EX-10.57.09

FHLMC Loan No. 504119192
Village Oaks at Chandler

 
SECURITY, ASSIGNMENT AND SUBORDINATION AGREEMENT FOR OPERATING LEASE
(Revision Date 01-19-2007)

 
THIS SECURITY, ASSIGNMENT AND SUBORDINATION AGREEMENT FOR OPERATING LEASE (the
“Agreement”) is made effective as of this 25th day of April, 2008, by and among
EMERITUS PROPERTIES-NGH, LLC, a limited liability company organized and existing
under the laws of Washington whose address is c/o Emeritus Corporation, 3131
Elliott Avenue, Suite 500, Seattle, Washington 98121, as grantor (“Operator”);
CAPMARK BANK, an industrial bank organized and existing under the laws of the
State of Utah, whose address is 6955 Union Park Center, Suite 330, Midvale, Utah
84047, Attn:  President, as lender (the “Lender”); and FRETUS INVESTORS CHANDLER
LLC, a limited liability company organized and existing under the laws of the
State of Delaware, whose address is c/o Emeritus Corporation, 3131 Elliott
Avenue, Suite 500, Seattle, Washington 98121 (“Borrower”).
 
RECITALS
 
A.           Borrower is the owner of a senior housing project known as Village
Oaks at Chandler located in Chandler (Maricopa County), Arizona.

B.           Borrower is the maker of a certain Multifamily Note (the "Note") of
even date herewith, payable to the order of Lender, in the original principal
amount of $6,350,000.00, bearing interest and being payable in accordance with
the terms and conditions therein set forth, which Note evidences a loan (the
"Loan") made by Lender to provide Borrower with financing for the Mortgaged
Property (as defined below).  The Loan is secured by a Multifamily Deed of
Trust, Assignment of Rents, Security Agreement and Fixture Filing (the "Security
Instrument") that creates a first lien on and encumbers the Mortgaged
Property.  

C.           Borrower has leased the Mortgaged Property to Operator pursuant to
a certain lease agreement, dated of even date herewith (the “Operating Lease”),
as a result of which Operator will derive substantial benefits from the Loan.

D.           The Note, Security Instrument, this Agreement, and other documents
evidencing and securing the Loan are referred to as the “Loan Documents”.
 
E.           As a condition precedent to Lender’s making the Loan to Borrower,
Lender requires that Operator execute this Agreement and other documents from
Operator for the benefit of Lender encumbering certain of Operator’s interests
in the Collateral Property.
 
F.           Operator will benefit materially from Lender’s approval of the
Operating Lease and from the Loan transaction described hereinabove.
 
NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged by each of the parties hereto, it is agreed as
follows:
 

 
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ARTICLE 1
DEFINITIONS
 
As used herein, the following terms shall have the meaning set forth below in
this Article.  Any term used in this Agreement and not defined shall have the
meaning given to that term in the Security Instrument:
 
1.  
“Accounts” means all of Operator’s inventory, accounts, accounts receivable,
contract rights, general intangibles and all proceeds thereof in each case to
the extent, but only to the extent, they are used in connection with or arise
from the operation of the Collateral Property.

2.  
“Awards” means all awards, payments and other compensation made or to be made by
any municipal, state or federal authority with respect to the Land, the
Improvements, the Fixtures, the Personalty or any other part of the Collateral
Property, including any awards or settlements resulting from condemnation
proceedings or the total or partial taking of the Land, the Improvements, the
Fixtures, the Personalty or any other part of the Collateral Property under the
power of eminent domain or otherwise and including any conveyance in lieu
thereof.

3.  
“Collateral Property” means all property in which a security interest is granted
hereunder as further defined below.

4.  
“Contracts” means all contracts, options and other agreements for the sale of
the Land, the Improvements, the Fixtures, the Personalty or any other part of
the Collateral Property entered into by Operator now or in the future, including
cash or securities deposited to secure performance by parties of their
obligations.

5.  
“Controlled Property” means property of every kind and description in which
Operator has or may acquire any interest arising with respect to or out of the
operation of the Mortgaged Property, now or hereafter at any time in the
possession or control of Lender for any reason and all dividends and
distributions on or other rights in connection with such property.

6.  
“Event of Default” means the occurrence of any event listed in Section 22 of the
Security Instrument or a default by Borrower or Operator of any representation,
warranty, obligation or covenant under this Agreement or the Operating Lease.

7.  
“Fixtures” means all property which is so attached to the Land or the
Improvements as to constitute a fixture under applicable law, including:
machinery; equipment; engines; boilers; incinerators; installed building
materials; systems and equipment for the purpose of supplying or distributing
heating, cooling, electricity, gas, water, air, or light; antennas, cable,
wiring and conduits used in connection with radio, television, security, fire
prevention, or fire detection or otherwise used to carry electronic signals;
telephone systems and equipment; elevators and related machinery and equipment;
fire detection, prevention and extinguishing systems and apparatus; security and
access control systems and apparatus; plumbing systems; water heaters, ranges,
stoves, microwave ovens, refrigerators, dishwashers, garbage disposals, washers,
dryers and other appliances; light fixtures, awnings, storm windows and storm
doors; pictures, screens, blinds, shades, curtains and curtain rods; mirrors;
cabinets, paneling, rugs and floor and wall coverings; fences, trees and plants;
swimming pools; and exercise equipment.

8.  
“Imposition Deposits” shall have the meaning as defined in Section 7(a) of the
Security Instrument.

 
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9.  
“Impositions” shall have the meaning as defined in Section 7(a) of the Security
Instrument.

10.  
“Improvements” means the buildings, structures, improvements, and alterations
now constructed or at any time in the future constructed or placed upon the land
described in Exhibit A attached hereto (the "Land"), including any future
replacements and additions (the Land and the Improvements collectively referred
to herein as the “Mortgaged Property”).

11.  
“Insurance Proceeds” means all proceeds paid or to be paid by any insurer of the
Land, the Improvements, the Fixtures, the Personalty or any other part of the
Collateral Property (as defined below), whether or not Operator obtained the
insurance pursuant to Lender’s requirement.

