ex10_6709.htm


    
      

    

    Exhibit
      10.67.09

     

    
      LOAN
        AGREEMENT


       

      THIS
        LOAN AGREEMENT (this “Agreement”) is made as of August 15, 2007, by and among the four (4)
        Delaware limited liability companies
        or limited partnerships listed on Schedule A attached hereto and made a
        part hereof (together with their respective successors and assigns, the
“Borrowers”, and individually, a “Borrower”), and CAPMARK BANK, a Utah
        industrial bank (together with its successors and assigns,
“Lender”).

       

      RECITALS

       

      A.           Borrowers
        have requested a loan in the principal amount of $26,200,000.00.

       

      B.           Lender
        has agreed to make such loan on the terms and conditions hereinafter set
        forth.

       

      AGREEMENT

       

      NOW,
        THEREFORE, it is hereby agreed as follows:

       

      ARTICLE
        I

      DEFINITIONS,
        ACCOUNTING PRINCIPLES, UCC TERMS.

       

      1.1           As
        used in this Agreement, the following terms shall have the following meanings
        unless the context hereof shall otherwise indicate:

       

      “Accounts”
        means any rights of Borrowers, if any, arising from the operation of a Facility
        to payment for goods sold or leased or for services rendered, not evidenced
        by
        an Instrument, including, without limitation, (i) all accounts arising from
        the
        operation of a Facility, (ii) all moneys and accounts held by or for the
        benefit of Lender of this Agreement and under the Mortgage, and (iii) all
        rights
        to payment from Medicare or Medicaid programs, or similar state or federal
        programs, boards, bureaus or agencies and rights to payment from residents,
        private insurers, and others arising from the operation of the Facility,
        including rights to payment pursuant to Reimbursement
        Contracts.  Accounts shall include the proceeds thereof (whether cash
        or noncash, moveable or immoveable, tangible or intangible) received from
        the
        sale, exchange, transfer, collection or other disposition or substitution
        thereof.

       

       “Affiliate”
        means, with respect to any Person, (a) each Person that controls, is
        controlled by or is under common control with such Person, (b) each Person
        that, directly or indirectly, owns or controls, whether beneficially or as
        a
        trustee, guardian or other fiduciary, any of the Stock of such Person, and
        (c) each of such Person’s officers, directors, members, joint venturers and
        partners.

       

      “Allocated
        Loan Amount” shall mean the amounts allocated to each Borrower and its
        respective Facility as set forth on Exhibit F.

       

      “Assignment
        of Leases and Rents” means that certain Assignment of Leases and Rents
        by each Borrower in favor of Lender.

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

       

      “Assignment
        of Licenses” means, collectively, those certain Assignment of Licenses,
        Permits and Contracts to and for the benefit of Lender.

       

      “Assumed
        Management Fees” means assumed management fees of five percent (5%) of
        net patient revenues of the Facility (after Medicaid and Medicare contractual
        adjustments).

       

      “Business
        Day” means a day, other than Saturday or Sunday and legal holidays,
        when Lender is open for business.

       

      “Closing
        Date” means the date on which all or any part of the Loan is disbursed
        by Lender to or for the benefit of Borrower.

       

      “Collateral”
        means, collectively, the Borrowers’ interest in the Mortgaged Property,
        Improvements, Equipment, Rents, Accounts, General Intangibles, Instruments,
        Inventory, Money, Permits (to the full extent assignable), Reimbursement
        Contracts, and all Proceeds, all whether now owned or hereafter acquired,
        and
        including replacements, additions, accessions, substitutions, and products
        thereof and thereto, and all other property which is or hereafter may become
        subject to a Lien in favor of Lender as security for any of the Loan
        Obligations.

      


      “Commitment
        Letter” means the commitment letter issued by Lender to Borrowers dated
        of even date herewith.

       

      “Debt
        Service Coverage Ratio” means a ratio in which the first number is the
        sum of “net pre-tax income” of Borrowers from usual operations of the Facilities
        as set forth in the financial statements provided to Lender (without deduction
        for actual management fees or management expenses paid or incurred in connection
        with the operation of the Facility), calculated based upon the preceding
        twelve
        (12) months (or such lesser period of time as shall have elapsed following
        the
        closing of the Loan), plus Loan interest expense and non-cash expenses or
        allowances for depreciation and amortization of the Facilities for such period,
        to the extent the foregoing are deducted in determining “net pre-tax income”,
less Assumed Management Fees for such period and the second number is
        the
        interest due on the Loan for the applicable period.  In calculating
“net pre-tax income,” Extraordinary Income and Extraordinary Expenses shall be
        excluded.

       

      “Default”
        means the occurrence or existence of any event which, but for the giving
        of
        notice or expiration of time or both, would constitute an Event of
        Default.

       

      “Default
        Rate” has the meaning given to that term in the Note.

       

      “Emeritus”
        means Emeritus Corporation, a publicly-traded company organized under the
        laws
        of the State of Washington.

      


      “Environmental
        Permit” means any permit, license, or other authorization issued under
        any Hazardous Materials Law with respect to any activities or businesses
        conducted on or in relation to the Land and/or the Improvements.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      “Equipment”
        means all beds, linens, televisions, carpeting, telephones, cash registers,
        computers, lamps, glassware, rehabilitation equipment, restaurant and kitchen
        equipment, and other fixtures and equipment, if any, owned by Borrowers located
        on, attached to or used or useful in connection with any of the Property
        or the
        Facilities and all renewals and replacements thereof and substitutions therefor;
        provided, however, that with respect to any items which are leased for the
        benefit of a Facility and not owned by a Borrower, the Equipment shall include
        the leasehold interest only of such Borrower together with any options to
        purchase any of said items and any additional or greater rights with respect
        to
        such items which such Borrower may hereafter acquire, but the foregoing shall
        not be construed to mean that such leasing shall be permitted hereunder and
        under the other Loan Documents.

       

      “Event
        of Default” means any “Event of Default” as defined in Article VII
        hereof.

       

      “Exhibit”
        means an Exhibit to this Agreement, unless the context refers to another
        document, and each such Exhibit shall be deemed a part of this Agreement
        to the
        same extent as if it were set forth in its entirety wherever reference is
        made
        thereto.

       

      “Extraordinary
        Income and Extraordinary Expenses” means material items of a character
        significantly different from the typical or customary business activities
        of
        Borrowers which would not be expected to recur frequently and which would
        not be
        considered as recurring factors in any evaluation of the ordinary operating
        processes of Borrowers’ business, and which would be treated as extraordinary
        income or extraordinary expenses under GAAP.

       

      “Facilities”
        means the four (4) facilities listed on Schedule B
        attached hereto and made a part hereof located on the Land, as they may now
        or
        hereafter exist, together with any other general or specialized care facilities,
        if any (including any Alzheimer’s care unit, subacute, and any other healthcare
        related facility), now or hereafter operated on the Land, and, individually,
        a
“Facility”.

       

      “GAAP”
        means, as in effect from time to time, generally accepted accounting principles
        consistently applied as promulgated by the American Institute of Certified
        Public Accountants.

       

      “General
        Intangibles” means all intangible personal property of Borrowers
        arising out of or connected with the Mortgaged Property or the Facilities
        and
        all renewals and replacements thereof and substitutions therefor (other than
        Accounts, Rents, Instruments, Inventory, Money, Permits, and Reimbursement
        Contracts), including, without limitation, things in action, contract rights
        and
        other rights to payment of money.

      


      “Governmental
        Authority” means any nation or government, any state or other political
        subdivision thereof, and any Person exercising executive, legislative, judicial,
        regulatory or administrative functions of or pertaining to such
        government.

       

      “Guarantor”
        means Emeritus.

       

      “Guaranty
        Agreement” means that certain Payment and Performance Guaranty
        Agreement of even date herewith executed by Emeritus in favor of
        Lender.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      “Hazardous
        Materials” means petroleum and petroleum products and compounds
        containing them, including gasoline, diesel fuel and oil; explosives; flammable
        materials; radioactive materials; polychlorinated biphenyls (“PCBs”) and
        compounds containing them; lead and lead-based paint; asbestos or
        asbestos-containing materials in any form that is or could become friable;
        underground storage tanks, whether empty or containing any substance; any
        substance the presence of which on the Land and/or the Improvements is
        prohibited by any federal, state or local authority; any substance that requires
        special handling; and any other material or substance now or in the future
        defined as a “hazardous substance,” “hazardous material,” “hazardous waste,”
“toxic substance,” “toxic pollutant,” “contaminant,” or “pollutant” within the
        meaning of any Hazardous Materials Law.

       

      “Hazardous
        Materials Laws” means all federal, state, and local laws, ordinances
        and regulations and standards, rules, policies and other governmental
        requirements, administrative rulings and court judgments and decrees in effect
        now or in the future and including all amendments, that relate to Hazardous
        Materials and apply to Borrower or to the Land and/or the
        Improvements.  Hazardous Materials Laws include, but are not limited
        to, the Comprehensive Environmental Response, Compensation and Liability
        Act, 42
        U.S.C. Section 9601, et seq., the Resource Conservation and Recovery Act,
        42
        U.S.C. Section 6901, et seq., the Toxic Substance Control Act, 15 U.S.C.
        Section
        2601, et seq., the Clean Water Act, 33 U.S.C. Section 1251, et seq., and
        the
        Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, and their
        state
        analogs.

       

      “Improvements”
        means all buildings, structures and improvements of every nature whatsoever
        now
        or hereafter situated on the Land, including but not limited to, all gas
        and
        electric fixtures, radiators, heaters, engines and machinery, boilers, ranges,
        elevators and motors, plumbing and heating fixtures, carpeting and other
        floor
        coverings, water heaters, awnings and storm sashes, and cleaning apparatuses
        which are or shall be attached to the Land or said buildings, structures
        or
        improvements.

       

      “Indebtedness”
        means any (a) obligations for borrowed money, (b) obligations, payment for
        which
        is being deferred by more than ninety (90) days, representing the deferred
        purchase price of property other than accounts payable arising in connection
        with the purchase of inventory customary in the trade and in the ordinary
        course
        of Borrower’s business, (c) obligations, whether or not assumed, secured by
        Liens or payable out of the proceeds or production from the Accounts and/or
        property now or hereafter owned or acquired, and (d) the amount of any other
        obligation (including obligations under financing leases) which would be
        shown
        as a liability on a balance sheet prepared in accordance with GAAP.

       

      “Instruments”
        means all instruments, chattel paper, documents or other writings obtained
        from
        or in connection with the operation of the Mortgaged Property or the Facilities
        (including, without limitation, all ledger sheets, computer records and
        printouts, data bases, programs, books of account and files relating
        thereto).

       

      “Inventory”
        means all inventories of food, beverages and other comestibles held
        by
        Borrowers for sale or use at or from the Mortgaged Property or the Facilities,
        and soap, paper supplies, medical supplies, drugs and all other such goods,
        wares and merchandise held by Borrowers for sale to or for consumption by
        guests, or residents of the Mortgaged Property or the Facilities and all
        such
        other goods returned to or repossessed by Borrowers.

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      “Land”
        means the land described in Exhibit “A” attached hereto and made a part
        hereof.

       

      “Leases”
        has the meaning given to that term in the Mortgage.

       

      “Licensees”
        means those entities listed on Schedule C attached
        hereto and made a part hereof.

       

      “Lien”
        means any voluntary or involuntary mortgage, security deed, deed of trust,
        lien,
        pledge, assignment, security interest, title retention agreement, financing
        lease, levy, execution, seizure, judgment, attachment, garnishment, charge,
        lien
        or other encumbrance of any kind, including those contemplated by or permitted
        in this Agreement and the other Loan Documents.

       

      “Loan”
        means the loan in the principal sum of $26,200,000.00 made by Lender to
        Borrowers as of the date hereof.

       

      “Loan
        Documents” means, collectively, the Commitment Letter, this Agreement,
        the Note, the Mortgage, the Assignment of Leases and Rents, the Assignment
        of
        Licenses, the Guaranty Agreement, and the Subordination Agreement, together
        with
        any and all other documents executed by Borrowers, Guarantor or others,
        evidencing, securing or otherwise relating to the Loan.

       

      “Loan
        Obligations” means the aggregate of all principal and interest owing
        from time to time under the Note and all expenses, charges and other amounts
        from time to time owing under the Note, this Agreement or the other Loan
        Documents and all covenants, agreements and other obligations from time to
        time
        owing to, or for the benefit of, Lender pursuant to the Loan
        Documents.

       

      “Managed
        Care Plans” means any health maintenance organization, preferred
        provider organization, individual practice association, competitive medical
        plan, or similar arrangement, entity, organization, or Person.

       

      “Management
        Agreement” means those certain Management Agreements or, as applicable,
        Master Lease and Management Agreements between Manager and either a Borrower
        or,
        if applicable, a Licensee, obligating Manager to operate and manage the
        Facilities.

       

      “Manager”
        means Emeritus for the Facilities which are not located in Texas and ESC
        IV,
        L.P., a Washington limited partnership, for the Facilities which are located
        in
        Texas, and any successor manager of the Facilities approved by Lender in
        writing.

       

      “Master
        Lease” means collectively those certain master leases captioned “Lease”
by and between Borrowers and Licensees, and entered into as of August
        15, 2007,
        or to be entered into upon the consummation of the merger between Guarantor
        and
        Summerville Senior Living.

       

      “Maturity
        Date” means September 1, 2009, unless extended pursuant to the terms
        of
        the Note.

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      “Medicaid”
        means that certain program of medical assistance, funded jointly by the federal
        government and the States, for impoverished individuals who are aged, blind
        and/or disabled, and/or members of families with dependent children, which
        program is more fully described in Title XIX of the Social Security Act (42
        U.S.C. §§ 1396 et seq.) and the regulations promulgated
        thereunder.

       

      “Medicare”
        means that certain federal program providing health insurance for eligible
        elderly and other individuals, under which physicians, hospitals, skilled
        nursing homes, home health care and other providers are reimbursed for certain
        covered services they provide to the beneficiaries of such program, which
        program is more fully described in Title XVIII of the Social Security Act
        (42
        U.S.C. §§ 1395 et seq.) and the regulations promulgated
        thereunder.

       

      “Money”
        means all monies, cash, rights to deposit or savings accounts or other items
        of
        legal tender obtained from or for use in connection with the operation of
        a
        Facility.

       

      “Mortgage”
        means collectively those certain four (4) Mortgages or Deeds of
        Trust
        and Security Agreements executed by Borrowers in favor of or for the benefit
        of
        Lender and covering each Borrower’s  respective Mortgaged
        Property.

       

      “Mortgaged
        Property” has the meaning given to that term in the
        Mortgage.

       

      “Note”
        means that certain Promissory Note of even date herewith in the principal
        amount
        of the Loan payable by Borrower to the order of Lender.

       

      “OFAC
        List” means the list of specially designated nationals and blocked
        persons subject to financial sanctions that is maintained by the U.S. Treasury
        Department, Office of Foreign Assets Control and any other similar list
        maintained by the U.S. Treasury Department, Office of Foreign Assets Control
        pursuant to any Requirements of Law, including, without limitation, trade
        embargo, economic sanctions, or other prohibitions imposed by Executive Order
        of
        the President of the United States.  The OFAC List currently is
        accessible through the internet website
        www.treas.gov/ofac/t11sdn.pdf.

       

      “O&M
        Program” means a written program of operations and maintenance
        established or approved in writing by Lender relating to any Hazardous Materials
        in, on or under the Land and/or the Improvements.

       

      “Permits”
        means all licenses, permits and certificates used or necessary in connection
        with the construction, ownership, operation, use or occupancy of the Mortgaged
        Property and/or the Facility, including, without limitation, business licenses,
        state health department licenses, food service licenses, licenses to conduct
        business, certificates of need and all such other permits, licenses and rights,
        obtained from any governmental, quasi-governmental or private person or entity
        whatsoever concerning ownership, operation, use or occupancy.

       

      “Permitted
        Encumbrances” has the meaning given to that term in Section 5.2
        hereof.

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      “Person”
        means an individual, partnership, limited partnership, corporation, limited
        liability company, business trust, joint stock company, trust, unincorporated
        association, joint venture, governmental authority or other entity of whatever
        nature.

       

      “Proceeds”
        means all proceeds (including proceeds of insurance and condemnation) from
        the
        sale, exchange, transfer, collection, loss, damage, disposition, substitution
        or
        replacement of any of the Collateral.

       

      “Reimbursement
        Contracts” means all third-party reimbursement contracts relating to
        the Facility which are now or hereafter in effect with respect to residents
        or
        patients qualifying for coverage under the same, including Medicare and
        Medicaid, Managed Care Plans and private insurance agreements, and any successor
        program or other similar reimbursement program and/or private insurance
        agreements, now or hereafter existing.

