Exhibit 10.75

SETTLEMENT AGREEMENT REGARDING LOANS

by and among

THIRD PARTY INVESTORS I, LLC
ALTERRA HEALTHCARE CORPORATION
KEY CORPORATE CAPITAL INC.,
and the
LENDERS (as defined herein)

Dated as of March 6, 2002

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TABLE OF CONTENTS

PAGE

ARTICLE I DEFINITIONS

2

1.1.

Definitions.

2

         

ARTICLE II OWNERSHIP AND OPERATION OF PROJECTS; SALES EFFORTS; DEEDS IN LIEU    
                                                                               
                                 8

2.1.

Ownership and Management of Projects.

8

2.2.

[Intentionally Omitted]

8

2.3.

Release of Refinancing Projects.

8

2.4.

Release of Refinancing Projects.

8

2.5.

Third-Party Management Consultant.

8

2.6.

Marketing of Projects by KCCI;

8

Transition of Ownership and/or Management.

2.7.

Lack of Claims For Commissions.

9

2.8.

License Transfer Obligations.

10

2.9.

Deeds in Lieu in Escrow

10

ARTICLE III WARRANTIES, REPRESENTATIONS, ACKNOWLEDGMENTS AND AGREEMENTS OF
BORROWER PARTIES                                                                
    13

3.1.

Representations and Warranties of Borrower Parties.

13

3.2.

Acknowledgements and Agreements of Borrower Parties.

16

ARTICLE IV ADDITIONAL COVENANTS OF BORROWER PARTIES                       18

4.1.

Covenants of Borrower Parties.

18

4.2.

Negative Covenants of Borrower.

29

ARTICLE V DEBT SERVICE PAYMENTS AND LOCKBOX                               
         31

5.1.

Debt Service.

31

5.2.

Cash Flow Assignment Agreement.

31

5.3.

Collection Account Arrangements.

31

ARTICLE VI DEFAULTS AND REMEDIES                                               
                     33

6.1.

Defaults.

33

6.2.

Rights of KCCI Upon Default.

36

6.3.

Acknowledgments.

36

ARTICLE VII FUNDAMENTAL BREACH EVENT, STANDSTILL, COVENANT NOT TO SUE AND
RELEASES                                                                        
                          38

7.1.

Fundamental Breach Event.

38

7.2.

Standstill.

45

7.3.

Lenders' Covenant Not to Sue as to Deficiency.

45

7.4.

Borrower Parties' Release of and Covenant Not to Sue Lenders.

47

7.5.

Lenders' Release of Borrower Parties.

48

                   

7.6.

Borrower Parties' Indemnification of KCCI and Lenders.

49

         

ARTICLE VIII CLOSING OF AGREEMENT; ESTABLISHMENT AND CLOSING OF ESCROW         
                                                                               
                                     51

8.1.

Closing Location.

51

8.2.

Deeds in Escrow Agreement.

51

8.3.

Closing Deliveries Relating to Collection Account.

51

8.4.

Other Closing Deliveries.

51

8.5.

Closing Costs.

52

ARTICLE IX MISCELLANEOUS                                                       
                               52

9.1.

Miscellaneous.

52

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SCHEDULE OF EXHIBITS

EXHIBIT

DESCRIPTION

Exhibit A

Legal description of Real Property for each Project

Exhibit B

Credit Documents

Exhibit C

Amendment to Management Contract

Exhibit D

Standard Owner's Affidavit to Title Company

Exhibit E

Form of Cash Flow Assignment Agreement

Exhibit F

Form of Collection Account Agreement

Exhibit G

List of Projects and Outstanding Loan Balances for Projects

Exhibit H

Forms of Releases

Exhibit I

Forms of Transfer Documents

Exhibit J

Exceptions to Representations, Warranties and Covenants of

Borrower Parties

Exhibit K

Certification of Revenue Journal (including approved form)

Exhibit L

[Intentionally omitted]

Exhibit M

List of Brokers

Exhibit N

Form of Amendment to Operating Agreement

Exhibit O

Form of Deeds in Escrow Agreement

 

SETTLEMENT AGREEMENT REGARDING LOANS

         THIS SETTLEMENT AGREEMENT REGARDING LOANS (this "Agreement") is made
and entered into the 6th day of March, 2002 (the "Effective Date"), by and among
THIRD PARTY INVESTORS I, LLC, a Delaware limited liability company ("Borrower"),
ALTERRA HEALTHCARE CORPORATION, a Delaware corporation (the "Company"), KEY
CORPORATE CAPITAL INC., a Michigan corporation ("KCCI"), as Administrative Agent
for certain Lenders (as defined herein) and such Lenders.

BACKGROUND

1.          Borrower and KCCI, individually as a Lender and as Administrative
Agent for certain Lenders, entered into a Seventy-Five Million
Dollar ($75,000,000.) Master Construction Line of Credit Agreement, dated as of
August 31, 1999, (the "Credit Agreement") regarding construction financing for
certain Projects, as described on Exhibit A attached hereto.

2.          Company guaranteed the Loans made under the Credit Agreement and
serves as Manager for the Projects.

3.          To evidence and secure the extension of credit under the Credit
Agreement, Borrower or Company, or both, executed and delivered to KCCI the
Credit Documents, including those listed on Exhibit B attached hereto and made a
part hereof. Certain of the Credit Documents have been recorded in the
appropriate filing offices, as also indicated on Exhibit B.

4.          As contemplated by the Credit Agreement, Borrower has entered into
Designated Hedge Agreements, to which certain of the Lenders are parties, and
which are entitled to the benefit of the collateral for the Loans.

5.          Borrower has defaulted in performing Borrower's obligations under
the Credit Documents by, among other things, failing to pay the installment of
principal and interest required by the Note to be paid on April 1, 2001 and by
failing to pay all such installments due after April 1, 2001. Borrower also has
defaulted in performing Borrower's obligations under the Designated Hedge
Agreements.

6.          All notice provisions contained in the Credit Documents and the
Designated Hedge Agreements have been complied with, all grace periods have
either expired or been waived by Borrower and Company, and Lenders have declared
the principal, interest and all other obligations owing by Borrower to the
Lender pursuant to the Loan Documents or the Designated Hedge Agreements to be
due and payable.

7.          Borrower and Company have determined that the fair market value of
the Projects is materially less than the amount of the Obligations.

8.          Borrower and Company have requested that Lenders resolve the default
of Borrower and Company under the Credit Documents by agreeing to the terms and
conditions set forth in this Agreement.

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NOW, THEREFORE, FOR AND IN CONSIDERATION of the sum of Ten and 00/100
Dollars ($10.00) in hand paid, the mutual covenants herein contained, and other
good and valuable consideration, the receipt, adequacy and sufficiency of which
are hereby acknowledged, the parties hereto do hereby covenant and agree as
follows:

ARTICLE I

DEFINITIONS

          1.1          Definitions. Except as otherwise defined herein, terms
which are defined in the Credit Agreement are used herein with the same meanings
and Sections 1.2-1.4 of the Credit Agreement apply to all Workout Documents. All
of the following capitalized terms used in this Agreement shall, unless
otherwise indicated or defined in this Agreement, have the meanings set forth
below:

         "Accrued Debt Service Payments" shall have the meaning set forth in
Section 5.1 of this Agreement.

         "Agreement" shall mean this Settlement Agreement Regarding Loans.

         "Allowed Expenses" shall have the meaning set forth in the Cash Flow
Assignment Agreement, unless otherwise specified herein.

         "Amendment to Management Contract" shall mean the amendment to each of
the Management Contracts to be delivered by Borrower and Company at Closing in
the form attached hereto as Exhibit C.

         "Amendment to Operating Agreement" shall have the meaning set forth in
Section 4.1(l) of this Agreement.

         "Bankruptcy Code" shall have the meaning set forth in Section
7.1(a)(xi) of this Agreement.

         "Borrower Parties" shall mean, collectively, Borrower and Company.

         "Borrower Parties'Covenant Not to Sue" shall have the meaning set forth
in Section 7.4 of this Agreement.

         "Borrower Parties'Release" shall have the meaning set forth in Section
7.4 of this Agreement.

         "Borrower Party Release Date" shall have the meaning set forth in
Section 7.3 of this Agreement.

         "Broker" shall mean any broker or other agent or consultant with which
Borrower or Company has entered into a listing agreement or any other agreement
providing for a commission or other payment upon sale or re-financing of any
Project.

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         "Cape Coral Project" shall mean the Project located in Cape Coral,
Florida upon the real property so described on Exhibit A.

         "Cash Flow Assignment Agreement" shall mean the assignment of all
Project Revenues by Borrower and Company in favor of KCCI to be delivered by
Borrower and Company at Closing in the form attached hereto as Exhibit E.

         "Certification of Revenue Journal" shall mean the certification as to
of Revenue Journals to be delivered by Borrower and Company at Closing in the
form attached hereto as part of Exhibit K.

         "Claims" shall have the meaning set forth in Section 7.4 of this
Agreement.

         "Closing" shall mean the closing of the transactions contemplated by
this Agreement in accordance with the terms of Article VIII of this Agreement.

         "Closing Date" shall mean March 6, 2002.

         "Collection Account" shall have the meaning set forth in Section 5.3(a)
of this Agreement.

         "Collection Account Agreement" shall mean the Collection Account
Agreement among Borrower, Company, KCCI and the depository institution as to the
Collection Account, as the case may be, to be entered into at Closing in the
form attached hereto as Exhibit F.

         "Combined Income Statement" shall have the meaning set forth in Section
5.5 of this Agreement

         "Consultant" shall have the meaning set forth in Section 7.1(b)(iii) of
this Agreement.

         "Covenant Not to Sue" shall have the meaning set forth in Section 7.3
of this Agreement.

         "Credit Agreement" shall mean that certain Seventy-Five Million Dollar
($75,000,000) Master Construction Line of Credit Agreement dated as of
August 31, 1999, among Borrower, Company, KCCI and Lenders, as the same may have
been, and may be, amended from time to time.

         "Cure Offer" shall have the meaning set forth in Section 7.1(b)(iii) of
this Agreement.

         "Cure Payment Amount" shall have the meaning set forth in Section
7.1(b)(iii) of this Agreement.

         "Cure Payment Date" shall have the meaning set forth in Section
7.1(b)(iii) of this Agreement.

         "Debt Service Payments" shall have the meaning set forth in Section 5.1
of this Agreement.

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         "Deeds in Escrow Agreement" shall mean the agreement among Borrower
Parties, KCCI and the Escrow Agent concerning the Transfer Documents, in the
form attached to this Agreement as Exhibit O.

         "Deeds" shall mean the general warranty deed for each of the Projects
included within the Transfer Documents in the form attached to this Agreement as
part of Exhibit I.

         "Default" shall mean the occurrence of any of the events described in
Section 6.1 of this Agreement.

         "Defect" shall have the meaning set forth in Section 2.9 of this
Agreement.

         "Deficiency Notices" shall have the same meaning set forth in Section
4.1(y) of this Agreement.

         "Delayed Release Date" shall have the meaning set forth in Section 7.3
of this Agreement.

         "Endorsement" shall have the meaning set forth in Section 2.9 of this
Agreement.

         "Escrow Agent" shall mean the escrow agent under the Deeds in Escrow
Agreement.

         "Effective Date" shall have the meaning set forth in the Preamble of
this Agreement.

         "Escrow Closing Date" shall mean March 31, 2003.

         "Filing Date" shall have the meaning set forth in Section 7.1(a)(xi) of
this Agreement.

         "First Performance Condition" shall mean the delivery by Borrower
Parties to KCCI of Refinancing Commitments for each of the Refinancing Projects
on or before December 28, 2001.

         "Florence Project" shall mean the Project located in Florence, New
Jersey upon the real property so described on Exhibit A.

         "Foreclosure" as used throughout this Agreement shall mean any sale or
conveyance resulting from KCCI's exercise of any of its rights or remedies
contained in the Credit Documents.

         "Highland Ranch Project" shall mean the Project located in Highland
Ranch, Colorado upon the real property so described on Exhibit A.

         "Inadvertent Failure" shall have the meaning set forth in
Section 7.1(b)(i)(I) of this Agreement.

         "Indemnified Persons" shall have the meaning set forth in
Section 7.6(a) of this Agreement.

         "Insurance Policies" shall have the meaning set forth in Section 3.1(f)
of this Agreement.

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         "Lender Released Parties" shall have the meaning set forth in Section
7.4 of this Agreement.

         "License Transfer Obligations" shall have the meaning set forth in
Section 2.8 of this Agreement.

         "Licensee" shall mean any prospective new manager and/or owner of a
Project which must obtain a license or other governmental approval in order to
continue operation of any such Project as an assisted living or
dementia/Alzheimer's facility.

         "Licensee Standards" shall mean, collectively, the following: (a) the
Licensee or its parent or Affiliate currently holds a similar license or
licensees that are in good standing; (b) the Licensee or its parent or affiliate
has at least three (3) years'of experience managing one (1) or more senior
housing facilities projects of the same type as the Project in question (whether
assisted living, dementia or Alzheimer care center); and (c) the Licensee has in
effect adequate liability insurance, subject to commercially reasonable
availability.

         "Licenses" shall have the same meaning set forth in Section 4.1(y) of
this Agreement.

         "Losses" shall have the same meaning set forth in Section 7.6(a) of
this Agreement.

         "Management Consultant" shall have the meaning set forth in Section 2.5
of this Agreement.

         "Material Adverse Effect" shall mean any or all of the following: (i)
any material adverse effect on the business, operations, property, assets,
liabilities, condition (financial or otherwise) or prospects of, when used with
reference to Borrower, Borrower, or when used with reference to Company, Company
and its Subsidiaries, taken as a whole, as the case may be; (ii) any material
adverse effect on the ability of Borrower or Company to perform its obligations
under the Workout Documents to which it is a party, or (iii) any material
adverse effect on the validity, effectiveness or enforceability, as against any
Borrower Party, of any of the Workout Documents to which it is a party.

         "NOI" shall mean for any period, with respect to any Project, all
Project Revenues receivable in the ordinary course of business from such Project
minus the cost of maintaining such Project which are the responsibility of the
owner and are not paid directly by any tenant or other occupant, including,
without limitation, taxes, insurance, repairs and maintenance, but excluding for
this purpose any management fee, and excluding depreciation, amortization,
general corporate administrative expenses and interest costs. Without limiting
the foregoing, the expenses shall include only Allowed Expenses (as defined in
the Cash Flow Assignment Agreement (including in Allowed Expenses, for purposes
of this definition of NOI, accruals for expenses of the type shown on historic
monthly operating expense reports delivered to KCCI and capital expenditures
approved in advance by KCCI). In each case, NOI shall be determined in
accordance with GAAP.

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         "Operating Account" shall have the meaning set forth in Section 5.1 of
this Agreement.

         "Operating Agreement" shall mean that certain Amended and Restated
Operating Agreement of Borrower dated as of the Effective Date.

         "Operating Deficits" shall have the meaning set forth in Section 5.5 of
this Agreement.

"Performance Conditions" shall mean, collectively, the First Performance
Condition, the Second Performance Condition and the Third Performance Condition.

         "Plan Confirmation Date" shall have the meaning set forth in Section
7.3 of this Agreement.

         "Project Revenues" shall mean all rents, profits, receipts and other
operating revenues relating to a Project, including all funds relating to the
Project which are held in any account of Borrower Parties or which have been
otherwise collected by Borrower Parties prior to the date hereof, such as
security or other deposits held under Residency Agreements.

         "Projects" shall mean the assisted living or dementia/Alzheimer's care
facilities owned by Borrower and set forth on Exhibit G attached hereto and made
a part hereof.

         "Prospective Buyer" shall have the meaning set forth in Section 2.6 of
this Agreement.

         "Refinancing Commitment" shall mean a bona fide and fully executed
written commitment for the refinancing (including a sale-leaseback transaction)
of a Refinancing Project: (a) from an institutional lender approved by Lenders;
(b) providing for the satisfaction or lapse of all due diligence contingencies
to the lender's performance not later than January 31, 2002; (c) providing for a
closing not later than February 15, 2002; and (d) otherwise reasonably
acceptable to Lenders.

         "Refinancing Project" shall mean any of the following Projects:
(a) Highland Ranch Project; (b) Cape Coral Project; and (c) Florence Project.

         "Release Price" shall mean the amounts required to be received by KCCI
upon the refinancing of a Refinancing Project, to entitle Borrower or Company to
the release of a lien upon such Project created by the Credit Documents and a
release from escrow of all Transfer Documents relating to such Project.

         "Release" shall mean, for each Project, a release document as to the
lien of the Security Documents held by KCCI and encumbering such Project, such
Release to be substantially in the form attached hereto as Exhibit H, modified
as appropriate to conform to the laws and practices of the state in which the
Project(s) to be released is (are) located, together with releases and
terminations of UCC Financing Statements.

         "Required Licenses and Approvals" shall mean all licenses or approvals
required for the operation of a Project as an assisted living or
dementia/Alzheimer's facility.

         "Residency Agreement" shall mean a sublease or other agreement between
Borrower or the Manager and an individual resident entitling the resident to
occupancy of a unit at a Project.

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         "Revenue Journal" shall mean a monthly report in the form attached
hereto as Exhibit K for each Project, showing all fees and charges payable for
such month by each resident of a Project pursuant to the applicable Residency
Agreement.

         "Second Performance Condition" shall mean all due diligence
contingencies under each Refinancing Commitment shall have been satisfied or
lapsed not later than January 31, 2002.

         "Section 7.1(b) Event" shall have the meaning set forth in Section
7.1(b)(i) of this Agreement.

         "Section 7.3 Date" shall have the meaning set forth in Section 7.5 of
this Agreement.

         "Subordinated Management Fees" shall have the meaning set forth in
Section 5.5 of this Agreement.

