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EXHIBIT 10.3
 

 

 

 

 

AMENDED AND RESTATED
 
LIMITED LIABILITY COMPANY AGREEMENT
 
OF
 
CYPRESS DALLAS & FT. WORTH JV, LLC
 
A Delaware Limited Liability Company
 
 

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TABLE OF CONTENTS
 
Article I DEFINITIONS
1
   
Article II FORMATION OF COMPANY, NAME, ETC.
11
Section 2.1
Formation
11
Section 2.2
Name
11
Section 2.3
Limited Purpose of Company
11
Section 2.4
Term
11
Section 2.5
Principal Office
11
Section 2.6
Separateness from Affiliates
11
   
Article III CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS
13
Section 3.1
Initial Capital Contributions
13
Section 3.2
Member Loans
13
Section 3.3
Return of Capital
13
Section 3.4
Capital Accounts
13
Section 3.5
Working Capital Advance Account
13
   
Article IV ALLOCATIONS OF PROFITS AND LOSSES
14
Section 4.1
Allocation of Net Loss
14
Section 4.2
Allocation of Net Profits
14
Section 4.3
Allocation of Capital Items
15
Section 4.4
Special Allocations
15
Section 4.5
Curative Allocations
16
Section 4.6
Tax Allocations: Code Section 704(c)
17
   
Article V DISTRIBUTIONS
17
Section 5.1
Distribution of Net Cash Flow
17
Section 5.2
Distribution of Capital Proceeds
18
Section 5.3
Distributions in Kind
18
Section 5.4
Limitation on Distributions
18
   
Article VI MANAGEMENT OF THE COMPANY
18
Section 6.1
Managing Committee
18
Section 6.2
CNL Decisions
20
Section 6.3
Reduction in Management Committee Members
20
Section 6.4
Officers
20
Section 6.5
Authority of the Members
21
Section 6.6
Other Activities
21
Section 6.7
Conveyances
21
Section 6.8
Acquisition Loan
22
   
Article VII MEETINGS OF MEMBERS
22
Section 7.1
Member Meetings
22
Section 7.2
Location, Conduct and Adjournments
22
Section 7.3
Waiver of Notice
22
Section 7.4
Member Quorum and Voting
23
Section 7.5
Action by Members Without a Meeting
23
 
 
Article VIII OPERATIONAL ISSUES
23
Section 8.1
Management Services
23
Section 8.2
Accounting and Administrative Services
23
Section 8.3
Guaranteed Payments
23

 
 
 
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Section 8.4
Sale of the Properties
24
Section 8.5
Rights of Offer
24
   
Article IX TRANSFER OF A MEMBER’S INTEREST; MEZZANINE LOAN COVENANTS
25
Section 9.1
Restrictions on Transfer
25
Section 9.2
Substituted Members
25
Section 9.3
Admission of Additional Members
26
Section 9.4
Mezzanine Loan Covenants
26
   
Article X PURCHASE OPTION UPON BANKRUPTCY
27
Section 10.1
Option Rights
27
Section 10.2
Obligations of Bankrupt Member
27
Section 10.3
Payment of Fair Value
28
Section 10.4
Determination of Fair Value
28
Section 10.5
Rights of Mezzanine Lender
28
   
Article XI DISSOLUTION, REFORMATION, LIQUIDATION, ETC.
29
Section 11.1
Termination of Membership
29
Section 11.2
Dissolution
29
Section 11.3
Continuation Event
29
Section 11.4
Winding Up of the Company
30
   
Article XII ACCOUNTING AND ADMINISTRATIVE MATTERS
30
Section 12.1
Books and Records
30
Section 12.2
Financial Statements
30
Section 12.3
Tax Matters Partner
31
 
 
Article XIII INDEMNIFICATION
31
Section 13.1
Indemnification
31
Section 13.2
Advancement of Legal Costs and Expenses
31
Section 13.3
Provisions Not Exclusive
32
Section 13.4
Insurance
32
   
Article XIV MISCELLANEOUS MATTERS
32
Section 14.1
Governing Laws
32
Section 14.2
Acknowledgment
32
Section 14.3
Notices
32
Section 14.4
Force Majeure
33
Section 14.5
Entire Agreement
33
Section 14.6
Severability
34
Section 14.7
Construction Rules
34
Section 14.8
Binding Effect
34
Section 14.9
Jurisdiction and Venue
34
Section 14.10
Attorney Fees
34
Section 14.11
Counterparts
35
Section 14.12
Expiration of Loan Covenants
35
   
Exhibit A (Dallas Property)
A
Exhibit A-1 (Forth Worth Property)
A
Exhibit B
B
Exhibit C (Form of Management Agreement)
C

 
 
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AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
CYPRESS DALLAS & FT. WORTH JV, LLC

This Amended and Restated Limited Liability Company Agreement (the “Agreement”)
of CYPRESS DALLAS & FT. WORTH JV, LLC, a Delaware limited liability company (the
“Company”), is entered into as of the 28th day of February, 2006, by DALLAS &
FORT WORTH SENIOR HOUSING, LLC, a Delaware limited liability company (“CNL”),
and ARC CYPRESS, LLC, a Tennessee limited liability company (“ARC”), as members
(CNL and ARC are sometimes referred to herein as the “Members” or individually
as a “Member”).
 
Preamble:
 
WHEREAS, pursuant to the Certificate of Formation of the Company filed in the
office of the Delaware Secretary of State on January 26, 2006, the Company was
formed as a limited liability company under the Delaware Limited Liability
Company Act;
 
WHEREAS, prior to the date of this Agreement, ARC owned one hundred percent
(100%) of the Interests in the Company and in connection therewith entered into
that certain Limited Liability Company Agreement dated January 26, 2006 (the
“Original LLC Agreement”); and
 
WHEREAS, the parties desire (i) for CNL to be admitted as a Member of the
Company and (ii) to enter into this Agreement for the purpose of (a) amending
and restating the Original LLC Agreement in its entirety and (b) setting forth
and agreeing upon their respective rights, duties and responsibilities with
respect to the management and affairs of the Company and memorializing certain
other agreements between them with respect to the Company and their interests
therein.
 
NOW, THEREFORE, for and in consideration of the foregoing premises, the mutual
covenants and agreements set forth herein, the contributions to the capital of
the Company made and to be made hereunder, and for other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged,
the parties hereby agree as follows:
 
ARTICLE I
DEFINITIONS
 
The following terms used in this Agreement, unless the context otherwise
requires, shall have the following meanings:
 
“Acquisition Financing Documents” shall mean the promissory note evidencing the
Acquisition Loan and all other agreements entered into with or for the benefit
of Acquisition Lender related to the Acquisition Loan.
 
“Acquisition Lender” means, collectively, the Lenders under and as defined in
the Acquisition Loan Agreement.
 
 
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“Acquisition Loan” means the loan provided by the Acquisition Lender to the
Company and the Property Subsidiaries in the principal amount of Fifty-Five
Million Seven Hundred Sixty-Five Thousand Dollars ($55,765,000.00) for the
acquisition of the Properties.
 
“Acquisition Loan Agreement” means the Credit and Security Agreement dated as of
February 28, 2006 among Property Subsidiaries, as borrowers, Merrill Lynch, as
administrative agent and as a lender, and the other lenders from time to time
parties thereto.
 
“Act” means the Delaware Limited Liability Company Act, as the same may be
amended from time to time.
 
“Adjusted Capital Account Deficit” means, with respect to any Member, the
deficit balance, if any, in a Member’s Capital Account, after giving effect to
the following adjustments:
 
(i)    Credit to such Capital Account any amounts such Member is deemed to be
obligated to restore pursuant to the penultimate sentences of Regulations
Sections 1.704-(g)(1) and 1.704-2(i)(5); and
 
(ii)    Debit to such Capital Account, the items described in Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
 
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d), and
shall be interpreted consistently therewith.
 
“Affiliate” means, when used with reference to any Person, (i) any Person that,
directly or indirectly, through one or more intermediaries controls, is
controlled by, or is under common control with, or owns a greater than fifty
percent (50%) interest in the specified Person (the term “control” for this
purpose, shall mean the ability, whether by the ownership of shares or other
equity interest, by contract or otherwise, to elect a majority of the directors
of a corporation, independently to select the managing partner of a partnership
or the manager or managers of a limited liability company, or otherwise to have
the power independently to remove and then select a majority of those Persons
exercising governing authority over an entity, and control shall be conclusively
presumed in the case of the direct or indirect ownership of fifty percent (50%)
or more of the equity interests in the specified Person); and (ii) a spouse,
parent, sibling, or issue of such Person.
 
“Agreement” or “this Agreement” means this Limited Liability Company Agreement
of Cypress Dallas & Ft. Worth JV, LLC, as originally executed and as it may be
amended from time to time.
 
“Approval of the Members” and “Approved by the Members” means the unanimous
written approval of all of the Members.
 
 
 
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“Bankrupt Member” means any Member (a) that (i) makes a general assignment for
the benefit of creditors; (ii) files a voluntary bankruptcy petition; (iii)
becomes the subject of an order for relief or is declared insolvent in any
federal or state bankruptcy or insolvency proceedings; (iv) files a petition or
answer seeking for the Member a reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any law; (v)
files an answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Member in a proceeding of the type
described in subclauses (i) through (iv) of this clause (a); or (vi) seeks,
consents to, or acquiesces in the appointment of a trustee, receiver, or
liquidator of the Member’s properties or of all or any substantial part thereof;
or (b) against which, a proceeding seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar relief under any
law has been commenced and sixty (60) days have expired without dismissal
thereof or with respect to which, without the Member’s consent or acquiescence,
a trustee, receiver, or liquidator of the Member or of all or any substantial
part of the Member’s properties has been appointed and sixty (60) days have
expired without the appointments having been vacated or stayed, or sixty (60)
days have expired after the date of expiration of a stay, if the appointment has
not previously been vacated.
 
“Business Day” means any day other than a Saturday, Sunday, or other day on
which commercial banks are authorized to close under the laws of, or are in fact
closed in, the State of Texas.
 
“Capital Account” means, with respect to any Member, the capital account
maintained for such Member in accordance with the following provisions:
 
(i)    To each Member’s Capital Account there shall be credited (a) such
Member’s Capital Contributions, (b) such Member’s distributive share of Net
Profits and any items in the nature of income or gain that are specially
allocated pursuant to Section 4.3, Section 4.4 or Section 4.5 hereof, and (c)
the amount of any Company liabilities assumed by such Member or that are secured
by any property distributed to such Member. The principal amount of a promissory
note that is not readily traded on an established securities market and that is
contributed to the Company by the maker of the note (or a Member related to the
maker of the note within the meaning of Regulations Section
1.704-1(b)(2)(ii)(c)) shall not be included in the Capital Account of any Member
until the Company makes a taxable disposition of the note or until (and to the
extent) principal payments are made on the note, all in accordance with
Regulations Section 1.704-1(b)(2)(iv)(d)(2);
 
(ii)    To each Member’s Capital Account there shall be debited (a) the amount
of money and the Gross Asset Value of property distributed to such Member
pursuant to any provision of this Agreement, (b) such Member’s distributive
share of Losses and any items in the nature of expenses or losses that are
specially allocated pursuant to Section 4.3, Section 4.4 or Section 4.5 hereof,
and (c) the amount of any liabilities of such Member assumed by the Company or
that are secured by any property contributed by such Member to the Company;
 
 
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(iii)    In the event an Interest is transferred in accordance with the terms of
this Agreement, the transferee shall succeed to the Capital Account of the
transferor to the extent it relates to the transferred Interest; and
 
(iv)    In determining the amount of any liability for purposes of subparagraphs
(i) and (ii) above there shall be taken into account Code Section 752(c) and any
other applicable provisions of the Code and Regulations.
 
