EX-10.83.01
 
LOAN AGREEMENT
 
$28,000,000.00
 

 
AMONG
 

 
EMERICHENAL LLC
 
EMERICLEAR LLC
 
and
 
EMERIMAND LLC
 

 
AS BORROWERS
 
AND
 
KEYBANK NATIONAL ASSOCIATION,
 

 
AS LENDER
 
Key Healthcare Finance
1301 5Th Avenue 23rd Floor
Seattle, WA 98101
 
DATED AS OF NOVEMBER 30, 2010

 
 

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TABLE OF CONTENTS
 
 
Article 1. DEFINITIONS
1
1.1
Defined Terms.
1
1.2
Other Definitional Provisions.
13
Article 2. BORROWER'S REPRESENTATIONS AND WARRANTIES
13
2.1
Representations and Warranties.
13
2.2
Survival of Representations and Warranties.
18
Article 3. LOAN AND LOAN DOCUMENTS
18
3.1
Agreement to Borrow and Lend.
18
3.2
Loan Documents.
18
3.3
Term of the Loan.
19
3.4
Prepayments.
20
3.5
Required Principal Payments.
20
3.6
Late Charge.
20
3.7
Reconveyance of Mortgages Upon HUD Loan Closings.
20
Article 4. INTEREST
21
4.1
Interest Rate.
21
4.2
Interest Rate Agreements.
21
Article 5. COSTS OF MAINTAINING LOAN
22
5.1
Increased Costs and Capital Adequacy.
22
5.2
Borrower Withholding.
23
Article 6. LOAN EXPENSE AND ADVANCES
23
6.1
Loan and Administration Expenses.
23
6.2
Loan Origination Fee.
24
6.3
Lender's Attorney Fees and Disbursements.
24
6.4
Payment of Fees and Expenses.
24
6.5
Expenses and Advances Secured by Loan Documents.
24
6.6
Right of Lender to Make Advances to Cure Defaults.
24
Article 7. CONDITIONS TO CLOSING THE LOAN
25
7.1
Conditions to Closing.
25
7.2
Disbursement at Loan Closing.
27
Article 8. COVENANTS
27
8.1
Mechanics' Liens and Contest Thereof.
28
8.2
Renewal of Insurance.
28
8.3
Payment of Taxes.
28
8.4
Tax and Insurance Escrow Accounts.
28
8.5
Personal Property.
29
8.6
Operating Leases.
30
8.7
Leasing Restrictions.
30
8.8
Condition of Properties.
30
8.9
Inventory and Equipment.
31

 
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8.10
Lender's Attorneys' Fees for Enforcement of Agreement.
31
8.11
Appraisals.
31
8.12
Occupancy Covenants.
31
8.13
Financial Information.
32
8.14
Lost Note.
33
8.15
Indemnification.
33
8.16
No Additional Debt.
33
8.17
Compliance With Laws.
33
8.18
Organizational Documents.
34
8.19
Management Contracts.
34
8.20
Furnishing Notices.
34
8.21
Authorized Representative.
34
8.22
Single Purpose Entity Provisions.
34
8.23
Right of First Refusal.
36
Article 9. CASUALTIES AND CONDEMNATION
36
9.10
Lender's Election to Apply Proceeds on Indebtedness.
36
9.2
Borrowers' Obligation to Rebuild and Use of Proceeds Therefor.
37
Article 10. ASSIGNMENTS BY LENDER AND BORROWER
38
10.1
Loan Assignment/Participation/Tranching; Secondary Market.
38
10.2
Prohibition of Assignments and Transfers by Borrowers.
38
10.3
Prohibition of Transfers in Violation of ERISA.
38
10.4
Successors and Assigns.
39
Article 11. LOAN STRUCTURE AND CONTRIBUTION PROVISIONS
39
11.1
Allocation of Loan.
39
11.2
Loan Structure.
39
11.3
Certain Consequences of Loan Structure.
40
11.4
Contribution Provisions.
40
11.5
Representations Regarding Loan Structure and Terms.
41
11.6
Representations Regarding Borrowers' Solvency.
41
11.7
Indemnified Claims.
42
Article 12. DEFAULT
43
12.1
Events of Default.
43
12.2
Remedies Conferred Upon Lender.
45
Article 13. GENERAL PROVISIONS
46
13.1
Successors and Assigns.
46
13.2
Time is of the Essence.
46
13.3
Captions.
46
13.4
Modification; Waiver.
46
13.5
Governing Law.
46
13.6
Disclaimer by Lender.
46
13.7
Partial Invalidity; Severability.
47
13.8
Definitions Include Amendments.
47
13.9
Execution in Counterparts.
47
13.10
Entire Agreement.
47
13.11
Waiver of Damages.
47

 
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13.12
Claims Against Lender.
47
13.13
Jurisdiction.
48
13.14
Set-Offs.
48
13.15
Notices.
48
13.16
Waiver of Jury Trial.
49
13.17
Statutory Notice.
49

 
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LOAN AGREEMENT

 
THIS LOAN AGREEMENT (“Agreement”) dated as of November 30, 2010, is entered into
by KEYBANK NATIONAL ASSOCIATION, a national banking association (“Lender”) and
EMERICHENAL LLC, a Delaware limited liability company (“Chenal”), EMERICLEAR
LLC, a Delaware limited liability company (“Clearwater”) and
EMERIMAND LLC, a Delaware limited liability company (“Mandarin” and together
with Chenal and Clearwater, “Borrowers”).
 
Recitals
 
Borrowers have applied to Lender for a loan (“Loan”) in the principal amount of
Twenty-Eight Million and No/100 Dollars ($28,000,000.00), the proceeds of which
will be used by Borrowers to purchase three (3) assisted living facilities, one
in Little Rock, Arkansas, one in Clearwater, Florida and one in Jacksonville,
Florida.  Lender is willing to
make the Loan on the terms and conditions set out in this Agreement.
 
Agreement
 
NOW THEREFORE, the parties agree as follows:
 
ARTICLE 1.
DEFINITIONS
 
 
1.1 Defined Terms.
 
The following terms as used herein shall have the following meanings:
 
Adjusted Base Rate:  As of any Business Day, a rate per annum equal to the sum
of (a) the Prime Rate Margin and (b) the greater of (i) the Prime Rate in effect
on such Business Date, or (ii) the Federal Funds Effective Rate in effect from
time to time, determined one Business Day in arrears, plus one-half of one
percent (0.50%), or (iii) the LIBOR
Rate for an Interest Period of one (1) month determined as of the immediately
preceding LIBOR Business Day, plus one percent (1%).
 
Adjusted LIBOR Rate:  The LIBOR Rate plus the LIBOR Margin, adjusting on the
first day of each calendar month throughout the initial term and any Extension
Term of the Loan.
 
Affiliate:  With respect to a specified person or entity, any individual,
partnership, corporation, limited liability company, trust, unincorporated
organization, association or other entity which, directly or indirectly, through
one or more intermediaries, controls or is controlled by or is under common
control with such person or entity, including,
without limitation, any general or limited partnership in which such person or
entity is a partner.
 
Aggregate HUD Loan Amount:  The aggregate loan amounts provided for in FHA
mortgage insurance commitments which Emeritus has retained KeyCorp Real Estate

 
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Capital Markets, Inc. (“KeyCorp Capital”), an Affiliate of Lender, to assist in
obtaining with respect to each of the Facilities, under the Registration
Letters.
 
Agreement:  This Loan Agreement.
 
Allocated Loan Amount:  As defined in Section 11.1 below.
 
Applicable Rate:  As such term is defined in Section 4.1(a) below.
 
Appraisal.  An MAI certified appraisal of a Facility by an appraiser selected
and retained by Lender and prepared in accordance with the Uniform Standards of
Professional Appraisal Practice applicable to Federally Related Transactions as
set out in Appendix A to the real estate appraisal regulations adopted by the
Office of the Comptroller of
the Currency (Sub-part C of 12 C.F.R. 34) pursuant to FIRREA and shall be
prepared in response to an engagement letter issued by Lender.
 
Assignments of Rents:  Collectively, the Assignments of Rents and Leases of even
date herewith from each Borrower and the Master Tenant assigning the rents,
Leases and revenues of each Facility to Lender as security for the Obligations.
 
Authorized Representative:  As such term is defined in Section 8.21.
 
Bankruptcy Code:  Title 11 of the United States Code entitled “Bankruptcy” as
now or hereafter in effect, or any successor thereto or any other present or
future bankruptcy or insolvency statute.
 
Breakage Costs:  (a) The cost to Lender of re-employing funds bearing interest
at an Adjusted LIBOR Rate, incurred (or to be incurred) in connection with any
payment of any portion of the Loan bearing interest at an Adjusted LIBOR Rate
prior to the termination of any applicable LIBOR Rate Interest Period and
(b) any amounts payable by
Borrower under any Interest Rate Agreement in connection with termination of
such Agreement.
 
Business Day:  A day of the year on which banks are not required or authorized
to close in Cleveland, Ohio.
 
Change of Control:  The occurrence of any of the following:
 
(1)           Any Person (including a Person’s Affiliates and associates) or
group (as that term is understood under Section 13(d) of the Securities Exchange
Act of 1934, as amended [the “Exchange Act”] and the rules and regulations
thereunder) shall have acquired beneficial ownership (within the meaning of Rule
13d-3 under the Exchange Act)
               of a percentage (based on voting power, in the event different
classes of stock shall have different voting powers) of the voting stock of
Emeritus equal to at least thirty percent (30%);
 
(2)           As of any date a majority of the Board of Directors (the “Board”)
of Emeritus consists of individuals who were not either (i) directors or
trustees of Emeritus as of the corresponding date of the previous year, or (ii)
selected or nominated to become directors by the Corporate Governance and
Nominating Committee of Emeritus which is

 
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                                comprised solely of independent directors, as
required by the New York Stock Exchange, and approved by a majority of the Board
of Emeritus, which majority consisted of individuals described in clause (i)
above, or (iii) selected or nominated to become directors or trustees by the
Corporate Governance and Nominating Committee of
                                Emeritus and approved by a majority of the Board
of Emeritus, which majority consisted of individuals described in clause (i)
above and individuals described in clause (ii), above (excluding, in the case of
both clause (ii) and (iii) above, any individual whose initial nomination for,
or assumption of office as, a member of the Board occurs
                                as a result of an actual or threatened
solicitation of proxies or consents for the election or removal of one or more
directors or trustees by any Person or group other than a solicitation for the
election of one or more directors or trustees by or on behalf of the Board); or
 
(3)           Emeritus consolidates with, is acquired by, or merges into or with
any Person, unless Emeritus (if it is the surviving entity) or such Person (if
it is the surviving entity) satisfies clauses (a) and (b) of the Emeritus
Covenants and if Emeritus is not the surviving entity, such Person is otherwise
reasonably acceptable to Lender.
 
Control:  As such term is used with respect to any person or entity, including
the correlative meanings of the terms “controlled by” and “under common control
with”, shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of the management policies of such person or entity,
whether through the
ownership of voting securities, by contract or otherwise.
 
Creditor:  As defined in Section 11.4.
 
Debtor:  As defined in Section 11.4.
 
Default or default:  Any event, circumstance or condition which, if it were to
continue uncured, would, with notice or lapse of time or both, constitute an
Event of Default hereunder.
 
Default Rate:  A rate per annum equal to three percent (3%) in excess of the
Adjusted Base Rate otherwise applicable to the Loan, but shall not at any time
exceed the highest rate permitted by law.
 
Emeritus:  Emeritus Corporation, a Washington corporation.
 
Emeritus Covenants:  The covenants of Emeritus set out in its Guaranty whereby
Emeritus agrees (a) to maintain minimum Liquid Assets of Twenty Million Dollars
($20,000,000.00); (b) maintain a minimum Fixed Charge Coverage Ratio of 1.10 to
1.00 (measured at the end of each calendar quarter for the preceding four
quarters beginning with the
calendar quarter ending December 31, 2010); and (c) to permit no Change of
Control without the prior written consent of Lender; provided, however, that in
the event Emeritus agrees with any other entity providing financing to Emeritus
or to any Affiliate of Emeritus to comply with any more restrictive covenants
than set
out in clauses (a) and (b) above, failure by Emeritus to comply with those more
restrictive covenants within any applicable grace period or cure period shall,
at the option of Lender, be an Event of Default hereunder.

 
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Environmental Indemnity:  The Environmental and Hazardous Substances Indemnity
Agreement with respect to each Property from the applicable Borrower and from
Emeritus, indemnifying Lender with regard to all matters related to Hazardous
Material and other matters related to such Property.
 
Environmental Laws:  All federal, state and local statutes, ordinances, rules,
regulations, and other laws relating to environmental protection, contamination
or cleanup.
 
Environmental Proceedings:  Any environmental proceedings, whether civil
(including actions by private parties), criminal, or administrative proceedings,
relating to any Property.
 
Environmental Report:  An environmental report on each Facility prepared at
Borrowers’ expense by a qualified environmental consultant approved by Lender,
dated not more than 6 months prior to the Loan Closing Date and addressed to
Lender (or subject to separate letter agreement permitting Lender to rely on
such environmental report).
 
ERISA:  The Employee Retirement Income Security Act of 1974, as amended, and the
regulations promulgated thereunder from time to time.
 
Event of Default:  As such term is defined in Section 12.1.  Any reference in
this Agreement or the other Loan Documents to an Event of Default means an Event
of Default which has occurred and has not been waived in writing by Lender or
cured to the satisfaction of Lender (but Borrower acknowledges that Lender has
no obligation to
permit any Event of Default to be cured).
 
Extended Maturity Date:  As such term is defined in Section 3.3.
 
Extension Option:  As such term is defined in Section 3.3.
 
Extension Term:  The period of time commencing on the day after the Initial
Maturity Date and ending on the Extended Maturity Date.
 
Facility or Facilities:  Each of the following:
 
(1) The 80 unit assisted living facility known as “Chenal Heights” and located
at One Chenal Heights Drive, Little Rock, Arkansas (the “Chenal Facility”).
 
(2) The 174 unit assisted living facility known as “Emeritus at Clearwater” and
located at 2750 Drew Street, Clearwater, Florida (the “Clearwater Facility”).
 
(3) The 147 unit assisted living facility known as “Emeritus at Mandarin” and
located at 10790 Old St. Augustine Road, Jacksonville, Florida (the “Mandarin
Facility”).
 
Federal Funds Effective Rate:  Shall mean, for any day, the rate per annum,
rounded upward to the nearest on one-hundredth of one percent (1/100 of 1%),
announced by the Federal Reserve Bank of Cleveland on such day as being the
weighted average of the rates on overnight federal funds transactions arranged
by federal funds brokers on
the previous trading day, as computed and announced by such Federal

 
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                 Reserve Bank in substantially the same manner as such Federal
Reserve Bank computes and announces the weighted average it refers to as the
“Federal Funds Effective Rate.”
 
FIRREA:  The Financial Institutions Reform, Recovery and Enforcement Act of
1989, as amended from time to time.
 
Fixed Charge Coverage Ratio:  The ratio of EBITDAR to Fixed Charges where
“EBITDAR” means net income computed in accordance with generally accepted
accounting principles, plus income taxes, facility lease expense, interest
expense depreciation, amortization, asset impairment and other non-cash charges
and plus or minus, as
applicable, non-recurring and/or extraordinary items, and where “Fixed Charges”
means interest expense, facility lease expense and principal payments on
indebtedness.
 
GAAP:  Generally accepted accounting principles, consistently applied.
 
Governmental Authority:  Any federal, state, county or municipal government, or
political subdivision thereof, any governmental or quasi-governmental agency,
authority, board, bureau, commission, department, instrumentality, or public
body, or any court, administrative tribunal, or public utility.
 
Gross Revenues:  For any period with respect to each Facility, all revenues of
the Master Tenant determined on a cash basis derived from the ownership,
operation, use, leasing and occupancy of the Facility during such period;
provided, however, that in no event shall Gross Revenues include (i) any loan
proceeds, (ii) proceeds or payments
under insurance policies (except proceeds of business interruption insurance);
(iii) condemnation proceeds; (iv) any security deposits received from Residents
or tenants of the Facilities, unless and until the same are applied to rent or
other obligations in accordance with the Residency Agreement or Lease; or
(v) any other extraordinary   
items, in Lender’s reasonable discretion.
 