         "Super-Priority Administrative Claim" shall have the meaning set forth
in Section 7.1(a)(xi) of this Agreement.

         "Term" shall mean the period commencing upon the Effective Date and
ending upon the Escrow Closing Date.

         "Third Performance Condition" shall mean that: (a) each of the loans
contemplated by the Refinancing Commitments shall have closed pursuant to the
terms of such Refinancing Commitments on or before the tenth (10th) Business Day
after the Effective Date; and (b) the proceeds of each such loan shall have been
applied to the payment of the Release Price applicable to the Refinancing
Project.

         "Title Commitment" shall have the meaning set forth in Section 2.9 of
this Agreement.

         "Title Policy" shall have the meaning set forth in Section 2.9 of this
Agreement.

         "Transfer Documents" shall mean the documents identified on Exhibit I
attached hereto and made a part hereof, and in the forms attached to Exhibit I,
as Schedules 1 through 3, inclusive, and such additional documents as KCCI may
require pursuant to Section 2.9(b) in form and substance acceptable to KCCI.

         "Unauthorized Failure" shall have the meaning set forth in Section
7.1(b)(i)(J) of this Agreement.

         "Work out Documents" shall mean, collectively, the following documents:
(a) this Agreement; (b) the Transfer Documents; (c) the Deeds in Escrow
Agreement; (d) the Collection Account Agreement; (e) the Cash Flow Assignment
Agreement; and (f) all other documents contemplated by this Agreement or by any
document included as an Exhibit hereto.

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ARTICLE II

OWNERSHIP AND OPERATION OF PROJECTS; SALES EFFORTS; DEEDS IN LIEU

         2.1         Ownership and Management of Projects. During the Term of
this Agreement, but subject to the provisions of this Article II, (a) Borrower
shall maintain fee ownership of all Projects and (b) Company shall perform its
obligations under the terms of the Management Contract for each Project.

         2.2          Intentionally Omitted.

         2.3          Release of Refinancing Projects. Borrower will have the
right until December 28, 2001 to finalize Refinancing Commitments on any of the
Refinancing Projects, thereby achieving the First Performance Condition. The
Refinancing Projects may, but need not, be included in one Refinancing
Commitment. In either case, however, the Refinancing Projects shall be treated
in the aggregate for purposes of the release, including without limitation as to
the Release Price, as the parties agree that KCCI's liens as to the Refinancing
Projects shall be released only contemporaneously. The minimum aggregate Release
Price for the Refinancing Projects shall be $11,764,367. Any excess of the net
refinancing proceeds over the minimum aggregate Release Price shall be payable
66.67% to KCCI and 33.33% to Borrower, such payment to be made contemporaneously
with the payment of the minimum aggregate Release Price. The closing costs
deducted in reaching the net refinancing proceeds shall be only those reasonable
closing costs approved by KCCI.

         2.4          Release of Refinancing Projects. In connection with
refinancing of a Refinancing Project satisfying the Third Performance Condition,
KCCI shall provide a Release for such Refinancing Projects.

         2.5          Third-Party Management Consultant. Borrower and Company
agree that KCCI shall have the right, at its sole option, to engage a
third-party property management consultant (the "Management Consultant") to
advise KCCI with respect to the Projects. All costs, fees and expenses payable
or incurred by the Management Consultant shall be paid by Borrower Parties from
Project Revenues. Borrower and Company shall cooperate fully and promptly with
the Management Consultant and provide the Management Consultant with all
information or documentation concerning Borrower Parties and the Projects
requested by the Management Consultant from time to time.

          2.6          Marketing of Projects by KCCI; Transition of Ownership
and/or Management. Subject to Borrower's and Company's rights under Section 2.3
of this Agreement, KCCI shall have the right, but not the obligation, at its
sole option, to market for sale any of the Projects. Borrower and Company agree
to use commercially reasonable efforts to cooperate promptly with and assist
KCCI in connection with its efforts to market and sell the Projects and in
connection with the transition to new ownership and/or new management of one or
more Project(s). Such cooperation and assistance from Borrower Parties shall
include:

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(a)          identifying to KCCI any potential buyers for the Projects
identified by Borrower Parties;

(b)          the referral to KCCI of potential buyers of the Projects that
approach either Borrower or Company regarding purchase of a Project;

(c)          providing, upon reasonable advance notice, access to KCCI, its
designee(s) and prospective buyers and/or managers of the Projects, and their
respective brokers, financiers, brokers, employees, officers, representatives or
agents, (each, a "Prospective Buyer") to inspect the Projects and to review and
make copies of books and records concerning the Projects, including service
contracts assignable to a buyer and/or manager and Residency Agreements and
records relating to them (subject to restrictions under applicable laws and
regulations regarding privacy rights of residents);

(d)          providing to any Prospective Buyers, upon reasonable advance
notice, operating and other information of the type generally provided by
Company to prospective purchasers in connection with a proposed purchase of a
Project, including making available to them on-site managers to discuss the
Projects and their operations, including issues relating to transition of
operations and/or management; and

(e)          promptly after KCCI has notified Borrower Parties of a planned or
actual acceptance of Transfer Documents from the Escrow Agent and/or of transfer
of management, and in coordination with such transfer of ownership and/or
management, (i) carrying out the transition procedures set forth in clauses
4(ii) through (iv) of Section 4(i) of the Cash Flow Assignment Agreement, except
that the term "New Manager Project" shall refer in this case to each Project
covered by KCCI's notice, and (ii) without limiting the terms of the Transfer
Documents, delivering to the Prospective Buyer true and complete, original
executed copies (including all amendments, modification and supplements thereto)
of the documents such as the assignable service contacts or equipment leases
which KCCI or a Prospective Buyer, as the case may be, elects to accept by
assignment and the Residency Agreements for the Project(s) at issue.

Further, and without limiting the foregoing, KCCI shall have the right, but not
the obligation, at its sole option, to show the Projects to interested
prospective buyers and/or managers, engage one or more real estate brokers,
direct the sale of one or more of the Projects to a buyer identified by KCCI and
disclose financial and non-public information regarding the Projects to such
Prospective Buyers. Prior to any such disclosure of financial or non-public
information by KCCI or by Borrower Parties, to a Prospective Buyer, KCCI shall
cause such Prospective Buyers to execute confidentiality agreements limiting
dissemination of such information to employees, consultants and other agents of
such third-parties and as otherwise required to be disclosed by law.

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          2.7         Lack of Claims For Commissions. Borrower and Company
represent and warrant that Cohen & Steers has no claim against KCCI, Lenders or
the Projects in connection with any activity related to sale of the Projects
other than the Refinancing Projects. Except as provided in the preceding
sentence and identified on Exhibit M , each of Borrower and Company hereby
warrants and represents that it has not entered into any listing agreements or
authorized anyone to sell the Projects on its behalf and has no knowledge of any
broker or brokers operating on its behalf in connection with any sale of the
Projects, whether with authorization or without. Borrower and Company hereby
agree to indemnify, defend and save KCCI and Lenders harmless from and against
the payment of any real estate broker's or other sales commission, and from and
against all loss, cost and expense (including without limitation attorneys'fees)
suffered by KCCI or Lenders as a result of Borrower's or Company's warranty
under this paragraph being incorrect. Borrower and Company shall cause Cohen &
Steers to acknowledge, by a writing delivered to KCCI not later than the Closing
Date, that it has no claim against KCCI, Lenders, or the Projects due to sale of
the Projects other than the Refinancing Projects and that, if the First
Performance Condition fails to occur by December 28, 2001 as to any individual
Refinancing Project, or the Second Performance Condition fails to occur by
January 31, 2002 as to any individual Refinancing Project, or the Third
Performance Condition fails to occur by the tenth (10th) Business Day after the
Effective Date as to any individual Refinancing Project, then Cohen and Steers
also has no claim against KCCI, Lenders or the Projects as to which the failure
of such Performance Condition has occurred.

          2.8         License Transfer Obligations. Without limiting the
provisions of any Management Contract, Company agrees to cooperate fully with
all reasonable requests made by KCCI and any transferee of a Project in
connection with the obtaining or transfer of all Required Licenses and Approvals
relating to the operation of a Project (the "License Transfer Obligations")
throughout the Term of this Agreement and thereafter as required by the terms of
the Amendment to Management Contract. Further, Borrower and Company agree to
execute and deliver at closing an Amendment to the Management Contract for each
Project, such amendment to be effective upon the Closing. Any indemnification to
Company under Section 9.2 of each Management Contract shall be provided or
guaranteed by either the new third party owner, the new management company or
the grantee of the deed in lieu as designated by KCCI (but not by KCCI or by
Lenders), and in each case, the Company shall have no obligation to permit use
of its License by each new manager and/or owner unless (i) reasonable
indemnification as required by Section 9.2 of the Management Contract is
provided to the Company and (ii) such new manager and/or new owner is in
substantial compliance with the Licensee Standards. Notwithstanding the terms of
the Management Contract as amended by the Amendment to Management Contract,
Company and Borrower agree that no Operations Transition Fee (as defined in the
Management Contract) shall be payable upon closing under any Refinancing
Commitment or upon any sale or refinancing of a Project or other management
transition on or after the Effective Date.

          2.9         Deeds in Lieu in Escrow         (a) [Intentionally
Omitted]

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          (b)          Deposit in Escrow; Further Assurances. At the Closing,
Borrower shall deposit in escrow with the Escrow Agent the executed Transfer
Documents for each Project; provided, however, that Borrower shall be obligated
to deposit the executed Transfer Documents for the Refinancing Projects in
escrow within twelve (12) Business Days after the Effective Date, but only if
the Third Performance Condition is not satisfied by the tenth (10th) Business
Day after the Effective Date. Borrower Parties authorize KCCI to provide a copy
of this Settlement Agreement to Escrow Agent and further agree to deliver to a
title company selected by KCCI on or prior to the Closing Date the standard
owner's affidavit in the form attached as Exhibit D. Borrower further agrees to
execute, acknowledge, deliver, file or do at its sole cost and expense, all
other acts, assignments, notices, agreements or other instruments, in form and
substance reasonably acceptable to KCCI, as KCCI may reasonably require in order
to effectuate, assure, convey, secure, assign, transfer and convey, to the
extent permitted under applicable laws, rules and regulations, unto KCCI or its
designee, Borrower's right, title and interest in and to the Projects. If at the
time of KCCI's notice to Borrower of such requirements as to a Project, the
Transfer Documents for such Project remain on deposit in escrow with the Escrow
Agent, then Borrower likewise shall deposit the additional instruments in the
escrow. Otherwise, Borrower shall deliver such instruments to KCCI or its
designee, pursuant to KCCI's direction.

         (c)          Deliveries from Escrow. At any time and from time to time
with respect to one or more Projects, KCCI shall have the right at KCCI's
option, but not the obligation (except as provided below in Section 2.9(e)), to
direct the Escrow Agent to deliver to KCCI or its designee (i) some or all of
the Transfer Documents for one or more Project(s) and to cause such Transfer
Documents to be recorded; or (ii) as provided below, to direct Borrower to
substitute for the Transfer Documents as to such Project(s) documents in the
same form but naming a buyer designated by KCCI as grantee; provided, however,
that KCCI may so direct the Escrow Agent as to Transfer Documents for a
Refinancing Project only upon the failure to occur of the First Performance
Condition by December 28, 2001 as to any such individual Refinancing Project, or
the failure to occur of the Second Performance Condition by January 31, 2002 as
to any such individual Refinancing Project, or the failure to occur of the Third
Performance Condition by the tenth (10th) Business Day after the Effective Date
as to any such individual Refinancing Project. In any of such cases, the grantee
may be an affiliate of KCCI. Notwithstanding acquisition of a Project by KCCI or
its designee, the Note for that Project shall not be cancelled, KCCI shall
retain its right to elect to pursue foreclosure and the interest of KCCI or such
designee in the Project after acquisition shall not merge with KCCI's interest
in and lien upon the Project under the Credit Documents. KCCI shall use
reasonable efforts to notify Borrower Parties of any such withdrawal on the date
thereof.

          (d)         Aggregate Re-Financing. The references in this Section 2.9
to individual Refinancing Projects shall not modify the requirements above in
Section 2.3 to an aggregate, contemporaneous closing for the release of
Refinancing Projects.

          (e)          Escrow Closing Date. In the event that any Transfer
Documents remain in escrow with the Escrow Agent on the Escrow Closing Date,
then not later than such date KCCI shall direct the Escrow Agent to deliver to
KCCI, or to one or more designees of KCCI (which may be Affiliates of KCCI), all
Transfer Documents remaining in escrow with the Escrow Agent, and, upon such
date, subject to the License Transfer Obligations, all of the Management
Contracts shall terminate and neither Borrower nor Manager shall have any
further obligation to manage or operate any of the Projects.

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          (f)          Effect of Transfer Documents. Borrower Parties
acknowledge and agree (i) that the Transfer Documents shall be deemed effective
to convey the Projects to KCCI's designee only if, as and when the Transfer
Documents are delivered at KCCI's direction in accordance with the terms hereof;
(ii) that KCCI's acceptance of the Transfer Documents shall not be deemed an
election of remedies or a waiver of any of KCCI's rights and remedies under this
Agreement, or under any of the other Workout Documents or the Credit Documents
or at law or in equity; and (iii) that KCCI's acceptance of the Transfer
Documents shall not constitute a cure of any default under the Loans and the
Credit Documents (including, without limitation, the satisfaction of or
reinstatement of the indebtedness evidenced and secured thereby) or a cure of
any Default.

          (g)          Absolute Conveyance. Borrower Parties acknowledge and
agree that: (i) the conveyance of a Project to KCCI or its designee upon
delivery by the Escrow Agent of the applicable Transfer Document, pursuant to
the terms of this Agreement is an absolute conveyance of all of Borrower's
right, title and interest in and to such Project in fact as well as in form, and
the Transfer Documents are not intended to be a mortgage, trust conveyance, deed
of trust, or security instrument of any kind; (ii) the consideration for that
conveyance is exactly as recited in this Agreement; and (iii) after delivery of
the Transfer Document by the Escrow Agent to KCCI or its designee pursuant to
the terms of this Agreement, Borrower will have no redemption, or claims in, to
or against such Project or to the proceeds or profits that might be derived
therefrom. Without limiting the foregoing, terms used in the Transfer Documents
such as "to the extent assignable under applicable law", "subject to applicable
law" and words of similar effect are intended by the parties to reflect only
that certain state laws and/or regulations concerning assisted living or
dementia/Alzheimer care facilities, as the case may be, may condition assignment
or transfer of Residency Agreements and/or rights to own, operate or manage such
facilities upon satisfaction of certain licensing or other similar requirements.

          (h)          No Merger. The parties acknowledge and agree that all of
the Credit Documents will remain in full force and effect after the transactions
contemplated by this Agreement have been consummated, subject to release only as
provided in Section 7.4 of this Agreement. The parties further acknowledge and
agree that the interest of KCCI in the Projects created by all of the
conveyances provided for in this Agreement will not merge with the interests of
KCCI in the Projects created under the Credit Documents. It is the express
intention of each of the parties that those interests of KCCI in the Projects
will not merge, but be and remain at all times separate and distinct,
notwithstanding any union of that interest in KCCI at any time by purchase,
termination, or otherwise, and that the liens held by KCCI against the Projects
created by certain of the Credit Documents will remain valid and continuous
liens against the Projects at all times unless and until expressly cancelled and
released by KCCI, including, without limitation, by the Releases.

          (i)          KCCI's Disclaimer. Except as provided in Section 8.5 of
this Agreement, KCCI has not and will not agree to assume or incur any liability
or responsibility with respect to any expenses incurred or accrued by Borrower
Parties prior to the Closing Date with respect to the Projects, or any other
obligation or liability of Borrower Parties. Borrower Parties hereby indemnify
and agree to defend and hold KCCI harmless from and against any and all expenses
(including, without limitation, reasonable attorneys fees and litigation
expenses), actions or causes of action, arising out of such expenses,
obligations, or liabilities, whether now known or unknown by either Borrower
Parties or KCCI.

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          (j)          Casualty and Eminent Domain. Without limiting any
provisions of the Credit Documents, until such time as the Transfer Documents
for a Project are delivered to KCCI or its designee pursuant to Section 2.9 or
until a Release is delivered by KCCI in connection with a sale or refinancing of
a Project, the terms of the Credit Documents shall continue to govern any
casualty or condemnation to the Project, including any insurance proceeds or
condemnation awards or other rights, in the manner applicable during the ongoing
existence of Events of Default, provided that Borrower Parties shall have no
obligation (i) to repair, restore or replace loss or damage to a Project due to
casualty or condemnation except to the extent insurance or condemnation proceeds
are made available therefor or (ii) to operate or manage a Project after
casualty or condemnation except to the extent proceeds of business interruption
insurance are made available therefor.

ARTICLE III

WARRANTIES, REPRESENTATIONS, ACKNOWLEDGMENTS
AND AGREEMENTS OF BORROWER PARTIES

          3.1          Representations and Warranties of Borrower Parties.
Borrower Parties, and each of them, jointly and severally, hereby represent and
warrant to KCCI and Lenders as follows: (a)         Authority of Borrower. That
Borrower is a duly organized, validly existing limited liability company in good
standing under the laws of the State of Delaware and has duly qualified and is
authorized to do business in all jurisdictions where it is required to be so
qualified except where the failure to be so qualified would not have a Material
Adverse Effect; that a true and correct copy of the Operating Agreement has been
delivered to KCCI; that the Operating Agreement has not been modified or
amended; that Borrower has the power and authority to execute, deliver and
perform its obligations under this Agreement and under the other Workout
Documents; that the execution, delivery and performance of this Agreement by
Borrower has been consented to and approved pursuant to all requisite
authorizing action, in accordance with the Operating Agreement; each Workout
Document to which it is party constitutes the legal, valid and binding agreement
or obligation of Borrower enforceable in accordance with its terms, except to
the extent that the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
generally affecting creditors'rights and by equitable principles (regardless of
whether enforcement is sought in equity or at law); that the execution and
delivery of this Agreement and the other Workout Documents by Borrower does not
and will not (i) violate any provision of any law, rule, regulation, order or
judgment presently in effect having applicability to Borrower or the Operating
Agreement; (ii) result in a breach or constitute or cause a default under any
agreement or instrument to which Borrower is a party or by which Borrower or any
of the Projects may be bound or affected; and (iii) that Borrower is not
presently in violation of any such law, rule, regulation, order or judgment or
in default under any such agreement or instrument in any manner which would
affect the validity or enforceability of this Agreement or the other Workout
Documents.