The foregoing provisions and the other provisions of this Agreement relating to
the maintenance of Capital Accounts are intended to comply with Regulations
Section 1.704-1(b), and shall be interpreted and applied in a manner consistent
with such Regulations. In the event the Committee determines that it is prudent
to modify the manner in which the Capital Accounts, or any debits or credits
thereto (including, without limitation, debits or credits relating to
liabilities that are secured by contributed or distributed property or that are
assumed by the Company or any Members), are computed in order to comply with
such Regulations, the Committee may make such modification, provided that it is
not likely to have a material effect on the amounts distributed to any Person
pursuant to Article 11 hereof upon the dissolution of the Company. The Committee
also shall (i) make any adjustments that are necessary or appropriate to
maintain equality between the Capital Accounts of the Members and the amount of
capital reflected on the Company’s balance sheet, as computed for book purposes,
in accordance with Regulations Section 1.704-1(b)(2)(iv)(q) and (ii) make any
appropriate modifications in the event unanticipated events might otherwise
cause this Agreement not to comply with Regulations Section 1.704-1(b).
 
“Capital Contributions” means, with respect to any Member, the amount of money
and the initial Gross Asset Value of any property (other than money) contributed
to the Company with respect to the Interest in the Company held or purchased by
such Member.
 
“Capital Proceeds” shall mean the cash proceeds (net of costs, expenses, any
amounts required to be paid into escrow and any debts required to be paid
pursuant to the transaction generating such proceeds or pursuant to any Company
or any Property Subsidiary financing) received by the Company from:
 
(a)    a Property Subsidiary’s sale, exchange or other disposition of any
portion of the Properties or the Senior Living Facilities, other than those
resulting in, or in the course of, the liquidation and dissolution of the
Company, which shall be governed by Article 11 hereof;
 
(b)    any mortgage financing or refinancing of any mortgage loans on the
Properties or the Senior Living Facilities entered into by the Company or any
Property Subsidiary (including any permanent loan), but not including any
advances borrowed by the Company or a Property Subsidiary under the terms of the
Acquisition Loan or any Member Loan; or
 
(c)    any condemnation, casualty insurance or any other nonrecurring proceeds
received by the Company or any Property Subsidiary not used for the restoration
of the Properties or the Senior Living Facilities.
 
“Capital Transactions” means any transaction that produces Capital Proceeds.
 
 
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“Certificate” means the Certificate of Formation of the Company that was filed
with the Delaware Secretary of State, as the same may be amended from time to
time.
 
“CNL Decision” and “CNL Decisions” shall have the meaning set forth in Section
6.2 hereof.
 
“Code” means the Internal Revenue Code of 1986, as amended (or any corresponding
provision or provisions of succeeding law).
 
“Committee” shall have the meaning set forth in Section 6.1 hereof.
 
“Committee Reduction Event” shall have the meaning set forth in Section 6.3
hereof.
 
“Company” means the limited liability company created by the filing of the
Certificate, as the Company may from time to time be constituted.
 
“Company Minimum Gain” has the meaning given to the term “partnership minimum
gain” in Regulations Sections 1.704-2(b)(2) and 1.704-2(d).
 
“Dallas Facility” means the senior residential living facility owned by Cypress
Dallas, L.P., a Delaware limited partnership and Property Subsidiary, and
located on the Dallas Property consisting of approximately two hundred
seventy-six (276) residential units.
 
“Dallas Property” means the real property and improvements located thereon owned
by Cypress Dallas, L.P., a Delaware limited partnership and Property Subsidiary,
as described on Exhibit A attached hereto.
 
“Depreciation” means, for each Fiscal Year or other period, an amount equal to
the depreciation, amortization or any other cost recovery deduction allowable
with respect to an asset for such year or other period, except that if the Gross
Asset Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such Fiscal Year or other period, Depreciation
shall be an amount that bears the same ratio to such beginning Gross Asset Value
as the federal income tax depreciation, amortization or other cost recovery
deduction for such Fiscal Year or other period bears to such beginning adjusted
tax basis; provided, however, that if the adjusted basis for federal income tax
purposes of an asset at the beginning of such Fiscal Year or other period is
zero, Depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by the Committee.
 
“Effective Date” means February 28, 2006.
 
“Event of Bankruptcy” shall mean any event that causes a Member to be deemed a
Bankrupt Member.
 
“Event of Default” shall have the meaning set forth in Section 9.4(b) hereof.
 
“Fiscal Year” means the Fiscal Year of the Company, which shall be the calendar
year.
 
“Force Majeure” shall have the meaning set forth in Section 14.4 hereof.
 
“Fort Worth Facility” means the senior residential living facility owned by
Cypress Ft. Worth, L.P., a Delaware limited partnership and Property Subsidiary,
and located on the Fort Worth Property consisting of approximately two hundred
thirteen (213) units.
 
“Fort Worth Property” means the real property and improvements located thereon
owned by Cypress Ft. Worth, L.P., a Delaware limited partnership and Property
Subsidiary, as described on Exhibit A-1 attached hereto.
 
“Governmental Authority” shall mean any board, bureau, commission, department or
body of any municipal, county, state or federal governmental or
quasi-governmental unit, or any subdivision thereof, having or acquiring
jurisdiction over any of the Properties or any portion thereof or the
management, operation, use or improvement thereof.
 
 
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“Gross Asset Value” means, with respect to any asset, the asset’s adjusted basis
for federal income tax purposes, except as follows:
 
(i)    The initial Gross Asset Value of any asset contributed by a Member to the
Company shall be the gross fair market value of such asset, as determined by the
Majority in Interest of the Members;
 
(ii)    The Gross Asset Value of each Company asset shall be adjusted to equal
its respective gross fair market value (taking into account Code Section
7701(g)), as determined by the Committee, as of the following times: (a) the
acquisition of an additional Interest in the Company by any new or existing
Member in exchange for more than a de minimis Capital Contribution; (b) the
distribution by the Company to a Member of more than a de minimis amount of
Company property as consideration for an Interest in the Company; and (c) the
liquidation of the Company within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g); provided, however, that an adjustment described in clauses
(a) and (b) of this subparagraph (ii) shall be made only if the Committee
reasonably determines that such adjustment is necessary to reflect the relative
economic interests of the Members in the Company;
 
(iii)    The Gross Asset Value of any Company asset distributed to any Member
shall be adjusted to equal the gross fair market value (taking into account Code
Section 7701(g)) of such asset on the date of distribution as determined by the
Committee; and
 
(iv)    The Gross Asset Values of Company assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Sections 734(b) or 743(b), but only to the extent that such
adjustments are taken into account in determining Capital Accounts pursuant to
Regulations Section 1.704-1(b)(2)(iv)(m) and subparagraph (vi) of the definition
of “Net Profits” and “Net Loss” or Section 4.4(g); provided, however, that Gross
Asset Values shall not be adjusted under this subparagraph (iv) to the extent
that an adjustment pursuant to subparagraph (ii) is required in connection with
a transaction that would otherwise result in an adjustment pursuant to this
subparagraph (iv). If the Gross Asset Value of an asset has been determined or
adjusted pursuant to subparagraph (i), (ii), or (iv), such Gross Asset Value
shall thereafter be adjusted by the Depreciation taken into account with respect
to such asset, for purposes of computing Net Profits and Net Loss.
 
“Initial Capital Contributions” means, with respect to each Member, the amount
of money and the initial Gross Asset Value of any property (other than money)
contributed or to be contributed to the Company by CNL and ARC as reflected on
Exhibit B attached hereto.
 
“Interest” means, as to any Member, all of the limited liability company
interest of that Member in the Company, including, but not limited to, such
Member’s (i) Capital Account, (ii) right to allocations of items of income,
gain, loss, deduction and credit of the Company in accordance with the terms of
this Agreement, (iii) right to a distributive share of the Company’s assets, and
(iv) voting and managerial rights, including the right to appoint and remove
members of the Committee.
 
 
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“Major Condemnation” means an event in which all or substantially all of a
Senior Living Facility shall be taken in an eminent domain, condemnation,
compulsory acquisition or similar proceeding by any competent authority for any
public or quasi-public use or purpose, or an event in which a portion of such
Senior Living Facility shall be so taken, but the result is that it is
unreasonable to continue to operate such Senior Living Facility in accordance
with the standards required under the Management Agreement.
 
“Majority in Interest of the Members” means Members who collectively own more
than fifty percent (50%) of the Percentage Interests. Where such term is
prefaced by a modifying fraction or percentage, which is greater than fifty
percent (50%), e.g. “two-thirds,” then the modified term means Members who
collectively own at least the stated fraction or percentage of the Percentage
Interests.
 
“Management Agreement” has the meaning given such term in Section 8.1 hereof.
 
“Member” means any one of the Members.
 
“Members” means all Persons admitted to the Company as a Member, initially CNL
and ARC.
 
“Member Nonrecourse Debt” has the meaning given to the term “partner nonrecourse
debt” in Regulations Section 1.704-2(b)(4).
 
“Member Nonrecourse Debt Minimum Gain” means an amount with respect to each
Member Nonrecourse Debt equal to the Company Minimum Gain that would result if
such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined
in accordance with Regulations Section 1.704-2(i)(3).
 
“Member Nonrecourse Deductions” has the meaning given to the term “partner
nonrecourse deductions” in Regulations Sections 1.704-2(i)(1) and 1.704-2(i)(2).
 
“Merrill Lynch” means Merrill Lynch Capital, a Division of Merrill Lynch
Business Financial Services, Inc.
 
“Mezzanine Assignment” shall have the meaning given to such term in Section
9.4(a) hereof.
 
“Mezzanine Financing Documents” shall have the meaning given to such term in
Section 9.4 hereof.
 
“Mezzanine Indebtedness” shall have the meaning given to such term in Section
9.4 hereof.
 
 
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“Mezzanine Lender” means, collectively, the Lenders under and as defined in the
Mezzanine Loan Agreement.
 
“Mezzanine Loan” means the loan provided by the Mezzanine Lender to CNL in the
principal amount of Twenty-Four Million One Hundred Seventy-Four Thousand
Dollars ($24,174,000).
 
“Mezzanine Loan Agreement” means the Mezzanine Credit and Security Agreement
dated February 28, 2006, among CNL, as borrower, Merrill Lynch, as
administrative agent and as a lender, and the other lenders from time to time
party thereto.
 
“Net Cash Flow” means the gross cash proceeds of the Company less (i) the
portion thereof used to pay or establish reserves for all Company expenses
(including any corporate maintenance expenses), debt payments, capital
improvements, replacements, and contingencies, all as determined by the
Committee, and (ii) Capital Proceeds. “Net Cash Flow” shall not be reduced by
depreciation, amortization, cost recovery deductions, or similar allowances, but
shall be increased by any reductions of reserves previously established pursuant
to the first sentence of this definition.
 
“Net Profit” and “Net Loss” means, for each Fiscal Year or other period, an
amount equal to the Company’s taxable income or taxable loss for such Fiscal
Year or other period, determined in accordance with Code Section 703(a) (for
this purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
 
(i)    Any income of the Company that is exempt from federal income tax and not
otherwise taken into account in computing Net Profits or Net Losses pursuant to
this definition shall be added to such taxable income or loss;
 
(ii)    Any expenditures of the Company described in Code Section 705(a)(2)(B),
or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations
Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing
Net Profits or Net Loss pursuant to this definition, shall be subtracted from
such taxable income or loss;
 
(iii)    In the event the Gross Asset Value of any Company asset is adjusted
pursuant to subparagraphs (ii) or (iii) of the definition of “Gross Asset
Value,” the amount of such adjustment shall be treated as an item of gain (if
the adjustment increases the Gross Asset Value of the asset) or an item of loss
(if the adjustment decreases the Gross Asset Value of the asset) from the
disposition of such asset and shall be taken into account for purposes of
computing Profits or Losses;
 
(iv)    Gain or loss resulting from any disposition of Company property with
respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property disposed
of, notwithstanding that the adjusted tax basis of such property differs from
its Gross Asset Value;
 
(v)    In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such Fiscal Year or other period,
computed in accordance with the definition of “Depreciation” hereinabove; and
 
 
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(vi)    To the extent an adjustment to the adjusted tax basis of any Company
asset pursuant to Code Section 734(b) is required, pursuant to Regulations
Section 1.704-(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as a result of a distribution other than in liquidation of a Member’s
interest in the Company, the amount of such adjustment shall be treated as an
item of gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis) from the disposition of such asset and
shall be taken into account for purposes of computing Net Profits and Net Loss;
 
(vii)    Notwithstanding any other provision of this definition, any items that
are specially allocated pursuant to Section 4.3, Section 4.4 or Section 4.5
below shall not be taken into account in computing Net Profits or Net Loss; and
 
(viii)    The amounts of the items of Company income, gain, loss, or deduction
available to be specially allocated pursuant to Section 4.3, Sections 4.4 and
4.5 hereof shall be determined by applying rules analogous to those set forth in
subparagraphs (i) through (vi) above.
 