Guarantor:  Emeritus.
 
Guaranty:  The Unconditional Payment Guaranty of even date herewith from
Emeritus to Lender guaranteeing payment of the Loan.
 
Hazardous Material:  Means and includes gasoline, petroleum, asbestos containing
materials, explosives, radioactive materials or any hazardous or toxic material,
substance or waste which is defined by those or similar terms or is regulated as
such under any Law of any Governmental Authority having jurisdiction over a
Facility or any
portion thereof or its use, including: (i) any “hazardous substance” defined as
such in (or for purposes of) the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C.A. § 9601(14) as may be amended from
time to time, or any so-called “superfund” or “superlien” Law, including the
judicial interpretation thereof; 
(ii) any “pollutant or contaminant” as defined in 42 U.S.C.A. § 9601(33);
(iii) any material now defined as “hazardous waste” pursuant to 40 C.F.R. Part
260; (iv) any petroleum, including crude oil or any fraction thereof;
(v) natural gas, natural gas liquids, liquefied natural gas, or synthetic gas
usable for fuel; (vi) any “hazardous chemical” as
defined pursuant to 29 C.F.R. Part 1910; and  (vii) any other toxic substance or
contaminant that is subject to any other Law or other past or present
requirement of any Governmental

 
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                                                     Authority.  Any reference
above to a Law, includes the same as it may be amended from time to time,
including the judicial interpretation thereof.
 
Healthcare Licenses:  As defined in Section 2.1(w) of this Agreement.
 
Healthcare Requirements:  All Federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions or agreements, in each case, pertaining to or concerned
with the establishment, construction, ownership, operation, use or occupancy of
a Facility or any part thereof
as an assisted living facility, and all material permits, licenses and
authorizations and regulations relating thereto, including all material rules,
orders, regulations and decrees of and agreements with Governmental Authorities
as pertaining to such Facility.
 
HUD Loan Closing:  The closing of a FHA Insured Mortgage Loan on a Facility as
arranged by KeyCorp Capital under the Registration Letter.
 
Including or including:  Including but not limited to.
 
Indemnified Claim:  As defined in Section 11.7.
 
Indemnified Obligations:  As defined in Section 11.7.
 
Indemnified Party:  As such term is defined in Section 8.15.
 
Initial Maturity Date:  November 30, 2012.
 
Interest Rate Agreement:  As such term is defined in Section 4.2.
 
Interest Rate Protection Product:  As such term is defined in Section 4.2.
 
Internal Revenue Code:  The Internal Revenue Code of 1986, as amended from time
to time.
 
Intra-Borrower Loan or Loans:  As defined in Section 11.4.
 
Late Charge:  As defined in Section 3.6.
 
Laws:  Collectively, all federal, state and local laws, statutes, codes,
ordinances, orders, rules and regulations, including judicial opinions or
precedential authority in the applicable jurisdiction.
 
Leases:  The collective reference to all leases, subleases and occupancy
agreements affecting any Facility or any part thereof now existing or hereafter
executed, including the Operating Lease for that Facility, and all amendments,
modifications or supplements thereto, which, in the case of any material
amendments, modifications or
supplements, shall be subject to the written approval of Lender, which approval
shall not be unreasonably withheld.
 
Lender’s Environmental Consultant:  An environmental consultant designated by
Lender in Lender’s sole discretion.

 
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LIBOR Business Day:  A Business Day on which dealings in U.S. dollars are
carried on in the London Interbank Market.
 
LIBOR Interest Period:  One (1) month.
 
LIBOR Margin:  Four and one-half percent (4.5%) per annum.
 
                LIBOR Rate: The rate per annum which Lender determines with
reference to the rate shown in Dow Jones Markets (formerly Telerate) (Page 3750)
at which one month deposits in United States dollars in an amount comparable to
the principal balance outstanding on the Loan are offered by prime banks in the
London Interbank Eurodollar
                Market two (2) LIBOR Business Days prior to the last day of each
calendar month; provided, however, that in no event and at no time shall the
LIBOR Rate be less than one and one-half percent (1.5%) per annum.
 
Liquid Assets:  The following assets, provided that such assets (A) are not
subject to any lien, claim or other encumbrance; (B) are not the subject of any
arrangement with any creditor to have such creditor’s claim satisfied out of
such asset prior to general creditors; (C) if not cash, may be converted to cash
within five (5) days; and (D) are not
subject to any legal or contractual restrictions (other than those inherent in
or typical to the instrument):
 
(a) cash on hand;
 
(b) United States Treasury notes, bonds, bills, or certificates of indebtedness,
or those for which the full faith and credit of the United States are pledged
for the full and timely payment of principal and interest (including State and
Local Government Series);
 
(c) obligations, participations, or other instruments of or issued by a federal
agency or a United States government-sponsored enterprise, the principal of and
interest on which is unconditionally guaranteed by the United States;
 
(d) any obligations on which the interest is exempt from federal income taxation
and which are rated by a nationally recognized rating service in one of its two
highest long-term or short-term rating categories;
 
(e) certificates of deposit issued by, or time or demand deposits or other
banking arrangements with, a nationally or state-chartered bank or a savings
association having a minimum capital of $500,000,000 and rated within the top
two ratings of a nationally recognized rating service;
 
(f) taxable government money market portfolios rated “AAA” by a nationally
recognized rating service and restricted to obligations with maturities of one
year or less issued or guaranteed as to payment of principal and interest by the
full faith and credit of the United States of America, and which are rated by
such nationally recognized rating
     service in one of its two highest short term rating categories; and
 
(g) Readily Marketable Securities.

 
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Loan:  A loan in the principal amount of $28,000,000.00, to be made by Lender to
Borrowers on the terms and conditions set out in this Agreement.
 
Loan Documents:  The collective reference to this Agreement, the documents and
instruments listed in Section 3.2, and all the other documents and instruments
entered into from time to time, evidencing or securing the Loan or any
obligation of payment thereof or performance of Borrowers’ obligations in
connection with the transaction
contemplated hereunder and all Interest Rate Agreements, each as amended.
 
Loan Closing or Loan Closing Date:  The date all conditions to the closing of
the Loan have been satisfied (or waived in writing by Lender) and proceeds of
the Loan are first disbursed to Borrowers.
 
Master Tenant:  Each of the tenants under the Operating Leases.
 
Material Adverse Change or material adverse change:  If, in Lender’s reasonable
discretion, the operations or financial condition of a person, entity or
property has changed in a manner which would reasonably be expected to
materially impair the value of Lender’s security for the Loan, prevent timely
repayment of the Loan or otherwise
prevent the applicable person or entity from timely performing any of its
material obligations under the Loan Documents.
 
Maturity Date:  The Initial Maturity Date, or, if Borrower satisfies the
conditions to extend the term of the Loan pursuant to Section 3.3, the Extended
Maturity Date.
 
Medicaid:  Title XIX of the Social Security Act, which was enacted in 1965 to
provide a cooperative Federal-state program for low income and medically
indigent persons, which is partially funded by the Federal government and
administered by the states.
 
Medicare:  Title XVIII of the Social Security Act, which was enacted in 1965 to
provide a Federally funded and administered health program for the aged and
certain disabled persons.
 
Mortgages:  Each of the following:
 
(1)           The Mortgage, Assignment of Rents and Leases, Security Agreement
and Fixture Filing from Chenal as mortgagor to Lender as mortgagee, granting a
first priority lien on Chenal’s fee simple title to the Chenal Property as
security for the Obligations, subject only to the Permitted Exceptions.
 
(2)           The Mortgage, Assignment of Rents and Leases, Security Agreement
and Fixture Filing from Clearwater as mortgagor to Lender as mortgagee, granting
a first priority lien on Clearwater’s fee simple title to the Clearwater
Property as security for the Obligations, subject only to the Permitted
Exceptions.
 
(3)           The Mortgage, Assignment of Rents and Leases, Security Agreement
and Fixture Filing from Mandarin as mortgagor to Lender as mortgagee, granting a
first priority lien on Mandarin’s fee simple title to the Mandarin Property as
security for the Obligations, subject only to the Permitted Exceptions.

 
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Net Operating Income:  For the applicable period, the aggregate net income,
computed in accordance with generally accepted accounting principles, of each
Facility before taxes, depreciation, amortization of intangible assets and
before interest expense, management fees, and rental payments under the
applicable Operating Lease, decreased
by  (i) an annual replacement reserve of $300.00 per Unit in such Facility, and
(ii) an allowance for management fees equal to 5% of the Gross Revenues of such
Facility.
 
Note:  As such term is defined in Section 3.2(a).
 
Obligations:  All obligations of Borrowers under this Agreement and the other
Loan Documents.
 
Occupancy.  The percentage of Units in a Facility which are actually occupied by
Residents on a full rent-paying basis under Residency Agreements in effect as of
the date of this Agreement or, as to Residency Agreements hereafter entered into
by Borrowers, in the form approved by Lender without material modification.
 
Occupancy Covenants:  As such term is defined in Section 8.12 below.
 
Operating Leases:  Each of the following:
 
(1) With respect to the Clearwater Facility (defined above in the definition of
Facilities), the Lease dated December 1, 2010, from Clearwater to Summerville at
Clearwater, LLC, a Delaware limited liability company and a subsidiary of
Emeritus (the “Clearwater Lease”).
 
(2) With respect to the Mandarin Facility (defined above in the definition of
Facilities), the Lease dated December 1, 2010, from Mandarin to Summerville at
Mandarin, LLC, a Delaware limited liability company and a subsidiary of Emeritus
(the “Mandarin Lease”).
 
(3) With respect to the Chenal Facility (defined above in the definition of
Facilities), the Lease dated December 1, 2010, from Chenal to Emeritus (the
“Chenal Lease”).
 
Organizational Documents:  (a) For any limited liability company, a true copy of
the articles of organization or certificate of formation of such limited
liability company evidencing the creation of such limited liability company, the
limited liability company agreement or operating agreement of such limited
liability company with all amendments
thereto, certified by the manager or such authorized person of such limited
liability company as being true, correct and complete, together with a current
certificate of existence and good standing of such limited liability company
issued by the applicable authority for the state of organization; and if
appropriate, a current certificate of
qualification and good standing (or other similar instruments) from the
appropriate authority of each state in which it must be qualified to do
business, (b) for any limited partnership, a true copy of the certificate of
limited partnership of such limited partnership evidencing the creation of
such limited partnership, the limited partnership
agreement of such limited partnership with all amendments thereto, certified by
the general partner or such authorized person of such limited partnership as
being true, correct and complete, together with a current certificate of
existence and good standing of

 
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                such limited partnership issued by the applicable authority for
the state of organization; and if appropriate, a current certificate of
qualification and good standing (or other similar instruments) from the
appropriate authority of each state in which it must be qualified to do
business, and (c) for any corporation, a true copy of the articles of
                incorporation of such corporation evidencing the creation of
such corporation, together with all amendments thereto, the bylaws of such
corporation with all amendments thereto, certified by a responsible officer of
such corporation as being true, correct and complete, together with a
current certificate of existence and good standing of such
               corporation issued by the applicable authority for the state of
organization; and if appropriate, a current certificate of qualification and
good standing (or other similar instruments) from the appropriate authority of
each state in which it must be qualified to do  business.
 
Permitted Exceptions:  With respect to each Facility, the matters listed on
Schedule B of the Title Policy for that Facility and thereafter such other title
exceptions as Lender may approve in writing.
 
Permitted Transfer:  (a) Residency Agreements entered into in the ordinary
course of business provided the same are in the form reasonably approved by
Lender without material modification and are in compliance with Laws, (b)
arms-length non-residential Leases entered into by the Master Tenant (with
respect to the Clearwater Facility
and the Mandarin Facility) or the owner (with respect to the Chenal Facility) in
the ordinary course of business for premises in the Facilities intended for
non-residential use, (c) Transfers of stock in Emeritus not resulting in a
Change of Control, (d) any Transfer of shares of common stock, limited
partnership interests limited liability company
membership interests or other beneficial or ownership interests or other forms
of securities in any Borrower or in any direct or indirect owner of membership
interests in any Borrower so long as Emeritus retains Control of each Borrower
and continues to own 100% of the beneficial ownership interests in each
Borrower, either directly or through
the ownership of intervening entities, (e) any Transfer of the inventory
consumed in the ordinary course of the operation of the Facilities and (f) any
Transfer of any worn out or obsolete furniture, fixtures or equipment used in
connection with the operation of the Facilities if the same is replaced in due
course with replacement property of like
kind and quality.
 
Prime Rate:  That interest rate established from time to time by KeyBank
National Association as its Prime Rate, whether or not such rate is publicly
announced; the Prime Rate may not be the lowest interest rate charged by KeyBank
National Association for commercial or other extensions of credit.
 
Prime Rate Margin:  Four and one-half percent (4.5%) per annum.
 
Property:  The collective reference to (i) the real property upon which a
Facility is constructed, as legally described in the Mortgage encumbering such
Facility, together with the Facility and all buildings, structures and
improvements located or to be located thereon, (ii) all rights, privileges,
easements and hereditaments relating or appertaining
thereto, and (iii) all personal property, fixtures and equipment required for
the operation thereof.

 
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Properties: The collective reference to every Property upon which the Facilities
are constructed.
 
Purchase Agreements:  Each of the following:
 
(1) With respect to the Chenal Facility (defined above in the definition of
Facilities), the Asset Purchase Agreement dated September 15, 2010, between
Chenal Heights Retirement L.L.C. and Sagely Hightower Operations LLC as Sellers,
and Emeritus as Purchaser, all right, title and interest of Emeritus thereunder
having been assigned to
Chenal (the “Chenal Purchase Agreement”).
 
(2) With respect to the Clearwater Facility (defined above in the definition of
Facilities), the Purchase and Sale Agreement dated October 4, 2010, between
Clearwater-Park Associates, Limited Partnership as Seller and Emeritus as
Purchaser, all right, title and interest of Emeritus thereunder having been
assigned to Clearwater (the “Clearwater
Purchase Agreement”).
 
(3) With respect to the Mandarin Facility (defined above in the definition of
Facilities), the Purchase and Sale Agreement dated October 4, 2010, between
Jacksonville-Pines Associates, Limited Partnership as Seller and Emeritus as
Purchaser, all right, title and interest of Emeritus thereunder having been
assigned to Mandarin (the “Mandarin
Purchase Agreement”).
 
Readily Marketable Securities:  Marketable securities listed or admitted to
trading on the New York Stock Exchange or the American Stock Exchange or quoted
on the NASDAQ National Market with a market price equal to or greater than $2.00
per share, so long as, in the case of any such securities the transfer of which
is restricted by Rule 
144, a minimum of two years shall have elapsed since the later of (a) the date
of the acquisition by the owner of such marketable securities from the
respective issuers thereof or from any affiliate (as that term is defined in
paragraph (a)(1) of Rule 144) of any of such issuers and (b) the date of payment
by the owner of the full purchase price or
other consideration paid or given to acquire such marketable securities from the
respective issuers thereof or from any affiliate (as that term is defined in
paragraph (a)(1) of Rule 144).
 
Registration Letters:  Letter agreements to be entered into between Emeritus,
the applicable Borrower and KeyCorp Real Estate Capital Markets, Inc. (KeyCorp
Capital”), an Affiliate of Lender, engaging KeyCorp Capital to assist in
arranging FHA mortgage insurance commitments for each of the Facilities.
 
Reimbursement Contracts: All managed care agreements, and all third party
reimbursement contracts or programs for the Facilities which are now or
hereafter in effect with respect to Residents qualifying for coverage under the
same, including Medicare, Medicaid, any successor or similar reimbursement
program and private insurance
agreements.
 
Required Permits:  A certificate of occupancy for each Facility issued by the
applicable jurisdiction, all licenses required under Law for use and occupancy
of each Facility as an assisted living facility and all other licenses, permits,
certificates, approvals, authorizations and registrations required from any
Governmental Authority in

 
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                 connection with the ownership, operation, use or occupancy of
the Facility, including, without limitation, business licenses and food service
licenses and all licenses required to be obtained by the Master Tenant for
operation of the Facilities.
 
Residency Agreements:  All agreements providing for residential occupancy of a
Facility.
 