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(b)         Authority of Company. That Company is a duly organized, validly
existing corporation in good standing under the laws of the State of Delaware
and has duly qualified and is authorized to do business in all jurisdictions
where it is required to be so qualified except where the failure to be so
qualified would not have a Material Adverse Effect; that a true and correct copy
of Company's articles of incorporation, by-laws and other formation documents
have been delivered to KCCI; that Company's formation documents have not been
modified or amended; that Company has the power and authority to execute,
deliver and perform its obligations under this Agreement and under the other
Workout Documents; that the execution, delivery and performance of this
Agreement by Company has been consented to and approved by all requisite
corporate action; each Workout Document to which it is a party constitutes the
legal, valid and binding agreement or obligation of Company enforceable in
accordance with its terms, except to the extent that the enforceability thereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws generally affecting creditors'rights and by equitable
principles (regardless of whether enforcement is sought in equity or at law);
that the execution and delivery of this Agreement and the other Workout
Documents by Company does not and will not (i) violate any provision of any law,
rule, regulation, order or judgment presently in effect having applicability to
Company or its formation documents; or (ii) result in a breach or constitute or
cause a default under any agreement or instrument to which Company is a party or
by which Company or any of the Projects may be bound or affected; and (iii) that
Company is not presently in violation of any such law, rule, regulation, order
or judgment or in default under any such agreement or instrument in any manner
which would affect the validity or enforceability of this Agreement or the other
Workout Documents.

(c)          No Bankruptcy Intent. That Borrower has no present intent to file
any voluntary petition under any Chapter of the Bankruptcy Code, or in any
manner to seek relief, protection, reorganization, liquidation, dissolution or
similar relief for debtors under any other local, state, federal or other
insolvency laws or laws providing for relief of debtors at law or in equity; and
that the filing of any such petition, or the seeking of any such relief by
Borrower in breach of this representation, would be in bad faith and solely for
purposes of delaying, inhibiting or otherwise impeding the exercise by KCCI of
KCCI's rights and remedies against Borrower or the Projects pursuant to this
Agreement and the Workout Documents, the Credit Documents or at law or in
equity; that the indebtedness outstanding under the Loans as of the Effective
Date, as referred to in Section 3.2(c), is materially greater than the fair and
true market value of the Projects as of the Effective Date; and that, in the
event that the Projects or any portion thereof were to become the property of
any bankruptcy estate or the subject of any state, federal or other bankruptcy
dissolution, liquidation or insolvency proceeding, neither the Projects, nor any
one or more of the Projects, is necessary for an effective reorganization of
Borrower or of Company, nor would Borrower have any reasonable likelihood to
successfully reorganize its financial affairs in a bankruptcy.

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(d)         Personal Property Collateral. That none of Borrower Parties has at
any time heretofore removed, relocated or otherwise transferred any of the
Collateral constituting personal property from the Projects other than excess,
surplus or worn out furniture, furnishings and equipment in the ordinary course
of business

(e)         [Intentionally omitted]

(f)         Insurance. Contemporaneously herewith, Borrower has delivered to
KCCI (i) copies of all insurance policies presently in effect with respect to
the Projects and (ii) Certificates of Insurance, with respect to such policies,
naming KCCI as loss payee or additional named insured as required by Section
4.1(o) of this Agreement (the "Insurance Policies").

(g)         Financial Statements of Borrower Parties. That the consolidated
financial statements of Company dated September 30, 2001, (which consolidation
includes and reflects the financial results of Borrower) the balance sheet and
income statement of Borrower, dated December 31, 2001 and the operating
statements for the Projects dated December 31, 2001, delivered to KCCI are true,
correct and complete in all material respects and fairly present the financial
condition of Company, Borrower and the Projects, respectively, as of the date
thereof; that, except for the existing defaults under the Loans and except as
otherwise disclosed to KCCI in writing heretofore or contemporaneously herewith,
there has been no Material Adverse Effect as to the financial condition of
Company between the date of said financial statements and the Effective Date;
and that Borrower Parties acknowledge that said financial statements have been
provided to KCCI in writing to induce KCCI to enter into this Agreement and the
other Workout Documents and to compromise the claims set forth herein and are
relied upon by KCCI for such purposes.

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(h)          Legal Proceeding and Compliance with Laws. That (i) except as
disclosed on Exhibit J with respect to the Company, none of Borrower Parties has
received any written notice of, and to the best knowledge of Borrower Parties,
there are no, pending or, to the knowledge of Borrower Parties, threatened,
suits, judgments, proceedings or other legal or equitable actions or proceedings
against the Projects or any of Borrower Parties that have, or could reasonably
be expected to have, a Material Adverse Effect, or which question the validity
or enforceability of this Agreement or any of the transactions or proceedings
contemplated by this Agreement; (ii) none of Borrower Parties has received any
such notice of any actual or threatened revocation, suspension, probation,
restriction, limitation, forfeiture or refusal to renew any License; (iii) none
of Borrower Parties has received any written notice from any Governmental
Authority (other than as described in clause (ii) above) claiming that any of
Borrower Parties, or any of the Projects, is not presently in compliance with
any laws, ordinances, rules or regulations bearing upon the use and operation of
the Projects, which failure to comply would have a Material Adverse Effect; (iv)
Borrower Parties have furnished to KCCI copies of all agency inspection reports,
audits, surveys, investigations, reviews or evaluations as to any Project
describing matters that would have a Material Adverse Effect and all responses
or plans of correction of any of Borrower Parties relating thereto; and (v) that
all material permits, licenses or other evidences of authority to use and
operate the Projects as they are presently being operated are current, valid and
in full force and effect.

(i)         Condemnation or Annexation Proceedings. That, to the best knowledge
of Borrower Parties, there are no pending or threatened condemnation proceedings
or annexation proceedings affecting the Projects.

(j)          Operating Statements. That each and every operating statement
delivered by Borrower Parties to KCCI in connection with or pursuant to this
Agreement is a true, correct and complete statement in all material respects of
the results of the operation of the Projects for the period covered thereby.

(k)        nbsp;Encumbrances. That, to the best knowledge of Borrower Parties,
there are no Encumbrances on the Projects other than Permitted Exceptions (as
defined in the Mortgages).

(l)         Identification of Brokers. That attached as Exhibit M is a true,
correct and complete list of all Brokers.

(m)          Source of Accrued Debt Service Payments. That the funds used to pay
the Accrued Debt Service Payments are Borrower's funds, derived from operation
of the Projects.

3.2          Acknowledgements and Agreements of Borrower Parties. Each of
Borrower Parties further individually acknowledges and agrees, represents and
warrants as follows as of the Effective Date:

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(a)          Mortgages. That the Mortgages constitute valid security interests
in, first priority security liens on and security title to all of the Real
Property (as defined in the Mortgages) and Personal Property Collateral (as
defined in the Mortgages) and the real and personal property collateral
described in the Mortgages, subject only to (i) the Permitted Exceptions, as
defined in the Mortgages, and (ii) the rights of any tenants, residents or
occupants of the Projects permitted under the Credit Documents.

(b)         Credit Documents. That the Credit Documents constitute valid and
legally binding obligations of Borrower Parties enforceable against Borrower
Parties and the Projects in accordance with their respective terms; that
Borrower Parties have no defenses, setoffs, claims, counterclaims or causes of
action of any kind or nature whatsoever with respect to the Loans or the Credit
Documents or the indebtedness evidenced and secured thereby, or with respect to
any other documents or instruments now or heretofore evidencing, securing or in
any way relating to the Loans, or with respect to the administration or funding
of the Loans or the development, operation or financing of the Projects; and
that Borrower Parties do hereby expressly waive, release and relinquish any and
all such defenses, setoffs, claims, counterclaims and causes of action.

(c)          Indebtedness. That, as of January 31, 2002, (i) the outstanding
principal balance of the Loans affecting each Project is set forth on Exhibit G
attached hereto and made a part hereof; (ii) interest (including default
interest) has accrued and remains unpaid in the amounts set forth on Exhibit G,
and (iii) interest on the foregoing principal balances continues to accrue and
shall hereafter accrue in accordance with the terms of the Notes; that Defaults
and Events of Default have occurred and are continuing under the Credit
Documents, and that any and all notices thereof required to be sent to Borrower
Parties, or any of them, under the Credit Documents have been properly and
timely provided; and that the indebtedness evidenced and secured by the Credit
Documents has been validly accelerated and is now due and payable in full and
shall remain due and payable in full in accordance with this Agreement. All
payments have been appropriately applied and credited on the Loans and the
balance indicated is net of those credits. Borrower Parties'indebtedness under
the Loans is a valid and binding obligation and there are no claims, setoffs or
defenses to the payment or performance by Borrower Parties of Borrower
Parties'indebtedness or other obligations to the Lenders.

(d)         No Novation or Release. (i) That, except as may be expressly
provided in this Agreement or the other Workout Documents, neither this
Agreement nor any of the other Workout Documents is intended to be, and none
shall be deemed or construed to be, a reinstatement, novation, amendment,
modification or release of the Loans or the Credit Documents, or any of them;
and (ii) that neither this Agreement nor any of the other Workout Documents nor
any payments made or other actions taken pursuant to this Agreement or any of
the other Workout Documents shall be deemed to cure any existing Defaults or
Events of Default under the Credit Documents or to cure or reinstate the Loans
or the Credit Documents, it being the intention of the parties hereto that the
Loans are and shall remain in default and immediately due and payable in full
notwithstanding this Agreement and the other Workout Documents.

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(e)         Background Statements. That the Background statements at the
beginning of this Agreement are true and correct.

ARTICLE IV

ADDITIONAL COVENANTS OF BORROWER PARTIES

          4.1          Covenants of Borrower Parties. Borrower Parties, jointly
and severally, covenant and agree with KCCI and the other Lenders that:

         (a)          Performance of Credit Documents. This Agreement shall not
waive, amend or otherwise affect or diminish any obligation of Borrower Parties
to perform under the Credit Documents. Borrower Parties hereby confirm and
re-affirm their respective obligations under the Credit Documents, provided,
however, that Borrower Parties'failure to perform or breach of their obligations
under the Credit Documents, or the existence of an Event of Default under the
Credit Documents, shall not constitute a Default hereunder.

         (b)         Notice of Proceedings. Borrower Parties shall notify KCCI
in writing, (i) within ten (10) Business Days after actual knowledge thereof by
an officer of Company, of any event or notice of the kind referred to in
Section 3.1(h) relating to a Project; and (ii) within five (5) Business Days
after actual knowledge thereof by an officer of Company, of the occurrence of
any event (other than one to which clause (i) of this Section 4.1(b) applies)
which constitutes a Default, or which with notice and/or the lapse of time
without a cure, as applicable, would constitute a Default, which notice shall
specify the nature thereof, the period of existence thereof and what action
Borrower Parties propose to take with respect thereto.

         (c)         Further Assurances. Borrower Parties shall execute and
deliver to KCCI such agreements, instruments, documents, financing statements
and other writings as may be requested from time to time by KCCI to evidence the
existing or future indebtedness of Borrower Parties to KCCI and, to the extent
of their respective interests in the Projects, to perfect and to maintain the
perfection of KCCI's lien and security interest in and to the Projects and to
consummate the transactions contemplated by or in the Credit Documents, this
Agreement or the other Workout Documents.

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          (d)         Books and Records. Borrower Parties each will (i) keep
proper books and records of account, in which full and correct entries shall be
made of all financial transactions and the assets and business of such party and
its subsidiaries in accordance with GAAP; and (ii) permit, upon at least two (2)
Business Days'notice to the Chief Financial Officer or any other Authorized
Officer of Borrower Parties, officers and designated representatives of KCCI or
any of the Lenders to visit and inspect any of the Projects and the books and
records of account thereof in whomever's possession (but only to the extent
Borrower Party has the right to do so to the extent in the possession of another
person), to examine the books of account of Borrower Parties relating to
Borrower or the Projects and to make copies thereof and take extracts therefrom,
and to discuss the affairs, finances and accounts of Borrower Parties with, and
be advised as to the same by, its officers and independent actuaries, if any,
all at such reasonable times and intervals and to such reasonable extent as KCCI
or any of the Lenders may request, but in all instances subject to any
confidentiality requirement relating to resident records. [Intentionally
omitted]

          (e)          Intentionally omitted

          (f)          Related Party Transactions. Borrower Parties shall not
enter into, or be a party to, any transaction respecting the Projects with any
Affiliate of a Borrower Party, and Borrower Parties shall contemporaneously with
the execution of this Agreement terminate all existing agreements and contracts
respecting the Projects with any Affiliate except for any such agreement or
contract identified on Exhibit J, and except in the ordinary course of and
pursuant to the reasonable requirements of Borrower Parties'business and upon
fair and reasonable terms which are fully disclosed to KCCI and are no less
favorable to Borrower Parties than would be obtained in a comparable arm's
length transaction with a Person not affiliated in any way with Borrower
Parties.

          (g)         Cooperation and Noninterference, Ongoing and
Bankruptcy-related. Provided KCCI and Lenders are in compliance with the terms
of this Workout Agreement, none of Borrower Parties shall take any action of any
kind or nature whatsoever, either directly or indirectly, to oppose, impede,
enjoin or otherwise interfere with the exercise by KCCI of any of KCCI's rights
and remedies against or with respect to the Projects, or any other rights or
remedies of KCCI with respect to the Loans, the Credit Documents, this Agreement
or the other Workout Documents or the Management Contracts. Without limiting the
foregoing, in the event any transfer of title to any of the Projects to KCCI is
set aside or otherwise voided by a bankruptcy court or trustee, Borrower Parties
shall cooperate fully with KCCI as provided in Section 6.3(d), and further,
Borrower Parties shall not oppose or attempt to enjoin KCCI's efforts to obtain
relief from any stay imposed by a federal bankruptcy court against judicial or
nonjudicial foreclosure or similar proceedings initiated by KCCI with respect to
any of the Projects or seek to enjoin or oppose any effort by KCCI to foreclose
or to obtain delivery of the Transfer Documents as contemplated by the Workout
Documents.

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          (h)          Indemnity. Borrower Parties jointly and severally hereby
indemnify KCCI and Lenders and agree to hold each of KCCI and the Lender
harmless from and against any and all loss, cost, damage, or expense (including,
without limitation, attorneys'fees and costs of litigation) arising from,
related to or in any manner whatsoever connected with the failure of Borrower
Parties to perform any covenant or agreement of Borrower Parties under this
Agreement or the breach by Borrower Parties of any representation or warranty of
Borrower Parties under this Agreement.

          (i)          Reporting Requirements of Borrower. Borrower and Company
each agrees to deliver to KCCI during the Term of this Agreement the following
statements and reports:           (i)          within twenty (20) days after the
close of each month, the unaudited statements of income for the Borrower for
such month and for the fiscal year to date, all of which financial statements
shall be certified on behalf of Borrower by the Chief Financial Officer or other
Authorized Officer of Borrower, subject to changes resulting from normal
year-end or audit adjustments;

          (ii)          at the time of the delivery of the financial statements
provided for in Sections 4.1(i)(i), a certificate on behalf of Borrower and
Company by the Chief Financial Officer or other Authorized Officer of Borrower
and of Company to the effect that, to the best knowledge of Borrower and
Company, no Default, or event which, with notice and/or the lapse of time
without a cure, exists or, if any Default or such other event does exist,
specifying the nature and extent thereof;

          (j)          Reporting Requirements of Company. Company agrees to
deliver to KCCI during the Term of this Agreement the following statements and
reports:

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          (i)          within twenty (20) days after the end of each calendar
month, operating statements for each of the Projects managed by Company, each of
which shall be a true, correct and complete statement in all material respects
of the results of the operation of such Projects for the period covered thereby,
together with a monthly schedule of payables for such Project that is a true,
correct and complete statement in all material respects of the amounts and aging
of account payables for the period covered thereby, provided, however, that
Company reasonably expects to be able to deliver the first payables schedule by
March 31, 2002 and shall advise KCCI promptly of any delays in achieving that
expected commencement date;

          (ii)          within twenty (20) days after the end of each calendar
month, monthly updates of the Revenue Journals for each of the Projects managed
by Company, certified by the Chief Financial Officer or other Authorized Officer
of Company as true, correct and complete in all material respects;

          (iii)          promptly upon transmission thereof or other filing with
the SEC, copies of all annual, quarterly or current reports that Company or any
of its Subsidiaries files with the SEC. In addition, Company shall cause
LiveEdgar™ or another third party service bureau regularly offering such "watch"
services to promptly notify via e-mail a representative designated by KCCI of
all registration statements filed with the SEC by Company or any of its
Subsidiaries; and

          (iv)          within 20 days after the end of each month, Company's
then current monthly report entitled "monthly cash flow summary" covering a
rolling 13-week period; and

          (v)          with reasonable promptness, such other information or
documents (financial or otherwise) relating to Company or any of its
Subsidiaries as any Lender may reasonably request from time to time.

          (k)         Personal Property Collateral. None of Borrower Parties
will at any time hereafter remove, relocate or otherwise transfer any of the
Personal Property Collateral from the Projects other than excess, surplus or
worn out furniture, furnishings and equipment in the ordinary course of
business..