12.  
“Leases” means all present and future leases or agreements for use or occupancy
of the Mortgaged Property, including but not limited to the Operating Lease,
subleases, licenses, concessions or grants or other possessory interests now or
hereafter in force, whether oral or written, covering or affecting the
Collateral Property, or any portion of the Collateral Property (including
proprietary leases or occupancy agreements if Operator is a cooperative housing
corporation), and all modifications, extensions or renewals.  The term "Leases"
shall also include any occupancy and admission agreements pertaining to
occupants of the Mortgaged Property, including both residential and commercial
agreements.

13.  
“Names” means all names under or by which any of the above Collateral Property
may be operated or known, and all trademarks, trade names, and goodwill relating
to any of the Collateral Property.

14.  
“Obligations” means the full and punctual payment, when due (whether at stated
maturity, upon acceleration or otherwise), of any and all present and future
indebtedness, liabilities and obligations of every kind and nature of Borrower
to Lender, howsoever created, arising or evidenced, whether direct or indirect,
absolute or contingent, joint or several, both now and hereafter existing, or
due or to become due, arising under, out of, as a result of, or in connection
with the Note, and the due and punctual performance of all of the other terms
and provisions of the Note, this Agreement and other Loan Documents.

15.  
“Other Earnings” means all earnings, royalties, accounts receivable, issues and
profits from the Land, the Improvements or any other part of the Collateral
Property and, if Operator is a cooperative housing corporation, maintenance
charges or assessments payable by shareholders or residents.

16.  
“Other Rights” means all current and future rights, including air rights,
development rights, zoning rights and other similar rights or interests,
easements, tenements, rights-of-way, strips and gores of land, streets, alleys,
roads, sewer rights, waters, watercourses, and appurtenances related to or
benefiting the Land or the Improvements, or both, and all rights-of-way,
streets, alleys and roads related to the Mortgaged Property which may have been
or may in the future be vacated.

17.  
“Payments” means all payments due, or received, from occupants, entrance fees,
second party charges added to base rental income, base and/or additional meal
sales, commercial operations located on the Mortgaged Property or provided as a
service to the occupants of the Mortgaged Property, rental from guest suites,
seasonal lease charges, furniture leases, and laundry services/leases, if any,
and any and all other services provided to third parties in connection with the
Mortgaged Property, if any, and any and all other personal property on

 
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the Mortgaged Property, excluding personal property belonging to occupants of
the Mortgaged Property (other than property belonging to Operator).

18.  
“Permits” means to the extent assignable under applicable law, all permits,
licenses and contracts, if any, relating to the operation and authority to
operate the Mortgaged Property as a senior housing project.

19.  
“Permitted Liens” means the Liens described in Exhibit B attached hereto and
made a part hereof.

20.  
“Personalty” means all equipment, inventory, general intangibles which are used
now or in the future in connection with the ownership, management or operation
of the Land or the Improvements or are located on the Land or in the
Improvements, including furniture, furnishings, machinery, building materials,
appliances, goods, supplies, tools, books, records (whether in written or
electronic form), computer equipment (hardware and software) and other tangible
personal property (other than Fixtures) which are used now or in the future in
connection with the ownership, management or operation of the Land or the
Improvements or are located on the Land or in the Improvements, and any
operating leases relating to the Land or the Improvements, and any surveys,
plans and specifications and contracts for architectural, engineering and
construction services relating to the Land or the Improvements and all other
intangible property and rights relating to the operation of, or used in
connection with, the Land or the Improvements, including all governmental
permits relating to any activities on the Land, also including all personal
property currently owned or acquired by Operator after the date hereof used in
connection with the ownership and operation of the Mortgaged Property as a
senior housing project, all kitchen or restaurant supplies, dining room
facilities, medical facilities, or related furniture and equipment, and any
other equipment, supplies or furniture owned by Operator and  leased to any
third party service provider or facility operator under any use, occupancy, or
lease agreements, as well as all licenses, permits, certificates, and approvals
required for the operation of the Mortgaged Property as a senior housing
project, to the extent permitted by applicable law and regulations, including
replacements and additions thereto.

21.  
“Persons” means an individual, a corporation, a partnership, a joint venture, a
trust, an unincorporated association, a limited liability company, government or
political subdivision or agency thereof, or any other entity.

22.  
“Proceeds” means all proceeds from the conversion, voluntary or involuntary, of
any of the other Collateral Property into cash or liquidated claims, and the
right to collect such proceeds.

23.  
“Refunds” means all refunds or rebates of Impositions with respect to the
Collateral Property by any municipal, state or federal authority or insurance
premiums (other than refunds applicable to periods before the real property tax
year in which the Security Instrument is dated).

24.  
“Rents” means all rents (whether from residential or non-residential space),
revenues and other income of the Land or the Improvements, including entrance
fees, application fees, processing fees, community fees and any other amounts or
fees deposited by any resident or tenant, subsidy payments received from any
sources (including, but not limited to payments under any housing assistance
payments contract), including parking fees, laundry and vending machine income
and fees and charges for food, health care and other services provided at the
Mortgaged Property, whether now due, past due, or to become due, and deposits
forfeited by tenants, together with and including all proceeds from any private

 
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insurance for tenants to cover rental charges and charges for services at or in
connection with the Mortgaged Property, and the right to Third Party Payments.

25.  
“Tenant Security Deposits” means all tenant or occupant security deposits that
have not been forfeited by any tenant or occupant under any Lease with respect
to the Mortgaged Property.

26.  
“Third Party Payments” means all rights to payments from Medicare or Medicaid
programs, or similar federal, state or local programs, boards, bureaus or
agencies, if any, and rights to payment from residents or private insurers, if
any, arising from the operation of the Mortgaged Property as a senior housing
project, utility deposits, unearned premiums, accrued, accruing or to accrue
under insurance policies now or hereafter obtained by the Operator for the
Collateral Property and all proceeds of any conversion of the Collateral
Property or any part thereof including, without limitation, proceeds of hazard
and title insurance and all awards and compensation for the taking by eminent
domain, condemnation or otherwise, of all or any part of the Collateral Property
or any easement therein.

