Unassociated Document


    
      Exhibit
        10.77

       

       

       

      OPERATING
        AGREEMENT

       

      OF

       

      SHP-ARC
        II, LLC

       

      A
        DELAWARE LIMITED LIABILITY COMPANY

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

         

         

        TABLE
          OF CONTENTS

         

         

      

      
        
          	
                  ARTICLE
                    1.

                	
                  DEFINITIONS

                	
                  2

                
	
                  1.1

                	
                  Definitions

                	
                  2

                
	
                  1.2

                	
                  Exhibits

                	
                  8

                
	 	 	 
	
                  ARTICLE
                    2.

                	
                  THE
                    COMPANY

                	
                  8

                
	
                  2.1

                	
                  Formation
                    of Limited Liability Company

                	
                  8

                
	
                  2.2

                	
                  Name
                    of Company

                	
                  8

                
	
                  2.3

                	
                  Purpose
                    of Company

                	
                  8

                
	
                  2.4

                	
                  Principal
                    and Registered Office

                	
                  8

                
	
                  2.5

                	
                  Governing
                    Law; Member Relations; Ownership of Property; Taxation as a
                    Partnership

                	
                  9

                
	
                  2.6

                	
                  Further
                    Assurances

                	
                  9

                
	
                  2.7

                	
                  No
                    Individual Authority

                	
                  9

                
	
                  2.8

                	
                  No
                    Restrictions

                	
                  9

                
	
                  2.9

                	
                  Neither
                    Responsible for Other’s Commitments

                	
                  10

                
	
                  2.10

                	
                  Affiliates

                	
                  10

                
	
                  2.11

                	
                  (Intentionally
                    Omitted.)

                	
                  10

                
	
                  2.12

                	
                  Representations
                    by Members

                	
                  10

                
	 	 	 
	
                  ARTICLE
                    3.

                	
                  TERM

                	
                  10

                
	
                  3.1

                	
                  Term

                	
                  10

                
	 	 	 
	
                  ARTICLE
                    4.

                	
                  CAPITAL
                    CONTRIBUTIONS OF THE MEMBERS

                	
                  11

                
	
                  4.1

                	
                  Capital
                    Contributions of the Members

                	
                  11

                
	
                  4.2

                	
                  No
                    Other Contributions

                	
                  11

                
	
                  4.3

                	
                  No
                    Interest Payable

                	
                  11

                
	
                  4.4

                	
                  No
                    Withdrawals

                	
                  11

                
	
                  4.5

                	
                  Additional
                    Contributions.

                	
                  11

                
	
                  4.6

                	
                  Non-Failing
                    Member Options

                	
                  12

                
	
                  4.7

                	
                  Change
                    in Percentage Interest

                	
                  13

                
	
                  4.8

                	
                  Effect
                    of Change of Percentage Interest

                	
                  14

                
	 	 	 
	
                  ARTICLE
                    5.

                	
                  LOANS
                    BY MEMBERS

                	
                  14

                
	
                  5.1

                	
                  Loans

                	
                  14

                
	
                  5.2

                	
                  Payment
                    of Special Loan and Loans

                	
                  15

                
	 	 	 
	
                  ARTICLE
                    6.

                	
                  MANAGEMENT
                    OF THE COMPANY

                	
                  15

                
	
                  6.1

                	
                  Managing
                    Committee

                	
                  15

                
	
                  6.2

                	
                  Bank
                    Accounts

                	
                  17

                
	
                  6.3

                	
                  Reimbursement
                    for Costs and Expenses

                	
                  17

                
	
                  6.4

                	
                  Fidelity
                    Bonds and Insurance

                	
                  17

                
	
                  6.5

                	
                  Management
                    Agreement

                	
                  17

                
	
                  6.6

                	
                  Annual
                    Budgets

                	
                  17

                
	
                  6.7

                	
                  SHP’s
                    Rights.

                	
                  18

                
	
                  6.8

                	
                  Indemnification

                	
                  20

                
	
                  6.9

                	
                  Operation
                    as a REOC

                	
                  21

                
	
                  6.10

                	
                  Third
                    Party Loans

                	
                  21

                
	
                  6.11

                	
                  Rights
                    of SHP’s Member

                	
                  21

                


        

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        
          	
                  ARTICLE
                    7.

                	
                  BOOKS
                    AND RECORDS, AUDITS, TAXES, ETC.

                	
                  21

                
	
                  7.1

                	
                  Books;
                    Statements

                	
                  21

                
	
                  7.2

                	
                  Where
                    Maintained

                	
                  22

                
	
                  7.3

                	
                  Audits

                	
                  22

                
	
                  7.4

                	
                  Objections
                    to Statements

                	
                  23

                
	
                  7.5

                	
                  Tax
                    Returns

                	
                  23

                
	
                  7.6

                	
                  Tax
                    Matters Partner

                	
                  24

                
	
                  7.7

                	
                  Tax
                    Policy

                	
                  24

                
	
                  7.8

                	
                  Section
                    754 Election

                	
                  24

                
	
                  7.9

                	
                  Capital
                    Accounts.

                	
                  24

                
	
                  7.10

                	
                  Ownership
                    Representation

                	
                  25

                
	 	 	 
	
                  ARTICLE
                    8.

                	
                  FISCAL
                    YEAR

                	
                  25

                
	
                  8.1

                	
                  Calendar
                    Year

                	
                  25

                
	 	 	
                   

                
	
                  ARTICLE
                    9.

                	
                  DISTRIBUTIONS
                    AND ALLOCATIONS

                	
                  26

                
	
                  9.1

                	
                  Percentage
                    Interests in Company

                	
                  26

                
	
                  9.2

                	
                  Certain
                    Definitions

                	
                  26

                
	
                  9.3

                	
                  Cash
                    Flow Distributions.

                	
                  28

                
	
                  9.4

                	
                  Allocation
                    of Profits and Losses For Capital Account Purposes.

                	
                  29

                
	
                  9.5

                	
                  Distributed
                    Property

                	
                  31

                
	
                  9.6

                	
                  Special
                    Allocations

                	
                  31

                
	
                  9.7

                	
                  Allocations
                    of Profits and Losses for Tax Purposes

                	
                  33

                
	
                  9.8

                	
                  Recapture
                    and Investment Credits.

                	
                  33

                
	
                   

                	 	
                   

                
	
                  ARTICLE
                    10.

                	
                  ASSIGNMENT
                    AND OFFER TO PURCHASE

                	
                  33

                
	
                  10.1

                	
                  Transfers.

                	
                  33

                
	
                  10.2

                	
                  Other
                    Assignments Void.

                	
                  34

                
	
                  10.3

                	
                  Sale
                    of Entire Interest to Other Member; Buy-Sell.

                	
                  34

                
	
                  10.4

                	
                  Right
                    of First Refusal for Sale of Entire Interest to Third
                    Party.

                	
                  36

                
	
                  10.5

                	
                  Right
                    of First Offer for Sale of Portfolio, Property or
                    Properties.

                	
                  37

                
	
                  10.6

                	
                  Assumption
                    by Assignee; Compliance with Legal Requirements Following Assignment;
                    Option to Reduce Interest Being Sold.

                	
                  40

                
	
                  10.7

                	
                  General
                    Transfer Provisions

                	
                  41

                
	
                  10.8

                	
                  Avoidance
                    of Plan Violation

                	
                  46

                
	 	 	
                   

                
	
                  ARTICLE
                    11.

                	
                  DISSOLUTION
                    OR BANKRUPTCY OF A MEMBER

                	
                  47

                
	
                  11.1

                	
                  Dissolution
                    or Merger

                	
                  47

                
	
                  11.2

                	
                  Bankruptcy,
                    etc

                	
                  47

                
	 	 	 
	
                  ARTICLE
                    12.

                	
                  DEFAULT

                	
                  48

                
	
                  12.1

                	
                  Defaults

                	
                  48

                
	
                  12.2

                	
                  Negation
                    of Right to Dissolve by Will of Member

                	
                  49

                
	
                  12.3

                	
                  Non
                    Exclusive Remedy

                	
                  49

                


        

         

         

        
          
            
            

          

          
            2

            
              

            

          

          
            
            

          

        

         

        
          	
                  ARTICLE
                    13.

                	
                  DISSOLUTION

                	
                  49

                
	
                  13.1

                	
                  Winding
                    Up by Members

                	
                  49

                
	
                  13.2

                	
                  Winding
                    Up by Liquidating Member

                	
                  49

                
	
                  13.3

                	
                  Offset
                    for Damages

                	
                  50

                
	
                  13.4

                	
                  Distributions
                    of Operating Cash Flow

                	
                  50

                
	
                  13.5

                	
                  Distributions
                    of Proceeds of Liquidation

                	
                  50

                
	
                  13.6

                	
                  Orderly
                    Liquidation

                	
                  51

                
	
                  13.7

                	
                  Financial
                    Statements

                	
                  51

                
	
                  13.8

                	
                  Restoration
                    of Deficit Capital Accounts

                	
                  51

                
	
                  13.9

                	
                  Intention
                    of the Members

                	
                  51

                
	 	 	 
	
                  ARTICLE
                    14.

                	
                  MEMBERS

                	
                  52

                
	
                  14.1

                	
                  Liability

                	
                  52

                
	
                   

                	 	 
	
                  ARTICLE
                    15.

                	
                  NOTICES

                	
                  52

                
	
                  15.1

                	
                  In
                    Writing; Address

                	
                  52

                
	
                  15.2

                	
                  Copies

                	
                  53

                
	 	 	 
	
                  ARTICLE
                    16.

                	
                  MISCELLANEOUS

                	
                  53

                
	
                  16.1

                	
                  Additional
                    Documents and Acts

                	
                  53

                
	
                  16.2

                	
                  Estoppel
                    Certificates

                	
                  54

                
	
                  16.3

                	
                  Interpretation

                	
                  54

                
	
                  16.4

                	
                  Entire
                    Agreement

                	
                  54

                
	
                  16.5

                	
                  References
                    to this Agreement

                	
                  54

                
	
                  16.6

                	
                  Headings

                	
                  54

                
	
                  16.7

                	
                  Binding
                    Effect

                	
                  54

                
	
                  16.8

                	
                  Counterparts

                	
                  54

                
	
                  16.9

                	
                  Confidentiality

                	
                  54

                
	
                  16.10

                	
                  Amendments

                	
                  55

                
	
                  16.11

                	
                  Exhibits

                	
                  55

                
	
                  16.12

                	
                  Severability

                	
                  55

                
	
                  16.13

                	
                  Forum

                	
                  55

                
	
                  16.14

                	
                  Assignment
                    to Company

                	
                  55

                
	
                  16.15

                	
                  Broker’s
                    Indemnity

                	
                  56

                
	
                  16.16

                	
                  Attorneys’
                    Fees

                	
                  56

                
	
                  16.17

                	
                  Prudential
                    Affiliation

                	
                  56

                


        

      

       

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      EXHIBITS

       

      
        
          	
                  EXHIBIT

                	 	TITLE 
	 	 	 
	
                  A.

                	 	Legal
                  Description 
	 	 	 
	
                    
                    B.

                	 	Subsidiary
	 	 	 
	
                  C.

                	 	Members'
                  Percentage Interests and Initial Capital Contributions
	 	 	 
	
                    D.

                	 	Initial
                  Management Agreement 


        

         

         

        
           

           

          SCHEDULES

           

          
            	4.7 	Percentage
                    Interests Adjustment Example 


          

           

           

           

           

           

           

           

           

           

           

          
            
              
              

            

            
              4

              
                

              

            

            
              
              

            

          

        

      

       

       

      OPERATING
        AGREEMENT

      OF

      SHP-ARC
        II, LLC

       

      THIS
        OPERATING AGREEMENT OF SHP-ARC II, LLC (this “Agreement”) is entered into and
        shall be effective as of _____________________, 2005, by and between PIM
        SENIOR
        PORTFOLIO, LLC, a Delaware limited liability company (hereinafter referred
        to as
“SHP”), and ARC EPIC HOLDING COMPANY, INC., a Tennessee corporation (hereinafter
        referred to as “ARC”), pursuant to the provisions of the Delaware Limited
        Liability Company Act (the “Act”). SHP and ARC are sometimes referred to herein
        collectively as the Members and individually as a Member.

       

      R
        E C I T A L S

       

      WHEREAS,
        American Retirement Corporation, a Tennessee corporation, did enter into
        that
        certain Purchase and Sale Agreement, dated as of September 8, 2005 (the
“Purchase Agreement”), by and between Epoch SL VI, Inc., as Seller and American
        Retirement Corporation, as Buyer; and

       

      WHEREAS,
        pursuant to the terms of the Purchase Agreement, American Retirement Corporation
        has the right to acquire eight (8) separate parcels of real estate, which
        are
        more particularly described on Exhibit
        A
        attached
        hereto and made a part hereof (each, a “Property” and, collectively, the
“Properties”), together with the eight (8) assisted living senior housing
        retirement communities located on the Properties, commonly known as Epoch
        Assisted Living of Denver, Epoch Assisted Living of Las Vegas, Epoch Assisted
        Living of Minnetonka, Epoch Assisted Living of Overland Park, Epoch Assisted
        Living of Roswell, Epoch Assisted Living of Sun City West, Epoch Assisted
        Living
        of Tanglewood and Epoch Assisted Living of Ventana County (each, a “Project” and
        collectively, the “Projects” or the “Portfolio”); and

       

      WHEREAS,
        American Retirement Corporation has obtained the consent of Epoch SL VI,
        Inc. to
        assign its rights under the Purchase Agreement to the Company; and

       

      WHEREAS,
        the Company owns directly or indirectly one hundred percent (100%) of the
        interests in the limited liability companies and the limited partnership
        set
        forth on Exhibit
        B
        (each, a
“Subsidiary” and, collectively, the “Subsidiaries”), which own and operate the
        Projects opposite their names on Exhibit
        B;
        and

       

      WHEREAS,
        the Company has assigned all of its rights, title and interests in the Projects
        to the Subsidiaries which have each acquired fee simple title, respectively,
        to
        the Projects opposite their names on Exhibit
        B;
        and

       

      WHEREAS,
        the parties desire to enter into this Agreement to form the Company, to provide
        for the Company to take an assignment of the Purchase Agreement from American
        Retirement Corporation and to set forth all the terms and conditions by which
        the Company will own, reposition, improve, operate, sell, finance and otherwise
        invest in and deal with the Subsidiaries, the Properties and the Projects,
        including all of the real estate aspects of the Projects.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      NOW,
        THEREFORE, in order to carry out their intent as expressed above and in
        consideration of the mutual agreements and covenants hereinafter contained,
        the
        Members hereby covenant and agree as follows:

       

      ARTICLE
        1.

      DEFINITIONS

       

      1.1  Definitions.
        The
        following terms shall have the following meanings when used herein:

       

      Acceptable
        Person.
        Any
        person that is not (i) a tax exempt organization as defined in Section
        501(c)
        of the
        Code, (ii) a nonresident alien, foreign corporation, foreign partnership,
        foreign trust or foreign estate as those terms are defined in the Code and
        the
        Treasury Regulations, (iii) a person whose direct or indirect participation
        in
        the Company would result in a Plan Violation, (iv) in default or in breach,
        beyond any applicable grace period, of its obligations under any material
        written agreement with SHP or which, directly or indirectly controls, is
        controlled by, or is under common control with a person that is in default
        or in
        breach, beyond any applicable grace period, of its obligations under any
        material written agreement with SHP, unless such default or breach has been
        cured by such person or waived in writing by SHP, or (v) a person that has
        been
        charged in any litigation with any violations of any statute pursuant to
        which
        there might be a civil or criminal forfeiture or has been convicted in a
        criminal proceeding for a felony or any crime involving moral turpitude or
        that
        is an organized crime figure or is reputed (based upon reputable media reports)
        to have substantial business or other affiliations with an organized crime
        figure, or which directly or indirectly controls, is controlled by, or is
        under
        common control with a person that has been charged in any litigation with
        any
        violations of any statute pursuant to which there might be a civil or criminal
        forfeiture or has been convicted in a criminal proceeding for a felony or
        any
        crime involving moral turpitude or which is an organized crime figure or
        is
        reputed (based upon reputable media reports) to have substantial business
        or
        other affiliations with an organized crime figure.

       

      Act.
        The
        Delaware Limited Liability Company Act. 

       

      Adjusted
        Augmented Capital Account.
        As
        described in Section
        9.4(c)(2).

       

      Adjusted
        Capital Account.
        As
        described in Section
        9.6(e).

       

       

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      Affiliate.
        With
        respect to any Member (corporate, individual, partnership, limited liability
        entity or otherwise, or the respective heirs, trustees, guardians, conservators,
        custodians, executors or administrators of any of them) or any person who
        is an
        immediate family member of any Member: any corporate owner or other owner
        (direct or indirect) of such Member; any pension plan of such Member; any
        corporation owned, directly or indirectly, by such Member or by a general
        partner in such Member; any partnership or other association the general
        partners in which are general partners in such Member; or any partnership
        of
        which such Member or the general partners in such Member either own, in the
        aggregate, greater than 50%, directly or indirectly, of the general partnership
        interest or are the managing general partner of such partnership. A person
        owns
        a corporation, for the purposes of this definition, when the person owns
        or
        beneficially owns more than 50% of the outstanding voting shares of the
        corporation with the full right to vote such stock.

       

      Affiliate
        Agreement(s).
        As
        described in Section
        12.1.
        

       

      Agreement.
        As
        described in the opening paragraph.

       

      Alternative
        Offer.
        As
        described in Section
        10.5(c).

       

      Annual
        Capital Budget.
        As
        described in Section
        6.6(b).

       

      Annual
        Operating Budget.
        As
        described in Section
        6.6(a).

       

      Approved
        Financial Statement.
        As
        described in Section
        7.4.

       

      ARC’s
        Initial Contribution.
        As
        described in Section
        4.1.
        

       

      ARC’s
        Lender List.
        As
        described in Section
        6.7(b).

       

      Augmented
        Capital Account.
        As
        described in Section
        9.4(a).

       

      Augmented
        Members’ Capital.
        As
        described in Section
        9.4(c)(1).

       

      Book
        Basis.
        With
        respect to any asset of the Company, the adjusted basis for federal income
        tax
        purposes of such asset, except that in the case of any asset contributed
        to or
        owned by the Company on the date of a revaluation of the Capital Accounts
        of the
        Members in accordance with Treasury Regulations Section
        1.704-l(b)(2)(iv),
“Book
        Basis” shall mean the fair market value of such asset on the date of the
        contribution or revaluation as subsequently adjusted (e.g., for depreciation
        or
        amortization in accordance with federal income tax principles).

       

      Capital
        Account.
        As
        described in Section
        7.9.

       

      Capital
        Contributions.
        Each
        Member’s initial contribution as set forth in Section
        4.1
        and each
        additional contribution made pursuant to Article
        4
        or as
        elsewhere specified in this Agreement.

       

      Cash
        Purchase Price.
        As
        defined in Section
        10.3(a).

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      Cash
        Selling Price.
        As
        defined in Section
        10.3(a).

       

      Closing
        Date.
        As
        described in the Purchase Agreement, the date on which each of the Subsidiaries
        takes title to a Project. 

       

      Code.
        The
        Internal Revenue Code of 1986, as amended from time to time, and any successor
        thereto.

       

      Committee.
        As
        described in Section
        6.1.

       

      Company.
        SHP-ARC
        II, LLC.

       

      Company
        Minimum Gain.
        As
        described in Section
        9.2(d).

       

      Default
        Price.
        As
        described in Section
        13.2(c).

       

      Defaulting
        Member.
        As
        described in Section
        12.1.

       

      Demand
        Notice.
        As
        described in Section
        13.2(b).

       

      Deposit.
        As
        described in Section
        10.5(a).

       

      Effective
        Date.
        The date
        this Agreement shall be signed by all of the Members. 

       

      Entire
        Interest.
        As
        described in Section
        10.3(a).

       

      ERISA.
        The
        Employee Retirement Income Security Act of 1974, as amended.

       

      Excess
        Amount.
        As
        described in Section
        7.4.

       

      Excess
        Member.
        As
        described in Section
        7.4.

       

      Extraordinary
        Cash Flow.
        As
        described in Section
        9.2(b).

       

      Failing
        Member.
        As
        described in Section
        4.6.

       

      Finance
        Proposal Notice.
        As
        described in Section
        6.7(b).

       

      Financing
        Commitment Notice.
        As
        described in Section
        6.7(b).

       

      Governmental
        Plan.
        As
        defined in Section
        3(32)
        of
        ERISA.

       

      Improvements.
        Means
        all improvements, of whatsoever kind, located on the Project.

       

      Indemnitee.
        As
        defined in Section
        10.1(c).

       

      Initial
        Financing.
        As
        described in Section
        6.7(b).

       

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      Initial
        Property Manager.
        Means
        ARC Management, LLC, a Tennessee limited liability company.

       

      Initial
        Management Agreement.
        As
        described in Section
        6.5.

       

      Initiating
        Member.
        As
        described in Section
        10.3(a).

       

      Initiating
        Member Deposit.
        As
        described in Section
        10.3(a).

       

      IRR.
        Means a
        referenced interest rate that, when used as a discount rate, causes (i) the
        net
        present value (as of the date of this Agreement) of the aggregate distributions
        made to SHP or ARC, as the case may be, by the Company pursuant to Sections
        9.3(a), 9.3(b), and 13.5,
        from the
        date of this Agreement through the computation date in question, to equal
        (ii)
        the net present value of SHP’s Initial Contribution (as of the date of this
        Agreement), or ARC’s Initial Contribution (as of the date of this Agreement), as
        the case may be, plus any Additional Capital Contributions made by SHP or
        ARC,
        as the case may be, after the date of this Agreement (as of the date so made)
        through the applicable computation date. For purposes of this definition,
        net
        present value shall be determined using monthly compounding periods and any
        Capital Contributions by and distributions to the applicable party during
        a
        month shall be deemed to occur on the first day of such month.

       

      Initial
        Subsidiary Property Manager.
        Means
        ARC Management, LLC, a Tennessee limited liability company.

       

      Initial
        Subsidiary Management Agreement.
        As
        described in Section
        6.5.

       

      Liquidating
        Member.
        The
        Member in sole charge of winding up the Company and having the powers described
        in Section
        13.2.

       

      Loan.
        Any loan
        made by any Member to the Company.