          (l)         Amendment to Management Contract. On or prior to Closing,
Borrower Parties shall execute and deliver to KCCI the Amendment to Management
Contract for each of the Management Contracts.

          (m)         Amendment to Operating Agreement. On or prior to Closing,
Borrower Parties shall execute and deliver the Amended and Restated Operating
Agreement, in the form of Exhibit N attached hereto (the "Amendment to Operating
Agreement").

          (n)         Amendment to Credit Agreement. Effective upon Closing,
Borrower Parties and KCCI agree that the Credit Agreement is amended to delete
any right of Borrower to consent to changes to Section 12.4(c) of the Credit
Agreement, regarding the minimum amount of its Loans that a Lender may sell or
must retain upon a sale of less than all of its Loans.

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          (o)          Insurance.

(i)          Until such time as Transfer Documents for a Project are delivered
to KCCI or its designee or until a Release is delivered by KCCI in connection
with a sale or refinancing of a Project, and to the extent funds are available
from the Collection Account to pay the premiums therefor, but subject to the
provisions of Section 4.1(o)(ii) of this Agreement, Borrower will maintain:

(1)          All Risk Extended Coverage and Builder's Risk Insurance: insurance
against loss or damage covering all of the tangible real and personal property
of Borrower and the Improvements by reasons of any loss or damage by fire,
storms, and other hazards, perils, casualties and risks, including without
limitation risks usually covered by extended coverage policies issued in the
jurisdiction in which the Improvements are located, which insurance shall:

(A)          name Key Corporate Capital Inc., as Collateral Agent as an
additional insured and as loss payee,

(B)          provide coverage in an amount not less that the greater of (w) 100%
of the replacement costs of the Improvements and the Personal Property, (x) the
full insurable value of the Improvements and the Personal Property, (y) the
aggregate principal amount of the Loans incurred by Borrower, and (z) the amount
applicable to any such Property or Improvements necessary so that neither
Borrower (or any of its Affiliates) or KCCI shall be considered or shall become
a co-insurer of any loss under such policy, and

(C)          provide for a deductible or self-insurance retention of an amount
reasonably acceptable to KCCI;

(2)          Flood Insurance: if the area in which the Real Property is located
has been designated as flood prone or a flood risk area, as defined by the Flood
Disaster Protection Act of 1973, as amended, flood insurance, which insurance
shall:

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(A)          name Key Corporate Capital Inc., as Collateral Agent as an
additional insured and as loss payee,

(B)          provide coverage in an amount not less than the greater of (w) 100%
of the replacement costs of the Improvements and the Personal Property, (x) the
full insurable value of the Improvements and the Personal Property, (y) the
aggregate principal amount of the Loans incurred by Borrower, and (z) the amount
applicable to any such Property or Improvements necessary so that KCCI shall be
considered or shall become a co-insurer of any loss under such policy; provided
that if flood insurance in the required amount is not available, flood insurance
shall be maintained in the maximum amount available;

(C)          provide for a deductible or self-insurance retention of an amount
reasonably acceptable to KCCI; and

(D)          comply with any additional requirements of the National Flood
Insurance program as set forth in such Act;

(3)          Commercial General Liability Insurance: insurance against claims
for bodily injury, death or property damage occurring on, in or about the
Property Covered by this Instrument and any other facilities owned, leased or
used by Borrower (including adjoining streets, sidewalks and waterways), which
insurance shall:

(A)          name Key Corporate Capital Inc., as Collateral Agent as an
additional insured,

(B)          provide coverage in an amount not less than $1,000,000 per
occurrence and $2,000,000 in the aggregate, plus umbrella coverage of not less
than $10,000,000; and

(C)          provide for a deductible or self-insurance retention of an amount
reasonably acceptable to KCCI.;

notwithstanding the foregoing, the liability insurance coverage provided by the
Insurance Policies, and approved by KCCI, is hereby accepted in lieu of and
deemed to satisfy the foregoing requirements;

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(4)          Workers'Compensation Insurance: insurance against claims for
injuries to or death of employees (including Employers'Liability Insurance) to
the extent required by applicable law;

(5)          Business Interruption Insurance: insurance against loss of
operating income for a period of at least six months, occasioned by reason of
any peril affecting the operations of Borrower; and

(6)          Other Insurance: such other and additional insurance, in such
amounts and with such coverages as are then customary for property similar in
use and located in the same state in which a Project is located.

Such insurance shall be written by financially responsible companies selected by
Borrower and having an A.M. Best rating of "A" or better and being in a
financial size category of "VII" or larger, or by other companies acceptable to
KCCI (and KCCI hereby acknowledges the acceptability of Mutual Indemnity
(Bermuda) Ltd., the company providing commercial general liability coverage
under the Insurance Policies approved by KCCI which company currently has an AM
Best Rating of A- and is in a financial size category of "IX"), and (other than
workers'compensation insurance) shall name KCCI as loss payee (in the case of
insurance described in items (1) and (2), or as an additional named insured (in
the case of the insurance described in items (3), (4) and (5) above), in each
case as its interests may appear. Each policy referred to in this section shall
provide that it will not be canceled or reduced or expire except after not less
than thirty (30) days written notice to KCCI and shall also provide that the
interests of KCCI shall not be invalidated by an act or negligence of Borrower
or any person having an interest in any facility owned, leased or used by
Borrower nor by occupancy or use of any facility owned, leased or used by
Borrower for purposes more hazardous than permitted by such policy nor by any
foreclosure or other proceedings relating to any facility owned, leased or used
by Borrower. Borrower shall advise KCCI promptly of any policy cancellation,
reduction or amendment. All of such insurance shall be primary and
non-contributing with any insurance which may be carried by KCCI. All insurance
policies, to the extent of its interest, are to be for the benefit of and first
payable in case of loss to KCCI as first mortgagee without contribution.
Borrower shall deliver to KCCI contemporaneously with the expiration or
replacement of any policy of insurance required to be maintained hereunder a
certificate as to the new or renewal policy. Borrower will forthwith upon any
Lender's written request, furnish to such Lender such information about such
insurance as such Lender may from time to time reasonably request, which
information shall be prepared in form and detail reasonably satisfactory to such
Lender and certified by an Authorized Officer of Borrower.

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         (ii)          the current insurance required by Section
4.1(o)(i)(1)-(6) of this Agreement is carried under policies and/or
self-insurance programs that expire June 30, 2002. To the extent that any
insurance required by Section 4.1(o)(i)(1)-(6) of this Agreement is not
generally commercially available after the Effective Date, Borrower will
maintain insurance with responsible companies in such amounts, against such
risks and with such deductibles and levels of self-insurance as are customary
from time to time for peer group operators of properties similar in use and
located in the same State as a Project in accordance with prevailing industry
standards and Legal Requirements. Borrower Parties shall promptly provide to
KCCI any notices or information received from Alterra's insurers or insurance
brokers concerning the availability and cost of renewal coverages. Borrower
Parties further shall notify KCCI not later than sixty (60) days before the
scheduled lapse of any insurance policy or self-insurance program as to whether
the insurance required by Section 4.1(o)(i)(1)-(6) is expected to be available
by such lapse. To the extent that such required insurance is not expected to be
available, KCCI shall be entitled to arrange for insurance coverage it finds
acceptable, the cost of which shall be included in Allowed Expenses.

         (iii)         Borrower hereby reaffirms the assignment of all amounts
recoverable under any policy of casualty insurance as to any Project as more
fully provided in each Mortgage.

(p)         Condemnation. Borrower will give KCCI notice within ten (10)
Business Days of actual knowledge of the actual or threatened commencement of
any proceedings under eminent domain affecting all or any part of any Project
owned by Borrower or managed by Company or any easement therein or appurtenance
thereof, including severance and consequential damage and change in grade of
streets, and will deliver to KCCI copies of any and all papers served in
connection with any such proceedings.

(q)         Payment of Taxes and Claims. Borrower Parties each will pay and
discharge all taxes, assessments and governmental charges or levies imposed upon
it or upon its income or profits, or upon any properties belonging to it, prior
to the date on which penalties attach thereto, and all lawful claims which, if
unpaid, might become a lien or charge upon any properties of such Borrower
Party; provided, however, that (i) such Borrower Party shall not be required to
pay any such tax, assessment, charge, levy or claim which is being contested in
good faith and by proper proceedings if it has maintained adequate reserves with
respect thereto in accordance with GAAP; (ii) such Borrower Party will not be
considered to be in default of any of the provisions of this sentence if
Borrower Party fails to pay any such amount which, individually or in the
aggregate, is immaterial to Borrower Party; and (iii) such Borrower Party shall
have no obligations under this Section 4.1(q)(A) with respect to any Project of
which neither Company nor Borrower continues to serve as manager, (B) to the
extent that, as to payments owed with respect to a Project, funds necessary to
comply are not available from the Collection Account, or (C) with respect to
Projects no longer owned by Borrower, to the extent actions of, or instructions
to Company by, the owner cause the non-payment.

(r)         Organizational Existence and Franchises. Borrower Parties each will
do, or cause to be done, all things necessary to preserve and keep in full force
and effect its organizational existence, rights, authority and franchises,
provided that nothing in this Section 4.1(r) shall be deemed to prohibit the
loss of any rights, authorities or franchises if the loss hereof, in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.

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(s)         Good Repair. Borrower Parties each will ensure that the Projects and
equipment used or useful in its business relating to the Projects, in
whomsoever's possession they may be, are kept in good repair, working order and
condition, normal wear and tear excepted, and that from time to time there are
made in such Projects and equipment all needful and proper repairs, renewals,
replacements, extensions, additions, betterments and improvements thereto, to
the extent and in the manner customary for companies in similar businesses;
provided Borrower Parties shall be obligated to perform the foregoing covenant
only if, in the case of items properly categorized as capital expenditures, KCCI
has authorized expenditure of funds for such items.

(t)         Compliance with Statutes, etc. Borrower Parties each will comply, in
all material respects, with all applicable statutes, regulations and orders of,
and all applicable restrictions imposed by, all governmental bodies, domestic or
foreign, in respect of the conduct of its business and the ownership of its
property, other than those (i) being contested in good faith by appropriate
proceedings, as to which adequate reserves are established to the extent
required under GAAP, and (ii) the noncompliance with which would not have, and
which would not be reasonably expected to have, a Material Adverse Effect.

(u)         Compliance with Environmental Laws. Without limitation of the
covenants contained in Section 4.1(t) hereof:

(i)         Borrower will (x) comply, in all material respects, with all
Environmental Laws applicable to the ownership, lease or use of all Real
Property now or hereafter owned, leased or operated by Borrower, and promptly
pay or cause to be paid all costs and expenses incurred in connection with such
compliance, except for such noncompliance as would not have, and which would not
be reasonably expected to have, a Material Adverse Effect; and (y) keep or cause
to be kept all such Real Property free and clear of any liens imposed pursuant
to such Environmental Laws which are not permitted under Section 4.2(c).

(ii)         Without limitation of the foregoing, if Borrower shall generate,
use, treat, store, release or dispose of, or permit the generation, use,
treatment, storage, release or disposal of, Hazardous Materials on any Real
Property now or hereafter owned, leased or operated by Borrower, or transport or
permit the transportation of Hazardous Materials to or from any such Real
Property, any such action shall be effected only in the ordinary course of
business and in any event in compliance, in all material respects, with all
Environmental Laws applicable thereto, except for such noncompliance as would
not have, and which would not be reasonably expected to have, a Material Adverse
Effect.

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(iii)         If required to do so under any applicable order of any
governmental agency, Borrower will undertake any clean up, removal, remedial or
other action necessary to remove and clean up any Hazardous Materials from any
Real Property owned, leased or operated by Borrower in accordance with, in all
material respects, such orders of all governmental authorities except (x) to the
extent that Borrower is contesting such order in good faith and by appropriate
proceedings and for which adequate reserves have been established to the extent
required by GAAP, or (y) for such noncompliance as would not have, and which
would not be reasonably expected to have, a Material Adverse Effect.

(iv)         At the written request of KCCI or the Required Lenders, which
request shall specify in reasonable detail the basis therefore, at any time and
from time to time after (x) the Lenders receive notice for any Environmental
Claim involving potential expenditures by Borrower in excess of $50,000 in the
aggregate for any Real Property, or (y) KCCI or the Required Lenders otherwise
become aware of any circumstances under which Borrower may become liable for
remedial or similar expenditures potentially required to be made by Borrower in
order for any Real Property to be brought into compliance with Environmental
Laws or to satisfy an Environmental Claim with respect to such Real Property,
Borrower will provide, at its sole cost and expense, an environmental site
assessment report concerning such Real Property now or hereafter owned, leased
or operated by Borrower, prepared by an environmental consulting firm reasonably
acceptable to KCCI, indicating the presence or absence of Hazardous Materials on
such Real Property. If Borrower fails to provide the same within ninety (90)
days after such request was made, KCCI may order the same, and Borrower shall
grant and hereby grants, to KCCI and the Lenders and their agents, access to
such Real Property and specifically grants KCCI and the Lenders an irrevocable
non-exclusive license, subject to the rights of tenants, to undertake such an
assessment, all at Borrower's expense.

(v)         Project Management. Borrower will at all times cause each Project
owned by Borrower to be managed by Company pursuant to the Management Contract
and Project Lease. Borrower and Company each will comply with all of their
respective obligations under the Management Contract and Project Lease for such
Project, and will maintain the same in full force and effect, without any
amendment, waiver or other modification of any of the terms or provisions
thereof, which has not been approved in writing by the Required Lenders.

(w)         Leases Affecting a Project. After the Effective Date, neither
Borrower nor Company shall enter into any lease agreement affecting any Project,
except for Residency Agreements as permitted by the Cash Flow Assignment and
leases or license of portions of a Project in the ordinary course of business to
operators or food service, medical, hair care, recreational and other services
and amenities for individual residents of the Projects, on arms-length terms
reflecting prevailing market conditions and having a term of not more than one
(1) year.

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(x)         Senior Debt. (i) Borrower will at all times ensure that (i) the
claims of the Lenders in respect of the Obligations of Borrower will not be
subordinate to, and will in all respects rank at least pari passu with, or to
the extent of the value of the Collateral, structurally senior (i.e., senior by
virtue of the Lenders'right to satisfy its Obligations by enforcing Liens
against the Collateral) to, the claims of every unsecured creditor of Borrower,
(ii) any Indebtedness of Borrower which is subordinated in any manner to the
claims of any other creditor of Borrower will be subordinated in like manner to
such claims of the Lenders and (iii) Company will at all times ensure that (A)
the claims of the Lenders against Company will not be subordinate to, and will
in all respects rank (1) prior to the claims of any unsecured creditor of
Company under (i) the Company's 5.25% convertible subordinated debentures issued
pursuant to the Indenture, dated as of December 19, 1997, between Company and
United States Trust Company of New York; (ii) the Company's 9.75% pay-in-kind
convertible subordinated debentures issued pursuant to the Indenture, dated as
of May 31, 2000, between Company and U.S. Trust Company of Texas, N.A; (iii) the
Company's 6.75% convertible subordinated debentures issued pursuant to the
Indenture dated as of May 23, 1996, as supplemented on October 23, 1997 and
December 31, 1999, between the Company (as successor in interest to Sterling
House Corporation) and State Street Bank and Trust Company (as successor to
Fleet National Bank); and (iv) the Company's 7.0% convertible subordinated
debentures issued pursuant to the Indenture dated as of May 21, 1997 between the
Company and The Bank of New York (as successor to IBJ Schroder Bank & Trust
Company), and (2) pari passu to the claims of every other senior unsecured
creditor of Company, and (B) any Indebtedness of Company contractually
subordinated in any manner to the claims of any other senior secured or
unsecured creditor of Company will be subordinated in like manner to such claims
of the Lenders (but this clause (B) shall not apply to private arrangements
among co-lenders in a loan facility).

(y)         Licenses. Borrower Parties shall do or cause to be done all things
necessary to obtain, preserve and keep in full force and effect all licenses,
certificates of need, certificate of need waivers and other licenses,
authorizations and certificates necessary under any Legal Requirement to operate
each Project as an assisted living or dementia/Alzheimer facility, as the case
may be, (the "Licenses"). Upon request, Borrower Parties shall provide to KCCI
copies of all Licenses. Not later than ten (10) Business Days after actual
knowledge thereof by an officer of Company, Borrower Parties shall provide to
KCCI notice of any actual or threatened revocation, suspension, probation,
restrictions, limitation, forfeiture or refusal to renew any License.
Additionally, not later than ten (10) Business Days after actual knowledge
thereof by an officer of Company, Borrower Parties will furnish to KCCI copies
of all Deficiency Notices as to any Project and agency inspection reports,
audits, surveys, investigations, reviews or evaluations as to any Project
describing matters that would have a Material Adverse Effect, and,
contemporaneously with transmittal to the Governmental Authority, all responses
or plans of correction of Borrower Parties relating thereto. "Deficiency
Notices" shall refer to all notices from Governmental Authorities which license,
regulate, certify, accredit or evaluate Borrower Parties, any Project or the
operation of any Project alleging that Borrower, Company, the Project or the
operation of the Project fails to comply with any or all conditions of
licensing, regulation or accreditation of the Project, and all follow up
correspondence relating thereto. Borrower Parties shall promptly and diligently
pursue the correction of the subject of the Deficiency Notice prior to the
expiration of any period allowed by the Governmental Authority for correction.
Borrower Parties shall promptly provide from time to time, such cost estimates,
reports and other information as KCCI may require to demonstrate to KCCI's
satisfaction that Borrower and/or Company have the financial and other ability
to effect the correction and are taking the actions required by this Section.