“Nonrecourse Deductions” has the meaning given to such term in Regulations
Section 1.704-2(b)(1) and 1.704-2(c).
 
“Nonrecourse Liability” has the meaning given to such term in Regulations
Section 1.704-2(b)(3).
 
“Percentage Interest” means, with respect to any Member, the Interest of the
Member in the Company expressed as a percentage for the purposes of allocating
items of income, gain, loss, deduction and credit of the Company and making
distributions of cash pursuant to the terms of this Agreement and determining
the respective voting rights of the Members hereunder. The Percentage Interest
of the Members are set forth on Exhibit B attached hereto.
 
“Person” means any individual, partnership, corporation, limited liability
company, limited partnership, trust, estate, or other entity.
 
“Preamble” means the preamble to this Agreement appearing prior to this Article
1.
 
“Prime Rate” means the prime rate of interest as published in the “Money Rates”
section of the Eastern Edition of the Wall Street Journal.
 
“Property” means any one of the Properties.
 
“Properties” means the Dallas Property and the Fort Worth Property.
 
“Property Manager” means ARC MANAGEMENT, LLC, a Tennessee limited liability
company, in its capacity as the manager of the Properties pursuant to the terms
and conditions of the Management Agreements, and any successor Person employed
by the Property Subsidiaries as manager of the Properties pursuant to the terms
and conditions of a property management agreement.
 
 
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“Property Subsidiaries” means Cypress Dallas, L.P., a Delaware limited
partnership, and Cypress Ft. Worth, L.P., a Delaware limited partnership.
 
“Property Subsidiary” means any one of the Property Subsidiaries.
 
“Regulations” means the permanent and temporary Income Tax Regulations, and all
amendments, modifications, and supplements thereof, from time to time
promulgated by the Department of the Treasury under the Code.
 
“Senior Living Facility” means any one of the Senior Living Facilities.
 
“Senior Living Facilities” means the Dallas Facility and the Forth Worth
Facility.
 
“Subsidiaries” means Cypress Dallas GP, LLC, a Delaware limited liability
company, and Cypress Ft. Worth GP, LLC, a Delaware limited liability company.
 
“Subsidiary” means any one of the Subsidiaries.
 
“Substituted Member” has the meaning given to such term in Section 9.2.
 
“Total Casualty” will mean any fire or other casualty which results in damage to
a Senior Living Facility and its contents to the extent that it would be
commercially impractical to undertake to repair and/or replace such Senior
Living Facility to substantially the same condition as previously existed.
 
“Unreturned Capital Contributions” means, with respect to each Member, as of any
date, an amount equal to the aggregate Capital Contributions made by such
Member, less, as to such Member, the total cash distributions made to such
Member in return of such Capital Contributions pursuant to Sections 5.2(b).
 
“Working Capital Advances” means any advances voluntarily made by a Member or an
Affiliate thereof to the Company for the purpose of funding the working capital
needs of the Company or of a Subsidiary or Property Subsidiary.
 
“Working Capital Advances Account” means an account maintained by the Company
for each Member that shall be credited (increased) with the Working Capital
Advances as and when made by such Member to the Company, credited (increased) by
the Working Capital Advances Return and debited (decreased) by amounts
distributed to such Member pursuant to Sections 5.1(a) and 5.2(a).
 
“Working Capital Advances Return” means an amount computed as if a Member were
earning a rate of interest equal to the Prime Rate per annum, calculated monthly
and non-compounded, on the outstanding balance of such Member’s Working Capital
Advances Account. The Working Capital Advances Return shall be calculated from
and after the date on which Working Capital Advances are made until the date of
distribution to a Member.
 
Terms defined in the Preamble have the meaning therein specified. To the extent
that terms bearing initial upper case letters appear in this Agreement but are
not defined in the Preamble or in this Article, such terms shall have the
meaning set forth elsewhere in this Agreement.
 
 
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ARTICLE II
FORMATION OF COMPANY, NAME, ETC.
 
Section 2.1 Formation. 
 
The Company was formed by the filing of the Certificate with the Secretary of
State of the State of Delaware (the “Secretary of State”) pursuant to the
applicable provisions of the Act. Christopher L. Haley, as an “authorized
person” within the meaning of the Act, executed, delivered and filed the
Certificate with the Secretary of State. Upon the filing of the Certificate, his
powers ceased and ARC thereupon became the designated “authorized person.”
 
Section 2.2 Name. 
 
The name of the Company shall be Cypress Dalls & Ft. Worth JV, LLC and the
business and affairs of the Company shall be conducted under that name or such
other name as may be Approved by the Members from time to time.
 
Section 2.3 Limited Purpose of Company. 
 
(a)    The Company is organized for the limited purpose of (i) owning a limited
partnership interest in the Property Subsidiaries and (ii) acting as the sole
member and managing-member of the Subsidiaries.
 
(b)    Subject to Section 6.2, the Company is empowered to do any and all acts
and things necessary, appropriate, proper, advisable, incidental to or
convenient for the furtherance and accomplishment of the purposes and business
described herein and for the protection and benefit of the Company and the
Subsidiaries, including, but not limited to, full power and authority to (i)
enter into, perform and carry out contracts of any kind and (ii) pledge any and
all interests in the Subsidiaries and the Property Subsidiaries to secure the
Acquisition Loan from the Acquisition Lender, and to secure any refinancing of
the Acquisition Loan as permitted under the Acquisition Loan Agreement.
 
Section 2.4 Term. 
 
The Effective Date of this Agreement is February 28, 2006, and the term of the
Company shall be perpetual, unless earlier dissolved and terminated (and not
reconstituted by at least a Majority in Interest of the remaining Members, as
provided for in this Agreement) pursuant to the Act or any provision of this
Agreement.
 
Section 2.5 Principal Office. 
 
The Company’s principal office shall initially be located at 111 Westwood Place,
Suite 200, Brentwood, Tennessee 37027. The Committee may change the location of
the Company’s principal office from time to time or establish and maintain
additional places of business for the Company, and shall make any filing and
take any other action required by applicable law in connection with the change.
 
 
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Section 2.6 Separateness from Affiliates. 
 
The Company and the Members shall cause the Company to:
 
(a)    be legally and in fact separate from any other Person;
 
(b)    conduct its business in its own name and to use its own name for the
purposes of obtaining required registrations, licenses and permits (whether
governmental, administrative or otherwise) necessary to the conduct of its
business;
 
(c)    correct any known misunderstandings regarding its separate identity;
 
(d)    maintain its books and records separate from those of any other Person
and, if required by law to file tax returns, file its tax returns separate from
those of any other Person;
 
(e)    maintain its funds and accounts separate from those of any other Person;
 
(f)    not commingle its assets with those of the Members or any other Person;
 
(g)    maintain its financial statements separate from the financial statements
of any other Person; provided, however, that nothing contained herein shall
prohibit the inclusion of the Company in consolidated financial statements with
other entities as long as the Company’s separate existence is noted in any such
statements;
 
(h)    use stationery, invoices and checks separate from those of any other
Person;
 
(i)    pay its liabilities out of its own funds; provided, however, the
foregoing shall not require the Members to make any additional Capital
Contributions to the Company;
 
(j)    not acquire obligations or securities of the Members or its Affiliates;
 
(k)    pay the salaries of its employees, if any, and maintain a sufficient
number of employees in light of its contemplated business operations; provided,
however, the foregoing shall not require the Members to make any additional
Capital Contributions to the Company;
 
(l)    allocate fairly and reasonably any overhead for shared office space;
 
(m)    maintain adequate capital in light of its contemplated business
operations and purpose; provided, however, the foregoing shall not require the
Members to make any additional Capital Contributions to the Company;
 
(n)    limit the debt of the Company to the debt incurred in the ordinary course
of business and debt incurred as described in Section 2.3 hereof;
 
 
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(o)    not guarantee or become obligated for the debts of any other Person or
hold out its credit as being available to satisfy the obligations of others or,
except as provided in Section 2.3 hereof, allow others to guarantee or become
liable on the debts of the Company;
 
(p)    except as described in Section 2.3 hereof, not pledge its assets for the
benefit of any other Person or make any loans or advances to any Person;
 
(q)    not make loans to any other Person or buy or hold evidence of
indebtedness issued by any other Person (except for cash and investment-grade
securities); 
 
(r)    observe all Delaware limited liability company formalities;
 
(s)    maintain an arm’s-length relationship with its Affiliates; and
 
(t)    not take any action if, as a result of such action, the Company would be
required to register as an investment company under the Investment Company Act
of 1940, as amended.
 
ARTICLE III
CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS
 
Section 3.1 Initial Capital Contributions. 
 
The Members shall contribute the amount of capital opposite their names as set
forth on Exhibit B attached hereto (the contributions set forth on Exhibit B
shall be referred to herein as the “Initial Capital Contributions”) and are
granted the Percentage Interests set forth on Exhibit B. The Members shall have
no right or obligation to make any further Capital Contributions to the Company.
 
Section 3.2 Member Loans. 
 
In order to satisfy its, a Subsidiary’s or a Property Subsidiary’s financial
needs that could not be satisfied through one or more Working Capital Advances,
the Company may borrow funds from ARC or CNL or one of their Affiliates to
address such needs (each a “Member Loan”). Unless otherwise designated in the
loan agreements or accompanying documents, repayment of principal and interest
on such loans will be solely the obligation of the Company and not of the
Members and shall, in each case, be subject to a subordination agreement in the
form required by the Acquisition Loan Agreement. Any loans to the Company from
ARC, CNL or one of their respective Affiliates shall be Approved by the Members
and shall bear interest at the Prime Rate. No Member shall be obligated to make
any Member Loan.
 
Section 3.3 Return of Capital. 
 
No Member shall have any liability for the return of any Member’s Capital
Contributions. A Member shall not receive out of the Company’s property all or
any part of such Member’s Capital Contributions except as provided in Sections
5.1 and 5.2 hereof.
 
Section 3.4 Capital Accounts. 
 
The Company shall maintain for each Member an account designated as such
Member’s Capital Account. The Capital Accounts shall be maintained in accordance
with Section 1.704-1(b)(2)(iv) of the Regulations, and the items of income,
profit, gain, expenditures, deductions and losses which increase or decrease
such capital accounts shall be those items which, pursuant to such Regulations,
affect the balance of capital accounts.
 
 
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Section 3.5 Working Capital Advance Account. 
 
The Company shall maintain an account for each Member designated as such
Member’s Working Capital Advance Account, which account shall be credited
(increased) by each Working Capital Advance as and when made by such Member to
the Company, credited (increased) by each Working Capital Advances Return and
debited (decreased) by amounts distributed to such Member pursuant to Sections
5.1(a) and 5.2(a). The Committee shall provide monthly reconciliation statements
to the Members regarding such Working Capital Advance Account. No Member shall
be obligated to make any Working Capital Advance.
 
ARTICLE IV
ALLOCATIONS OF PROFITS AND LOSSES
 
As of the end of each Fiscal Year, the Company’s Net Profit or Net Loss and each
item of income, gain, loss and deduction related thereto, as well as other items
of income, gain, loss or deduction which are subject to special allocation
provisions, shall be allocated to the Capital Accounts of the Members and for
federal income tax purposes pursuant to the following Sections of this Article
4.
 
Section 4.1 Allocation of Net Loss. 
 
After giving effect to the special allocations set forth in Section 4.3, Section
4.4 and Section 4.5 hereof, if there is a Net Loss for any Fiscal Year, such Net
Loss shall be allocated as set forth in Section 4.1(a) below, subject to the
limitations in Section 4.1(b) below:
 
(a)    Net Loss for any Fiscal Year shall be allocated in the following order
and priority:
 
(i)    First, to the Members, proportionately until the aggregate Net Loss
allocated to each Member pursuant to this Section 4.1(a)(i) equals the aggregate
Net Profit allocated to each Member pursuant to Section 4.2, with Net Loss being
allocated to offset such prior allocations of Net Profit in the reverse order in
which the same were made;
 
(ii)    The balance, if any, to the Members in proportion to their respective
Percentage Interests.
 