Resident:  Any person residing in any of the Facilities.
 
Security Agreements:  Collectively, each Security Agreement of even date
herewith executed by each Borrower and Master Tenant granting Lender a first
priority security interest in all tangible and intangible personal property with
respect to the Facilities, including, without limitation, all accounts
receivable and healthcare receivables as
security for payment and performance of the Obligations.
 
Security Instrument Default:  The occurrence of any default by any Borrower,
Master Tenant or Emeritus under any Security Instrument which is not cured
within any applicable cure period thereunder.
 
Security Instruments:  Collectively, the Mortgages, the Assignments of Rents and
the Security Agreements required hereunder and all UCC Financing Statements
required by Lender in connection therewith.
 
State:  The state in which a Facility is located.
 
Swap Transaction:  As defined in the 2002 ISDA Definitions.
 
Title Insurer:  Chicago Title Insurance Company or such other title insurance
company licensed in the applicable State as may be approved in writing by
Lender.
 
Title Policies:  The ALTA lender’s title insurance policies with extended
coverage (2006 Loan Policy form if available and another form reasonably
satisfactory to Lender if not) issued by the Title Insurer with respect to each
of the Properties in an aggregate amount equal to the principal amount of the
Loan, insuring the liens of the Mortgages
as valid first, prior and paramount liens upon the Properties, and subject to no
other exceptions other than the Permitted Exceptions.  Each Title Policy shall
include such available endorsements as Lender may require, including
endorsements ALTA Form 9.3-06 (lender’s comprehensive), ALTA Form 17-06 (access
from abutting streets), ALTA
Form 18-06 (single tax parcel), ALTA Form 22-06 (address), ALTA 8.1-06
(environmental lien), ALTA Form 25-06 (survey), ALTA Form 26-06 (subdivision),
ALTA Form 6-06 (variable rate) and an ALTA 3.1-06 (zoning) endorsement unless
Lender receives a zoning letter reasonably acceptable to Lender.  Each Title
Policy shall insure that the
applicable Property is free of the possibility of any prior mechanics’ or
materialmen’s liens, and that all taxes and assessments on such Property or any
part thereof which are due and payable on the Loan Closing Date have been paid.
 
Transfer:  (a) Any sale, transfer, lease, conveyance, alienation, pledge,
assignment, mortgage, encumbrance, hypothecation or other disposition of (i) all
or any portion of the Facilities or any portion of any other security for the
Loan, or (ii) all or any portion of any Borrower’s or the Master Tenant’s right,
title and interest (legal or equitable) in
and to the

 
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                   Facilities or any portion of any other security for the Loan,
(b) any issuance, sale, transfer, alienation, pledge, assignment, encumbrance,
hypothecation or other disposition of (i) any membership interest in any
Borrower, or (ii) any ownership interest in any member of Borrower or in any
entity which holds an interest in, or directly or indirectly
                   controls any member of any Borrower, (c) any change in the
identity of the manager or managing member of any Borrower, or (d) any Change of
Control.
 
TRICARE: Collectively, a program of medical benefits covering former and active
members of the uniformed services and certain of their dependents, financed and
administered by the United States Departments of Defense, Health and Human
Services and Transportation, which program was formerly known as the "Civilian
Health and Medical
Program of the Uniformed Services (CHAMPUS)".
 
UCC-1 Financing Statements:  As defined in Section 4.2.
 
Unit:  Each residential living unit in a Facility.
 
1.2 Other Definitional Provisions.
 
All terms defined in this Agreement shall have the same meanings when used in
any other Loan Document or any certificate or other document made or delivered
pursuant hereto.  The words “hereof”, “herein” and “hereunder” and words of
similar import when used in this Agreement shall refer to this Agreement.
 
ARTICLE 2. 
BORROWER’S REPRESENTATIONS AND WARRANTIES
 
 
2.1 Representations and Warranties.
 
To induce Lender to execute this Agreement and perform its obligations
hereunder, Borrowers hereby represent and warrant to Lender as follows:
 
(a) Borrowers have good and marketable fee simple title to the Properties,
subject only to the Permitted Exceptions.
 
(b) Except as previously disclosed to Lender in writing, no litigation or
proceedings are pending, or to the best of Borrowers’ knowledge threatened,
against Emeritus, any Borrower or Master Tenant or any Property, which would, if
adversely determined, reasonably be expected to cause a Material Adverse Change
with respect to Emeritus, any
Borrower or Master Tenant or any Property.  There are no pending Environmental
Proceedings and Borrowers have no knowledge of any threatened Environmental
Proceedings or any facts or circumstances which would reasonably be expected to
give rise to any future Environmental Proceedings.
 
(c) Each Borrower is a duly organized and validly existing limited liability
company and has full power and authority to execute, deliver and perform all
Loan Documents to which such Borrower is a party, and such execution, delivery
and performance have been duly authorized by all requisite action on the part of
each Borrower.  The sole
member of each Borrower is Emeritus.

 
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(d) Emeritus is a duly organized and validly existing corporation and has full
power and authority to execute, deliver and perform all Loan Documents to which
it is a party, and such execution, delivery and performance have been duly
authorized by all requisite action on the part of Emeritus.
 
(e) No consent, approval or authorization of or declaration, registration or
filing with any Governmental Authority or nongovernmental person or entity,
including any creditor or owner of any Borrower, Emeritus or any Master Tenant,
is required in connection with the execution, delivery and performance of this
Agreement or any of the Loan
Documents other than the recordation of the Mortgages and the Assignments of
Rents and the filing of the UCC-1 Financing Statements, except for such
consents, approvals or authorizations of or declarations or filings with any
Governmental Authority or non-governmental person or entity which have been
obtained as of any date on which
this representation is made or remade.
 
(f) The execution, delivery and performance of this Agreement, the execution and
payment of the Note and the granting of the Mortgages and other security
interests under the other Loan Documents have not constituted and will not
constitute, upon the giving of notice or lapse of time or both, a breach or
default under any other agreement to
which any Borrower, any Master Tenant or Emeritus is a party or may be bound or
affected, or a violation of any law or court order which affects any of the
Properties, any part thereof, any interest therein, or the use thereof.
 
(g) There is no Default or Event of Default under this Agreement or the other
Loan Documents.
 
(h) (i) No condemnation of any portion of any Property, (ii) no condemnation or
relocation of any roadways abutting any Property, and (iii) no proceeding to
deny access to any Property from any point or planned point of access to any
Property, has commenced or, to the best of any Borrower’s knowledge, is
contemplated by any
Governmental Authority.
 
(i) All Required Permits have been duly issued and are in full force and effect
for each of the Facilities, except where the failure to obtain or maintain the
same would not reasonably be expected to result in a Material Adverse Change.
 
(j) Each Facility is in compliance in all material respects with the
requirements of all Reimbursement Contracts applicable to such Facility.
 
(k) No Property or the use thereof violates (i) any Law (including subdivision,
zoning, building, environmental protection and wetland protection Laws), or
(ii) any building permits, restrictions of record, or agreements affecting any
Property or any part thereof.  Neither the zoning authorizations, approvals or
variances nor any other right to use
any Facility are to any extent dependent upon or related to any real estate
other than the Property on which such Facility is located.
 
(l) No brokerage fees or commissions are payable by or to any person in
connection with this Agreement or the Loan.

 
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(m) All financial statements and other information previously prepared and
furnished by Emeritus, Borrowers and the Master Tenants to Lender in connection
with the Loan are true, complete and correct in all material respects and fairly
present the financial conditions of the subjects thereof as of the respective
dates thereof and do not fail to
state any material fact necessary to make such statements or information not
misleading, and no Material Adverse Change with respect to Emeritus, any
Borrower, any Master Tenant or any Facility has occurred since the respective
dates of such statements and information.  No Borrower or Master Tenant has any
material liability, contingent
or otherwise, not disclosed in such financial statements.
 
(n) Except as disclosed by Borrowers to Lender in writing, (i) each of the
Facilities is in compliance with all applicable Environmental Laws; (ii) no
Borrower or Master Tenant nor, to the best of Borrowers’ knowledge, any other
person or entity, has ever caused or permitted any Hazardous Material to be
placed, held, located or disposed of on,
under, at or in a manner to affect any Facility, or any part thereof, and no
Facility has never been used (whether by Borrower or, to the best knowledge of
Borrowers, by any Master Tenant or any other person or entity) for any
activities involving, directly or indirectly, the use, generation, treatment,
storage, transportation, or disposal of any
Hazardous Material; (iii) no Facility and no Borrower or Master Tenant is
subject to any existing, pending, or, to the best of Borrowers’ knowledge,
threatened investigation or inquiry by any Governmental Authority pursuant to
any Environmental Law, and no Facility is subject to any remedial obligations
under any applicable Environmental
Law; and (iv) there is no underground tank, vessel, or similar facility for the
storage, containment or accumulation of Hazardous Materials of any sort on,
under or affecting any of the Properties.
 
(o) Each Property is taxed separately without regard to any other property and
for all purposes each Property may be mortgaged, conveyed and otherwise dealt
with as an independent parcel.
 
(p) Except for Residency Agreements which have been entered into in the ordinary
course of operation of the Facilities and except for the Operating Leases and
other Leases disclosed to Lender in writing, there are no Leases, subleases or
other arrangements for occupancy of space within any of the Properties.
 
(q) There is no uncured default by any Master Tenant under any of the Operating
Leases.
 
(r) The Loan is not being made for the purpose of purchasing or carrying “margin
stock” within the meaning of Regulation G, T, U or X issued by the Board of
Governors of the Federal Reserve System, and Borrower agrees to execute all
instruments necessary to comply with all the requirements of Regulation U of the
Federal Reserve System.
 
(s) No Borrower, Master Tenant or Emeritus is a party in interest to any plan
defined or regulated under ERISA, and none of the assets of any Borrower, Master
Tenant or Emeritus are “plan assets” of any employee benefit plan covered by
ERISA or Section 4975 of the Internal Revenue Code.

 
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(t) No Borrower, Emeritus or Master Tenant is a “foreign person” within the
meaning of Section 1445 or 7701 of the Internal Revenue Code.
 
(u) Each Borrower’s place of formation or organization is the State of Delaware
and each Borrower is duly qualified to conduct business in the state in which
the Facility owned by such Borrower is located.
 
(v) No Borrower, Master Tenant or Emeritus is (or will be) a person with whom
Lender is restricted from doing business under OFAC (including, those Persons
named on OFAC’s Specially Designated and Blocked Persons list) or under any
statute, executive order (including, the September 24, 2001 Executive Order
Blocking Facilities and
Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support
Terrorism), or other governmental action and is not and shall not engage in any
dealings or transactions or otherwise be associated with such persons.  In
addition, each Borrower hereby agrees to provide to Lender with any additional
information Lender
reasonably deems necessary from time to time in order to ensure compliance with
all applicable Laws concerning money laundering and similar activities.
 
(w) All provider agreements, certifications, governmental licenses, permits,
regulatory agreements or other material agreements and improvements, including
certificates of operation, completion and occupancy, and state assisted-living
facility licenses or other licenses required by healthcare Governmental
Authorities for the legal and intended
use and occupancy of each Facility (collectively, the "Healthcare Licenses")
have been obtained by the Master Tenant and are in full force and effect or,
with respect to the Chenal Facility, will be obtained by the Master Tenant in
the ordinary course of business after the Closing Date, retroactive to the
Closing Date and will remain in full force
and effect thereafter.  The Master Tenant for each Facility owns and/or
possesses and holds (or upon issuance will own and/or possess and hold), free
from restrictions or conflicts with the rights of others, all such Healthcare
Licenses in respect of such Facility, and operates such Facility in such a
manner that the Healthcare Licenses shall
remain in full force and effect.  Lender acknowledges that none of the
Facilities is or is eligible to be certified to participate in Medicare.
 
(x) Each Master Tenant and the operation of each Facility are in compliance in
all material respects with all Healthcare Requirements of all Governmental
Authorities having jurisdiction over the ownership, use, occupancy or operation
of any Facility, including, (i) staffing requirements, (ii) health and fire
safety codes, including quality and safety
standards, (iii) accepted professional standards and principles that apply to
professionals providing services at each Facility, (iv) Federal, state or local
laws, rules, regulations or published interpretations or policies relating to
the prevention of fraud and abuse, (v) insurance, reimbursement and cost
reporting requirements, (vi) government
payment program requirements and disclosure of ownership and related information
requirements, (vii) requirements of applicable healthcare Governmental
Authorities, including those relating to each Facility's physical structure and
environment, licensing, quality and adequacy of medical care, distributions of
pharmaceuticals, rate setting,
equipment, personnel, operating policies and services and fee splitting, (viii)
Section 1128B(b) of the Social Security Act, as amended (42 U.S.C. Section
l320a-7(b) (Criminal Penalties for Acts involving Federal Health Care Programs),
commonly referred to as the "Federal Anti-Kickback Statute") and (ix) any other
applicable laws, regulations or

 
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                 agreements for reimbursement for the type of care or services
provided with respect to each Facility.
 
(y) To the best of Borrowers’ knowledge, no Master Tenant or Facility is a
target of, or participant in, any action, proceeding, suit, audit, investigation
or sanction by any healthcare Governmental Authority or any other administrative
or investigative body or entity or any other third party or any patient or
resident (including whistleblower
suits, or suits brought pursuant to federal or state false claims acts, and
Medicaid, Medicare, TRICARE, state fraud or abuse laws) which may result,
directly or indirectly or with the passage of time, in (i) the imposition of a
fine, penalty, alternative, interim or final sanction, a lower rate
certification, recoupment, recovery, suspension or
discontinuance of all or part of reimbursement from any healthcare Governmental
Authority, third-party payor, insurance carrier or private payor, or a lower
reimbursement rate for services rendered, except in each case as would not
reasonably be expected to result in a Material Adverse Effect, or (ii) any other
civil or criminal remedy, in the
appointment of a receiver or manager, or in the modification, limitation,
annulment, revocation, transfer, surrender, suspension or other impairment of a
Healthcare License or affect any Borrower's or Master Tenant’s continued
participation in any third-party payor program, nor to its knowledge has any
such action, proceeding, suit,
investigation proceeding or audit been threatened, except in each case as could
not reasonably be expected to result in a Material Adverse Effect.
 
(z) To the best of Borrowers’ knowledge, there are no agreements with Residents
of any Facility or with any other persons or organizations, which deviate in any
material adverse respect from, or which conflict with, any Healthcare
Requirements and all resident records at each Facility, including resident
accounts records, are maintained in all
material respects in accordance with applicable Healthcare Requirements.
 
(aa) Neither the execution and delivery of this Agreement and the other Loan
Documents, nor the performance thereof by Borrowers or the Master Tenant will
(i) adversely affect, in any material respect, or materially reduce the right of
any Facility to receive any payments or reimbursements which such Facility is
eligible to receive as of the date
of this Agreement, or (ii) materially adversely affect the Healthcare Licenses.
 
(bb) To the best of Borrowers’ knowledge, each Facility is in compliance in all
material respects with all requirements and conditions of each Reimbursement
Contract currently in effect with respect to such Facility and each such
Reimbursement Contract is in full force and effect and in good standing.
 
(cc) To the best of Borrowers’ knowledge, all cost reports and financial reports
submitted to any third party payor with respect to the Clearwater and Mandarin
Facilities have been materially accurate and complete as of the date of
submission and have not been misleading in any material respects and no Borrower
has received any notice or has
any actual knowledge that any cost reports or financial reports submitted to any
third party payor with respect to the Chenal Facility were materially inaccurate
or incomplete when submitted.  To the best of Borrowers’ knowledge, except as
have been disclosed to Lender in writing, there are no material recoupment
claims made or contests
pending or threatened with respect to any Facility.

 
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(dd) Except as disclosed in writing to Lender, no Master Tenant has received any
notice of any claim, requirement or demand of any governmental authority,
accreditation body, third party payor or any insurance body having or claiming
any licensing, certifying, supervising, evaluating or accrediting authority over
any of the Facilities to
rework or redesign any Facility, its professional staff or its professional
services, procedures or practices in any material respect or to provide
additional furniture, fixtures, equipment or inventory so as to make such
Facility conform to or comply with any Law.
 