ARTICLE 2
UNIFORM COMMERCIAL CODE SECURITY AGREEMENT

2.1 Collateral Property.  As security for the payment, performance and
observance of the covenants and agreements of Operator contained in this
Agreement and of the Borrower under the Loan Documents, Operator hereby grants
to Lender a security interest in all of Operator’s now owned or hereafter
acquired or arising right, title and interest in and to the following property
(collectively the “Collateral Property”) provided that the Collateral Property
is strictly limited in all cases (whether or not so specified below) to the
extent, and only to the extent, they are a part of the Mortgaged Property or
attached to, used in connection with or arising from the operation of the
Mortgaged Property:
 
 
a)
Improvements;

 
 
b)
Fixtures;

 
 
c)
Personalty;

 
 
d)
Other Rights;

 
 
e)
Insurance Proceeds;

 
 
f)
Awards;

 
 
g)
Contracts;

 
 
h)
Proceeds;

 
 
i)
Rents;

 
 
j)
Leases;

 
 
k)
Other Earnings;

 
 
l)
Imposition Deposits;

 

 
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m)
Refunds;

 
 
n)
Tenant Security Deposits;

 
 
o)
Names;

 
 
p)
Payments;

 
 
q)
Permits;

 
 
r)
Third Party Payments;

 
 
s)
Accounts; and

 
 
t)
Products of all the foregoing.

 
2.2 This Agreement is also a security agreement under the Uniform Commercial
Code (the “Code”) for any of the Collateral Property which, under applicable
law, may be subjected to a security interest under the Uniform Commercial Code,
whether such Collateral Property is owned now or acquired in the future, and all
products and cash and non-cash proceeds thereof (collectively, "UCC
Collateral"), and Operator hereby grants to Lender a security interest in the
UCC Collateral.  Operator hereby authorizes Lender to prepare and file financing
statements, continuation statements and financing statement amendments in such
form as Lender may require to perfect or continue the perfection of this
security interest and Operator agrees, if Lender so requests, to execute and
deliver to Lender such financing statements, continuation statements and
amendments.  Borrower shall pay all filing costs and all costs and expenses of
any record searches for financing statements and/or amendments that Lender may
require.  Without the prior written consent of Lender, Operator shall not create
or permit to exist any other lien or security interest in any of the UCC
Collateral.
 
2.3 Unless Operator gives Notice to Lender within 30 days after the occurrence
of any of the following, and executes and delivers to Lender modifications or
supplements of this Agreement (and any financing statement which may be filed in
connection with this Agreement) as Lender may require, Operator shall not
(i) change its name, identity, structure or jurisdiction of organization;
(ii) change the location of its place of business (or chief executive office if
more than one place of business); or (iii) add to or change any location at
which any of the Collateral Property is stored, held or located.
 
2.4 If an Event of Default has occurred and is continuing, Lender shall have the
remedies of a secured party under the Uniform Commercial Code, in addition to
all remedies provided by this Agreement or existing under applicable law.  In
exercising any remedies, Lender may exercise its remedies against the UCC
Collateral separately or together, and in any order, without in any way
affecting the availability of Lender's other remedies.
 
ARTICLE 3
ASSIGNMENT OF RENTS; APPOINTMENT OF RECEIVER; LENDER IN POSSESSION

3.1 As part of the consideration for the Loan and approval of the Operating
Lease, Operator absolutely and unconditionally assigns and transfers to Lender
all Rents.  It is the intention of Operator to establish a present, absolute and
irrevocable transfer and
 

 
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assignment to Lender of all Rents and to authorize and empower Lender to collect
and receive all Rents without the necessity of further action on the part of
Operator.  Promptly upon request by Lender, Operator agrees to execute and
deliver such further assignments as Lender may from time to time
require.  Operator and Lender intend this assignment of Rents to be immediately
effective and to constitute an absolute present assignment and not an assignment
for additional security only.  For purposes of giving effect to this absolute
assignment of Rents, and for no other purpose, Rents shall not be deemed to be a
part of the Collateral Property.  However, if this present, absolute and
unconditional assignment of Rents is not enforceable by its terms under the laws
of the Property Jurisdiction, then the Rents shall be included as a part of the
Collateral Property and it is the intention of the Operator that in this
circumstance this Agreement create and perfect a lien on Rents in favor of
Lender, which lien shall be effective as of the date of this Agreement.
 
3.2 After the occurrence of an Event of Default, Operator authorizes Lender to
collect, sue for and compromise Rents and directs each tenant of the Mortgaged
Property to pay all Rents to, or as directed by, Lender.  However, until the
occurrence of an Event of Default, Lender hereby grants to Operator a revocable
license to collect and receive all Rents, to hold all Rents in trust for the
benefit of Lender and to apply all Rents to pay the installments of interest and
principal then due and payable under the Note and the other amounts then due and
payable under the other Loan Documents, including Imposition Deposits, and to
pay the current costs and expenses of managing, operating and maintaining the
Mortgaged Property, including utilities, Taxes and insurance premiums (to the
extent not included in Imposition Deposits), tenant improvements and other
capital expenditures.  So long as no Event of Default has occurred and is
continuing, the Rents remaining after application pursuant to the preceding
sentence may be retained by Operator free and clear of, and released from,
Lender's rights with respect to Rents under this Agreement. From and after the
occurrence of an Event of Default, and without the necessity of Lender entering
upon and taking and maintaining control of the Mortgaged Property directly, or
by a receiver, Operator's license to collect Rents shall automatically terminate
and Lender shall without Notice be entitled to all Rents as they become due and
payable, including Rents then due and unpaid.  Operator shall pay to Lender upon
demand all Rents to which Lender is entitled.  At any time on or after the date
of Lender's demand for Rents, (i) Lender may give, and Operator hereby
irrevocably authorizes Lender to give, notice to all tenants of the Mortgaged
Property instructing them to pay all Rents to Lender, (ii) no tenant shall be
obligated to inquire further as to the occurrence or continuance of an Event of
Default, and (iii) no tenant shall be obligated to pay to Operator any amounts
which are actually paid to Lender in response to such a notice.  Any such notice
by Lender shall be delivered to each tenant personally, by mail or by delivering
such demand to each rental unit.  Operator shall not interfere with and shall
cooperate with Lender's collection of such Rents.
 