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(z)         [Intentionally omitted]                  

(aa)         Limited Applicability of Certain Covenants. KCCI and the Lenders
hereby acknowledge and agree that the obligations of Borrower under
Sections 4.1(s), (t), (u) and (y) shall cease as to a Project upon the
acceptance by KCCI or its designee of delivery of the Transfer Documents (or
upon transfer of title due to foreclosure) and the obligations of Company under
such Sections shall cease as to a Project when management of the Project is
transferred to a party other than either of Borrower Parties in accordance with
the Workout Documents and, as to the first three sentences of Section 4.1(y),
the License Transfer Obligations are completed with respect to such Project. In
addition, Borrower and Company shall not be liable for non-compliance with
Sections 4.1(s), (t), (u) and/or (y):

(a)         to the extent that funds necessary to comply with its obligations
under any such Section is not available from the Collection Account; or

(b)          with respect to a Project no longer owned by Borrower, to the
extent actions of, or instructions to Company by, the owner cause the
non-compliance.

          4.2          Negative Covenants of Borrower. Borrower hereby covenants
and agrees with KCCI and the other Lenders that: (a)          Single Purpose
Entity, etc. Borrower will not directly or indirectly engage in any business or
business activity which is not directly related to the acquisition, ownership,
development, construction and operation of the Projects. Without limitation of
the foregoing, Borrower will not (i) lend money or credit or make advances to
any person, (ii) purchase or acquire any stock, obligations or securities of, or
any other interest in, or make any capital contribution to, or other investment
in, any person, (iii) create, acquire or hold any Subsidiary, (iv) be or become
a party to any joint venture or partnership, (v) be or become obligated under
any Guaranty Obligations, except that Borrower may invest in cash and Cash
Equivalents, or (vi) violate, directly or indirectly, any of the provisions in
Paragraph IV of the Operating Agreement.

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(b)          Consolidation, Merger, Acquisition or Sale of Assets, etc. Except
as otherwise authorized under the terms of this Agreement, Borrower will not,
directly or indirectly, (i) prior to fulfillment and satisfaction of all
Borrower's obligations under this Agreement and the other Workout Documents,
wind up, liquidate or dissolve its affairs, (ii) enter into any transaction of
merger or consolidation, (iii) make or otherwise effect any Acquisition, (iv)
sell or otherwise dispose of any Project, (v) sell or otherwise dispose of any
of its other properties or assets (including those comprising a portion of any
Project), other than disposition of excess, surplus or worn out furniture,
furnishings and equipment in the ordinary course of business, or (vi) agree to
do any of the foregoing at any future time.

(c)         Liens. Except for the refinancings authorized by the terms of this
Agreement, Borrower will not create, incur, assume or suffer to exist any Lien
upon or with respect to any of its property or assets of any kind (real or
personal, tangible or intangible), whether now owned or hereafter acquired, or
sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable or notes with or without recourse to Borrower, other than
for purposes of collection of delinquent accounts in the ordinary course of
business) or assign any right to receive income, or file or permit the filing of
any financing statement under the UCC or any other similar notice of Lien under
any similar recording or notice statute, except that Permitted Liens and liens
in favor of KCCI shall be permitted; provided, however that Borrower shall have
the right to contest in good faith any mechanics'lien or other statutory lien
securing claims of persons supply labor, materials or services to the Project
(i) so long as the continuance of such contest or litigation does not result in
an order for the foreclosure of such lien, the forced sale of the Project or any
part thereof, or the forfeiture of the lien of this Instrument, and (ii) in the
case of any such mechanics'lien or statutory lien involving a claim in excess of
$100,000, there has been posted with KCCI sufficient security (in the form of a
bond issued by a surety company or otherwise), satisfactory to KCCI, for the
payment thereof, with interest, costs and penalties, under written agreement
conditioning payment of such contested mechanics'lien or statutory lien upon the
resolution of such contest, or prior thereto.

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(d)          Indebtedness. Borrower will not create, incur, assume or suffer to
exist any Indebtedness of Borrower, except:

(i)         Indebtedness incurred under this Agreement and the other Credit
Documents; and

(ii)         in the case of any Project, any Indebtedness permitted under
Section 16(c) of the Mortgage related thereto. (e)          Distribution by
Borrower. (i) Borrower will not directly or indirectly purchase or otherwise
acquire any of its equity interests; and

(ii)         Borrower will not declare pay or make any dividend or distribution
(whether in cash or property) to its members in respect of their interests in
the income or capital of Borrower.

ARTICLE V DEBT SERVICE PAYMENTS AND LOCKBOX

          5.1          Debt Service. During the Term of this Agreement, Borrower
shall pay to KCCI monthly debt service payments ("Debt Service Payments") with
respect to each Project for which the Escrow Agent holds Transfer Documents
equal to the sum of: (i) monthly NOI minus (ii) the management fee permitted by
the terms of the Management Contract, as amended by the Amendment to Management
Contract. The obligation of Borrower to make such Debt Service Payments shall
commence as of September 1, 2001, and upon Closing Borrower shall pay to KCCI
all Debt Service Payments accrued and unpaid as of the Closing Date
(collectively, the "Accrued Debt Service Payments"). Debt Service Payments
payable for any partial month within which the Closing occurs, or payable as to
a Project for any partial month within which a Release is delivered by KCCI,
shall be prorated based upon the number of calendar days occurring in such
month. After the Closing, Debt Service Payments shall be due and payable not
later than the twentieth (20th) day of each calendar month as to NOI for the
prior calendar month. Each payment shall be accompanied by reasonable back-up
information showing the calculation of the Debt Service Payment. The foregoing
provisions regarding Debt Service Payments shall not waive or reduce Borrower's
obligation to pay any excess of the monthly debt service payments otherwise due
under the Credit Documents over the Debt Service Payments made for such month
and such excess shall accrue and be added to the outstanding indebtedness under
the Credit Documents, subject to interest pursuant to the terms of the Credit
Documents; provided, however, that the provisions of Sections 7.2, 7.3 and 7.5
of this Agreement shall govern Borrower's obligation to pay any such excess. The
provisions of this Section 5.1 are subject to the provisions of Section 4(e) of
the Cash Flow Assignment Agreement.

          5.2          Cash Flow Assignment Agreement. Upon closing, Borrower
Parties shall deliver to KCCI the Cash Flow Assignment Agreement. Borrower
Parties acknowledge that the Cash Flow Assignment Agreement, inter alia, grants
a security interest to KCCI in and to all of the right, title and interest of
each of Borrower and Company in and to the Project Revenues and includes
provisions relating to disbursements from the Collection Account and other
deposit accounts contemplated by the Cash Flow Assignment Agreement.

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          5.3          Collection Account Arrangements. As more fully provided
in the Cash Flow Assignment Agreement:

(a)          At or prior to Closing, Borrower and Company shall establish a
deposit account, separate from any deposit account used by any of Borrower
Parties for any other projects, and established for the benefit of KCCI, with a
depository institution approved by KCCI (a Collection Account") and shall
execute and deliver, and shall cause the depository institution to execute and
deliver, to KCCI the Collection Account Agreement; and

(b)          Commencing not later than the Closing Date, Borrower and Company
shall deposit all Project Revenues for the Projects for which the Escrow Agent
holds Transfer Documents, into the Collection Account, as more fully provided in
the Cash Flow Assignment Agreement.

          5.4          Closing Payment. On the Effective Date, Borrower shall
pay to KCCI $100,000 in immediately available funds.

          5.5          Subordination of Management Fees to Operating Deficits.
Based upon the monthly income statement for each Project provided to KCCI by
Company pursuant to Section 4.1(j)(i) of this Agreement, KCCI shall prepare a
monthly combined income statement for all of the Projects on an aggregate basis,
showing Project Revenues and Allowed Expenses (including in Allowed Expenses,
for purposes of this Section 5.5, accruals for expenses of the type shown on
historic monthly operating expense reports delivered to KCCI and capital
expenditures approved in advance by KCCI) for each calendar month commencing
after the Effective Date, and showing whether an Operating Deficit exists for
the month covered by the report (the "Combined Income Statement").
Notwithstanding any other provisions of the Workout Documents or the Management
Contracts to the contrary, to the extent that an Operating Deficit does exist,
as shown on a Combined Income Statement, the management fees otherwise payable
to Company as Manager (including, after a Notice of Disbursement Control under
the Cash Flow Assignment, only those then payable pursuant to the Disbursement
Procedures) for such month (and, if necessary, any subsequent month) shall be
subordinated to the prior payment of Allowed Expenses; provided, however, that
the cumulative management fees subordinated shall not exceed $100,000 in the
aggregate for all periods (such aggregate subordinated fees, the "Subordinated
Management Fees"). "Operating Deficits" shall mean the excess of (i) Allowed
Expenses over (ii) Project Revenues, in each case on an aggregate basis for all
of the Projects for each calendar month commencing after the Effective Date. If
a Combined Income Statement for a month subsequent to any such subordination of
management fees shows that, on an aggregate basis, Project Revenues exceed
Allowed Expenses for such month, then the Subordinated Management Fees shall be
payable to Company to the extent of the amount of such excess and the Debt
Service Payment for such month (and, if necessary, any subsequent month) will be
reduced to the extent of such Subordinated Management Fees then paid; provided,
however, the amount of the Subordinated Management Fees payable to Company for
such month shall not exceed the amount of the Debt Service Payment payable to
the Lenders for the same month.

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ARTICLE VI

DEFAULTS AND REMEDIES

         6.1         Defaults.For purposes of this Agreement, each of the
following arising prior to the Section 7.3 Date shall constitute a "Default":

(a)          Misrepresentations. Any representation or warranty of Borrower
Parties set forth in this Agreement or in any other Workout Document, or in any
certified statement or certificate delivered or required to be delivered
pursuant hereto or thereto, shall prove to be untrue in any material respect as
of the Effective Date, or with respect to a certificate or certified statement,
as of the date thereof;

(b)          Breach of Covenants. (i)          Any Debt Service Payment is not
paid within three (3) Business Days after the due date; Borrower shall breach
any of its obligations under Section 4.1(o) other than subparagraph
4.1(o)(i)(3); or any License held by either of Borrower Parties is terminated,
revoked, suspended, subject to probation or forfeited, or the issuing authority
refuses to renew any such License;

(ii)          Any regulatory authority shall subject a Project managed by the
Company to a "do not admit" order, or any similar order that generally restricts
the admission or retention of residents, other than orders that limit the
admission or retention of certain acuity or special needs residents due
primarily to regulatory interpretation of the limits of applicable licensing as
opposed to findings of inadequate care at such Project(s);

(iii)          Either of Borrower Parties (A) fails to remain in material
compliance with all applicable Legal Requirements with respect to any License
(other than as referenced to in Section 6.1(b)(i) or (ii); or (B) fails to
remain in material compliance with all other applicable Legal Requirements with
respect to the Projects, except no Default shall occur: (a) in such cases,
included in clause (A) or (B) above, in which such failure does not have a
Material Adverse Effect or (b) in such cases in which such failure arises with
respect to a Project that is at the time such failure arises managed by a party
other than either of Borrower Parties (unless and to the extent that the failure
is the result of acts or omissions attributable to Borrower or to Company as
Manager) or (c) in such cases in which such failure arises with respect to a
Project after acceptance of the Transfer Documents for such Project by KCCI or
its designee, to the extent the owner has taken action or given instructions to
the Company causing such failure;

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(iv)          (A) Fraud or misappropriation of funds by either of Borrower
Parties with respect to such party's ownership or management of a Project
(either of which shall constitute a breach "involving a monetary obligation",
without limiting any other provision of this Agreement); (B) waste by either of
Borrower Parties with respect to such party's ownership or management of a
Project; or (C) either Borrower Party is named as a defendant in a criminal
indictment that is related to such party's ownership or management of a Project
and such indictment arises out of such Borrower Party's actual failure to comply
with any Legal Requirements (irrespective of whether or not a conviction is
obtained), which, non-compliance has a Material Adverse Effect;

(v)          Failure of Borrower Parties to pay real estate taxes or insurance
premiums due with respect to any Project managed by the Company; provided that
funds have been made available to Borrower Parties therefor from the Collection
Account ;

(vi)          Failure of any Borrower Party to provide a notice as and when
required by Section 4.1(b);

(vii)          Either of Borrower Parties shall breach, default under or fail to
fully perform any of their covenants, agreements or obligations regarding the
Transfer Documents, (including those under the Deeds in Escrow Agreement) other
than representations, warranties or covenants relating to Defects in title not
arising by, through or under Borrower Parties ("Special Title Defects"); or

(viii)          Either of Borrower Parties shall breach, default under or fail
to fully perform any of their covenants, agreements or obligations under this
Agreement (including under any Management Contract) or the other Workout
Documents other than those described in item (vi) or (vii) above;

provided

, however, that (A) any such breach, default or failure described in item (ii)
above shall not constitute a Default unless and until such breach, default or
failure shall continue without cure for twenty-one (21) Business Days after the
effective date of such order described in item (ii) above; (B) any such breach,
default or failure described in item (vii) above and relating to a Special Title
Defect shall not constitute a Default unless and until such breach, default or
failure shall continue without cure for sixty (60) days after written notice
from KCCI to Borrower Parties, provided, further, however, that in the case of
any such breach, default or failure referred to in this item (B), the sixty (60)
day period referred to above may be extended by written notice from a Borrower
Party to KCCI, delivered not later than ten (10) Business Days following the
giving of any notice of such breach, default or failure by KCCI, for an
additional period of up to sixty (60) days, if (x) such notice from the Borrower
Party includes a certification that unavoidable delays or other circumstances
are such that such default cannot be remedied within the initial sixty (60) day
period, but that such default can be remedied within the time period specified
for such extension, and (y) throughout the period of such requested extension
Borrower Parties are diligently and continuously taking all reasonable actions
to remedy such default and are informing KCCI promptly and regularly in writing
of all such actions throughout the period of cure (it being understood that if
the Borrower Parties shall cease or abandon such efforts to remedy the default,
such extension period shall immediately and automatically terminate);

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(C) any such breach, default or failure described in (vii) above, other than one
relating to a Special Title Defect, shall not constitute a Default unless and
until such breach, default or failure shall continue without cure for five (5)
Business Days after written notice from KCCI to Borrower Parties; (D) any such
breach, default or failure described in items (iii) through (v) or (viii) above
and involving a monetary obligation shall not constitute a Default unless and
until such breach, default or failure shall continue without cure for five (5)
Business Days after written notice from KCCI to Borrower Parties, and (E) any
such breach, default or failure described in items (iii) through (v) or (viii)
above involving other than a monetary obligation shall not constitute a Default
unless and until such breach, default or failure shall continue without cure for
thirty (30) days after written notice from KCCI to Borrower Parties provided,
however, that in the case of item (iii) or (iv)(C), the cure period shall be
measured from any earlier notice of such item (iii) or (iv)(C) event to one of
Borrower Parties from the applicable governmental or regulatory authority);
provided, further, however, that in the case of any default referred to in items
(iii) through (v) or (viii), other than such a default involving a monetary
obligation, the thirty (30) day period referred to above may be extended by
written notice from a Borrower Party to KCCI, delivered not later than ten (10)
Business Days following the giving of any notice of such breach, default or
failure by KCCI (or, if applicable, the earlier notice from the applicable
governmental or regulatory authority), for an additional period of up to thirty
(30) days, if (x) such notice from the Borrower Party includes a certification
that unavoidable delays or other circumstances are such that such default cannot
be remedied within the initial thirty (30) day period, but that such default can
be remedied within the time period specified for such extension, and (y)
throughout the period of such requested extension the Borrower Parties are
diligently and continuously taking all reasonable actions to remedy such default
and are informing KCCI promptly and regularly in writing of all such actions
throughout the period of cure (it being understood that if the Borrower Parties
shall cease or abandon such efforts to remedy the default, such extension period
shall immediately and automatically terminate). Without limiting the foregoing,
in the case of Company's breach, default or failure to fully perform an
obligation under any Management Contract, the only cure period applicable shall
be that provided for above as to breaches of a like nature, and any contrary
cure or other time period in such Management Contract shall be inapplicable.
Notwithstanding the foregoing, the failure of a Performance Condition shall not
be deemed a Default under this Agreement

          (c)          Bankruptcy or Insolvency Action.

(i)          Borrower shall file any voluntary petition under the Bankruptcy
Code, or shall file any petition for dissolution or liquidation, or shall in any
manner seek any relief under any state, federal or other insolvency laws or
other laws providing for relief of debtors;

(ii)          Either of Borrower Parties shall cause, consent to or acquiesce in
any involuntary petition under the Bankruptcy Code to be filed against Borrower,
or shall cause Borrower to seek or become the subject of any dissolution,
liquidation or insolvency proceeding or any other proceeding pursuant to any
state, federal or other insolvency laws or other laws providing for relief of
debtors.

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(d)          Projects as Part of Bankruptcy Estate. Borrower Parties, or any of
them, shall cause any of the Projects or any portion thereof to become the
property of any bankruptcy estate or the subject of any state, federal or other
bankruptcy, dissolution, liquidation or insolvency proceedings or other laws
providing for relief of debtors; provided, however, that this Section 6.2(d)
shall not apply to Company's equity interest in Borrower or to Company's rights
under the Management Contracts, the Credit Documents, the Project Leases or the
Workout Documents; and

(e)          Proceedings to Avoid Foreclosure Sale. In the event that either of
Borrower Parties initiates or causes any other party to initiate, or consents to
or acquiesces in, an action or proceeding (under the Bankruptcy Code or
otherwise) seeking to prevent, recapture or avoid the transfer of the Projects
pursuant to the Transfer Documents or pursuant to any foreclosure sale or
receivership action, or to reject or avoid the obligations of either of the
Borrower Parties under this Agreement or the Workout Documents, including any
obligations under the Management Contracts.