(ee) Borrowers have delivered or caused to be delivered to Lender true and
correct copies of all inspection reports relating to each of the Facilities,
issued by any governmental authority or accreditation body during the most
recent licensing period, together with all plans of correction relating thereto.
 
2.2 Survival of Representations and Warranties.
 
Borrowers agree that all of the representations and warranties set forth in
Section 2.1 and elsewhere in this Agreement are true as of the date hereof, will
be true at the Loan Closing and, except for matters which have been disclosed by
Borrowers and approved by Lender in writing and except for any representations
and warranties that relate to
a specific point in time, at all times thereafter.  It shall be a condition
precedent to the Loan Closing that each of said representations and warranties
is true and correct in all material respects as of the date of the Loan Closing
and disbursement of Loan proceeds at the Loan Closing shall be deemed to be a
reaffirmation by Borrowers that each of
the representations and warranties is true and correct in all material respects
as of the date of such disbursement.
 
 
ARTICLE 3. 
LOAN AND LOAN DOCUMENTS
 
 
3.1 Agreement to Borrow and Lend.
 
Borrowers agree to borrow from Lender and Lender agrees to lend to Borrowers the
Loan in the principal amount of Twenty-Eight Million and No/100 Dollars
($28,000,000.00), for the purposes and subject to all of the terms, provisions
and conditions contained in this Agreement and the other Loan Documents.  If
Lender consists of more than
one party, the obligations of each such party with respect to the amount it has
agreed to loan to Borrowers shall be several (and not joint and several) and
shall be limited to its proportionate share of the Loan and of each advance.
 
3.2 Loan Documents.
 
Borrowers agree that they will, on or before the Loan Closing Date, execute and
deliver or cause to be executed and delivered to Lender the following documents
in form and substance acceptable to Lender:
 
(a) A Promissory Note (“Note”) in the principal amount of the Loan executed by
Borrowers, as their joint and several obligations, and payable to Lender.
 
(b) The Mortgages.

 
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(c) The Assignments of Rents.
 
(d) The Environmental Indemnities.
 
(e) The Guaranty.
 
(f) With respect to each Facility, an Assignment and Subordination of Operating
Lease from the Master Tenant in favor of Lender whereby the Operating Lease for
such Facility is assigned to Lender as security for the Obligations and the
Operating Lease is subordinated to the Mortgage on such Facility and the
Obligations.
 
(g) Such other documents, instruments or certificates as Lender may reasonably
require, including such documents as Lender in its sole discretion deems
necessary or appropriate to effectuate the terms and conditions of this
Agreement and the Loan Documents, and to comply with the laws of each State.
 
Borrowers authorize Lender to file such UCC financing statements (each, a “UCC-1
Financing Statement”) as Lender determines are advisable or necessary to perfect
or notify third parties of the security interests intended to be created by the
Loan Documents.  The foregoing authorization includes Borrowers’ irrevocable
authorization for
Lender at any time and from time to time to file any initial financing
statements and amendments thereto that describe the collateral as “all assets”
of Borrowers or words of similar effect.
 
3.3 Term of the Loan.
 
(a) All principal, interest and other sums due under the Loan Documents shall be
due and payable in full on the Maturity Date.  All references herein to the
Maturity Date shall mean Initial Maturity Date, provided that Borrowers shall
have the right to extend the Maturity Date for an additional six (6) month term
(the “Extension Option”),
thereby extending the Maturity Date to the six month anniversary of the Initial
Maturity Date (the “Extended Maturity Date”).
 
(b) Borrowers may only exercise the Extension Option upon satisfying the
following conditions:
 
(i) Borrowers shall have delivered to Lender written notice of such election no
earlier than sixty (60) days and no later than thirty (30) days prior to the
Initial Maturity Date;
 
(ii)  Lender shall have received current financial statements from each
Borrowers and Emeritus, certified as correct by such Borrower and by
Emeritus.  There must be no material adverse change in the financial condition
of any Borrower or of Emeritus;
 
(iii) Such notice is accompanied by an extension fee equal to one-quarter of one
percent (0.25%) of the outstanding principal balance of the Loan; and
 
(iv)  There is then no Default or Event of Default.

 
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3.4 Prepayments.
 
Borrowers shall have the right to make prepayments of the Loan, in whole or in
part, without prepayment penalty, upon not less than seven (7) days prior
written notice to Lender.  No prepayment of all or part of the Loan shall be
permitted unless same is made together with the payment of all interest accrued
on the Loan through the date of
prepayment and an amount equal to all Breakage Costs and reasonable attorneys’
fees and disbursements incurred by Lender as a result of the prepayment.
 
3.5 Required Principal Payments.
 
(a) If at any time on or after November 30, 2011, Lender determines that the
Aggregate HUD Loan Amount will be less than the outstanding principal balance of
the Loan, Lender will give Borrowers and Emeritus written notice of the amount
of the deficiency and on the first Business Day of each of the succeeding six
(6) calendar months
Borrowers will make equal monthly principal payments of the Loan in the amount
needed to reduce the outstanding principal balance of the Loan to no more than
the Aggregate HUD Loan Amount.
 
(b) All principal of the Loan, if not sooner paid, shall be due and payable in
full on the Maturity Date.
 
3.6 Late Charge.
 
Any and all amounts due hereunder or under the other Loan Documents which remain
unpaid more than five (5) days after the date said amount was due and payable
shall incur a fee (the “Late Charge”) equal to the greater of four percent (4%)
of the amount of such payment or Twenty-Five Dollars ($25.00), which payment
shall be in addition
to all of Lender’s other rights and remedies under the Loan Documents, provided
that no Late Charge shall apply to the final payment of principal on the
Maturity Date.
 
3.7 Reconveyance of Mortgages Upon HUD Loan Closings or Other Refinancing.
 
Upon the HUD Loan Closing with respect to any Facility, or, subject to Section
8.23, upon the closing of any other refinancing of the Loan or any of the
Facilities, provided there is then no Default or Event of Default, Lender will
cause the Mortgage encumbering that Facility to be fully released (or assigned,
restated and replaced), subject to (a) payment of such portion of the
outstanding principal balance of the Loan as Lender then requires in its sole
and absolute discretion in order to assure Lender that the Loan will be
adequately secured after the release or replacement of such Mortgage, and (b)
reimbursement by such Borrower of all Lender’s reasonable out-of-pocket costs
and expenses in connection with such release or replacement.  From and after the
date the Mortgage encumbering any Facility is released or replaced as provided
herein, the Borrower owning such Facility shall be automatically released from
any liability for payment of the Loan or for any other obligation under any of
the Loan Documents other than such Borrower’s liability and obligations under
the Environmental Indemnity with respect to the such Facility, which liability
and obligations shall remain in full force and effect.  After the release or
replacement of a Mortgage from any Facility as provided

 
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herein, thereafter all references to Borrowers in this Agreement and the other
Loan Documents shall not include such released Borrower.
 
 
ARTICLE 4.
INTEREST
 
 
4.1 Interest Rate.
 
(a) The Loan will bear interest at the Adjusted LIBOR Rate which will be the
Applicable Rate hereunder, unless the Adjusted Base Rate or the Default Rate is
applicable.  Adjustments in the Adjusted LIBOR Rate shall occur on the first day
of each calendar month throughout the term of the Loan and during the Extension
Term, if applicable.
 
(b) If Lender determines (which determination shall be conclusive and binding
upon Borrowers, absent manifest error) (i) that no adequate basis exists for
determining the LIBOR Rate, or (ii) that, due to circumstances affecting the
London interbank market generally, the LIBOR Rate will not adequately and fairly
reflect the cost to Lender of
funding the Loan, or (iii) that any applicable Law or regulation or compliance
therewith by Lender prohibits or restricts or makes impossible the charging of
interest based on the LIBOR Rate, or (iv) that the Adjusted LIBOR Rate would be
in excess of the maximum interest rate which Borrowers may by law pay and Lender
so notifies Borrowers
in writing, then until Lender notifies Borrowers in writing that the
circumstances giving rise to such suspension no longer exist, interest shall
accrue and be payable at the Adjusted Base Rate.
 
(c) Interest at the Applicable Rate (whether the Adjusted LIBOR Rate, the
Adjusted Base Rate or the Default Rate, as applicable) shall be calculated for
the actual number of days elapsed on the basis of a 360-day year, including the
first date of the applicable period to, but not including, the date of
repayment.
 
4.2 Interest Rate Agreements.
 
(a)           If Borrowers institute an interest rate hedging program through
the purchase of an interest rate swap, cap or such other interest rate
protection product (“Interest Rate Protection Product”) from Lender or any
Affiliate of Lender, Borrowers shall enter into such party’s customary form of
agreement (“Interest Rate Agreement”)
relating to such Interest Rate Protection Product.  Any indebtedness incurred
pursuant to an Interest Rate Agreement entered into by Borrowers and Lender or
any Affiliate of Lender shall constitute Obligations secured by the Mortgages
and any other collateral for the Loan to the same extent and effect as if the
terms and provisions of such
Interest Rate Agreement were set forth herein, whether or not the aggregate of
such indebtedness, together with the disbursements made by Lender of the
proceeds of the Loan, shall exceed the face amount of the Note.
 
(b)           Borrowers hereby collaterally assign to Lender any and all
Interest Rate Protection Products purchased or to be purchased by Borrowers in
connection with the Loan, as security for the Loan, and agree to provide Lender
with any additional documentation requested by Lender in order to confirm or
perfect such security interest during
the term of the Loan.  If Borrowers obtain an Interest Rate Protection Product
from

 
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                 a party other than Lender or an Affiliate of Lender, Borrowers
shall deliver to Lender such third party’s consent to such collateral
assignment.  No Interest Rate Protection Product purchased from a third party
may be secured by an interest in any Borrower or any Property.
 
 
ARTICLE 5.
COSTS OF MAINTAINING LOAN
 
 
5.1 Increased Costs and Capital Adequacy.
 
(a) Borrowers recognize that the cost to Lender of maintaining the Loan or any
portion thereof may fluctuate and, Borrowers agree to pay Lender additional
amounts to compensate Lender for any increase in its actual costs incurred in
maintaining the Loan or any portion thereof outstanding or for the reduction of
any amounts received or
receivable from Borrowers as a result of:
 
(i) any change after the date hereof in any applicable Law, regulation or
treaty, or in the interpretation or administration thereof, or by any domestic
or foreign court, (A) changing the basis of taxation of payments under this
Agreement to Lender (other than taxes imposed on all or any portion of the
overall net income or receipts of
Lender), or (B) imposing, modifying or applying any reserve, special deposit or
similar requirement against assets of, deposits with or for the account of,
credit extended by, or any other acquisition of funds for loans by Lender (which
includes the Loan or any applicable portion thereof), or (C) imposing on Lender,
or the London
interbank market generally, any other condition affecting the Loan, provided
that the result of the foregoing is to increase the cost to Lender of
maintaining the Loan or any portion thereof or to reduce the amount of any sum
received or receivable from Borrowers by Lender under the Loan Documents; or
 
(ii) the maintenance by a Lender of reserves in accordance with reserve
requirements promulgated by the Board of Governors of the Federal Reserve System
of the United States with respect to “Eurocurrency Liabilities” of a similar
term to that of the applicable portion of the Loan (without duplication for
reserves already accounted for
in the calculation of a LIBOR Rate pursuant to the terms hereof).
 
(b) If the application of any Law, rule, regulation or guideline adopted or
arising out of the July, 1988 report of the Basel Committee on Banking
Regulations and Supervisory Practices entitled “International Convergence of
Capital Measurement and Capital Standards”, or the adoption after the date
hereof of any other Law, rule, regulation or
guideline regarding capital adequacy, or any change after the date hereof in any
of the foregoing, or in the interpretation or administration thereof by any
domestic or foreign Governmental Authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by
Lender, with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, has the effect of
reducing the rate of return on Lender’s capital to a level below that which
Lender would have achieved but for such application, adoption, change or
compliance (taking into consideration the
policies of Lender with respect to capital adequacy), then, from time to time
Borrowers shall pay to Lender such additional amounts as will compensate Lender
for such reduction with respect to any portion of the Loan outstanding.

 
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(c) Any amount payable by Borrower under Section 5.1(a) or Section 5.1(b) shall
be paid within five (5) days of receipt by Borrowers of a certificate signed by
an authorized officer of Lender setting forth in reasonable detail the amount
due and the basis for the determination of such amount, which statement shall be
conclusive and binding
upon Borrowers, absent manifest error.  Failure on the part of Lender to demand
payment from Borrowers for any such amount attributable to any particular period
shall not constitute a waiver of Lender’s right to demand payment of such amount
for any subsequent or prior period.  Lender shall use reasonable efforts to
deliver to Borrowers
prompt notice of any event described in Section 5.1(a) or Section 5.1(b) of the
amount of the reserve and capital adequacy payments resulting therefrom and the
reasons therefor and of the basis of calculation of such amount; provided,
however, that any failure by Lender to so notify Borrowers shall not affect
their obligation to pay the reserve
and capital adequacy payment resulting therefrom.
 
5.2 Borrower Withholding.
 
If by reason of a change in any applicable Laws occurring after the date hereof,
any Borrower is required by Law to make any deduction or withholding in respect
of any taxes (other than taxes imposed on or measured by the net income of
Lender or any franchise tax imposed on Lender), duties or other charges from any
payment due under the Note to the maximum extent permitted by law, the sum due
from Borrowers in respect of such payment shall be increased to the extent
necessary to ensure that, after the making of such deduction or withholding,
Lender receives and retains a net sum equal to the sum which it would have
received had no such deduction or withholding been required to be made.
 
 
ARTICLE 6.
LOAN EXPENSE AND ADVANCES
 
 
6.1 Loan and Administration Expenses.
 
Borrowers unconditionally agree to pay all reasonable expenses of the Loan,
including all amounts payable pursuant to Sections 6.2 and 6.3 and any and all
other reasonable fees owing to Lender pursuant to the Loan Documents, and also
including, without limiting the generality of the foregoing, all recording,
filing and registration fees and charges, mortgage or documentary taxes, all
insurance premiums, title insurance premiums and other charges of the Title
Insurer, reasonable printing and photocopying expenses, survey fees and charges,
cost of certified copies of instruments, cost of premiums on surety company
bonds and the Title Policy, charges of the Title Insurer or other escrowee for
administering disbursements, all reasonable fees and disbursements of Lender’s
Environmental Consultant, all appraisal fees, insurance consultant’s fees,
travel related expenses and all reasonable costs and expenses incurred by Lender
in connection with the determination of whether or not Borrowers have performed
their obligations hereunder or have satisfied any conditions precedent to the
obligations of Lender hereunder and, if any Default or Event of Default occurs
hereunder or under any of the Loan Documents or if the Loan or Note or any
portion thereof is not paid in full when and as due, all reasonable costs and
expenses of Lender (including, without limitation, court costs and counsel’s
reasonable fees and disbursements and reasonable fees and costs of paralegals)
incurred in attempting to enforce payment of the Loan and expenses of Lender
incurred (including court costs and reasonable counsel’s fees and disbursements

 
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and fees and costs of paralegals) in attempting to realize, while a Default or
Event of Default exists, on any security or incurred in connection with the sale
or disposition (or preparation for sale or disposition) of any security for the
Loan.  Borrowers agree to pay all brokerage, finder or similar fees or
commissions payable in connection with the transactions contemplated hereby and
shall indemnify and hold Lender harmless against all claims, liabilities, costs
and expenses (including attorneys’ fees and expenses) incurred in relation to
any claim by broker, finder or similar person.
 
6.2 Loan Origination Fee.
 
Borrowers shall pay to Lender on or before the Loan Closing Date a loan
origination fee in the amount of $280,000.00.  Such fee is fully earned and
non-refundable upon the Loan Closing.
 
6.3 Lender’s Attorney Fees and Disbursements.
 
Borrowers agree to pay Lender’s reasonable attorney fees and disbursements
incurred in connection with this Loan, including (i) the preparation of this
Agreement and the other Loan Documents and the preparation of the closing
binders, (ii) the disbursement and administration of the Loan and
(iii) enforcement of the terms of this Agreement and the other Loan Documents.
 