3.3 Operator represents and warrants to Lender that Operator has not executed
any prior assignment of Rents (other than an assignment of Rents securing any
indebtedness that will be paid off and discharged with the proceeds of the loan
evidenced by the Note), that Operator has not performed, and Operator covenants
and agrees that it will not perform, any acts and has not executed, and shall
not execute, any instrument which would prevent Lender from exercising its
rights under this Section, and that at the time of execution of this Agreement
there has been no anticipation or prepayment of any Rents for more than two
months prior to the due dates of such Rents.  Operator shall not collect or
accept payment of any Rents more than two months prior to the due dates of such
Rents.
 

 
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3.4 If an Event of Default has occurred and is continuing, Lender may,
regardless of the adequacy of Lender's security or the solvency of Operator and
even in the absence of waste, enter upon and take and maintain full control of
the Mortgaged Property in order to perform all acts that Lender in its
discretion determines to be necessary or desirable for the operation and
maintenance of the Mortgaged Property, including the execution, cancellation or
modification of Leases, the collection of all Rents, the making of repairs to
the Mortgaged Property and the execution or termination of contracts providing
for the management, operation or maintenance of the Mortgaged Property, for the
purposes of enforcing the assignment of Rents pursuant to Section 3.1 protecting
the Mortgaged Property or the security of this Agreement, or for such other
purposes as Lender in its discretion may deem necessary or
desirable.  Alternatively, if an Event of Default has occurred and is
continuing, regardless of the adequacy of Lender's security, without regard to
Operator’s solvency and without the necessity of giving prior notice (oral or
written) to Operator, Lender may apply to any court having jurisdiction for the
appointment of a receiver for the Mortgaged Property to take any or all of the
actions set forth in the preceding sentence.  If Lender elects to seek the
appointment of a receiver for the Mortgaged Property at any time after an Event
of Default has occurred and is continuing, Operator, by its execution of this
Agreement, expressly consents to the appointment of such receiver, including the
appointment of a receiver ex parte if permitted by applicable law.  Lender or
the receiver, as the case may be, shall be entitled to receive a reasonable fee
for managing the Mortgaged Property.  Immediately upon appointment of a receiver
or immediately upon the Lender's entering upon and taking possession and control
of the Mortgaged Property, Operator shall surrender possession of the Mortgaged
Property to Lender or the receiver, as the case may be, and shall deliver to
Lender or the receiver, as the case may be, all documents, records (including
records on electronic or magnetic media), accounts, surveys, plans, and
specifications relating to the Mortgaged Property and all security deposits and
prepaid Rents.  In the event Lender takes possession and control of the
Mortgaged Property, Lender may exclude Operator and its representatives from the
Mortgaged Property.  Operator acknowledges and agrees that the exercise by
Lender of any of the rights conferred under this Section shall not be construed
to make Lender a mortgagee-in-possession of the Mortgaged Property so long as
Lender has not itself entered into actual possession of the Land and
Improvements.
 
3.5 If Lender enters the Mortgaged Property, Lender shall be liable to account
only to Operator and only for those Rents actually received.  Except to the
extent of Lender's gross negligence or willful misconduct, Lender shall not be
liable to Operator, anyone claiming under or through Operator or anyone having
an interest in the Mortgaged Property, by reason of any act or omission of
Lender under Section 3.4, and Operator hereby releases and discharges Lender
from any such liability to the fullest extent permitted by law.
 
3.6 If the Rents are not sufficient to meet the costs of taking control of and
managing the Mortgaged Property and collecting the Rents, any funds expended by
Lender for such purposes shall become an additional part of the Indebtedness as
provided in Section 12 of the Security Instrument.
 
3.7 Any entering upon and taking of control of the Mortgaged Property by Lender
or the receiver, as the case may be, and any application of Rents as provided in
this Agreement shall not cure or waive any Event of Default or invalidate any
other right or remedy of Lender under applicable law or provided for in this
Agreement or in the Security Instrument.
 

 
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ARTICLE 4
ASSIGNMENT OF LEASES; LEASES AFFECTING THE MORTGAGED PROPERTY

4.1 As part of the consideration for the Loan and approval of the Operating
Lease, Operator absolutely and unconditionally assigns and transfers to Lender
all of Operator’s right, title and interest in, to and under the Leases,
including Operator’s right, power and authority to modify the terms of any such
Lease, or extend or terminate any such Lease.   It is the intention of Operator
to establish a present, absolute and irrevocable transfer and assignment to
Lender of all of Operator‘s right, title and interest in, to and under the
Leases.  Operator and Lender intend this assignment of the Leases to be
immediately effective and to constitute an absolute present assignment and not
an assignment for additional security only.  For purposes of giving effect to
this absolute assignment of the Leases, and for no other purpose, the Leases
shall not be deemed to be a part of the Mortgaged Property.  However, if this
present, absolute and unconditional assignment of the Leases is not enforceable
by its terms under the laws of the Property Jurisdiction, then the Leases shall
be included as a part of the Mortgaged Property and it is the intention of the
Operator that in this circumstance this Agreement create and perfect a lien on
the Leases in favor of Lender, which lien shall be effective as of the date of
this Agreement.
 
4.2 Until Lender gives Notice to Operator of Lender's exercise of its rights
under this Section, Operator shall have all rights, power and authority granted
to Operator under any Lease (except as otherwise limited by this Section or any
other provision of this Agreement), including the right, power and authority to
modify the terms of any Lease or extend or terminate any Lease.  Upon the
occurrence of an Event of Default, the permission given to Operator pursuant to
the preceding sentence to exercise all rights, power and authority under Leases
shall automatically terminate.  Operator shall comply with and observe
Operator’s obligations under all Leases, including Operator’s obligations
pertaining to the maintenance and disposition of Tenant Security Deposits.
 