          6.2          Rights of KCCI Upon Default. Upon the occurrence of a
Default, KCCI, as agent for, and on behalf of, the Lenders, shall immediately be
entitled, without further notice to Borrower Parties, to exercise any or all of
KCCI's rights and remedies under the Workout Documents (but until the occurrence
of a Fundamental Breach Event, not the Credit Documents and not Sections 13
through 16 of the Cash Flow Assignment Agreement) including, without limitation,
(i) exercising all rights provided to KCCI under Section 2.9 as to one or more
Project(s), notwithstanding the lack of a failure of a Performance Condition;
(ii) issuing a Notice of Disbursement Control (as defined in the Cash Flow
Assignment Agreement); (iii) obtaining judgments against Borrower Parties or
either of them, jointly and severally with respect to such Default;
(iv) proceeding with post-judgment discovery against Borrower Parties pursuant
to applicable law; (v) executing and levying through any means permitted by
applicable law upon any and all assets, real or personal, of Borrower Parties,
whether or not collateral for the Loans, in any order in KCCI's sole discretion;
and (vi) pursuing other enforcement of the judgments against Borrower Parties in
any manner available at law or in equity with respect to such Default, until
KCCI obtains full satisfaction of such judgments. In addition, in the event of a
Fundamental Breach Event, KCCI shall have the right, as agent for, and on behalf
of, the Lenders, to exercise any or all of KCCI's rights and remedies under the
Workout Documents or the Credit Documents, including, without limitation, those
listed in items (i) through (vi) above in this Section 6.2, and the right to
recover any deficiency claim on the Loans.

          6.3          Acknowledgments. Borrower Parties expressly agree,
covenant and acknowledge that:

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(a)          Except as expressly provided otherwise in this Agreement, KCCI
shall be authorized to exercise any or all of its rights and remedies hereunder,
at law and in equity as KCCI may in its sole and exclusive discretion deem
necessary or appropriate. No right, power or remedy conferred upon or reserved
to KCCI at law or in equity is intended to be exclusive of any other right,
power or remedy conferred upon or reserved to KCCI at law or in equity, but each
and every remedy shall be cumulative and concurrent, and shall be in addition to
each and every other right, power and remedy given hereunder or now or hereafter
existing at law or in equity;

(b)          Each and every acknowledgment, warranty, representation, agreement
and covenant of Borrower Parties, or any of them, in this Agreement or the other
Workout Documents has been provided to KCCI as a material inducement to KCCI's
willingness to enter into this Agreement and the other Workout Documents and to
compromise the claims set forth herein and are relied upon by KCCI for such
purposes;

(c)          Except in connection with a Release deliverable pursuant to Section
2.4 or as expressly provided in Section 7.3 or Section 7.5 of this Agreement,
KCCI shall have no obligation to release Borrower Parties or any other Person
from its liability under the Credit Documents; and

(d)          In the event Borrower Parties, or any of them, or any other party,
shall cause the Projects or any portion thereof to become the property of any
bankruptcy estate or the subject of any state, federal or other bankruptcy
dissolution, liquidation, or insolvency proceeding or other laws providing for
the relief of debtors (other than Company's equity interest in Borrower or
Company's rights under the Management Contracts, the Credit Documents, the
Project Leases or the Workout Documents), then KCCI shall immediately become
entitled, in addition to all other relief to which KCCI may be entitled under
this Agreement, the Workout Documents, the Credit Documents and at law and in
equity, and without further notice or action of any kind, to obtain (i) an order
from the bankruptcy court granting immediate relief from the automatic stay
pursuant to Section 362 of the Bankruptcy Code, so as to permit KCCI to pursue
its rights and remedies against Borrower in the manner provided hereinabove and
to exercise all other rights and remedies of KCCI hereunder, under the Workout
Documents, under the Credit Documents and at law and in equity, and (ii) an
order from the bankruptcy court prohibiting the use of "cash collateral"
generated from the Projects (as such term is defined in Section 363 of the
Bankruptcy Code). In connection with such bankruptcy court orders for relief,
neither of Borrower Parties shall contend or allege in any pleading or petition
filed in any court proceeding that (A) the fair and true market value of the
Projects as of the Effective Date is greater than the indebtedness outstanding
under the Loans and evidenced and secured by the Credit Documents as of the
Effective Date; (B) any one or more of the Projects is necessary for an
effective re-organization of Borrower; or (C) that Borrower has any reasonable
likelihood to successfully reorganize its financial affairs in bankruptcy.
Further, Borrower Parties hereby waive and agree not to seek a stay, interdict,
condition, reduce or inhibit the ability of KCCI to enforce any rights it has by
virtue of this Agreement or the Credit Documents and agree and consent to the
appointment of a receiver to take possession of all Collateral upon KCCI's
request. The waivers and agreements of Borrower Parties contained in this
subsection are a material inducement to KCCI's willingness to enter into this
Agreement, and Borrower Parties acknowledge and agree that, without limiting any
other provision of this Agreement, no grounds exist for equitable relief
(including, without limitation, entitlement to or extension of the automatic
stay or a supplemental stay) which would bar, delay or impede the exercise by
KCCI of KCCI's rights and remedies against Borrower Parties or otherwise.

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ARTICLE VII

FUNDAMENTAL BREACH EVENT, STANDSTILL, COVENANT NOT TO SUE AND RELEASES

          7.1         Fundamental Breach Event. For the purposes of this
Agreement, "Fundamental Breach Event" shall mean:

          (a)         If prior to the Section 7.3 Date:

(i)          either Borrower or Company shall fail to use commercially
reasonable efforts to cooperate with KCCI in the sale of the Projects by (A)
failing to refer to KCCI any potential buyers of the Projects that approach
either Borrower or Company regarding purchase of a Project, (B) failing to
provide, upon reasonable advance notice of such request from KCCI, reasonable
access to KCCI, its designee(s) and prospective buyers and/or managers of the
Projects and their respective brokers, financiers, employees, officers,
representatives or agents (each, a "Prospective Buyer") to inspect the Projects
and to review and make copies of books and records concerning the Projects
(subject to such parties executing and delivering to Company customary
confidentiality agreements and to restrictions under applicable laws and
regulations regarding privacy rights of residents), or (C) failing to provide a
Prospective Buyer operating and other information (of the type generally
provided by Company to prospective purchasers of Company's residences) upon
reasonable advance notice of such request from KCCI concerning the Projects in
connection with a proposed purchase of a Project;

(ii)          either Borrower or Company fails to turn over management of a
Project at the request of KCCI given in a timely manner so as to facilitate an
orderly transfer of management in accordance with industry standards, provided
that the proposed manager holds all necessary licenses and permits for operation
of the Project or is permitted to operate under an existing license on the
conditions set forth in Section 9.2 of the Management Contract, as amended by
the Amendment to Management Contract;

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(iii)         either Borrower or Company fails to deposit or to direct residents
or other payors to deposit the Project Revenues to the designated Collection
Account, other than an Inadvertent Failure;

(iv)          either Borrower or Company initiates, consents to, or acquiesces
in, an action (under the Bankruptcy Code or otherwise) to prevent, recapture or
avoid the transfer of the Projects (other than a Refinancing Project prior to
failure of a Performance Condition with respect thereto) pursuant to the
Transfer Documents or pursuant to any foreclosure sale or receivership action;

(v)          either Borrower or Company causes any of the Projects or any
portion thereof to become the property of any bankruptcy estate or the subject
of any state, federal or other bankruptcy, dissolution liquidation or insolvency
proceedings or other laws providing for the relief of debtors; provided,
however, that this Section 7.1(a)(v) shall not apply to Company's equity
interest in Borrower or Company's rights under the Management Contracts, the
Credit Documents, the Project Leases or the Workout Documents;

(vi)          either Borrower or Company files (or in the case of Company causes
Borrower to file) any voluntary petition with respect to Borrower under the
Bankruptcy Code, or files any petition for dissolution or liquidation, or in any
manner seeks relief under any state, federal or other insolvency laws or other
laws providing for relief of debtors, with respect to Borrower;

(vii)          either Borrower or Company consents to or acquiesces in any
involuntary petition against Borrower under the Bankruptcy Code, or any
dissolution, liquidation or insolvency proceeding for or relating to Borrower
pursuant to any state, federal or other insolvency laws or other laws providing
for relief of debtors;

(viii)          either Borrower or Company takes any action of any kind or
nature whatsoever, to oppose, impede, enjoin or otherwise interfere with the
exercise by KCCI of any of KCCI's rights and remedies against or with respect to
the Projects, or any other rights or remedies of KCCI with respect to this
Agreement or the other Workout Documents (but not the Credit Documents or
Sections 13 through 16 of the Cash Flow Assignment Agreement) or the Management
Contracts (other than to enforce the Borrower Parties'rights under this
Agreement, the other Workout Documents or the Management Contract), or without
limiting the foregoing, in the event any transfer of title to any of the
Projects to KCCI is set aside or otherwise voided by a bankruptcy court or the
Borrower Parties, or any trustee appointed for either of them, fails to use
commercially reasonable efforts to cooperate fully with KCCI as provided in
Section 6.3(d), or opposes or attempts to enjoin KCCI's efforts to obtain relief
from any stay imposed by a federal bankruptcy court against judicial or
non-judicial foreclosure or similar proceedings initiated by KCCI with respect
to any of the Projects or seeks to enjoin or oppose any effort by KCCI to
foreclose or to obtain delivery of the Transfer Documents;

(ix)          either Borrower or Company initiates, consents to or acquiesces in
the filing of a motion or an adversary proceeding under the Bankruptcy Code
seeking to reject or avoid the obligations of either of the Borrower Parties
under this Agreement or the Workout Documents, including any obligations under
the Management Contracts; or an order is entered in a bankruptcy case of either
of the Borrower Parties rejecting or avoiding the obligations of either of the
Borrower Parties under this Agreement or the Workout Documents, including any
obligations under the Management Contracts; or

(x)          in the event the Projects or any portion thereof become the
property of any bankruptcy estate or the subject of any state, federal or other
bankruptcy dissolution, liquidation, or insolvency proceeding or other laws
providing for the relief of debtors (other than Company's equity interest in
Borrower or Company's rights under the Management Contracts, the Credit
Documents, the Project Leases or the Workout Documents); or either of Borrower
Parties contends or alleges in any pleading or petition filed in any court
proceeding that (A) the fair and true market value of the Projects as of the
Effective Date is greater than the indebtedness outstanding under the Loans
evidenced and secured by the Credit Documents as of the Effective Date; (B) any
one or more of the Projects is necessary for an effective re-organization of
Borrower; or (C) that Borrower has a reasonable likelihood to successfully
reorganize its financial affairs in bankruptcy, or seeks to stay, interdict,
condition, reduce or inhibit the ability of KCCI to enforce any rights it has by
virtue of this Agreement or the Credit Documents or objects to the appointment
of a receiver to take possession of all Collateral upon KCCI's request, or
alleges that any grounds exist for equitable relief (including, without
limitation, entitlement to or extension of the automatic stay or a supplemental
stay) which would bar, delay or impede the exercise by KCCI of KCCI's rights and
remedies against Borrower Parties or otherwise (other than actions by either of
Borrower Parties to enforce the terms of this Agreement and/or any of the
Workout Documents;

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(xi)          (A) Company shall fail to obtain, within sixty (60) days after the
date of the filing (the "Filing Date") of any petition by Company for
reorganization under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code"), an order granting to KCCI an administrative expense claim
pursuant to Section 364(c)(1) of the Bankruptcy Code having priority over any
and all administrative expenses of the kind specified in Section 503(b) or
507(b) of the Bankruptcy Code (a "Super-Priority Administrative Expense Claim")
in an amount equal to the accrued but unpaid expenses incurred by Company or
Borrower in connection with the operation of the Projects as of the Filing Date,
including the obligation to make Debt Service Payments (collectively the
"Accrued Obligations"); (B) Company shall fail to satisfy the Super-Priority
Administrative Expense Claim within two (2) Business Days after the date the
order referred to in clause (A) of this Section 7.1(a)(xi) has been issued and
such order is no longer subject to appeal; and (C) Company shall fail to obtain
(i) an interim order within ten (10) days after the Filing Date, and (ii) a
final order thereafter, authorizing and directing Company to use cash received
from the operation of the Projects for the purpose of paying expenses of the
Projects (including Debt Service Payments), as provided in the Workout Documents
or thereafter shall fail to so use such cash;

(xii)          either of Borrower Parties shall be convicted of a crime in
connection with the management or operation of a Project;

(xii)          either of Borrower Parties shall have committed fraud, or
misappropriation of funds in connection with the management or operation of any
Project (other than an Inadvertent Failure or an Unauthorized Failure);

(xiv)          either of Borrower Parties shall breach its obligations under
Section 4.1(x);

(xv)          a plan of reorganization of Company, or of Company and certain of
its subsidiaries and affiliates other than Borrower) is confirmed which does not
provide for the assumption by Company of this Agreement and the Workout
Documents (including the Management Contracts) pursuant to 11 U.S.C. Section 365
and the immediate cure of any delinquencies thereunder; or

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          (b)         (i)          Any of the following events (each, a "Section
7.1(b) Event," and collectively, "Section 7.1(b) Events") shall occur:

(A)         Company shall lose its license to operate one or more of the
Projects managed by Company;

(B)         regulatory authorities shall subject a Project managed by Company to
a "do not admit" order or any similar order that generally restricts the
admission or retention of residents, other than orders that limit the admission
or retention of certain acuity or special needs residents due primarily to
regulatory interpretation of the limits of applicable licensing as opposed to
findings of inadequate care at such Project(s);

(C)         either of Borrower Parties shall be named as a defendant in a
criminal indictment related to such party's ownership or management of a Project
and such indictment arises out of such Borrower Party's actual failure to comply
with any Legal Requirements (irrespective of whether a conviction is obtained)
and which non-compliance has a Material Adverse Effect;

(D)          either of Borrower Parties shall have committed waste in connection
with the management or operation of any Project;

(E)         either of Borrower Parties shall have breached its respective
representations and warranties pursuant to Section 3.1 of this Agreement, which
breach shall have a Material Adverse Effect;

(F)         either of Borrower Parties shall breach any of Sections 2.1 or
4.1(c), (d), (f), (i), (j), (k), (o), (q), (s), (t), (u), (v) or (w) of this
Agreement;

(G)         either of Borrower Parties shall breach any of Section 4.2(a), (b),
(c), (d) or (e) of this Agreement;

(H)         Borrower shall breach Section 5.1 of this Agreement;

(I)         either Borrower or Company fails to deposit or to direct residents
or other payors to deposit the Project Revenues to the designated Collection
Account due to an inadvertent error, such as miscoding of bar codes (an
"Inadvertent Failure"); or

(J)         either of Borrower Parties shall have committed fraud, or
misappropriation of funds in connection with the management or operation of any
Project, due to unauthorized misconduct by a "rogue" employee (an "Unauthorized
Failure"); or

(K)         Borrower or Company shall breach Section 5.4 of this Agreement.

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          (ii)         KCCI shall have given Borrower Parties notice of such
Section 7.1(b) Event (which notice shall specifically identify such event as a
"Section 7.1(b) Event") and, in the case of a Section 7.1(b) Event described in
items (B), (C), (D), (F), (G), (I), (J) or (K) above, an opportunity to cure
such event during the applicable cure period for such event provided in
Section 6.1(b) hereof (the "Cure Period"); provided, however, that if
Section 6.1(b) provides that the cure period shall be measured from any earlier
notice to one of Borrower Parties from the applicable governmental or regulatory
authority, then the cure period for purposes of this Section 7.1(b) likewise
shall run from the date of such notice from the applicable governmental or
regulatory authority; and

         (iii)         Prior to (aa) in the case of a Section 7.1(b) Event
described in items (B), (C), (D), (F), (G), (I), (J) or (K) above, the lapse of
the applicable Cure Period; or (bb) in the case of a Section 7.1(b) Event
described in item (A) above, fifteen (15) days after the date of notice thereof
to one of Borrower Parties from the applicable governmental or regulatory
authority; (cc) in the case of a Section 7.1(b) Event described in item
(E) above, fifteen (15) days after KCCI's notice to Borrower Parties with
respect thereto, or (dd) in the case of a Section 7.1(b) Event described in
item (H) above, three (3) days after KCCI's notice to Borrower Parties with
respect thereto, Borrower Parties shall have failed to offer to pay to KCCI, in
cash, on or before the Cure Payment Date an amount equal to or in excess of the
Cure Payment Amount for such Section 7.1(b) Event (such offer the "Cure Offer")
or, if a Cure Offer has been made, has failed to make payment thereof to KCCI as
contemplated hereby. "Cure Payment Date" shall mean the first Business Day
thirty (30) days following the date upon which Borrower Parties shall give a
Cure Offer to KCCI with respect to such Section 7.1(b) Event; provided, however,
that in the case of a Section 7.1(b) Event described in item (H) or (K) above,
the Cure Payment Date shall be the third (3rd) day after KCCI's notice to
Borrower Parties with respect thereto; provided, further, however, that in the
event of a good faith dispute as to the amount of any Debt Service Payment, the
Cure Payment Date shall be extended until two (2) Business Days after such
disputed amount is determined, whether by the parties or the Consultant, but
such extension shall not relate to any undisputed portion of such Debt Service
Payment. "Cure Payment Amount" shall be the reasonably estimated amount of the
diminution of economic value suffered by the Project(s) due to the
Section 7.1(b) Event, such amount to be determined by the mutual agreement of
Company and KCCI or, in the absence of any such mutual agreement, by Senior
Living Valuation Services, Inc. (the "Consultant"); provided, however, that in
the case of a Section 7.(b) Event described in item (H) above, the Cure Payment
Amount shall be the Debt Service Payment at issue, plus interest at the rate
provided for in the Credit Agreement in the case of a Default under
Section 10(a) thereof for the period from the original due date for such payment
under Section 5.1 of this Agreement until it is paid; and provided, however,
that, in the case of any other Section 7.1(b) Event, the Cure Payment Amount
likewise shall include interest at the rate provided for in the Credit Agreement
in the case of a Default under Section 10(a) thereof for the period from the
original due date for such payment or for performance of such obligation under
the Workout Documents, as the case may be, until the Cure Payment Amount is
paid. If, prior to the Cure Payment Date, Company and KCCI shall not be in
agreement as to the Cure Payment Amount, the parties hereto shall promptly
cooperate in submitting the determination of the Cure Payment Amount to the
Consultant. The Borrower Parties and KCCI will request that the Consultant make
its determination thereof within thirty (30) days after submission of the issue
to the Consultant, but the parties recognize that a reasonable additional amount
of time may be needed due to prior commitments of the Consultant. The
Consultant's determination of the Cure Payment Amount shall be final,
non-appealable and binding upon the parties, and the Cure Payment Date shall be
extended until two (2) Business Days following notice from the Consultant to
Borrower Parties of its determination of the Cure Payment Amount.