       

      “Rents”
        means all rent and other payments of whatever nature from time to time payable
        pursuant to leases of the Mortgaged Property or the Facilities, or for retail
        space or other space at the Mortgaged Property (including, without limitation,
        rights to payment earned under leases for space in the Improvements for the
        operation of ongoing retail businesses such as newsstands, barbershops, beauty
        shops, physicians’ offices, pharmacies and specialty shops).

       

      “Requirements
        of Law” means (a) the organizational documents of an entity, and (b)
        any law, regulation, ordinance, code, decree, treaty, ruling or determination
        of
        an arbitrator, court or other Governmental Authority, or any Executive Order
        issued by the President of the United States, in each case applicable to
        or
        binding upon such Person or to which such Person, any of its property or
        the
        conduct of its business is subject including, without limitation, laws,
        ordinances and regulations pertaining to the zoning, occupancy and subdivision
        of real property.

       

       “Single
        Purpose Entity” means a Person which complies with the requirements of
        Section 5.4.

       

       “Stock”
        means all shares, options, warrants, general or limited partnership interests,
        membership interests, participations or other equivalents (regardless of
        how
        designated) in a corporation, limited liability company, partnership or any
        equivalent entity, whether voting or nonvoting, including, without limitation,
        common stock, preferred stock, or any other “equity security” (as such term is
        defined in Rule 3a11-1 of the General Rules and Regulations promulgated by
        the
        Securities and Exchange Commission under the Securities Exchange Act of 1934,
        as
        amended).

       

       “Subordination
        Agreement” means that certain Subordination of Management Agreement of
        even date herewith by and among Borrower, Manager, Licensee and
        Lender.

       

      1.2           Singular
        terms shall include the plural forms and vice versa, as applicable, of the
        terms
        defined.

       

      1.3           Each
        term contained in this Agreement and defined in the Uniform Commercial Code
        (the
“UCC”) in effect from time to time in the state in which the Land is located
        shall have the meaning given to such term in the UCC, unless the context
        otherwise indicates, and shall include, without limitation, the meaning set
        forth in this Agreement.

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      1.4           All
        accounting terms used in this Agreement shall be construed in accordance
        with
        GAAP, except as otherwise specified.

       

      1.5           All
        references to other documents or instruments shall be deemed to refer to
        such
        documents or instruments as they may hereafter be extended, renewed, modified,
        or amended and all replacements and substitutions therefor.

       

      1.6           All
        references herein to “Medicaid” and “Medicare” shall be deemed to include any
        successor program thereto.

       

       

      ARTICLE
        II

      TERMS
        OF THE LOAN

       

      2.1           The
        Loan.  Each Borrower has agreed to borrow the Loan from
        Lender, and Lender has agreed to make the Loan to Borrowers, subject to
        Borrowers’ compliance with and observance of the terms, conditions, covenants,
        and provisions of this Agreement and the other Loan Documents, and each Borrower
        has made the covenants, representations, and warranties herein and therein
        as a
        material inducement to Lender to make the Loan.

       

      2.2           Security
        for the Loan. The Loan will be evidenced, secured and guaranteed by
        the Loan Documents and the Collateral.

       

      2.3           Limitation
        on Interest.  All agreements between
        Borrowers and Lender, whether now existing or hereafter arising and whether
        written or oral, are hereby limited so that in no contingency, whether by
        reason
        of acceleration of the maturity of any indebtedness governed hereby or
        otherwise, shall the interest contracted for, charged or received by Lender
        exceed the maximum amount permissible under applicable law.  If, from
        any circumstance whatsoever, interest would otherwise be payable to Lender
        in
        excess of the maximum lawful amount, the interest payable to Lender shall
        be
        reduced to the maximum amount permitted under applicable law; and, if from
        any
        circumstance the Lender shall ever receive anything of value deemed interest
        by
        applicable law in excess of the maximum lawful amount, an amount equal to
        any
        excessive interest shall be applied to the reduction of the principal of
        the
        Loan and not to the payment of interest, or, if such excessive interest exceeds
        the unpaid balance of principal of the Loan, such excess shall be refunded
        to
        Borrowers.  All interest paid or agreed to be paid to Lender shall, to
        the extent permitted by applicable law, be amortized, prorated, allocated,
        and
        spread throughout the full period until payment in full of the principal
        of the
        Loan (including the period of any renewal or extension thereof) so that interest
        thereon for such full period shall not exceed the maximum amount permitted
        by
        applicable law.  This paragraph shall control all agreements between
        the Borrowers and Lender.

       

      2.4           Sale
        of Facility.  Lender has agreed that
        Borrowers may enter purchase contracts for the sale of any of the Facilities
        (each sale, a "Facility Sale" and collectively, the "Facility
        Sales").   Contemporaneously with the closing of any Facility
        Sale, Borrowers may obtain the release from the Mortgage of the Facility
        which
        is being sold upon the satisfaction of all of the following
        conditions:

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      (i)           payment
        to Lender of a release price equal to the lesser of (a) 100% of the net Facility
        Sale proceeds attributable to the to-be-released Facility after deduction
        of
        closing costs and brokerage fees or (b) 110% of the outstanding balance,
        including principal and all accrued and unpaid interest, of the Allocated
        Loan
        Amount attributed to the to-be-released Facility, but in no event less than
        the
        Allocated Loan Amount, together with all accrued interest thereon;

       

      (ii)           the
        release occurs in connection with the sale or other disposition of such Facility
        in a bona fide arms-length transaction with a Person other than a Borrower
        or an
        Affiliate of a Borrower;

       

      (iii)           delivery
        by Borrowers to Lender of a release of lien and related loan documentation
        in a
        form appropriate and satisfactory to Lender, which Lender shall execute and
        deliver to Borrower for recordation which the parties agree may occur after
        the
        applicable closing to the extent permitted by applicable law.

       

      (iv)           no
        Event of Default hereunder shall exist;

       

      (v)           Borrower
        shall pay or cause to be paid all reasonable costs and expenses incurred
        by
        Lender in connection with the release transaction;

       

      (vi)           such
        release shall be in compliance with all applicable legal requirements, and
        will
        not impair or otherwise adversely affect the liens, security interest and
        other
        rights of Lender relating to the Facilities which will continue to be security
        for the Loan after such sale; and

       

      (vii)           any
        other customary conditions as may be reasonably requested by
        Lender.

       

      2.5           Extension
        of Maturity Date.  The Maturity Date may be extended
        pursuant to the terms and conditions of the Note, including, without limitation,
        compliance with the Debt Service Coverage Ratio as set forth therein, and
        as
        defined herein.

       

      ARTICLE
        III

      BORROWER’S
        REPRESENTATIONS AND WARRANTIES

       

      To
        induce
        Lender to enter into this Agreement, and to make the Loan to Borrowers, each
        Borrower with respect to itself and its Facility, represents and warrants
        to
        Lender as follows:

       

      3.1           Existence,
        Power and Qualification.  Borrower is a duly organized
        and validly existing Delaware limited liability company or Delaware limited
        partnership, as the case may be, has the power to own its properties and
        to
        carry on its business as is now being conducted, and is duly qualified to
        do
        business and is in good standing in every jurisdiction in which the character
        of
        the properties owned by it or in which the transaction of its business makes
        its
        qualification necessary, specifically including, without limitation, the
        State
        in which its applicable Facility is located.

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      3.2           Power
        and Authority.  Borrower has full power and authority to
        borrow the indebtedness evidenced by the Note and to incur the Loan Obligations
        provided for herein, all of which have been authorized by all proper and
        necessary action.  All consents, approvals authorizations, orders or
        filings of or with any court or governmental agency or body, if any, required
        for the execution, delivery and performance of the Loan Documents by Borrower
        have been obtained or made.

       

      3.3           Single
        Purpose Entity.  Borrower is a Single Purpose
        Entity.

       

      3.4           Due
        Execution and Enforcement.  Each of the Loan Documents to
        which Borrower is a party constitutes a valid and legally binding obligation
        of
        Borrower, enforceable in accordance with its respective terms (except as
        such
        enforcement may be limited by bankruptcy, insolvency, reorganization,
        receivership, moratorium, or other laws relating to the rights of creditors
        generally and by general principles of equity) and does not violate, conflict
        with, or constitute any default under any law, government regulation, decree,
        judgment, Borrower’s articles of organization, partnership agreement or
        operating agreement, as applicable, or any other agreement or instrument
        binding
        upon Borrower.

       

      3.5           Pending
        Matters.

       

       (a)           Operations;
        Financial Condition.  No action or investigation is pending or, to
        the best of Borrower’s knowledge, threatened before or by any court or
        administrative agency which might result in any material adverse change in
        the
        financial condition, operations or prospects of Borrower or any lower
        reimbursement rate under the Reimbursement Contracts.  Borrower is not
        in violation of any agreement, the violation of which might reasonably be
        expected to have a material adverse effect on its business or assets, and
        Borrower is not in violation of any order, judgment, or decree of any court,
        or
        any statute or governmental regulation to which it is subject.

       

       (b)           Land
        and Improvements.  There are no proceedings pending, or, to the
        best of Borrower’s knowledge, threatened, to acquire through the exercise of any
        power of condemnation, eminent domain or similar proceeding any part of the
        Land, the Improvements or any interest therein, or to enjoin or similarly
        prevent or restrict the use of the Land or the operation of the Facility
        in any
        manner.  None of the Improvements is subject to any unrepaired
        casualty or other damage.

       

      3.6           Financial
        Statements Accurate.  All financial statements heretofore
        or hereafter provided by Borrower are and will be true and complete in all
        material respects as of their respective dates and fairly present the financial
        condition of Borrower, and there are no material liabilities, direct or
        indirect, fixed or contingent, as of the respective dates of such statements
        which are not reflected therein or in the notes thereto or in a written
        certificate delivered with such statements.  The financial statements
        of Borrower have been prepared in accordance with GAAP.  There has
        been no material adverse change in the financial condition, operations, or
        prospects of Borrower since the dates of such statements except as fully
        disclosed in writing with the delivery of such statements.  All
        financial statements of the operations of the Facility heretofore or hereafter
        provided to Lender are and will be true and complete in all material respects
        as
        of their respective dates.

       

      
        
          
          

        

        
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      3.7           Compliance
        with Facility Laws.  Each Facility is duly licensed as an
        assisted living facility and is currently operated at the licensed unit/bed
        capacity set forth on Schedule B attached hereto and
        made a part hereof under the applicable laws of the state where the Facility
        is
        located.  To Borrower’s actual knowledge, Borrower or Manager has
        obtained all Permits for the Facility, including, without limitation, the
        Certificate of Need, if applicable, which (a) are in full force and effect,
        (b) constitute all of the permits, licenses and certificates required for
        the use, operation and occupancy thereof, (c) have not been pledged as
        collateral for any loan or Indebtedness other than the Loan, (d) are held
        free from restrictions or any encumbrance which would materially adversely
        affect the use or operation of the Facility, and (e) except as set forth on
Schedule 3.7 attached hereto and made a part hereof, are
        not provisional, probationary or restricted in any way.  Borrower, the
        Facility and, to Borrower's actual knowledge, Manager are in compliance in
        all
        material respects with the applicable provisions of assisted living facility
        laws, rules, regulations and published interpretations to which the Facility
        is
        subject.  No waivers of any laws, rules, regulations, or requirements
        (including, but not limited to, minimum foot requirements per bed) are required
        for the Facility to operate at the current licensed unit and/or bed
        capacity.  To the extent required, Borrower is and, to Borrower’s
        actual knowledge, Manager is in good standing with all the respective agencies
        governing such applicable licenses and program
        certification.  Borrower and/or the Facility is current in the payment
        of all so-called provider specific taxes or other assessments, if
        applicable.  Borrower will maintain or cause to be maintained by
        Manager (without allowing to lapse) the Certificate of Need, if applicable,
        and
        any required Permits.

       

      3.8           Maintain
        Unit Capacity.  Neither Borrower nor Manager has granted
        to any third party the right to reduce the number of licensed beds or units
        in
        the Facility or to apply for approval to transfer the right to any or all
        of the
        licensed Facility units to any other location.

       

      3.9           Medicare
        and Medicaid Compliance.  The Facilities described in
Schedule 3.9 are certified to participate in
        Medicaid.  Except as set forth in Schedule
        3.9, none of the Facilities participates in any other Third-Party
        Payors’ Programs (as defined in Section 3.10 below).

       

      3.10         Third
        Party Payors.  There is no threatened or pending
        revocation, suspension, termination, probation, restriction, limitation,
        or
        nonrenewal affecting Borrower, Manager or the Facility or any participation
        or
        provider agreement with any third-party payor, including Medicare, Medicaid,
        Blue Cross and/or Blue Shield, and any other private commercial insurance
        managed care and employee assistance program (such programs, the “Third-Party
        Payors’ Programs”) to which Borrower or Manager presently is
        subject.  All Medicare (if any), Medicaid (if any) and private
        insurance cost reports and financial reports submitted by Borrower or Manager
        are and will be materially accurate and complete and have not been and will
        not
        be misleading in any material respects.  No cost reports for the
        Facility remain “open” or unsettled except as otherwise disclosed.

       

      3.11          Governmental
        Proceedings and Notices.  Neither Borrower nor Guarantor
        nor Manager nor the Facility is currently the subject of any proceeding by
        any
        governmental agency, and no notice of any violation has been received from
        any
        federal, state or local government or quasi-governmental body or agency or
        any
        administrative or investigative body that would, directly or indirectly,
        or with
        the passage of time:

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

         (a)           have
        a material adverse impact on Borrower’s or Manager’s ability to accept and/or
        retain residents or result in the imposition of a fine, a sanction, a lower
        rate
        certification or a lower reimbursement rate for services rendered to eligible
        residents;

       

        
        (b)           modify,
        limit or annul or result in the transfer, suspension, revocation or imposition
        of probationary use of any of the Permits; or

       

        
        (c)           affect
        Borrower’s continued participation in the Medicare or Medicaid programs or any
        other Third-Party Payors’ Programs, or any successor programs thereto, at
        current rate certifications.

       

      3.12           Physical
        Plant Standards.  The Facility and the use thereof comply
        in all material respects with all applicable local, state and federal building
        codes, fire codes, health care, nursing/assisted living/senior housing facility
        (as applicable) and other similar regulatory requirements (the “Physical Plant
        Standards”), and no waivers of Physical Plant Standards exist at the
        Facility.

       

      3.13           Pledge
        of Receivables.  Borrower has not pledged its Accounts as
        collateral security for any loan or Indebtedness other than, if applicable,
        the
        Loan.

       

      3.14           Payment
        of Taxes and Property Impositions.  Borrower has filed
        all federal, state, and local tax returns which it is required to file and
        has
        paid, or made adequate provision for the payment of, all taxes and assessments
        which are shown pursuant to such returns or are required to be shown thereon,
        including, without limitation, provider taxes which are due and owing as
        of the
        date hereof.  All such returns are complete and accurate in all
        respects.  Borrower has paid or made adequate provision for the
        payment of all applicable water and sewer charges, ground rents (if applicable)
        and Taxes (as defined in the Mortgage) with respect to the Land and/or the
        Improvements which are due and owing as of the date hereof.

       

      3.15           Title
        to Mortgaged Property.  Borrower has good and marketable
        title to all of the Mortgaged Property, subject to no lien, mortgage, pledge,
        encroachment, zoning violation, or encumbrance, except Permitted Encumbrances
        (specifically including special exceptions reflected in Lender’s title insurance
        policies insuring the Mortgage) which do not materially interfere with the
        security intended to be provided by the Mortgage or the current use or operation
        of the Land and the Improvements or the current ability of the Facility to
        generate net operating income sufficient to service the Loan.  All
        Improvements situated on the Land are situated wholly within the boundaries
        of
        the Land.

       

      3.16           Priority
        of Mortgage.  The Mortgage constitutes a valid first lien
        against the real and personal property described therein, prior to all other
        liens or encumbrances, including those which may hereafter accrue, excepting
        only Permitted Encumbrances.

       

      3.17           Location
        of Chief Executive Offices.  The location of Borrower’s
        chief executive office is set forth on Exhibit “B”
        hereto.  Borrower has no place of business other than the locations of
        the Facilities listed on Schedule “B”.

       

      
        
          
          

        

        
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      3.18           Disclosure.  All
        information furnished or to be furnished by Borrower to Lender in connection
        with the Loan or any of the Loan Documents is, or will be at the time the
        same
        is furnished, accurate and correct in all material respects and complete
        insofar
        as completeness may be necessary to provide Lender with true and accurate
        knowledge of the subject matter.

       

      3.19           Trade
        Names.  Borrower has not changed its name, been known by
        any other name, or been a party to a merger, reorganization or similar
        transaction within the last five (5) years.