4.3 Operator acknowledges and agrees that the exercise by Lender, either
directly or by a receiver, of any of the rights conferred under this
Section shall not be construed to make Lender a mortgagee-in-possession of the
Mortgaged Property so long as Lender has not itself entered into actual
possession of the Land and the Improvements.  The acceptance by Lender of the
assignment of the Leases pursuant to Section 4.1 shall not at any time or in any
event obligate Lender to take any action under this Agreement or to expend any
money or to incur any expenses.  Except to the extent of Lender's gross
negligence or willful misconduct, Lender shall not be liable in any way for any
injury or damage to person or property sustained by any person or persons, firm
or corporation in or about the Mortgaged Property.  Prior to Lender's actual
entry into and taking possession of the Mortgaged Property, Lender shall not
(i) be obligated to perform any of the terms, covenants and conditions contained
in any Lease (or otherwise have any obligation with respect to any Lease);
(ii) be obligated to appear in or defend any action or proceeding relating to
the Lease or the Mortgaged Property; or (iii) be responsible for the operation,
control, care, management or repair of the Mortgaged Property or any portion of
the Mortgaged Property.  The execution of this Agreement by Operator shall
constitute conclusive evidence that all responsibility for the operation,
control, care, management and repair of the Mortgaged Property is and shall be
that of Operator, prior to such actual entry and taking of possession.
 
4.4 Upon delivery of Notice by Lender to Operator of Lender's exercise of
Lender's rights under this Section at any time after the occurrence of an Event
of Default, and without the necessity of Lender entering upon and taking and
maintaining control of the Mortgaged Property directly, by a receiver, or by any
other manner or proceeding
 

 
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permitted by the laws of the Property Jurisdiction, Lender immediately shall
have all rights, powers and authority granted to Operator under any Lease,
including the right, power and authority to modify the terms of any such Lease,
or extend or terminate any such Lease.
 
4.5 Operator shall, promptly upon Lender's request, deliver to Lender an
executed copy of each residential Lease then in effect.  All Leases for
residential dwelling units shall be on forms approved by Lender and shall not
include options to purchase.
 
4.6 Operator shall not lease any portion of the Mortgaged Property for
non-residential use except with the prior written consent of Lender and Lender's
prior written approval of the Lease agreement.  Operator shall not modify the
terms of, or extend or terminate, any Lease for non-residential use (including
any Lease in existence on the date of this Agreement) without the prior written
consent of Lender.  However, Lender's consent shall not be required for the
modification or extension of a non-residential Lease if such modification or
extension is on terms at least as favorable to Operator as those customary at
that time in the applicable market and the income from the extended or modified
Lease will not be less than the income received from the Lease as of the date of
this Agreement.  Operator shall, without request by Lender, deliver an executed
copy of each non-residential Lease to Lender promptly after such Lease is
signed.  All non-residential Leases, including renewals or extensions of
existing Leases, shall specifically provide that (i) such Leases are subordinate
to the lien of this Agreement; (ii) the tenant shall attorn to Lender and any
purchaser at a foreclosure sale, such attornment to be self-executing and
effective upon acquisition of title to the Mortgaged Property by any purchaser
at a foreclosure sale or by Lender in any manner; (iii) the tenant agrees to
execute such further evidences of attornment as Lender or any purchaser at a
foreclosure sale may from time to time request; (iv) the Lease shall not be
terminated by foreclosure or any other transfer of the Mortgaged Property;
(v) after a foreclosure sale of the Mortgaged Property, Lender or any other
purchaser at such foreclosure sale may, at Lender's or such purchaser's option,
accept or terminate such Lease; and (vi) the tenant shall, upon receipt after
the occurrence of an Event of Default of a written request from Lender, pay all
Rents payable under the Lease to Lender.
 

4.7 Operator shall not receive or accept Rent under any Lease (whether
residential or non-residential) for more than two months in advance.
 
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF OPERATOR

 
Operator represents, warrants and agrees to the following:
 
5.1 Title to Collateral Property. The Operator has good and marketable title to
all of the Collateral Property and none of the Collateral Property is subject to
any Lien except for Permitted Liens and the security interest created pursuant
to this Agreement.
 
5.2 Bankruptcy.  During the term of this Agreement, Operator will not commence,
or join with any other creditor in commencing any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings with respect to Borrower,
without Lender’s prior written consent, and Operator has not filed and is not
subject to any filing for bankruptcy or reorganization under any applicable
bankruptcy or insolvency laws.
 

 
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ARTICLE 6
COVENANTS OF THE OPERATOR
 
6.1 Operator shall (1) not commit waste or permit impairment or deterioration of
the Collateral Property, (2) not abandon the Collateral Property, (3) restore or
repair or cause to be restored or repaired promptly, in a good and workmanlike
manner, any damaged part of the Collateral Property to the equivalent of its
original condition, or such other condition as Lender may approve in writing,
whether or not Insurance Proceeds or condemnation awards are available to cover
any costs of such restoration or repair, (4) keep or caused to be kept the
Collateral Property in good repair, including the replacement of Personalty and
Fixtures with items of equal or better function and quality, and (5)  give
notice to Lender of and, unless otherwise directed in writing by Lender, shall
appear in and defend any action or proceeding purporting to affect the
Collateral Property, Lender's security or Lender's rights under this
Agreement.  Operator shall not (and shall not permit any tenant or other person
to) remove, demolish or alter, other than in a commercially reasonable manner or
in the ordinary course of business, the Collateral Property or any part of the
Collateral Property except in connection with the replacement of tangible
Personalty.
 
6.2 All expenses of protecting, storing, warehousing, insuring, handling and
shipping of the Collateral Property, all costs of keeping the Collateral
Property free of any Liens prohibited by this Agreement and of removing the same
if they should arise, and any and all excise, property, sales and use taxes
imposed by any state, federal or local authority on any of the Collateral
Property or in respect of the sale thereof, shall be borne and paid by Operator
and if Operator fails to promptly pay any thereof when due, Lender may, at its
option, but shall not be required to, pay the same whereupon the same shall
constitute Obligations and shall be secured by the security interest granted
hereunder.
 
6.3 Unless Operator gives notice to Lender within 30 days after the occurrence
of any of the following, and executes and delivers to Lender modifications or
supplements of this Agreement (and any financing statement which may be filed in
connection with this Agreement) as Lender may require, Operator shall not
(i) change its name, identity, structure or jurisdiction of organization;
(ii) change the location of its place of business (or chief executive office if
more than one place of business); or (iii) add to or change any location at
which any of the Collateral Property is stored, held or located.
 
6.4 Operator will not use the Collateral Property, or knowingly permit the
Collateral Property to be used, for any unlawful purpose or in violation of any
federal, state or municipal law.
 