6.4 Payment of Fees and Expenses.
 
Borrowers shall pay all expenses and fees incurred by Lender in connection with
the Loan on the Loan Closing Date (unless sooner required herein).  Lender may
pay Loan expenses which are the obligation of Borrowers hereunder from the
proceeds of the Loan.  Lender may require the payment of outstanding fees and
expenses as a condition to disbursement of the Loan.
 
6.5 Expenses and Advances Secured by Loan Documents.
 
Any and all advances or payments made by Lender under this Article 6 from time
to time, and any amounts expended by Lender pursuant to Section 12.2, shall, as
and when advanced or incurred, constitute additional indebtedness evidenced by
the Note and secured by the Mortgage and the other Loan Documents.
 
6.6 Right of Lender to Make Advances to Cure Defaults.
 
In the event that Borrowers fail to perform any of their covenants, agreements
or obligations contained in this Agreement or any of the other Loan Documents
(including the obligation to pay accrued interest upon the Loan when due) (after
the expiration of applicable grace periods, except in the event of an emergency
or other exigent circumstances), Lender may (but shall not be required to)
perform any of such covenants, agreements and obligations, and any amounts
expended by Lender in so doing and shall constitute additional indebtedness
evidenced by the Note and secured by the Mortgages and any other collateral for
the Loan and shall bear interest at a rate per annum equal to the Applicable
Rate (or Default Rate following an Event of Default).

 
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ARTICLE 7.
CONDITIONS TO CLOSING THE LOAN
 
 
7.1 Conditions to Closing.
 
Borrowers agree that Lender’s obligation to close and disburse the Loan in
accordance with Section 7.2 is conditioned upon Borrowers’ delivery, performance
and satisfaction of the following conditions precedent in form and substance
satisfactory to Lender in its sole discretion:
 
(a) Loan Documents.  The Loan Documents shall have been duly executed and
delivered to Lender and the Mortgages and the Assignments of Rents shall have
been delivered to the Title Company with unconditional authorization to record
the same and Lender shall have been unconditionally authorized to file all UCC-1
Financing Statements
required hereunder.
 
(b) Appraisals.  Lender shall have received and approved an Appraisal of each
Facility.
 
(c) Purchase Agreements.  Lender shall have received and approved the Purchase
Agreements.
 
(d) Operating Leases.  Lender shall have received and approved the Operating
Leases.
 
(e) Termination of Other Leases and Management Agreements.  Other than the
Operating Leases, Residency Agreements and other Leases approved by Lender, all
Leases and management agreements affecting any of the Facilities shall have been
terminated.
 
(f) Registration Letters.  Emeritus shall have entered into Registration Letters
with KeyCorp Capital with respect to each of the Facilities.
 
(g) Title Policies.  The Title Company shall have unconditionally committed to
issue the Title Policies to Lender.
 
(h) Survey.  Lender shall have received and approved an ALTA/ACSM “Class A” Land
Title Survey of each Property.
 
(i) Insurance Requirements.  Lender shall have received and approved
certificates of insurance evidencing that insurance coverage is in effect with
respect to the Properties and Borrowers, in accordance with the Insurance
Requirements attached hereto as Exhibit A, for which the premiums have been
fully prepaid with endorsements
reasonably satisfactory to Lender.
 
(j) No Litigation.  No litigation or proceedings shall be pending or threatened
in writing which could reasonably be expected to cause a Material Adverse Change
with respect to Emeritus or any Borrower, Master Tenant or Facility.

 
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(k) Required Permits.  Lender shall have received and approved copies of such of
the Required Permits, including all Healthcare Licenses, for each of the
Facilities as Lender may reasonably require.
 
(l) Residency Agreements and Census Reports.  Lender shall have received and
approved all Leases (if any), the form of Tenant’s standard Residency Agreements
for each Facility, and a current census report for each Facility, certified by
the Master Tenant to be complete and correct in all material respects.
 
(m) Reimbursement Contracts.  Lender shall have received and approved copies of
all Reimbursement Contracts with respect to each of the Facilities.
 
(n) Pro Forma Projection.  Lender shall have received a Pro Forma Projection for
each Facility covering the succeeding five year period.
 
(o) Attorney Opinion Letters.  Lender shall have received customary legal
opinions from legal counsel for Emeritus, Borrowers and the Master Tenants,
covering due organization and authority and execution, delivery and
enforceability of the Loan Documents.
 
(p) Lien Searches.  Lender shall have received current bankruptcy, federal tax
lien and judgment searches and searches of all Uniform Commercial Code financing
statements with respect to Emeritus, Borrowers and the Master Tenants,
demonstrating the absence of adverse claims.
 
(q) Financial Statements.  Lender shall have received current annual financial
statements of Emeritus, in form and substance acceptable to Lender, together
with such other additional financial information regarding Emeritus, Borrowers,
the Master Tenants and the Facilities as Lender may reasonably require.
 
(r) Flood Hazard.  Lender shall have received and approved evidence that none of
the Properties are located in an area designated by the Secretary of Housing and
Urban Development as a special flood hazard area, or flood hazard insurance
acceptable to Lender in its sole discretion is in full force and effect with
respect to any Property which
is located in a special flood hazard area.
 
(s) Zoning.  Borrowers shall have furnished to Lender a zoning letter or other
evidence satisfactory to Lender regarding the zoning of each Property and
compliance of the Properties with zoning and similar laws.
 
(t) Organizational Documents.  Lender shall have received and approved the
Organizational Documents for Emeritus, each Borrower, each Master Tenant and
such of members and managers of Borrowers and the Master Tenants as Lender may
require, together with certified resolutions in form and content satisfactory to
Lender, authorizing
execution, delivery and performance of the Loan Documents, and such other
documentation as Lender may reasonably require to evidence the authority of the
persons executing the Loan Documents.
 
(u) No Default.  There shall be no Default or Event of Default by any Borrower
hereunder.

 
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(v) Environmental Reports.  Lender shall have received and approved the
Environmental Reports which shall, at a minimum, (A) demonstrate the absence of
any existing or potential Hazardous Material contamination or violations of
environmental Laws at each of the Properties, except as acceptable to Lender in
its sole and absolute discretion,
(B) include the results of all sampling or monitoring to confirm the extent of
existing or potential Hazardous Material contamination at each of the
Properties, including the results of leak detection tests for each underground
storage tank located at each of the Properties, if any, (C) describe response
actions appropriate to remedy any existing or
potential Hazardous Material contamination, and report the estimated cost of any
such appropriate response, (D) confirm that any prior removal of Hazardous
Material or underground storage tanks from each of the Properties was completed
in accordance with applicable Laws, and (E) confirm whether or not any of the
Properties are located in
a wetlands district.  Notwithstanding the foregoing, since the Environmental
Report for the Jacksonville Facility disclosed the presence of an above-ground
fuel storage tank with possible leakage, Emerimand shall have until January 1,
2011, to provide Lender with an Environmental Report reasonably acceptable to
Lender setting out the results
of testing for contamination from such tank and if there is contamination which
in Lender’s reasonable judgment requires remediation, Emerimand shall have made
arrangements reasonably satisfactory to Lender for such remediation in
accordance with a schedule reasonably satisfactory to Lender.  Failure by
Emerimand to comply with its
obligations under this subsection shall, at the option of Lender, be an Event of
Default hereunder.
 
(w) Property Condition Reports.  Lender shall have received and approved
property condition reports with respect to each Facility, which shall, at a
minimum, (A) demonstrate the absence of any structural or otherwise potentially
hazardous defects in each of the Facilities, and (B) describe the condition of
each Facility and identify defects and
all reasonably necessary or prudent repairs and/or replacements.
 
(x) Additional Documents.  Borrowers shall have furnished to Lender such other
materials, documents, papers or requirements regarding the Properties, Borrowers
and the Master Tenants as Lender shall reasonably request.
 
(y) No Material Adverse Change.  There shall have been no Material Adverse
Change with respect to Emeritus or any Borrower, Master Tenant or Facility.
 
7.2 Disbursement at Loan Closing.
 
Subject to satisfaction of the conditions to closing set out in Section 7.1, on
November 30, 2010, Lender will disburse the Allocated Loan Amount for the
Jacksonville Facility to Emerimand and on December 1, 2010, the balance of the
proceeds of the Loan will be disbursed to Emericlear and Emerichenal.
 
 
ARTICLE 8. 
COVENANTS
 
 
Borrowers further covenant and agree as follows:

 
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8.1 Mechanics’ Liens and Contest Thereof.
 
Borrowers will not suffer or permit any mechanics’ lien claims to be filed or
otherwise asserted against any of the Properties, other than those which
Borrowers are contesting in good faith and by appropriate proceedings which stay
the enforcement thereof, and will promptly discharge or bond over the same in
case of the filing of any claims for lien or proceedings for the enforcement
thereof.
 
8.2 Renewal of Insurance.
 
Borrowers shall cause insurance policies to be maintained in compliance with
this Agreement at all times.  Borrowers shall timely or cause to be paid all
premiums on all insurance policies required hereunder, and as and when any
policies of insurance may expire, furnish to Lender, certificates evidencing
insurance coverage in effect as required hereunder with premiums prepaid, and
will furnish to Lender certificates evidencing such additional and renewal
insurance policies with companies, coverage and in amounts satisfactory to
Lender in accordance with Section 7.1(i) of this Agreement.
 
8.3 Payment of Taxes.
 
Borrowers shall pay or cause to be paid all real estate taxes and assessments
and charges of every kind upon the Properties before the same become delinquent,
provided, however, that Borrowers shall have the right to pay any such tax or
assessment under protest or to otherwise contest any such tax or assessment, but
only if (i) such contest has the effect of preventing the collection of such
taxes so contested and also of preventing the sale or forfeiture of any Property
or any part thereof or any interest therein, (ii) Borrowers have notified Lender
of their intent to contest such taxes, and (iii) Borrowers have deposited
security in form and amount satisfactory to Lender, in its sole discretion, and
have increased the amount of such security so deposited promptly after Lender’s
request therefor.  If Borrowers fail to commence such contest or, having
commenced to contest the same, and having deposited such security required by
Lender for its full amount, shall thereafter fail to prosecute such contest in
good faith or with due diligence, or, upon adverse conclusion of any such
contest, shall fail to pay such tax, assessment or charge, Lender may, at its
election (but shall not be required to), pay and discharge any such tax,
assessment or charge, and any interest or penalty thereon, and any amounts so
expended by Lender shall be due on demand, shall bear interest from the date of
demand at the Default Rate and shall be included in the Obligations.  Borrowers
shall furnish to Lender evidence that taxes and assessments are paid at least
five (5) days prior to the last date for payment of such taxes and before
imposition of any penalty or accrual of interest.
 
8.4 Tax and Insurance Escrow Accounts.
 
Each Borrower shall, following the written request of Lender after the
occurrence of any Event of Default, establish and maintain at all times while
the Mortgage on a Property continues in effect an impound account (the “Impound
Account”) with Lender for payment of taxes and insurance premiums on such
Property and as security for the Loan.  Each Borrower shall deposit in the
Impound Account for such Borrower’s Property, an amount determined by Lender to
be sufficient (when added to the monthly deposits described herein) to pay the
next due installment of real estate taxes and assessments on such Property at
least one (1) month prior to the due date or the

 
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delinquency date thereof (as Lender shall determine) and the next due annual
insurance premiums with respect to such Property at least one (1) month prior to
the due date thereof.  Borrowers shall pay to Lender, concurrently with the
monthly payments due under the Note, deposits in an amount equal to one-twelfth
(1/12) of the amount of the annual taxes that will next become due and payable
on each Property (the “Monthly Tax Impound”), plus one-twelfth (1/12) of the
amount of the annual insurance premiums that will next become due and payable on
insurance policies which Borrowers are required to maintain hereunder (the
“Monthly Insurance Impound”), each as estimated and determined by Lender.  The
Monthly Tax Impound or Monthly Insurance Impound, and the payments of interest
or principal or both, payable pursuant to the Note, shall be added together and
shall be paid as an aggregate sum by Borrowers to Lender.  If Lender at any time
determines that the Monthly Tax Impound or Monthly Insurance Impound for any
Property is insufficient, Lender may in its discretion adjust the required
monthly payments of such amounts, and Borrowers shall be obligated to pay the
increased amounts for the Monthly Tax Impound or Monthly Insurance Impound
commencing with the next monthly payment date under the Note.  So long as no
Default or Event of Default has occurred and is continuing, all sums in the
Impound Account shall be held by Lender in the Impound Account and used to pay
Taxes and Insurance Premiums before the same become delinquent.  Borrowers shall
be responsible for ensuring the receipt by Lender, at least thirty (30) days
prior to the respective due date or the delinquency date for payment thereof (as
Lender shall determine), of all bills, invoices and statements for all taxes and
insurance premiums to be paid from the Impound Account, and so long as no Event
of Default has occurred and is continuing, Lender shall pay the governmental
authority or other party entitled thereto directly to the extent funds are
available for such purpose in the Impound Account.  In making any payment from
the Impound Account, Lender shall be entitled to rely on any bill, statement or
estimate procured from the appropriate public office or insurance company or
agent without any inquiry into the accuracy of such bill, statement or estimate
and without any inquiry into the accuracy, validity, enforceability or
contestability of any tax, assessment, valuation, sale, forfeiture, tax lien or
title or claim thereof.  Lender shall pay no interest on funds contained in the
Impound Account to Borrowers and any interest or other earnings on funds
deposited in the Impound Account shall be solely for the account of Lender.  If
the total funds in the Impound Account shall exceed the amount of payments
actually applied by Lender for the purposes of the Impound Account, such excess
may be credited by Lender on subsequent payments to be made hereunder or, at the
option of Lender, refunded to Borrowers. In allocating such excess, Lender may
deal with the person shown on the records of Lender to be the owner of the
applicable Property.  If, however, the Impound Account shall not contain
sufficient funds to pay the sums required when the same shall become due and
payable, Borrowers shall, within ten (10) days after receipt of written notice
thereof, deposit with Lender the full amount of any such deficiency.  The
Impound Account shall not constitute a trust fund and may be commingled with
other monies held by Lender.
 
8.5 Personal Property.
 
All of the personal property, fixtures, attachments and equipment delivered
upon, attached to or used in connection with the operation of each Property
shall always be located at such Property or at the corporate or regional offices
of Borrowers and shall be kept free and clear of all liens, encumbrances and
security interests.  Notwithstanding the foregoing, Borrowers may in the
ordinary course of business, enter into personal property

 
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leases of equipment for use in connection with the Facilities provided that the
annual lease payments on all equipment leases then in effect do not exceed
$15,000.00 per Facility.
 
8.6 Operating Leases.
 
Borrowers shall maintain the Operating Leases in full force and effect.  No
Borrower shall enter into any material amendment or modification of any of the
provisions of any Operating Lease without Lender’s prior written consent, which
consent shall not be unreasonably withheld, conditioned or delayed and which
consent may not be withheld if such amendment or modification is required to
ensure the ongoing compliance of the Property with applicable law.  No Borrower
shall accept any waiver or release of any Master Tenant’s material obligations
under any Operating Lease, or suffer or permit any termination of any Operating
Lease other than as a result of the occurrence of an Event of Default
thereunder, without Lender’s prior written consent, which consent shall not be
unreasonably withheld, conditioned or delayed and which consent may not be
withheld if such waiver or release is required to ensure the ongoing compliance
of the Property with applicable law.  Borrowers shall promptly deliver written
notice to Lender of any default by any Master Tenant under any Operating Lease
which has not been cured within any applicable cure period thereunder.  Each
Borrower further agrees not to invoke any of its remedies under any Operating
Lease without Lender’s prior written consent which will not be unreasonably
withheld.
 
8.7 Leasing Restrictions.
 
Without the prior written consent of Lender (such consent not to be unreasonably
withheld, conditioned or delayed), Borrowers shall not and shall not permit any
Master Tenant to (i) enter into any non-residential Lease other than arms-length
Leases of non-residential space in the Facilities entered into in the ordinary
course of business, (ii) accept any rental payment under any Lease more than one
month in advance of its due date (except in circumstances where a Resident of
the Facilities intends to be away from the Facilities for a period in excess of
one month), or (iii) enter into any Lease or occupancy agreement other than
arms-length transactions in the ordinary course of operation of the
Facilities.  Borrowers will not and will not permit any Master Tenant to enter
into any Residency Agreement or other residential occupancy agreement for a term
of more than one year without Lender’s prior written consent, which consent
shall not be unreasonably withheld, conditioned, or delayed, and all Residency
Agreements and other agreements for occupancy of any Unit shall be on a form
approved by Lender without material modification.
 