       

      3.20           ERISA.  As
        of the date hereof and throughout the term of this Agreement,

       

        
        (a)           Borrower is
        not an “employee benefit plan,” as defined in Section 3(3) of the Employee
        Retirement Income Security Act of 1974, as amended (“ERISA”), subject to Title I
        of ERISA, and none of the assets of Borrower constitute “plan assets” (within
        the meaning of Department of Labor Regulation Section 2510.3-101) of one
        or more
        such plans, and

       

         
        (b)           Borrower is
        not a “governmental plan” within the meaning of Section 3(32) of ERISA, and
        transactions by or with Borrower are not be subject to state statutes regulating
        investments of, and fiduciary obligations with respect to, governmental
        plans.

       

      The
        execution and delivery of the Loan Documents and the borrowing of indebtedness
        hereunder do not constitute a non-exempt prohibited transaction under Section
        406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended
        (the “Code”).

       

      3.21           Ownership.  The
        ownership interests of the Persons comprising Borrower and each of the
        respective interests in Borrower are correctly and accurately set forth on
        Exhibit “C” hereto.

       

      3.22           Compliance
        with Applicable Laws.  The Facility and its operations
        and the Land and Improvements comply in all material respects with all covenants
        and restrictions of record and applicable laws, ordinances, rules and
        regulations, including, without limitation, the Americans with Disabilities
        Act
        and the regulations thereunder, and all laws, ordinances, rules and regulations
        relating to zoning, setback requirements and building codes and there are
        no
        waivers of any building codes currently in existence for the
        Facility.

       

      3.23           Solvency.  Borrower
        is solvent for purposes of 11 U.S.C. § 548, and the borrowing of the Loan will
        not render Borrower insolvent for purposes of 11 U.S.C. § 548.

       

      3.24           Management
        Agreement.  The Management Agreement is in full force and
        effect, and there are no defaults (either monetarily or non-monetarily) by
        Manager or Borrower thereunder.

       

      3.25           Other
        Indebtedness.  Borrower has no outstanding Indebtedness,
        secured or unsecured, direct or contingent (including any guaranties), other
        than indebtedness which represents trade payables or accrued expenses incurred
        in the ordinary course of business of owning and operating the Mortgaged
        Property; no other debt incurred by Borrower after the date hereof will be
        secured (senior, subordinate or pari passu) by the Mortgaged
        Property.

       

      
        
          
          

        

        
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      3.26           Other
        Obligations.  Borrower has no material financial
        obligation under any indenture, mortgage, deed of trust, loan agreement or
        other
        agreement or instrument to which Borrower is a party or by which Borrower
        or the
        Mortgaged Property is otherwise bound, other than obligations incurred in
        the
        ordinary course of the operation of the Mortgaged Property and other than
        obligations under the Mortgage and the other Loan Documents.

       

      3.27           Fraudulent
        Conveyances.  Borrower (a) has not entered into this
        Agreement or any of the other Loan Documents with the actual intent to hinder,
        delay, or defraud any creditor and (b) Borrowers together have received
        reasonably equivalent value in exchange for their collective obligations
        under
        the Loan Documents.  Giving effect to the transactions contemplated by
        the Loan Documents, the fair saleable value of Borrower’s assets exceeds and
        will, immediately following the execution and delivery of the Loan Documents,
        be
        greater than Borrower’s probable liabilities, including the maximum amount of
        its contingent liabilities or its debts as such debts become absolute and
        mature.  Borrower’s assets do not and, immediately following the
        execution and delivery of the Loan Documents will not, constitute unreasonably
        small capital to carry out its business as conducted or as proposed to be
        conducted.  Borrower does not intend to, and does not believe that it
        will, incur debts and liabilities (including, without limitation, contingent
        liabilities and other commitments) beyond its ability to pay such debts as
        they
        mature (taking into account the timing and amounts to be payable on or in
        respect of obligations of Borrower).

       

      3.28           Representations
        and Warranties.  Borrower agrees that its representations
        and warranties and covenants contained herein are true and correct as of
        the
        date hereof and shall survive the making of the Loan and the assignment and
        delivery of the Loan to any participant of the Loan.

       

      3.29           Use
        of Loan Proceeds.  The Loan is primarily for commercial
        or business purposes and are not primarily for personal, family or household
        purposes.

       

      3.30           No
        Change in Facts or Circumstances.  All information in any
        application for the Loan submitted to Lender (the “Loan Application”) and in all
        financial statements, rent rolls, reports, certificates and other documents
        submitted in connection with the Loan Application are complete and accurate
        in
        all material respects.  There has been no material adverse change in
        any fact or circumstance that would make any such information incomplete
        or
        inaccurate.

       

      3.31           Fraud
        and Abuse.

       

      (a)           Anti-Kickback
        Law.  After consultation with counsel concerning the federal
        anti-kickback law (42 U.S.C.A. SEC. 1320a-7b(b)), neither Borrower nor its
        agent
        have offered or given any remuneration or thing of value to any person to
        encourage referral to the facility nor has Borrower or its agent solicited
        or
        received any remuneration or thing of value in exchange for Borrower’s agreement
        to make referrals or to purchase goods or services for the
        Facility.

       

      (b)           Relationships.  No
        physician or other healthcare practitioner has an ownership interest in,
        or
        financial relationship with, Borrower, Manager or the Facility.

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

      (c)           Required
        Adjustments.  All cost report periods for all Facility payors have
        been closed and settled, and all required adjustments have been fully paid
        and/or implemented, if applicable.

       

      3.32           No
        Illegal Activity as Source of Funds.  No portion of the
        Mortgaged Property has been or will be purchased, improved, equipped or
        furnished with proceeds of any illegal activity.

       

      3.33           Compliance
        with Anti-Terrorism, Embargo, Sanctions and Anti-Money Laundering
        Laws.   Borrower, and to the best of Borrower's
        knowledge, after having made diligent inquiry, (a) each Person owning an
        interest of 20% or more in Borrower and in the Single Purpose Entity that
        is the
        managing member or general partner of Borrower, (b) Guarantor,
 and (c) Manager: (i) is not currently identified on OFAC
        List, and (ii) is not a Person with whom a citizen of the United States is
        prohibited to engage in transactions by any trade embargo, economic sanction,
        or
        other prohibition of United States law, regulation, or Executive Order of
        the
        President of the United States.  Borrower has implemented procedures,
        and will consistently apply those procedures throughout the term of the Loan,
        to
        ensure the foregoing representations and warranties remain true and correct
        during the term of the Loan.

       

      ARTICLE
        IV

      AFFIRMATIVE
        COVENANTS OF BORROWER

       

      Each
        Borrower agrees with and covenants unto Lender that until the Loan Obligations
        have been paid in full, Borrower shall, or shall cause the applicable Licensee
        to, with respect to such Borrower’s Facility:

       

      4.1           Payment
        of Loan/Performance of Loan Obligations.  Duly and
        punctually pay or cause to be paid the principal and interest of the Note
        in
        accordance with its terms and duly and punctually pay and perform or cause
        to be
        paid or performed all Loan Obligations hereunder and under the other Loan
        Documents.

       

      4.2           Maintenance
        of Existence.  Maintain Borrower’s existence as a
        Delaware limited liability company or Delaware limited partnership, as
        applicable, and, in each jurisdiction in which the character of the property
        owned by it or in which the transaction of its business makes qualification
        necessary, maintain good standing, and qualification to do
        business.

       

      4.3           Maintenance
        of Single Purpose Status.  Maintain its existence as a
        Single Purpose Entity.

       

      4.4           Accrual
        and Payment of Taxes.  During each fiscal year, make
        accurate provision for the payment in full of all current tax liabilities
        of all
        kinds including, without limitation, federal and state income taxes, franchise
        taxes, payroll taxes, provider taxes (to the extent necessary to participate
        in
        and receive maximum funding pursuant to Reimbursement Contracts), Taxes (as
        defined in the Mortgage), all required withholding of income taxes of employees,
        all required old age and unemployment contributions, and all required payments
        to employee benefit plans, and pay the same when they become due.

       

      
        
          
          

        

        
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      4.5           Insurance.  Maintain,
        at its expense, the following insurance coverages and policies with respect
        to
        the Mortgaged Property and the Facility, which coverages and policies must
        be
        acceptable to Lender’s insurance consultant in its sole discretion:

       

       (a)           Comprehensive
        “all risk” or “special” cause of loss insurance, including coverage for
        windstorms and hail, in an amount equal to 100% of the full replacement cost
        of
        the Facility, which replacement cost shall be determined by the “Insurable
        Value” or “Cost Approach to Value” reflected in the most recent Lender approved
        appraisal for the Facility, without deduction for depreciation.  Such
        insurance shall also include (i) agreed insurance amount endorsement waiving
        all
        co-insurance provisions, and (ii) an “Ordinance or Law Coverage” endorsement if
        the Facility or the use thereof shall constitute a legal non-conforming
        structure or use.

       

       (b)           Commercial
        general liability insurance against claims for sexual harassment abuse of
        residents and/or patients, personal injury, bodily injury, death or property
        damage, in or about the Facility to be on a so-called “occurrence” basis for at
        least $1,000,000.00 per occurrence and $3,000,000.00 in the aggregate with
        a
        $10,000,000.00 umbrella coverage.

       

       (c)           Professional
        liability insurance against claims for personal injury, bodily injury or
        death,
        in or about the Facility to be on a so-called “occurrence” basis for at least
        $1,000,000.00 per occurrence and $5,000,000.00 in the aggregate.

       

       (d)           Business
        interruption income insurance for the Facility in an amount equal to 100%
        of the
        net income plus carrying costs and extraordinary expenses of the Facility
        for a
        period of eighteen (18) months as projected by Lender, containing a 180-day
        extended period of indemnity endorsement.

       

       (e)           Flood
        Hazard insurance if any portion of the Improvements is located in a “flood zone
        area,” as identified in the Federal Register by the Federal Emergency Management
        Agency as a 100-year flood zone or “special flood hazard area” and in which
        flood insurance is available.  In lieu thereof, Lender will accept
        proof, satisfactory to it in its sole discretion, that the Improvements are
        not
        within the boundaries of a designated area.

       

       (f)           Workers’
        compensation insurance, if applicable and required by state law, subject
        to
        applicable state statutory limits, and employer’s liability insurance with a
        limit of $1,000,000.00 per accident and per disease per employee with respect
        to
        the Facility.

       

       (g)           Comprehensive
        boiler and machinery insurance, including property damage coverage and time
        element coverage in an amount equal to 100% of the full replacement cost,
        without deduction for depreciation, of the Facility housing the machinery,
        if
        steam boilers, pipes, turbines, engines or any other pressure vessels are
        in
        operation with respect to the Facility.  Such insurance coverage shall
        include a “joint loss” clause if such coverage is provided by an insurance
        carrier other than that which provides the comprehensive “all risk” insurance
        described above.

       

       (h)           During
        the period of any construction and/or renovation of capital improvements
        with
        respect to the Facility or any new construction at the Facility, builder’s risk
        insurance for any improvements under construction and/or renovation, including,
        without limitation, costs of demolition and increased cost of construction
        or
        renovation, in an amount equal the amount of the general contract plus the
        value
        of any existing purchase money financing for improvements and materials stored
        on or off the Property, including “soft cost” coverage.

       

      
        
          
          

        

        
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       (i)           If
        the Facility is located in a seismically active area or an area prone to
        geologic instability and mine subsidence, Lender may require an inspection
        by a
        qualified structural or geological engineer satisfactory to Lender, and at
        Borrower’s expense.  The Facility must be structurally and
        geologically sound and capable of withstanding normal seismic activity or
        geological movement.  Lender reserves the right to require earthquake
        insurance or Maximum Probable Loss insurance on a case by case basis in amounts
        determined by Lender.

       

       (j)           Such
        other insurance coverages as may be deemed necessary at any time during the
        term
        of the Loan and as shall be provided within such time periods as Lender may
        determine, in each case, in its commercially reasonable discretion.

       

      All
        insurance policies shall have a term of not less than one year and shall
        be in
        the form and amount and with deductibles as, from time to time, shall be
        acceptable to Lender in its sole discretion.  All such policies shall
        provide for loss payable solely to Lender and shall contain a standard
“non-contributory mortgagee” endorsement or its equivalent relating, among other
        things, to recovery by Lender notwithstanding the negligent or willful acts
        or
        omissions of Borrower and notwithstanding (i) occupancy or use of the
        Facility for purposes more hazardous than those permitted by the terms of
        such
        policy, (ii) any foreclosure or other action taken by Lender pursuant to
        the
        Mortgage upon the occurrence of an Event of Default thereunder, or (iii)
        any
        change in title or ownership of the Facility.

       

      All
        insurance policies must be written by an admitted carrier licensed in the
        State
        in which the Facility is located and such insurance carrier must have a
        long-term senior debt rating of at least “A” by Standard and Poor’s Rating
        Service; provided, that if the initial principal balance of the Loan is in
        excess of $25,000,000.00, such insurance carrier must have a long-term senior
        debt rating of at least “AA” by Standard & Poor’s Rating
        Service.

       

      All
        liability insurance policies (including, but not limited to, general liability,
        professional liability and any applicable blanket and/or umbrella policies)
        must
        name “Capmark Bank and its successors and/or assigns” as additional insureds,
        and all property insurance policies must name “Capmark Bank and its successors
        and/or assigns” as the named mortgage holder entitled to all insurance
        proceeds.  Lender shall have the right, without Borrower’s consent, by
        notice to the insurance company, to change the additional insured and named
        mortgagee endorsements in connection with any sale of the Loan.

       

      All
        insurance policies for the above-required insurance must provide for thirty
        (30)
        days prior written notice of cancellation to Lender.

       

      Policies
        or binders, together with evidence of the above required insurance on ACORD
        Form
        27 or its equivalent, must be submitted to Lender prior to setting the interest
        rate on the Loan.

       

      With
        respect to insurance policies which require payment of premiums annually,
        not
        less than thirty (30) days prior to the expiration dates of the insurance
        policies obtained pursuant to this Agreement, Borrower shall pay such amount,
        except to the extent Lender is escrowing sums therefor pursuant to the Loan
        Documents.  Not less than thirty (30) days prior to the expiration
        dates of the insurance policies obtained pursuant to this Agreement, originals
        or certified copies of renewals of such policies (or certificates evidencing
        such renewals) bearing notations evidencing the payment of premiums or
        accompanied by other evidence satisfactory to Lender of such payment, which
        premiums shall not be paid by Borrower through or by any financing arrangement,
        shall be delivered by Borrower to Lender at the address set forth in Section
        8.7
        hereof.  Borrower shall not carry separate insurance, concurrent in
        kind or form or contributing in the event of loss, with any insurance required
        under this Section 4.5.  If the limits of any policy required
        hereunder are reduced or eliminated due to a covered loss, Borrower shall
        pay
        the additional premium, if any, in order to have the original limits of
        insurance reinstated, or Borrower shall purchase new insurance in the same
        type
        and amount that existed immediately prior to the loss.

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

       

      If
        Borrower fails to maintain and deliver to Lender the original policies or
        certificates of insurance required by this Agreement, Lender may, at its
        option,
        procure such insurance and Borrower shall pay or, as the case may be, reimburse
        Lender for, all premiums thereon promptly, upon demand by Lender, with interest
        thereon at the Default Rate from the date paid by Lender to the date of
        repayment and such sum shall constitute a part of the Loan
        Obligations.

       

      The
        insurance required by this Agreement may, at the option of Borrower, be effected
        by blanket and/or umbrella policies issued to Borrower or to an Affiliate
        of
        Borrower covering the Facility and the properties of such Affiliate; provided
        that, in each case, the policies otherwise comply with the provisions of
        this
        Agreement and allocate to the Facility, from time to time, the coverage
        specified by this Agreement, without possibility of reduction or coinsurance
        by
        reason of, or damage to, any other property (real or personal) named
        therein.  If the insurance required by this Agreement shall be
        effected by any such blanket or umbrella policies, Borrower shall furnish
        to
        Lender original policies or certified copies thereof, with schedules attached
        thereto showing the amount of the insurance provided under such policies
        which
        is applicable to the Facility.

       

      Neither
        Lender nor its agents or employees shall be liable for any loss or damage
        insured by the insurance policies required to be maintained under this
        Agreement; it being understood that (a) Borrower shall look solely to its
        insurance company for the recovery of such loss or damage, (b) such
        insurance company shall have no rights of subrogation against Lender, its
        agents
        or employees, and (c) Borrower shall use its best efforts to procure from
        such insurance company a waiver of subrogation rights against
        Lender.  If, however, such insurance policies do not provide for a
        waiver of subrogation rights against Lender (whether because such a waiver
        is
        unavailable or otherwise), then Borrower hereby agrees, to the extent permitted
        by law and to the extent not prohibited by such insurance policies, to waive
        its
        rights of recovery, if any, against Lender, its agents and employees, whether
        resulting from any damage to the Facility, any liability claim in connection
        with the Facility or otherwise.  If any such insurance policy shall
        prohibit Borrower from waiving such claims, then Borrower must obtain from
        such
        insurance company a waiver of subrogation rights against Lender.