6.5 Immediately upon Operator becoming aware of the existence of any Event of
Default under the Operating Lease, this Agreement or any other Loan Document,
Operator will give notice to Lender that such Event of Default exists, stating
the nature thereof, the period of existence thereof, and what action Operator
proposes to take with respect thereto.
 
6.6 Operator will execute, from time to time, such financing statements,
assignments, and other documents covering the Collateral Property as Lender may
request in order to create, evidence, perfect, maintain or continue its security
interest in the Collateral Property (including any additional Collateral
Property acquired by the Operator after the date hereof) and will notify Lender
promptly upon acquiring any additional Collateral Property.
 

 
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6.7 The Operator appoints Lender, or any other person, whom Lender may from time
to time designate, as Operator’s attorney with power, after the occurrence and
during the continuance of an Event of Default, to endorse Operator’s name on any
checks, notes, acceptances, drafts, or other forms of payment or security that
may come into Lender’s possession, to sign Operator’s name on any invoice or
bill of lading relating to any Collateral Property, on drafts against customers,
on schedules and confirmatory assignments of Collateral Property, on notices of
assignment, financing statements under the Code and other public records, on
verifications of Collateral Property and on notices to customers, to notify the
post office authorities to change the address for delivery of Operator’s mail to
an address designated by Lender, to receive and open all mail addressed to
Operator, to send requests for verification of Collateral Property to customers
and to do all things necessary to carry out this Agreement in each case to the
extent, but only to the extent, such actions relate to the Collateral Property.
The Operator ratifies and approves all acts of the attorney taken within the
scope of the authority granted. Neither Lender nor the attorney will be liable
for any acts of commission or omission nor for any error in judgment or mistake
of fact or law. This power, being coupled with an interest, is irrevocable so
long as any Indebtedness remains unpaid.  The Operator waives presentment and
protest of all instruments and notice thereof, notice of default and dishonor
and all other notices to which Operator may otherwise be entitled.
 
ARTICLE 7
COLLECTIONS
 
7.1 Except as otherwise provided in this Article, the Operator shall continue to
collect at its own expense, all amounts due or to become due to the Operator
with respect to the Collateral Property.  In connection with such collections,
the Operator may take (and, at the Lender’s direction, shall take) such action
as the Operator or the Lender may deem necessary or advisable to enforce
collection of any Awards, Proceeds, Rents, Other Earnings, Refunds, Payments,
Third Party Payments or Accounts; provided, however, that the Lender shall have
the right, at any time upon the occurrence of an Event of Default to notify the
debtors and/or payors of any Awards, Proceeds, Rents, Other Earnings, Refunds,
Payments, Third Party Payments or Accounts of the assignment of such amounts to
the Lender and to direct such debtors and/or payors to make payment of all
amounts due or to become due to the Operator thereunder directly to the Lender.
Upon such notification and at the expense of Operator, the Lender shall have the
right to enforce collection of such Awards, Proceeds, Rents, Other Earnings,
Refunds, Payments, Third Party Payments or Accounts and to adjust, settle, or
compromise the amount or payment thereof in the same manner and to the same
extent as the Operator might have done. The Lender shall apply all collections
hereunder in accordance with Section 9.6.
 
7.2 Upon an Event of Default and during the continuation thereof, the Operator
shall deposit into a collection account (the “Collection Account”) maintained
with the Lender or Loan Servicer immediately upon receipt all payments and
receipts of other Collateral Property in the original form such payments are
received, except for endorsement where necessary. The Lender is hereby
authorized and directed to apply all such collected funds to the payment of the
Indebtedness in the manner and in the priority determined by the Lender in the
exercise of their sole discretion.  Upon an Event of Default, such funds shall
be applied in accordance with Section 9.6.
 
ARTICLE 8
ASSIGNMENT
 
8.1 If Lender gives notice to Operator that Lender is exercising its rights
under this Agreement, Operator shall continue, at Lender's direction (but on
behalf of and as
 

 
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agent for the Borrower) to perform the management and other services provided by
Operator under the Operating Lease in accordance with the Operating Lease. Any
rent payments or fees due to Borrower or Operator which become due and payable
after the date Lender gives Operator notice under this Section shall continue to
be paid in accordance with the terms of the Operating Lease, subject to the
terms of Section 8.4(a), notwithstanding any contrary direction from
Borrower.  However, Lender neither assumes nor has any obligation to the
Operator to exercise its rights under this Agreement or to declare a default
under the Loan Documents.  If Lender exercises its rights under this Section,
Lender shall have no obligation to pay for services performed by Operator before
Lender gave it notice under this Section.
 
8.2 Upon notice from Lender or its successors or assigns holding title to the
Mortgaged Property (the "New Owner"), Operator shall recognize Lender or the New
Owner as the owner of the Mortgaged Property for purposes of the Operating Lease
and the Operating Lease shall continue in full force and effect as a direct
Operating Lease between Operator and Lender or New Owner, subject to the
following terms and conditions:
 
(a)  
Neither Lender nor the New Owner shall be:

 

 
(i)           liable for any act or omission of Borrower or any previous owner
of the Mortgaged Property;

 
 
(ii)
subject to any offset or counterclaim or setoff which Operator might be entitled
to assert against Borrower or any previous owner of the Mortgaged Property;

 

 
(iii)           bound by any payment made by Operator to Borrower or any
previous owner of the Mortgaged Property for more than one (1) month in advance
of the date such payment or payments are due;

 
(iv)           bound by any modification or amendment of the Operating Lease
made without the prior written consent of Lender or New Owner;

 
(v)           bound by any of Borrower's obligations under the Operating Lease
which were to be performed before Lender gave the Operator the above notice
under this Section;

 
(vi)           bound by any obligation of Borrower or any previous owner of the
Mortgaged Property to maintain, repair or rebuild the Mortgaged Property under
the Operating Lease; or

 
(vii)           bound by any obligation to indemnify Operator under the
Operating Lease.

8.3 Operator agrees as follows:
 
(a)  
After notice from Lender to Operator, Operator will pay to Lender, or to such
person, entity or firm designated by Lender, all income and other moneys due and
to become due Borrower under the Operating Lease, until further notice from
Lender.