       

      Loss.
        As
        described in Section
        9.2(c).

       

      Major
        Capital Event.
        One or
        more of the following: (i) sale of all or any part of or interest in Company
        or
        any Subsidiary property (including the Properties), exclusive of sales or
        other
        dispositions of tangible personal property in the ordinary course of business;
        (ii) placement and funding of any indebtedness, other than Loans, of the
        Company
        or any Subsidiary secured by some or all of their assets with respect to
        borrowed money, excluding short term borrowing in the ordinary course of
        business and any purchase money financing to acquire tangible personal property
        incurred in the ordinary course of business; (iii) condemnation of all or
        any
        material part of or interest in a Subsidiary’s Property through the exercise of
        the power of eminent domain; or (iv) any casualty, failure of title or otherwise
        of the Company’s or any Subsidiary’s property or any part thereof or interest
        therein that results in excess proceeds after restoration or
        repair.

       

      Member(s).
        SHP and
        ARC, collectively, and either of them when the reference is singular, and
        their
        respective permitted successors in interest.

       

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      Member
        Nonrecourse Debt.
        As set
        forth in Section
        1.704 2(b)(4)
        of the
        Regulations.

       

      Member
        Nonrecourse Debt Minimum Gain.
        An
        amount, with respect to each Member Nonrecourse Debt, equal to the Company
        Minimum Gain that would result if such Member Nonrecourse Debt were treated
        as a
        Nonrecourse Liability, determined in accordance with Section
        1.704 2(i)(3)
        of the
        Regulations.

       

      Member
        Nonrecourse Deductions.
        As set
        forth in Sections
        1.704 2(i)(1)
        and
1.704
        2(i)(2)
        of the
        Regulations. 

       

      Nondefaulting
        Member.
        As
        described in Section
        12.1.

       

      Non
        Failing Member.
        As
        described in Section
        4.6.

       

      Nonrecourse
        Deductions.
        As
        described in Section
        9.2(e).

       

      Nonrecourse
        Liability.
        As set
        forth in Section
        1.704 2(b)(3)
        of the
        Regulations.

       

      Notice
        of Default.
        As
        described in Section
        12.1.

       

      Notice
        of Intention.
        As
        described in Section
        4.6.

       

      Notice
        to Finance.
        As
        described in Section
        4.5(a).

       

      Offeror.
        As
        described in Section
        10.4(a).

       

      Operating
        Cash Flow.
        As
        described in Section
        9.2(a).

       

      Operating
        Pro Forma.
        As
        described in Section
        6.6(a).

       

      Other
        Member.
        As
        described in Section
        10.3(a).

       

      Percentage
        Interest.
        As
        described in Section
        9.1.

       

      Plan
        Violation.
        A
        transaction, condition or event that would:

       

      (i)      
        constitute
        a violation of ERISA; or

       

      (ii)     
        constitute
        a violation of any applicable state statutes regulating investments of and
        fiduciary obligations with respect to any Governmental Plan.

       

      Portfolio.
        As
        described in the Recitals.

       

      Prime
        Rate.
        As
        described in Section
        5.1.

       

      Priority
        Capital Contribution.
        As
        described in Section
        4.6.
        

       

      Profit.
        As
        described in Section
        9.2(c).

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      Projects.
        As
        described in the Recitals.

       

      Properties.
        As
        described in the Recitals.

       

      Purchase
        Agreement.
        As
        described in the Recitals.

       

      Qualified
        Income Offset Amount.
        As
        described in Section
        9.6(e).

       

      Receiving
        Member.
        As
        described in Section
        10.4(a).

       

      Receiving
        Member’s Deposit.
        As
        described in Section
        10.4(b).

       

      Regulations
        or Treasury Regulations.
        The
        Income Tax Regulations, including Temporary Regulations, promulgated under
        the
        Code, as such regulations may be amended from time to time (including
        corresponding provisions of succeeding regulations).

       

      Remaining
        Percentage Interest.
        As
        described in Section
        10.7(j).

       

      Sale.
        Means
        any transaction resulting in the sale or disposition of any
        Property.

       

      Sale
        Proposal.
        As
        described in Section
        10.5(a).

       

      Selling
        Member.
        As
        described in Section
        10.4(a).

       

      SHP’s
        Lender List.
        As
        described in Section
        6.7(b).

       

      SHP’s
        Initial Contribution.
        As
        described in Section
        4.1.

       

      Special
        Loan.
        As
        described in Section
        4.6.

       

      Specified
        Value.
        As
        described in Section
        10.3(a).

       

      Subsequent
        Financing.
        The
        obtaining of new financing or a refinancing of the Initial Financing, whether
        secured or unsecured, by the Company on any Property. 

       

      Subsidiaries.
        As
        described in the Recitals.

       

      Subsidiary
        Management Agreements.
        As
        described in Section
        6.5.

       

      Subsidiary
        Property Manager.
        Means,
        from time to time, any person or entity named as the property manager under
        the
        then-current Subsidiary Management Agreements. 

       

      Termination
        Notice.
        As
        described in Section
        10.3(a).

       

      Third
        Party Loans.
        Any
        loans to the Company or to any Subsidiary, other than those made by a Member
        or
        an Affiliate of a Member.

       

      TMP.
        As
        described in Section
        7.6.

       

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      Transfer.
        As
        described in Section
        10.1(a).

       

      Unreturned
        Capital Contributions.
        With
        respect to each Member, the aggregated amount of all Capital Contributions
        made
        to the Company by such Member, reduced by all distributions previously made
        to
        such Member pursuant to Section
        9.3(b)(1),
        Section
        9.3(b)(2),
        or
Section
        13.5(d).

       

      The
        definitions in this Section
        1.1
        shall
        apply equally to both the singular and plural forms of the terms defined.
        Whenever the context may require, any pronoun shall include the corresponding
        masculine, feminine and neuter forms. The term “person” includes individuals,
        partnerships, corporations, trusts, and other associations. The words “include”,
“includes” and “including” shall be deemed to be followed by the phrase “without
        limitation”.

       

      1.2  Exhibits.
        The
        exhibits to this Agreement are incorporated herein by reference as if fully
        set
        forth herein.

       

      ARTICLE
        2.

      THE
        COMPANY

       

      2.1  Formation
        of Limited Liability Company.
        The
        Members hereby form a limited liability company (the “Company”) pursuant to the
        provisions of the Act. The terms and provisions hereof will be construed
        and
        interpreted in accordance with the Act. 

       

      2.2  Name
        of
        Company.
        The
        Company will be conducted under the name “SHP-ARC II, LLC”. The Committee shall
        have the power to change the name of the Company at any time.

       

      2.3  Purpose
        of Company.
        The
        purpose of the Company is to carry on the business of purchasing, owning,
        repositioning, operating, managing, improving, repairing, renting, mortgaging,
        refinancing, selling, conveying and otherwise dealing with the Properties
        through the Subsidiaries and all the activities of the Projects reasonably
        related thereto including, without limitation, making all decisions with
        respect
        to the real estate operations of the Properties. Except as permitted by this
        Section
        2.3,
        the
        Company shall not engage in any other business. In furtherance of the foregoing
        purposes, but expressly subject to the other provisions of this Agreement,
        the
        Company is empowered to enter into contracts containing agreements to arbitrate
        disputes to the extent such contracts are approved by the Committee. The
        Company
        is authorized to take any legal measures which will assist it in accomplishing
        its purpose or benefit the Company.

       

      2.4  Principal
        and Registered Office.
        The
        principal office of the Company shall initially be at the offices of ARC
        at 111
        Westwood Place, Suite 200, Brentwood, Tennessee 37027, or such other place
        as
        the Members may from time to time determine. The registered agent and the
        registered address, respectively, of the Company shall be Corporation Service
        Company, 2711 Centerville Road, Suite 400, New Castle County, Wilmington,
        Delaware 19808. The Members may elect to change the Company’s registered agent
        and the Company’s registered and principal offices by complying with the
        relevant requirements of the Act. 

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      2.5  Governing
        Law; Member Relations; Ownership of Property; Taxation as a
        Partnership.
        Except
        as is expressly herein provided to the contrary, the business, affairs,
        administration and termination of the Company shall be governed by the Act,
        but,
        to the extent permitted thereby, shall not be governed by any amendments
        to such
        law that become effective subsequent to the date of this Agreement and that
        would only be applicable to the Company absent a provision in this Agreement
        to
        the contrary, unless such amendments are adopted as amendments to this Agreement
        pursuant to Section
        16.10.
        The
        foregoing notwithstanding, the Members’ duties and obligations to one another
        under circumstances not provided for in the Act or this Agreement shall be
        the
        same as partners in a partnership governed by the relevant provisions of
        the
        Delaware Uniform Partnership Act and the case law interpreting such act.
        In no
        event shall the previous sentence be construed or applied in such a manner
        to
        cause the Company to be treated as a partnership for any purpose other than
        the
        determination of the Members’ respective duties and obligations to one another.
        The interest of each Member in the Company shall be personal property for
        all
        purposes. All real and other property owned by the Company shall be deemed
        owned
        by the Company as a company and no Member, individually, shall have any
        ownership interest in any real or other property owned by the Company. The
        Members shall use the Company’s assets solely for the benefit of the Company. No
        assets of the Company shall be transferred or encumbered for or in payment
        of
        any individual obligation of a Member. Notwithstanding anything in this
Section
        2.5
        to the
        contrary, the Members intend that the Company shall at all times be operated
        in
        such a manner that it will be taxed as a partnership for federal and state
        income tax purposes.

       

      2.6  Further
        Assurances.
        The
        Members will execute whatever certificates and documents, and will file,
        record
        and publish such certificates and documents, which are required to form and
        operate a limited liability company under the laws of the State of Delaware.
        The
        Members will also execute and file, record and publish, such certificates
        and
        documents as they, upon advice of counsel, may deem necessary or appropriate
        to
        comply with other applicable laws governing the formation and operation of
        a
        limited liability company, including, without limitation, any certificates
        and
        documents required to qualify the Company to do business in the States where
        the
        Properties are located.

       

      2.7  No
        Individual Authority.
        Except
        as otherwise expressly provided in this Agreement, neither Member acting
        alone
        shall have any authority to act for, undertake or assume any obligations
        or
        responsibility on behalf of the other Member or the Company.

       

      2.8  No
        Restrictions.
        Nothing
        contained in this Agreement shall be construed so as to prohibit either Member
        or any firm or corporation controlled by or controlling such Member or any
        other
        Affiliate of a Member from owning, operating, or investing in any real estate
        or
        real estate development not owned or operated by the Company, wherever located.
        Each Member agrees that the other Member, any Affiliate or any director,
        officer, employee, partner or other person or entity related to either thereof
        may engage in or possess an interest in another business venture or ventures
        of
        any nature and description, independently or with others, including, but
        not
        limited to, the ownership, financing, leasing, operation, management,
        syndication, brokerage and development of real property and senior living
        communities, and neither the Company nor the Members shall have any rights
        by
        virtue of this Agreement in and to said independent ventures or to the income
        or
        profits derived therefrom. 

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      2.9  Neither
        Responsible for Other’s Commitments.
        Neither
        the Members nor the Company shall be responsible or liable for any indebtedness
        or obligation of the other Member incurred either before or after the execution
        of this Agreement, except as to those joint responsibilities, liabilities,
        debts
        or obligations incurred pursuant to the terms of this Agreement, and each
        Member
        indemnifies and agrees to hold the other Member and the Company harmless
        from
        such obligations and debts, except as aforesaid.

       

      2.10  Affiliates.
        Any and
        all activities to be performed by SHP hereunder may be performed by officers
        or
        employees of one or more Affiliates of SHP, provided that all actions taken
        by
        such persons on behalf of SHP in connection with this Agreement shall be
        binding
        upon SHP.

       

      2.11  (Intentionally
        Omitted.)

       

      2.12  Representations
        by Members.
        Each
        Member represents and warrants to the other Member that (i) its execution
        and
        delivery of this Agreement, its initial capital contribution to the Company
        and
        the acquisition and development of the Properties by the Company have been
        duly
        authorized by all necessary action and do not require the consent or approval
        of
        any third party, that has not been obtained, (ii) it has all necessary power
        with respect thereto, (iii) the consummation of such transactions will not
        (and
        with the giving of notice or lapse of time or both would not) result in a
        breach
        or violation of, or a default or loss of contractual benefits under its charter,
        by-laws or agreement of partnership, any agreement by which it or any of
        its
        properties is bound, or any statute, regulation, order or other law to which
        it
        or any of its properties is subject, or give rise to a lien or other encumbrance
        upon any of its properties or assets, (iv) this Agreement is a valid and
        binding
        agreement on the part of such Member, enforceable in accordance with its
        terms,
        subject to applicable debtor relief laws, and (v) such Member is not a foreign
        person as that term is defined in Section
        1445
        of the
        Code.

       

      ARTICLE
        3.

      TERM

       

      3.1  Term.
        Unless
        otherwise terminated or extended by the Committee, the existence of the Company
        shall commence on the Effective Date and shall continue until the first to
        occur
        of the following:

       

      (a)  December
        31, 2050; or

       

      (b)  Acquisition
        of all of one Member’s interest by the other; or

       

      (c)  The
        sale
        or other disposition of all or substantially all of the Properties and
        distribution of the proceeds therefrom, other than to a nominee or trustee
        of
        the Company for financial or other business purposes; provided,
        however,
        that
        such sale or other disposition shall not terminate the existence of the Company
        if such sale or other disposition is financed by the Company and the Members
        elect to continue the Company’s existence; or

       

      (d)  Dissolution
        of the Company pursuant to the express provisions of Article 10,
        11,
        12
        or
13;
        or

       

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      (e)  The
        occurrence of any event or circumstance that would cause the dissolution
        of the
        Company under the Act.

       

      ARTICLE
        4. 

      CAPITAL
        CONTRIBUTIONS OF THE MEMBERS

       

      4.1  Capital
        Contributions of the Members.
        On or
        before the Effective Date, the Members of the Company will make Capital
        Contributions to the Company of cash as set forth on Exhibit
        C
        hereto.
        The amount of cash contributed by each Member shall be credited to such Member’s
        Capital Account. The amount shown on Exhibit
        C
        shall be
        ARC’s Initial Contribution and SHP’s Initial Contribution.

       

      4.2  No
        Other Contributions.
        Except
        as expressly required by this Article
        4,
        neither
        Member shall have any obligation to make any additional contribution to the
        Company, nor to advance any funds thereto.

       

      4.3  No
        Interest Payable.
        Except
        as otherwise provided herein, no Member shall receive any interest on its
        contributions to the capital of the Company.

       

      4.4  No
        Withdrawals.
        The
        capital of the Company shall not be withdrawn, except as hereinafter expressly
        stipulated.

       

      4.5  Additional
        Contributions. 

       

      (a)  Capital
        Expenses.
        

       

      (1)  Unanimous
        Committee Approval.
        If the
        Committee unanimously decides that a Subsidiary is in need of additional
        funding
        for capital improvements not contemplated in the then-effective Annual Capital
        Budget for such Subsidiary (as defined in Section
        6.6(b)),
        the
        Committee shall amend the Annual Capital Budget to account for such capital
        improvements, and if the revenue generated from the operation of such
        Subsidiary’s Project is not sufficient to pay for such capital improvements, the
        Committee shall cause a Notice to Finance to be given to each Member stating
        the
        total additional funding required. Within ten (10) days following the date
        upon
        which a Notice to Finance is given, each of the Members shall contribute
        to the
        Company, as additional Capital Contributions, an amount determined by
        multiplying that Member’s Percentage Interest by the required additional funding
        amount, and the Company shall contribute such Capital Contributions to the
        Subsidiary to be used for the capital improvements needed for such Subsidiary’s
        Project.

       

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      (2)  Non
        Unanimous Committee Approval.
        If the
        Committee cannot unanimously agree to engage in any capital improvement not
        then
        contemplated in an Annual Capital Budget for a Subsidiary, either Member
        shall
        have the right to give to the other Member a Notice to Finance. If, within
        ten
        (10) days following the date upon which such Notice to Finance is given,
        the
        other Member does not contribute its portion (based upon the scale set forth
        in
        the immediately preceding subparagraph) of the funds necessary to engage
        in such
        capital improvement, the Member desiring to engage in such capital improvement
        for such Subsidiary shall have the right (but not the obligation) to fund
        one
        hundred percent (100%) of the costs associated with the design and construction
        of such capital improvement for such Subsidiary as an additional Capital
        Contribution and such funded amount shall be treated as a Capital Contribution
        for all purposes under this Agreement. Upon receipt of such Capital
        Contributions, the Company shall contribute such funds to the Subsidiary
        to be
        used for the capital improvements needed for such Subsidiary’s Project.
        Notwithstanding the foregoing to the contrary, no Member may engage in any
        capital improvement that materially alters the character or scope of a Project,
        absent the unanimous approval of the Committee.

       

      (b)  Operating
        Expenses.
        If the
        Committee unanimously determines that a Subsidiary is in need of additional
        funding for payment of any operating expenses of such Subsidiary and operating
        costs of such Subsidiary for the balance of such Subsidiary’s then-current
        calendar year or, if less than six (6) months remain in the current calendar
        year, the subsequent calendar year, the Committee shall cause a Notice to
        Finance to be given to each Member stating the total additional funding
        required. Within ten (10) days following the date upon which such a Notice
        to
        Finance is given, each of the Members shall contribute to the Company, as
        additional Capital Contributions, an amount determined by multiplying that
        Member’s Percentage Interest by the required additional funding amount, and the
        Company shall contribute such Capital Contributions to the Subsidiary for
        the
        benefit of such Subsidiary’s operation.

       

      Any
        and
        all funds contributed by the Members pursuant to this Section
        4.5
        shall be
        credited to their Capital Accounts and treated as Capital Contributions for
        all
        purposes of this Agreement.

       

      4.6  Non-Failing
        Member Options.
        If a
        Member fails to contribute an amount equal to the entire amount required
        to be
        contributed by it within ten (10) days after a Notice to Finance is given,
        as
        provided in Section
        4.5(a)(1)
        or
Section
        4.5(b)
        (the
“Failing
        Member”),
        and if
        the other Member (the “Non
        Failing Member”)
        makes
        its proportionate contribution within such ten (10) day period, so notifying
        the
        Failing Member in writing, and the Failing Member fails fully to remedy its
        failure to contribute within an additional ten (10) days thereafter (the
        “Notice
        of Intention”),
        then
        the Non-Failing Member may, in its sole discretion, but shall have no obligation
        to do any of the following (it being the intention that none of the following
        shall be exclusive of any other remedy): 

       

      (a)  Withdraw
        from the Company its most recent proportionate contribution made pursuant
        to
Section
        4.5(a)(1)
        or
Section
        4.5(b),
        in which
        case the Company shall promptly repay the amount of such withdrawn contribution
        to the Non-Failing Member, or 

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      (b)  make
        a
        loan to the Company (a “Special
        Loan”)
        in an
        amount equal to the sum of (i) the contribution which the Failing Member
        failed
        to make pursuant to Section
        4.5(a)(1)
        or
Section
        4.5(b),
        and (ii)
        the contribution made by the Nonfailing Member, in which case the contribution
        made by the Nonfailing Member shall be deemed instead of a Capital Contribution
        to be part of the funds advanced in connection with making such Special Loan.
        If
        made, a Special Loan shall bear interest and be payable upon the terms described
        in Article
        5
        and any
        accrued interest shall be considered to be part of such Special Loan for
        all
        purposes, or 

       

      (c)  make
        an
        additional contribution to the Company not in excess of the amount the Failing
        Member was to have contributed (a “Priority
        Capital Contribution”),
        or


       

      (d)  not
        withdraw its most recent proportionate contribution made pursuant to
Section
        4.5(a)(1)
        or
Section
        4.5(b)
        and not
        make a Special Loan or an additional contribution to the Company as described
        immediately above, or 

       

      (e)  commence
        the dissolution of the Company pursuant to Articles
        12 and 13.
        

       

      4.7  Change
        in Percentage Interest.
        If
        either Member makes a Priority Capital Contribution pursuant to Section
        4.6,
        that
        amount together with each timely Capital Contribution made by the Non Failing
        Member pursuant to Section
        4.5(a)(1)
        or
Section
        4.5(b),
        shall be
        credited to the Capital Account of the Non Failing Member for all purposes
        of
        this Agreement, in which case the Non Failing Member’s Percentage Interest in
        the Company shall be increased by the percentage by which (A) the quotient
        (rounded to the nearest one hundredth, but not greater than ninety nine per
        cent
        (99%)) obtained by dividing (I) a sum equal to (x) the Non Failing Member’s
        total Unreturned Capital Contributions immediately before the making of
        additional Capital Contributions pursuant to the Notice of Intention, plus
        (y)
        the sum of (1) the additional Capital Contribution made by the Non Failing
        Member pursuant to Section
        4.5(a)(1)
        or
Section
        4.5(b),
        and (2)
        the product of the Priority Capital Contribution made by the Non Failing
        Member
        multiplied by one and one half (1.5), by (II) the sum of both Members’
Unreturned Capital Contributions immediately after such contributions, exceeds
        (B) if SHP is the Non Failing Member, 80%, and if ARC is the Non Failing
        Member,
        20%. In turn, the Failing Member’s Percentage Interest in the Company shall
        simultaneously be reduced to a percentage equal to one hundred percent (100%),
        less the Non Failing Member’s new Percentage Interest in the Company, as
        calculated pursuant to the preceding clause of this Section
        4.7
        (as
        illustrated by the example set forth on and attached as Schedule
        4.7). 

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

      4.8  Effect
        of Change of Percentage Interest.
        If the
        Percentage Interests of the Members are changed pursuant to the operation
        of
Section
        4.7
        above or
        any of the other terms of this Agreement during any calendar year, the amounts
        of all items to be credited, charged or distributed to such Members for such
        entire calendar year in accordance with their respective Percentage Interest
        in
        the Company shall be allocated to the portion of such calendar year which
        precedes the date of such change (and if there shall have been a prior change
        in
        such calendar year, which commences on the date of such prior change) and
        to the
        portion of such calendar year which occurs on and after the date of such
        change
        (and if there shall be a subsequent change in such calendar year, which precedes
        the date of such subsequent change), in proportion to the number of days
        in each
        such portion, and the amounts of the items so allocated to each such portion
        shall be credited, charged or distributed to such Members in proportion to
        their
        respective Percentage Interest in the Company during each such portion of
        the
        calendar year in question. For purposes of this Section
        4.8,
        the
        first calendar year shall commence on the date of this Agreement and shall
        end
        on December 31 of the year in which this Agreement is dated.