(b)    Notwithstanding the allocations set forth in Section 4.1(a), no amount of
Net Loss shall be allocated to any Member if such allocation would cause such
Member to have an Adjusted Capital Account Deficit. The amount of the allocation
of Net Loss which would otherwise have caused a Member to have an Adjusted
Capital Account Deficit shall instead be allocated to those Members who would
not have an Adjusted Capital Account Deficit as a result of the allocation in
proportion to their Percentage Interests. If no Member may be allocated a Net
Loss without creating or increasing an Adjusted Capital Account Deficit, then
all further Net Loss shall be allocated among the Members in accordance with
their Percentage Interests.
 
 
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Section 4.2 Allocation of Net Profits. 
 
After giving effect to the special and curative allocations set forth in Section
4.3, Section 4.4 and Section 4.5, Net Profit for each Fiscal Year or part
thereof shall be allocated to the Members in the following manner and order of
priority:
 
(a)    First, to the Members, proportionately until the aggregate Net Profit
allocated to each Member pursuant to this Section 4.2(a) equals the aggregate
Net Loss allocated to each Member pursuant to Section 4.1 (b) with Net Profit
being allocated to offset such prior allocations of Net Loss in the reverse
order in which the same were made;
 
(b)    The balance, if any, to the Members in accordance with their respective
Percentage Interests.
 
Section 4.3 Allocation of Capital Items.
 
All realized gain or loss with respect to Capital Proceeds or other items of
gain or loss received by the Company from the sale or refinancing of the
Properties or any interest of the Company in the Subsidiaries or Property
Subsidiaries, for the Fiscal Year, if any, shall be specially allocated to the
Members in proportion to the aggregate distributions each Member would receive
pursuant to Section 5.2(c) and 5.2(d) as if all such Capital Proceeds were
distributed in such Fiscal Year pursuant to Section 5.2.
 
Section 4.4 Special Allocations. 
 
Prior to the allocations pursuant to Section 4.1, Section 4.2, and Section 4.3
hereof, items of income, gain, loss and deduction for the Year shall be
allocated in accordance with the following provisions of this Section 4.4 to the
extent such provisions are applicable in determining Net Profit or Net Loss.
 
(a)    Minimum Gain Chargeback. Except as otherwise provided in Regulations
Section 1.704.2(f), notwithstanding any other provision of this Article 4, if
there is a net decrease in Company Minimum Gain during any taxable year, each
Member shall be specially allocated items of Company income and gain for such
taxable year (and, if necessary, subsequent taxable years) in an amount equal to
such Member’s share of the net decrease in Company Minimum Gain, determined in
accordance with Regulations Section 1.704-2(g). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts required
to be allocated to each Member pursuant thereto. The items to be so allocated
shall be determined in accordance with Regulations Sections 1.704-2(f)(6) and
1.704-2(j)(2). This Section 4.4(a) is intended to comply with the minimum gain
chargeback requirement set forth in Regulations Section 1.704-2(f) and shall be
interpreted consistently therewith.
 
(b)    Member Minimum Gain Chargeback. Except as otherwise provided in
Regulations Section 1.704-2(i)(4), notwithstanding any other provision of this
Article 4, if there is a net decrease in Member Nonrecourse Debt Minimum Gain
attributable to a Member Nonrecourse Debt during any taxable year, each Member
who has a share of the Member Nonrecourse Debt Minimum Gain attributable to such
Member Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5), shall be specially allocated items of Company income and gain for
such taxable year (and, if necessary, subsequent taxable years) in an amount
equal to such Member’s share of the net decrease in Member Nonrecourse Debt,
determined in accordance with Regulations Section 1.704-2(i)(4). Allocations
pursuant to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Member pursuant thereto. The items to
be so allocated shall be determined in accordance with Regulations Sections
1.704-2(i)(4) and 1.704-2(j)(2). This Section 4.4(b) is intended to comply with
the minimum gain chargeback requirement set forth in Regulations Section
1.704-2(i)(4) and shall be interpreted consistently therewith.
 
 
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(c)    Qualified Income Offset. In the event any Member unexpectedly receives
any adjustments, allocations or distributions described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Company income and gain shall be
specially allocated to each such Member in an amount sufficient to eliminate, to
the extent required by the Treasury Regulations, the Adjusted Capital Account
Deficit of such Member as quickly as possible; provided, however, that an
allocation pursuant to this Section 4.4(c) shall be made only if and to the
extent that such Member would have an Adjusted Capital Account Deficit after all
other allocations provided for in this Article 4 have been tentatively made as
if this Section 4.4(c) were not in the Agreement.
 
(d)    Gross Income Allocation. In the event any Member has a deficit Capital
Account at the end of any taxable year which is in excess of the sum of (i) the
amount such Member is obligated to restore pursuant to the penultimate sentences
of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Member shall
be specially allocated items of Company income and gain in the amount of such
excess as quickly as possible; provided that an allocation pursuant to this
Section 4.4(d) shall be made only if and to the extent that such Member would
have a deficit Capital Account in excess of such sum after all other allocations
provided for in this Article 4 have been made as if Section 4.4(c) and this
Section 4.4(d) were not in this Agreement.
 
(e)    Nonrecourse Deductions. Nonrecourse Deductions for any taxable year or
other period shall be allocated to the Members in proportion to their respective
Percentage Interests.
 
(f)    Member Nonrecourse Deductions. Any Member Nonrecourse Deductions for any
taxable year shall be allocated to the Member who bears the economic risk of
loss with respect to the Member Nonrecourse Debt to which such Member
Nonrecourse Deductions are attributable in accordance with Regulations Section
1.704-2(i)(1).
 
(g)    Section 754 Adjustment. To the extent an adjustment to the adjusted tax
basis of any Company asset pursuant to Code Sections 734(b) or 743(b) is
required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Section
1.704-1(b)(2)(iv) (m)(4), to be taken into account in determining Capital
Accounts as the result of a distribution to a Member in complete liquidation of
such Member’s Interest in the Company, the amount of such adjustment to the
Capital Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases such
basis), and such gain or loss shall be specially allocated to the Members in
accordance with their interests in the Company in the event Regulations Section
1.704-1(b)(2)(iv)(m)(2) applies, or to the Member to whom such distribution was
made in the event Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
 
 
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Section 4.5 Curative Allocations. 
 
The allocations set forth in Sections 4.1(b), 4.4(a), 4.4(b), 4.4(c), 4.4(d),
4.4(e), 4.4(f) and 4.4(g), (the “Regulatory Allocations”) are intended to comply
with certain requirements of the Regulations. It is the intent of the Members
that, to the extent possible, all Regulatory Allocations shall be offset either
with other Regulatory Allocations or with special allocations of other items of
Company income, gain, loss, or deduction pursuant to this Section 4.5.
Therefore, notwithstanding any other provision of this Article 4 (other than the
Regulatory Allocations), the Committee shall make such offsetting special
allocations of Company income, gain, loss or deduction in whatever manner they
determine appropriate so that, after such offsetting allocations are made, each
Member’s Capital Account balance is, to the extent possible, equal to the
Capital Account balance such Member would have had if the Regulatory Allocations
were not part of the Agreement and all Company items were allocated pursuant to
Sections 4.1 and 4.2.
 
Section 4.6 Tax Allocations: Code Section 704(c). 
 
In accordance with Code Section 704(c), and the Regulations promulgated
thereunder, income, gain, loss and deduction with respect to any property
contributed to the capital of the Company shall, solely for tax purposes, be
allocated among the Members so as to take account of any variation between the
adjusted basis of such property to the Company for federal income tax purposes
and its initial Gross Asset Value (computed in accordance with the definition of
Gross Asset Value) using the traditional method as set forth in Regulations
Section 1.704-3(b), unless some other method is agreed upon by the Members.
 
In the event the Gross Asset Value of any Company asset is adjusted pursuant to
subparagraph (ii) of the definition of Gross Asset Value, subsequent allocations
of income, gain, loss, and deduction with respect to such asset shall take
account of any variation between the adjusted basis of such asset for federal
income tax purposes and its Gross Asset Value in the same manner as under Code
Section 704(c) and the Regulations thereunder.
 
Any elections or other decisions relating to such allocations shall be made by
the Committee in any manner that reasonably reflects the purpose and intention
of this Agreement. Allocations pursuant to this Section 4.6 are solely for
purposes of federal, state, and local taxes and shall not affect, or in any way
be taken into account in computing, any Member’s Capital Account or share of Net
Profit, Net Loss, other items, or distributions pursuant to any provision of
this Agreement.
 
ARTICLE V
DISTRIBUTIONS
 
Section 5.1 Distribution of Net Cash Flow.
 
 
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Except as otherwise provided in Section 5.4 hereof, distributions of Net Cash
Flow, if any, shall, unless otherwise Approved by the Members, be distributed to
the Members within fifteen (15) days after the end of each Fiscal Year quarter
and shall be apportioned among the Members as follows:
 
(a)    First, to the Members, to the extent and in proportion to the Working
Capital Advances Accounts of each, until the balance of their Working Capital
Advances Accounts have been reduced to zero;
 
(b)    The balance, if any, to the Members in accordance with their respective
Percentage Interests.
 
Section 5.2 Distribution of Capital Proceeds. 
 
Except as provided in Section 5.4 hereof, distributions of all or any portion of
Capital Proceeds shall be made within thirty (30) days of the event giving rise
to the Capital Proceeds, and shall be apportioned among the Members as follows:
 
(a)    First, to the Members, to the extent and in proportion to the Working
Capital Advances Accounts of each, until the balance of their Working Capital
Advances Accounts have been reduced to zero;
 
(b)    Second, to the Members, to the extent and in proportion to the Unreturned
Capital Contributions of each, until such Unreturned Capital Contributions have
been returned in full;
 
(c)    Third, to the Members, in proportion to their respective Percentage
Interests, until such time as the Members have received an internal rate of
return of eleven percent (11%) on their Initial Capital Contributions, reduced
by prior distributions made pursuant to Section 5.1(b), Section 5.2(b) and this
Section 5.2(c), calculated per annum, compounded quarterly, to be calculated
from the date on which such Capital Contributions, or portions thereof, are
made; and
 
(d)    The balance, if any, forty percent (40%) to ARC and sixty percent (60%)
to CNL.
 
Section 5.3 Distributions in Kind. 
 
If any of the Company’s assets are to be distributed in kind rather than sold,
such assets shall be distributed on the basis of the fair market value thereof
and any Member entitled to any interest in such assets pursuant to this Section
5.3 shall receive such interest therein as a tenant-in-common with all other
Members so entitled. Unless otherwise agreed by all of the Members, the fair
market value of such assets shall be equal to an appraisal or appraisals
prepared by one or more appraisers selected by the Committee and paid for by the
Company. Such appraiser(s) must have a “MAI” designation or its equivalent and
substantial experience appraising commercial real estate in the counties and
states in which the assets to be appraised are located.
 
Section 5.4 Limitation on Distributions. 
 
Notwithstanding any provision to the contrary contained in this Agreement, the
Company shall not be required to make a distribution to any Member on account of
its interest in the Company if such distribution would violate Section 18-607 of
the Act, any other applicable law or the Acquisition Loan Agreement.
 
 
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ARTICLE VI
MANAGEMENT OF THE COMPANY
 
Section 6.1 Managing Committee. 
 
The Members shall have responsibility for the management, supervision and
control of the Company through its managing committee (the “Committee”), which
shall be responsible for the establishment of policy and operating procedures
respecting the business affairs of the Company and the Subsidiaries in its
good-faith business judgment. No action shall be taken, nor shall obligations be
incurred or amounts expended, by the Company without the unanimous consent of
the members of the Committee, except to the extent expressly provided herein or
otherwise delegated by the Committee. The day to day operations of the Senior
Living Facilities shall be managed by the Property Manager or another Property
Manager acceptable to the Committee, pursuant to the terms, conditions and
limitations set forth in the Management Agreements. Subject to Section 6.3, the
Committee shall at all times consist of four (4) members, two (2) of whom shall
be appointed by CNL, and two (2) by ARC.
 