       

      Borrower
        appoints Lender as Borrower’s attorney-in-fact, which appointment shall be
        deemed irrevocable and coupled with an interest, to cause the issuance of
        an
        endorsement of any insurance policy to bring Borrower into compliance herewith
        and, as limited above, at Lender’s sole option, to make any claim for, receive
        payment for, and execute and endorse any documents, checks or other instruments
        in payment for loss, theft, or damage covered under any such insurance policy;
        provided, however, that in no event will Lender be liable for failure to
        collect
        any amounts payable under any insurance policy.

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

       

      Subject
        to the terms of any forbearance letter issued by Lender in connection with
        the
        Loan, each Borrower appoints Lender as Borrower’s attorney-in-fact to cause the
        issuance of an endorsement of any insurance policy to bring Borrower into
        compliance herewith and, as limited above, at Lender’s sole reasonable option,
        to make any claim for, receive payment for, and execute and endorse any
        documents, checks or other instruments in payment for loss, theft, or damage
        covered under any such insurance policy; provided, however, that in no event
        will Lender be liable for failure to collect any amounts payable under any
        insurance policy.

       

      4.6           Proceeds
        of Insurance or Condemnation.  If, after damage to or
        destruction of or condemnation of the Mortgaged Property (or any part thereof),
        the net Proceeds of insurance or condemnation (after payment of Lender’s
        reasonable costs and expenses in connection with the administration thereof)
        are:

       

       (a)          less
        than Two Hundred Fifty Thousand Dollars ($250,000.00), Lender shall deliver
        such
        proceeds to Borrower to be applied within thirty (30) days thereafter to
        the
        repair, restoration and replacement by Borrower of the Improvements, Equipment
        and Inventory damaged, destroyed or taken,

       

      or

       

       (b)          Two
        Hundred Fifty Thousand Dollars ($250,000.00) or more and Lender agrees, at
        its
        option, to make such net Proceeds available to Borrower, Lender shall make
        such
        net Proceeds available to Borrower on the following terms:

       

      (i)           The
        aggregate amount of all such Proceeds shall not exceed the aggregate amount
        of
        all such Loan Obligations;

       

      (ii)           At
        the time of such loss or damage and at all times thereafter while Lender
        is
        holding any portion of such Proceeds, there shall exist no Default or Event
        of
        Default;

       

      (iii)           The
        Improvements, Equipment, and Inventory to which loss or damage has resulted
        shall be capable of being restored to its preexisting condition and utility
        in
        all material respects with a value equal to or greater than that which existed
        prior to such loss or damage and such restoration shall be capable of being
        completed prior to the earlier to occur of (i) the expiration of business
        interruption insurance as determined by an independent inspector or (ii)
        the
        Maturity Date;

       

      (iv)           Within
        thirty (30) days from the date of such loss or damage Borrower shall have
        given
        Lender a written notice electing to have the Proceeds applied for such
        purpose;

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

       

      (v)           Within
        sixty (60) days following the date of notice under the preceding subparagraph
        (iv) and prior to any Proceeds being disbursed to Borrower, Borrower shall
        have
        provided to Lender all of the following:

       

      (A)           complete
        plans and specifications for restoration, repair and replacement of the
        Improvements, Equipment and Inventory damaged to the condition, utility and
        value required by (iii) above,

       

      (B)           if
        loss or damage exceeds Fifty Thousand Dollars ($50,000), fixed-price or
        guaranteed maximum cost bonded construction contracts for completion of the
        repair and restoration work in accordance with such plans and
        specifications,

       

      (C)           builder’s
        risk insurance for the full cost of construction with Lender named under
        a
        standard mortgagee loss-payable clause

       

      (D)           such
        additional funds as in Lender’s reasonable opinion are necessary to complete
        such repair, restoration and replacement, and

       

      (E)           copies
        of all permits and licenses necessary to complete the work in accordance
        with
        the plans and specifications;

       

      (vi)           Lender
        may, at Borrower’s expense, retain an independent inspector to review and
        approve plans and specifications and completed construction and to approve
        all
        requests for disbursement, which approvals shall be conditions precedent
        to
        release of Proceeds as work progresses;

       

      (vii)          No
        portion of such Proceeds shall be made available by Lender for architectural
        reviews or for any other purposes which are not directly attributable to
        the
        cost of repairing, restoring or replacing the Improvements, Equipment and
        Inventory to which a loss or damage has occurred unless the same are covered
        by
        such insurance;

       

      (viii)         Borrower
        shall diligently pursue such work and shall complete such work prior to the
        earlier to occur of the expiration of business interruption insurance or
        the
        Maturity Date;

       

      (ix)           Each
        disbursement by Lender of such Proceeds and deposits shall be funded subject
        to
        conditions and in accordance with disbursement procedures which a commercial
        construction lender would typically establish in the exercise of sound banking
        practices and shall be made only upon receipt of disbursement requests on
        an AIA
        G702/703 form (or similar form approved by Lender) signed and certified by
        Borrower and, if required by Lender, its architect and general contractor
        with
        appropriate invoices and lien waivers as required by Lender; and

       

      (x)           Lender
        shall have a first lien on and security interest in all building materials
        and
        completed repair and restoration work and in all fixtures and equipment acquired
        with such Proceeds, and Borrower shall execute and deliver such mortgages,
        deeds
        of trust, security agreements, financing statements and other instruments
        as
        Lender shall request to create, evidence, or perfect such lien and security
        interest.

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

       

      In
        the
        event and to the extent that such Proceeds are not required to be used for
        the
        repair, restoration and replacement of the Improvements, Equipment and Inventory
        to which a loss or damage has occurred, or, if the conditions set forth herein
        for such application are otherwise not satisfied, then Lender shall be entitled
        without notice to or consent from Borrower to apply such Proceeds, or the
        balance thereof, at Lender’s option either (a) to the full or partial payment or
        prepayment of the Loan Obligations (without premium) in the manner aforesaid
        or
        (b) to the repair, restoration and/or replacement of all or any part of such
        Improvements, Equipment and Inventory to which a loss or damage has
        occurred.  Any excess Proceeds after such application by Lender shall
        be paid to Borrower.

       

      4.7           Financial
        and Other Information.  Provide Lender, and cause
        Guarantor and Manager to provide to Lender, at its address set forth in Section
        8.7 and at Capmark Bank, 2801 Highway 280 South, Suite 305, Birmingham, AL
        35223, the following financial statements and information on a continuing
        basis
        during the term of the Loan:

       

      (a)           Within
        one hundred twenty (120) days after the end of each fiscal year of Borrower,
        unaudited financial statements prepared in accordance with GAAP by a nationally
        recognized accounting firm or independent certified public accounting firm
        acceptable to the Lender, which statements shall include a balance sheet
        and a
        statement of income and expenses for the year then ended.

       

      (b)           Within
        one hundred twenty (120) days after the end of each fiscal year of Emeritus
        audited financial statements of Emeritus prepared in accordance with GAAP
        by a
        nationally recognized accounting firm or independent certified public accounting
        firm acceptable to the Lender, which statements shall include a balance sheet
        and a statement of income and expenses for the year then ended.  In
        lieu of its obligations hereunder, Emeritus may submit to Lender, upon its
        filing thereof, a copy of its Form 10-K as filed with the United States
        Securities and Exchange Commission.

       

      (c)           Within
        one hundred twenty (120) days after the end of each of the first three (3)
        fiscal quarters, and within ninety (90) days after the end of the fourth
        fiscal
        quarter of each Facility, unaudited interim financial statements of the
        operations of each Facility, certified as true and correct in all material
        respects by a financial officer of Borrower, prepared in accordance with
        GAAP,
        which statements shall include a balance sheet, statement of income and expenses
        and occupancy information for the quarter then ended.  Such statements
        of the Facility shall be accompanied by the Summary of Financial Statements
        and
        Census Data attached hereto as Exhibit “D”.

       

      (d)           Within
        sixty (60) days after the end of each of the first three (3) fiscal quarters
        of
        Emeritus, financial statements of Emeritus, including a balance sheet and
        a
        statement of income and expenses for the quarter then ended, which shall
        be
        satisfied by providing a copy of Form 8-K as filed by Emeritus with the United
        States Securities and Exchange Commission.

       

      (e)           If
        requested by Lender, within thirty (30) days after the filing deadline, as
        may
        be extended from time to time, copies of all federal, state and local tax
        returns of Borrower and Emeritus, together with all supporting documentation
        and
        required schedules.

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

      (f)           If
        and to the extent applicable, within twenty (20) days after filing or receipt,
        all Medicaid cost reports and any amendments thereto filed with respect to
        the
        Facility and all responses, audit reports, or other inquiries with respect
        to
        such cost reports.

       

      (g)           If
        and to the extent applicable, within twenty (20) days after receipt, copies
        of
        all licensure and certification survey reports and statements of deficiencies
        (with plans of correction attached thereto).

       

      (h)           If
        and to the extent applicable, within ten (10) days after receipt, a copy
        of the
“Medicaid Rate Calculation Worksheet” (or the equivalent thereof) from the
        applicable agency.

       

      (i)           If
        and to the extent applicable, within ten (10) days of receipt, a statement
        of
        the number of resident days for which the Facility has received the Medicare
        default rate for any applicable period.  For purposes herein, “default
        rate” shall have the meaning ascribed to it in that certain applicable Medicare
        rate notification letter prepared in connection with any review or survey
        of the
        Facility.

       

      (j)           Within
        three (3) days after receipt, any and all notices (regardless of form) from
        any
        and all licensing and/or certifying agencies, including but not limited to,
        that
        the Facility’s license is being downgraded to a substandard category, revoked or
        suspended, or that action is pending or being considered to downgrade to
        a
        substandard category, revoke or suspend the Facility’s license or
        certification.

       

      (k)           If
        requested by Lender, evidence of payment by Borrower or
        Manager of any applicable provider bed taxes or similar
        taxes.

       

      (l)           If
        requested by Lender, within forty-five (45) days after the end of each June
        and
        December, and more frequently if requested by Lender, an aged accounts
        receivable report for each Facility in sufficient detail to show amounts
        due
        from each class of resident-mix, if applicable (i.e., private, Medicare,
        Medicaid and V.A.), by the account age classifications of 30 days, 60 days,
        90
        days, 120 days, and over 120 days.

       

      Lender
        reserves the right to require that the annual and/or quarterly financial
        statements of each Borrower and Emeritus be audited and prepared by a nationally
        recognized accounting firm or independent certified public accounting firm
        acceptable to Lender, at their respective sole cost and expense, if (i) an
        Event
        of Default exists, (ii) if required by internal policy or by any investor
        in any
        securities backed in whole or in part by the Loan or any rating agency rating
        such securities, or (iii) if Lender has reasonable grounds to believe that
        the
        unaudited financial statements do not accurately represent the financial
        condition of Borrower or Guarantor, as the case may be.

       

      Lender
        further reserves the right to require such other financial information of
        Borrower, Emeritus, Manager and/or each Facility, at such
        other times (including monthly or more frequently) as it shall deem
        necessary.  All financial statements must be in the form and detail as
        Lender shall from time to time request.

       

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

       

      4.8           Compliance
        Certificate.  At the time of furnishing the quarterly
        operating statements required under Section 4.7 herein, furnish to Lender
        a
        compliance certificate in the form attached hereto as Exhibit “E”
        executed by a financial officer of Borrower.

       

      4.9           Books
        and Records.  Keep and maintain at all times at the
        Facility or Manager’s offices, and upon Lender’s request make available at the
        Facility, complete and accurate books of account and records (including copies
        of supporting bills and invoices) adequate to reflect correctly the results
        of
        the operation of the Facility, and copies of all written contracts, leases
        (if
        any), and other instruments which affect the Mortgaged Property, which books,
        records, contracts, leases (if any) and other instruments shall be subject
        to
        examination and inspection at any reasonable time by Lender (upon reasonable
        advance notice, which for such purposes only may be given orally, except
        in the
        case of an emergency or following an Event of Default, in which case no advance
        notice shall be required); provided, however, that if an Event of Default
        has
        occurred and is continuing, Borrower shall deliver to Lender upon written
        demand
        all books, records, contracts, leases (if any) and other instruments relating
        to
        the Facility or its operation and Borrower authorizes Lender to obtain a
        credit
        report on Borrower at any time.

       

      4.10         Payment
        of Indebtedness.  Duly and punctually pay or cause to be
        paid all other Indebtedness now owing or hereafter incurred by Borrower in
        accordance with the terms of such Indebtedness, except such Indebtedness
        owing
        to those other than Lender which is being contested in good faith and with
        respect to which any execution against properties of Borrower has been
        effectively stayed and for which reserves and collateral for the payment
        and
        security thereof have been established in sufficient amounts as determined
        by
        Lender in its sole commercially reasonable discretion.

       

      4.11         Records
        of Accounts.  Maintain all records, including records
        pertaining to the Accounts of Borrower, at the principal place of business
        of
        Borrower as set forth in this Agreement.

       

      4.12         Conduct
        of Business.  Conduct, or cause Manager to conduct, the
        operation of the Facility at all times in a manner consistent with the level
        of
        operation of the Facility as of the date hereof, including without limitation,
        the following:

       

      (a)           to
        maintain the standard of care for the residents of the Facility at all times
        at
        a level necessary to ensure quality care for the residents of the Facility
        in
        accordance with customary and prudent industry standards;

       

      (b)           to
        operate the Facility in a prudent manner and in compliance with applicable
        laws
        and regulations relating thereto and cause all Permits, Reimbursement Contracts
        (if any), and any other agreements necessary for the use and operation of
        the
        Facility or, if applicable, as may be necessary for participation in the
        Medicaid, Medicare, or other applicable reimbursement programs (if any) to
        remain in effect without reduction in the number of licensed beds authorized
        for
        use in the Medicaid, Medicare, or other applicable reimbursement
        programs;

       

      (c)           to
        maintain sufficient Inventory and Equipment of types and quantities at the
        Facility to enable Borrower to perform operations of the Facility
        adequately;

       

      
        
          
          

        

        
          23

          
            

          

        

        
          
          

        

      

       

      (d)           to
        keep all Improvements and Equipment located on or used or useful in connection
        with the Facility in good repair, working order and condition, reasonable
        wear
        and tear excepted, and from time to time make all needed and proper repairs,
        renewals, replacements, additions, and improvements thereto to keep the same
        in
        good operating condition;

       

      (e)           to
        complete the repairs described on Schedule 4.12 attached
        hereto within 120 days of the date hereof;

       

      (f)           to
        maintain sufficient cash in the operating accounts of the Facility in order
        to
        satisfy the working capital needs of the Facility; and

       

      (g)           to
        keep all required Permits current and in full force and effect.

       

      4.13        
        Periodic Surveys.  Furnish or cause Manager to
        furnish to Lender, within twenty (20) days of receipt, a copy of any Medicare,
        Medicaid, or other licensing agency survey or report and any statement of
        deficiencies and/or any other report indicating that any action is pending
        or
        being considered to downgrade the Facility to a substandard category, and
        within
        the time period required by the particular agency for furnishing a plan of
        correction also furnish or cause to be furnished to Lender a copy of the
        plan of
        correction generated from such survey or report for the Facility, and correct
        or
        cause to be corrected any deficiency, the curing of which is a condition
        of
        continued licensure or for full participation in Medicaid, Medicare or other
        reimbursement program pursuant to any Reimbursement Contract for existing
        residents or for new residents to be admitted with Medicaid or Medicare
        coverage, by the date required for cure by such agency (plus extensions granted
        by such agency).