       

      


      ARTICLE
        5. 

      LOANS
        BY MEMBERS

       

      5.1  Loans.
        Neither
        Member shall be obligated to lend any money to the Company or to any Subsidiary
        and the Members may not require a Loan to be made. Except as provided in
        Section
        6.7,
        and
        except for Special Loans made pursuant to Section
        4.6,
        the
        Company and each Subsidiary shall not borrow any money without the approval
        of
        the Committee. If, following such approval, either or both Members or an
        Affiliate of either Member shall lend any money to the Company or to any
        Subsidiary, such Special Loan or Loan, as the case may be shall not be
        considered a capital contribution of such Member and shall not increase the
        Capital Account or Percentage Interest of such Member or entitle it to any
        increase in its share of the distributions of the Company. Each Special Loan
        or
        Loan made by either Member or any Affiliate thereof to the Company or to
        any
        Subsidiary on behalf of the Company shall be an obligation of the Company,
        provided that (i) neither Member shall be personally obligated to repay the
        Special Loan or Loan or to make any contribution to the capital of the Company
        to enable the Company to repay the Special Loan or Loan, and (ii) the Special
        Loan or Loan shall be payable or collectible only out of the assets of the
        Company. All Special Loan or Loans shall be unsecured and shall bear interest
        at
        the market rate then in effect as determined by the Committee. All Special
        Loans
        made pursuant to Section
        4.6
        shall
        bear interest at the rate of 5% per annum above the prime rate published
        in
The
        Wall Street Journal
        (the
“Prime
        Rate”)
        from
        time to time, compounded annually, while such Special Loans are outstanding.
        If
The
        Wall Street Journal
        ceases to
        publish the Prime Rate, the Committee shall reasonably determine a substitute
        method for determining the Prime Rate. In no event shall the rate of interest
        on
        a Loan exceed the highest rate permitted by law for the lender which, if
        exceeded, could subject the lending Member or an Affiliate to penalties or
        forfeiture of all or any part of the interest or principal; such rate of
        interest on a Loan shall automatically be reduced to the highest level permitted
        without violating any such law.

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

      5.2  Payment
        of Special Loan and Loans.
        Subject
        to the other provisions of this Section
        5.2,
        all
        Operating Cash Flow and Extraordinary Cash Flow (but without deduction for
        payment of interest or principal on Special Loan or Loans ) shall, to the
        extent
        of available cash, be applied and paid monthly, first to the payment of accrued
        interest on any Special Loans, then to the payment of principal of any Special
        Loans, then to the payment of accrued interest on any Loans, and then to
        the
        payment of principal of any Loans, before any distribution is made to a Member
        as stipulated in Article
        9.
        If at
        any time Special Loans by both Members shall be outstanding, and if the
        aggregate balances, including accrued interest, of such outstanding Special
        Loans made by the respective Members shall not be in the proportion of the
        respective Percentage Interests of the Members, then payment shall be made
        only
        upon the Special Loan of the Member whose Special Loan balance, including
        accrued interest, is disproportionately high, until the balances (including
        interest) payable on the respective Member’s Special Loans to the Company shall
        be in the ratio of the respective Percentage Interests of the Members. If
        at any
        time Loans by both Members shall be outstanding, and if the aggregate Loan
        balances, including accrued interest, of such outstanding Loans made by the
        respective Members shall not be in the ratio of the respective Percentage
        Interests of the Members, then payment shall be made only upon the Loan of
        the
        Member whose Loan balance, including accrued interest, is disproportionately
        high, until the balance (including interest) payable on the respective Members’
Loans to the Company shall be in the ratio of the Members’ respective Percentage
        Interests. When the amounts of the Special Loan and/or Loan balances (including
        interest), as the case may be, of the respective Members are in the ratio
        of the
        Percentage Interests of the respective Members, all payments of interest
        on and
        repayments of the principal of such Special Loans or Loans shall be pro rata
        in
        accordance with the remaining balance (including interest) of each of the
        Special Loans or Loans.

       

      ARTICLE
        6. 

      MANAGEMENT
        OF THE COMPANY

       

      6.1  Managing
        Committee.
        The
        Members shall have responsibility for the management, supervision and control
        of
        the Company through its managing committee (the “Committee”),
        which
        shall be responsible for the establishment of policy and operating procedures
        respecting the business affairs of the Company and its Subsidiaries in its
        good-faith business judgment. No action shall be taken, nor shall obligations
        be
        incurred or amounts expended (other than in accordance with any Annual Capital
        Budget or any Annual Operating Budget which has been approved by the Committee),
        by the Company without the unanimous consent of the members of the Committee,
        except to the extent expressly provided herein or otherwise delegated by
        the
        Committee. The day to day operations of the Projects shall be managed by
        the
        Initial Subsidiary Property Manager or another Subsidiary Property Manager
        acceptable to the Committee, pursuant to the terms, conditions and limitations
        set forth in the Subsidiary Management Agreements. The Committee shall at
        all
        times consist of four (4) members, two (2) of whom shall be appointed by
        SHP,
        and two (2) by ARC.

       

      
        
          
          

        

        
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      Each
        Member may appoint an alternate for each member appointed by it to the
        Committee, who shall have all the powers of the Committee member in his absence
        or inability to serve. Each Member shall have the power to remove any member
        or
        alternative member of the Committee appointed by it by delivering written
        notice
        of such removal to the Company and to the other Member in the manner required
        by
Section
        15.1.
        Vacancies on the Committee shall be filled by the Member that appointed the
        Committee member previously holding the position which is then
        vacant.

       

      Each
        Committee member shall be entitled to cast one (1) vote with respect to any
        decision made by the Committee, provided that the members who are actually
        present at a meeting of the Committee shall be entitled to cast the vote
        of the
        member not present who was appointed by the same Member as the member casting
        the vote.

       

      The
        Committee shall meet at least semiannually, upon thirty (30) days’ written
        notice to all members, at the offices of the Company or by conference call
        with
        the results confirmed in writing or by facsimile (unless such meeting shall
        be
        waived by all members thereof), or, in the event of an emergency, on the
        call of
        any two (2) Committee members upon two (2) business days’ notice to all
        Committee members by telephone, electronic mail, telex, telecopy or telegraph.
        An agenda for each meeting shall be prepared in advance by the Members in
        consultation with each other. Three (3) members of the Committee shall
        constitute a quorum. Except as specifically set forth herein to the contrary
        where certain rights are granted to individual Members, the casting of four
        (4)
        concurring votes shall be required for all actions of the Committee except
        adjournment (which shall only require a majority of the votes present), and
        four
        (4) concurring votes shall constitute the approval by the Committee of the
        matter being considered and shall be binding on the Company and the Members
        for
        all matters, including, without limitation, financing, refinancing, sale
        of some
        or all of the Company’s assets and dissolution of the Company. The Committee may
        act without a meeting if the action taken is unanimously approved in advance
        in
        writing by the Committee members. The Committee shall cause written minutes
        to
        be prepared of all actions taken by the Committee and shall deliver a copy
        thereof to each member of the Committee within seven (7) days after the date
        of
        the meeting. Such minutes shall be prepared by one of the members appointed
        by
        ARC. Each Subsidiary has four (4) officers designated by the Committee. The
        Committee may change the designations of any officers of any Subsidiary upon
        the
        unanimous consent of the Committee. All the officers of each Subsidiary shall
        be
        entitled to execute leases, resident agreements and service contracts on
        behalf
        of the Subsidiary (and/or may delegate such signing authority to the Initial
        Property Manager) so long as such documents are consistent with the then
        current
        approved Annual Operating Budget but the officers of such Subsidiary may
        not
        otherwise execute any documents on behalf of the Subsidiary without the
        unanimous approval of the Committee; provided, however, that the officers
        designated by SHP as its representatives to each Subsidiary (initially John
        Dark
        and Noah Levy) may execute any and all documents on behalf of the Subsidiary
        to
        take actions which SHP, in its capacity as a member, has the sole and exclusive
        right to undertake pursuant to the provisions of Section
        6.7
        of this
        Agreement; provided, further, that Todd Kaestner has been authorized to execute
        closing documents on behalf of the Company with respect to the initial
        acquisition of the Portfolio and the obtaining of the Initial
        Financing.

       

      
        
          
          

        

        
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      6.2  Bank
        Accounts.
        The
        Company will maintain separate bank accounts in such banks as the Committee
        may
        designate exclusively for the deposit and disbursement of all funds of the
        Company. All funds of the Company shall be promptly deposited in such accounts.
        The Committee from time to time shall authorize signatories for such
        accounts.

       

      6.3  Reimbursement
        for Costs and Expenses.
        Subject
        to the terms of Section
        6.5,
        the
        Committee will fix the amounts, if any, by which the Company will reimburse
        each
        Member for any costs and expenses incurred by such Member on behalf and for
        the
        benefit of the Company or any of its Subsidiaries; provided, however, that
        except as otherwise provided herein or in any separately-executed agreement
        relating to the business and operation of the Company or any of its
        Subsidiaries, no overhead or general administrative expenses of any person
        or
        entity anyone other than the Company itself shall be allocated to the operation
        of the Company, and no salaries, fees, commissions or other compensations
        shall
        be paid by the Company to any Affiliate of any Member or to any partner,
        officer
        or employee of either Member or its Affiliates for any services rendered
        to the
        Company, except as may be expressly provided herein or by other written
        agreement approved by the Committee. 

       

      6.4  Fidelity
        Bonds and Insurance.
        The
        Committee on behalf of each Subsidiary shall cause each Subsidiary Property
        Manager (including, without limitation, the Initial Subsidiary Property Manager)
        to obtain fidelity bonds with reputable surety companies, covering all persons
        having access to the such Subsidiary’s funds and indemnifying such Subsidiary
        against loss resulting from fraud, theft, dishonesty and other wrongful acts
        of
        such persons. Each Subsidiary shall carry or cause to be carried on its behalf,
        in companies acceptable to the Committee all property, liability and worker’s
        compensation insurance as shall be required under applicable mortgages, leases,
        agreements, and other instruments and statutes or as may be required by the
        Committee or in accordance with risk management guidelines agreed upon by
        the
        Committee. The expense of such fidelity bond shall be paid by the respective
        Subsidiary Property Managers (including, without limitation, the Initial
        Subsidiary Property Manager), but the cost of the insurance shall be an expense
        of each Property.

       

      6.5  Management
        Agreement.
        On or
        about the date of this Agreement, each Subsidiary will enter into a management
        agreement (each an “Initial
        Subsidiary Management Agreement”)
        with
        Initial Subsidiary Property Manager, in the form and containing the provisions
        of Exhibit
        D
        hereto
        attached and made a part hereof, providing that Initial Subsidiary Property
        Manager will, subject to the Company’s direction, manage the day-to-day
        operation of the Subsidiary’s Project, as an independent contractor, for the
        compensation and term specified therein. Should such Initial Subsidiary
        Management Agreement terminate for any reason, each Subsidiary will enter
        into
        an agreement for management of the Property with an operator or operators
        satisfactory to the Company (a “Subsidiary
        Property Manager”).
        Such
        Initial Subsidiary Management Agreement or any other management agreement
        entered into by the Company after the termination or expiration of such Initial
        Subsidiary Management Agreement, as the same may be amended or restated from
        time to time, is referred to herein as the “Subsidiary
        Management Agreement”. 

       

      6.6  Annual
        Budgets.
        The
        annual operating budget for each Project and the annual capital expenditures
        budget for each Project will be approved subject to the following
        terms:

       

      
        
          
          

        

        
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      (a)  Annual
        Operating Budget.
        So long
        as each Project is performing such that (i) the aggregate, gross level of
        revenues for that Project are meeting or exceeding the operating pro forma
        approved by SHP on or before December 15, 2005 (the “Operating Pro Forma”) and
        (ii) the aggregate, gross level of expenses for that Project are equal to
        or less than the Operating Pro Forma, the current Annual Operating Budget
        must
        be approved by unanimous consent of the Committee. To the extent that the
        applicable Project is performing such that either the aggregate, gross revenues
        or aggregate gross expenses for that Project are not equal to or better than
        the
        Operating Pro Forma, SHP shall have the right to unilaterally approve any
        proposed annual operating budget. Any annual operating budget as approved
        pursuant to this Section
        6.6(a)
        is
        referred to as the “Annual Operating Budget.” 

       

      ARC
        shall
        prepare and deliver to SHP, on or before ninety (90) days prior to the
        expiration of the then current fiscal year, a proposed Annual Operating Budget
        for each Project for the upcoming fiscal year. The exact form of the Annual
        Operating Budget shall be agreed upon by ARC and SHP but shall include, without
        limitation, reasonably detailed and itemized estimates of all projected income
        and expenses of such Subsidiary for the upcoming fiscal year (except items
        included in the proposed Annual Capital Budget), and specifically including
        reserves and working capital for such Subsidiary and a detailed leasing report
        describing all vacant units within the Project, the square footage of each
        vacant unit and the total square footage of all vacating units within the
        Project. To the extent that the Annual Operating Budget for a particular
        Project
        is not approved prior to the commencement of the fiscal year to which such
        budget is to relate, the Annual Operating Budget for such Subsidiary for
        the
        prior fiscal year, plus a three percent (3%) increase for each line item
        contained in such budget, shall be utilized in connection with the operation
        of
        such Property.

       

      (b)  Annual
        Capital Budget.
        On or
        before ninety (90) days prior to the expiration of the then current fiscal
        year,
        ARC shall deliver to SHP, along with the proposed Annual Operating Budget
        for
        each Project, a proposed Annual Capital Budget for each Project for the upcoming
        fiscal year. Approval of the annual capital budget (the “Annual
        Capital Budget”)
        must be
        made by the unanimous consent of the Committee. If the Committee cannot
        unanimously agree upon the Annual Capital Budget for a particular Project
        for
        any year, there shall be no Annual Capital Budget for such Project for such
        year
        and the provisions of Section
        4.5(a)
        shall
        govern capital improvements to such Project during such year. To the extent
        that
        funds are reserved for items set forth in the Annual Capital Budget for a
        particular Project and are not spent in a given year for which the Annual
        Capital Budget for such Project relates, the funds will be carried over into
        a
        separate reserve account for future use on items included within a future
        Approved Capital Budget for such Project, but may not be used for any other
        purpose. This separate reserve account will be held by, or on behalf of,
        SHP for
        the benefit of the applicable Subsidiary.

       

      6.7  SHP’s
        Rights.

       

      (a)  Notwithstanding
        anything to the contrary in this Article
        6,
        SHP, in
        its capacity as a Member, and not in a representative capacity, shall have
        the
        sole and exclusive right, without the approval of the Committee, to cause
        or
        permit the Company to do or perform the following:

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

       

      (1)  from
        and
        after November 1, 2007 and subject to the provisions of Section
        10.5,
        to cause
        the entire Portfolio or any one of the Properties or any group of the Properties
        to be sold or to market the Portfolio;

       

      (2)  subject
        to
Section
        6.7(b),
        to cause
        the Company or a Subsidiary to incur debt financing for the entire Portfolio
        or
        any one of the Properties or any group of the Properties on terms determined
        by
        SHP; 

       

      (3)  subject
        to
Section
        6.7(b),
        to cause
        the Company to refinance any loan obtained by the Company or a Subsidiary
        pursuant to the foregoing Section
        6.7(a)(2),
        or put
        in place at the time of the Company’s acquisition of the
        Properties;

       

      (4)  to
        exercise any of the Company’s rights to terminate an Initial Subsidiary
        Management Agreement (or any subsequent Subsidiary Management Agreement)
        and to
        cause a Subsidiary to enter into a Subsidiary Management Agreement with a
        new
        Subsidiary Property Manager; provided, however, that the Subsidiary’s right to
        terminate the Initial Subsidiary Management Agreement, without cause, upon
        thirty (30) days prior notice, as provided in Section
        12.2(e)
        of the
        Initial Subsidiary Management Agreement, may be exercised only by unanimous
        agreement of the Members; 

       

      (5)  (Intentionally
        Omitted);

       

      (6)  (Intentionally
        Omitted); and

       

      (7)  to
        determine whether and to what extent the Property should be repaired or restored
        in the event of (i) a loss by fire or other casualty, if the estimated costs
        of
        repair or restoration (as determined by the Company’s property insurance
        carrier) exceed $7,500,000.00, or (ii) a condemnation of any portion of a
        Property, the fair market value of which (as determined by an experienced,
        reputable M.A.I. appraiser selected by the Committee), exceeds
        $7,500,000.00.

       

      (b)  SHP
        and
        ARC have agreed to obtain financing for the Projects, as of the Closing,
        in the
        original principal amount of $85,000,000.00, from Merrill Lynch Capital pursuant
        to the terms of that certain Credit and Security Agreement, dated ________,
        2005
        (“Initial
        Financing”).
        If SHP
        determines to refinance a Property pursuant to Section
        6.7(a)(2)
        or
6.7(a)(3),
        SHP
        shall deliver a notice to ARC (a “Finance
        Proposal Notice”)
        of
        SHP’s intent, which notice shall include the proposed terms of such refinancing
        and a list of the lenders from which SHP intends to seek such refinancing
        (“SHP’s
        Lender List”).
        While
        SHP is trying to obtain such refinancing from a lender, ARC may concurrently
        seek alternatives to SHP’s proposed refinancing from other lenders provided ARC
        has delivered a notice to SHP of ARC’s intent, which notice shall include a list
        of the lenders from which ARC intends to seek such refinancing (“ARC’s
        Lender List”).
        ARC
        shall not, without the unanimous prior written approval of the Committee,
        have
        any authority to bind the Company or any Subsidiary to any loan commitment.
        ARC’s Lender List shall not include any of the lenders included in SHP’s Lender
        List. The Members shall coordinate their efforts to assure that ARC does
        not
        approach prospective lenders which are on SHP’s Lender List and SHP does not
        approach prospective lenders which are on ARC’s Lender List. 

       

      
        
          
          

        

        
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      When
        SHP
        has determined the actual refinancing structure it wishes to obtain and has
        identified the lender willing to provide such refinancing, SHP shall deliver
        a
        second notice to ARC (a “Financing
        Commitment Notice”)
        setting
        forth the terms of such refinancing and the identity of such lender. If (i)
        ARC
        notifies SHP within ten (10) days after ARC’s receipt of the Financing
        Commitment Notice that ARC has identified an alternative lender which will
        provide refinancing on the same or better terms as that proposed by SHP
        (including loan amount, term, amortization schedule, interest rate, prepayment
        penalties and participation features) at a lower cost and which will not
        result
        in a Plan Violation; and (ii) SHP, in SHP’s sole and absolute discretion,
        determines that the refinancing from the alternative lender identified by
        ARC
        will provide comparable refinancing on the same or better terms as that proposed
        by SHP, including operation and ownership constraints, and that the Company
        or a
        Subsidiary, as the case may be, will be able to obtain such refinancing within
        the time parameter determined by SHP, then SHP and ARC shall pursue such
        refinancing from such alternative lender, otherwise SHP shall be free to
        proceed
        to close the refinancing outlined in the Financing Commitment Notice.
        Notwithstanding anything to the contrary set forth hereinabove, neither Member
        shall have the right, without the other Members consent, to seek any refinancing
        which: (i) is recourse to the other Member; (ii) is convertible or includes
        any
        participating mortgage structure (i.e., a mortgage which grants to the mortgagee
        an equity interest or an option to convert some or all of the debt into an
        equity interest); (iii) commits the other Member to relinquish any of its
        equity
        in the Company or dilute its Percentage Interest or its interest in any item
        of
        income, loss or cash; or (iv) will result in such Property having a debt
        service
        coverage ratio (as of the date of the closing of the refinancing) of less
        than
        1.25 to 1. As used above, the term Debt Service Coverage Ratio shall mean
        the
        ratio of (x) the Subsidiary’s annualized cash flow (including both Operating
        Cash Flow and Extraordinary Cash Flow and based upon the four calendar months
        immediately preceding the date the new refinancing will be closed) prior
        to the
        payment of debt service of the Subsidiary to (y) the annual debt service
        payable
        under all outstanding debt of the Subsidiary (excluding Loans and Special
        Loans)
        immediately after funding of the new refinancing, including debt service
        on such
        financing or refinancing. 

       

      6.8  Indemnification.
        Neither
        Member shall be liable to the Company or to the other Member for any act
        performed or omitted to be performed by the Member in connection with Company
        business, unless the Member’s course of conduct was in breach of this Agreement
        or constituted fraud, unauthorized acts, bad faith, willful misconduct or
        gross
        negligence. A Member shall defend and indemnify the Company and the other
        Member
        against, and hold it and them harmless from, any loss, damage, claim, judgment,
        cost, expense or liability, including reasonable attorneys’ fees, incurred or
        sustained by the Company or the other Member or either of them by reason
        of the
        indemnifying Member’s fraud, bad faith, willful misconduct, gross negligence,
        unauthorized acts or breach of this Agreement. The Company shall defend and
        indemnify each Member against, and hold it and them harmless from, any loss,
        damage, claim, judgment, cost, expense or liability, including reasonable
        attorneys’ fees, incurred or sustained by the Member by reason of any act
        performed by it on behalf of the Company or in furtherance of the Company’s
        interests other than by fraud, bad faith, willful misconduct, gross negligence,
        unauthorized acts or breach of this Agreement. The Company shall defend and
        indemnify any person executing the original Certificate of Formation against,
        and hold such person harmless from, any loss, damage, claim, judgment, cost,
        expense or liability, including reasonable attorneys’ fees, incurred or
        sustained by such person by reason of having prepared or filed the original
        Certificate of Formation or his status as the organizer of the Company, except
        to the extent of such person’s fraud, bad faith, willful misconduct or gross
        negligence.

       

      
        
          
          

        

        
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      6.9  Operation
        as a REOC.
        The
        Committee shall conduct the activities of the Company so as to qualify the
        Company as a “real estate operating company” (“REOC”)
        within
        the meaning of 29 C.F.R. §2510.3-101 (the “Plan Assets Regulation”). The “annual
        valuation period” of the Company for purposes of qualifying as a REOC under the
        Plan Assets Regulation shall be the 90-day period commencing on each Anniversary
        Date (as defined below) unless the Company pre-specifies an earlier annual
        valuation period in accordance with the Plan Assets Regulation. “Anniversary
        Date” means each anniversary of the Company’s first investment other than a
        short-term investment pending long-term commitment.