Each Member may appoint an alternate for each member appointed by it to the
Committee, who shall have all the powers of the Committee member in his absence
or inability to serve. Each Member shall have the power to remove any member or
alternative member of the Committee appointed by it, with or without cause, by
delivering written notice of such removal to the Company and to the other Member
in the manner required by Section 14.3. Vacancies on the Committee shall be
filled by the Member that appointed the Committee member previously holding the
position which is then vacant.
 
Each Committee member shall be entitled to cast one (1) vote with respect to any
decision made by the Committee, provided that the members who are actually
present at a meeting of the Committee shall be entitled to cast the vote of the
member not present who was appointed by the same Member as the member casting
the vote.
 
The Committee shall meet at least semiannually, upon thirty (30) days’ written
notice to all members, at the offices of the Company or by conference call with
the results confirmed in writing or by facsimile (unless such meeting shall be
waived by all members thereof), or, in the event of an emergency, on the call of
any two (2) Committee members upon two (2) Business Days’ notice to all
Committee members by telephone, electronic mail, telex, telecopy or telegraph.
An agenda for each meeting shall be prepared in advance by the Members in
consultation with each other. A quorum shall be present at such meetings to
constitute a meeting of the Committee members pursuant to this Section 6.1.
Absent the occurrence of a Committee Reduction Event, three (3) members of the
Committee shall constitute a quorum. In the event a Committee Reduction Event
shall occur, the two (2) members of the Committee appointed by CNL shall
constitute a quorum. Absent the occurrence of a Committee Reduction Event and
except as specifically set forth herein to the contrary where certain rights are
granted to individual Members, the casting of four (4) concurring votes shall be
required for all actions of the Committee except adjournment (which shall only
require the concurring vote of a majority of the members present), and four (4)
concurring votes shall constitute the approval by the Committee of the matter
being considered and shall be binding on the Company and the Members for all
matters, including, without limitation, financing, refinancing, sale of some or
all of the Company’s assets and dissolution of the Company. Upon the occurrence
of a Committee Reduction Event, the casting of two (2) concurring votes shall be
required in all instances in the preceding sentence requiring the casting of
four (4) concurring votes. The Committee may act without a meeting if the action
taken is unanimously approved in advance in writing by the Committee members.
The Committee shall cause written minutes to be prepared of all actions taken by
the Committee and shall deliver a copy thereof to each member of the Committee
within seven (7) days after the date of the meeting. Such minutes shall be
prepared by one of the Committee members appointed by ARC.
 
 
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Section 6.2 CNL Decisions. 
 
Notwithstanding any other provision hereof requiring unanimous approval of all
of the Committee members, the Committee members appointed by CNL shall have sole
and absolute authority to propose and/or approve the actions or decisions listed
below (each a “CNL Decision” and together, the “CNL Decisions”), and the
approval by such Committee members of any CNL Decision shall be binding on the
Company or any Subsidiary, as applicable:
 
(a)    entering into any contract or agreement on behalf of a Subsidiary to sell
or encumber the Properties; provided, however, that any such right shall not be
exercised pursuant to this Section 6.2(a) prior to the fourth (4th) anniversary
of the Effective Date; 
 
(b)    using the proceeds received by a Subsidiary of an insurance claim or
condemnation proceedings or other governmental taking resulting from a Total
Casualty or Major Condemnation;
 
(c)    electing whether or not to terminate a Property Manager on behalf of a
Subsidiary for failing to meet the performance requirements set forth in Section
2.03 of a Management Agreement; provided, however, that the Property Manager
shall not be removed under the Management Agreement unless and until American
Retirement Corporation, a Tennessee corporation, has been fully released from
any and all obligations under that certain Debt Service Guaranty Agreement
delivered by American Retirement Corporation for the benefit of Acquisition
Lender, except to the extent that Acquisition Lender has then made a claim
against American Retirement Corporation for any of the obligations guaranteed
thereunder.
 
Section 6.3 Reduction in Management Committee Members.
 
Notwithstanding the number of Committee members provided in Section 6.1, upon
the termination of ARC Management, LLC as the Property Manager by the two (2)
Committee members appointed by CNL pursuant to Section 6.2(c), (a “Committee
Reduction Event”), the number of Committee members shall be reduced, without any
further action, from four (4) members to two (2) members, each of whom shall be
appointed by CNL, and the unanimous approval of such two (2) members of the
Committee appointed by CNL shall thereafter be binding on the Company or its
Subsidiary, as applicable.
 
 
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Section 6.4 Officers. 
 
The Committee may, from time to time, appoint one or more officers of the
Company (each an “Officer” and, collectively, the “Officers”), and, to the
extent set forth in a writing signed by the Committee, delegate to such Officer
or Officers any of the Committee’s rights and powers to manage and control the
business and affairs of the Company, provided that such Officers shall remain
subject to the overall supervision and control of the Committee. The Committee
may remove and replace any such Officer or Officers, with or without cause, in
its sole and absolute discretion. An Officer shall serve until his successor is
chosen by the Committee or until his earlier removal, resignation or death. Any
two or more offices may be held by the same person. No Officer shall receive any
compensation for his or her service as an officer of the Company. An Officer may
resign at any time by giving written notice to the Committee, and no such
resignation need be accepted to be effective. Any Officer appointed will have
the same fiduciary duties with respect to the Company as a manager has under the
Act.
 
Each Subsidiary has three (3) officers designated by the Committee. The
Committee may remove, replace, or change the designations of any officers of any
Subsidiary at any time, with or without cause. All the officers of each
Subsidiary shall be entitled to execute leases, resident agreements and service
contracts on behalf of the Subsidiary in its capacity as the general partner of
a Property Subsidiary (and/or may delegate such signing authority to the
Property Manager).
 
Section 6.5 Authority of the Members. 
 
No Member may act for, obligate, or in any manner legally bind, the Company or
any other Member, unless such Member has been authorized to do so, in writing,
by the Committee. Any Member acting in contravention of the prohibition of the
immediately preceding sentence shall indemnify, insure and hold harmless the
Company, each member of the Committee and each other Member from and against,
and reimburse each such Person for, any and all liability, loss, cost, expense
or damage incurred or sustained by reason thereof, including, but not limited
to, court costs and reasonable attorney and paralegal fees through any and all
negotiations, trials and appeals and through all settlement and collection
proceedings.
 
Section 6.6 Other Activities. 
 
The fact that any member of the Committee or any Affiliate of a member of the
Committee is employed by, or is directly or indirectly interested in or
connected with, any Person employed or engaged by the Company or a Subsidiary to
render or perform a service, or from which the Company or a Subsidiary may
purchase any property, shall not prohibit the Company or any Subsidiary from
employing or engaging that Person, or from otherwise dealing with him or it, and
neither the Company, any Subsidiary nor any of the Members shall have any rights
in or to any income or profits derived therefrom as a consequence of the
relationships created in this Agreement. Each member of the Committee, each
Member and each of their respective Affiliates may engage in or possess an
interest in other business ventures of every nature and description, including
the purchase, development or sale of real estate, independently or with others,
and neither the Company, any Subsidiary nor any of the Members shall have any
rights, by virtue of this Agreement, in and to the independent ventures or the
income or profits derived from them.
 
 
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Section 6.7 Conveyances. 
 
Subject to Sections 6.1 and 6.2, any deed, mortgage, lease, contract of sale, or
other commitment purporting to convey or encumber the interest of the Company in
all or any portion of any real or personal property at any time owned or leased
by the Company shall be signed by a duly authorized Officer or by a duly
authorized nominee of the Company then holding record title to the property for
the Company, and no other signatures shall be required. Further, any deed,
mortgage, lease, contract of sale, or other commitment purporting to convey or
encumber the interest of any Subsidiary in all or any portion of any real or
personal property at any time owned or leased by such Subsidiary shall be signed
by a duly authorized Officer on behalf of such Subsidiary, or, upon the written
authorization of the Committee, by an officer or by a nominee of such Subsidiary
then holding record title to the property for such Subsidiary, and no other
signatures shall be required. No person shall be required to inquire into the
authority of any individual to sign any documents pursuant to the provisions of
this Section 6.7.
 
Section 6.8 Acquisition Loan. 
 
Notwithstanding anything to the contrary in this Agreement, each Member’s rights
under the Agreement shall at all times be subject to the terms and conditions of
the Acquisition Loan, and neither Member (a) shall take, or fail to take, any
action that would conflict with any material term or condition of the
Acquisition Loan or cause a default or event of default under the Acquisition
Loan, or (b) shall cause the Company or any Subsidiary to take, or fail to take,
any action that would conflict with any material term or condition of the
Acquisition Loan or cause a default or event of default under the Acquisition
Loan.
 
ARTICLE VII
MEETINGS OF MEMBERS
 
Section 7.1 Member Meetings. 
 
In the event that any matter requires the approval of the Members under the
terms of this Agreement, the Management Agreement, or the Act, then the
Committee shall call a meeting of the Members by providing the Members with
written notice of such meeting at least two (2) days and not more than ten (10)
days prior to the date of the meeting. Such notice shall state the date, time,
place and purpose or purposes of the meeting. The business transacted at a
meeting of the Members shall be limited to the purpose(s) stated in the notice
of the meeting.
 
Section 7.2 Location, Conduct and Adjournments. 
 
Each meeting of the Members will be held at the Company’s principal place of
business unless otherwise Approved by the Members. Unless otherwise Approved by
the Members, a member of the Committee shall act as chairman of such meeting.
Any meeting of the Members may be adjourned from time to time to another date
and time and, subject to the first sentence of this Section 7.2, to another
place. If at the time of adjournment the person chairing the meeting announces
the date, time, and place at which the meeting will be reconvened, it is not
necessary to give any further notice of the reconvening. Any Member or any
member of the Committee may participate in any meeting of the Members by means
of telephone conference or similar communications equipment that allows all
persons participating in the meeting to hear each other, and such participation
in a meeting will constitute presence in person at the meeting. If all the
participants are participating by telephone conference or similar communications
equipment, the meeting will be deemed to be held at the principal place of
business of the Company.
 
 
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Section 7.3 Waiver of Notice. 
 
A Member may waive notice of the date, time, place and purpose or purposes of a
meeting of the Members. A waiver may be made before, at, or after the meeting,
in writing, orally, or by attendance. Attendance by a Member at a meeting is a
waiver of notice of that meeting, unless the Member objects at the beginning of
the meeting to the transaction of business because the meeting is not properly
called or convened, or objects before a vote on an item of business because the
item may not properly be considered at that meeting and does not participate in
the consideration of the item at that meeting.
 
Section 7.4 Member Quorum and Voting. 
 
A Majority in Interest of the Members shall constitute a quorum at a meeting of
the Members. If a quorum is present, the affirmative vote of a Majority in
Interest of the Members shall be the act of the Members unless a greater
affirmative vote is expressly required by the Certificate, this Agreement or by
applicable law. Voting by proxy is not permitted. Members may participate in a
meeting by means of a conference telephone or similar communication equipment by
means of which all persons participating in the meeting can hear each other at
the same time. Participation by such means shall constitute presence in person
at a meeting.
 
Section 7.5 Action by Members Without a Meeting. 
 
The Members may take any action without a meeting that could be taken at a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, is signed by Members that are necessary to
authorize or take such action. Within ten (10) days after obtaining such
authorization by written consent, written notice of the action taken shall be
given to those Members who have not consented in writing. The notice shall
fairly summarize the material features of the authorized action. Failure to
provide the notice shall not invalidate the written consent.
 
ARTICLE VIII
OPERATIONAL ISSUES
 
Section 8.1 Management Services. 
 
The Property Manager shall, subject to the overall supervision and control of
the Committee, supervise the management of the Properties pursuant to the terms
of a management agreement to be entered into with each Property Subsidiary in
the form attached hereto as Exhibit C (each a “Management Agreement”). The
Property Manager shall receive a management fee based on a percentage of
accounting gross revenues from the Senior Living Facilities for its contribution
to the management of the Properties, as more specifically determined in the
Management Agreement.
 
