Summit at
Lakeway, Summit at Northwest Hills, Hampton at Cypress Station and Homewood
Residence at Castle Hills.
 
“Title Company” means the title company which provides title insurance for a
Mortgaged Property.
 
“Title Insurance Policies” means the mortgagee’s policies of title insurance
issued by the Title Company from time to time relating to each of the Security
Instruments, conforming to Lender’s requirements for similar loans anticipated
to be sold to Fannie Mae, together with such endorsements, coinsurance,
reinsurance and direct access agreements with respect to such policies as Lender
may, from time to time, consider necessary or appropriate, including variable
credit endorsements, if available, and tie-in endorsements, if available, and
with a limit of liability under the policy (subject to the limitations contained
in sections of the Stipulations and Conditions of the policy relating to a
Determination and Extent of Liability) equal to the Loan amount.
 
“Transfer” means
 
(1)           as used with respect to ownership interests in a Targeted Entity
or Affiliate Operator, (i) a sale, assignment, pledge, transfer or other
disposition of any ownership interest in a Targeted Entity or Affiliate
Operator, or (ii) the issuance or other creation of new ownership interests in a
Targeted Entity or Affiliate Operator, or (iii) a merger or consolidation of
Targeted Entity or Affiliate Operator into another entity or of another entity
into Targeted Entity or Affiliate Operator as the case may be, or (iv) the
reconstitution of Targeted Entity or Affiliate Operator from one type of entity
to another type of entity, or (v) the amendment, modification or any other
change in the governing instrument or instruments of Targeted Entity or
Affiliate Operator which has the effect of changing the relative powers, rights,
privileges, voting rights or economic interests of the ownership interests in
such Targeted Entity or Affiliate Operator.

 
 
Appendix I-23

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(2)           as used with respect to ownership interests in a Mortgaged
Property, Operating Lease or Management Agreement, (i) a sale, assignment,
lease, pledge, transfer or other disposition (whether voluntary or by operation
of law) of, or the granting or creating of a lien (other than a Permitted Lien),
encumbrance or security interest in, any estate, rights, title or interest in a
Mortgaged Property, or any portion thereof or Operating Lease or Management
Agreement.  Transfer does not include a conveyance of a Mortgaged Property at a
judicial or non-judicial foreclosure sale under any security instrument or the
Mortgaged Property becoming part of a bankruptcy estate by operation of law
under the Bankruptcy Code.
 
“Treasury Regulations” means Regulations, revenue rulings and other public
interpretations of the Internal Revenue Code by the Internal Revenue Service, as
such regulations, rulings and interpretations may be amended or otherwise
revised from time to time.
 
“Underwriting Requirements” means Lender’s overall underwriting requirements for
Seniors Housing Facilities in connection with loans anticipated to be sold to
Fannie Mae, pursuant to Fannie Mae’s then current guidelines, including, without
limitation, requirements relating to Appraisals, physical needs assessments, and
environmental site assessments, as such requirements may be amended, modified,
updated, superseded, supplemented or replaced from time to time.
 
“Valuation” means, for any specified date, with respect to a Seniors Housing
Facility, (a) if an Appraisal of the Seniors Housing Facility was more recently
obtained than a Capitalization Rate for the Seniors Housing Facility, the
Appraised Value of such Seniors Housing Facility, or (b) if a Capitalization
Rate for the Seniors Housing Facility was more recently obtained than an
Appraisal of the Seniors Housing Facility, the value derived by dividing--
 
 
(i)
the Net Operating Income of such Seniors Housing Facility, by

 
 
(ii)
the most recent Capitalization Rate determined by Lender.

 
Notwithstanding the foregoing, any Valuation for a Seniors Housing Facility
calculated for a date occurring before the first anniversary of the date on
which the Seniors Housing Facility becomes a part of the Collateral Pool shall
equal the Appraised Value of such Seniors Housing Facility, unless Lender
determines that changed market or property conditions warrant that the value be
determined as set forth in the preceding sentence.
 
“Variable Loan” means a loan made by Lender to Borrower that is anticipated to
be sold to Fannie Mae under the Fannie Mae Structured Adjustable Rate Mortgage
Program.
 
“Variable Loan Fee” means for any Variable Loan, the number of basis points per
annum determined at the time of such Variable Loan by Lender as the Variable
Loan Fee for such Variable Loan.
 
 “Variable Loan Note” means a promissory note (together with all schedules,
riders allonges, addenda, renewals, extensions, amendments and modifications
thereto), which has been issued by Borrower to Lender to evidence Borrower’s
obligation to repay the Variable Loan.
 
 
Appendix I-24

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 “Variable Rate Margin” has the definition set forth in the Variable Loan
Note.  The Margin shall include the Variable Loan Fee.
 

 
Appendix I-25