       

      6.10  Third
        Party Loans.
        Notwithstanding anything to the contrary in this Agreement, each Member’s rights
        under the Agreement shall at all times be subject to the terms and conditions
        of
        any Third Party Loan, and neither Member (a) shall take, or fail to take,
        any
        action that would conflict with any material term or condition of any Third
        Party Loan or cause a default or event of default under any Third Party Loan,
        or
        (b) shall cause the Company to take, or fail to take, any action that would
        conflict with any material term or condition of any Third Party Loan or cause
        a
        default or event of default under any Third Party Loan.

       

      6.11  Rights
        of SHP’s Member.
        ARC
        hereby acknowledges that the sole member of SHP, acting in such capacity,
        shall
        have the right to direct all actions, make all decisions and exercise all
        rights
        of SHP under this Agreement.

      
ARTICLE
        7. 

      BOOKS
        AND RECORDS, AUDITS, TAXES, ETC.

       

      7.1  Books;
        Statements.
        In
        addition to the establishment and maintenance of Capital Accounts pursuant
        to
Section
        7.9,
        the
        Company shall keep such other books and records as the Committee shall
        determine. The books and records shall be prepared in accordance with generally
        accepted accounting principles consistently applied. Except where specifically
        provided for in this Agreement, the Committee shall determine the methods
        to be
        used in the preparation of financial statements. 

       

      Following
        the Effective Date of the Agreement:

       

      (a)  each
        Subsidiary shall prepare or cause to be prepared, by the Subsidiary Property
        Manager for the Company’s approval and in accordance with the terms of the
        Subsidiary Management Agreement, a statement setting forth the calculation
        of
        Operating Cash Flow for such Subsidiary for each period of time, but not
        less
        often than quarterly, at the end of which the Company is to make periodic
        distributions of Operating Cash Flow as provided in Section
        9.3,
        and the
        Company shall furnish a copy of such cash flow statement to each Member within
        fifteen (15) days after the end of such period;

       

      
        
          
          

        

        
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      (b)  no
        later
        than the twenty fifth (25th) day of each month during the term of this
        Agreement, each Subsidiary shall prepare, or cause to be prepared by the
        Subsidiary Property Manager, and shall submit to the Company, an accrual
        basis
        balance sheet for such Subsidiary dated as of the end of the preceding month,
        together with an accrual basis profit and loss statement for such Subsidiary
        for
        the calendar month next preceding with a cumulative calendar year accrual
        basis
        profit and loss statement to date, and a statement of change in each Member’s
        Capital Account with respect to such Subsidiary’s operations for the preceding
        month and year to such date; and

       

      (c)  as
        soon as
        practicable, but no later than ninety (90) days, after the end of each fiscal
        year of the Company, a general accounting and audit shall be taken and made
        by
        independent certified public accountants of recognized standing, selected
        by the
        TMP in accordance with Section
        7.6
        and
        retained by the Company, which accounting and/or audit shall cover the assets,
        properties, liabilities and net worth of the Company and its Subsidiaries,
        and
        their dealings, transactions and operations during such fiscal year, and
        all
        matters and things customarily included in such accountings and audits, and
        a
        full, detailed certified statement shall be furnished to each Member showing
        on
        an accrual basis the assets, liabilities, properties, net worth, profits,
        losses, net income, Unrecovered Capital Contributions, Priority Capital
        Contributions, Operating Cash Flow, Extraordinary Cash Flow, changes in the
        financial condition of the Company and the Subsidiaries for such fiscal year
        and
        each Member’s capital in the Company together with a full and complete report of
        the audit scope and audit findings in the form of a management audit report
        with
        an internal control memorandum.

       

      7.2  Where
        Maintained.
        The
        books, accounts and records of the Company shall be at all times maintained
        at
        its principal office. If requested by the Company, the Subsidiary Property
        Manager shall, pursuant to the terms of its Subsidiary Management Agreement,
        keep and maintain such books, accounts and records, and its only payment
        for
        doing so shall be the fees paid under the Subsidiary Management Agreement.
        The
        Committee may, at any time, transfer the responsibility for keeping and
        maintaining such Company books and records to another party if it determines
        that the Company may recognize cost savings by doing so.

       

      7.3  Audits.
        Either
        Member may, at its option and at its own expense, conduct internal audits
        of the
        books, records and accounts of the Company and its Subsidiaries. Audits may
        be
        on either a continuous or a periodic basis, or both, and may be conducted
        by
        employees of either Member, or an Affiliate of either Member, or by independent
        auditors retained by the Company or by either Member.

       

      
        
          
          

        

        
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      7.4  Objections
        to Statements.
        Each
        Member shall have the right to object to the statements described in
Sections
        7.1(a),
        (b)
        and
(c)
        by giving
        notice in writing to the other Member within thirty (30) days after such
        statements are received by each Member, indicating in reasonable detail the
        objections of such Member and the basis for such objections. If either Member
        shall fail to give such notice within said thirty (30) day period, such
        statements and the contents thereof shall, in the absence of fraud or willful
        misconduct by the other Member or the independent certified public accountants
        certifying the statements, be deemed conclusive and binding upon such party
        so
        failing to give such written notice, subject, in the case of the statements
        provided for in Sections
        7.1(a)
        and
(b),
        to the
        audit provided for in Section
        7.1(c).
        Objections to any statement and any disputes concerning the findings of,
        and
        questions raised as the result of, audits of the Company’s or any Subsidiary’s
        books shall be settled by the Committee.

       

      Upon
        approval or deemed approval of the statement described in Section
        7.1(c)
        (the
“Approved
        Financial Statement”),
        a
        comparison shall be made of the actual Operating Cash Flow to the Operating
        Cash
        Flow distributed pursuant to Section
        9.3.
        To the
        extent that the Company has made a distribution to a Member (the “Excess
        Member”)
        in
        excess of the amount which the Excess Member should have received based on
        a
        distribution of Operating Cash Flow set forth in the Approved Financial
        Statement, the Excess Member shall recontribute to the Company, within fifteen
        (15) days after the creation of the applicable Approved Financial Statement,
        the
        excess amount (the “Excess
        Amount”)
        received by it. The Company shall then distribute such Excess Amount (1)
        first,
        to any Member who received a distribution less than such Member should have
        received based on the distribution of Operating Cash Flow set forth in the
        Approved Financial Statement, an amount equal to such deficiency and (2)
        second,
        to the extent of the remaining Excess Amount, in accordance with Section
        9.3.

       

      7.5  Tax
        Returns.
        The
        Company shall be treated and shall file its tax returns as a partnership
        for
        Federal, state, municipal and other governmental income tax and other tax
        purposes. The Company shall prepare or cause to be prepared, on an accrual
        basis, all Federal, state and municipal partnership tax returns required
        to be
        filed by it or by any of its Subsidiaries. Unless otherwise determined by
        the
        Committee, such tax returns shall be prepared by independent certified public
        accountants selected pursuant to Section
        7.6,
        who
        shall sign such returns as income tax preparers (as defined in Section
        7701(a)(36)
        of the
        Code). The Company shall submit the returns to each Member for review and
        approval no later than thirty (30) days prior to the due date of the returns,
        but in no event later than March 15th of each year. Each Member shall notify
        the
        other Member(s) upon receipt of any notice of tax examination, tax deficiency
        or
        tax adjustment of the Company by Federal, state or local
        authorities.

       

      
        
          
          

        

        
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      7.6  Tax
        Matters Partner.
        ARC
        shall be the tax matters partner (“TMP”),
        as
        defined in Section
        6231 (a)(7)
        of the
        Code, with respect to operations conducted by the Company during the period
        that
        ARC is a Member. The TMP shall comply with the requirements of Section
        6221 through 6232
        of the
        Code. The TMP shall have the authority, in its reasonable discretion, to
        select
        and appoint independent certified public accountants to prepare tax returns
        and
        annual audited financial statements for the Company and its Subsidiaries,
        the
        expense of which shall be borne by the Company. Notwithstanding the foregoing,
        prior approval of the Committee shall be required to extend the statute of
        limitations for any federal income tax matters or to proceed with respect
        to the
        contest of any federal income tax matters in any forum other than the United
        States Tax Court.

       

      7.7  Tax
        Policy.
        The
        Company shall make any and all tax accounting and reporting elections and
        adopt
        such procedures as the Committee, in its reasonable judgment, may
        determine.

       

      7.8  Section
        754 Election.
        At the
        request of a Member, the Company shall make and file a timely election under
        Section
        754
        of the
        Code (and a corresponding election under applicable state or local law) in
        the
        event of a transfer of an interest in the Company permitted hereunder or
        the
        distribution of property to a Member. Any adjustments resulting from such
        an
        election shall be reflected in the Capital Accounts of the Members only to
        the
        extent provided in Treasury Regulation Section
        1.704-1(b)(2)(iv)(m).
        Any
        Member or transferee first requesting an election hereunder shall reimburse
        the
        Company for reasonable out of pocket expenses incurred by the Company in
        connection with such election, including, without limitation, any legal or
        accountants’ fees; thereafter, each transferee shall reimburse such expenses
        with respect to adjustments under Section
        743
        of the
        Code in the proportion which the interest of each transferee bears to the
        sum of
        the interests of all transferees; the Company shall bear the expenses of
        any
        adjustments under Section
        734
        of the
        Code.

       

      7.9  Capital
        Accounts.

       

      (a)  There
        shall be established on the books of the Company a single capital account
        (the
“Capital
        Account”)
        for
        each Member. The opening balance of each Member’s Capital Account shall be equal
        to each Member’s Initial Contribution as set forth in Section
        4.1
        of this
        Agreement.

       

      (b)  The
        Capital Account of each Member (regardless of the time or manner in which
        such
        Member’s interest was acquired) shall be maintained in accordance with the rules
        of Section
        704(b)
        of the
        Code and the Treasury Regulations thereunder (including particularly
Section
        1.704-1(b)(2)(iv)
        of the
        Regulations). Adjustments shall be made to the Capital Accounts for all
        distributions and allocations (other than allocations pursuant to Section
        9.6)
        as
        required by the rules of Section
        704(b)
        of the
        Code. In general, a Capital Account shall be:

       

      
        
          
          

        

        
          24

          
            

          

        

        
          
          

        

      

       

      (1)  increased
        by (i) the amount of money contributed by the Member to the Company (including
        the amount of any Company liabilities that are assumed by such Member other
        than
        in connection with the distribution of Company property and including any
        amounts contributed to the Company pursuant to Section
        7.4),
        (ii)
        the fair market value of property contributed by the Member to the Company
        (net
        of liabilities secured by such contributed property that the Company is
        considered to assume or take subject to under Section
        752
        of the
        Code), and (iii) except as provided in Section
        7.9(b)(3)
        and
Section
        7.9(b)(4),
        allocations to the Member of Company profits and gain for federal income
        tax
        purposes (or items thereof), including profits and gain exempt from
        taxation;

       

      (2)  decreased
        by (i) the amount of money distributed to the Member by the Company (including
        the amount of such Member’s individual liabilities that are assumed by the
        Company (other than in connection with contributions of property to the Company)
        and including any amounts distributed to such Member by the Company pursuant
        to
Section
        7.4),
        (ii)
        the fair market value of property distributed to the Member by the Company
        (net
        of liabilities secured by such distributed property that such Member is
        considered to assume or take subject to Section
        752
        of the
        Code), (iii) allocations to the Member of expenditures of the Company not
        deductible in computing the Company’s taxable income and not properly chargeable
        to capital, and (iv) except as provided in Section
        7.9(b)(3)
        and
Section
        7.9(b)(4),
        allocations to the Member of Company loss and deduction for federal income
        tax
        purposes (or items thereof);

       

      (3)  where
        Section
        704(c)
        of the
        Code applies to Company property, adjusted in accordance with Treasury
        Regulations Section
        1.704-1(b)(2)(iv)(g)
        as to
        allocations to the Members of depreciation, depletion, amortization and gain
        or
        loss, as computed for book purposes with respect to such Company property;
        and

       

      (4)  except
        as
        provided in Treasury Regulation Section
        1.704-1(b)(2)(iv)(m),
        computed
        without regard to any election under Section
        754
        of the
        Code which may be made by the Company.

       

      If
        there
        is a transfer of all or a part of an interest in the Company by a Member,
        the
        Capital Account of the transferor that is attributable to the transferred
        interest shall carry over to the transferee of such Member.

       

      7.10  Ownership
        Representation.
        Each
        Member represents and warrants to the Company and to the other Members that
        it
        is a U.S. person as that term is defined under Section
        7701(a)(30)
        of the
        Code.

       

      ARTICLE
        8. 

      FISCAL
        YEAR

       

      8.1  Calendar
        Year.
        The
        fiscal year of the Company shall be the calendar year, unless (subject to
        obtaining consent of the Internal Revenue Service) the Members shall hereafter
        in writing agree otherwise.

       

      
        
          
          

        

        
          25

          
            

          

        

        
          
          

        

      

       

      ARTICLE
        9.  

      DISTRIBUTIONS
        AND ALLOCATIONS

       

      9.1  Percentage
        Interests in Company.
        Except
        as otherwise expressly provided in this Agreement, the percentage interest
        of
        the respective Members in the Company shall be as follows:

       

      
        	SHP     	 	80%
	ARC 	 	20%


      

       

      The
        percentage interest of each Member, which is subject to the preferred and
        priority rights provided for herein, is hereinafter called such Member’s
“Percentage Interest”.

       

      9.2  Certain
        Definitions.
        The
        following terms shall have the following meanings when used herein:

       

      (a)  “Operating
        Cash Flow”
shall
        mean the net income or loss of the Company or a Subsidiary, as applicable,
        for
        the fiscal period in question, as determined by the Committee in accordance
        with
        generally accepted accounting principles, taking into account all of the
        income
        and all of the operating expenses from all of the Properties or a Property,
        as
        applicable, and adjusted as follows: 

       

      (1)  Additions.
        There
        shall be added to such net income or subtracted from such loss, without
        duplication, the following items: (i) the amount charged during such period
        for
        depreciation, amortization or any other deduction not involving a cash
        expenditure, (ii) the amount of cash expenditures paid out of cash reserves
        during such period, to the extent that such expenditures were deducted in
        determining net income or loss, (iii) cash Capital Contributions to the Company
        or a Subsidiary, as applicable, during such period, excluding SHP’s Initial
        Contribution and ARC’s Initial Contribution, (iv) rental receipts, collection of
        receivables and other cash receipts during such period which were included
        in
        determining net income or loss in a prior accounting period, (v) the costs
        and
        expenses incurred by the Company or a Subsidiary, as applicable, during such
        period in connection with a Major Capital Event, to the extent deducted from
        gross income in the determination of net income or loss, except to the extent
        that net receipts of the Company or a Subsidiary, as applicable, from such
        Major
        Capital Event were insufficient to pay such costs and expenses, (vi) proceeds
        of
        short term borrowings in the ordinary course of business during such period,
        (vii) capital expenditures and other cash sums expended during such period
        for
        items deducted in determining net income or loss of the Company or a Subsidiary,
        as applicable, to the extent paid from proceeds of a Major Capital Event,
        and
        (viii) any amount during such period by which cash reserves previously
        established by the Committee in order to retain sufficient working capital
        in
        the Company or a Subsidiary, as applicable, or to properly reserve for actual
        or
        contingent obligations of the Company or improvements to the Properties or
        the
        Property, as applicable, have been reduced (other than through payment of
        expenditures described in clause (ii) above).

       

      
        
          
          

        

        
          26

          
            

          

        

        
          
          

        

      

       

      (2)  Deductions.
        There
        shall be subtracted from such net income or added to such loss, without
        duplication, the following items: (i) the amount of payments made on account
        of
        principal upon mortgage loans secured by Company or Subsidiary property,
        as
        applicable, and upon any other loans made to the Company or a Subsidiary,
        as
        applicable, other than Special Loans or Loans by Members, (ii) capital
        expenditures and any other cash sums expended during such period for items
        not
        deducted in determining net income or net loss of the Company or a Subsidiary,
        as applicable, except to the extent paid from the proceeds of a Major Capital
        Event, (iii) any amount included in determining net income or loss during
        the
        relevant accounting period but not received in cash by the Company or a
        Subsidiary, as applicable, (iv) the proceeds during such period of a Major
        Capital Event, to the extent included in determining net income or loss,
        (v) any
        amounts distributed during such period to the Members in payment of any
        guaranteed payment within the meaning of Section
        707(c)
        of the
        Code, and any amounts paid to a Member during such period for services rendered
        other than in its capacity as a Member of the Company within the meaning
        of
Section
        707(a)
        of the
        Code, to the extent not previously taken into account as a deduction in
        determining net income or loss, (vi) the amount of principal and interest
        under
        then-outstanding Special Loans and Loans which are to be repaid to the Members
        making the same in accordance with Article
        5,
        and
        (vii) any amount applied to establish, replenish or increase during such
        period
        cash reserves pursuant to a determination of the Committee that such reserve
        and
        the amount thereof is necessary or appropriate in order to retain sufficient
        working capital in the Company or a Subsidiary, as applicable, to properly
        reserve for other actual or contingent obligations of the Company or
        improvements to the Properties or the Property, as applicable, to properly
        reserve for capital expenditures, or to reserve for fixtures, furniture and
        equipment.

       

      (b)  “Extraordinary
        Cash Flow”
shall
        mean the net cash receipts of the Company or a Subsidiary, as applicable,
        from a
        Major Capital Event as reduced by (i) the costs and expenses incurred by
        the
        Company or a Subsidiary, as applicable in connection with such Major Capital
        Event, including title, survey, appraisal, recording, escrow, transfer tax
        and
        similar costs, brokerage expense and attorney and other professional fees,
        (ii)
        funds deposited in reserves pursuant to a determination of the Committee
        that
        such reserve and the amount thereof is required or appropriate to provide
        for
        actual or contingent obligations of the Company or a Subsidiary, as applicable,
        or improvements to the Property or Properties, as applicable, (iii) funds
        applied to pay or prepay any indebtedness of the Company or a Subsidiary,
        as
        applicable (including Special Loans and Loans from Members and interest thereon
        to be repaid in accordance with Article
        5),
        in
        connection with such Major Capital Event , (iv) any amounts previously deducted
        in determining Operating Cash Flow and (v) amounts received from a condemnation
        or casualty which are used for reconstruction. To the extent that any amount
        received pursuant to a Major Capital Event has been set aside as a reserve
        for
        expenses relating to a Major Capital Event and the Committee thereafter
        determines that all or a portion of such amount is not required for such
        purposes, such amount shall be included in Operating Cash Flow when the
        Committee determines that it is no longer necessary or appropriate to retain
        such amount as a reserve. Any non cash consideration received pursuant to
        a
        Major Capital Event, including, without limitation, promissory notes or deferred
        payment obligations, shall only be deemed to be included in Extraordinary
        Cash
        Flow when received in cash by the Company or a Subsidiary, as applicable;
        provided, however, that, in the discretion of the Committee, such noncash
        assets
        may be distributed in kind to the Members, in lieu of cash, treating the
        fair
        market value of such non cash assets at the date of distribution as
        Extraordinary Cash Flow.

       

      
        
          
          

        

        
          27

          
            

          

        

        
          
          

        

      

       

      (c)  “Profit”
or
        “Loss”
shall
        mean, for each fiscal year, the net income or net loss of the Company for
        such
        fiscal year, as the case may be, including any items of income, gain, loss
        or
        deduction that are separately stated for purposes of Section
        702(a)
        of the
        Code, as determined in accordance with federal income tax accounting principles
        as adjusted by Treasury Regulation Section
        1.704-l(b)(2)(iv),
        provided
        that any item of income that is not subject to federal income taxation and
        any
        expenditure described in Section
        705(a)(2)(B)
        of the
        Code or treated as an expense under Section
        705(a)(2)(B)
        of the
        Code pursuant to Treasury Regulations Section
        1.704-1(b)(2)(iv)(i),
        shall be
        taken into account. If the context requires, “Profit” or “Loss” may be used
        herein and such terms shall have meanings identical to those described earlier
        in this Section
        9.1(c).

       

      (d)  “Company
        Minimum Gain”
shall
        mean the minimum amount of gain that would be recognized by the Company for
        federal income tax purposes if the Company disposed of property subject to
        non
        recourse liabilities (that is, liabilities for which no Member bears the
        economic risk of loss pursuant to Treasury Regulation 1.752-1(a)(2)) in full
        satisfaction and for the amount thereof, computed in accordance with Treasury
        Regulation Section
        1.704-2(d).

       

      (e)  “Nonrecourse
        Deductions”,
        pursuant to the provisions of Treasury Regulations Sections
        1.704-2(b)(1)
        and
1.704-2(c)
        of the
        Company for any taxable year, shall mean an amount equal to the excess, if
        any,
        of the net increase in the amount of the Company’s Minimum Gain during such year
        over the aggregate amount of any distributions during such year of proceeds
        of
        nonrecourse liability that are allocable to an increase in the Company’s Minimum
        Gain.

       

      9.3  Cash
        Flow Distributions.

       

      (a)  Operating
        Cash Flow.
        The
        Company shall distribute all Operating Cash Flow generated by all of the
        Subsidiaries for each calendar quarter during the term of the Company in
        which
        there is Operating Cash Flow based on the operating statements prepared by
        each
        of the Subsidiary Property Managers pursuant to the Subsidiary Management
        Agreements and approved by the Committee pursuant to Section
        7.1(a),
        said
        distribution to be made not later than ten (10) days subsequent to the issuance
        of the operating statement for each such calendar quarter to the Members
        pro
        rata in accordance with their Percentage Interests.