8.8 Condition of Properties.
 
Borrowers will keep or cause to be kept all buildings, improvements and
equipment located on or used in connection with each Property in good repair,
working order and condition, reasonable wear and tear excepted, and from time to
time make all needed and proper repairs, renewals, replacements, additions, and
improvements thereto to keep the same in good operating condition, reasonable
wear and tear excepted.

 
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8.9 Inventory and Equipment.
 
Each Borrower will maintain or cause to be maintained sufficient inventory and
equipment of types and quantities at its Facility to adequately operate such
Facility.
 
8.10 Lender’s Attorneys’ Fees for Enforcement of Agreement.
 
In case of any Default or Event of Default hereunder, Borrowers (in addition to
Lender’s attorneys’ fees, if any, to be paid pursuant to Section 6.3) will pay
Lender’s and Lender’s attorneys’ and paralegal fees (including, without
limitation, any attorney and paralegal fees and costs incurred in connection
with any litigation or bankruptcy or administrative hearing and any appeals
therefrom and any post-judgment enforcement action including, without
limitation, supplementary proceedings) in connection with the enforcement of
this Agreement; without limiting the generality of the foregoing, if at any time
or times hereafter Lender or Lender employs counsel (whether or not any suit has
been or shall be filed and whether or not other legal proceedings have been or
shall be instituted) for advice or other representation with respect to any
Property, this Agreement, or any of the other Loan Documents, or to protect,
collect, lease, sell, take possession of, or liquidate any of any Property, or
to attempt to enforce any security interest or lien in any portion of any
Property, or to enforce any rights of Lender and Lender or Borrowers’
obligations hereunder, then in any of such events all of the reasonable
attorneys’ fees arising from such services, and any reasonable expenses, costs
and charges relating thereto (including reasonable fees and costs of
paralegals), shall constitute an additional liability owing by Borrowers to
Lender and Lender, payable on demand.
 
8.11 Appraisals.
 
Lender shall have the right to obtain new or updated Appraisals of the
Facilities from time to time.  Borrowers shall cooperate with Lender in this
regard.  If the Appraisal is obtained to comply with this Agreement or any
applicable law or regulatory requirement, or bank policy promulgated to comply
therewith, or if an Event of Default exists, Borrower shall pay for any such
Appraisal upon Lender’s request.
 
8.12 Occupancy Covenants.
 
Until the Obligations are indefeasibly fully paid and satisfied, the minimum Net
Operating Income and Occupancy for each Facility shall be as follows.  These
covenants (“Occupancy Covenants”) shall be tested for each calendar quarter at
the end of each calendar quarter commencing with the calendar quarter ending
December 31, 2010.
 
(a) Chenal Facility.
Quarter ending
Net Operating Income
Average Occupancy During Calendar Quarter
December 31, 2010
$150,000
n/a
March 31, 2011
$155,000
n/a
June 30, 2011
$160,000
n/a
September 30, 2011
$165,000
80%

 
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December 31, 2011
$170,000
82%
March 31, 2012
$175,000
85%
June 30, 2012
$180,000
85%
September 30, 2012
$180,000
85%

 
(b) Clearwater Facility.
Quarter ending
Net Operating Income
Average Occupancy During Calendar Quarter
December 31, 2010
$150,000
n/a
March 31, 2011
$155,000
n/a
June 30, 2011
$160,000
n/a
September 30, 2011
$165,000
80%
December 31, 2011
$170,000
82%
March 31, 2012
$175,000
85%
June 30, 2012
$180,000
85%
September 30, 2012
$180,000
85%

 
(c) Mandarin Facility.
Quarter ending
Net Operating Income
Average Occupancy During Calendar Quarter
December 31, 2010
$350,000
n/a
March 31, 2011
$355,000
n/a
June 30, 2011
$365,000
n/a
September 30, 2011
$370,000
85%
December 31, 2011
$380,000
85%
March 31, 2012
$385,000
85%
June 30, 2012
$390,000
85%
September 30, 2012
$400,000
85%

 
8.13 Financial Information.
 
Borrowers shall deliver or cause to be delivered to Lender the following, all of
which shall be in form satisfactory to Lender:
 
(a) Internally prepared quarterly and year-to-date financial statements for each
Facility, including occupancy statistics and payor mix, within 45 days after the
end of each fiscal quarter (other than the fourth quarter);
 
(b) Quarterly internally prepared financial statements for Emeritus within 60
days after the end of each fiscal quarter, certified as correct and complete by
the chief financial officer of Emeritus.
 
(c) Annual consolidated and consolidating financial statements for Emeritus
within 120 days after the end of each fiscal year, which financial statements
shall be audited by a CPA acceptable to Lender.

 
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(d) Within 45 days after the end of each calendar quarter, Quarterly Compliance
Certificates in the form of Exhibit B attached with respect to the Emeritus
Covenants and the Borrower Covenants.
 
(e) Copies of all state or federal regulatory, survey or reimbursement reports
or documentation regarding each of the Facilities, within ten (10) days after
request by Lender.
 
All such financial statements shall be presented in a format reasonably approved
by Lender.  Borrowers shall provide such additional financial information as
Lender reasonably requires.  Upon reasonable prior notice from Lender, Borrowers
shall during regular business hours permit Lender or any of its agents or
representatives to have access
to and examine all of its books and records regarding the Properties, but such
access rights shall be exercised in a manner not unreasonably disruptive to
operation of the Facilities and shall be subject to all applicable Laws
governing the confidentiality of Residents and employee records.
 
8.14 Lost Note.
 
Upon Lender’s furnishing to Borrowers an affidavit to such effect, Borrowers
shall, if the Note is mutilated, destroyed, lost or stolen, deliver to Lender,
in substitution therefor, a new note containing the same terms and conditions as
the Note.
 
8.15 Indemnification.
 
Borrowers shall indemnify Lender, each Person owning an interest in the Loan and
their respective officers, directors, employees and consultants (each, an
“Indemnified Party”) and defend and hold each Indemnified Party harmless from
and against all claims, injury, damage, loss and liability, cost and expense
(including attorneys’ fees, costsand expenses) of any and every kind to any
persons or property by reason of (i) the operation or maintenance of any
Property; (ii) any breach of any representation or warranty made by any
Borrower, Master Tenant or Guarantor or any Default or Event of Default; or
(iii) any other matter arising in connection with the Loan, Borrowers or any
Property.  No Indemnified Party shall be entitled to be indemnified against its
own gross negligence or willful misconduct.
 
8.16 No Additional Debt.
 
Except for the Loan, no Borrower shall incur any indebtedness (whether personal
or nonrecourse, secured or unsecured) other than customary trade payables paid
within sixty (60) days after they are incurred.
 
8.17 Compliance With Laws.
 
Borrowers shall comply in all material respects with all applicable requirements
(including applicable Laws) of any Governmental Authority having jurisdiction
over Borrowers or any Property.

 
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8.18 Organizational Documents.
 
Without the prior written consent of Lender, not to be unreasonably withheld,
conditioned or delayed, no Borrower shall permit or suffer (i) a material
amendment or modification of its Organizational Documents, (ii) the admission of
any new member, or (iii) any dissolution or termination of its existence.
 
8.19 Management Contracts.
 
Borrower shall not and shall not suffer or permit any Master Tenant to enter
into, modify, amend, terminate or cancel any management contracts for the
Facilities or agreements with agents or brokers, without the prior written
approval of Lender, such approval not to be unreasonably withheld, conditioned
or delayed.
 
8.20 Furnishing Notices.
 
Borrowers shall provide Lender with copies of all material notices pertaining to
the Facilities received by any Borrower, Master Tenant or Emeritus from any
Governmental Authority or insurance company within seven (7) days after such
notice is received.
 
8.21 Authorized Representative.
 
Borrowers appoint Eric Mendelsohn as their authorized representative
(“Authorized Representative”) for purposes of dealing with Lender on behalf of
Borrowers in respect of any and all matters in connection with this Agreement,
the other Loan Documents, and the Loan.  The Authorized Representative shall
have the power, in his discretion, to give and receive all notices, monies,
approvals, and other documents and instruments, and to take any other action on
behalf of Borrowers.  All actions by the Authorized Representative shall be
final and binding on Borrowers.  Lender may rely on the authority given to the
Authorized Representative until actual receipt by Lender of a duly authorized
resolution substituting a different person as the Authorized Representative.  No
more than one person shall serve as Authorized Representative at any given time.
 
8.22 Single Purpose Entity Provisions.
 
(a) The sole purpose for which each Borrower is organized is to acquire, own,
hold, maintain and operate its Facility, together with such other activities as
may be necessary or advisable in connection with such limited purpose.  No
Borrower shall engage in any business unrelated to the foregoing purpose and
shall not acquire any real property
or own assets other than those in furtherance of the limited purposes of such
Borrower.
 
(b) No Borrower shall have the authority to perform any act in violation of any
(i) applicable laws or regulations or (ii) the Loan Documents.
 
(c) No Borrower shall during the term of the Loan and/or prior to the full and
indefeasible repayment of the Loan:

 
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(i) except for Intra-Borrower Loans or otherwise as permitted by Lender in
writing, make any loans to any member of Borrower or any Affiliate of any
member;
 
(ii) dissolve, wind up or liquidate Borrower;
 
(iii) merge, consolidate or acquire all or substantially all of the assets of
any other entity; or
 
(iv) change the nature of the business of Borrower.
 
(d) No Borrower shall, and no person or entity on behalf of Borrower shall: (a)
institute proceedings to be adjudicated bankrupt or insolvent; (b) consent to
the institution of bankruptcy or insolvency proceedings against Borrower; (c)
file a petition seeking, or consenting to, reorganization or relief under any
applicable federal or state law
relating to bankruptcy; (d) consent to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of
Borrower or a substantial part of its property; (e) make any assignment for the
benefit of creditors; (f) admit in writing Borrower’s inability to pay its debts
generally as they become due or declare or effect a
moratorium on its debts; or (g) take any action in furtherance of any such
action.
 
(e) Borrowers shall at times observe the applicable legal requirements for the
recognition of each Borrower as a legal entity separate from any of its
Affiliates, including, without limitation, as follows:
 
(i) Each Borrower shall hold itself out to the public (including any of its
Affiliates’ creditors) under such Borrower’s own name and as a separate and
distinct entity and not as a department, division or otherwise of any Affiliate.
 
(ii) Each Borrower shall observe all customary formalities regarding the
existence of Borrower.
 
(iii) Each Borrower shall hold title to its assets in its own name and act
solely in its own name and through its own duly authorized members and
agents.  No Affiliate shall be appointed or act as agent of Borrower, other than
the Master Tenant or a Lender approved property manager with respect to the
Facilities.
 
(iv) Investments shall be made in the name of each Borrower directly by such
Borrower or on its behalf by brokers engaged and paid by such Borrower or its
agents.
 
(v) Each Borrower is and will be solvent.
 
(vi) Each Borrower shall maintain its assets in such a manner that it is not
costly or difficult to segregate, ascertain or identify its individual assets
from those of any Affiliate or other person or entity.
 
(vii) Each Borrower shall pay or cause to be paid its own liabilities and
expenses of any kind, including but not limited to salaries of its employees, if
any, only out of its own separate funds and assets or through Intra-Party Loans.

 
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(viii) Each Borrower shall at all times be adequately capitalized to engage in
the transactions contemplated at its formation; provided, however, that this
provision shall not require any direct or indirect member of Borrowers to make
additional capital contributions to any Borrower.
 
(ix) No Borrower shall do any act which would make it impossible to carry on the
ordinary business of Borrower.
 
(x) None of any Borrower’s funds shall be invested in securities issued by, nor
shall any Borrower acquire the indebtedness or obligation of, any Affiliate.
 
(xi) Each Borrower shall correct any misunderstanding that is known by Borrower
regarding its name or separate identity.
 
(f) Any indemnification obligation of Borrower in favor of its members or any
other Affiliate shall (i) be fully subordinated to the Loan and (ii) not
constitute a claim against Borrower or its assets until such time as the Loan
has been indefeasibly paid in accordance with its terms and otherwise has been
fully discharged.
 
8.23 Right of First Refusal.
 
Borrowers grant Lender a right of first refusal (“Lender’s ROFR”) with respect
to any refinancing of the Loan or any of the Facilities which secure the
Loan.  Lender (which, as used in this paragraph includes any Affiliate of
Lender) shall have the right, but not the obligation, to match the terms of any
such financing offered to any Borrower(s) by any reputable institutional real
estate lender.  If within 30 days after Lender receives a copy of any such firm
financing offer to any Borrower(s) from a reputable institutional real estate
lender, Lender offers such Borrower financing on terms which, in the reasonable
judgment of Borrowers and Lender, are comparable in all material respects to the
terms of any such offered financing, such Borrower(s) may decline to accept the
financing offered by Lender only if Borrowers pay Lender a termination fee (the
“Termination Fee”) in an amount equal to $95,200 for the Chenal Facility,
$64,440 for the Clearwater Facility and $120,400 for the Mandarin Facility.  The
Termination Fee shall be due and payable when the Loan is due in full or is paid
in full, or when Lender releases such Facility(ies) from the lien of the
Security Instruments, whichever is earlier, and such fee shall be included in
the Obligations and shall be secured by the Mortgages.  If Lender does not, in
writing, irrevocably offer such Borrower(s) financing on terms which, in the
reasonable judgment of Borrowers and Lender, are comparable in all material
respects to the terms of any such offered financing, Borrowers shall not be
obligated to pay any Termination Fee or any other fees to Lender in connection
with the refinancing of the Loan.  Lender’s ROFR is personal to Lender and shall
not be subject to any assignment by Lender without Borrowers’ prior written
consent.
 
 
ARTICLE 9. 
CASUALTIES AND CONDEMNATION
 
 
9.1 Lender’s Election to Apply Proceeds on Indebtedness.
 
(a) Subject to the provisions of Section 9.1(b) below, Lender may elect to
collect, retain and apply upon the indebtedness of Borrowers under this
Agreement or

 
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                any of the other Loan Documents all proceeds of insurance or
condemnation (individually and collectively referred to as “Proceeds”) after
deduction of all expenses of collection and settlement, including attorneys’ and
adjusters’ fees and charges.  Any proceeds remaining after repayment of the
indebtedness under the Loan Documents shall
                be paid by Lender to Borrower.
 
(b) Notwithstanding anything in Section 9.1(a) to the contrary, in the event of
any casualty to a Facility or any condemnation of part of a Facility, Lender
agrees to make the Proceeds available to pay costs of restoration of the
Facility if (i) there is then no Default or Event of Default, (ii) all Proceeds
are deposited with Lender, (iii) in Lender’s
reasonable judgment, the amount of Proceeds available for restoration of the
Facilities (together with any sums or other security acceptable to Lender
deposited with Lender by Borrower for such purpose) is sufficient to pay the
full and complete costs of such restoration, (iv) if the cost of restoration
exceeds ten percent (10%) of the Loan
Amount allocable to such Facility (as such allocation is determined by Lender in
its sole discretion), then Lender shall have determined in its sole discretion
that after completion of restoration the Loan Amount allocable to such Facility
will not exceed 75% of the “stabilized” fair market value of the Facility,
(vi) in Lender’s reasonable
determination, the Facility can be restored to an architecturally and
economically viable project in compliance with applicable Laws, (vii) Emeritus
reaffirms its Guaranty in writing, and (viii) in Lender’s reasonable
determination, such restoration is likely to be completed not later than three
(3) months prior to the Maturity Date.
 
9.2 Borrowers’ Obligation to Rebuild and Use of Proceeds Therefor.
 
In case Lender does not elect to apply or does not have the right to apply the
Proceeds to the indebtedness of Borrowers under this Agreement or any of the
other Loan Documents, as provided in Section 9.1 above, the applicable Borrower
shall:
 
(a) Proceed with diligence to make settlement with insurers or the appropriate
governmental authorities and cause the Proceeds to be deposited with Lender;
 
(b) In the event of any delay in making settlement with insurers or the
appropriate governmental authorities or effecting collection of the Proceeds,
deposit with Lender the full amount required to complete construction as
aforesaid; and
 
(c) Promptly proceed with construction of the Facility, including the repair of
all damage resulting from such fire, condemnation or other cause and restoration
to its former condition.
 