       

      4.14         Capital
        Expenditures.  Maintain, and/or cause Manager to
        maintain, the Facility in good condition and make minimum capital expenditures
        for the Facility in each fiscal year, in an amount equal to
        $400 per unit (or the appropriate prorated amount for any
        partial fiscal year), (which capital expenditures may include ordinary repairs
        and routine maintenance), commencing the first year of the Loan term and
        continuing throughout the Loan term, and, within forty-five (45) days after
        the
        end of each fiscal year, provide evidence thereof satisfactory to
        Lender.  In the event that Borrower shall fail to meet such
        requirement or to provide such evidence, Borrower shall, upon Lender’s written
        request, immediately establish and maintain a capital expenditures reserve
        fund
        with Lender equal to the difference between the required amount per unit
        and the
        amount per unit actually spent by Borrower.  Borrower grants to Lender
        a lien on and a right of setoff against all moneys in the capital expenditures
        reserve fund, and Borrower shall not permit any other Lien to exist upon
        such
        fund.  Moneys on deposit in such capital expenditures reserve fund
        will be disbursed to Borrower monthly upon Lender’s receipt of satisfactory
        evidence that Borrower has caused to be made the required capital
        expenditures.  Upon Borrower’s or Manager’s failure to adequately
        maintain the Facility in good condition, Lender may, but shall not be obligated
        to, make such capital expenditures and may apply the moneys in the capital
        expenditures reserve fund for such purpose.  To the extent there are
        insufficient moneys in such capital expenditures reserve fund for such purposes,
        all funds advanced by Lender to make such capital expenditures shall constitute
        a portion of the Loan Obligations, shall be secured by the Mortgage and shall
        accrue interest at the Default Rate until paid.  Upon the occurrence
        of an Event of Default, Lender may apply any moneys in the capital expenditures
        reserve fund to the Loan Obligations, in such order and manner as Lender
        may
        elect.  For any partial fiscal year during which the Loan is
        outstanding, the required expenditure amount shall be prorated by multiplying
        the required amount per unit amount by a fraction, the numerator of which
        is the
        number of days during such year for which all or part of the Loan is outstanding
        and the denominator of which is the number of days in such
        year.  During the term of the Loan, Lender may, from time to time,
        engage a professional building inspector to conduct an inspection of the
        Facility.  If the inspector’s report indicates that repairs or
        replacements are necessary over and above the $400 per unit requirement in
        this
        Section 4.14, then Lender shall require a non-interest bearing repair escrow
        fund to ensure completion of such necessary repairs or
        replacements.  The amount of any such repair escrow fund shall be one
        hundred twenty-five percent (125%) of the estimated cost of repairs as
        determined by such inspector and Lender.  Lender also shall require an
        agreement satisfactory to Lender, in its commercially reasonable discretion,
        which will provide for completion of the repairs and the disbursement of
        the
        escrow funds.  All commercially reasonable fees and costs associated
        with the inspection, report and subsequent inspections (if required) shall
        be
        paid by Borrower.

       

      
        
          
          

        

        
          24

          
            

          

        

        
          
          

        

      

       

      4.15         Management
        Agreement.  Maintain the Management Agreement in full
        force and effect and timely perform all of Borrower’s obligations thereunder and
        enforce performance of all obligations of Manager thereunder and not permit
        the
        termination, amendment or assignment of the Management Agreement unless the
        prior written consent of Lender is first obtained, which consent may be in
        the
        sole and absolute discretion of Lender.  Borrower will enter into and
        cause Manager to enter into the Subordination Agreement.  Borrower
        will not enter into any other management agreement without Lender’s prior
        written consent, which consent may be in the sole and absolute discretion
        of
        Lender.

       

      4.16         Updated
        Appraisals.  For so long as the Loan remains outstanding,
        if any Event of Default shall occur hereunder, or if, in Lender’s judgment, a
        material depreciation in the value of the Land and/or the Improvements shall
        have occurred, then in any such event, Lender, may cause the Land and
        Improvements to be appraised by an appraiser selected by Lender, and in
        accordance with Lender’s appraisal guidelines and procedures then in effect, and
        Borrower agrees to cooperate in all respects with such appraisals and furnish
        to
        the appraisers all requested information regarding the Land and Improvements
        and
        the Facility.  Borrower agrees to pay all reasonable costs incurred by
        Lender in connection with such appraisal which costs shall be secured by
        the
        Mortgage and shall accrue interest at the Default Rate until paid.

       

      4.17         Comply
        with Covenants and Laws.  Comply, in all material
        respects, with all applicable covenants and restrictions of record and all
        laws,
        ordinances, rules and regulations and keep the Facility and the Land and
        Improvements in compliance with all applicable laws, ordinances, rules and
        regulations, including, without limitation, the Americans with Disabilities
        Act
        and regulations promulgated thereunder, and laws, ordinances, rules and
        regulations relating to zoning, health, building codes, setback requirements,
        Medicaid and Medicare laws and keep the Permits for the Facility in full
        force
        and effect.

       

      4.18         Taxes
        and Other Charges.  Subject to Borrower’s right to
        contest the same as set forth in Section 9(c) of the Mortgage, pay all taxes,
        assessments, charges, claims for labor, supplies, rent, and other obligations
        which, if unpaid, might give rise to a Lien against real or personal property
        of
        the Borrower, except Liens to the extent permitted by this
        Agreement.

       

      4.19         Commitment
        Letter.  Provide all items and pay all amounts required
        by the Commitment Letter. If any term of the Commitment Letter shall conflict
        with the terms of this Agreement, this Agreement shall govern and
        control.  As to any matter contained in the Commitment Letter, and as
        to which no mention is made in this Agreement or the other Loan Documents,
        the
        Commitment Letter shall continue to be in effect and shall survive the execution
        of this Agreement and all other Loan Documents.

       

      
        
          
          

        

        
          25

          
            

          

        

        
          
          

        

      

       

      4.20         Certificate.  Upon
        Lender’s written request, furnish Lender with a certificate stating that
        Borrower has complied with and is in compliance with all terms, covenants
        and
        conditions of the Loan Documents to which Borrower is a party and that there
        exists no Default or Event of Default or, if such is not the case, that one
        or
        more specified events have occurred, and that the representations and warranties
        contained herein are true and correct with the same effect as though made
        on the
        date of such certificate.

       

      4.21         Notice
        of Fees or Penalties.  Immediately notify Lender, upon
        Borrower’s knowledge thereof, of the assessment by any state or, if applicable,
        any Medicare, Medicaid, health or licensing agency of any fines or penalties
        against Borrower, Manager, or the Facility.

       

      4.22         Loan
        Closing Certification.  Immediately notify Lender in
        writing, in the event any representation or warranty contained in that certain
        Loan Closing Certification of even date herewith, executed by Borrower for
        the
        benefit of Lender, becomes untrue or there shall have been any material adverse
        change in any such representation or warranty.

       

      4.23         Compliance
        with Anti-Terrorism, Embargo, Sanctions and Anti-Money Laundering
        Laws. Borrower shall comply with all Requirements
        of Law relating to money laundering, anti-terrorism, trade embargos and economic
        sanctions, now or hereafter in effect.  Upon Lender's request from
        time to time during the term of the Loan, Borrower shall certify in writing
        to
        Lender that Borrower's representations, warranties and obligations under
        Sections 3.32 and 3.33 and this Section 4.23 remain true and correct and
        have
        not been breached.  Borrower shall immediately notify Lender in
        writing if any of such representations, warranties or covenants are no longer
        true or have been breached or if Borrower has a reasonable basis to believe
        that
        they may no longer be true or have been breached.  In connection with
        such an event, Borrower shall comply with all Requirements of Law and directives
        of Governmental Authorities and, at Lender's request, provide to Lender copies
        of all notices, reports and other communications exchanged with, or received
        from, Governmental Authorities relating to such an event.  Borrower
        shall also reimburse Lender any expense incurred by Lender in evaluating
        the
        effect of such an event on the Loan and Lender's interest in the collateral
        for
        the Loan, in obtaining any necessary license from Governmental Authorities
        as
        may be necessary for Lender to enforce its rights under the Loan Documents,
        and
        in complying with all Requirements of Law applicable to Lender as the result
        of
        the existence of such an event and for any penalties or fines imposed upon
        Lender as a result thereof.

       

      4.24         Renovations.  Obtain
        the prior written consent from Lender for any renovations or expansions of
        a
        Facility costing in excess of $750,000.00.

       

      ARTICLE
        V

      NEGATIVE
        COVENANTS OF BORROWER

       

      Until
        the
        Loan Obligations have been paid in full, no Borrower shall:

       

      
        
          
          

        

        
          26

          
            

          

        

        
          
          

        

      

       

      5.1           Assignment
        of Licenses and Permits.  Assign or transfer any of its
        interest in any Permits or Reimbursement Contracts (including rights to payment
        thereunder) pertaining to the Facility, or assign, transfer, or remove or
        permit
        any other Person to assign, transfer, or remove any records pertaining to
        the
        Facility including, without limitation, resident records, medical and clinical
        records (except for removal of such resident records as
        directed by the residents owning such records and except as may be required
        by
        law), without Lender’s prior written consent, which consent may be granted or
        refused in Lender’s sole discretion.

       

      5.2           No
        Liens; Exceptions.  Create, incur, assume or suffer to
        exist any Lien upon or with respect to the Facility, any of its properties,
        rights, income or other assets relating thereto, including, without limitation,
        the Mortgaged Property whether now owned or hereafter acquired, other than
        the
        following permitted Liens (“Permitted Encumbrances”):

       

      (a)           Liens
        at any time existing in favor of Lender;

       

      (b)           Inchoate
        Liens arising by operation of law for the purchase of labor, services,
        materials, equipment or supplies, provided payment shall not be delinquent
        and,
        if such Lien is a lien upon any of the Land or Improvements, such Lien must
        be
        fully disclosed to Lender and bonded off and removed from the Land and
        Improvements within thirty (30) days of its creation, in a manner satisfactory
        to Lender in its reasonable discretion;

       

      (c)           Liens
        incurred in the ordinary course of business in connection with workers’
compensation, unemployment insurance or other forms of governmental insurance
        or
        benefits, or to secure performance of tenders, statutory obligations, leases
        and
        contracts (other than for money borrowed or for credit received with respect
        to
        property acquired) entered into in the ordinary course of business as presently
        conducted or to secure obligations for surety or appeal bonds; and

       

      (d)           Liens
        for current year’s taxes, assessments or governmental charges or levies provided
        payment thereof shall not be delinquent.

       

      5.3           Merger,
        Consolidation, etc.  Except as otherwise provided in the
        Mortgage, consummate any merger, consolidation or similar transaction, or
        sell,
        assign, lease or otherwise dispose of (whether in one transaction or in a
        series
        of transactions), all or substantially all of its assets (whether now or
        hereafter acquired), without the prior written consent of Lender, which consent
        may be granted or refused in Lender’s sole discretion.

       

      5.4           Maintain
        Single Purpose Entity Status.

       

      (a)           Engage
        in any business or activity other than the ownership, operation and maintenance
        of the Mortgaged Property, and activities incidental thereto;

       

      (b)           Acquire
        or own any material assets other than (i) the Mortgaged Property, and (ii)
        such
        incidental machinery, equipment, fixtures and other personal property as
        may be
        necessary for the operation of the Mortgaged Property;

       

      (c)           Merge
        into or consolidate with any Person or dissolve, terminate or liquidate in
        whole
        or in part, transfer or otherwise dispose of all or substantially all of
        its
        assets (except as permitted in the Loan Documents) or change its legal
        structure, without in each case Lender’s consent;

       

      
        
          
          

        

        
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      (d)           Without
        the prior written consent of Lender, amend, modify, terminate or fail to
        comply
        with the provisions of its Limited Liability Company or Partnership Agreement
        or
        Articles of Organization, as same may be further amended or supplemented,
        if
        such amendment, modification, termination or failure to comply would adversely
        affect its status as a Single Purpose Entity or its ability to perform its
        obligations hereunder, under the Note or any other document evidencing or
        securing the Loan;

       

      (e)           Own
        any subsidiary or make any investment in, any Person without the consent
        of
        Lender;

       

      (f)           Commingle
        its funds or assets with assets of, or pledge its assets with or for, any
        of its
        general partners, members, shareholders, Affiliates, principals or any other
        Person, except as permitted under the Loan Documents or the Management
        Agreement;

       

      (g)           Incur
        any debt, secured or unsecured, direct or contingent (including guaranteeing
        any
        obligation), other than the Loan and trade payables incurred in the ordinary
        course of business, payable within 90 days of the date incurred, based on
        historical amounts;

       

      (h)           Fail
        to maintain its records, books of account and bank accounts separate and
        apart
        from those of its general partners, members, shareholders, principals and
        Affiliates, the Affiliates of any of its general partners, members,
        shareholders, principals, and any other Person;

       

      (i)           Except
        for the Master Leases to the Licensees, enter into any contract or agreement
        with any of its general partners, members, shareholders, principals or
        Affiliates, or the Affiliates of any of its general partners, members,
        shareholders, principals except upon terms and conditions that are intrinsically
        fair and substantially similar to those that would be available on an
        arms-length basis with third parties;

       

      (j)           Seek
        its dissolution or winding up in whole, or in part;

       

      (k)           Maintain
        its assets in such a manner that it will be costly or difficult to segregate,
        ascertain or identify its individual assets from those of any of its general
        partners, members, shareholders, principals and Affiliates, the Affiliates
        of
        any of its general partners, members, shareholders, principals or any other
        Person;

       

      (l)           Hold
        itself out to be responsible for the debts of another Person or pay another
        Person’s liabilities out of its own funds, except as expressly provided in the
        Loan Documents;

       

      (m)           Make
        any loans or advances to any third party, including any of its general partners,
        members, shareholders, principals or Affiliates, or the Affiliates of any
        of its
        general partners, members, shareholders, principals;

       

      (n)           Fail
        to have prepared and filed its own tax returns, to the extent required by
        law;

       

      
        
          
          

        

        
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      (o)           Fail
        either to hold itself out to the public as a legal Person separate and distinct
        from any other Person or to conduct its business solely in its own name,
        in
        order not (i) to mislead others as to the identity with which such other
        party
        is transacting business, or (ii) to suggest that it is responsible for the
        debts
        of any third party (including any of its members or Affiliates, or any general
        partner, member, principal or Affiliate thereof);

       

      (p)           Fail
        to maintain adequate capital for the normal obligations reasonably foreseeable
        in a business of its size and character and in light of its contemplated
        business operations; or

       

      (q)           Cause
        or permit its board of directors to take any action which, under the terms
        of
        any certificate of incorporation, bylaws or any voting trust agreement with
        respect to any common stock, requires a vote of the board of directors unless
        at
        the time of such action there shall be at least one member of the limited
        liability company Borrower, or limited liability company general partner
        of a
        Borrower, who is an independent director.

       

      5.5           Change
        of Business.  Make any material change in the nature of
        its business as it is being conducted as of the date hereof.

       

      5.6           Changes
        in Accounting.  Change its methods of accounting, unless
        such change is permitted by GAAP, and provided such change does not have
        the
        effect of curing or preventing what would otherwise be an Event of Default
        or
        Default had such change not taken place.

       

      5.7           ERISA.

       

      (a)           Agree
        to, enter into or consummate any transaction which would render it unable
        to
        confirm that (i) it is not an “employee benefit plan” as defined in Section
        3(32) of ERISA, which is subject to Title I of ERISA, or a “governmental plan”
within the meaning of Section 3(32) of ERISA; (ii) it is not subject to state
        statutes regulating investments and fiduciary obligations with respect to
        governmental plans; and (iii) less than twenty-five percent (25%) of each
        of its
        outstanding class of equity interests are held by “benefit plan investors”
within the meaning of 29 C.F.R. § 2510.3-101(f)(2);

       

      (b)           Engage
        in a non-exempt prohibited transaction described in Section 406 of ERISA
        or
        Section 4975 of the Code, as such sections relate to Borrower, or in any
        transaction that would cause any obligation or action taken or to be taken
        hereunder (or the exercise by Lender of any of its rights under the Loan
        Documents) to be a non-exempt prohibited transaction under ERISA.

       

      
        
          
          

        

        
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      5.8           Transactions
        with Affiliates.  Except for the Master Leases to
        Licensees, enter into any transaction with a Person which is an Affiliate
        of
        Borrower other than in the ordinary course of its business and on fair and
        reasonable terms no less favorable to Borrower, than those they could obtain
        in
        a comparable arms-length transaction with a Person not an
        Affiliate.

       

      5.9           Transfer
        of Ownership Interests.  Except as
        otherwise allowable under the Mortgage, permit a change in the percentage
        ownership interest of the Persons owning the Borrower, unless the written
        consent of Lender is first obtained, which consent may be granted or refused
        in
        Lender’s sole discretion.

       

      5.10         Change
        of Use.  Alter or change the use of the Facility or enter
        into any management agreement for the Facility other than the Management
        Agreement or, except for the Master Leases to Licensees, enter into any
        operating lease for the Facility, unless Borrower first notifies Lender and
        provides Lender a copy of the proposed lease agreement or management agreement,
        obtains Lender’s written consent thereto, which consent may be withheld in
        Lender’s sole discretion, and obtains and provides Lender with a subordination
        agreement in form satisfactory to Lender, as determined by Lender in its
        sole
        discretion, from such manager or lessee subordinating to all rights of
        Lender.

       

      5.11         Place
        of Business.  Change its chief executive office or its
        principal place of business without first giving Lender at least thirty (30)
        days prior written notice thereof and promptly providing Lender such information
        and amendatory financing statements as Lender may request in connection
        therewith.

       

      5.12         Acquisitions.  Directly
        or indirectly, purchase, lease, manage, own, operate, or otherwise acquire
        any
        property or other assets (or any interest therein) which are not used in
        connection with the operation of the Facility.

       

      5.13         Dividends,
        Distributions and Redemptions.  Except as hereinafter
        provided or as otherwise consented to by Lender in writing, declare or pay
        any
        distributions to its shareholders, members or partners, as applicable, or
        purchase, redeem, retire, or otherwise acquire for value, any ownership
        interests in Borrower now or hereafter outstanding, return any capital to
        its
        shareholders, members or partners, as applicable, or make any distribution
        of
        assets to its shareholders, members, or partners, as applicable.