       

      (b)  Extraordinary
        Cash Flow.
        With
        respect to any Major Capital Event that occurs with respect to any one or
        more
        of the Subsidiaries, the Company shall distribute Extraordinary Cash Flow
        to the
        Members, within three (3) business days of the completion of a Major Capital
        Event as follows: 

       

      (1)  first,
        eighty percent (80%) to SHP and twenty percent (20%) to ARC until SHP and
        ARC
        receive payment in full for their Unreturned Capital Contributions;

       

      (2)  second,
        to
        SHP until SHP has achieved an IRR of twelve and one-half (12.5%) on its
        Unreturned Capital Contributions;

       

      (3)  third,
        to
        ARC until ARC has achieved an IRR of twelve and one-half percent (12.5%)
        on its
        Unreturned Capital Contributions; 

       

      
        
          
          

        

        
          28

          
            

          

        

        
          
          

        

      

       

      (4)  fourth,
        eighty percent (80%) to SHP and twenty percent (20%) to ARC until SHP and
        ARC
        have achieved an IRR of fifteen percent (15%) on their Unreturned Capital
        Contributions; and

       

      (5)  fifth,
        any
        remaining balance shall be distributed sixty percent (60%) to SHP and forty
        percent (40%) to ARC.

       

      Notwithstanding
        the foregoing to the contrary, in the event that SHP, by exercising its
        authority under Section
        6.7(a)(1),
        has
        caused the sale of (i) the entire Portfolio, (ii) any one of the Properties
        or
        (iii) any group of Properties on or before November 1, 2010, distributions
        of
        Extraordinary Cash Flow shall be distributed within three (3) days of the
        completion of a Major Capital Event as follows:

      


      (6)  first,
        eighty percent (80%) to SHP and twenty percent (20%) to ARC until SHP and
        ARC
        receive payment in full for their Unreturned Capital Contributions;

       

      (7)  second,
        eighty percent (80%) to SHP and twenty percent (20%) to ARC until SHP and
        ARC
        have each achieved an IRR of fifteen percent (15.0%) on their Unreturned
        Capital
        Contributions; and

       

      (8)  third,
        any
        remaining balance shall be distributed sixty percent (60%) to SHP and forty
        percent (40%) to ARC. 

       

      9.4  Allocation
        of Profits and Losses For Capital Account Purposes.

       

      (a)  After
        giving effect to the allocations set forth in Sections
        9.4(b)
        and
9.6
        hereof,
        Profit or Loss for any fiscal year shall be allocated between the Members
        so
        that the Capital Account of each Member, increased by such Member’s “share of
        partnership minimum gain” and “share of partner nonrecourse debt minimum gain”
(as so increased, a Member’s Capital Account is hereinafter referred to as such
        Member’s “Augmented Capital Account”), is, as nearly as possible, positive in
        the amount that would be distributed to such Member if the Company were to
        distribute an amount equal to any surplus in Augmented Members’ Capital between
        the Members pursuant to Section
        9.3(b);
        provided, however, that no Loss shall be allocated to any Member for any
        fiscal
        year to the extent that such Loss would create or increase a deficit in such
        Member’s Adjusted Augmented Capital Account.

       

      
        
          
          

        

        
          29

          
            

          

        

        
          
          

        

      

       

      (b)  If,
        after
        giving effect to the allocations set forth in Section
        9.6
        hereof,
        an allocation of Profit or Loss (determined as though no items were allocable
        pursuant to this Section
        9.4(b))
        for any
        fiscal year would leave the Augmented Capital Account of any Member short
        of
        (less than) the amount that would be distributed to such Member under the
        hypothetical circumstances described in Section
        9.4(a)
        above
        while leaving the Augmented Capital Account of the other Member above (more
        than) the amount that would be distributed to such other Member under such
        circumstances, then items of income or gain shall be allocated to the former
        Member, and items of loss or expense shall be allocated to the latter Member,
        until either (i) Profit or Loss (determined without regard to the items of
        income, gain, expense or loss allocated pursuant to this Section
        9.4(b))
        can be
        allocated so as to cause each Member’s Augmented Capital Account to equal the
        amount that would be distributed to such Member under the hypothetical
        circumstances described in Section
        9.4(a)
        above, or
        (ii) there are no more items to allocate; provided, however, that no items
        of
        expense or loss shall be allocated to any Member for any fiscal year to the
        extent such time would create or increase a deficit in such Member’s Adjusted
        Augmented Capital Account.

       

      (c)  For
        purposes of this Agreement:

       

      (1)  “Augmented
        Members’ Capital” at the end of any year means the total amount of capital
        (assets minus liabilities) appearing on the Company’s balance sheet as computed
        for book purposes within the meaning of Section
        7.9(b)
        (taking
        into account Profit or Loss and all items of income, gain, expense or loss
        for
        such year), increased by the amount of “partnership minimum gain” and “partner
        nonrecourse debt minimum gain” of the Company at the end of such
        year.

       

      (2)  “Adjusted
        Augmented Capital Account” means, with respect to any Member as of the end of
        any fiscal year, such Member’s Augmented Capital Account (i) reduced by those
        anticipated allocations, adjustments and distributions described in Section
        1.704-1(b)(2)(ii)(d)(4) (6)
        of the
        Treasury Regulations, and (ii) increased by any deficit in such Member’s Capital
        Account that such Member is deemed obligated to restore under Section
        1.704-1(b)(2)(ii)(c) or
        the
        Treasury Regulations as of the end of such fiscal year.

       

      (3)  All
        terms
        set off in quotation marks and not otherwise defined shall have the meanings
        ascribed to them in Section
        1.704-2
        of the
        Treasury Regulations.

       

      (d)  It
        is the
        intention of the Members that allocations of Profits and Losses pursuant
        to this
Section
        9.4
        shall
        result in a Capital Account balance for each Member at least equal to the
        total
        amount of Operating Cash Flow and Extraordinary Cash Flow which would be
        distributed to such Member under Section
        9.3(a)
        and
9.3(b)
        if such
        distribution were made without regard to Capital Account balances. To the
        extent
        the foregoing allocations do not accomplish this result, the Committee will
        allocate or reallocate Profits and Losses (including allocations of gross
        income
        or gain and gross deductions or losses) differently than expressly provided
        herein, if permitted under the Code and applicable Treasury Regulations,
        so as
        to achieve such result as closely as possible (including filing amended income
        tax returns for prior years).

       

      
        
          
          

        

        
          30

          
            

          

        

        
          
          

        

      

       

      9.5  Distributed
        Property.
        Notwithstanding the foregoing provisions of Article
        9,
        upon the
        distribution of property to a Member, for the purposes of computing Profits
        and
        Losses, such property shall be treated as if it had been sold for its fair
        market value on the date of such distribution.

       

      9.6  Special
        Allocations.
        The
        following special allocations shall be made in the following order:

       

      (a)  Nonrecourse
        Deductions shall be allocated among the Members in accordance with their
        Percentage Interests.

       

      (b)  For
        purposes of determining the Members’ respective shares of nonrecourse
        liabilities of the Company under Treasury Regulations Section
        1.752-3,
        each
        Member’s “percentage interest in partnership profits” shall be equal to such
        Member’s Percentage Interest.

       

      (c)  Except
        as
        otherwise provided in Section
        1.704-2(f)
        of the
        Regulations, notwithstanding any other provision of this Article
        9,
        if there
        is a net decrease in Company Minimum Gain during any Company taxable year,
        each
        Member shall be specially allocated items of Company income and gain for
        such
        taxable year (and, if necessary, subsequent years) in an amount equal to
        such
        Member’s share of the net decrease in Company Minimum Gain, determined in
        accordance with Regulations Section
        1.704-2(g).
        Allocations pursuant to the previous sentence shall be made in proportion
        to the
        respective amounts required to be allocated to each Member pursuant thereto.
        The
        items to be so allocated shall be determined in accordance with Sections
        1.704-2(f)(6)
        and
1.704-2(j)(2)
        of the
        Regulations. This Section
        9.6(c)
        is
        intended to comply with the minimum gain chargeback requirement in Section
        1.704 2(f)
        of the
        Regulations and shall be interpreted consistently therewith.

       

      (d)  Except
        as
        otherwise provided in Section
        1.704-2(i)(4)
        of the
        Regulations, notwithstanding any other provision of this Article
        9,
        if there
        is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to
        a
        Member Nonrecourse Debt during any Company taxable year, each Member who
        has a
        share of the Member Nonrecourse Debt Minimum Gain attributable to such Member
        Nonrecourse Debt, determined in accordance with Section
        1.704-2(i)(5)
        of the
        Regulations, shall be specially allocated items of Company income and gain
        for
        such year (and, if necessary, subsequent years) in an amount equal to such
        Member’s share of the net decrease in Member Nonrecourse Debt Minimum Gain
        attributable to such Member Nonrecourse Debt, determined in accordance with
        Regulations Section
        1.704-2(i)(4).
        Allocations pursuant to the previous sentence shall be made in proportion
        to the
        respective amounts required to be allocated to each Member pursuant thereto.
        The
        items to be so allocated shall be determined in accordance with Sections
        1.704-2(i)(4)
        and
1.704-2(j)(2)
        of the
        Regulations. This Section
        9.6(d)
        is
        intended to comply with the minimum gain chargeback requirement in Section
        1.704-2(i)(4)
        of the
        Regulations and shall be interpreted consistently therewith. 

       

      
        
          
          

        

        
          31

          
            

          

        

        
          
          

        

      

       

      (e)  The
        allocation contained in this Section
        9.6(e)
        is
        intended to be a “qualified income offset” as defined in Treasury Regulations
Section
        1.704-1(b)(2)(ii)(d)
        on the
        date hereof and shall be interpreted in a manner consistent with such
        regulation. Notwithstanding the provisions of Section
        9.6(e),
        a Member
        shall not be allocated Losses or deductions if such allocation would cause
        or
        increase a deficit balance in such Member’s Adjusted Capital Account (as defined
        below) as of the end of the calendar year to which such allocation relates.
        Any
        such Losses or deductions that would have been allocated to such Member but
        for
        the preceding sentence shall, to the extent permitted by this Section
        9.6(e),
        be
        allocated to the other Member. In addition, if in any taxable year, a Member
        unexpectedly receives an adjustment, allocation or distribution that exceeds
        offsetting increases to such Member’s Adjusted Capital Account in such taxable
        year (other than increases pursuant to this Section
        9.6(e)),
        then
        such Member shall be allocated gross income equal to the “Qualified
        Income Offset Amount”.
        The
        Qualified Income Offset Amount is an amount equal to the amount by which
        zero
        exceeds a Member’s Adjusted Capital Account. If in any taxable year to which
        this Section
        9.6(e)
        applies
        the items of gross income of the Company are less than the amount of the
        Qualified Income Offset Amounts for all of the Members to which this
Section
        9.6(e)
        applies,
        then each Member to which this Section
        9.6(e)
        applies
        shall be allocated a pro rata amount of gross income, and in subsequent taxable
        years each of such Members shall be allocated gross income, equal to the
        amount
        which, when added to the allocations to such Member pursuant to this
Section
        9.6(e)
        in prior
        taxable years, will equal the Qualified Income Offset Amount applicable to
        such
        Member for such prior taxable year and for such subsequent taxable years.
        A
        Member’s “Adjusted
        Capital Account”
shall
        mean such Member’s Capital Account (i) reduced for distributions that, as of the
        end of the taxable year, reasonably are expected to be paid to such Member
        to
        the extent that such distributions exceed offsetting increases to such Member’s
        Capital Account that reasonably are expected to occur during (or prior to)
        the
        taxable years in which such distributions reasonably are expected to be made
        (other than increases resulting from allocations pursuant to Section
        9.6(c))
        and (ii)
        increased for (a) the amount of such Member’s share of Company Minimum Gain, (b)
        the amount of such Member’s Nonrecourse Debt Minimum Gain and (c) such Member’s
        future obligations to contribute to the Company (if any). For purposes of
        determining the amount of expected distributions and expected Capital Account
        increases, the Book Basis will be presumed to be the fair market value of
        Company property.

       

      (f)  Any
        Member
        Nonrecourse Deductions for any taxable year shall be specially allocated
        to the
        Member who bears the economic risk of loss with respect to the Member
        Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable
        in
        accordance with Regulations Section
        1.704-2(i)(1).
        

       

      (g)  Any
        special allocations of items of income, gain, loss or deduction pursuant
        to this
Section
        9.6
        (including such allocations as have been made in the past as well as such
        allocations as are reasonably expected to be made in the future) shall be
        taken
        into account for the purpose of equitably adjusting subsequent allocations
        of
        items of income, gain, loss or deduction so that the net allocations, in
        the
        aggregate, allocated to each Member pursuant to this Article
        9,
        and the
        Capital Accounts of each Member, shall to the extent possible without violating
        the constraints set forth in Section
        9.4
        and this
Section
        9.6,
        be the
        same as if no special allocations had been made under this Section
        9.6.

       

      
        
          
          

        

        
          32

          
            

          

        

        
          
          

        

      

       

      9.7  Allocations
        of Profits and Losses for Tax Purposes.
        For
        federal tax purposes, in accordance with Section
        704(c)
        of the
        Code and any regulations thereunder, gain with respect to any property which
        may
        be contributed to the Company shall, solely for tax purposes, be allocated
        among
        the Members so as to take account of any variation between the adjusted tax
        basis of such property to the Company and the fair market value at the time
        of
        contribution.

       

      9.8  Recapture
        and Investment Credits.

       

      (a)  Investment
        tax credits, if any, shall be allocated to the Members in accordance with
        their
        respective Percentage Interests.

       

      (b)  Any
        recapture of depreciation deductions or investment tax credits shall be
        allocated to the Member to whom (or to the predecessors in interest of whom)
        were allocated the prior depreciation deductions or investment tax credits,
        as
        the case may be.

       

      ARTICLE
        10. 

      ASSIGNMENT
        AND OFFER TO PURCHASE

       

      10.1  Transfers.

       

      (a)  Neither
        Member, nor any permitted assignee or successor in interest of either Member,
        may sell, assign, give or otherwise transfer (collectively, “Transfer”)
        its
        interest in the Company, or any part thereof, except as provided in this
        Article
        10.
        Neither
        Member, nor any permitted assignee or successor in interest of either Member,
        may pledge, hypothecate or encumber its interest in the Company, or any part
        thereof, without the prior written consent of the other Member (which consent
        may be withheld or denied in the sole and absolute discretion of the other
        Member). Except as provided in Sections
        10.1(d), 10.1(e), 10.6(c)
        or
10.7(i)
        and for
        the limited purpose described therein, neither Member shall have the right
        to
        Transfer less than all of its Entire Interest.

       

      (b)  Transfer
        by SHP of its Entire Interest in the Company to an Affiliate shall be a Transfer
        permitted under this Article
        10
        and SHP
        shall not be required to obtain the consent of, nor offer the interest to
        be
        transferred to, ARC. A Transfer by ARC of its Entire Interest in the Company
        to
        an Affiliate shall be a Transfer permitted under this Article
        10
        and ARC
        shall not be required to obtain the consent of, nor offer the interest to
        be
        transferred to, SHP; provided that such Affiliate is at least 51% owned by
        Acceptable Persons who have the right to control such Affiliate. 

       

      (c)  In
        the
        event of a termination of the Company within the meaning of Section
        708
        of the
        Code because of the dissolution of or a Transfer of any interest in a Member
        or
        an entity owning directly or indirectly a beneficial interest in a Member
        or a
        Transfer of a Member’s interest in the Company, such Member shall indemnify the
        other Member (the “Indemnitee”)
        and
        hold the Indemnitee harmless for, from and against any and all net adverse
        federal, state or local tax consequences (including any diminution or delay
        in
        any depreciation, recovery or amortization deductions and any and all penalties,
        interest, expenses and taxes on payments made pursuant to this Section
        10.1(c))
        which
        the Indemnitee shall sustain as a result of such termination.

       

      
        
          
          

        

        
          33

          
            

          

        

        
          
          

        

      

       

      (d)  Without
        regard to the restrictions imposed by this Article
        10
        (excepting the obligation set forth in Section
        10.1(c)),
        SHP may
        transfer or allocate all or part of its interest in the Company to any separate
        account formed by The Prudential Insurance Company of America pursuant to
        the
        provisions of Section
        17B:28-7
        N.J.S.A.

       

      (e)  If
        either
        Member shall transfer a portion of its interest in the Company, as provided
        in
Section
        10.3
        or
10.5(d)
        that,
        together with other interests in the Company Transferred during the preceding
        12
        months, represents more than a 49% interest in the total profits and capital
        of
        the Company, such Transfer, at either Member’s option, shall be effected so as
        to avoid a termination of the Company for federal income tax purposes under
        Section
        708(b)(1)(B)
        of the
        Code, and for that purpose the Members agree to negotiate modifications to
        this
        Agreement in good faith.

       

      (f)  It
        shall
        be a condition precedent to any Transfer permitted under Section
        10.1(b) that
        the
        transferee shall have executed and delivered to the Members an agreement
        in form
        and substance satisfactory to them to the effect that the transferee agrees
        to
        be bound by all of the terms and conditions of this Agreement, and that the
        transferee is acquiring an interest in the Company subject thereto.


       

      10.2    
        Other
        Assignments Void.

       

      (a)  Any
        purported transfer of an interest in the Company not otherwise permitted
        by this
Article
        10
        shall be
        null and void and of no effect whatsoever.

       

      (b)  Subject
        to
        the provisions of Section
        10.1(c),
        ARC
        shall not, without the prior written consent of SHP, which may be granted
        or
        withheld in SHP’s sole and absolute discretion, transfer, pledge, convey or
        encumber any of the interest in ARC or in the Initial Property Manager to
        any
        person who is not an Acceptable Person or to any entity controlling interest
        of
        which is not owned by an Acceptable Person.

       

      10.3    
        Sale
        of
        Entire Interest to Other Member; Buy-Sell.

       

      (a)  Either
        Member (the “Initiating
        Member”)
        may, at
        any time from and after November 1, 2007, give the other Member (the
“Other
        Member”)
        a
        written notice (the “Termination
        Notice”)
        setting
        forth (i) the value (“Specified
        Value”)
        which
        the Initiating Member places on all the assets of the Company, (ii) the selling
        price, which must consist wholly of cash (the “Cash
        Selling Price”),
        for
        the Initiating Member’s entire equity interest in the Company (“Entire
        Interest”)
        and
        (iii) the purchase price, which must consist wholly of cash (the “Cash
        Purchase Price”),
        for
        the Other Member’s Entire Interest in the Company. The Cash Selling Price and
        the Cash Purchase Price specified in the Termination Notice shall be the
        amounts
        determined by a reputable independent  certified  public accountant
 (computed  at  the  Initiating  Member’s
 expense)  that  the  Initiating  Member and the
        Other Member would receive (excluding repayments of Special Loans and Loans)
        if
        the Company were to liquidate all of its assets at the

       

      
        
          
          

        

        
          34

          
            

          

        

        
          
          

        

      

       

      Specified
        Value and the Company were to dissolve and distribute the proceeds of
        liquidation (in accordance with the procedures and priorities stated in
Article
        13)
        effective as of the date of the Termination Notice. The calculation of the
        amounts a Member would receive in exchange for its Entire Interest in the
        Company, if the Company were to dissolve, liquidate its assets and distribute
        the liquidation proceeds effective as of the date of the Termination Notice,
        shall be made in accordance with the provisions of Section
        13.5;
        provided,
        however,
        that, in
        making such calculation, it shall be assumed that no reserves are required
        pursuant to Section
        13.5(b) with
        respect to contingent liabilities and no deduction from the hypothetical
        liquidation proceeds shall be made with respect to transfer and other taxes.
        The
        Termination Notice shall be accompanied by an earnest money deposit in an
        amount
        equal to 5% of the Cash Purchase Price (said amount, together with any interest
        earned thereon, being hereinafter called the “Initiating
        Member’s Deposit”).

       

      (b)  The
        Other
        Member shall, on or before the date that is ninety (90) days after the date
        of
        receipt of the Termination Notice, either accept the offer to sell the Other
        Member’s Entire Interest to the Initiating Member, or accept the offer of the
        Initiating Member to sell the Initiating Member’s Entire Interest to the Other
        Member. If the Other Member elects to accept the Initiating Member’s offer to
        sell the Initiating Member’s Entire Interest, its notice of such election shall
        be accompanied by (i) the return of the Initiating Member’s Deposit and (ii) its
        own earnest money deposit in an amount equal to 5% of the Cash Selling Price
        (said amount, together with any interest earned thereon, being hereinafter
        called the “Other
        Member’s Deposit”).
        If the
        Other Member fails to respond to the Termination Notice within such ninety
        (90)
        day period, the failure to respond shall be deemed the Other Member’s election
        to accept the offer of the Initiating Member to purchase the Entire Interest
        of
        the Other Member in accordance with the Termination Notice.

       

      (c)  Funding
        of
        the purchase and sale pursuant to this Section
        10.3
        shall
        occur on the date which is not later than ninety (90) days after the Other
        Member’s election or deemed election pursuant to Section
        10.3(b),
        or at
        such other time as may be otherwise agreed to in writing by the Other Member
        and
        the Initiating Member. The closing shall occur at the office of SHP’s counsel,
        unless otherwise agreed by the Members. The Initiating Member’s Deposit or the
        Other Member’s Deposit, as the case may be, shall be credited against the total
        purchase price for the Entire Interest being purchased pursuant to this
Section
        10.3;
        provided,
        however,
        if the
        closing shall fail to occur because of a default by the purchasing Member,
        the
        selling Member shall have the right, as its exclusive remedy, to retain the
        earnest money deposit as liquidated damages, it being agreed that in such
        instance such selling Member’s actual damages would be difficult, if not
        impossible, to ascertain.

       

      (d)  In
        connection with the sale of one Member’s Entire Interest to the other Member
        pursuant to this Section
        10.3,
        all of
        the provisions of Section
        10.7
        shall be
        applicable to such sale.

       

      
        
          
          

        

        
          35

          
            

          

        

        
          
          

        

      

       

      10.4  Right
        of First Refusal for Sale of Entire Interest to Third Party.

       

      (a)     
        Either
        Member may, at any time from and after November 1, 2007, sell its Entire
        Interest in the Company to a third party, provided such Member shall comply
        with
        the provisions of this Section
        10.4.
        If such
        Member shall receive from a third party (the “Offeror”)
        a bona
        fide, arm’s-length offer (the “Offer”),
        in
        writing, signed by the Offeror setting forth all the material terms of the
        Offer, for the purchase, without financing contingency, on a date set forth
        in
        such Offer (which shall be no less than ninety (90) nor more than one hundred
        eighty (180) days after the Other Member’s receipt of the Offer), of such
        Member’s Entire Interest, then the Member who shall have received such Offer
        (the “Selling
        Member”)
        shall
        within thirty (30) days after receipt thereof, if it wishes to accept the
        Offer,
        forward a true copy thereof to the other Member (the “Receiving
        Member”)
        together with reasonable information as to the identity of the Offeror, its
        partners or directors, officers and controlling shareholders.