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          (iv)         The parties acknowledge that a default under Section 6.1
may also be a Section 7.1(b) Event, and that KCCI is not obligated to
characterize a default as a Section 7.1(b) Event if KCCI is exercising its
rights and remedies under the Workout Documents (other than Sections 13 through
16 of the Cash Flow Assignment Agreement) rather than its rights and remedies
under the Credit Documents or under Sections 13 through 16 of the Cash Flow
Assignment Agreement. If, as referenced above in Section 7.1(b)(ii), KCCI gives
Borrower Parties notice of a default that is included in the term "Section
7.1(b) Event", but does not specifically identify such event as a "Section
7.1(b) Event", then such event will not become a Fundamental Breach Event unless
and until the notice contemplated by the first sentence of Section 7.1(b)(ii) is
given, with specific identification of the default as a "Section 7.1(b) Event"
and subsequent thereto the applicable Cure Payment Amount, if any, is not timely
paid pursuant to Section 7.1(b)(iii) hereof.

         7.2          Standstill. Unless and until a Fundamental Breach Event
shall occur, Lenders shall not sue Company or Borrower or otherwise exercise any
right or remedy under the Credit Documents or Sections 13 through 16 of the Cash
Flow Assignment Agreement, except as expressly permitted under this Agreement
and the Workout Documents (the "Forbearance Covenant").

          7.3          Lenders'Covenant Not to Sue as to Deficiency.

(a)          Lenders shall execute and deliver to Company and Borrower a
covenant not to sue Company or Borrower as to any deficiency claim held by them
as to the Loans (the "Covenant Not to Sue") upon the first of the following
dates to occur, provided that Section 7.3(b) of this Agreement does not apply:

(i)         the date upon which the Release Conditions shall be satisfied and
(1)          sale, refinancing and/or completion of transition of management of
all of the Projects (including the License Transfer Obligations, if applicable)
shall have occurred, or

(2)          the Escrow Closing Date shall have occurred, or,

(ii)          if the Release Conditions shall not have been satisfied as of the
first to occur of the dates referenced in clauses (i)(1) and (2) above because a
Pending Fundamental Breach Event shall be in existence on such date, the date
upon which a Cure Offer with respect thereto shall have been timely paid
pursuant to Section 7.1(b)(iii) hereof, or the date upon which such Pending
Fundamental Breach Event otherwise is cured in accordance herewith

(such date, the "Borrower Party Release Date"). For purposes hereof, the
"Release Conditions" shall be deemed satisfied as of a particular date if
neither (y) a Fundamental Breach Event shall have occurred prior to such date,
nor (z)(i) any event shall have occurred and be continuing as of such date
which, with notice and/or the lapse of any applicable cure period without a
cure, would be a Fundamental Breach Event (such event, a "Pending Fundamental
Breach Event") or, (ii) if a Pending Fundamental Breach Event has occurred prior
to such date, a Cure Offer shall not have been timely paid with respect to such
Pending Fundamental Breach Event pursuant to Section 7.1(b)(iii) hereof, or such
Pending Fundamental Breach Event otherwise shall not have been cured in
accordance herewith.

(b)          Notwithstanding Section 7.3(a) of this Agreement, if as of the
Borrower Party Release Date the conditions for the Lenders'execution and
delivery of the Covenant Not to Sue have been satisfied but any license of the
Company is being utilized by a third party in accordance with and pursuant to
Section 9.2 of a Management Contract, then:

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(i)          The obligation of the Lenders to execute and deliver the Covenant
Not to Sue pursuant hereto shall be deferred until such time as the first to
occur of:

(A)          no third parties are utilizing any license of the Company pursuant
to and in accordance with Section 9.2 of a Management Contract or

(B)          no third parties are entitled to utilize any license of the Company
pursuant to and in accordance with Section 9.2 of a Management Contract
(including, without limitation, circumstances in which the indemnity required by
Section 9.2 of the applicable Management Contract is not provided or the time
period for third parties to utilize a license as specified in Section 9.2 of the
applicable Management Contract shall have expired) (such earlier date, the
"Delayed Release Date") and,

(ii)          if the obligation of the Lenders to execute and deliver the
Covenant Not to Sue is so deferred as provided by clause (i) of this Section
7.3(b), then upon the Delayed Release Date the Lenders shall execute and deliver
to Company and Borrower the Covenant Not to Sue unless the Company shall have
failed to permit a license to be utilized by a third party pursuant to and in
accordance with Section 9.2 of a Management Contract, and such failure has
resulted in a Fundamental Breach Event pursuant to Section 7.1 of this Agreement
(such circumstances, a "Delayed Release Default"), it being the parties intent
that if the conditions (excluding the provisions of this Section 7.3(b)) for the
Lenders'execution and delivery of the Covenant Not to Sue are satisfied on the
Borrower Party Release Date, the only remaining condition to the
Lenders'obligation to execute and deliver the Covenant Not to Sue on the Delayed
Release Date shall be the absence of a Delayed Release Default arising during
the period commencing on the Borrower Party Release Date and ending on the
Delayed Release Date.

(c)          Notwithstanding the foregoing, if prior to the Borrower Party
Release Date or any Delayed Release Date, if applicable, a plan of
reorganization of Company (and/or certain of its subsidiaries and affiliates
other than Borrower) is confirmed pursuant to an order under Section 1129 of the
Bankruptcy Code and such plan shall no longer be subject to appeal (the first
Business Day upon which such circumstances shall be applicable, the "Plan
Confirmation Date"), and provided that

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(i)          such plan provides for the assumption by Company of this Agreement
and the Workout Documents (including without limitation the Management
Contracts) pursuant to 11 U.S.C. § 365 and the immediate cure of any
delinquencies thereunder,

(ii)          no Fundamental Breach Event shall have occurred prior to such Plan
Confirmation Date and

(iii)          no Pending Fundamental Breach Event shall be pending and
continuing without timely payment of a Cure Offer with respect thereto or other
cure in accordance herewith as of such Plan Confirmation Date.

Lenders shall execute and deliver such Covenant Not to Sue contemporaneous with,
and effective upon, such Plan Confirmation Date.

(d)          At such time as the conditions set forth in this Section 7.3 to the
Lenders'obligation to deliver the Covenant Not to Sue are incapable of being
satisfied, then Lenders reserve their rights to prosecute their claims,
including without limitation, those as to any deficiency.

(e)          Without limiting the obligations of Borrower and Company under
Article II of this Agreement, the failure to occur of any or all of the
Performance Conditions shall not itself constitute a breach of the obligations
of Borrower or Company under this Agreement and the Workout Documents.

          7.4          Borrower Parties'Release of and Covenant Not to Sue
Lenders. Borrower Parties, and each of them, jointly and severally, on behalf of
themselves and all of their respective successors and assigns, do hereby remise,
release, acquit, satisfy and forever discharge each of Lenders and each of their
respective officers, directors, employees, agents, attorneys, representatives,
participants, predecessors, subsidiaries, affiliates, successors and assigns
(the "Lender Released Parties"), from any and all manner of debts, accounts,
warranties, representations, covenants, contracts, agreements, liabilities,
obligations, expenses, damages, actions, claims, counter-claims, demands, causes
of action, suits, defenses, offsets against the Obligations of any nature
whatsoever, whether at law or in equity, known or unknown, either now accrued or
hereafter maturing, in contract or in tort, at law or in equity, (the "Claims")
which Borrower Parties, or any of them, now has or hereafter can, shall or may
have against KCCI or Lenders, jointly or severally, by reason of any matter,
cause or thing, from the beginning of the world to and including the date of
this Agreement, including specifically, but without limitation, matters arising
out of or relating to, in whole or in part, directly or indirectly: (a) the
Loans; (b) the Credit Documents or the indebtedness evidenced and secured
thereby; or (c) the Projects (the "Borrower Parties'Release"); provided,
however, nothing herein shall release or diminish the Borrower
Parties'respective rights under this Agreement and the Workout Documents, which
rights shall survive this Agreement. Further, Borrower Parties, jointly and
severally, for themselves and all of their respective heirs, successors and
assigns, hereby covenant and agree never to institute or cause to be instituted
or continue prosecution of, or participation in, any suit or other form of
action or proceeding of any kind or nature against any of Lenders or any
subsidiaries or affiliates of any of Lenders, or any of their respective
officers, directors, employees, agents, attorneys, representatives,
participants, predecessors, subsidiaries, affiliates, successors or assigns, by
reason of or in connection with any of the foregoing matters arising prior to or
through the date of this Agreement other than to enforce the terms of this
Agreement and/or any of the Workout Documents (the "Borrower Parties'Covenant
Not to Sue").

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         7.5          Lenders'Release of Borrower Parties. On the date the
Lenders shall first be obligated to execute and deliver the Covenant Not to Sue
pursuant to Section 7.3 hereof (the "Section 7.3 Date") provided that
simultaneous therewith the Borrower Parties shall execute and deliver a
supplemental release and a supplemental covenant not to sue in favor of the
Lender Released Parties covering all of the matters specified in the Borrower
Parties'Release and the Borrower Parties Covenant not to Sue through the Section
7.3 Date as well as all Claims of the Borrower Parties under this Agreement and
the Workout Documents, (i) KCCI and Lenders, and each of them, jointly and
severally, on behalf of themselves and all of their respective successors and
assigns will provide written confirmation that they do remise, release, acquit,
satisfy and forever discharge each of Borrower Parties and each of their
respective officers, directors, employees, agents, attorneys, representatives,
predecessors, subsidiaries, affiliates, successors and assigns, from any and all
manner of debts, accounts, warranties, representations, covenants, contracts,
agreements, liabilities, obligations, expenses, damages, actions, claims,
counter-claims, demands, causes of action, suits or defenses of any nature
whatsoever, whether at law or in equity, known or unknown, either now accrued or
hereafter maturing, in contract or in tort, at law or in equity, which KCCI or
Lenders, or any of them, now has or hereafter can, shall or may have against
Borrower Parties, jointly or severally, by reason of any matter, cause or thing,
from the beginning of the world to and the Section 7.3 Date, arising out of or
relating to, in whole or in part, directly or indirectly: (a) the Loans; (b) the
Credit Documents or the indebtedness evidenced and secured thereby; (c) the
Projects; (d) this Agreement or (e) the other Workout Documents (but excluding
any unrelated loans or indebtedness) and (ii) KCCI and Lenders, jointly and
severally, for themselves and all of their respective heirs, successors and
assigns, hereby covenant and agree never to institute or cause to be instituted
or continue prosecution of any suit or other form of action or proceeding of any
kind or nature against any of Borrower Parties or any subsidiaries or affiliates
of any of Borrower Parties, or any of their respective officers, directors,
employees, agents, attorneys, representatives, participants, predecessors,
subsidiaries, affiliates, successors or assigns, by reason of or in connection
with any of the foregoing matters, claims or causes of action arising prior to
or through the Section 7.3 Date, other than to enforce the terms of this
Agreement and/or any of the Workout Documents; provided, however, that the
foregoing release and covenant not to sue shall not apply to the rights of any
Indemnified Person pursuant to Section 7.6. Without limiting the foregoing, the
release provided for above in this Section 7.5 shall be void ab initio and of no
force or effect if any of Borrower Parties breaches its agreement under the
second sentence of Section 7.4 above or if any Transfer Documents delivered to
KCCI, or its designee, pursuant to this Agreement or the release by Borrower
Parties of the Lenders set forth in Section 7.4 of this Agreement is ever
rendered void, is rescinded or adjudicated unenforceable by operation of law or
by order of any state or federal court of competent jurisdiction, by reason of
an order arising out of any claim or proceeding initiated or commenced in favor
of, against, or on behalf of or in concert with, directly or indirectly, any of
Borrower Parties.

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         7.6         Borrower Parties'Indemnification of KCCI and Lenders.

(a)          In the event any Project is conveyed to KCCI, its designee or any
entity procured by or at the behest of KCCI or the Lenders, Borrower Parties
hereby irrevocably covenant and agree, on a joint and several basis, to
indemnify, save, defend and hold harmless each Lender and the Collateral Agent,
each counterparty to any Designated Hedge Agreement, any grantee of the Project,
their respective officers, directors, employees, representatives and agents, and
the successors and assigns of each of the foregoing (any or all of such persons
being individually referred to herein as an "Indemnified Person" and
collectively referred to herein as the "Indemnified Persons" and each such
reference shall refer jointly and severally to each such Indemnified Person),
from and against the full amount of any and all actions, claims, costs, damages,
defenses, demands, disbursements, expenses, fees, fines, judgments, lawsuits,
liabilities, liens, losses, obligations, penalties and/or proceedings
(including, but not limited to, all reasonable attorneys'fees and all other
professional or consultant's expenses) incurred in respect of, as a consequence
of, or in connection with any of the Projects and which arose or accrued prior
to the date of such transfer of the Project (but excluding the Loans)
("Losses"). The foregoing indemnification shall not extend to Losses incurred or
suffered by any Indemnified Person which are directly attributable to (i) the
gross negligence or willful misconduct of any Indemnified Person; or (ii) events
or circumstances affecting the Project which occurred following such time as (A)
any Indemnified Person shall have indefeasibly succeeded to Borrower's interest
in such Project (whether by foreclosure or transfer of title in lieu of
foreclosure) to the exclusion of the Indemnitors, or (B) management of the
Project is transferred to a party other than either of Borrower Parties in
accordance with the Workout Documents, except to the extent that the Losses
include claims arising due to breaches of or non-compliance with obligations of
a Borrower Party prior to the occurrence of the events described in clause (ii)
above or negligence or willful misconduct of a Borrower Party after the
occurrence of the events described in clause (ii)(B) above; provided, however,
that the foregoing provisions of this sentence shall not limit or otherwise
affect Company's indemnification obligations under the Management Contracts, as
referenced in Section 9(a)(ii) of the Cash Flow Assignment Agreement. To the
extent that the undertaking to indemnify, pay or hold harmless any Indemnified
Person set forth in this Agreement may be unenforceable because it is violative
of any law or public policy, the Indemnitors shall make the maximum contribution
to the payment and satisfaction of each of the Losses and other liabilities and
amounts as to which indemnification is intended hereunder which is permissible
under applicable law.

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(b)         If any Indemnified Person receives written notice of (i) the
commencement of any judicial, quasi-judicial, administrative or governmental
proceeding brought involving any matter which may give rise to Losses hereunder,
in which such Indemnified Person is named as a defendant, in each case which
could reasonably be expected to result in a claim for indemnification by such
Indemnified Person under this Agreement, it shall promptly notify the Collateral
Agent thereof in writing and the Collateral Agent will, in turn, promptly notify
the Indemnitors thereof in writing; provided, however, that the failure to give
any such notice will not constitute a waiver of any right of any Indemnified
Person (i) to any advance or indemnification hereunder except to the extent that
the Indemnitors may be materially prejudiced by the failure of the Collateral
Agent to give such notice to it, but then only to the extent of such prejudice,
or (ii) to release the Indemnitors from any obligation to indemnify any
Indemnified Person which the Indemnitors may otherwise have to any Indemnified
Person.

(c)          (i) Upon request of any Indemnified Person, the Indemnitors shall
defend any and all claims and proceedings relating to any [claims] that may be
brought or asserted against such Indemnified Person in connection with or
arising out of any of the matters covered by the indemnification provisions of
this Agreement. In the event that the Indemnitors are defending an Indemnified
Person, the Indemnitors may settle an claim against such Indemnified Person,
including one which is the subject of a Proceeding, provided that (A) such
settlement results in the complete release of such Indemnified Person, with
prejudice, from any such claim (and any such Proceeding), (B) such settlement
does not require the payment of any sum, the taking of any action, the making of
any admission of culpability, or the incurrence of any obligation, by such
Indemnified Person, and (C) contemporaneously with such settlement, such
Indemnified Person is fully reimbursed for any Losses incurred in connection
with such claim (and any such proceeding).

         (ii) In the event an Indemnified Person has required the Indemnitors
pursuant to the provisions of section 7.6(c)(i) to defend it in respect of any
matter, such defense shall be conducted by reputable attorneys retained by the
Indemnitors, reasonably satisfactory to the Indemnified Person, at the
Indemnitors'sole cost and expense. In addition, the Indemnified Person shall
have the right to participate in such proceedings and to be represented by
attorneys of its own choosing. In such case, the Indemnified Person shall be
responsible for the cost of such participation unless the Indemnified Person
shall have concluded in its reasonable discretion that the interest of the
Indemnified Person and of the Indemnitors in the action conflict in such a
manner and to such an extent as to require, consistent with applicable standards
of professional responsibility, the retention of separate counsel for the
Indemnified Person, in which event the Indemnitors shall pay for all reasonable
attorneys'fees and expenses of such separate counsel chosen by the Indemnified
Person. If the Indemnitors do not timely commence any such defense, the
Indemnified Person may conduct, at the Indemnified Person's expense, the defense
of such matter and the Indemnitors will be obligated to indemnify such
Indemnified Person for all Losses in connection therewith, including, without
limitation, the amount of any adverse final judgment or decree rendered in such
matter and all costs and expenses incurred in connection with the defense of
such matter including reasonable attorneys' fees.