       

      5.14         Indebtedness.  Incur,
        create, assume or permit to exist any indebtedness or liability on account
        of
        deposits or advances or any indebtedness or liability for borrowed money, or any
        other indebtedness or liability evidenced by notes, bonds, debentures or
        similar
        obligations, except (a) indebtedness evidenced by the Note, and any of the
        other
        Loan Obligations and (b) only if Borrower assumes responsibility for the
        operations of the Facility, indebtedness incurred in the ordinary course
        of
        business.

       

      ARTICLE
        VI

      ENVIRONMENTAL
        HAZARDS

       

      6.1           Prohibited
        Activities and Conditions.  Except for matters covered by
        a written program of operations and maintenance approved in writing by Lender
        (an “O&M Program”) or matters described in Section 6.2, Borrower shall not
        cause or permit to exist any of the following:

       

      
        
          
          

        

        
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      (a)           The
        presence, use, generation, release, treatment, processing, storage (including
        storage in above ground and underground storage tanks), handling, or disposal
        of
        any Hazardous Materials in, on or under the Land or any Improvements, in
        violation of applicable Hazardous Materials Laws;

       

      (b)           The
        transportation of any Hazardous Materials to, from, or across the Land in
        violation of Hazardous Materials Laws;

       

      (c)           Any
        occurrence or condition on the Land or in the Improvements, which occurrence
        or
        condition is or may be in violation of Hazardous Materials Laws;

       

      (d)           Any
        violation of or noncompliance with the terms of any Environmental Permit
        with
        respect to the Land or the Improvements; or

       

      (e)           Any
        Lien (whether or not such Lien has priority over the Lien created by the
        Mortgage) upon the Land or any Improvements imposed pursuant to any Hazardous
        Materials Laws.

       

      The
        matters described in clauses (a) through (e) above are referred to collectively
        in this Article VI as “Prohibited Activities and Conditions” and individually as
        a “Prohibited Activity and Condition.”

       

      6.2           Exclusions.  Notwithstanding
        any other provision of Article VI to the contrary, “Prohibited Activities and
        Conditions” shall not include the safe and lawful use and storage of quantities
        of (a) pre-packaged supplies, medical waste, Hazardous Materials, cleaning
        materials and petroleum products customarily used in the operation and
        maintenance of comparable facilities, (b) cleaning materials, personal grooming
        items and other items sold in pre-packaged containers for consumer use and
        used
        by occupants of the Facility, and (c) petroleum products used in the operation
        and maintenance of motor vehicles from time to time located on the Land’s
        parking areas, so long as all of the foregoing are used, stored, handled,
        transported and disposed of in compliance with Hazardous Materials
        Laws.

       

      6.3           Preventive
        Action.  Borrower shall take all appropriate and
        reasonable steps (including the inclusion of appropriate provisions in any
        Leases approved by Lender which are executed after the date of this Agreement)
        to prevent its employees, agents, contractors, tenants and occupants of the
        Facility from causing or permitting any Prohibited Activities and
        Conditions.

       

      6.4           O
        & M Program Compliance.  If an O&M Program has
        been established with respect to Hazardous Materials, Borrower shall comply
        in a
        timely manner with, and cause all employees, agents and contractors of Borrower
        and any other Persons (excluding trespassers) present on the Land to comply
        with
        the O&M Program.  All costs of performance of Borrower’s
        obligations under any O&M Program shall be paid by Borrower, and Lender’s
        out-of-pocket costs incurred in connection with the monitoring and review
        of the
        O&M Program and Borrower’s performance shall be paid by Borrower upon demand
        by Lender.  Any such out-of-pocket costs of Lender which Borrower
        fails to pay promptly shall become an additional part of the Loan
        Obligations.

       

      
        
          
          

        

        
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      6.5           Borrower’s
        Environmental Representations and Warranties.  Borrower
        represents and warrants to Lender that, except as previously disclosed by
        Borrower to Lender in writing:

       

      (a)           Borrower
        has not at any time caused or permitted any Prohibited Activities and
        Conditions.

       

      (b)           No
        Prohibited Activities and Conditions exist or, to Borrower’s knowledge, have
        existed.

       

      (c)           The
        Land and the Improvements do not now contain any underground storage tanks,
        and,
        to the best of Borrower’s knowledge, the Land and the Improvements have not
        contained any underground storage tanks in the past.  If there is an
        underground storage tank located on the Land or the Improvements which has
        been
        previously disclosed by Borrower to Lender in writing, that tank complies
        with
        all requirements of Hazardous Materials Laws.

       

      (d)           Borrower
        has complied with all Hazardous Materials Laws, including all requirements
        for
        notification regarding releases of Hazardous Materials, relating to the
        Land.  Without limiting the generality of the foregoing, Borrower has
        obtained all Environmental Permits required for the operation of the Land
        and
        the Improvements in accordance with Hazardous Materials Laws now in effect
        and
        all such Environmental Permits are in full force and effect.  During
        Borrower’s ownership of the Land, and, to the best of Borrower’s knowledge, no
        event has occurred with respect to the Land and/or Improvements that constitutes
        or, with the passing of time or the giving of notice, would constitute,
        noncompliance with the terms of any Environmental Permit.

       

      (e)           There
        are no actions, suits, claims or proceedings pending or, to the best of
        Borrower’s knowledge, threatened that involve the Land and/or the Improvements
        and allege, arise out of, or relate to any Prohibited Activity and
        Condition.

       

      (f)           Borrower
        has not received any written complaint, order, notice of violation or other
        communication from any Governmental Authority with regard to air emissions,
        water discharges, noise emissions or Hazardous Materials, or any other
        environmental, health or safety matters affecting the Land or the
        Improvements.  The representations and warranties in this Article VI
        shall be continuing representations and warranties that shall be deemed to
        be
        made by Borrower throughout the term of the Loan evidenced by the Note and
        until
        all of the Loan Obligations have been paid in full.

       

      6.6           Notice
        of Certain Events.  Borrower shall promptly notify Lender
        in writing of any and all of the following that may occur:

       

      (a)           Borrower’s
        discovery of any Prohibited Activity and Condition.

       

      (b)           Borrower’s
        receipt of or knowledge of any complaint, order, notice of violation or other
        communication from any Governmental Authority or other Person with regard
        to
        present or future alleged Prohibited Activities and Conditions or any other
        environmental, health or safety matters affecting the Land or the
        Improvements.

       

      
        
          
          

        

        
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      (c)           Any
        representation or warranty in this Article VI which becomes untrue at any
        time
        after the date of this Agreement.

       

      Any
        such
        notice given by Borrower shall not relieve Borrower of, or result in a waiver
        of, any obligation under this Agreement, the Note, or any of the other Loan
        Documents.

       

      6.7           Costs
        of Inspection.  Borrower shall pay promptly the
        reasonable costs of any environmental inspections, tests or audits
        (“Environmental Inspections”) required by Lender in connection with any
        foreclosure or deed in lieu of foreclosure or, if required by Lender, as
        a
        condition of Lender’s consent to any “Transfer” (as defined in the Mortgage), or
        required by Lender following a commercially reasonable determination by Lender
        that Prohibited Activities and Conditions may exist.  Any such costs
        incurred by Lender (including the reasonable fees and out-of-pocket costs
        of
        attorneys and technical consultants whether incurred in connection with any
        judicial or administrative process or otherwise) which Borrower fails to
        pay
        promptly shall become an additional part of the Loan Obligations.  The
        results of all Environmental Inspections made by Lender shall at all times
        remain the property of Lender, and Lender shall have no obligation to disclose
        or otherwise make available to Borrower or any other party such results or
        any
        other information obtained by Lender in connection with its Environmental
        Inspections.  Lender hereby reserves the right, and Borrower hereby
        expressly authorizes Lender, to make available to any prospective bidder
        at a
        foreclosure sale of the Mortgaged Property, the results of any Environmental
        Inspections made by Lender with respect to the Mortgaged
        Property.  Borrower consents to Lender notifying said party of the
        results of any of Lender’s Environmental Inspections.  Borrower
        acknowledges that Lender cannot control or otherwise assure the truthfulness
        or
        accuracy of the results of any of its Environmental Inspections and that
        the
        release of such results to prospective bidders at a foreclosure sale of the
        Mortgaged Property may have a material and adverse effect upon the amount
        which
        a party may bid at such sale.  Borrower agrees that Lender shall have
        no liability whatsoever as a result of delivering the results of any of its
        Environmental Inspections to said third party, and Borrower hereby releases
        and
        forever discharges Lender from any and all claims, damages, or causes of
        action,
        arising out of, connected with or incidental to the results of, such delivery
        of
        any of Lender’s Environmental Inspections.

       

      6.8           Remedial
        Work.  If any investigation, site monitoring,
        containment, clean-up, restoration or other remedial work (“Remedial Work”) is
        required to bring Borrower into compliance with any Hazardous Materials Law
        or
        order of any Governmental Authority that has or acquires jurisdiction over
        the
        Land, the Improvements or the use, operation or improvement of the Land under
        any Hazardous Materials Law, Borrower shall, by the earlier of (a) the
        applicable deadline required by Hazardous Materials Law or (b) thirty (30)
        days
        after notice from Lender demanding such action, begin performing the Remedial
        Work, and thereafter diligently prosecute it to completion, and shall in
        any
        event complete such work by the time required by applicable Hazardous Materials
        Law.  If Borrower fails to begin on a timely basis or diligently
        prosecute any required Remedial Work, Lender may, at its option, cause the
        Remedial Work to be completed, in which case Borrower shall reimburse Lender
        on
        demand for the cost of doing so.  Any reimbursement due from Borrower
        to Lender shall become part of the Loan Obligations.

       

      
        
          
          

        

        
          33

          
            

          

        

        
          
          

        

      

       

      6.9           Cooperation
        with Governmental Authorities.  Borrower shall cooperate
        with any inquiry by any Governmental Authority and shall comply with any
        governmental or judicial order which arises from any alleged Prohibited Activity
        and Condition.  Notwithstanding the foregoing, Borrower shall be
        entitled to challenge in good faith the validity, scope or extent of any
        such
        governmental or judicial order.

       

      6.10         Indemnity.

       

      (a)           Borrower
        shall hold harmless, defend and indemnify (i) Lender, (ii) any prior owner
        or
        holder of the Note, (iii) any Person who is or will have been involved in
        the
        servicing of the Note, (iv) the officers, directors, partners, agents,
        shareholders, employees and trustees of any of the foregoing, and (v) the
        heirs,
        legal representatives, successors and assigns of each of the foregoing
        (together, the “Indemnitees”) from and against all proceedings, claims, damages,
        losses, expenses, penalties and costs (whether initiated or sought by any
        Governmental Authority or private parties), including fees and out of pocket
        expenses of attorneys and expert witnesses, investigatory fees, and remediation
        costs, whether incurred in connection with any judicial or administrative
        process or otherwise, arising directly or indirectly from any of the
        following:

       

      (i)           Any
        breach of any representation or warranty of Borrower in this Article
        VI;

       

      (ii)           Any
        failure by Borrower to perform any of its obligations under this Article
        VI;

       

      (iii)           The
        existence or alleged existence of any Prohibited Activity and
        Condition;

       

      (iv)           The
        presence or alleged presence of Hazardous Materials in, on, around or under
        the
        Land or the Improvements; or

       

      (v)           The
        actual or alleged violation of any Hazardous Materials Law.

       

      (b)           Counsel
        selected by Borrower to defend Indemnitees shall be subject to the reasonable
        approval of those Indemnitees.  Notwithstanding anything contained
        herein, any Indemnitee may elect to defend any claim or legal or administrative
        proceeding at Borrower’s reasonable expense.  Nothing contained herein
        shall prevent an Indemnitee from employing separate counsel in any such action
        at any time and participating in the defense thereof at its own
        expense.

       

      (c)           Borrower
        shall not, without the prior written consent of those Indemnitees who are
        named
        as parties to a claim or legal or administrative proceeding (a “Claim”) settle
        or compromise the Claim if the settlement (i) results in the entry of any
        judgment that does not include as an unconditional term the delivery by the
        claimant or plaintiff to Lender of a written release of those Indemnitees,
        reasonably satisfactory in form and substance to Lender; or (ii) may materially
        and adversely affect any Indemnitee, as determined by such Indemnitee in
        its
        sole discretion.

       

      
        
          
          

        

        
          34

          
            

          

        

        
          
          

        

      

       

      (d)           The
        liability of Borrower to indemnify the Indemnitees shall not be limited or
        impaired by any of the following, or by any failure of Borrower or any guarantor
        to receive notice of or consideration for any of the following:

       

      (i)           Any
        amendment or modification of any Loan Document;

       

      (ii)           Any
        extensions of time for performance required by any of the Loan
        Documents;

       

      (iii)           The
        accuracy or inaccuracy of any representations and warranties made by Borrower
        under this Agreement or any other Loan Document;

       

      (iv)           The
        release of Borrower or any other Person, by Lender or by operation of law,
        from
        performance of any obligation under any of the Loan Documents;

       

      (v)           The
        release or substitution in whole or in part of any security for the Loan
        Obligations; or

       

      (vi)           Lender’s
        failure to properly perfect any lien or security interest given as security
        for
        the Loan Obligations; or

       

      (vii)           Any
        provision in any of the Loan Documents limiting Lender’s recourse to property
        securing the Loan or limiting the personal liability of Borrower or any party
        for payment of all or any part of the Loan.

       

      (e)           Borrower
        shall, at its own cost and expense, do all of the following:

       

      (i)           Pay
        or satisfy any judgment or decree that may be entered against any Indemnitee
        or
        Indemnitees in any legal or administrative proceeding incident to any matters
        against which Indemnitees are entitled to be indemnified under this Article
        VI,
        subject to Borrower’s right to lawfully defend and challenge same;

       

      (ii)           Reimburse
        Indemnitees for any reasonable expenses paid or incurred in connection with
        any
        matters against which Indemnitees are entitled to be indemnified under this
        Article VI; and

       

      (iii)           Reimburse
        Indemnitees for any and all reasonable expenses, including fees and costs
        of
        attorneys and expert witnesses, paid or incurred in connection with the
        enforcement by Indemnitees of their rights under this Article VI, or in
        monitoring and participating in any legal or administrative
        proceeding.

       

      (f)           In
        any circumstances in which the indemnity under this Article VI applies, Lender
        may employ its own legal counsel and consultants to prosecute, defend or
        negotiate any claim or legal or administrative proceeding and Lender, with
        the
        prior written consent of Borrower (which shall not be unreasonably withheld,
        delayed or conditioned) may settle or compromise any action or legal or
        administrative proceeding.  Borrower shall reimburse Lender upon
        demand for all reasonable costs and expenses incurred by Lender, including
        all
        costs of settlements entered into in good faith, and the reasonable fees
        and out
        of pocket expenses of such attorneys and consultants.

       

      
        
          
          

        

        
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      (g)           The
        provisions of this Article VI shall be in addition to any and all other
        obligations and liabilities that Borrower may have under the applicable law
        or
        under the other Loan Documents, and each Indemnitee shall be entitled to
        indemnification under this Article VI without regard to whether Lender or
        that
        Indemnitee has exercised any rights against the Land and/or the Improvements
        or
        any other security, pursued any rights against any guarantor, or pursued
        any
        other rights available under the Loan Documents or applicable law.  If
        Borrower consists of more than one Person or entity, the obligation of those
        Persons or entities to indemnify the Indemnitees under this Article VI shall
        be
        joint and several.  The obligations of Borrower to indemnify the
        Indemnitees under this Article VI shall survive any repayment or discharge
        of
        the Loan Obligations, any foreclosure proceeding, any foreclosure sale, any
        delivery of any deed in lieu of foreclosure, and any release of record of
        the
        lien of the Mortgage.