 
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Section 8.2 Accounting and Administrative Services. 
 
ARC shall handle and be responsible for the obligations of the Company under
Article 12 below, including the maintaining of the Company’s and each
Subsidiary’s books of account, preparation of financial statements for the
Company and each Subsidiary and preparation and filing of tax returns for the
Company and each Subsidiary. ARC shall not be compensated for providing such
services to the Company.
 
Section 8.3 Guaranteed Payments. 
 
The Company may, from time to time, engage one or more Members to provide
services to the Company as provided above and on such other terms and in such
other instances as may be Approved by the Members. The Members intend the
payments of such compensation to be guaranteed payments without regard to the
income of the Company as contemplated by Code Section 707(c). The payment of any
compensation to a Member pursuant to this Section 8.3 will not affect the right
of such Member to allocations of income, gain, loss, deduction or credit or
distributions of cash pursuant to the terms of this Agreement.
 
Section 8.4 Sale of the Properties. 
 
The Members hereby acknowledge, consent, and agree that in the event the Company
has not sold the Properties within seven (7) years of the date of closing on the
Properties, then the Company shall sell such Property or Properties subject to
the Management Agreement, which shall remain in full force and effect provided
that the Property Manager is not in default thereunder, and the profits derived
from such sale or sales shall be distributed to the Members in accordance with
Section 5.2 hereof. Notwithstanding the foregoing, the Company may extend such
period with the Approval of the Members.
 
Section 8.5 Rights of Offer. 
 
Upon the Company’s decision to sell or to seek to sell any or all of the
Properties:
 
(a)    The Company shall first offer such Property or Properties for sale to the
Property Manager pursuant to the terms and conditions of the Management
Agreement.
 
(b)    In the event Property Manager does not exercise within the period of time
set forth in the Management Agreement (the “Property Manager’s Election Period”)
or does not have the right to exercise the right of first offer set forth in
Section 8.5(a) above, CNL Retirement Properties, Inc., a Maryland corporation
(“CRP”), shall have the next right of offer to purchase such Property or
Properties from the Company. CRP shall have thirty (30) days from the expiration
of the Property Manager’s Election Period (or thirty (30) days from the date of
CRP’s receipt of notice of the Company’s decision to sell in the event that
Property Manager does not have the right to exercise the right of first offer)
to elect, in its sole discretion, to purchase the Property or Properties by
delivering a written notice of such election (a “CRP Notice”) to the Company
specifying the cash purchase price which CRP would be willing to pay for the
Property or Properties (“CRP’s Price”). If CRP does not deliver a CRP Notice
within such thirty (30) day period, then it shall be deemed to have waived any
right to purchase the Property or Properties under this Section 8.5(b) and the
Company may proceed to cause a sale of the Property or Properties without the
further participation of CRP. If CRP does deliver a CRP Notice within such
thirty (30) day period, the Company shall have thirty (30) days from its receipt
of such CRP Notice to either accept or reject, in writing, CRP’s Price. If the
Company accepts CRP’s Price, then it shall sell the Property or Properties to
CRP and the closing of such sale shall be no later than sixty (60) days from the
date of the Company’s acceptance of CRP’s Price. If the Company rejects CRP’s
Price, then the Company shall be entitled to cause a sale of the Property or
Properties (directly or indirectly) to any third-party for a price at least
equal to CRP’s Price, provided that the Management Agreement shall remain in
full force and effect.
 
 
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(c)    The rights set forth in Sections 8.5(a) and 8.5(b) are hereby made
subject and subordinate to the rights and liens of Merrill Lynch as agent for
Acquisition Lender under the Acquisition Financing Documents.
 
ARTICLE IX
TRANSFER OF A MEMBER’S INTEREST; MEZZANINE LOAN COVENANTS
 
Section 9.1 Restrictions on Transfer. 
 
Except as otherwise specifically set forth in this Agreement, including, without
limitation Section 9.4, and to the fullest extent permitted by law, no Member
may transfer all or any part of its Interest to any Person, other than an
Affiliate of such Member, whether voluntarily, involuntarily or by operation of
law, without the prior written consent of the other Member(s) and the Committee,
which consent may be withheld in the sole and absolute discretion of any other
Member(s) or the Committee. For purposes of this Section 9.1, “transfer”
includes the sale, exchange, pledge, encumbrance or other transfer or
disposition by a Member of any part of its Interest, whether for a valuable
consideration or as a gift, and whether voluntarily or involuntarily. In
addition to the required consents to any transfer, as a condition to any such
consent, a Member or the Committee may require that the Member desiring to make
the transfer provide to the Company a reasonably acceptable opinion of counsel,
in form and substance reasonably acceptable, that the proposed transfer does not
result in a violation of the Securities Act of 1933, as amended, or any
applicable state securities laws. The attorney fees and costs for such opinion
and the attorney fees and costs incurred by the Company in connection with any
such transfer shall be paid by the Member who is transferring all or part of its
Interest.
 
Section 9.2 Substituted Members. 
 
Any Person, not then a Member, to whom an Interest is transferred in accordance
with the provisions of Section 9.1 shall agree in writing to be subject to the
terms of this Agreement and shall, thereupon, become a substituted Member
(“Substituted Member”) hereunder. Such admission as a Substitute Member shall be
deemed effective immediately prior to such Transfer. A Substituted Member has,
to the extent assigned, the rights and powers and is subject to the restrictions
and liabilities, of a Member under this Agreement and the Act. A Substituted
Member also is liable for the obligations of its assignor to make and return
contributions as provided in the Act, and for certain other liabilities of the
assignor as provided in the Act. If an assignee of an Interest becomes a
Substituted Member, the assignor is not released from its liability to the
Company to the extent provided in the Act. Notwithstanding the preceding two
sentences, a Mezzanine Assignee, as a Substituted Member or as an assignor,
shall be released from its obligations and liabilities under the preceding two
sentences to the extent permitted under applicable law, including, without
limitation, Chapters 5 and 6 of the Act. The Substituted Member shall pay all
reasonable expenses in connection with its admission to the Company, including,
but not limited to, legal fees and other costs of preparing any amendment to
this Agreement deemed necessary or desirable by the Committee. If any Interest
is transferred other than in accordance with the provisions of Section 9.1 or
Section 9.4 and the transferee is not admitted as a Substituted Member, then
such transferee will have the sole right to share in such profits and losses, to
receive such distribution or distributions, and to receive such allocation of
income, gain, loss, deduction or credit or similar item to which the assignor
was entitled, to the extent assigned, and will not have any of the rights, power
or authority of a Member hereunder or under the Act; and the transferor of such
Interest shall thereafter be considered to have no further rights or interest in
the Company with respect to the transferred Interest, but shall remain subject
to any obligations under this Agreement and the Act with respect to such
Interest.
 
 
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Section 9.3 Admission of Additional Members. 
 
With the Approval of the Members, and Merrill Lynch or its successor as agent
for the Mezzanine Lender so long as any Mezzanine Indebtedness remains
outstanding, any Person may be admitted to the Company as an additional Member
upon making such contributions to the capital of the Company in exchange for
such Percentage Interests as may be Approved by the Members. In the event that
the Members admit any additional Member to the Company, this Agreement shall be
amended or amended and restated as appropriate. The dilution resulting from the
admission of any new Member shall be borne by the other Members in proportion to
their respective Percentage Interests immediately prior to the admission of the
new Member.
 
Section 9.4 Mezzanine Loan Covenants. 
 
The Members, on behalf of themselves and on behalf of the Company, do hereby
agree that until such time as all of CNL’s indebtedness to Mezzanine Lender (the
"Mezzanine Indebtedness") and all obligations related thereto arising from and
related to the Mezzanine Loan, the promissory note evidencing such loan, and all
other agreements entered into with or for the benefit of Mezzanine Lender
related to such loan (the "Mezzanine Financing Documents") are satisfied in
full, or, if Mezzanine Lender, Mezzanine Lender's designee(s), and/or any other
person(s) or entity(ies) acquires all or any portion of the collateral in which
the security interest was granted in the Mezzanine Assignment (hereinafter
defined) and succeeds to all or any portion of CNL’s rights and interests
(including voting or managerial rights) in the Company, the following provisions
shall be included in this Agreement and shall control over any provisions of
this Agreement to the contrary:
 
(a)    Assignment to Mezzanine Lender. The Members hereby recognize and
acknowledge that CNL is executing and delivering an Ownership Pledge, Assignment
and Security Agreement to Merrill Lynch as agent for the Mezzanine Lender as
additional collateral for the Mezzanine Indebtedness (the “Mezzanine
Assignment”), which Mezzanine Assignment, among other things, grants a security
interest in all of CNL’s Interest.
 
 
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(b)    Consent by the Members. The Members hereby consent to (i) the Mezzanine
Assignment, and (ii) following an "Event of Default" as defined in each such
Mezzanine Assignment, Mezzanine Lender, Mezzanine Lender's designee(s), and/or
any other person(s) or entity(ies) acquiring all or a portion of the collateral
in which the security interest was granted in such Mezzanine Assignment (each, a
“Mezzanine Assignee”), and succeeding to all or any portion of CNL’s Interest.
 
(c)    Agreement of the Members. The Members hereby agree that following an
event of default under any of the Mezzanine Financing Documents: (i) Mezzanine
Lender, Mezzanine Lender's designee(s), and/or any other person(s) or
entity(ies) acquiring the collateral in which the security interest was granted
in the Mezzanine Assignment shall have the right, but not the obligation, to
accede to one hundred percent (100%) of all of the rights and interests of CNL
in this Company, as set forth in Section 9.2; and (ii) Mezzanine Lender's,
Mezzanine Lender's designee(s), and/or any other person(s) or entity(ies)
acquiring all or any portion of CNL’s rights and interests (including voting and
managerial rights) in the Company shall not cause a dissolution, winding-up or
termination of the Company.
 
(d)    Release. Effective upon the exercise by Mezzanine Lender of its rights
and remedies under the Mezzanine Assignment, the Company shall be fully released
and discharged from any and all obligations and liabilities to CNL under this
Agreement, except that any obligation to reimburse CNL for any amounts loaned by
CNL to or on behalf of the Company or otherwise and any obligation to indemnify
CNL under any provision of this Agreement or under applicable law shall be
deemed assigned and payable to and shall benefit Mezzanine Assignee(s).
 
(e)    This Agreement is subject to (and each Member shall be bound by) the
terms of that certain Consent and Acknowledgement Regarding Pledge of Membership
Interest executed by ARC and CNL in favor of Merrill Lynch, Acquisition Lender
and Mezzanine Lender.
 
ARTICLE X
PURCHASE OPTION UPON BANKRUPTCY
 
Section 10.1 Option Rights. 
 
If a Member becomes a Bankrupt Member, then the other Member(s) shall thereupon
have the right and option to purchase the entire Interest of the Bankrupt Member
pursuant to the terms of Sections 10.1, 10.2, 10.3, and 10.4 of this Agreement.
The Bankrupt Member shall send notice of the applicable Event of Bankruptcy to
the other Member(s) within ten (10) days after the occurrence thereof. To
exercise its option, a Member must provide written notice thereof to the other
Member(s) within ninety (90) days after the first to occur of the following: (i)
the effective date of the Bankrupt Member’s notice, and (ii) the date upon which
such Member otherwise becomes aware of the applicable Event of Bankruptcy. Such
notice must indicate the portion of the Bankrupt Member’s Interest that such
Member desires to purchase; provided, however, that if there is more than one
Member with such purchase right, then such Members will have the right to
purchase the Bankrupt Member’s Interest pro rata in accordance with their
respective Percentage Interests.
 
 
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Section 10.2 Obligations of Bankrupt Member. 
 