Lender may condition the disbursement of Proceeds and other funds deposited with
Lender for the cost of restoration on Lender’s reasonable approval of the plans
and specifications for the restoration, contractor’s cost estimates, architect’s
certificates, waivers of liens, sworn statements of mechanics and materialmen,
and such other evidence of costs, percentage completion of construction,
application of payments and satisfaction of liens as Lender may reasonably
require.

 
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ARTICLE 10. 
ASSIGNMENTS BY LENDER AND BORROWER
 
 
10.1 Loan Assignment/Participation/Tranching; Secondary Market.
 
With the consent of Borrowers, which will not be unreasonably withheld,
conditioned or delayed, Lender may from time to time (a) assign or sell the Note
and other Loan Documents to one or more investors, (b) grant participations in
the Loan to one or more investors, (c) deposit the Loan Documents with a trust,
which trust may sell certificates or other securities to investors evidencing a
beneficial interest in the trust assets (a “Securitization”), (d) require that
the Note be tranched into two or more replacement notes, which notes may contain
different interest rates (provided, however, that the blended average interest
rate on all the replacement notes shall not exceed the interest rate payable on
the Note), or (e) otherwise sell the Loan or interest therein to investors (the
transactions referred to in clauses (a) through (e) are hereinafter referred to
as “Secondary Market Transactions”), accompanied by an assignment and/or
delegation of any or all related rights or obligations of Lender under the Loan
Documents.  Each Borrower shall cooperate in good faith with Lender in effecting
any such Secondary Market Transaction and implement all requirements imposed by
the rating agency (“Rating Agency”) involved in any Secondary Market Transaction
including, without limitation, all structural or other changes to the Loan,
modifications to any documents evidencing or securing the Loan, delivery of
opinions of counsel acceptable to the Rating Agency and addressing such matters
as the Rating Agency or Investors (as hereinafter defined) may request;
provided, however, that Borrowers shall not be required to modify any documents
evidencing or securing the Loan which would modify (i) the interest rate payable
under the Note, (ii) the stated maturity of the Note, (iii) the amortization of
principal of the Note or (iv) any other material economic tern of the
Loan.  Borrowers shall provide such information and documents relating to
Borrowers, the Properties or other matter relating to the Loan as Lender may
reasonably request in connection with a Secondary Market Transaction.  Lender
shall have the right to provide to prospective investors (“Investors”) any
information in its possession, including, without limitation, financial
statements relating to Borrowers and the Properties.  Borrowers acknowledge that
certain information regarding the Loan, the parties thereto and the Properties
may be included in a private placement memorandum, prospectus or other
disclosure documents.
 
10.2 Prohibition of Assignments and Transfers by Borrowers.
 
Borrowers shall not assign or attempt to assign its rights under this Agreement
and any purported assignment shall be void.  Without the prior written consent
of Lender, in Lender’s sole discretion, Borrowers shall not suffer or permit any
Transfer other than a Permitted Transfer.
 
10.3 Prohibition of Transfers in Violation of ERISA.
 
In addition to the prohibitions set forth in Section 10.2 above, no Borrower
shall assign, sell, pledge, encumber, transfer, hypothecate or otherwise dispose
of its interest or rights in this Agreement or in any of the Facilities, or
attempt to do any of the foregoing or suffer any of the foregoing, nor shall any
party owning a direct or indirect interest in any Borrower assign, sell, pledge,
encumber, transfer, hypothecate or otherwise dispose of any of its rights or
interest (direct or indirect) in any Borrower, attempt to do any of the

 
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foregoing or suffer any of the foregoing, if such action would cause the Loan,
or the exercise of any of Lender’s rights in connection therewith, to constitute
a prohibited transaction under ERISA or the Internal Revenue Code or otherwise
result in Lender being deemed in violation of any applicable provision of
ERISA.  Borrowers agree to indemnify and hold Lender free and harmless from and
against all losses, reasonable out-of-pocket costs (including reasonable
attorneys’ fees and expenses), taxes, damages and reasonable expenses Lender may
suffer by reason of the investigation, defense and settlement of claims and in
obtaining any prohibited transaction exemption under ERISA necessary or
desirable in Lender’s sole judgment or by reason of a breach of the foregoing
prohibitions.  The foregoing indemnification shall be a recourse obligation of
Borrowers and shall survive repayment of the Note, notwithstanding any
limitations on recourse contained herein or in any of the Loan Documents.
 
10.4 Successors and Assigns.
 
Subject to the foregoing restrictions on transfer and assignment contained in
this Article 10, this Agreement shall inure to the benefit of and shall be
binding on the parties hereto and their respective successors and permitted
assigns.
 
 
ARTICLE 11.
LOAN STRUCTURE AND CONTRIBUTION PROVISIONS
 
 
11.1 Allocation of Loan.
 
Although Borrowers are jointly and severally liable for the Loan and nothing in
this Agreement is intended or shall be construed to limit or impair their joint
and several liability, Borrowers and Lender agree that for purposes of this
Article 11 and Section 7.2, the principal amount of the Loan is allocated among
the Facilities and Borrowers as follows (herein, the “Allocated Loan
Amounts”):  The Clearwater Facility:  $$6,440,000.00; the Jacksonville
Facility:  $12,040,000.00; and the Chenal Facility:  $9,520,000.00.  Such
allocation is based on the relative fair market values of the Facilities as
determined by Lender in its sole discretion, based on Appraisals of the
Facilities, which have been approved by Lender in its sole discretion.
 
11.2 Loan Structure.
 
Borrowers acknowledge and agree that they are jointly and severally liable for
the Loan and for the payment and performance of all Borrowers’ obligations under
the Loan Documents and that the full amount of the Loan is secured by each of
the Mortgages.  Any nonpayment of principal or interest on the Loan, including
non-payment resulting from a Borrower’s failure to pay its Allocated Loan Amount
or interest accrued thereon, may result in the entire Loan being declared in
default, and all unpaid principal under the Note accelerated.  In that event,
all proceeds of the foreclosure sale of any one Borrower’s Property may be
applied to satisfy the Note.  Further, each Borrower acknowledges and
understands that such foreclosure sale proceeds may be applied to satisfy the
Note even if the value of such Borrower’s Property is greater than such
Borrower’s Allocated Loan Amount.

 
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11.3 Certain Consequences of Loan Structure.
 
Each Borrower has been informed and understands that one of the consequences of
each Mortgage securing the entire Loan is that each Borrower’s Property is being
encumbered as collateral for the entire Loan and that prepayment of a Borrower’s
Allocated Loan Amount will not result in the release of the Mortgage encumbering
that Borrower’s Property unless the conditions of Section 3.7 of this Agreement
are satisfied.  Each Borrower further understands and has been informed that if
an Event of Default occurs under the Loan Documents, all Borrowers must act
together for purposes of curing such Event of Default, and that the failure to
do so could result in the foreclosure and sale, and ultimate loss of each
Borrower’s respective Property.
 
11.4 Contribution Provisions.
 
(a) Each Borrower acknowledges and agrees that because the Obligations are joint
and several, each Borrower has a direct and material interest in preventing the
occurrence of an Event of Default under this Agreement and the other Loan
Documents.  Accordingly, from and after the date hereof, each Borrower is
willing to commit to make or
receive loans (each an “Intra-Borrower Loan”, and collectively, the
“Intra-Borrower Loans”) in order to provide for the payment of all amounts due
under the Loan Documents and, in so doing, to avoid an Event of Default
thereunder.  Each Borrower acknowledges and agrees that Lender is an intended
third party beneficiary of Borrowers’
obligations hereunder.  A Borrower that makes payment in excess of its Allocated
Loan Amount, or in the case of interest payments, in excess of the interest
accrued on its Allocated Loan Amount, or whose Property is applied to any
payment of the Loan in excess of such Borrower’s Allocated Loan Amount is
referred to in this Agreement as
the “Creditor” and any Borrower that does not timely pay its Allocated Loan
Amount and interest thereon is referred to in this Article 11 as the
“Debtor.”  A Creditor shall be deemed to have made an Intra-Borrower Loan to the
Debtor in the amount by which the payments by the Creditor or application of its
property exceeds the Creditor’s
Allocated Loan Amount, or in the case of interest payments, in excess of the
interest accrued on its Allocated Loan Amount (the “Intra-Borrower Loan
Amount”).  Such Intra-Borrower Loan shall not be secured, and will bear interest
at the rate of interest in effect from time to time under the Loan.  Accrued but
unpaid interest shall not be
compounded.  Each Intra-Borrower Loan is a recourse obligation only of the
Debtor who owes such Intra-Borrower Loan.  Intra-Borrower Loans may be prepaid
at any time without penalty or premium.
 
(b) A Debtor shall not make any payment with respect to an Intra-Borrower Loan
so long as there is an uncured Default or Event of Default under this
Agreement.  Each such payment of principal or interest on Intra-Borrower Loans
shall be subordinate and subject to the prior payment of all amounts then
currently payable under the Loan
Documents.  To the extent such sources of payment are insufficient to pay
interest and principal on any Intra-Borrower Loan, the Creditor owed such
Intra-Borrower Loan shall not have any claim against the Debtor which owes such
Intra-Borrower Loan for such amounts or any lien on or security interest in any
of the assets of such Debtor
and no further or additional recourse shall be available against the
Debtor.  All payments pursuant to Intra-Borrower Loans shall be made on a net
basis.  All payments received on account of any Intra-Borrower Loan under this
Agreement shall be credited first to interest, then to principal.  Accrued but
unpaid interest shall not be compounded.

 
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(c) Intra-Borrower Loans are deemed made solely by the execution of this
Agreement and shall not be evidenced by any separate instrument.  Each Borrower
hereby waives presentment, notice of dishonor, protest and notice of non-payment
or non-performance with respect to each Intra-Borrower Loan for which it is
liable as Debtor under this
Agreement.
 
11.5 Representations Regarding Loan Structure and Terms.
 
Each Borrower represents and warrants to Lender as follows:
 
(a) The Loan has been structured as one loan to Borrowers in the aggregate
rather than as a number of smaller loans to each Borrower at the request of
Borrowers.
 
(b) Borrowers have reason to believe that the interest rates and repayment terms
of the Loan are more favorable than those that each individual Borrower could
have obtained on its own without such “pooling” of the Properties as security
for the Loan, and without the cross-collateralization, cross-default, and joint
and several liability features
of the Loan Documents.
 
(c) The structure of the Loan has been devised in order to accommodate
Borrowers’ existing operational structure in order to best serve Borrowers’
collective interests, and to enable Lender to assign a collective value to the
Properties in an amount greater than it otherwise would have if each Property
had been separately financed.
 
11.6 Representations Regarding Borrowers’ Solvency.
 
Each Borrower represents and warrants to Lender as follows:
 
(a) The application of the Loan proceeds constitutes reasonably equivalent value
in exchange for all of the transfers for security made and obligations incurred
by each Borrower under the Loan Documents.
 
(b) No Mortgage is being executed by any Borrower for or on account of any
antecedent debt owed by any Borrower to Lender.
 
(c) No Borrower is insolvent as of the date hereof, nor shall any Borrower be
insolvent on the date of the Loan Closing.
 
(d) The execution, delivery and recording of the Mortgages are intended by
Borrowers and Lender to be a contemporaneous exchange for new value given to the
Borrowers and shall in fact be a substantially contemporaneous exchange.
 
(e) The transfers for security made and obligations incurred by Borrowers under
the Loan Documents are not made with actual intent to hinder, delay, or defraud
any entity to which any Borrower was, is, or subsequently becomes indebted.
 
(f) No Borrower is or shall be insolvent on the date that any transfer is to be
made or obligation to be incurred under the terms of the Loan Documents, nor
shall any Borrower become insolvent as a result of such transfer or obligation.

 
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(g) No Borrower is engaged in business or a transaction, or is about to engage
in business or a transaction, for which any property remaining with such
Borrower is an unreasonably small amount of capital in relation to such business
or transaction.
 
(h) No Borrower intends to incur, or believes that it will incur, debts that
would be beyond such Borrower’s ability to pay as such debts mature.
 
11.7 Indemnified Claims.
 
(a) Borrowers shall indemnify, defend, protect and hold Lender harmless from and
against any and all liability, loss, claims, damage, fee, cost or expense,
including reasonable attorney fees, Lender may incur to the extent arising out
of or based upon (i) any challenge to the obligations of any Borrower under the
Loan Documents, or to the
creation, perfection or enforceability of liens or security interests granted by
any of the Mortgages, which challenges are made under Sections 544, 547 or 548
of the United States Bankruptcy Code (or any successor or similar statute) or
under applicable state fraudulent conveyance or fraudulent transfer statute, or
(ii) any other loss suffered or
incurred by Lender in the event any warranty or representation by any Borrower
in this Article 11 is false or misleading, or contains statements of facts,
which if not accurate, would make such warranty or representation false or
misleading.  All such liability, loss, claims, damage, fee, cost or expense,
including reasonable attorney fees, are
collectively referred to in this Article 11 as an “Indemnified Claim.”
 
(b)  Whenever a Borrower has an obligation to defend an Indemnified Claim,
Lender shall have the right, acting reasonably, to approve any counsel retained
by Borrowers in connection with the prosecution or defense of any Indemnified
Claim and all reasonable costs and expenses incurred by Lender in connection
with Indemnified Claim
(including reasonable attorney fees) shall be reimbursed by Borrowers to
Lender.  Promptly after any Borrower’s receipt of notice of the existence of any
such proceeding, but in no event later than five (5) days thereafter, such
Borrower shall give notice to Lender of the initiation of all proceedings
prosecuted or required to be defended by such
Borrower, or which are subject to Borrowers’ obligations under this Section
11.7.
 
(c) Borrowers shall reimburse Lender for any and all legal and other expenses
and costs incurred by Lender in connection with investigating or defending an
Indemnified Claim as such expenses are incurred, the amount thereof shall be
payable by Borrowers upon demand, and shall accrue interest at the Default Rate
from the date of
demand.  The obligation of Borrowers to make such payments is absolute and
unconditional, and shall not at any time be subject to offset, discount, or
reduction of any kind whatsoever.
 
(d)  Borrowers’ obligations under this Section 11.7 (collectively, the
“Indemnity Obligations”) are in addition to, and separate and distinct from
Borrowers’ other obligations under the Loan Documents, and are not secured by
the Mortgages or any other collateral for the Obligations.  Notwithstanding any
term or provision contained in this
Agreement or the other Loan Documents, the Indemnity Obligations are not limited
to the original principal amount of the Loan.  The liability of each Borrower is
joint and several with respect to all Indemnity Obligations.

 
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(e) The liability of Borrowers under this Section 11.7 shall in no way be
limited or impaired by, and Borrowers consent to and agree to be bound by, any
and all amendments and modifications of the Loan Documents by any Borrower,
successor-in-interest to any Borrower, or any other person as owner of any
Property.  In addition, the liability
of Borrowers shall in no way be limited or impaired by (a) any extension of time
for performance required under the Loan Documents, (b) any release, sale,
transfer or substitution of all or part of any Property, (c) the accuracy or
inaccuracy of the representations and warranties made by any Borrower under the
Loan Documents, (d) the release of
any Borrower or Borrowers or other person from performance or observance of any
of the agreements, covenants, terms or conditions contained in any of the Loan
Documents or this Section 11.7 by operation of law, Lender’s voluntary act, or
otherwise, (e) Lender’s failure to record or file (or improper filing or
recording of) any of the Loan
Documents or Lender’s failure to otherwise perfect, protect, secure or insure
any security interest or lien given as security for the Obligations, and, in all
such cases, whether with or without notice to Borrowers and with or without
consideration.
 
(f) Lender may enforce the Indemnity Obligations without first resorting to or
exhausting any security or collateral, and without first having recourse to the
Loan Documents or any of the Properties, through foreclosure proceedings or
otherwise; provided, however, that nothing herein shall inhibit or prevent
Lender from suing on the Note or
exercising any other rights or remedies in the Loan Documents.  It is not
necessary for an Event of Default to have occurred under any Loan Document for
Lender to exercise its rights under this Section 11.7.
 