       

      ARTICLE
        VII

      EVENTS
        OF DEFAULT AND REMEDIES

       

      7.1           Events
        of Default.  The occurrence of any one or more of the
        following shall constitute an “Event of Default” hereunder:

       

      (a)           The
        failure by Borrower to pay any installment of principal, interest, or other
        payments required under the Note, any Mortgage or any other Loan Document
        on the
        day such payment becomes due after the expiration of any applicable cure
        period;

       

      (b)           Any
        failure by Borrower to provide and maintain in full force and effect the
        insurance coverage required by Section 4.5(a) – (j), inclusive, of this
        Agreement;

       

      (c)           The
        violation by Borrower of any covenant set forth in Article V
        hereof;

       

      (d)           The
        failure by Borrower to deliver or cause to be delivered the financial statements
        and information set forth in Section 4.7 of this Agreement within the times
        required, and such failure is not cured within thirty (30) days following
        Lender’s written notice to Borrower thereof;

       

      (e)           The
        failure by Borrower or Guarantor to establish and maintain the capital
        expenditures reserve fund in accordance with Section 4.14 of this
        Agreement;

       

      (f)           The
        failure of Borrower properly and timely to perform or observe any covenant
        or
        condition set forth in this Agreement (other than those specified in this
        Section 7.1) or any of the other Loan Documents which failure is not cured
        within any applicable cure period as set forth herein or in such other Loan
        Document, or, if no cure period is specified therefor, is not cured within
        thirty (30) days after notice to Borrower of such Default; provided, however,
        that if such Default cannot be cured within such thirty (30) day period,
        such
        cure period shall be extended for an additional sixty (60) days, as long
        as
        Borrower is diligently and in good faith prosecuting said cure to
        completion;

       

      (g)           The
        filing by Borrower, Guarantor or Manager of a voluntary petition, or the
        adjudication of any of the aforesaid Persons, or the filing by any of the
        aforesaid Persons of any petition or answer seeking or acquiescing in any
        reorganization, arrangement, composition, readjustment, liquidation, dissolution
        or similar relief for itself under any present or future federal, state or
        other
        statute, law or regulation relating to bankruptcy, insolvency or other relief
        for debtors, or if any of the aforesaid Persons should seek or consent to
        or
        acquiesce in the appointment of any trustee, receiver or liquidator for itself
        or of all or any substantial part of its property or of any or all of the
        rents,
        revenues, issues, earnings, profits or income thereof, or the mailing of
        any
        general assignment for the benefit of creditors or the admission in writing
        by
        any of the aforesaid Persons of its inability to pay its debts generally
        as they
        become due;

       

      
        
          
          

        

        
          36

          
            

          

        

        
          
          

        

      

       

      (h)           The
        entry by a court of competent jurisdiction of an order, judgment, or decree
        approving a petition filed against Borrower, Guarantor or
        Manager which petition seeks any reorganization,
        arrangement, composition, readjustment, liquidation, dissolution or similar
        relief under any present or future federal, state or other statute, law or
        regulation relating to bankruptcy, insolvency, or other relief for debtors,
        which order, judgment or decree remains unvacated and unstayed for an aggregate
        of sixty (60) days (whether or not consecutive) from the date of entry thereof,
        or the appointment of any trustee, receiver or liquidator of any of the
        aforesaid Persons or of all or any substantial part of its properties or
        of any
        or all of the rents, revenues, issues, earnings, profits or income thereof
        which
        appointment shall remain unvacated and unstayed for an aggregate of sixty
        (60)
        days (whether or not consecutive);

       

      (i)           Unless
        otherwise permitted hereunder or under any other Loan Documents, the sale,
        transfer, lease, assignment, or other disposition, voluntarily or involuntarily,
        of the Mortgaged Property, or any part thereof, except for Permitted
        Encumbrances as described in Section 5.2 above, or any further encumbrance
        of
        the Mortgaged Property (except for Permitted Encumbrances), unless the prior
        written consent of Lender is obtained;

       

      (j)           Any
        certificate, statement, representation, warranty or audit heretofore or
        hereafter furnished by or on behalf of Borrower, Guarantor or Manager or
        any of
        their respective officers, directors or trustees pursuant to or in connection
        with this Agreement (including, without limitation, representations and
        warranties contained herein or in any Loan Documents) or as an inducement
        to
        Lender to make the Loan to Borrowers, (i) proves to have been false in any
        material respect at the time when the facts therein set forth were stated
        or
        certified, or (ii) proves to have omitted any substantial contingent or
        unliquidated liability or claim against Borrower, Guarantor or Manager or
        (iii) on the date of execution of this Agreement there shall have been any
        materially adverse change in any of the acts previously disclosed by any
        such
        certificate, statement, representation, warranty or audit, which change shall
        not have been disclosed to Lender in writing at or prior to the time of such
        execution;

       

      (k)           The
        failure of Borrower to correct or to cause Manager to correct, within the
        time
        deadlines set by any applicable Medicare, Medicaid or licensing agency, any
        deficiency which would result in the following actions by such agency with
        respect to the Facility;

       

      (i)           a
        termination of any Reimbursement Contract or any Permit; or

       

      (ii)          a
        ban on new admissions generally or, if applicable, on admission of patients
        otherwise qualifying for Medicare or Medicaid coverage;

       

      (l)           The
        assessment against Borrower, Manager, or the Facility of any fines or penalties
        by any state or any Medicare, Medicaid, health or licensing agency having
        jurisdiction over such Persons or the Facility in excess of
        $150,000;

       

      
        
          
          

        

        
          37

          
            

          

        

        
          
          

        

      

       

      (m)           A
        final judgment is rendered by a court of law or equity against Borrower,
        Guarantor or Manager in excess of $250,000.00, and the same remains undischarged
        for a period of thirty (30) days, unless such judgment is either (i) fully
        covered by collectible insurance and such insurer has within such period
        acknowledged such coverage in writing, or (ii) although not fully covered
        by
        insurance, enforcement of such judgment has been effectively stayed, such
        judgment is being contested or appealed by appropriate proceedings and Borrower,
        Guarantor or Manager as the case may be, has established reserves adequate
        for
        payment in the event such Person is ultimately unsuccessful in such contest
        or
        appeal and evidence thereof is provided to Lender; or

       

      (n)           The
        occurrence of any material adverse change in the financial condition or
        prospects of Borrower or Guarantor or Manager, or the existence of any other
        condition which, in Lender’s reasonable determination, constitutes a material
        impairment of any such Person’s ability to operate the Facility or of such
        Person’s ability to perform their respective obligations under the Loan
        Documents, which is not remedied within thirty (30) days after written
        notice.

       

      Notwithstanding
        anything in this
        Section, all requirements of notice shall be deemed eliminated if Lender
        is
        prevented from declaring an Event of Default by bankruptcy or other applicable
        law.  The cure period, if any, shall then run from the occurrence of
        the event or condition of Default rather than from the date of
        notice.

       

      Notwithstanding
        anything in this
        Section, the occurrence of any one or more of the events described in
        subsections l and m above with respect to any one or more Facility (ies)
        shall
        not constitute an Event of Default unless such occurrence(s) is/are of a
        magnitude as to have material adverse effect on the Facilities in the aggregate,
        as determined by Lender in its reasonable discretion.

       

      7.2           Remedies.  Upon
        the occurrence of any one or more of the foregoing Events of Default, Lender
        may, at its option:

       

      (a)           Declare
        the entire unpaid principal of the Loan Obligations to be, and the same shall
        thereupon become, immediately due and payable, without presentment, protest
        or
        further demand or notice of any kind, all of which are hereby expressly waived;
        and/or

       

      (b)           Proceed
        to protect and enforce its rights by action at law (including, without
        limitation, bringing suit to reduce any claim to judgment), suit in equity
        and
        other appropriate proceedings including, without limitation, for specific
        performance of any covenant or condition contained in this Agreement;
        and/or

       

      (c)           Exercise
        any and all rights and remedies afforded by the laws of the United States,
        the
        states in which any of the Mortgaged Property is located or any other
        appropriate jurisdiction as may be available for the collection of debts
        and
        enforcement of covenants and conditions such as those contained in this
        Agreement and the Loan Documents; and/or

       

      (d)           Exercise
        the rights and remedies of setoff and/or banker’s lien against the interest of
        Borrower in and to every account and other property of Borrower which is
        in the
        possession of Lender or any Person who then owns a participating interest
        in the
        Loan, to the extent of the full amount of the Loan; and/or

       

      
        
          
          

        

        
          38

          
            

          

        

        
          
          

        

      

       

      (e)           Exercise
        its rights and remedies pursuant to any other Loan Documents.

       

      7.3           Segregation
        of Obligations.  The Facilities are located in three (3)
        different states, with the Mortgage related to a particular Facility being
        governed by the laws of the State where the Facility is located.  It
        is the intent of the parties to avoid triggering what is known in some states
        as
“one action” rules by including in a foreclosure of any Borrower’s Mortgage, the
        obligations of any other Borrower under this Agreement.  Accordingly,
        each Borrower’s liability hereunder shall only include the obligations under
        this Agreement that pertain to such Borrower and such Borrower’s assets only and
        shall not include obligations under this Agreement that pertain to any other
        Borrower or its assets, with the result that no Borrower shall be personally
        liable for any other Borrower’s obligations under this Agreement.  It
        is agreed, however, that the Default of any one Borrower hereunder shall
        constitute a Default by the other Borrowers.

       

      ARTICLE
        VIII

      MISCELLANEOUS

       

      8.1           Waiver.  No
        remedy conferred upon, or reserved to, a party in this Agreement or any of
        the
        other Loan Documents is intended to be exclusive of any other remedy or
        remedies, and each and every remedy shall be cumulative and shall be in addition
        to every other remedy given hereunder or now or hereafter existing in law
        or in
        equity. Exercise of or omission to exercise any right of a party shall not
        affect any subsequent right of such party to exercise the same.  No
        course of dealing between Borrower and Lender or any delay on a party’s part in
        exercising any rights shall operate as a waiver of any of such party’s
        rights.  No waiver of any Default under this Agreement or any of the
        other Loan Documents shall extend to or shall affect any subsequent or other,
        then existing, Default or shall impair any rights, remedies or powers of
        either
        party.

       

      8.2           Costs
        and Expenses.  Each Borrower will bear all taxes, fees
        and expenses (including actual, reasonable attorneys’ fees and expenses of
        counsel for Lender) in connection with the Loan, the Note, the preparation
        of
        this Agreement and the other Loan Documents (including any amendments hereafter
        made), and in connection with any modifications thereto and the recording
        of any
        of the Loan Documents.  If, at any time, a Default occurs or Lender
        becomes a party to any suit or proceeding in order to protect its interests
        or
        priority in any collateral for any of the Loan Obligations or its rights
        under
        this Agreement or any of the Loan Documents, or if Lender is made a party
        to any
        suit or proceeding by virtue of the Loan, this Agreement or any Mortgaged
        Property and as a result of any of the foregoing, Lender employs counsel
        to
        advise or provide other representation with respect to this Agreement, or
        to
        collect the balance of the Loan Obligations, or to take any action in or
        with
        respect to any suit or proceeding relating to this Agreement, any of the
        other
        Loan Documents, any Mortgaged Property, Borrower, Guarantor or Manager, or
        to
        protect, collect, or liquidate any of the security for the Loan Obligations,
        or
        attempt to enforce any security interest or lien granted to Lender by any
        of the
        Loan Documents, then in any such events, all of the actual, reasonable
        attorney’s fees arising from such services, including attorneys’ fees for
        preparation of litigation and in any appellate or bankruptcy proceedings,
        and
        any reasonable expenses, costs and charges relating thereto shall constitute
        additional obligations of Borrowers to Lender payable on demand of
        Lender.  Without limiting the foregoing, each Borrower has undertaken
        the obligation for payment of, and shall pay, all recording and filing fees,
        revenue or documentary stamps or taxes, intangibles taxes, and other taxes,
        expenses and charges payable in connection with this Agreement, any of the
        Loan
        Documents, the Loan Obligations, or the filing of any financing statements
        or
        other instruments required to effectuate the purposes of this Agreement,
        and
        should Borrowers fail to do so, Borrowers agree to reimburse Lender for the
        amounts paid by Lender, together with penalties or interest, if any, incurred
        by
        Lender as a result of underpayment or nonpayment.  Such amounts shall
        constitute a portion of the Loan Obligations, shall be secured by the Mortgage
        and shall bear interest at the Default Rate (as defined in the Note) from
        the
        date advanced until repaid.

       

      
        
          
          

        

        
          39

          
            

          

        

        
          
          

        

      

       

      8.3           Performance
        of Lender.  At its option, upon Borrowers’ failure to do
        so, Lender may make any payment or do any act on Borrowers’ behalf that Borrower
        or others are required to do to remain in compliance with this Agreement
        or any
        of the other Loan Documents, and Borrower agrees to reimburse Lender, on
        demand,
        for any payment made or expense incurred by Lender pursuant to the foregoing
        authorization, including, without limitation, actual, reasonable attorneys’
fees, and until so repaid any sums advanced by Lender shall constitute a
        portion
        of the Loan Obligations, shall be secured by the Mortgage and shall bear
        interest at the Default Rate (as defined in the Note) from the date advanced
        until repaid.

       

      8.4           Indemnification.  Borrowers
        shall, at their sole cost and expense, protect, defend, indemnify and hold
        harmless the Indemnified Parties from and against any and all claims, suits,
        liabilities (including, without limitation, strict liabilities), actions,
        proceedings, obligations, debts, damages, losses, costs, expenses, fines,
        penalties, charges, fees, expenses, judgments, awards, amounts paid in
        settlement, punitive damages, foreseeable and unforeseeable consequential
        damages, of whatever kind or nature (including but not limited to actual,
        reasonable attorneys’ fees and other costs of defense) imposed upon or incurred
        by or asserted against Lender by reason of (a) ownership of the Note, the
        Mortgage, the Mortgaged Property or any interest therein or receipt of any
        Rents, (b) any amendment to, or restructuring of, the Loan Obligations and/or
        any of the Loan Documents, (c) any and all lawful action that may be taken
        by
        Lender in connection with the enforcement of the provisions of the Mortgage
        or
        the Note or any of the other Loan Documents, whether or not suit is filed
        in
        connection with same, or in connection with Borrower, Guarantor, Manager
        and/or
        any partner, joint venturer, member or shareholder thereof becoming a party
        to a
        voluntary or involuntary federal or state bankruptcy, insolvency or similar
        proceeding, (d) any accident, injury to or death of persons or loss of or
        damage
        to property occurring in, on or about the Land, the Improvements or any part
        thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent
        parking areas, streets or ways, (e) any use, nonuse or condition in, on or
        about
        the Land, the Improvements or any part thereof or on the adjoining sidewalks,
        curbs, adjacent property or adjacent parking areas, streets or ways, (f)
        any
        failure on the part of Borrower, Guarantor or Manager to perform or comply
        with
        any of the terms of this Agreement or any of the other Loan Documents, (g)
        any
        claims by any broker, Person or entity claiming to have participated in
        arranging the making of the Loan evidenced by the Note, (h) any failure of
        the
        Land and/or Improvements to be in compliance with any applicable laws, (i)
        performance of any labor or services or the furnishing of any materials or
        other
        property with respect to the Land, the Improvements or any part thereof,
        (j) the failure of any Person to file timely with the Internal Revenue
        Service an accurate Form 1099-b, statement for recipients of proceeds from
        real
        estate, broker and barter exchange transactions, which may be required in
        connection with the Mortgage, or to supply a copy thereof in a timely fashion
        to
        the recipient of the proceeds of the transaction in connection with which
        the
        Loan is made, (k) any misrepresentation made to Lender in this Agreement
        or in
        any of the other Loan Documents, (l) any tax on the making and/or recording
        of
        the Mortgage, the Note or any of the other Loan Documents; (m) the violation
        of
        any requirements of the Employee Retirement Income Security Act of 1974,
        as
        amended, (n) any fines or penalties assessed or any corrective costs incurred
        by
        Lender if the Facility or any part of the Land and/or Improvements is determined
        to be in violation of any covenants, restrictions of record, or any applicable
        laws, ordinances, rules or regulations, or (o) the enforcement by any of
        the
        Indemnified Parties of the provisions of this Section 8.4.  Any
        amounts payable to Lender by reason of the application of this Section 8.4,
        shall become immediately due and payable, and shall constitute a portion
        of the
        Loan Obligations, shall be secured by the Mortgage and shall accrue interest
        at
        the Default Rate (as defined in the Note).  The obligations and
        liabilities of Borrower under this Section 8.4 shall survive any termination,
        satisfaction, assignment, entry of a judgment of foreclosure or exercise
        of a
        power of sale or delivery of a deed in lieu of foreclosure of the
        Mortgage.  For purposes of this Section 8.4, the term “Indemnified
        Parties” means Lender and any Person who is or will have been involved in the
        origination of the Loan, any Person who is or will have been involved in
        the
        servicing of the Loan, any Person in whose name the encumbrance created by
        the
        Mortgage is or will have been recorded, any Person who may hold or acquire
        or
        will have held a full or partial interest in the Loan (including, without
        limitation, any investor in any securities backed in whole or in part by
        the
        Loan) as well as the respective directors, officers, shareholder, partners,
        members, employees, agents, servants, representatives, contractors,
        subcontractors, affiliates, subsidiaries, participants, successors and assigns
        of any and all of the foregoing (including, without limitation, any other
        Person
        who holds or acquires or will have held a participation or other full or
        partial
        interest in the Loan or the Mortgaged Property, whether during the term of
        the
        Mortgage or as a part of or following a foreclosure of the Loan and including,
        without limitation, any successors by merger, consolidation or acquisition
        of
        all or a substantial portion of Lender’s assets and business).