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ARTICLE VIII
CLOSING OF AGREEMENT; ESTABLISHMENT AND CLOSING OF ESCROW

          8.1          Closing Location. The Closing shall occur on the Closing
Date at the offices of KCCI's legal counsel, Thompson Hine LLP, located at
3900 Key Tower, 127 Public Square, Cleveland, Ohio 44114-1219. Satisfaction of
all closing conditions and requirements shall be determined by KCCI in its sole
discretion. The Closing under this Agreement shall occur as to all Projects on
the same date.

          8.2          Deeds in Escrow Agreement.

(a)         At Closing, Borrower Parties and KCCI shall enter into the Deeds in
Escrow Agreement with the Escrow Agent in the form attached hereto in Exhibit O.

(b)          At Closing, Borrower Parties shall deposit into escrow with the
Escrow Agent two (2) fully executed originals of each of the Transfer Documents
for each of the Projects.

         8.3          Closing Deliveries Relating to Collection Account. At
Closing, Borrower Parties shall perform the following covenants:

(a)         deliver to KCCI the Debt Service Payments by wire transfer of funds
immediately available in Cleveland, Ohio;

(b)          deliver to KCCI the executed Cash Flow Assignment Agreement;

(c)          establish the Collection Account; and

(d)          deliver to KCCI the Collection Account Agreement, executed by
Borrower Parties and the depository institution.

          8.4          Other Closing Deliveries. At or prior to Closing,
Borrower Parties shall deliver to KCCI an executed original of each of the
following:

(a)         Secretary's Certificate/ Incumbency Certificate for Borrower;

(b)         Authorizing Resolution for Borrower;

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(c)          Secretary's Certificate / Incumbency Certificate for the manager of
Borrower;

(d)          Authorizing Resolution for Borrower's manager;

(e)          Secretary's Certificate/ Incumbency Certificate for Company;

(f)          Authorizing Resolution for Company;

(g)          Release of Brokerage Commission from Cohen & Steers;

(h)         Insurance policies and certificates as referenced in Section 3.1(f);

(i)          Certification of Revenue Journals;

(j)         

Amendment to Operating Agreement;

(k)         Amendments to Management Contracts; and

(l)         Legal Opinion of Borrower Parties'counsel.

          8.5          Closing Costs. At Closing, KCCI shall pay its closing
costs, including title insurance premiums and charges, recording charges, due
diligence expenses, management consultants'fees and attorneys'fees and expenses,
and other costs, expenses and charges incurred by KCCI in connection with
documentation and closing of the transaction contemplated by this Agreement.
Borrower and Company shall pay their respective closing costs, including
management consultants'fees and attorneys'fees and expenses, and other costs,
expenses and charges incurred by Borrower and Company in connection with
documentation and closing of the transaction contemplated by this Agreement.

ARTICLE IX

MISCELLANEOUS

          9.1         Miscellaneous.

          (a)          No Limitation of Remedies. No right, power or remedy
conferred upon or reserved to or by KCCI in this Agreement is intended to be
exclusive of any other right, power or remedy conferred upon or reserved to or
by KCCI hereunder or any of the other Workout Documents, or under the Credit
Documents or at law or in equity, but each and every remedy shall be cumulative
and concurrent, and shall be in addition to each and every other right, power
and remedy given hereunder, under the other Workout Documents, under the Credit
Documents or now or hereafter existing at law or in equity.

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          (b)          No Waivers. Except as specifically and expressly set
forth in this Agreement and the other Workout Documents, nothing contained in
this Agreement and the other Workout Documents shall constitute a waiver of any
rights or remedies of KCCI under the Credit Documents and at law and in equity.
No delay or failure on the part of KCCI in exercising any right, power or
privilege hereunder or under the other Workout Documents, and no course of
dealing between KCCI and Borrower and/or Company, shall operate as a waiver
thereof; nor shall any single or partial exercise by KCCI of any right, power or
privilege hereunder or under the other Workout Documents preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder. No notice to or demand on Borrower or Company in any
case shall entitle Borrower or Company to any other or further notice or demand
in similar or other circumstances or constitute a waiver of the rights of KCCI
to any other or further action in any circumstances without notice or demand. No
action or forbearance by KCCI contrary to the provisions of this Agreement or of
any of the other Workout Documents shall be construed to constitute a waiver of
any of the express provisions hereof or thereof. Any party may in writing
expressly waive any of such party's rights under this Agreement or under any of
the other Workout Documents without invalidating this Agreement or the other
Workout Documents or any portion hereof.

         (c)         Marshalling. Borrower Parties, for themselves and all
Persons who may claim by, through or under them, waive to the extent that they
lawfully may do so, all right to have the Projects or any portion thereof
marshaled upon any foreclosure sale thereof.

          (d)          No Partnership, Joint Venture, Agency or Fiduciary Duty.
Neither this Agreement nor any other Workout Document is intended or shall be
construed as creating a partnership or joint venture between Borrower Parties,
on the one hand, and KCCI on the other hand; and the relationship of KCCI to
Borrower Parties shall be solely that of "lender" and "borrower", and no
fiduciary duty of KCCI to Borrower Parties or any of them, of any nature
whatsoever, exists or will hereafter exist. In no event shall KCCI be liable for
debts or claims accruing or arising against Borrower Parties or any of them.
KCCI neither undertakes nor assumes any responsibility or duty to any Borrower
Party or to another person with respect to the Collateral or the financial
condition or operations of any Borrower Party. Any approval, consent or other
judgment to be given or made by KCCI under this Agreement may be given, made or
withheld by KCCI in its sole discretion. This Agreement grants KCCI certain
rights as a creditor such as the right to inspect the Projects, to review the
books of Borrower Parties, to approve of certain matters, and so forth. These
rights are granted KCCI for the exclusive benefit of KCCI and to preserve KCCI's
rights as a creditor loaning money to Borrower, and not for the benefit of
Borrower, Company or any other Borrower Party or any other person. Nothing in
this Agreement shall require or obligate KCCI to inspect the Projects or the
books of any Borrower Party. Borrower Parties acknowledge and agree that:

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(i)         they are relying entirely upon their own judgment and are solely
responsible with regard to Borrower's operations and financial condition, and
all matters relating to the Collateral and Borrower's property, including the
conduct of Borrower and its agents and employees;

(ii)         Acceptance, approval or review by KCCI of any documents,
information, conditions or performance or any other action by KCCI under this
Agreement or the Credit Documents are for the purposes of administration of the
Loans only and for the sole protection of KCCI, and shall not constitute a
representation or warranty by KCCI to Borrower or any other Borrower Party or
any other person or be relied upon by any Borrower Party or any other person for
any other purpose; and

(iii)         KCCI does not owe any duty of care to protect any Borrower Party
or any other person for any loss, damage, liability or claim of any kind as a
result of any negligent, faulty, inadequate or defective design, building,
construction of Borrower's property, or any negligent or wrongful conduct of
Borrower or any of its employees or occurrence or the improper application of
all or any portion of the Loans.

          (e)          Predecessors, Successors or Assigns; Survival of Terms.
Whenever in this Agreement or any of the other Workout Documents any party is
named or referred to, the heirs, executors, legal representatives, predecessors,
successors, successors-in-title and assigns of such parties shall be included,
and all covenants and agreements contained in this Agreement and the other
Workout Documents shall bind and inure to the benefit of their respective heirs,
executors, legal representatives, predecessors, successors, successors-in-title
and assigns, whether so expressed or not and shall survive a foreclosure sale or
other exercise of rights under any one or more of the Credit Documents.

          (f)          Construction of Agreement. Each party acknowledges that
it has participated in the negotiation of this Agreement and the other Workout
Documents, and no provision of this Agreement and the other Workout Documents
shall be construed against or interpreted to the disadvantage of any party
hereto or thereto by any court or other governmental or judicial authority by
reason of such party having or being deemed to have structured, dictated or
drafted such provision. Borrower Parties, and each of them, at all times have
had access to an attorney in the negotiation of the terms of and in the
preparation and execution of this Agreement and the other Workout Documents, and
Borrower Parties, and each of them, has had the opportunity to review and
analyze this Agreement and the other Workout Documents for a sufficient period
of time prior to the execution and delivery thereof. No representations or
warranties have been made by or on behalf of KCCI, or relied upon by Borrower
Parties, or any of them, pertaining to the subject matter of this Agreement and
the other Workout Documents and all prior statements, representations and
warranties, if any, are totally superseded and merged into this Agreement and
the other Workout Documents. All terms of this Agreement and the other Workout
Documents were negotiated at arm's length and were prepared and executed without
fraud, duress, undue influence or coercion of any kind exerted by any of the
parties upon the others.

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         (g)          Invalid Provision to Affect No Others. If any clause or
provision of this Agreement is determined to be illegal, invalid or
unenforceable under any present or future law by the final judgment of a court
of competent jurisdiction, the remainder of this Agreement will not be affected
thereby. It is the intention of the parties that if any such provision is held
to be illegal, invalid or unenforceable, there shall be added in lieu thereof a
provision as similar in terms to that provision as is possible which will be
legal, valid and enforceable.

         (h)          No Admissions. Borrower Parties expressly acknowledge and
agree that the waivers, estoppels and releases contained in this Agreement and
the other Workout Documents shall not be construed as an admission of
wrongdoing, liability or culpability on the part of KCCI, or as an admission by
KCCI of the existence of any claims of any of Borrower Parties against KCCI.

         (i)          Third Parties Beneficiary. All conditions of the
obligations of KCCI and Borrower Parties hereunder are imposed solely and
exclusively for the benefit of KCCI and Borrower Parties and their respective
successors and assigns, and no other Person shall have standing to require
satisfaction of such conditions or obligations in accordance with their terms or
be entitled to assume that KCCI or Borrower Parties will refuse to act in the
absence of strict compliance with any or all thereof, and no other Person shall,
under any circumstances, be deemed to be a beneficiary of such conditions, any
and all of which may be freely waived in whole or in part by KCCI or Borrower
Parties, as the case may be, at any time if in their sole discretion they deem
it desirable to do so.

         (j)          Notices. Notwithstanding anything to the contrary in any
of the Credit Documents, all notices and other communications provided for
hereunder shall be in writing (including telegraphic, telex, facsimile
transmission or cable communication), signed by the party giving such notice or
election, and mailed, telegraphed, telexed, transmitted, cabled or delivered, as
follows:

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If to any of Borrower Parties:

ALTERRA HEALTHCARE CORPORATION
10000 Innovation Drive
Milwaukee, Wisconsin 53226
Attention: Mr. Mark Ohlendorf
Telephone: 414-918-5403
Facsimile: 414-918-5055

With a copy to:

ROGERS & HARDIN
229 Peachtree Street - Suite 2700
Atlanta, Georgia 30313
Attention: Alan C. Leet
Telephone: 404-420-4616
Facsimile: 404-525-2224

If to KCCI:

KEY CORPORATE CAPITAL INC.
127 Public Square
Cleveland, Ohio  44114
Attention:  Mr. Arthur Cutler
Telephone: 216-689-0854
Facsimile: 216-689-8468

With a copy to:

THOMPSON HINE LLP
3900 Key Center
127 Public Square
Cleveland, Ohio  44114-2191
Attention: Alan R. Lepene, Esq.
Telephone: 216-566-5520

Facsimile: 216-566-5800

or at such other address as shall be designated by any party in a written notice
to the other parties hereto. All such notices and communications shall be
mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight
courier, and shall be effective when received. The effectiveness of such notice
will not be affected by the giving or lack thereof of courtesy copies of such
notice.

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(k)          Governing Law. This Agreement involves multiple real properties
located in a number of different jurisdictions, and multiple parties located in
a number of different jurisdictions. In light of such factors and the fact that
the principal place of business of KCCI is presently located in Cleveland, Ohio,
the parties have determined that this Agreement shall be governed by and
construed under the law of the State of Ohio, and that it would be appropriate
for Borrower Parties to expressly submit to the jurisdiction of certain courts
sited in the State of Ohio. Accordingly: THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
BE GOVERNED BY THE LAW OF THE STATE OF OHIO. NOTWITHSTANDING THE FOREGOING, IF
ANY OTHER WORKOUT DOCUMENT PROVIDES THAT THE LAW OF ANOTHER JURISDICTION SHALL
GOVERN SUCH WORKOUT DOCUMENT IN WHOLE OR IN PART, THEN THE CHOICE OF LAW MADE IN
SUCH WORKOUT DOCUMENT SHALL GOVERN THAT WORKOUT DOCUMENT. TO THE FULLEST EXTENT
PERMITTED BY LAW, BORROWER PARTIES HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVE
ANY CLAIM TO ASSERT THAT THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF
OHIO GOVERNS THIS AGREEMENT AND (EXCEPT AS AFORESAID) ANY OTHER WORKOUT
DOCUMENT.

(l)          Headings. The headings of the several sections and other portions
of this Agreement are inserted for convenience only and shall not in any way
affect the meaning or construction of any provision of this Agreement.

(m)          Modifications. The terms of this Agreement and the other Workout
Documents may not be changed, modified, waived, discharged or terminated orally,
but only by an instrument or instruments in writing, signed by the party against
whom the enforcement of the change, modification, waiver, discharge or
termination is asserted.

(n)          Time of Essence. It is specifically agreed that time is of the
essence with respect to this Agreement and the other Workout Documents and that
the waiver of the rights or options, or obligations secured hereby, shall not at
any time thereafter be held to be abandonment of such rights.

(o)          Counterparts. This Agreement may be executed in any number of
counterparts by the different parties hereto on separate counterparts, each of
which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same Agreement.

(p)          Meaning of Best Knowledge. Whenever a representation or warranty
herein is made by Borrower Parties, or any of them, to the "best knowledge" of
such party, "best knowledge" shall be deemed to mean the actual knowledge of the
party making the representation or warranty and shall also be deemed to impose
upon the party making such representation or warranty a duty to make inquiry of
such of the other Borrower Parties or Affiliates as are reasonably likely to
have actual knowledge of the subject matter to which such representation or
warranty relates.

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(q)          Exhibits. The Exhibits and Schedules referred to in this Agreement
are incorporated herein by reference thereto and are an integral part of this
Agreement as if fully set forth herein.

(r)          Survival. The terms, provisions, covenants, agreements,
representations and warranties of Borrower Parties and KCCI under this Agreement
and the other Workout Documents shall expressly survive any foreclosure action,
any sale of the Projects pursuant to such foreclosure action, the execution and
delivery of the Workout Documents, any execution and delivery of the Transfer
Documents and the consummation of any or all of the transactions provided for in
this Agreement or contemplated hereby and provided for in or contemplated by the
Transfer Documents and the Workout Documents.

(s)          No Duty. All attorneys, accountants, appraisers, consultants and
other professional persons (including the firms or other entities on behalf of
which any such person may act) retained by KCCI with respect to the transactions
contemplated by this Agreement and the other Workout Documents shall have the
right to act exclusively in the interest of KCCI, and shall have no duty of
disclosure, duty of loyalty, duty of care, or other duty or obligation of any
type or nature whatsoever to Borrower Parties, or to any other person, with
respect to any matters within the scope of such representation or related to
their activities in connection with such representation. Borrower Parties agree
not to assert any claim or counterclaim against any such persons with regard to
such matters, all such claims and counterclaims, now existing or hereafter
arising, whether known or unknown, foreseen or unforeseeable, being hereby
waived, released or forever discharged.

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(t)          CONSENT TO JURISDICTION; VENUE. ANY LEGAL ACTION OR PROCEEDING WITH
RESPECT TO THIS AGREEMENT OR ANY OTHER WORKOUT DOCUMENT MAY BE BROUGHT IN THE
COURT OF COMMON PLEAS OF CUYAHOGA COUNTY, OHIO, OR OF THE UNITED STATES DISTRICT
COURT FOR THE NORTHERN DISTRICT OF OHIO, AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF BORROWER PARTIES HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS. BORROWER PARTIES HEREBY FURTHER
IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO BORROWER PARTIES AT THEIR
RESPECTIVE ADDRESSES FOR NOTICES SET FORTH ABOVE. NOTHING HEREIN SHALL AFFECT
THE RIGHT OF KCCI TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST BORROWER PARTIES IN ANY
OTHER JURISDICTION. BORROWER PARTIES HEREBY IRREVOCABLY WAIVE ANY OBJECTION
WHICH EITHER MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE
AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER WORKOUT DOCUMENT BROUGHT IN THE COURTS REFERRED TO ABOVE
AND HEREBY FURTHER IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH
COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.

(u)          WAIVER OF JURY TRIAL. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER WORKOUT
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement under seal, as of the day and year first above written.

 

BORROWER PARTIES

:      

THIRD PARTY INVESTORS I, LLC
a Delaware limited liability company

By: Alterra Healthcare Corporation,

a Delaware corporation, its sole member

     

By:          /s/ Mark W. Ohlendorf         

 

         Print Name: Mark W. Ohlendorf

 

         Title: Senior Vice President

         

ALTERRA HEALTHCARE CORPORATION,
a Delaware corporation

             

By:          /s/ Mark W. Ohlendorf         

 

         Print Name: Mark W. Ohlendorf

 

         Title: Senior Vice President

         

KCCI

:           

KEY CORPORATE CAPITAL INC.,
a Michigan corporation, as Administrative Agent for Lenders and as a Lender

             

By:          /s/ Arthur E. Cutler         

 

         Print Name: Arthur E. Cutler

 

         Title: Senior Vice President

   

 

 

 

LENDERS

     

FLEET NATIONAL BANK, as Lender

         

By:          /s/ William P. Dzilenski         

 

         Print Name: William P. Dzilenski

 

         Title: Vice President

         

HUNTINGTON NATIONAL BANK, as Lender

         

By:          /s/ David F. Isler         

 

         Print Name: David F. Isler

 

         Title: Senior Vice President