To the fullest extent permitted by law, the Bankrupt Member or its personal
representative, as the case may be, shall, within ten (10) days after the last
notice given pursuant to the terms of Section 10.1, execute and deliver such
assignments and other instruments as shall reasonably be requested by the
purchaser(s) to effect the conveyance and transfer of the Bankrupt Member’s
Interest to the purchaser(s) free and clear of any and all liens, claims and
encumbrances of any kind or nature whatsoever, and shall, to the extent
requested by the purchaser(s), cooperate to effect a smooth and efficient
continuation of the Company’s business and affairs. If the Bankrupt Member
disputes the right of the purchaser(s) to purchase and succeed to the Bankrupt
Member’s entire Interest, then the Bankrupt Member shall nevertheless execute
instruments and cooperate with the purchaser(s) pursuant to the immediately
preceding sentence, without, however, being deemed to have waived its rights to
damages if the purchaser(s) shall have purchased and succeeded to the Bankrupt
Member’s Interest under this Article 10 without having the right to do so. To
the fullest extent permitted by law, the Bankrupt Member shall indemnify, insure
and hold each of the purchaser(s) harmless from and against all loss, liability,
cost or expense (including reasonable attorney fees) suffered or incurred by the
purchaser(s) if the Bankrupt Member fails to properly execute instruments and
cooperate with the purchaser(s) pursuant to, or shall otherwise fail to perform,
its obligations under this Article 10.
 
Section 10.3 Payment of Fair Value. 
 
Upon compliance by the Bankrupt Member with the provisions of Section 10.2, the
purchaser(s) shall pay to the Bankrupt Member the “Fair Value” of the Bankrupt
Member’s Interest (such value to be determined as of the date of the applicable
Event of Bankruptcy) within thirty (30) days thereafter by delivering to the
Bankrupt Member an amount equal to twenty percent (20%) of such Fair Value by
official bank check, wire transfer or other immediately available funds, and a
promissory note in an original principal amount equal to eighty percent (80%) of
such Fair Value. Such promissory note will provide for a per annum interest rate
equal to the Prime Rate as of the date of the applicable Event of Bankruptcy,
will provide for four (4) equal annual payments commencing one (1) year after
the date of the purchase, and shall otherwise have terms that are reasonable and
customary. The “Fair Value” of the Bankrupt Member’s Interest shall be
determined pursuant to the terms of Section 10.4 below.
 
Section 10.4 Determination of Fair Value. 
 
For purposes of Section 10.3, the “Fair Value” of the Bankrupt Member’s Interest
shall be the amount such Member would receive if the assets of the Company were
sold for their fair market value, the Company’s liabilities were paid in full,
gain or loss from the sale was allocated in accordance with the applicable terms
of this Agreement, and the sales proceeds were distributed in accordance with
the applicable terms of this Agreement. For purposes of this Section 10.4, the
“Fair Value” of the Company shall be determined, as of the effective date of the
applicable Event of Bankruptcy, by the average of two independent appraisals
conducted by state certified appraisers, with the first appraiser chosen by the
purchasing Member(s), and the other to be chosen by the Bankrupt Member or its
personal representative, as the case may be, within fifteen (15) days after the
effective date of notice of the appointment of the first appraiser, provided
that if the Bankrupt Member or its personal representative, as the case may be,
fails to timely appoint the second appraiser, then the determination of the
first appraiser of the Fair Value of the Company shall be binding on all
interested Persons. In the event the Non-Bankrupt Member should exercise the
option provided in Section 10.1 hereof, the Non-Bankrupt Member shall receive a
credit towards the Fair Value of the Bankrupt Member’s Interest in the amount of
the cost of such appraisal(s).
 
 
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Section 10.5 Rights of Mezzanine Lender. 
 
Until the Mezzanine Indebtedness is paid in full, if CNL is the Bankrupt Member,
then the rights of the other Member(s) under this Article 10 shall be deemed
suspended and shall in all events be subject and subordinate to the rights of
Merrill Lynch or its successor as agent for the Mezzanine Lender to CNL’s
Interest, unless Merrill Lynch or its successor has waived in writing its rights
under the Mezzanine Assignment.
 
ARTICLE XI
DISSOLUTION, REFORMATION, LIQUIDATION, ETC.
 
Section 11.1 Termination of Membership. 
 
Except for withdrawals expressly permitted by provisions contained in Article 10
or 11, no Member shall have the right to withdraw from the Company and all
Members hereby agree not to withdraw from the Company, and any attempt to do so,
whether voluntary or involuntary, shall be null and void. Each of the Members
agrees not to voluntarily resign from the Company or to default with respect to
any obligation or undertaking contained in this Agreement or the Act.
 
Section 11.2 Dissolution. 
 
The Company shall be dissolved and its affairs wound up and terminated upon the
first to occur of the following events (each, a “Dissolution Event”):
 
(a)    The determination in writing to dissolve the Company by all Members,
provided that prior to or concurrently therewith the Acquisition Loan
Indebtedness and the Mezzanine Indebtedness shall have been or will be repaid in
full;
 
(b)    At any time when there are no Members;
 
(c)    The sale or other disposition of all or substantially all of the assets
of the Company in one transaction or a series of related transactions and the
distribution of such proceeds pursuant to Section 11.4 hereof;
 
(d)    The occurrence of a Continuation Event followed within ninety (90) days
by a determination of the requisite Percentage Interests to dissolve the Company
as described in Section 11.3 hereof; or
 
(e)    The entry of a decree of judicial dissolution under Section 18-802 of the
Act.
 
 
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Upon the occurrence of a Dissolution Event, the Company shall be wound up and
liquidated pursuant to Section 11.4 hereof.
 
Section 11.3 Continuation Event. 
 
Neither the resignation, expulsion, bankruptcy or dissolution of any Member, nor
the occurrence of any other event that terminates the continued membership of
any Member (each, a “Continuation Event”), shall cause the Company to be
dissolved or its affairs to be wound up, and upon the occurrence of any such
Continuation Event, the Company shall be continued without dissolution, unless
within ninety (90) days following such Continuation Event, a Majority in
Interest of the Members (excluding the Member which has been the subject of the
Continuation Event) agrees in writing to dissolve the Company.
 
Section 11.4 Winding Up of the Company. 
 
Upon dissolution of the Company pursuant to Section 11.2 hereof, such person as
is designated by a Majority in Interest of the Members not subject to the
Continuation Event (such person being herein referred to as the “Liquidator”),
shall proceed to wind up the business and affairs of the Company upon such
terms, price and conditions as are determined by the Liquidator in accordance
with this Agreement and the requirements of the Act. This Agreement shall remain
in full force and effect and continue to govern the rights and obligations of
the Members and the conduct of the Company during the period of winding up the
Company’s affairs. The Liquidator shall have and may exercise, without further
authorization or consent of the Members, all of the powers conferred upon the
Members under the terms of this Agreement to the extent necessary or desirable
in the good faith judgment of the Liquidator to carry out the duties and
functions of the Liquidator hereunder for and during such period of time as
shall be reasonably required in the good faith judgment of the Liquidator to
complete the winding up and liquidation of the Company. The Liquidator shall
liquidate the assets of the Company, collect the debts and obligations due to
the Company, and pay or provide for payment of all liabilities and obligations
of the Company, including payment of every Member Loan with interest thereon,
after which the Liquidator shall distribute the remaining assets of the Company
to the Members in accordance with Sections 5.1 and 5.2, as applicable, after
giving effect to all contributions, distributions and allocations for all
periods, by the end of the Fiscal Year in which such liquidation occurs or, if
later, within sixty (60) days after the date of the dissolution. The Liquidator
may distribute assets in kind; provided, however, that the Liquidator shall
determine the fair market value by appraisal or other reasonable means of all
assets so distributed in kind.
 
ARTICLE XII
ACCOUNTING AND ADMINISTRATIVE MATTERS
 
Section 12.1 Books and Records. 
 
The Company shall maintain true, complete and correct books of account of the
Company, all in accordance with generally accepted accounting principles, or
such other accounting method as may be selected by the Committee, applied on a
consistent basis. The books of account shall contain particulars of all monies,
goods or effects belonging to or owing to or by the Company, or paid, received,
sold or purchased in the course of the business, and all of such other
transactions, matters and things relating to the business as are usually entered
in books of accounts kept by persons engaged in a business of a like kind and
character. In addition, the Company shall keep all records required to be kept
pursuant to the Act. A Member shall, upon prior written notice and during normal
business hours, have access to the books and records of the Company, for the
purpose of inspecting or, at the expense of such Member, copying such books and
records. Any Member reviewing the books and records of the Company pursuant to
the preceding sentence shall do so in a manner which does not unduly interfere
with the conduct of the Company’s business.
 
 
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Section 12.2 Financial Statements. 
 
The Company shall, within twenty (20) days following the end of each Fiscal Year
month, furnish to each Member monthly financial statements for the Company,
prepared in accordance with generally accepted accounting principles.
Additionally, the Company shall furnish to each Person who was a Member during
the immediately prior Fiscal Year (i) audited financial statements for the
preceding Fiscal Year prepared in accordance with generally accepted accounting
principles within ninety (90) days after the close of each Fiscal Year, and (ii)
a Schedule K-1 or such other form as is necessary to provide the Members with
the information that is needed by them in order to file their respective
federal, state or local income tax returns within forty-five (45) days after the
close of each Fiscal Year.
 
Section 12.3 Tax Matters Partner. 
 
ARC shall be the Company’s “tax matters partner,” as such term is defined in
Code Section 6231(a)(7) (the “Tax Matters Partner”). In connection therewith and
in addition to all other powers given thereunto, the Tax Matters Partner shall
have all other powers necessary or appropriate to fully perform such role,
including, but not limited to, the power to retain all attorneys and accountants
of its choice. Notwithstanding the foregoing, the Tax Matters Partner shall not
settle any audits for or on behalf of the Company or its Members without the
written approval of a Majority in Interest of the Members.
 
ARTICLE XIII
INDEMNIFICATION
 
Section 13.1 Indemnification. 
 
Each Member hereby agrees to defend, indemnify and hold harmless the other
Member, any member of the Committee and any Officer of the Company, and each of
their respective officers, directors, partners, members, shareholders, employees
and agents, from and against any and all liability, loss, cost, expense or
damage, including, but not limited to, court costs, expenses and reasonable
attorney and paralegal fees through any and all negotiations, trials and appeals
and through all settlement and collection proceedings, incurred or sustained by
such Member, member of the Committee, or Officer by reason of the indemnifying
Member’s fraud, bad faith, willful misconduct, gross negligence, unauthorized
acts or breach of this Agreement. The Company, to the fullest extent permitted
by law, hereby agrees to defend, indemnify and hold harmless each Member, member
of the Committee and Officer of the Company, and each of their respective
officers, directors, partners, members, shareholders, employees and agents, from
and against any and all liability, loss, cost, expense or damage incurred or
sustained by reason of any act or omission in the conduct of the business of the
Company, including, but not limited to, court costs, expenses and reasonable
attorney and paralegal fees through any and all negotiations, trials and appeals
and through all settlement and collection proceedings; provided, however, that
the Company will not indemnify any Member, any member of the Committee or
Officer of the Company or any officer, director, partner, member, shareholder,
employee or agent of any Member or hold any of them harmless with respect to any
of the foregoing that is incurred by them as the result of conduct which
constitutes fraud, willful misconduct, gross negligence or breach of fiduciary
duty of the party who would otherwise be entitled to be indemnified and held
harmless under this Section 13.1. The provisions of this Section 13.1 shall
survive the termination of this Agreement.
 
 
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Section 13.2 Advancement of Legal Costs and Expenses. 
 
The Company shall advance Company funds to any Person who is entitled to
indemnification pursuant to the terms of Section 13.1 for legal expenses and
other costs incurred as a result of any legal action if the following conditions
are satisfied: (a) the legal action relates to acts or omissions with respect to
the performance of duties or services on behalf of the Company; (b) the legal
action is initiated by a third party who is not a Member, or the legal action is
initiated by a Member and a court of competent jurisdiction specifically
approves such advancement; and (c) such Person undertakes to repay the advanced
funds to the Company in cases in which such Person is not entitled to
indemnification pursuant to the terms of Section 13.1.
 
Section 13.3 Provisions Not Exclusive. 
 
The indemnification provided by this Article shall not be deemed exclusive of
any other rights to which those seeking indemnification may be entitled under
any statute, agreement, vote of the Members or otherwise.
 
Section 13.4 Insurance. 
 
The Company may purchase insurance to insure against the liabilities
contemplated by this Article 13.
 