       

      (b)     
        If
        the
        Selling Member has forwarded a copy of the Offer to the Receiving Member,
        the
        Receiving Member may, within forty-five (45) days after receiving a copy
        of the
        Offer, elect one of the three following options:

       

      (1)     
        notify
        the
        Selling Member that the Receiving Member has no objection to the Selling
        Member
        accepting the Offer, in which event the Selling Member may sell its Entire
        Interest to the Offeror upon the terms and conditions contained in the Offer;
        or

       

      (2)     
        notify
        the
        Selling Member of the Receiving Member’s election to purchase the Selling
        Member’s Entire Interest upon the same terms and conditions contained in the
        Offer except as to hour and place of closing, and except that the purchase
        price
        must consist wholly of cash. Such notification shall be accompanied by an
        earnest money deposit in an amount equal to 5% of the price payable pursuant
        to
        this Section
        10.4(b)(2)
        (said
        amount, together with any interest earned thereon, being hereinafter called
        the
“Receiving
        Member’s Deposit”).
        Notice
        of election to purchase shall be addressed to the Selling Member and shall
        set
        forth the hour and place of closing which, unless the Members shall otherwise
        agree, shall be at the office of SHP’s counsel, during usual business hours on a
        date not less than forty (40) nor more than sixty (60) days from the date
        of the
        giving of the notice of election to the Selling Member. The Receiving Member’s
        Deposit shall be credited against the total purchase price for the Entire
        Interest being purchased pursuant to this Section
        10.4;
        provided,
        however,
        that if
        the closing shall fail to occur because of a default by the Receiving Member,
        the Selling Member shall have the right, as its exclusive remedy, to retain
        the
        Receiving Member’s Deposit as liquidated damages, it being agreed that in such
        instance such Selling Member’s actual damages would be difficult, if not
        impossible, to ascertain; or

       

      (3)     
        notify
        the
        Selling Member that the Receiving Member objects to the Offeror becoming
        a
        member in the Company.

       

      If
        the
        Receiving Member shall not have given written notice to the Selling Member,
        as
        described in subsections (1), (2) or (3) above, within such forty-five (45)
        day
        period, the Receiving Member shall be deemed to have exercised the option
        provided in subsection (3) above.

       

      
        
          
          

        

        
          36

          
            

          

        

        
          
          

        

      

       

      (c)     
        If
        the
        Receiving Member gives notice to the Selling Member, within the required
        forty-five (45) day period objecting to the Offeror becoming a member in
        the
        Company (or is deemed to object due to its failure to respond within such
        forty-five (45) day period), then the Selling Member shall have the right
        and
        option (to be exercised by written notice to such effect within forty-five
        (45)
        days after the earlier of the date the Selling Member shall have received
        such
        written objection from the Receiving Member in the manner provided in Section
        (b) above or the expiration of the original forty-five (45) day period without
        response by the Receiving Member) to either:

       

      (1) reject
        the
        Offer in which case the terms of this Agreement shall remain in effect and
        continue to be binding on the Members; or

       

      (2) sell
        or
        assign its Entire Interest to the Offeror upon the terms submitted in the
        Offer,
        in which case, subject to the provisions of Section
        10.7,
        the
        Offeror shall become a Member; provided,
        however,
        that
        such sale or assignment to the Offeror shall give the Receiving Member the
        option, to be exercised within forty-five (45) days after receipt by the
        Receiving Member of such sale or assignment (notice of which shall be given
        by
        the Selling Member to the Receiving Member within ten (10) days following
        the
        effective date of the sale or assignment) to dissolve the Company pursuant
        to
Article
        13
        and, in
        the event of such dissolution, such Receiving Member shall be the Liquidating
        Member.

       

      (d)     
        In
        connection with the sale of one Member’s Entire interest to the other Member
        pursuant to this Section
        10.4,
        all of
        the provisions of Section
        10.7
        shall be
        applicable to such sale, except that for the purposes of this Section
        10.4,
        the date
        the Receiving Member receives a copy of the Offer from the Selling Member
        shall
        be the governing date referred to in Sections
        10.7(e) and (f),
        rather
        than the date of giving of the Termination Notice.

       

      (e)     
        Whether
        or
        not any transaction contemplated by the foregoing provisions of this
Section
        10.4
        is
        consummated pursuant to the provisions of the Offer (and any modifications
        thereto which provide only for an increased price or more favorable terms
        to the
        Selling Member), all the provisions of this Section
        10.4
        shall
        apply to any subsequent offer or offers.

       

      10.5  Right
        of First Offer for Sale of Portfolio, Property or Properties.

       

      (a)  SHP
        may,
        at any time from and after November 1, 2007, require the sale by the Company
        of
        (i) the entire Portfolio, (ii) any one of the Properties or (iii) any group
        of
        Properties to a third party purchaser for not less than the amount, and upon
        such terms (including a closing date), as SHP may propose in a notice
        (“Sale
        Proposal”)
        to
        ARC.

       

      
        
          
          

        

        
          37

          
            

          

        

        
          
          

        

      

       

      (b)  Within
        ninety (90) days after receiving the copy of the Sale Proposal, ARC shall
        notify
        SHP that either:

       

      (1)  ARC
        is
        agreeable to the sale of (i) the entire Portfolio, (ii) any one of the
        Properties or (iii) any group of Properties, as applicable, by the Company
        to a
        third party purchaser in accordance with the terms set forth in the Sale
        Proposal (in such event ARC’s election to permit such sale shall be binding upon
        ARC for one (1) year) and during such one (1) year period the Company shall
        make
        every reasonable effort to effect such sale to a third party as evidenced
        by a
        letter of interest (or at SHP’s election, a letter of intent or purchase
        agreement) to be executed within such one (1) year period, with closing to
        occur
        within one hundred twenty (120) days after the execution of the letter of
        interest (or letter of intent or purchase agreement, as the case may be)
        and SHP
        shall have the right, but not the obligation, to conduct and perform all
        marketing of (i) the entire Portfolio, (ii) any one of the Properties or
        (iii)
        any group of Properties, as applicable, on behalf and at the expense of the
        Company during such one (1) year period), or

       

      (2)  ARC
        both
        objects to such Sale Proposal and elects to purchase (a “Purchase Election
        Notice”) (i) the entire Portfolio, (ii) any one of the Properties or (iii) any
        group of Properties, as applicable, from the Company, for a total price equal
        to
        (i) the total price set forth in the Sale Proposal, less (ii) an amount equal
        to
        the outstanding mortgages or liens, if any, encumbering (i) the entire
        Portfolio, (ii) any one of the Properties or (iii) any group of Properties,
        as
        applicable, proposed in the Sale Proposal to be and actually assumed, and
        otherwise upon terms and conditions substantially similar to, and no less
        advantageous to the Company than, those set forth in the Sale Proposal;
provided,
        however,
        that the
        purchase price to be paid by ARC for (i) the entire Portfolio, (ii) any one
        of
        the Properties or (iii) any group of Properties, as applicable, shall consist
        wholly of cash. ARC’s objection and Purchase Election Notice shall be
        accompanied by an earnest money deposit, payable to SHP, in an amount equal
        to
        5% of the purchase price of (i) the entire Portfolio, (ii) any one of the
        Properties or (iii) any group of Properties, as applicable, (said amount,
        together with any interest earned thereon, being hereinafter called the
“Deposit”).
        If
        within such ninety (90) day period ARC shall deliver a Purchase Election
        Notice
        together with the Deposit to SHP, then the Members shall promptly proceed
        with
        the purchase and sale pursuant to this Section
        10.5(b)(2),
        the
        closing to take place within sixty (60) days following the date of the Purchase
        Election Notice, in which event the Deposit shall be credited to ARC against
        the
        total purchase price of (i) the entire Portfolio, (ii) any one of the Properties
        or (iii) any group of Properties, as applicable; provided,
        however,
        that if
        such closing shall fail to occur because of a default by ARC, then SHP shall
        have the right, as its exclusive remedy, to retain the Deposit as liquidated
        damages, it being agreed that in such instance its actual damages would be
        difficult, if not impossible, to ascertain. After any such default by ARC,
        SHP
        shall have the right to require the Company to sell (i) the entire Portfolio,
        (ii) any one of the Properties or (iii) any group of Properties, as applicable,
        pursuant to any provisions of this Article
        10
        including, without limitation, by reinstituting the procedures set forth
        in this
Section
        10.5.
        If no
        default occurs, the closing shall take place during normal business hours
        at the
        office of SHP’s counsel or as otherwise agreed by the Members. The provisions of
Sections
        10.7(a), (b), (d), (e), (f), (g), (h) and (i)
        shall
        apply to the sale, except the date of delivery of the Purchase Election Notice
        shall be the governing date referred to in Sections
        10.7(e) and (f)
        rather
        than the date of the Termination Notice. All prorations of real estate taxes,
        rents, etc., shall be made as of the date of sale. All real property transfer
        taxes shall be paid for by the Company and all recording fees shall be paid
        for
        by ARC. Failure of ARC to object to the Sale Proposal and to deliver a Purchase
        Election Notice and the Deposit within such ninety (90) day period shall
        be
        deemed an election by ARC to allow SHP to proceed with a sale of the Property
        under Section
        10.5(b)(1).
        

       

      
        
          
          

        

        
          38

          
            

          

        

        
          
          

        

      

       

      (c)  If
        (i) SHP
        shall have the right and authority to effect a sale of (i) the entire Portfolio,
        (ii) any one of the Properties or (iii) any group of Properties, as applicable,
        pursuant to Section
        10.5(b)(1);
        and (ii)
        SHP receives, during the one (1) year period in which the Sale Proposal is
        in
        effect pursuant to Section
        10.5(b)(1),
        an offer
        from a third party to purchase (i) the entire Portfolio, (ii) any one of
        the
        Properties or (iii) any group of Properties, as applicable, for a purchase
        price
        less than ninety-four percent (94%) of the price or on terms materially less
        favorable to the Company than those set forth in the Sale Proposal (the
“Alternative
        Offer”),
        which
        Alternative Offer is acceptable to SHP, then SHP shall give notice to ARC
        of
        such Alternative Offer, which notice shall include all of the relevant terms
        and
        conditions of such Alternative Offer. ARC shall have the right, for a period
        of
        thirty (30) days after its receipt of such notice from SHP, to elect to purchase
        (i) the entire Portfolio, (ii) any one of the Properties or (iii) any group
        of
        Properties, as applicable, in the manner set forth in Section
        10.5(b)(2)
        and on
        the terms set forth in the Alternative Offer, except that ARC’s purchase price
        shall be payable wholly in cash. If ARC shall deliver notice of such election
        during such thirty (30) day period to purchase (i) the entire Portfolio,
        (ii)
        any one of the Properties or (iii) any group of Properties, as applicable,
        as
        aforesaid, the purchase and sale pursuant to this Section
        10.5(c)
        shall
        occur within sixty (60) days after receipt by SHP of the notice of such
        election. The provisions of Sections
        10.7(a), (b), (d), (e), (f), (g), (h) and (i)
        shall
        apply to the sale except that the date SHP gives ARC notice of the Alternative
        Offer shall be the governing date referred to in Sections
        10.7(e) and (f)
        rather
        than the date of the Termination Notice. If ARC shall not elect, within such
        thirty (30) day period, to purchase (i) the entire Portfolio, (ii) any one
        of
        the Properties or (iii) any group of Properties, as applicable, pursuant
        to the
        foregoing provisions of this Section
        10.5(c),
        SHP
        shall have the right to effect a sale of (i) the entire Portfolio, (ii) any
        one
        of the Properties or (iii) any group of Properties, as applicable, pursuant
        to
        the terms of the Alternative Offer provided that the closing of such sale
        shall
        occur not later than the closing date specified in the Sale Proposal then
        in
        effect pursuant to Section
        10.5(b)(1).

       

      (d)  ARC
        may
        specify in a Purchase Election Notice delivered pursuant to Section
        10.5(b)(2) or 10.5(c)
        that it
        desires to purchase SHP’s Entire Interest in the Company rather than (i) the
        entire Portfolio, (ii) any one of the Properties or (iii) any group of
        Properties, as applicable. In such event, the Purchase Election Notice shall
        be
        accompanied by an earnest money deposit (the “ARC
        Deposit”)
        in an
        amount equal to 5% of the price specified in the next sentence. In such event,
        ARC shall be obligated to purchase and SHP shall be obligated to sell SHP’s
        Entire Interest in the Company for a price equal to the amount, determined,
        by a
        reputable, independent certified public accountant designated by SHP, (at
        the
        expense of ARC), SHP would have received (excluding payment of Loans and
        Special
        Loans) if (i) the entire Portfolio, (ii) any one of the Properties or (iii)
        any
        group of Properties, as applicable, were sold pursuant to the terms of the
        Sale
        Proposal and the Company were to dissolve and distribute the proceeds of
        liquidation (in accordance with the procedures and priorities stated in
Article
        13,
        provided
        that in making such calculation, it shall be assumed that no reserves are
        required pursuant to Section
        13.5(b)
        with
        respect to contingent liabilities and no deduction from the hypothetical
        liquidation proceeds shall be made with respect to transfer or other taxes).
        In
        connection with the sale of SHP’s Entire Interest to ARC pursuant to this
Section
        10.5(d),
        all of
        the provisions of Section
        10.7
        shall be
        applicable to such sale except the date of the delivery of the Purchase Election
        Notice or the Alternative Offer, as the case may be, shall be the governing
        date
        referred to in Section
        10.7(e) and (f)
        rather
        than the date of the Termination Notice. The ARC Deposit shall be credited
        against the total purchase price for SHP’s Entire Interest being purchased
        pursuant to this Section
        10.5(d),
        provided,
        however,
        that if
        the closing shall fail to occur because of default by ARC, SHP shall have
        the
        right, as its exclusive remedy, to retain the ARC Deposit as liquidated damages,
        it being agreed that in such instance SHP’s actual damages would be difficult,
        if not impossible, to ascertain. After any such default by ARC, SHP shall
        have
        the right to require the Company to sell (i) the entire Portfolio, (ii) any
        one
        of the Properties or (iii) any group of Properties, as applicable, pursuant
        to
        any provisions of this Article
        10
        including, without limitation, by reinstituting the procedures set forth
        in this
Section
        10.5.
        

       

      
        
          
          

        

        
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      (e)  Whether
        or
        not any transaction contemplated by the foregoing provisions of this
Section
        10.5
        is
        consummated pursuant to the provisions of the Sale Proposal, all the provisions
        of this Section
        10.5
        shall
        apply to any subsequent sale proposals.

       

      (f)  During
        any
        period of time when SHP or the Company is actively marketing (i) the entire
        Portfolio, (ii) any one of the Properties or (iii) any group of Properties,
        as
        applicable, pursuant to this Section
        10.5,
        (i)
        neither Member shall exercise its right to deliver a Termination Notice pursuant
        to Section
        10.3,
        (ii)
        ARC’s and SHP’s right to sell its Entire Interest pursuant to the terms of
Section
        10.4
        shall be
        suspended, and (iii) ARC and SHP shall suspend all marketing efforts or
        negotiations it may have commenced with respect to the sale of its Entire
        Interest.

       

      (g)  In
        no
        event shall SHP be in default or have any liability to ARC or the Company
        for a
        failure by a third party to complete the purchase of (i) the entire Portfolio,
        (ii) any one of the Properties or (iii) any group of Properties, as applicable,
        pursuant to this Section
        10.5.

       

      10.6        
        Assumption
        by Assignee; Compliance with Legal Requirements Following Assignment; Option
        to
        Reduce Interest Being Sold.

       

      (a)  Any
        assignment of an Entire Interest in the Company to a third party pursuant
        to
Section
        10.4
        shall be
        in writing, and, except as provided in Section
        10.6(c),
        shall be
        an assignment and transfer of all of the assignor’s rights and obligations
        thereafter accruing hereunder, and the assignee shall expressly agree in
        writing
        to be bound by all of the terms of this Agreement and assume and agree to
        perform all of the assignor’s agreements and obligations existing or arising at
        the time of and subsequent to such assignment. Upon any assignment of the
        assignor’s Entire Interest and after such assumption, the assignor shall be
        relieved of its agreements and obligations hereunder arising after such
        assignment and the assignee shall become a Member in place of the assignor;
        provided,
        however,
        that the
        agreements and obligations of the assignor which existed at the time of such
        assignment, shall continue in force and effect in accordance with their
        respective terms and shall survive an assignment by ARC or SHP, as the case
        may
        be. An executed counterpart of each such assignment of an Entire Interest
        in the
        Company and assumption of a Member’s obligations thereafter accruing shall be
        delivered to each Member and to the Company. The assignee shall pay all expenses
        incurred by the Company or the continuing Member in admitting the assignee
        as a
        Member. Except as otherwise expressly provided herein, no permitted assignment
        shall dissolve the Company. As a condition to any assignment of an Entire
        Interest, the selling Member shall obtain such consents as may be required
        from
        third parties, if any, or waivers thereof. The Other Member shall cooperate
        with
        the selling Member in obtaining such consents or waivers at no expense to
        the
        Other Member.

       

      
        
          
          

        

        
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      (b)  If
        an
        assignment of an Entire Interest in the Company shall take place pursuant
        to the
        provisions of Section
        10.4,
        then
        unless the Company is dissolved by such assignment, the continuing Members
        promptly thereafter shall take all such actions as may be required by law
        to
        reflect such assignment.

       

      (c)  A
        Member
        undertaking to sell its Entire Interest to a third party pursuant to the
        provisions of Section
        10.4(a)
        shall
        have the option, if required in order to avoid a termination of the Company
        for
        federal income tax purposes under Section
        708(b)(1)(B)
        of the
        Code, of initially selling only that portion of the selling Member’s Entire
        Interest which, together with other interests in the Company Transferred
        during
        the preceding 12 months, represents no more than 49% of the total interests
        in
        the capital and profits of the Company. The purchase price shall be the price
        the purchaser would have paid for the selling Member’s Entire Interest as
        provided in Section
        10.4(a)
        multiplied by a fraction the numerator of which is the selling Member’s
        Percentage Interest being Transferred and the denominator of which is the
        selling Member’s Percentage Interest. If the selling Member shall exercise such
        option, it shall have the further option to sell and, upon request by the
        other
        Member, shall be obligated to sell at the earliest time or times as will
        not
        cause a termination of the Company under Section
        708(b)(1)(B)
        of the
        Code, the remainder of its Percentage Interest (the “Remaining Percentage
        Interest”) to the holder of the interest so sold, and the selling Member shall
        not be required in connection with the sale of such Remaining Percentage
        Interest to obtain the consent of, nor offer such Remaining Percentage Interest
        to, the other Member, provided the sale of such Remaining Percentage Interest
        shall remain subject to the provisions of Section
        10.1(c).

       

      10.7        
        General
        Transfer Provisions.
        All of
        the subsections of this Section
        10.7
        shall
        apply to the sale of one Member’s Entire Interest to the other Member pursuant
        to Section
        10.3, 10.4 or 10.5(d).
        Subsections (a), (b), (d), (e), (f), (g), (h) and (i) of this Section
        10.7
        shall
        apply to the sale of the Property by the Company to a Member pursuant to
        Section
        10.5:

       

      (a)  In
        the
        event of the sale of an Entire Interest, the purchase price shall be paid,
        at
        the selling Member’s option, by certified check drawn to the order of the
        selling Member, or by wire transfer of immediately available funds to an
        account
        which is designated by the selling Member. In the event of a sale of the
        Portfolio, Property or group of Properties, the purchase price shall be paid,
        at
        the Company’s option, by certified check drawn to the order of the Company, or
        by wire transfer of immediately available funds to an account which is
        designated by the Company. At the closing there shall be an accounting as
        of the
        closing of the Company’s books and there shall be an adjustment of the purchase
        price based upon a proration of any accrued income and expenses as of the
        closing date. Within ninety (90) days after the closing the Accountants for
        the
        Company shall complete an audit of such accounting and proration and shall
        deliver their audit report to the selling Member and the purchasing Member.
        If
        such audit report shall adjust such proration, the party in whose favor such
        adjustment is made shall promptly be paid by the other party the amount of
        such
        adjustment. At the closing either Member shall have the right to require
        to be
        placed in escrow with an escrow agent reasonably acceptable to the other
        Member
        an amount not to exceed the maximum likely post-closing adjustment of the
        proration as agreed by the Members or, if they shall be unable to agree,
        as
        estimated by a reputable independent certified public accountant reasonably
        acceptable to both parties, and the escrow agent shall distribute the escrowed
        amount to the party or parties entitled thereto promptly after the delivery
        of
        the audit report. If such escrow is established at the request of the purchasing
        Member, a portion of the purchase price shall be set aside for such purpose,
        and
        if such escrow is established at the request of the selling Member, additional
        funds shall be deposited by the purchasing Member at closing. At closing
        the
        selling Member shall deliver to the purchasing Member a “nonforeign affidavit”
as referred to in the Foreign Investment in Real Property Tax Act in form
        and
        substance reasonably satisfactory to the purchasing Member together with
        original counterparts or certified copies of all leases and service contracts
        affecting the Property.

       

      
        
          
          

        

        
          41

          
            

          

        

        
          
          

        

      

       

      (b)  If
        the
        purchasing Member desires to receive a new or updated title insurance policy
        or
        survey or both, it shall pay for same at its own expense.

       

      (c)  If
        there
        shall be any outstanding Special Loan(s) or Loan(s) by the selling Member
        to the
        Company, such Special Loan(s) or Loan(s), including interest thereon accrued
        and
        unpaid, shall be purchased by the purchasing Member for the principal amount
        thereof and accrued and unpaid interest thereon as a condition precedent
        to such
        sale. The purchase price for such Special Loan(s) and Loans(s) shall be paid,
        at
        the selling Member’s option, by certified check drawn to the order of the
        selling Member, or by wire transfer of immediately available funds to an
        account
        designated by the selling Member. At the closing, the selling Member shall
        deliver to the purchasing Member, each note evidencing such Special Loans(s)
        or
        Loan(s).