       

      
        
          
          

        

        
          40

          
            

          

        

        
          
          

        

      

       

      8.5           Headings.  The
        headings of the Sections of this Agreement are for convenience of reference
        only, are not to be considered a part hereof, and shall not limit or otherwise
        affect any of the terms hereof.

       

      8.6           Survival
        of Covenants.  All covenants, agreements, representations
        and warranties made herein and in certificates or reports delivered pursuant
        hereto shall be deemed to have been material and relied on by Lender,
        notwithstanding any investigation made by or on behalf of Lender, and shall
        survive the execution and delivery to Lender of the Note and this
        Agreement.

       

      8.7           Notices,
        etc.  Any notice or other communication required or
        permitted to be given by this Agreement or the other Loan Documents or by
        applicable law shall be in writing and shall be deemed received (a) on the
        date
        delivered, if sent by hand delivery (to the person or department if one is
        specified below) with receipt acknowledged by the recipient thereof, (b)
        three
        (3) Business Days following the date deposited in U.S. mail, certified or
        registered, with return receipt requested, or (c) one (1) Business Day following
        the date deposited with Federal Express or other national overnight carrier,
        and
        in each case addressed as follows:

       

      
        
          
          

        

        
          41

          
            

          

        

        
          
          

        

      

       

      
        	
                If
                  to Borrower: 

              	 
	 	 	 
	 	
                Emeritus
                  Corporation

              	 
	 	
                3131
                  Elliott Avenue, #500

              	 
	 	
                Seattle,
                  WA 98121

              	 
	 	
                Attention: 
                  

              	
                Eric
                  Mendelsohn, Director of

              	 
	 	 	Real
                Estate and Business Legal Affairs	 
	 	 	 
	 	 	 
	
                with
                  a copy to: 

              	 
	 	 	 
	 	
                Pircher,
                  Nichols & Meeks

              	 
	 	
                900
                  N. Michigan Avenue, Suite 1050

              	 
	 	
                Chicago,
                  IL 60611

              	 
	 	
                Attention:  Real
                  Estate Notices (JDL/KMR)

              	 
	 	
                Fax:  312-915-3348

              	 
	 	 	 
	 	 	 
	
                If
                  to Lender: 

              	 
	 	 	 
	 	
                Capmark
                  Bank

              	 
	 	
                200
                  Witmer Road

              	 
	 	
                P.O.
                  Box 1015

              	 
	 	
                Horsham,
                  Pennsylvania  19044-0809

              	 
	 	
                Attn:  Servicing
                  – Accounting Manager

              	 
	 	 	 
	 	 	 
	
                with
                  a copy to: 

              	 
	 	 	 
	 	
                Kay
                  K. Bains

              	 
	 	
                Bradley
                  Arant Rose & White LLP

              	 
	 	
                One
                  Federal Place

              	 
	 	
                1819
                  Fifth Avenue North

              	 
	 	
                Birmingham,
                  AL 35203

              	 
	 	
                Phone:  205-521-8220

              	 
	 	
                Fax:
                  205-488-6220

              	 


      

      


      Either
        party may change its address to another single address by notice given as
        herein
        provided, except any change of address notice must be actually received in
        order
        to be effective.

       

      8.8           Benefits.  All
        of the terms and provisions of this Agreement shall bind and inure to the
        benefit of the parties hereto and their respective successors and
        assigns.  No Person other than Borrowers or Lender shall be entitled
        to rely upon this Agreement or be entitled to the benefits of this
        Agreement.

       

      
        
          
          

        

        
          42

          
            

          

        

        
          
          

        

      

       

      8.9           Participation.  Each
        Borrower acknowledges that Lender may, at its option, sell participation
        interests in the Loan to other participating lenders, which participations
        may
        be sold without Borrower’s consent, or Lender may (but shall not be obligated
        to) assign its interest in the Loan to other assignees (the “Assignee”) to be
        included as a pool of properties to be financed in a proposed Real Estate
        Mortgage Investment Conduit (REMIC), but any such assignment to a REMIC shall
        require Borrower’s consent, not to be unreasonably withheld, conditioned or
        delayed.  Each Borrower agrees with each present and future
        participant in the Loan or Assignee of the Loan that if an Event of Default
        should occur, each present and future participant or Assignee shall have
        all of
        the rights and remedies of Lender with respect to any deposit due from
        Borrower.  The execution by a participant of a participation agreement
        with Lender, and the execution by Borrower of this Agreement, regardless
        of the
        order of execution, shall evidence an agreement between Borrower and said
        participant in accordance with the terms of this Section.  If the Loan
        is assigned to the Assignee, the Assignee will engage an underwriter (the
        “Underwriter”), who will be responsible for the due diligence, documentation,
        preparation and execution of certain documents required in connection with
        the
        offering of interests in the REMIC.  Borrower agrees that if Lender
        assigns its interest in the Loan to the Assignee for inclusion in the REMIC,
        with Borrower’s consent as required herein, Borrower agrees to provide the
        Assignee with such information as may be reasonably required by the Underwriter
        in connection therewith or by an investor in any securities backed in whole
        or
        in part by the Loan or any rating agency rating such
        securities.  Borrower irrevocably waives any and all right it may have
        under applicable law to prohibit such disclosure, including, but not limited
        to,
        any right of privacy, and consents to the disclosure of such information
        to the
        Underwriter, to potential investors in the REMIC, and to such rating
        agencies.  Notwithstanding anything in this Agreement or any other
        Loan Document to the contrary, Borrowers shall not be required to “gross-up”
payments for United States withholding taxes to any Assignee or Person treated,
        for United States federal income tax purposes, as the owner of the assets
        of an
        Assignee if such Assignee is a disregarded entity for United States federal
        income tax purposes, that is not organized under the laws of the United States
        of America or a state thereof (a “Non-U.S. Entity”), and such Non-U.S. Entity
        fails to establish an exemption from United States withholding
        taxes.

       

      8.10         Supersedes
        Prior Agreements; Counterparts.  This Agreement and the
        instruments referred to herein supersede and incorporate all representations,
        promises and statements, oral or written, made by Lender in connection with
        the
        Loan.  This Agreement may not be varied, altered, or amended except by
        a written instrument executed by an authorized officer of
        Lender.  This Agreement may be executed in any number of counterparts,
        each of which, when executed and delivered, shall be an original, but such
        counterparts shall together constitute one and the same instrument.

       

      8.11         Loan
        Agreement Governs.  The Loan is governed by the terms and
        provisions set forth in this Loan Agreement and the other Loan Documents
        and in
        the event of any irreconcilable conflict between the terms of the other Loan
        Documents and the terms of this Loan Agreement, the terms of this Loan Agreement
        shall control; provided, however, that in the event that there is any apparent
        conflict between any particular term or provision which appears in both this
        Loan Agreement and the other Loan Documents and it is possible and reasonable
        for the terms of both this Loan Agreement and the Loan Documents to be performed
        or complied with, then, notwithstanding the foregoing, both the terms of
        this
        Loan Agreement and the other Loan Documents shall be performed and complied
        with.

       

      8.12         CONTROLLING
        LAW.  THE PARTIES HERETO AGREE THAT THE VALIDITY, INTERPRETATION,
        ENFORCEMENT AND EFFECT OF THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
        IN
        ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS AND THE PARTIES HERETO
        SUBMIT
        (AND WAIVE ALL RIGHTS TO OBJECT) TO NON-EXCLUSIVE PERSONAL JURISDICTION IN
        THE
        STATE OF ILLINOIS, FOR THE ENFORCEMENT OF ANY AND ALL OBLIGATIONS UNDER THE
        LOAN
        DOCUMENTS, EXCEPT THAT IF ANY SUCH ACTION OR PROCEEDING ARISES UNDER THE
        CONSTITUTION, LAWS OR TREATIES OF THE UNITED STATES OF AMERICA, OR IF THERE
        IS A
        DIVERSITY OF CITIZENSHIP BETWEEN THE PARTIES THERETO, SO THAT IT IS TO BE
        BROUGHT IN COOK COUNTY, ILLINOIS, IN A UNITED STATES DISTRICT COURT, IT SHALL
        BE
        BROUGHT IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
        ILLINOIS OR ANY SUCCESSOR FEDERAL COURT HAVING ORIGINAL
        JURISDICTION.

       

      
        
          
          

        

        
          43

          
            

          

        

        
          
          

        

      

       

      8.13         WAIVER
        OF JURY TRIAL.  BORROWER AND LENDER HEREBY WAIVE ANY RIGHT THAT
        EITHER OR BOTH MAY HAVE TO A TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM, SETOFF,
        DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING OUT OF OR IN ANY WAY RELATED
        TO
        THIS AGREEMENT OR THE LOAN, OR (B) IN ANY WAY CONNECTED WITH OR PERTAINING
        OR
        RELATED TO OR INCIDENTAL TO ANY DEALINGS OF LENDER AND/OR BORROWER WITH RESPECT
        TO THE LOAN DOCUMENTS OR IN CONNECTION WITH THIS AGREEMENT OR THE EXERCISE
        OF
        EITHER PARTY’S RIGHTS AND REMEDIES UNDER THIS AGREEMENT OR OTHERWISE OR THE
        CONDUCT OR THE RELATIONSHIP OF THE PARTIES HERETO, IN ALL OF THE FOREGOING
        CASES
        WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER SOUNDING IN CONTRACT,
        TORT
        OR OTHERWISE.  BORROWER AGREES THAT LENDER MAY FILE A COPY OF THIS
        AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY, AND
        BARGAINED AGREEMENT OF BORROWER IRREVOCABLY TO WAIVE ITS RIGHTS TO TRIAL
        BY JURY
        AS AN INDUCEMENT TO LENDER TO MAKE THE LOAN, AND THAT, TO THE EXTENT PERMITTED
        BY APPLICABLE LAW, ANY DISPUTE OR CONTROVERSY WHATSOEVER (WHETHER OR NOT
        MODIFIED HEREIN) BETWEEN BORROWER AND LENDER SHALL INSTEAD BE TRIED IN A
        COURT
        OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A
        JURY.

       

      8.14         Governing
        Law Regarding Remedies.   Notwithstanding anything
        to the contrary in the Note, the Guaranty Agreement and this Agreement, the
        law
        governing the Mortgages shall be applicable to the rights of Lender to seek
        a
        deficiency judgment pursuant to the Loan Documents following foreclosure
        or
        other realization proceedings pursuant to the Mortgages and the right to
        pursue
        one or more remedies against one or more Borrowers under the
        Mortgages.

       

      8.15         Reasonable
        Discretion.  As applied to this
        Agreement and the Loan Documents,  Lender shall be deemed to have
        exercised reasonable discretion or shall be deemed to have given its reasonable
        consent if Lender's actions are consistent with the standard of care that
        Lender
        employs in connection with its exercise of rights and remedies with other
        borrowers and loans of similar structure, size, complexity and number of
        facilities.

       

      
        
          
          

        

        
          44

          
            

          

        

        
          
          

        

      

       

      8.16         Purpose
        of Loan.  The entire proceeds of the
        Loan evidenced by the Note constitute a “business loan” as that term is used in
        Illinois Compiled Statutes, Chapter 815, Act 205, Section 4, and the beneficiary
        of Borrower is a “business” as that term is defined in said Illinois Compiled
        Statutes, Chapter 815, Act 205, Section 4.

       

      [SIGNATURES
        BEGIN ON NEXT PAGE]

       

      
        
          
          

        

        
          45

          
            

          

        

        
          
          

        

      

       

      IN
        WITNESS WHEREOF, Borrowers and Lender have caused this Agreement to be
        properly executed by their respective duly authorized representatives as
        of the
        date first above written.

       

       

      
        	 	
                CAPMARK
                  BANK, a Utah industrial bank 

              	 
	 	 	 	 
	 	 	 	 
	 	
                By:

              	
                /s/
                  Malana C. Bryant      (Seal)

              	 
	 	
                Name:

              	
                Malana
                  C. Bryant

              	 
	 	
                Its:

              	
                Authorized
                  Signer

              	 


      

       

      
        
          
          

        

        
          46

          
            

          

        

        
          
          

        

      

       

      IN
        WITNESS WHEREOF, Borrowers and Lender have caused this Agreement to be
        properly executed by their respective duly authorized representatives as
        of the
        date first above written.

       

       

      
        	
                 

              	
                BORROWER: 

              	 
	 	 	 	 
	 	
                EMERICHIP
                  EVERETT LLC,

              	 
	 	
                a
                  Delaware limited liability company

              	 
	 	 	 	 
	 	
                By:

              	
                EMERITUS
                  CORPORATION,

              	 
	 	 	
                a
                  Washington corporation

              	 
	 	 	
                its
                  Sole Member

              	 
	 	 	 	 
	 	
                By:

              	
                /s/
                  Eric Mendelsohn

              	 
	 	 	
                Eric
                  Mendelsohn,

              	 
	 	 	
                Director
                  of Real Estate and Legal Affairs

              	 


      

      


      
        
          
          

        

        
          47

          
            

          

        

        
          
          

        

         

      

      
        	
                 

              	
                BORROWER: 

              	 
	 	 	 	 
	 	
                EMERICHIP
                  PHOENIX LLC,

              	 
	 	
                a
                  Delaware limited liability company

              	 
	 	 	 	 
	 	
                By:

              	
                EMERITUS
                  CORPORATION,

              	 
	 	 	
                a
                  Washington corporation

              	 
	 	 	
                its
                  Sole Member

              	 
	 	 	 	 
	 	
                By:

              	
                /s/
                  Eric Mendelsohn

              	 
	 	 	
                Eric
                  Mendelsohn,

              	 
	 	 	
                Director
                  of Real Estate and Legal Affairs

              	 


      

       

      
        
          
          

        

        
          48

          
            

          

        

        
          
          

        

      

      


      
        	
                 

              	
                BORROWER: 

              	 
	 	 	 	 
	 	
                EMERICHIP
                  SAN ANTONIO AO LP

              	 
	 	
                a
                  Delaware limited partnership

              	 
	 	 	 	 
	 	
                By:

              	
                Emerichip
                  Texas LLC,

              	 
	 	 	
                a
                  Delaware limited liability company,

              	 
	 	 	
                its
                  General Partner

              	 
	 	 	 	 
	 	
                By:

              	
                ESC
                  G.P. II, Inc.,

              	 
	 	 	
                a
                  Washington corporation

              	 
	 	 	
                its
                  General Partner

              	 
	 	 	 	 
	 	
                By:

              	
                /s/
                  Eric Mendelsohn 

              	 
	 	 	
                Eric
                  Mendelsohn,

              	 
	 	 	
                Authorized
                  Signatory

              	 


      

       

      
        
          
          

        

        
          49

          
            

          

        

        
          
          

        

      

       

      
        	
                 

              	
                BORROWER: 

              	 
	 	 	 	 
	 	
                EMERICHIP
                  WALLA WALLA LLC,

              	 
	 	
                a
                  Delaware limited liability company

              	 
	 	 	 	 
	 	
                By:

              	
                EMERITUS
                  CORPORATION,

              	 
	 	 	
                a
                  Washington corporation

              	 
	 	 	
                its
                  Sole Member

              	 
	 	 	 	 
	 	
                By:

              	
                /s/
                  Eric Mendelsohn 

              	 
	 	 	
                Eric
                  Mendelsohn,

              	 
	 	 	
                Director
                  of Real Estate and Legal Affairs

              	 


      

       

      
        
          
          

        

        
          50

          
            

          

        

        
          
          

        

      

      


      SCHEDULE
        A

      [List
        of
        Borrowers]

      


      EMERICHIP
        EVERETT LLC

       

      EMERICHIP
        PHOENIX LLC

       

      EMERICHIP
        SAN ANTONIO AO LP

       

      EMERICHIP
        WALLA WALLA LLC

       

      
        
          
          

        

        
          51

          
            

          

        

        
          
          

        

      

       

      SCHEDULE
        B

      


      [LIST
        OF FACILITIES]

      


      


      
        	 	
                Borrower

              	
                Facility

              	 
	 	 	 	 
	 	
                Emerichip
                  Everett LLC

              	
                Seabrook,
                  a 60-unit assisted living facility located at 11333 3rd
                  Place West,
                  Everett, WA  98204

              	 
	 	 	 	 
	 	
                Emerichip
                  Phoenix LLC

              	
                Arbor
                  at Olive Grove, a 93-unit assisted living facility located at 3014
                  E.
                  Indian School Road, Phoenix, AZ 85016

              	 
	 	 	 	 
	 	
                Emerichip
                  San Antonio AO LP

              	
                Amber
                  Oaks, a 149-unit assisted living facility located at 4415 Rio d’Oro, San
                  Antonio, TX  78233

              	 
	 	 	 	 
	 	
                Emerichip
                  Walla Walla LLC

              	
                Garrison
                  Creek, a 76-unit assisted living facility located at 1460 Dalles
                  Military
                  Road, Walla Walla, WA  99362

              	 


      

       

       

      52