(g) Unless and until all Indemnity Obligations and all Obligations are paid in
full, each Borrower (a) waives any right of subrogation, any right to enforce
any remedy Lender may have against any Borrower or any other person, and any
benefit of, and the right to participate in, any collateral for the Obligations,
and (b) waives any right of
reimbursement, contribution, recourse or any other right or remedy any Borrower
may have against any other Borrower or any other person to recover amounts which
such Borrower is obligated to pay under this Section 11.7.
 
 
ARTICLE 12.
DEFAULT
 
 
12.1 Events of Default.
 
The occurrence of any one or more of the following shall constitute an “Event of
Default”:
 
(a) Failure by Borrowers to make any payment of principal or interest on the
Note within three (3) days after the date when due.
 
(b) Failure by Borrowers to pay the Loan in full by the Maturity Date.
 
(c) Failure of Borrowers to observe or perform any of the other covenants or
conditions by Borrowers to be performed under the terms of this Agreement or any
other Loan Document concerning the payment of money, for a period of ten (10)
days after written notice from Lender that the same is due and payable.

 
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(d) Failure of Borrowers for a period of thirty (30) days after written notice
from Lender, to observe or perform any non-monetary covenant or condition
contained in this Agreement or any other Loan Documents; provided that if any
such failure concerning a non-monetary covenant or condition is susceptible to
cure and cannot reasonably be
cured within said thirty (30) day period, then Borrowers shall have an
additional sixty (60) day period to cure such failure and no Event of Default
shall be deemed to exist hereunder so long as (x) Borrowers commence such cure
within the initial thirty (30) day period and diligently and in good faith
pursues such cure to completion within such
resulting ninety (90) day period from the date of Lender’s notice, and (y) the
existence of such default will not result in any Master Tenant having the right
to terminate its Operating Lease due to such default; and provided further that
if a different notice or grace period is specified under any other subsection of
this Section 12.1 with respect to
a particular breach, the specific provision shall control.
 
(e) The occurrence of any Transfer other than a Permitted Transfer.
 
(f) Any violation of the provisions of Section 10.3 above.
 
(g) Failure to meet any of the Occupancy Covenants.
 
(h) Any failure by Emeritus to comply with the Emeritus Covenants.
 
(i) Any failure by Borrowers to provide any of the financial reporting as and
when required under Section 8.13 if such failure is not cured within ten (10)
days after written notice from Lender.
 
(j) If any warranty, representation, statement, report or certificate made now
or hereafter by any Borrower or by Emeritus is untrue or incorrect at the time
made or delivered, provided that if such breach is reasonably susceptible of
cure, then no Event of Default shall exist so long as such Borrower or Emeritus
cures said breach (i) within the
notice and cure period provided in Section 12.1(b) above for a breach that can
be cured by the payment of money or (ii) within the notice and cure period
provided in Section 12.1(c) above for any other breach.
 
(k) Emeritus or any Borrower shall commence a voluntary case under Title 11 of
the United States Code entitled “Bankruptcy” as now or hereafter in effect, or
any successor thereto or any other present or future bankruptcy or insolvency
statute (the “Bankruptcy Code”); or an involuntary proceeding is commenced
against Emeritus or any
Borrower under the Bankruptcy Code and relief is ordered against Emeritus or
such Borrower, or the petition is controverted but not dismissed or stayed
within sixty (60) days after the commencement of the case, or a custodian (as
defined in the Bankruptcy Code) is appointed for or takes charge of all or
substantially all of the property of
Emeritus or any Borrower; or Emeritus or any Borrower commences any other
proceedings under any reorganization, arrangement, readjustment of debt, relief
of debtors, dissolution, insolvency or liquidation or similar Law of any
jurisdiction whether now or hereafter in effect relating to Emeritus or such
Borrower; or there is commenced against
Emeritus or any Borrower any such proceeding which remains undismissed or
unstayed for a period of sixty (60) days; or Emeritus or any Borrower fails to
controvert in a timely manner any such case under the Bankruptcy Code or any
such proceeding, or any order of relief or other order approving any such case
or proceeding is entered; or

 
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                 Emeritus or any Borrower by any act or failure to act indicates
its consent to, approval of, or acquiescence in any such case or proceeding or
the appointment of any custodian or the like of or for it for any substantial
part of its property or suffers any such appointment to continue undischarged or
unstayed for a period of sixty (60) days.
 
(l) Emeritus or any Borrower shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts generally as
they become due, or shall consent to the appointment of a receiver or trustee or
liquidator of all of its property or the major part thereof or if all or a
substantial part of the assets of Emeritus or any
Borrower are attached, seized, subjected to a writ or distress warrant, or are
levied upon, or come into the possession of any receiver, trustee, custodian or
assignee for the benefit of creditors.
 
(m) One or more final judgments are entered (i) against any Borrower in amounts
aggregating in excess of $100,000 or (ii) against Emeritus in amounts
aggregating in excess of $500,000, and said judgments are not satisfied, stayed
or bonded over within thirty (30) days after entry.
 
(n) If any Borrower or Emeritus shall fail to pay any debt (which term shall not
include judgments under clause (j) above) owed by it to Lender or any other
party or is in default under any agreement with Lender or any other party (other
than a failure or default for which such Borrower’s maximum liability does not
exceed $100,000 and Emeritus’
maximum liability does not exceed $250,000) and such failure or default
continues after any applicable grace period specified in the instrument or
agreement relating thereto.
 
(o) If a Material Adverse Change occurs with respect to Emeritus, any Borrower
or any Facility.
 
(p) The occurrence of any other event or circumstance denominated as an Event of
Default herein or under any of the other Loan Documents and the expiration of
any applicable grace or cure periods, if any, specified for such Event of
Default herein or therein, as the case may be.
 
(q) Any default by any Borrower or Master Tenant under any Operating Lease which
is not cured within any applicable cure period thereunder.
 
12.2 Remedies Conferred Upon Lender.
 
If there is an Event of Default, Lender may pursue any one or more of the
following remedies concurrently or successively, it being the intent hereof that
none of such remedies shall be to the exclusion of any other:
 
(a) Declare the Note to be immediately due and payable;
 
(b) Take possession of all or any of the Properties and do anything which is
necessary or appropriate in its sole judgment to fulfill the obligations of
Borrower under this Agreement and the other Loan Documents;

 
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(c) Exercise or pursue any other remedy or cause of action permitted under this
Agreement or any other Loan Documents, or conferred upon Lender by operation of
Law.
 
Notwithstanding the foregoing, upon the occurrence of any Event of Default under
Section 12.1(k) or Section 12.1(l), all amounts evidenced by the Note shall
automatically become due and payable, without any presentment, demand, protest
or notice of any kind to Borrower.
 
 
ARTICLE 13.
GENERAL PROVISIONS
 
 
13.1 Successors and Assigns.
 
Subject to the restrictions on Transfer and assignment contained in this
Agreement, this Agreement shall inure to the benefit of and shall be binding on
the parties hereto and their respective successors and permitted assigns.
 
13.2 Time is of the Essence.
 
Borrowers agree that time is of the essence under this Agreement.
 
13.3 Captions.
 
The captions and headings of various Articles, Sections and subsections of this
Agreement and Exhibits pertaining hereto are for convenience only and are not to
be considered as defining or limiting in any way the scope or intent of the
provisions hereof.
 
13.4 Modification; Waiver.
 
No modification, waiver, amendment or discharge of this Agreement or any other
Loan Document shall be valid unless the same is in writing and signed by the
party against which the enforcement of such modification, waiver, amendment or
discharge is sought.
 
13.5 Governing Law.
 
Because the principal offices of Borrowers and Emeritus are in Seattle,
Washington and the office of Lender responsible for the Loan is also in Seattle,
Washington, Borrowers and Lender agree that this Agreement shall be governed by,
and shall be construed in accordance with, the laws of the State of Washington
even though the Facilities are located in other states.
 
13.6 Disclaimer by Lender.
 
This Agreement is made for the sole benefit of Borrowers and Lender, and no
other person or persons shall have any benefits, rights or remedies under or by
reason of this Agreement, or by reason of any actions taken by Lender pursuant
to this Agreement.  Lender, by making the Loan or taking any action pursuant to
any of the Loan Documents,

 
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shall not be deemed a partner or a joint venturer with any Borrower or fiduciary
of any Borrower.
 
13.7 Partial Invalidity; Severability.
 
If any of the provisions of this Agreement, or the application thereof to any
person, party or circumstances, shall, to any extent, be invalid or
unenforceable, the remainder of this Agreement, or the application of such
provision or provisions to persons, parties or circumstances other than those as
to whom or which it is held invalid or unenforceable, shall not be affected
thereby, and every provision of this Agreement shall be valid and enforceable to
the fullest extent permitted by law.
 
13.8 Definitions Include Amendments.
 
Definitions contained in this Agreement which identify documents, including, but
not limited to, the Loan Documents, shall be deemed to include all amendments
and supplements to such documents from the date hereof, and all future
amendments and supplements thereto entered into from time to time to satisfy the
requirements of this Agreement or otherwise with the consent of
Lender.  Reference to this Agreement contained in any of the foregoing documents
shall be deemed to include all amendments and supplements to this Agreement.
 
13.9 Execution in Counterparts.
 
This Agreement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
 
13.10 Entire Agreement.
 
This Agreement, taken together with all of the other Loan Documents and all
certificates and other documents delivered by Borrower to Lender, embody the
entire agreement and supersede all prior agreements, written or oral, relating
to the subject matter hereof.
 
13.11 Waiver of Damages.
 
In no event shall Lender be liable to any Borrower for punitive, exemplary or
consequential damages, including, without limitation, lost profits, whatever the
nature of a breach by Lender of its obligations under this Agreement or any of
the Loan Documents, and Borrowers waive all claims for punitive, exemplary or
consequential damages.
 
13.12 Claims Against Lender.
 
Lender shall not be in default under this Agreement, or under any other Loan
Documents, unless a written notice specifically setting forth the claim of
Borrowers shall have been given to Lender within three (3) months after
Borrowers first had knowledge of the occurrence of the event which Borrowers
allege gave rise to such claim and Lender

 
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                 does not remedy or cure the default, if any there be, promptly
thereafter.  Borrowers waive any claim, set-off or defense against Lender
arising by reason of any alleged default by Lender as to which Borrowers do not
give such notice timely as aforesaid.  Borrowers acknowledge that such waiver is
or may be essential to Lender’s ability to
                 enforce its remedies without delay and that such waiver
therefore constitutes a substantial part of the bargain between Lender and
Borrowers with regard to the Loan.
 
13.13 Jurisdiction.
 
TO THE GREATEST EXTENT PERMITTED BY LAW, BORROWERS WAIVE ANY AND ALL RIGHTS TO
REQUIRE MARSHALING OF ASSETS BY LENDER.  WITH RESPECT TO ANY SUIT, ACTION OR
PROCEEDINGS RELATING TO THIS AGREEMENT (EACH, A “PROCEEDING”), BORROWER
IRREVOCABLY (A) SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND
FEDERAL COURTS HAVING JURISDICTION IN THE CITY OF SEATTLE, COUNTY OF KING AND
STATE OF WASHINGTON, AND (B) WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY TIME
TO THE LAYING OF VENUE OF ANY PROCEEDING BROUGHT IN ANY SUCH COURT, WAIVES ANY
CLAIM THAT ANY PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER
WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO SUCH PROCEEDING, THAT SUCH COURT
DOES NOT HAVE JURISDICTION OVER SUCH PARTY.  NOTHING IN THIS AGREEMENT SHALL
PRECLUDE LENDER FROM BRINGING A PROCEEDING IN ANY OTHER JURISDICTION NOR WILL
THE BRINGING OF A PROCEEDING IN ANY ONE OR MORE JURISDICTIONS PRECLUDE THE
BRINGING OF A PROCEEDING IN ANY OTHER JURISDICTION.  BORROWERS FURTHER AGREE AND
CONSENT THAT, IN ADDITION TO ANY METHODS OF SERVICE OF PROCESS PROVIDED FOR
UNDER APPLICABLE LAW, ALL SERVICE OF PROCESS IN ANY PROCEEDING IN ANY WASHINGTON
STATE OR UNITED STATES COURT SITTING IN THE CITY OF SEATTLE AND COUNTY OF KING
MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, DIRECTED
TO BORROWERS AT THE ADDRESS INDICATED BELOW, AND SERVICE SO MADE SHALL BE
COMPLETE UPON RECEIPT; EXCEPT THAT IF BORROWERS SHALL REFUSE TO ACCEPT DELIVERY,
SERVICE SHALL BE DEEMED COMPLETE FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN SO
MAILED.
 
13.14 Set-Offs.
 
After the occurrence and during the continuance of an Event of Default,
Borrowers hereby irrevocably authorize and direct Lender from time to time to
charge Borrowers’ accounts and deposits with Lender (or its Affiliates), and to
pay over to Lender an amount equal to any amounts from time to time due and
payable to Lender hereunder, under the Note or under any other Loan
Document.  Borrowers grant to Lender a security interest in and to all such
accounts and deposits maintained by Borrowers with Lender (or its Affiliates).
 
13.15 Notices.
 
All notices required or permitted hereunder shall be in writing and shall be
given to the parties as follows:

 
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If to Lender:
KeyBank National Association

 
1301 5Th Avenue 23rd Floor

 
Seattle, WA 98101

 
Attn:  Senior Manager, Healthcare Finance

 
Mail Code:  WA-31-13-2313

 
 
If to Borrowers:
c/o Emeritus Corporation

 
3131 Elliott Avenue #500

 
Seattle, WA  98121

 
Attn: Eric Mendelsohn

 
Any such notices shall be either (a) sent by a nationally recognized overnight
courier, in which case notice shall be deemed delivered one business day after
deposit with such courier; or (b) served personally, in which case notice shall
be deemed given on the date of such service.  The above addresses may be changed
by written notice to the other party; provided that no notice of a change of
address shall be effective until actual receipt of such notice.  Copies of
notices are for informational purposes only, and a failure to give or receive
copies of any notice shall not be deemed a failure to give
notice.  Notwithstanding anything in this Agreement to the contrary, and all
notices, demands, requests or other communication by and between Borrowers and
Lender shall occur through Lender, and all payments required of Borrowers to
Lender shall be made by Borrowers to Lender.
 
13.16 Waiver of Jury Trial.
 
BORROWERS AND LENDER EACH WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS OR RELATING THERETO OR ARISING FROM THE LENDING RELATIONSHIP
WHICH IS THE SUBJECT OF
THIS AGREEMENT AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED
BEFORE A COURT AND NOT BEFORE A JURY.
 
13.17 Statutory Notice.
 
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LEND MONEY, EXTEND CREDIT, OR FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

 
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IN WITNESS WHEREOF, the parties have signed this Agreement as of the date
written above.
 
“Lender”
 
KEYBANK NATIONAL ASSOCIATION, a national banking association
 

By:           /s/ Bellini Lacey
Name:      Bellini Lacey
Title:        VP
 
 “Borrowers”
 
EMERICHENAL LLC, a Delaware limited liability company
 
 
By:
Emeritus Corporation, a Washington corporation, its sole member

 

 
By:
/s/ Eric Mendelsohn

 
Eric Mendelsohn

 
Senior Vice President-Corporate Development

 
EMERICLEAR LLC, a Delaware limited liability company
 
 
By:
Summerville Senior Living, Inc., a Delaware corporation, its sole member

 

 
By:
/s/ Eric Mendelsohn

 
Eric Mendelsohn

 
Senior Vice President-Corporate Development

 
EMERIMAND LLC, a Delaware limited liability company
 
 
By:
Summerville Senior Living, Inc., a Delaware corporation, its sole member

 

 
By:
/s/ Eric Mendelsohn

 
Eric Mendelsohn

 
Senior Vice President-Corporate Development

 
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EXHIBIT A
 
TO
 
LOAN AGREEMENT
 
INSURANCE REQUIREMENTS

 
 

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EXHIBIT B
 
LOAN AGREEMENT
 
FORM OF COMPLIANCE CERTIFICATE

 
 

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