       

      (d)  On
        payment
        of the purchase price, the purchasing Member shall, at its option, as to
        each
        Company debt, obligation or claim against the Company for which the selling
        Member or any of its Affiliates is or may be personally liable except for
        any
        debts, obligations or claims which are fully insured by public liability
        insurer(s) acceptable to the selling Member (the public liability insurer(s)
        of
        the Company shall be deemed to be acceptable), elect one of the following
        options: (i) obtain a release of the selling Member and its Affiliates from
        all
        liability, direct or contingent, by all holders of each such Company debt,
        obligation or claim, or (ii) cause the same to be paid in full at the closing
        to
        the satisfaction of the selling Member. In addition, the purchasing Member
        shall
        defend, indemnify and hold the selling Member and its Affiliates (and, if
        the
        selling Member is ARC, their Affiliates) harmless for, from and against all
        debts, liabilities and obligations of, and all claims against, the Company,
        whether then existing or thereafter to arise, not paid in full or released
        pursuant to the preceding sentence; provided,
        however,
        that
        such indemnification shall not extend to those claims arising in whole or
        in
        part from intentional acts or omissions or gross negligence proximately caused
        by the selling Member. Both Members and the Company shall also execute a
        mutual
        general release pursuant to which the selling Member shall release the Company
        and the purchasing Member and its Affiliates (and, if the purchasing Member
        is
        ARC, their Affiliates) and the purchasing Member shall release the Company
        and
        the selling Member and its Affiliates (and, if the selling Member is ARC,
        their
        Affiliates) from all liabilities and obligations (whether known or unknown,
        foreseen or unforeseen or previously accrued or thereafter accruing) relating
        to
        the Company or the Property, other than those arising from the indemnities
        given
        pursuant to this subsection
        10.7(d).

       

      
        
          
          

        

        
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      (e)  Both
        Members (including the selling Member) shall be entitled to any distributions
        of
        Operating Cash Flow from the Company in accordance with Section
        9.2(a)
        following
        the giving of the Termination Notice pursuant to Section
        10.3
        (or
        following such other event as set forth in Section
        10.4 or 10.5)
        and
        until the closing. Except as provided in Section
        10.7(j),
        the
        purchasing Member shall receive all distributions of the selling Member’s share
        of Operating Cash Flow after the closing.

       

      (f)  If
        any
        Property is damaged by fire or other casualty, or if any entity possessing
        the
        right of eminent domain shall give notice of an intention to take or acquire
        a
        substantial part of any Property, and such damage occurs, or such notice
        is
        given, between the date of the giving of the Termination Notice pursuant
        to
Section
        10.3
        (or such
        other date as set forth in Section
        10.4 or 10.5)
        and the
        closing date of the purchase of an interest in the Company or the purchase
        of
        the Property the following shall apply:

       

      (1)  If
        such
        Property is damaged by a casualty not resulting in substantial damage or
        if the
        taking or acquisition shall not result in a substantial reduction in the
        income
        producing capacity of such Property, then the Members shall be required to
        complete the transaction and the purchasing Member shall in lieu of any
        reduction in purchase price (except as provided in Section
        10.7(f)(3))
        accept
        an assignment of the insurance or condemnation proceeds.

       

      (2)  If
        such
        Property is damaged by a casualty resulting in substantial damage, or if
        the
        taking or acquisition shall result in a substantial reduction in the income
        producing capacity of such Property, then the purchasing Member shall have
        the
        option (to be exercised within thirty (30) days from the date of the occurrence
        of the casualty or receipt of the notice of condemnation) to either (i) accept
        such Property in an “as is” condition together with the right to receive any
        insurance proceeds, settlements and awards, or (ii) cancel the purchase of
        such
        Property.

       

      (3)  The
        purchase price otherwise to be paid at closing shall be adjusted downwards
        by an
        amount equal to the deductible, if any, for any insured casualty or, in the
        case
        of the closing of the sale of a Member’s interest in the Company, the amount by
        which the purchase price payable to the selling Member would be reduced if
        the
        amount of such deductible were a liability of the Company.

       

      If
        the
        purchase of an individual Property or Properties is canceled by the purchasing
        Member pursuant to the above provisions, the terms of this Agreement shall
        remain in effect and continue to be binding on the Members. For purposes
        of this
Section
        10.7(f),
        substantial damage to the Property shall mean damage which would cost 20%
        or
        more of the value of the Property (prior to such damage) to repair and a
        substantial reduction in the income producing capacity of the Property shall
        mean a reduction of 20% or more.

       

      
        
          
          

        

        
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      (g)  At
        the
        closing of a sale of the Property, the Members shall both execute, as members
        of
        the Company, and deliver a limited or special warranty deed, a bill of sale
        to
        the purchaser of all of the assets of the Company and assignments to the
        purchaser of any and all leases or service contracts affecting the Property,
        subject only to the liens and encumbrances listed in the Sale Proposal. In
        the
        case of the sale of an interest in the Company, the selling Member shall
        execute
        an assignment of such interest, free and clear of all liens, encumbrances
        and
        adverse claims, which assignment shall otherwise be in form and substance
        reasonably satisfactory to the purchasing Member, and such other instruments
        as
        the purchasing Member shall reasonably require to assign the interest of
        the
        selling Member to such person or entity as the purchasing Member may designate.
        Such documents shall be prepared by the purchasing Member and closing costs
        and
        all other charges involved in closing the sale (except for attorneys’ fees (each
        party paying their own) and title insurance costs (to be paid by the purchaser))
        shall be prorated between SHP and ARC in the ratio of the Percentage Interests
        of the Members. Stamp, recording, transfer or similar taxes arising in
        connection with the sale of the interest, if any, shall be paid by the selling
        Member.

       

      (h)  The
        Company shall be dissolved as of the closing date of a sale of the Property,
        and
        on the closing date the Members shall file, or cause to be filed, a written
        notice of winding up with the Delaware Secretary of State in accordance with
        Act
Section
        18-203
        and such
        other documents as shall be necessary or desirable to effectuate such
        dissolution. The Members shall cooperate in taking all steps necessary in
        connection with the dissolution of the Company. Subject to Section
        3.1(b),
        in the
        case of the sale of an interest in the Company, the Company shall not be
        dissolved, but the Members will execute and file on the closing date such
        amendment to the Certificate of Formation as may be appropriate to reflect
        the
        change in the identity of the Members.

       

      (i)  It
        is the
        intent of the parties to this Agreement that the requirements or obligations,
        if
        any, of one Member to sell its Entire Interest (or a portion thereof), or
        to
        join in the conveyance by the Company of the Portfolio in accordance with
        the
        provisions of Section
        10.3 or 10.5,
        shall be
        enforceable by an action for specific performance of a contract relating
        to the
        purchase of real property or an interest therein. It is the intent of the
        parties to this Agreement that the requirements or obligations, if any, of
        one
        Member to purchase the Entire Interest (or a portion thereof) of the Other
        Member pursuant to Section
        10.3
        (and
        ARC’s obligation to purchase in Section
        10.5)
        shall be
        subject to the liquidated damages provisions contained in Sections
        10.3
        (and as
        described in Section
        10.5),
        and
        that SHP shall have no liability for the failure of a third party to purchase
        in
        accordance with Section
        10.5.
        If the
        selling Member shall have created or suffered any unauthorized liens,
        encumbrances or other adverse interest against either the Portfolio or the
        selling Member’s interest in the Company, the purchasing Member shall be
        entitled either to an action for specific performance to compel the selling
        Member to have such defects removed, in which case the closing shall be
        adjourned for such purpose, or, at the purchasing Member’s option, to an
        appropriate offset against the purchase price.

       

      
        
          
          

        

        
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      (j)  The
        purchasing Member when purchasing the Entire Interest of the selling Member
        pursuant to the provisions of Section
        10.3, 10.4 or 10.5
        shall
        have the option of initially purchasing only that portion of the selling
        Member’s Entire Interest which, when aggregated with other interests in the
        Company Transferred during the preceding 12 months, represent a 49% interest
        in
        the total profits and capital of the Company. The purchase price shall be
        the
        price the purchasing Member would have paid for the selling Member’s Entire
        Interest as provided in Section
        10.3, 10.4(b)(2) or 10.5(d),
        as the
        case may be, multiplied by a fraction the numerator of which is the selling
        Member’s Percentage Interest being Transferred and the denominator of which is
        the selling Member’s Percentage Interest. For example, if the selling Member
        owned a 65% interest in the Company, and if no other interests in the Company
        profits and capital had been Transferred during the preceding 12 months,
        the
        purchasing Member may elect initially to purchase approximately 75% of the
        selling Member’s Entire Interest (which represents a 49% interest in the
        Company) and the Member’s remaining Percentage Interest (the “Remaining
        Percentage Interest”) would be a 16% interest in the Company. In its notice
        fixing the closing date as provided in Section
        10.3, 10.4(b)(2) or 10.5,
        the
        purchasing Member shall state whether or not it chooses to purchase the selling
        Member’s Entire Interest or only such percentage of the selling Member’s
        interest as is provided in the preceding three sentences. If the purchasing
        Member exercises the latter option, then:

       

      (1)  The
        selling Member’s Percentage Interest shall be reduced to the Remaining
        Percentage Interest and the purchasing Member’s Percentage Interest increased to
        100% less the Remaining Percentage Interest effective as of the date of the
        closing.

       

      (2)  Subsections
        (e) and (g) of Section
        10.7
        shall not
        be applicable to a purchase pursuant to this Section
        10.7(j).
        The
        selling Member’s right to distributions, ordinary or extraordinary, from the
        Company shall be reduced to its Remaining Percentage Interest, but if the
        Remaining Percentage Interest does not exceed 1%, no contributions to the
        Company shall be made by such Member after the closing of the
        purchase.

       

      (3)  Subsections
        (a), (b), (c), (d), (f), (i) and (k) of Section
        10.7
        shall be
        applicable to a purchase pursuant to this Section
        10.7(j)
        except
        that with respect to subsection (f) the insurance or condemnation proceeds
        referred to shall be paid over to the Company rather than the purchasing
        party.

       

      (4)  If
        the
        Remaining Percentage Interest shall not exceed 1%, beginning with the closing,
        the purchasing Member (or, if reasonably requested, a credit-worthy guarantor)
        shall indemnify the selling Member and hold it harmless for, from and against
        all liability, loss, cost, damage and expense (including, but not limited
        to,
        reasonable attorneys’ fees and costs incurred in the investigation, defense and
        settlement of the matter) the selling Member shall ever suffer or incur because
        of any claim whether meritorious or not, arising out of facts occurring after
        the closing made against the selling Member as a Member or against the Company,
        except for claims made against the selling Member arising out of its own
        acts or
        omissions whether as a Member or otherwise.

       

      
        
          
          

        

        
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      (5)  If
        the
        Remaining Percentage Interest shall not exceed 1% after the closing, the
        purchasing Member shall at all times be absolutely free to terminate the
        Company, deal with the Portfolio as its own, cause the Company to borrow
        money
        from the purchasing Member, an Affiliate of the purchasing Member or an
        unrelated party, and regardless of any contrary provisions contained in
Article
        10,
        the
        purchasing Member shall be absolutely free at any time and from time to time
        to
        transfer all or any part of its interest in the Company to anyone without
        restriction, provided the conditions of Section
        10.6
        are
        satisfied.

       

      (6)  Either
        the
        selling Member or the purchasing Member may, by written notice to the other
        Member, require the transfer to the purchasing Member, or its nominee, of
        the
        Remaining Percentage Interest of the selling Member for cash at a purchase
        price
        equal to the fair market value, determined at the time of such transfer,
        of the
        Entire Interest held by the selling Member on the date of the Termination
        Notice
        multiplied by a fraction, the numerator of which shall be the selling Member’s
        Remaining Percentage Interest and the denominator of which shall be the selling
        Member’s Percentage Interest held on the date of the Termination Notice, payable
        in full on the date specified for transfer in the notice, but in no event
        may
        the selling Member require such transfer sooner than thirteen (13) months
        after
        the closing. The fair market value of such Remaining Percentage Interest
        shall
        be determined by a nationally recognized investment banking firm having
        experience in commercial real estate matters designated by the Members or
        designated by a court as hereinafter provided. If the Members are unable
        to
        agree upon and designate such investment banking firm within thirty (30)
        days of
        the receipt of a notice to transfer such Remaining Percentage Interest, either
        party may apply to a judge of the county or Chancery Court in the jurisdiction
        within which the particular Property is located for the designation of such
        firm. The firm so designated shall be instructed to report its determination
        of
        the fair market value of the Remaining Percentage Interest within sixty (60)
        days after it has been designated. The fee of such firm shall be paid by
        the
        purchasing Member.

       

      (k)  In
        the
        event of the purchase of an interest in the Company of one Member by the
        other
        Member, at the option of the purchasing Member, the interest (subject to
        Section
        10.7(j))
        will be
        transferred to a nominee of the purchasing Member.

       

      10.8       
        Avoidance
        of Plan Violation.
        In
        connection with any closing of a transaction pursuant to this Article
        10,
        ARC and
        SHP each agree to provide written certification to each other, in a form
        reasonably satisfactory to both parties, to establish that no Plan Violation
        would result from the transaction. The Company will not enter into any
        agreements, or suffer any conditions, that SHP determines would result in
        a Plan
        Violation. SHP and ARC will cooperate to discover and correct Plan
        Violations.

       

      ARTICLE
        11. 

      DISSOLUTION
        OR BANKRUPTCY OF A MEMBER

       

      11.1        
        Dissolution
        or Merger.
        If any
        Member (for purposes of this Article
        11
        only, the
        term Member shall also include the managing general partner of any such Member)
        that is an entity shall be dissolved or merged with or consolidated into
        another
        corporation or entity, or if all or substantially all of its assets shall
        be
        sold or transferred, then unless such dissolution, merger, consolidation,
        sale
        or transfer is expressly permitted under Article
        10,
        such
        dissolution, merger, consolidation, sale or transfer shall be a dissolution
        of
        the Company, and the other Member shall be the Liquidating Member in the
        dissolution of the Company.

       

      11.2       
        Bankruptcy,
        etc.
        In the
        event:

       

      (a)  either
        Member shall file a voluntary petition in bankruptcy or shall be adjudicated
        a
        bankrupt or seek any reorganization, arrangement, composition, readjustment,
        liquidation, dissolution, or similar relief for itself under the present
        or any
        future federal bankruptcy code or any other present or future applicable
        federal, state, or other statute or law relative to bankruptcy, insolvency,
        or
        other relief for debtors, or shall seek or consent to or acquiesce in the
        appointment of any trustee, receiver, conservator or liquidator of said Member
        or its interest in the Company (the term “acquiesce” includes but is not limited
        to the failure to file a petition or motion to vacate or discharge any order,
        judgment or decree providing for such appointment within ten (10) days after
        the
        appointment); or

       

      (b)  a
        court of
        competent jurisdiction shall enter an order, judgment or decree approving
        a
        petition filed against either Member seeking any reorganization, arrangement,
        composition, readjustment, liquidation, dissolution or similar relief under
        the
        present or any future federal bankruptcy code or any other present or future
        applicable federal, state or other statute or law relating to bankruptcy,
        insolvency, or other relief for debtors, and said Member shall acquiesce
        in the
        entry for such order, judgment or decree (the term “acquiesce” includes but is
        not limited to the failure to file a petition or motion to vacate or discharge
        such order, judgment or decree within ten (10) days after the entry of the
        order, judgment or decree) or such order, judgment or decree shall remain
        unvacated and unstayed for an aggregate of ninety (90) days (whether or not
        consecutive) from the date of entry thereof, or any trustee, receiver,
        conservator or liquidator of said Member or of all or any substantial part
        of
        said Member’s property or its interest in the Company shall be appointed without
        the consent or acquiescence of said Member and such appointment shall remain
        unvacated and unstayed for an aggregate of sixty (60) days (whether or not
        consecutive); or

       

      (c)  either
        Member shall admit in writing its inability to pay its debts as they mature;
        or

       

      (d)  either
        Member shall give notice to any governmental body of insolvency, or pending
        insolvency, or suspension or pending suspension of operations; or

       

      (e)  either
        Member shall make an assignment for the benefit of creditors or take any
        other
        similar action for the protection or benefit of creditors; 

       

      
        
          
          

        

        
          46

          
            

          

        

        
          
          

        

      

       

      then,
        any
        such event shall cause the dissolution of the Company and the other Member
        shall
        be the Liquidating Member.

       

      ARTICLE
        12. 

      DEFAULT

       

      12.1      
        Defaults.
        After
        the Effective Date, (i) if either Member fails to perform any of its obligations
        hereunder, breaches any of the terms, conditions or covenants of this Agreement
        or (ii) in the event of an uncured default by any Affiliate under the Management
        Agreement as well as any other agreement entered into between the Company
        and
        ARC or an Affiliate of ARC (collectively, the “Affiliate
        Agreements”),
        then
        the other Member (“Nondefaulting
        Member”)
        shall
        have the right to give such party (“Defaulting
        Member”
(which,
        in the case of any default by ARC or an Affiliate under clause (ii) above,
        shall
        be ARC)) a notice of default (“Notice
        of Default”).
        The
        Notice of Default shall set forth the nature of the obligation which the
        Defaulting Member (or its Affiliate, if applicable) has not
        performed. 

       

      (a)  If
        such
        default is not curable by the payment or expenditure of money and if, within
        the
        thirty (30) day period following receipt of the Notice of Default or within
        such
        shorter time period that may be specified in the Affiliate Agreement, the
        Defaulting Member (or its Affiliate, if applicable) in good faith commences
        to
        perform such obligation and cure such default and thereafter prosecutes to
        completion with diligence and continuity the curing thereof and cures such
        default within a reasonable time (not to exceed one hundred eighty (180)
        days),
        then it shall be deemed that the Notice of Default was not given and the
        Defaulting Member shall lose no rights hereunder. If, within such thirty
        (30)
        day period the Defaulting Member (or its Affiliate, if applicable) does not
        commence in good faith the curing of such default or does not thereafter
        prosecute to completion with diligence and continuity the curing thereof,
        then
        the Nondefaulting Member shall have the rights set forth in Section
        12.1(d).

       

      (b)  If
        such
        default is curable by the payment or expenditure of money other than a default
        described in Section
        4.6
        which
        sets forth its own time periods for cure, and if such sums of money shall
        be
        paid within fifteen (15) days after receipt of the Notice of Default with
        respect thereto, then it shall be deemed that such Notice of Default was
        not
        given and the Defaulting Member shall lose no rights hereunder. If such sums
        are
        not so paid within such fifteen (15) day period, then the Nondefaulting Member
        shall have the rights set forth in Section
        12.1(d)
        in
        addition to the rights under Section
        4.6
        (to the
        extent applicable). 

       

      (c)  (Intentionally
        Omitted.)

       

      (d)  If
        any
        default is not cured as set forth in Sections
        12.1(a)
        or
12.1(b)
        or if any
        default set forth in Section
        12.1(c)
        occurs,
        the Nondefaulting Member shall have the right to terminate this Agreement
        by
        giving the Defaulting Member written notice thereof, whereupon such default
        may
        be treated by the Nondefaulting Member as a dissolution of the Company, and
        the
        Nondefaulting Member shall be the Liquidating Member.

       

      
        
          
          

        

        
          47

          
            

          

        

        
          
          

        

      

       

      Failure
        by
        a Nondefaulting Member to give any notice of a default as specified herein,
        or
        any failure to insist upon strict performance of any of the terms of this
        Agreement, shall not constitute a waiver of any such breach or any of the
        terms
        of this Agreement. No breach shall be waived nor shall any duty to be performed
        be altered or modified except by written instrument. One or more waivers
        or
        failure to give notice of default shall not be construed as a waiver of a
        subsequent or continuing breach of the same covenant.

       

      12.2      
        Negation
        of Right to Dissolve by Will of Member.
        Except
        as set forth in Articles
        10
        and
11
        and in
Section
        12.1,
        neither
        Member shall have the right to terminate this Agreement or dissolve the Company
        by its express will or by withdrawal without the consent of the other Member.
        Upon any dissolution occurring by operation of law or caused by the express
        will
        or withdrawal of one of the Members in contravention of this Agreement, the
        Member not causing the dissolution shall be the Liquidating Member.

       

      12.3     
        Non
        Exclusive Remedy.
        The
        rights granted in Section
        12.1
        shall not
        be deemed an exclusive remedy of the Nondefaulting Member, but all other
        rights
        and remedies, legal and equitable, shall be available to it, subject to any
        express limitations on remedies provided in specific circumstances elsewhere
        in
        this Agreement (e.g. in Article
        10).

       

      ARTICLE
        13. 

      DISSOLUTION

       

      13.1     
        Winding
        Up by Members.
        Upon
        dissolution of the Company by expiration of the term hereof, by operation
        of
        law, by any provision of this Agreement or by agreement between the Members,
        the
        Company’s business shall be wound up and all its assets distributed in
        liquidation. In such dissolution, except as otherwise expressly provided
        in
Articles
        10,
        11
        and
12,
        the
        Members shall be co liquidating Members and shall continue to act through
        the
        Committee. In such event the Members shall have rights acting through the
        Committee to wind up the Company and shall proceed to cause the Company’s
        property to be sold and to distribute the proceeds of sale as provided in
        Section
        13.5.
        Except
        in respect of (i) all assets on which a single, non severable mortgage or
        other
        lien will be in effect after such distribution, and (ii) any assets which
        the
        Members shall determine are not readily severable or distributable in kind,
        the
        Members, to the extent that liquidation of such assets is not required to
        fulfill the payments, if any, under subsections (a), (b), (c) and (d) of
        Section
        13.5,
        shall,
        if they agree, have the right to distribute, in kind, all or a portion of
        the
        assets of the Company to the Members.

       

      13.2     
        Winding
        Up by Liquidating Member.
        In a
        dissolution pursuant to Article
        10,
        11
        or
12,
        the
        Liquidating Member shall be as therein provided and such Liquidating Member
        shall have the right to:

       

      (a)  Wind
        up
        the Company and cause the Company’s assets to be sold and the proceeds of sale
        distributed as provided in Section
        13.5;
        or

       

      
        
          
          

        

        
          48

          
            

          

        

        
          
          

        

      

       

      (b)  Deliver
        to
        the other Member within thirty (30) days after the commencement of dissolution
        of the Company a notice (a “Demand
        Notice”)
        demanding that the other Member deliver, within forty-five (45) days after
        the
        date of the Demand Notice, a Termination Notice in the manner and setting
        forth
        the information required under Section
        10.3(a).
        Upon
        receipt of the Termination Notice, the Liquidating Member shall have the
        rights
        of the Other Member under Section
        10.3(b).