 

 
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(b)  
After the date of this Agreement, no amendment or modification of the Operating
Lease shall be valid as against Lender unless Lender has approved such amendment
or modification in writing.

 
(c)  
The Operator shall not terminate the Operating Lease or cease to perform the
services contracted for under the Operating Lease for any reason, including but
not limited to Borrower's failure to make any payments to the Operator, without
giving Lender thirty (30) days' prior notice of such intention, in order that
Lender may cure the Borrower's default and/or exercise its rights under this
Agreement.

 
(d)  
Upon the occurrence of an Event of Default under the Loan Documents, Operator
may be removed and the Operating Lease terminated by Lender, without payment of
any cancellation or termination fee, penalty or other liability, at any time
upon notice to the Operator of such Event of Default and termination.

 
8.4 Subordination of Operating Lease.
 
(a)  
Operator hereby subordinates all contractual and statutory liens and security
interests (whether choate or inchoate) which Operator may be (or may become)
entitled to assert against the Mortgaged Property to all of the assignments,
liens, and security interests securing the Loan contemplated by the Loan
Documents (including any future amendments), and Operator fully and completely
waives any and all rights that Operator may have, now or in the future (and to
the extent permitted by law, the rights that Operator's suppliers, and laborers
may have now or in the future), to claim, directly or indirectly, a priority of
lien or security interest, in whole or in part, against or in the Mortgaged
Property over any assignments, liens, and security interests that Lender may
claim against the Mortgaged Property under the Loan Documents (including any
future amendments). This subordination shall be self-operative and no further
instrument of subordination shall be required.  However, in further confirmation
of such subordination, Operator and Borrower shall, promptly upon the request of
Lender execute, acknowledge and deliver to Lender such instruments as Lender
reasonably requires.

 
(b)  
Operator hereby agrees that (i) any fees payable to Operator by Borrower
pursuant to the Operating Lease are and shall be subordinated in right of
payment, to the prior payment in full of the Indebtedness, and (ii) the
Operating Lease is and shall be subject and subordinate in all respects to the
liens, terms, covenants and conditions of the Security Instrument and the other
Loan Documents and to all advances heretofore made or which may hereafter be
made pursuant to the Security Instrument (including all sums advanced for the
purposes of (x) protecting or further securing the lien of the Security
Instrument, curing defaults by Borrower under the Security Instrument or for any
other purposes expressly permitted by the Security Instrument, or (y)
constructing, renovating, repairing, furnishing, fixturing or equipping the
Mortgaged Property).

 

 
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ARTICLE 9
RIGHTS AND REMEDIES ON DEFAULT
 
Upon the occurrence of an Event of Default, and at any time thereafter until
such Event of Default is cured to the satisfaction of Lender, and in addition to
the rights granted to Lender under Article 6 hereof or under any other Loan
Document, Collateral Agreement or other instrument evidencing, securing or
otherwise relating to any of the Indebtedness, Lender may exercise any one or
more of the following rights and remedies:
 
9.1 Declare any and all Indebtedness to be immediately due and payable, and the
same shall thereupon become immediately due and payable without further notice
or demand.
 
9.2 In the name of Operator or otherwise, demand, collect, receive and receipt
for, compound, compromise, settle and give acquittance for and prosecute and
discontinue any suits or proceedings in respect of any or all of the Collateral
Property.
 
9.3 Take any action that Lender may deem necessary or desirable in order to
realize on the Collateral Property, including, without limitation, the power to
perform any contract, to endorse in the name of Operator any checks, drafts,
notes, or other instruments or documents received in payment of or on account of
the Collateral Property.
 
9.4 Enter upon and into and take possession of all or such part or parts of the
Collateral Property as may be necessary or appropriate in the judgment of
Lender, to permit or enable Lender to store, lease, sell or otherwise dispose of
or collect all or any part of the Collateral Property, and use and operate said
property for such purposes and for such length of time as Lender may deem
necessary or appropriate for said purposes without the payment of any
compensation to Operator therefor. Operator shall provide Lender with all
information and assistance requested by Lender to facilitate the storage,
leasing, sale or other disposition or collection of the Collateral Property
after an Event of Default.
 
9.5 Exercise any and all other rights and remedies available to Lender by law,
in equity or by agreement, including rights and remedies under the law of the
Property Jurisdiction or any other applicable law as they relate to the
Collateral Property and including all remedies available to Lender under Article
9 of the Uniform Commercial Code of the Property Jurisdiction, and, in
connection therewith, Lender may require Operator to assemble the Collateral
Property and make it available to Lender at a place to be designated by Lender,
and any notice (as hereinafter defined) of intended disposition of any of the
Collateral Property required by law shall be deemed reasonable if such notice is
mailed or delivered to Operator pursuant to this Agreement at least ten (10)
days before the date of such disposition. The Lender may sell or otherwise
dispose of any or all of the Collateral Property in a single unit or in multiple
units and the Lender may be the purchaser at such sale or other disposition.
 
9.6 All proceeds of sale or disposition of the Collateral Property shall be
applied toward the Indebtedness of Borrower in such manner and order as the
Lender may elect.
 

 
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ARTICLE 10
MISCELLANEOUS
 
10.1 No Liability on Collateral. It is understood that Lender does not in any
way assume any of the Operator’s obligations under any of the Collateral
Property, this Agreement or any guaranty executed in connection with the Loan.
 
10.2 No Waiver. Lender shall not be deemed to have waived any of its rights
hereunder or under the Note, the Security Instrument or any other Loan Document
or Collateral Agreement signed by Operator unless such waiver is in writing and
signed by Lender.  No delay or omission on the part of Lender in exercising any
right shall operate as a waiver of such right or any other right. A waiver on
any one occasion shall not be construed as a bar to or waiver of any right or
remedy on any future occasion.
 
10.3 Remedies Cumulative. All rights and remedies of Lender shall be cumulative
and may be exercised singularly or concurrently, at its option, and the exercise
or enforcement of any one such right or remedy shall not bar or be a condition
to the exercise or enforcement of any other.
 