ARTICLE XIV
MISCELLANEOUS MATTERS
 
Section 14.1 Governing Laws. 
 
This Agreement and the rights, powers, duties and obligations of the Members
hereunder shall be interpreted, construed and enforced in accordance with the
laws of the State of Delaware.
 
Section 14.2 Acknowledgment. 
 
The parties acknowledge that each party to this Agreement has had equal input as
to the drafting and construction of this Agreement and, accordingly, the parties
intend that a court construing this Agreement shall not construe it more
strictly against any of the parties hereto. Each of the Members has had this
Agreement reviewed on its behalf by independent legal counsel of its choosing,
or has waived its right to do so.
 
 
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Section 14.3 Notices. 
 
All notices, demands, consents, approvals, requests, offers or other
communications which are to be given pursuant to the terms of this Agreement
shall be in writing and shall be given (a) by registered or certified mail,
return receipt requested, (b) by personal delivery, or (c) by delivery via
nationally recognized overnight delivery service, and the cost and expense of
any such delivery shall be borne by the sending party. Any notice sent in
compliance with the above provisions shall be deemed delivered and received on
the third (3rd) Business Day after the day on which it was sent, or, if sooner,
on the actual date received. All notices sent pursuant to this Section 14.3
shall be addressed as herein provided:
 
To CNL:
Dallas & Forth Worth Senior Housing, LLC
CNL Center at City Commons
450 South Orange Avenue
Orlando, Florida 32801
Attn: Mike Garbers
 
With copies to:
Lowndes, Drosdick, Doster, Kantor & Reed, P.A.
450 S. Orange Avenue, Suite 800
Orlando, Florida 32801
Attn: Daniel F. McIntosh, Esquire

To ARC:
ARC Cypress, LLC
111 Westwood Place, Suite 200
Brentwood, Tennessee 37027
Attn: Chief Financial Officer

With copies to:
Bass, Berry & Sims PLC
315 Deaderick Street, Suite 2700
Nashville, Tennessee 37238
Attn: T. Andrew Smith, Esquire

Or at such other address as is from time to time designated by the party
receiving the notice. A notice shall be deemed to have been given upon delivery,
evidenced by appropriate signature, pursuant to the methods described above.
 
Section 14.4 Force Majeure. 
 
Notwithstanding anything herein to the contrary, no party shall be liable or
responsible for, or shall be subject to any right or remedy as a result of, any
loss, cost, damage, delay or circumstance, and shall be relieved of any adverse
consequence, that arises, directly or indirectly, from any event or circumstance
of Force Majeure. As used herein, “Force Majeure” means any event, fact,
circumstance, delay, failure, loss or damage that, directly or indirectly,
arises from, or as a result of, or that fails to occur because of, occurrences
that are beyond, or outside of, the reasonable control of any Person or entity,
including but not limited to: Acts of God; the taking, confiscation or
expropriation of any property or asset; the occurrence of any casualty event;
compliance with any order or directive of any governmental authority; acts of
declared or undeclared war; the occurrence of any military or terrorist attack;
public disorders; rebellion; sabotage; revolution; earthquakes; floods; riots;
strikes; significant disruptions of the labor or employment markets; and changes
in laws, rules, regulations, orders or directives of any Governmental Authority.
 
 
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Section 14.5 Entire Agreement. 
 
This Agreement contains the entire agreement between the parties hereto with
respect to the Company and supersedes and replaces any prior agreements between
the parties with respect to the Company. No variations from, modifications of,
amendments to or changes in this Agreement shall be binding upon any party
hereto unless set forth in a document duly executed by or on behalf of such
party. Until the Mezzanine Indebtedness is paid in full, the consent of Merrill
Lynch or its successor as agent for the Mezzanine Lender to any amendment of
this Agreement shall be required, which consent by Merrill Lynch shall not be
unreasonably withheld if the rights of Mezzanine Lender will not be materially
or adversely affected by such amendment.
 
Section 14.6 Severability. 
 
If any provision of this Agreement or the application thereof to any Person or
circumstance shall be invalid or unenforceable to any extent, the remainder of
this Agreement and the application of such provisions to other Persons or
circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
 
Section 14.7 Construction Rules. 
 
All personal pronouns used in this Agreement, whether used in the masculine,
feminine, or neuter gender, shall include all other genders, the singular shall
include the plural, and vice versa, as the context may require. Titles of
Sections and Articles are for convenience of reference only, and shall neither
limit nor amplify the provisions of this Agreement itself. References in this
Agreement to particular Sections or Articles are references to Sections or
Articles of this Agreement unless otherwise specifically provided. The words
“hereof,” “herein,” “hereto” and “hereunder” shall refer to this Agreement as a
whole and not to any particular provision of this Agreement unless otherwise
specifically provided.
 
Section 14.8 Binding Effect. 
 
Subject to the restrictions on transfers and encumbrances set forth herein, this
Agreement shall inure to the benefit of and be binding upon the undersigned
Members and their respective heirs, executors, personal and legal
representatives, successors and permitted assigns. Whenever, in this instrument,
a reference to any Member is made, such reference shall be deemed to include a
reference to the heirs, executors, personal and legal representatives,
successors and permitted assigns of such Member.
 
 
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Section 14.9 Jurisdiction and Venue. 
 
If any Member or the Company institutes any lawsuit or other action or
proceeding pertaining to the Company, any right or obligation of any Member
hereunder, or any breach of this Agreement, then the nonexclusive venue and
jurisdiction for filing and maintaining any such lawsuit or other action or
proceeding shall be in the Circuit Court in and for Dallas County, Texas. To the
fullest extent permitted by law, each Member, by executing this Agreement,
consents and submits itself to the personal jurisdiction of such court.
 
Section 14.10 Attorney Fees. 
 
In any action or proceeding between the parties concerning this Agreement or its
enforcement, the prevailing party or parties in such action or proceeding shall
be entitled to collect in such action or proceeding from the non-prevailing
party or parties all costs of such litigation incurred by such prevailing party
or parties, including, but not limited to, reasonable attorney fees and costs,
through all levels of proceedings.
 
Section 14.11 Counterparts. 
 
This Agreement may be executed in counterparts and any of such counterparts may
be transmitted by facsimile transmission, and each of such counterparts, whether
an original or a facsimile of an original, will be deemed to be an original and
all of such counterparts together will constitute a single agreement.
 
Section 14.12 Expiration of Loan Covenants.
 
Notwithstanding any provision in this Agreement to the contrary, (i) at such
time as all of the Company’s indebtedness (the “Acquisition Indebtedness”) to
Acquisition Lender and all obligations related thereto arising from and related
to the Acquisition Loan are satisfied in full, any and all terms, provisions or
Covenants relating to the Acquisition Indebtedness shall be null and void and
shall have no further force or effect and (ii) at such time as all of the
Mezzanine Indebtedness is satisfied in full, any and all terms, provisions or
covenants in this Agreement related to the Mezzanine Loan shall be null and void
and shall have no further force or effect.
 
[The following page is the signature page.]
 
 
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IN WITNESS WHEREOF, the undersigned Members have executed this Agreement as of
the date stated above.
 
Witnesses:

        DALLAS & FORTH WORTH SENIOR HOUSING, LLC, a Delaware limited liability
company  
   
   
    By:   CNL Senior Housing II Member, LLC, a Florida limited liability
company, as sole managing member  

   
By:
CNL Real Estate Advisors Company, a Florida corporation, as sole manager
__________________________________     Name:__________________________________  
 
By:_________________________________
Name:_______________________________
Title:________________________________
        __________________________________    
Address:    450 S. Orange Ave.
                    Orlando, Florida 32801
Name:__________________________________      

 

        ARC CYPRESS, LLC, a Tennessee limited liability company

__________________________________     Name:__________________________________  
By:_________________________________
Name:_______________________________
Title:________________________________
        __________________________________  
Address:    111 Westwood Place, Suite 200
                     Brentwood, Tennessee 37027
Name:__________________________________      

 
 
 
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Exhibit A
 
(Dallas Property)
 
 
TRACT I: (FEE SIMPLE TRACT)

Lot 3, Block A/7731 of Town Village Addition, an addition to the City of Dallas,
Dallas County, Texas, according to the amended plat thereof recorded in Volume
99220, Page 47, Map Records, Dallas County, Texas and being further described as
follows:

Situated in the City of Dallas, Dallas County, Texas, being a part of the M.J.
Sanchez Survey, Abstract No. 1272 being all of the 7.003 acre tract of land
conveyed to Town Village Dallas, Limited Partnership, by deed of record in
Volume 99018, Page 07104, of the Deed Records, Dallas County, Texas, and being
more particularly described as follows:

Beginning at a spike nail found in the west right-of-way line of Coit Road at
the southeast corner of Lot 2, Block 4/7731, of The Gates of Park Central, an
addition to the City of Dallas, Texas, of record in Volume 97230, Page 17 of
said Deed Records;

Thence South 00°44’45” West with said west right-of-way line, a distance of
518.83 feet to a spike nail found at the northeast corner of that tract of land
conveyed to Equitable Life Assurance Society of the United States by deed of
record in Volume 93061, Page 2367, of said Deed Records, said nail being the
Southeast corner of said 7.000 acre tract;

Thence North 89°15’42” West with the north line of said Equitable Life Assurance
Society tract, a distance of 547.11 feet to a 3” brass cap found at the
southwest corner of said 7.000 acre tract;

Thence North 08°10’02” West with the west line of said 7.000 acre tract, a
distance of 525.13 feet to a 1/2” steel rod found at the southwest corner of
said Lot 2, Block 4/7731, said rod being the northwest corner of said 7.000 acre
tract;

Thence South 89°15’24” East with the south line of said Lot 2, a distance of
628.53 feet to the Point-of-Beginning and containing 7.000 acres of land.

TRACT II: (EASEMENT ESTATE TRACT)

Easement Estate created by that certain Easement Agreement by and between The
Equitable Life Assurance Society, of the United States and Windsor Residential
Properties, Inc., dated December 31, 1997 and recorded in Volume 97252, Page
5745 of the Deed Records of Dallas County, Texas, covering and affecting the
following
described land:

Being a 0.050 acre tract of land out of the M.J. Sanchez Survey, Abstract No.
122 and being a portion of a 9.293 acre tract of land, recorded in Volume 93061,
Page 2367 (Olla Podria Shopping Center Tract) lying in the City of Dallas Blocks
7732, 7733, 7734 and 7738. Said 0.050 acre tract of land being more particularly
described by metes and bounds as follows:
 
 
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Commencing at a point in the West right-of-way line of Coit Road (a variable
width right-of-way and also being the Southeast corner of a tract of land
conveyed to A.T.&T. Company, recorded an Volume 4956. Page 25, D.R.D.C.T.;

Thence South 00°44’45” West following along said West line of Colt Rood, for a
distance of 740.23 feet to a point for corner, said point being the
Point-of-Beginning;

Thence South 00°44’45” West continuing along said West line, a distance of 25.28
feet to a point for corner;

Thence North 89°15’l5” West leaving said West line, a distance of 86.81 feet to
a point for corner;

Thence North 00°44’45” East, a distance of 25.28 feet to a point for corner;

Thence South 09°15’15” East a distance of 86.81 feet to the Point-of-Beginning
and containing 2,195 square feet or 0.050 acres of land, more or less.

 
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Exhibit A-1
 
(Forth Worth Property)
 
Lot 1, Block 103R, RIDGMAR ADDITION, an addition to the City of Fort Worth,
Tarrant County, Texas, according to the plat thereof recorded in Cabinet A, Page
5338 of the Plat Records of Tarrant County, Texas. 
 
 
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Exhibit B
 
 
Member’s Name and Address
Initial Capital Contributions
Percentage Interests
Dallas & Fort Worth Senior Housing, LLC
CNL Center at City Commons
450 South Orange Avenue
Orlando, Florida 32801
$24,984,003.38
80%
ARC Cypress, LLC
111 Westwood Place, Suite 200
Brentwood, Tennessee 37027
$6,246,000.84
20%
Total
$31,230,004.22
100%

 

 
 
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Exhibit C
 
(Form of Management Agreement)
 
 
 
 
C

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