10.4 Governing Law; Consent to Jurisdiction and Venue.
 
(a)  
This Agreement, and any other Loan Document which does not itself expressly
identify the law that is to apply to it, shall be governed by the laws of the
jurisdiction in which the Land is located (the "Property Jurisdiction").

 
(b)  
Operator agrees that any controversy arising under or in relation to, this
Agreement, or any other Loan Document shall be litigated exclusively in the
Property Jurisdiction. The state and federal courts and authorities with
jurisdiction in the Property Jurisdiction shall have exclusive jurisdiction over
all controversies that shall arise under or in relation to this Agreement, any
security for the Indebtedness, or any other Loan Document. Operator irrevocably
consents to service, jurisdiction, and venue of such courts for any such
litigation and waives any other venue to which it might be entitled by virtue of
domicile, habitual residence or otherwise.

 
10.5 Successors and Assigns. This Agreement shall bind, and the rights granted
by this Agreement shall inure to, the respective successors and assigns of
Lender, Borrower and Operator.
 
10.6 Recitals. The above Recitals are true and correct as of the date hereof and
constitute a part of this Agreement.
 
10.7 Copy of Agreement as Financing Statement. The Lender may prepare and file
financing statements with respect to the Collateral Property and may file a copy
or photostatic copy or other reproduction of this Agreement as a financing
statement.
 
10.8 Notice.
 
(a)  
All notices, demands and other communications ("notice") under or concerning
this Agreement shall be in writing.  Each notice shall be addressed to the
intended recipient at its address set forth below, and shall be deemed given on
the earliest to occur of (1) the date when the notice is received by the
addressee; (2) the first Business Day after the notice is delivered to a
recognized overnight courier service, with arrangements made for payment of
charges for next Business Day

 

 
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delivery; or (3) the third Business Day after the notice is deposited in the
United States mail with postage prepaid, certified mail, return receipt
requested.  As used in this Section, the term "Business Day" means any day other
than a Saturday, a Sunday or any other day on which Lender is not open for
business.
 
(b)  
Any party to this Agreement may change the address to which notices intended for
it are to be directed by means of notice given to the other party in accordance
with this Section.  Each party agrees that it will not refuse or reject delivery
of any notice given in accordance with this Section, that it will acknowledge,
in writing, the receipt of any notice upon request by the other party and that
any notice rejected or refused by it shall be deemed for purposes of this
Section to have been received by the rejecting party on the date so refused or
rejected, as conclusively established by the records of the U.S. Postal Service
or the courier service.

 
(c)  
Any notice under this Agreement shall be sent to the parties hereto as follows:

 
To Lender:

6955 Union Park Center, Suite 330
Midvale, Utah 84047
Attention:  President

 
To Operator:

c/o Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
Attention:  Eric Mendelsohn

 
To Borrower:

c/o Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
Attention:  Eric Mendelsohn

10.9 Multiple Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, and all of which
shall constitute one and the same agreement.
 
10.10 Further Assurances.  Operator and Borrower each will, at Borrower's
expense and at any time and from time to time, promptly execute and deliver all
further instruments and documents, and take all further action that may be
reasonably necessary or desirable, or that Lender may reasonably request, in
order to protect any right or interest granted hereby or to enable Lender to
exercise and enforce its rights and remedies hereunder.
 
10.11 THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS.  THERE ARE NO UNWRITTEN OR ORAL
AGREEMENTS BETWEEN THE PARTIES.
 

 
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ATTACHED EXHIBITS.  The following Exhibits are attached to this Agreement (check
as applicable):

|X|           Exhibit A                                Description of Land

| |           Exhibit B                                Permitted Liens

| |           Exhibit C                                Modifications to
Agreement

IN WITNESS WHEREOF, the Operator, Borrower and Lender have caused the execution
of this Agreement by its duly authorized representatives as of the date and year
first above written

[SIGNATURES ON FOLLOWING PAGE]

 
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OPERATOR:

 
EMERITUS PROPERTIES-NGH, LLC, a Washington limited liability company

 
By:
Emeritus Corporation, a Washington corporation, its member

By:  /s/  Eric Mendelsohn
Eric Mendelsohn
Senior Vice President Corporate Development

STATE OF _Washington_________________
 
CITY/COUNTY OF _King______, to-wit:
 
The foregoing instrument was acknowledged before me in the above-stated
jurisdiction this 18th_ day of __April___, 2008 by Eric Mendelsohn who is Senior
Vice President Corporate Development of Emeritus Corporation, a Washington
corporation, member of Emeritus Properties-NGH, LLC, a Washington limited
liability company, for and on behalf of the limited liability company.
 

 
/s/ Lloyd A.
Chee                                                                           
Notary Public
 
My commission expires:  5-9-11

 
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BORROWER:

 
FRETUS INVESTORS CHANDLER LLC, a Delaware limited liability company

 
By:
FRETUS Investors LLC, a Washington limited liability company, its manager

 
By:
Emeritus Corporation, a Washington corporation, its administrative member

By:  /s/  Eric
Mendelsohn                                                           
Eric Mendelsohn
Senior Vice President Corporate Development

STATE OF _Washington_______
 
CITY/COUNTY OF __King______, to-wit:
 
The foregoing instrument was acknowledged before me in the above-stated
jurisdiction this _18th_ day of _April___, 2008 by Eric Mendelsohn who is Senior
Vice President Corporate Development of Emeritus Corporation, a Washington
corporation, administrative member of FRETUS Investors LLC, a Washington limited
liability company, manager of FRETUS Investors Chandler LLC, a Delaware limited
liability company, for and on behalf of the limited liability company.
 

 
  /s/  Lloyd A. Chee
Notary Public
 
My commission expires:  5-9-11

 
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LENDER:

 
CAPMARK BANK, a Utah industrial bank

By:  /s/  Max W.
Foore                                                                           
Max W. Foore
Limited Signer

COMMONWEALTH OF VIRGINIA
 
CITY OF RICHMOND, to-wit:
 
The foregoing instrument was acknowledged before me in the above-stated
jurisdiction this _18th_ day of April, 2008 by Max W. Foore who is Limited
Signer of Capmark Bank, a Utah industrial bank, for and on behalf of the
industrial bank.
 

 
         /s/  Lisa P. Crumption
Notary Public
 
My commission expires:8-31-09

 
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