       

      (c)  If
        the
        other Member refuses or fails, within forty-five (45) days after the giving
        of
        the Demand Notice to the other Member, to give the Liquidating Member a
        Termination Notice setting forth the information required by Section
        10.3(a),
        the
        Liquidating Member may elect to purchase the other Member’s Entire Interest for
        such price (the “Default
        Price”)
        as the
        Liquidating Member may choose in its sole discretion. The other Member shall
        be
        notified of such election within thirty (30) days after expiration of the
        45-day
        period referred to in the preceding sentence.

       

      All
        of the
        provisions of Section
        10.7
        shall
        apply to a purchase under this Section
        13.2(c)
        except
        that for the purposes of this Section
        13.2(c),
        the date
        the other Member receives the Demand Notice shall be the governing date referred
        to in Sections
        10.7(e) and (f)
        rather
        than the date of the giving of the Termination Notice. As soon as possible
        after
        the dissolution of the Company, the Liquidating Member shall file a certificate
        of cancellation with the Delaware Secretary of State as required by Act
Section
        18-203.

       

      13.3  Offset
        for Damages.
        In the
        event of dissolution resulting from an event described in Article
        11
        or
12,
        the
        Liquidating Member shall be entitled to deduct from the amount payable to
        the
        other Member pursuant to Section
        13.2(a)
        or
(b),
        Section
        13.4
        or
Section
        13.5
        the
        amount of reasonable, out of pocket costs incurred by the Liquidating Member
        proximately resulting from any such event.

       

      13.4  Distributions
        of Operating Cash Flow.
        Subject
        to Section
        13.5
        hereof as
        to proceeds of liquidation, upon the dissolution of the Company for any reason
        during the period of liquidation and until termination of the Company the
        Members shall continue to receive the Operating Cash Flow and to share profits
        and losses for all tax and other purposes as provided elsewhere in this
        Agreement.

       

      13.5  Distributions
        of Proceeds of Liquidation.
        For
        purposes of this Section
        13.5,
        “proceeds of liquidation” shall equal cash available for liquidation, net of
        liens secured by the Portfolio, provided that neither the Company nor either
        of
        the Members shall be personally liable on, or they shall be released from
        such
        debts. The proceeds of liquidation shall be applied in the following order
        of
        priority:

       

      (a)  First.
        To the
        payment of:

       

      (1)  debts
        and
        liabilities of the Company except Loans and Special Loans (as referenced
        in
Sections
        13.5(c),
        below)
        that may have been made by either of the Members to the Company,
        and

       

      (2)  expenses
        of liquidation.

       

      
        
          
          

        

        
          49

          
            

          

        

        
          
          

        

      

       

      (b)  Second.
        To the
        setting up of any reserves which the Liquidating Member or Members, as the
        case
        may be, may deem necessary for any contingent or unforeseen liabilities or
        obligations of the Company or of the Members arising out of or in connection
        with the Company. Said reserves may be deposited by the Company in a bank
        or
        trust company acceptable to the Liquidating Member or Members, as the case
        may
        be, to be held by it for the purpose of disbursing such reserves in payment
        of
        any of the aforementioned liabilities or obligations, and at the expiration
        of
        such period as the Liquidating Member or Members, as the case may be, shall
        deem
        advisable, distributing the balance, if any, thereafter remaining, in a manner
        hereinafter provided.

       

      (c)  Third.
        To the
        repayment of any Loans and Special Loans that may have been made by either
        of
        the Members pursuant to Section
        5.1,
        but if
        the amount available for such repayment shall be insufficient to repay all
        Loans
        and Special Loans, then repayment shall be made pro rata in accordance with
        the
        outstanding principal balances, including accrued interest, on such Loans
        and
        Special Loans.

       

      (d)  Fourth.
        After
        allocation of all Profit or Loss upon the liquidation of the Company pursuant
        to
        the provisions of Sections
        9.4
        through
9.8,
        to the
        Members with positive Capital Account balances in proportion to and to the
        extent of such positive Capital Account balances.

       

      (e)  Fifth.
        The
        excess proceeds, if any, after applying the proceeds as described in (a)
        through
        (d) above, shall be distributed as Extraordinary Cash Flow.

       

      13.6       
        Orderly
        Liquidation.
        A
        reasonable time shall be allowed for the orderly liquidation of the assets
        of
        the Company and the discharge of liabilities to creditors so as to enable
        the
        Members to minimize the losses normally attendant upon a
        liquidation.

       

      13.7      
        Financial
        Statements.
        During
        the period of winding up, a reputable independent certified public accountant
        selected by the Liquidating Member shall prepare and furnish to each of the
        Members, until complete liquidation is accomplished, all the financial
        statements provided for in Section
        7.1.

       

      13.8     
        Restoration
        of Deficit Capital Accounts.
        At no
        time during the term of the Company shall a Member with a deficit balance
        in its
        Capital Account have any obligation to the Company or to another Member or
        to
        any other person to restore such deficit balance.

       

      13.9  Intention
        of the Members.
        It is
        the intention of the Members that the liquidating distributions described
        in
Section
        13.5
        shall be
        accomplished in a manner such that the economic effect of such distributions
        to
        the Members will be consistent with the economic effect the Members would
        have
        recognized had all liquidating distributions been made in accordance with
        the
        provisions of Section
        9.3(b)
        hereof.
        The Liquidating Member shall take any and all actions permissible under the
        Code
        and Regulations, including but not limited to, special allocations of gross
        income, Loss and Profit, to accomplish the purposes of this Section
        13.9.

       

      
        
          
          

        

        
          50

          
            

          

        

        
          
          

        

      

       

      ARTICLE
        14. 

      MEMBERS

       

      14.1  Liability.
        A Member
        shall not be personally liable for the debts, liabilities or obligations
        of the
        Company. Notwithstanding the foregoing, a Member will be liable for any
        distributions made to it, if, after such distribution, the outstanding
        liabilities of the Company (other than liabilities to Members on account
        of
        their interests in the Company and liabilities for which the recourse of
        creditors is limited to specific Company property) exceed the fair value
        of the
        Company’s assets (provided that the fair value of Company property that secures
        recourse liability shall be included only to the extent its fair value exceeds
        such liability) and the Member had knowledge of this fact at the time the
        referenced distribution was received.

       

      ARTICLE
        15. 

      NOTICES

       

      15.1  In
        Writing; Address.
        All
        notices, elections, offers, acceptances, demands, consents and reports
        (collectively “notices”)
        provided for in this Agreement shall be in writing and shall be given to
        the
        Company, the Members or the other Member at the address set forth below or
        at
        such other address as the Company or any of the parties hereto may hereafter
        specify in writing.

       

      
        
          	To
                  SHP:	
                  PIM
                    Senior Portfolio, LLC

                  c/o
                    The Prudential Insurance Company of America

                  Two
                    Ravinia Drive - Suite 1400

                  Atlanta,
                    Georgia 30346-2110

                  Attention:
                    John W. Dark

                  Telecopy
                    No.: (770) 399-5363

                  Telephone
                    No.: (770) 395-8635

                   

                
	
                  With
                    a copy to:

                	
                  With
                    a copy to: Senior
                    Housing Partners III, L.P.

                  c/o
                    The Prudential Insurance Company of America

                  Real
                    Estate Law Department

                  Arbor
                    Circle South

                  8
                    Campus Drive, 4th Floor

                  Parsippany,
                    New Jersey 07054-4490

                  Attention:
                    Joan N. Hayden

                  Telecopy
                    No.: (973) 683-1788

                  Telephone
                    No.: (973) 683-1772

                   

                
	With
                  a copy to:	
                  Alston
                    & Bird, LLP

                  One
                    Atlantic Center

                  1201
                    West Peachtree Street

                  Atlanta,
                    Georgia 30309-3424

                  Attention:
                    Mark C. Rusche, Esq.

                  Telecopy
                    No.: (404) 881-7777

                  Telephone
                    No.: (404) 881-7281

                


        

         

         

        
          
            
            

          

          
            51

            
              

            

          

          
            
            

          

        

         

         

        
          	 To
                  ARC:	
                  ARC
                    Epic Holding Company, Inc.

                  c/o
                    American Retirement Corporation

                  111
                    Westwood Place, Suite 200

                  Brentwood,
                    Tennessee 30727

                  Attention:
                    Chief Executive Officer

                  Telecopy
                    No.: (615) 221-2269

                  Telephone
                    No.: (615) 221-2250

                   

                
	With
                  a copy to:	
                  Bass,
                    Berry & Sims, PLC

                  315
                    Deaderick Street, Suite 27000

                  Nashville,
                    Tennessee 37238

                  Attention:
                    T. Andrew Smith

                  Telecopy
                    No.: (615) 742-2766

                  Telephone
                    No.: (615) 742-6266

                


        

      

       

      All
        notices hereunder shall be deemed sufficiently given or served for all purposes
        when delivered (i) by personal service or courier service, and shall be deemed
        given on the date when signed for or, if refused, when refused by the person
        designated as an agent for receipt of service, (ii) by facsimile transmission
        and shall be deemed given when printed confirmation of completion of
        transmission is generated by the sender’s facsimile transmission instrument to
        any party hereto at its address above stated or such other address of which
        a
        party shall have notified the party giving such notice in writing as aforesaid,
        or (iii) by United States registered or certified mail, return receipt
        requested, postage prepaid, deposited in a United States post office or a
        depository for the receipt of mail regularly maintained by the post office
        or
        sent by any reputable overnight courier service that obtains a signature
        upon
        delivery and shall be deemed to have been received by the addressee on the
        third
        business day following the date of such mailing. Such notices, demands, consents
        and reports may also be delivered by hand, or by any other method or means
        permitted by law. For purposes hereof, notices may be given by the parties
        hereto or by their attorneys identified above.

       

      A
        copy of
        any notice or any written communication from the Internal Revenue Service
        to the
        Company shall be given to each Member at the addresses provided for
        above.

       

      15.2  Copies.
        A copy
        of any notice, service of process, or other document in the nature thereof,
        received by either Member from anyone other than the other Member, shall
        be
        delivered by the receiving Member to the other Member as soon as
        practicable.

       

      ARTICLE
        16. 

      MISCELLANEOUS

       

      16.1  Additional
        Documents and Acts.
        In
        connection with this Agreement as well as all transactions contemplated by
        this
        Agreement, each Member agrees to execute and deliver such additional documents
        and instruments, and to perform such additional acts as may be necessary
        or
        appropriate to effectuate, carry out and perform all of the terms, provisions
        and conditions of this Agreement, and all such transactions. All approvals
        of
        either party hereunder shall be in writing.

       

      
        
          
          

        

        
          52

          
            

          

        

        
          
          

        

      

       

      16.2  Estoppel
        Certificates.
        Each
        Member shall at any time and from time to time upon not less than twenty
        (20)
        days prior written notice from the other execute, acknowledge, and send to
        the
        other a statement in writing certifying that this Agreement is unmodified
        and in
        full force and effect (or if there have been modifications, that the Agreement
        is in full force and effect as modified and stating the modifications) and
        stating whether or not as to both Members either is in default in keeping,
        observing or performing any of the terms contained in this Agreement, and
        if in
        default, specifying each such default (limited, as regards the other’s defaults,
        to those defaults of which the certifying Member has knowledge).

       

      16.3  Interpretation.
        This
        Agreement and the rights and obligations of the Members hereunder shall be
        interpreted in accordance with the internal laws of the State of Delaware,
        without reference to the conflicts of laws or choice of law provisions
        thereof.

       

      16.4  Entire
        Agreement.
        This
        instrument and the other documents referenced or attached as Exhibits contain
        all of the understandings and agreements of whatsoever kind and nature existing
        between the parties hereto with respect to this Agreement and the rights,
        interests, understandings, agreements and obligations of the respective parties
        pertaining to the Company and supersede all prior agreements.

       

      16.5  References
        to this Agreement.
        Numbered
        or lettered articles, sections and subsections herein contained refer to
        articles, sections and subsections of this Agreement unless otherwise expressly
        stated.

       

      16.6  Headings.
        All
        headings herein are inserted only for convenience and ease of reference and
        are
        not to be considered in the construction or interpretation of any provision
        of
        this Agreement.

       

      16.7  Binding
        Effect.
        Except
        as herein otherwise expressly stipulated to the contrary, this Agreement
        shall
        be binding upon and inure to the benefit of the parties signatory hereto,
        and
        their respective distributees, successors and assigns.

       

      16.8  Counterparts.
        This
        Agreement may be executed in any number of counterparts, each of which shall
        for
        all purposes constitute one agreement which is binding on all of the parties
        hereto.

       

      16.9  Confidentiality.
        The
        terms and provisions of this Agreement shall be kept confidential and shall
        not,
        without the other Member’s prior written consent (which shall not be
        unreasonably withheld), be disclosed by a Member or by a Member’s agents,
        managers, members, representatives and employees to any person or entity
        that
        this Agreement has been signed and exists; provided, however, that this
Section
        16.9
        shall not
        prohibit the disclosure of the terms of this Agreement by any Member to its
        agents for business reasons consistent with Section
        2.4.
        No
        publicity, media communications, press releases or other public announcements
        concerning this Agreement or the transactions contemplated hereby shall be
        issued or made by either Member without the consent of the other Member,
        except
        as required by law.

       

      
        
          
          

        

        
          53

          
            

          

        

        
          
          

        

      

       

      16.10  Amendments.
        This
        Agreement may not be amended, altered or modified except by a written instrument
        signed by all parties; provided, however, that ARC and any other Member shall
        agree to any amendments of this Agreement reasonably required by SHP in order
        for the Company to comply with applicable state law which do not adversely
        affect the economic interests of ARC or any other Member hereunder.

       

      16.11  Exhibits.
        All
        exhibits and schedules annexed hereto are expressly made a part of this
        Agreement, as fully as though completely set forth herein, and all references
        to
        this Agreement herein or in any of such exhibits or schedules shall be deemed
        to
        refer to and include all such exhibits or schedules.

       

      16.12  Severability.
        Each
        provision hereof is intended to be severable and the invalidity or illegality
        of
        any portion of this Agreement shall not affect the validity or legality of
        the
        remainder.

       

      16.13  Forum.
        Any
        action by one or more Members against the Company or by the Company against
        one
        or more Members which arises under or in any way relates to this Agreement,
        actions taken or failed to be taken or determinations made or failed to be
        made
        by the Members or relating to the Company including, without limitation,
        transactions permitted hereunder or otherwise related in any way to the Company,
        may be brought only in the state courts of the State of Delaware or United
        States District Court for the sitting in Delaware. Each Member hereby consents
        to the jurisdiction of such courts to decide any and all such actions and
        to
        such venue.

       

      16.14  Assignment
        to Company.
        To the
        extent not already assigned to the Company, the Members shall, and they do
        hereby assign to the Company all of their right, title and interest, if any,
        in,
        to and under the following:

       

      (a)  Fee
        simple
        title to the Properties, Projects and all appurtenances thereto;

       

      (b)  All
        plans,
        specifications, engineering studies and working drawings prepared or obtained
        in
        connection with the Improvements, and any other work product related to the
        Improvements;

       

      (c)  All
        licenses, permits, consents, approvals or other evidences of authorization
        to
        construct, own, occupy and/or operate the Properties issued by or received
        from
        any applicable governmental authorities having jurisdiction over or otherwise
        affecting the Properties;

       

      (d)  All
        ownership interest in and all other rights, options, or interests, if any,
        related to the Properties and/or the construction and development of the
        Improvements; and

       

      (e)  All
        leases, commitments for leases, security deposits, tenant lead lists and
        any
        other document, account, right, or instrument pertaining to tenants or
        prospective tenants of the Properties.

       

      
        
          
          

        

        
          54

          
            

          

        

        
          
          

        

      

       

      16.15  Broker’s
        Indemnity.
        Each
        Member represents that it has not dealt with any broker or agent in connection
        with this Agreement or any of the transactions contemplated hereby, and hereby
        agrees to indemnify the other Member and the Company and hold them each harmless
        from and against all liability, loss, cost, damage and expense (including
        attorneys’ fees and costs incurred in the investigation, defense and settlement
        of the matter) which the other Member or the Company shall ever suffer or
        incur
        by reason of any claim by any broker or agent, whether or not meritorious,
        for
        any compensation with respect to such indemnifying Member’s dealings in
        connection with this Agreement or such indemnifying Member’s contribution or
        other transactions provided for or referred to herein.

       

      16.16  Attorneys’
        Fees.
        If any
        action arising out of this Agreement is brought by either party hereto against
        the other, then and in that event the unsuccessful party to such action shall
        pay to the prevailing party all costs and expenses, including reasonable
        attorneys’ fees, incurred by such prevailing party, and if the prevailing party
        shall recover judgment in such action, such costs, expenses and attorneys
        fees
        shall be included in and as part of such judgment.

       

      16.17  Prudential
        Affiliation.
        The
        Company will not use the name Prudential in its advertising with respect
        to the
        Project. ARC will not make any disclosures or representations whatsoever
        to
        third parties concerning SHP’s affiliation with the Prudential Insurance Company
        of America, except as authorized in writing by SHP.

       

      [The
        following page is the signature page.]

       

       

       

       

      
        
          
          

        

        
          55

          
            

          

        

        
          
          

        

      

       

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

       

       

      
        	SHP: 	
                 

              	 
	 	 	 
	
                PIM
                  SENIOR PORTFOLIO, LLC, 

                a
                  Delaware
                  limited liability company

              
	 	 	 
	By:	
                PIM
                  Warehouse, Inc., 

                a
                  Delaware
                  corporation, 

                its
                  sole member

              
	 	 	 
	By: 	
                 

              
	 	Name:
                Peter R. Eckert
	 	Title:
                Vice President  
	 	 	 
	ARC: 	
                 

              	 
	 	 	 
	
                ARC
                  EPIC HOLDING COMPANY, INC., 

                a
                  Tennessee Corporation

              
	 	 	 
	By:	
                 

              
	 	Name:	
                 

              
	 	Title:	 


      

       

      
        
          
          

        

        
          56

          
            

          

        

        
          
          

        

      

       

       

      EXHIBIT
        A

       

      Legal
        Description

       

       

       

       

       

       

       

       

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
        B

       

      Subsidiaries


      
        
          
            	 	 	
                    Project

                  	
                    Subsidiaries

                  
	
                    1.

                  	 	
                    Freedom
                      Inn of Sun City West

                  	
                    ARC
                      Sun City West, LLC

                  
	
                    2.

                  	 	
                    Freedom
                      Inn of Roswell

                  	
                    ARC
                      Roswell, LLC

                  
	
                    3.

                  	 	
                    Heritage
                      Club Las Vegas

                  	
                    ARC
                      Vegas, LLC

                  
	
                    4.

                  	 	
                    Freedom
                      Inn Ventana Canyon

                  	
                    ARC
                      Tucson, LLC

                  
	
                    5.

                  	 	
                    Freedom
                      Inn at Overland Park

                  	
                    ARC
                      Overland Park, LLC

                  
	
                    6.

                  	 	
                    Freedom
                      Inn Minnetonka

                  	
                    ARC
                      Minnetonka, LLC

                  
	
                    7.

                  	 	
                    Heritage
                      Club at Denver Tech Center

                  	
                    ARC
                      Denver Monaco, LLC

                  
	
                    8.

                  	 	
                    Hampton
                      Assisted Living at Tanglewood

                  	
                    ARC
                      Tanglewood, L.P.

                    ARC
                      Tanglewood GP, LLC

                  


          

        

         

         

        
 

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

      

       

      EXHIBIT
        C

       

      


       

      
        	
                Names
                  and Interests of Members:

              	
                Percentage
                  Interest

              	
                Initial
                  Cash Contribution

              
	 	 	 
	
                SHP

              	
                80%

              	
                $_________________

              
	 	 	 
	
                ARC

              	
                20%

              	
                $_________________

              
	 	 	 
	
                TOTAL

              	
                100%

              	
                $_________________

              


      

       

       

       

       

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

       

      EXHIBIT
        D

       

      Initial
        Subsidiary Management Agreement

       

       

       

       

       

       

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      SCHEDULE
        4.7

       

      Percentage
        Interest Adjust Example

       

       

      Pursuant
        to Section
        4.7,
        if a
        Member fails to make a required contribution, the Percentage Interests of
        the
        Members may, at the election of the Non Failing Member, be adjusted as a
        result
        of making a Priority Capital Contribution. The following examples (which
        are
        examples only and do not reflect any actual facts) illustrate the effects
        of
        these provisions:

       

      Example
        1:
        Assume SHP’s Unreturned Capital Contributions equal $9,000,000. ARC’s Unreturned
        Capital Contributions for purposes of this computation only are deemed to
        be
        $1,000,000 (10% x 9,000,000/90%). Assume a call for $100,000 is made and
        SHP
        contributes its $90,000, but that ARC is the Defaulting Member on an obligation
        to contribute its $10,000 and that SHP has made a Priority Capital Contribution
        of such amount.

       

      The
        Members’ initial Percentage Interests are:

       

      
        SHP   90%

        ARC   10%

      

       

       

      The
        resulting Percentage Interests of the Members are computed as
        follows:

       

      SHP’s
        Unreturned Capital Contributions + $90,000+ (1.5 x $10,000)

      Total
        Unreturned Capital Contributions

       

      9,105,000  =  
        90.15%

      10,100,000

       

      SHP’s
        Percentage Interest will be increased by .15% (90.15% 90%) and ARC’s Percentage
        Interest will be reduced by .15%.

       

      Example
        2:
        Assume SHP’s Unreturned Capital Contributions equal $9,000,000. ARC’s Unreturned
        Capital Contributions for purposes of this computation only are deemed to
        be
        $1,000,000 (10% x 9,000,000/90%). Assume a call for $100,000 is made and
        ARC
        contributes its $10,000, but that SHP is the Defaulting Member on an obligation
        to contribute its $90,000 and that ARC has made a Priority Capital Contribution
        of such amount.

       

      The
        Members’ initial Percentage Interests are:

       

      SHP                              
        90%

      ARC                             
        10%

       

      The
        resulting Percentage Interests of the Members are computed as
        follows:

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      ARC’s
        Unreturned Capital Contributions + $10,000 +(1.5 x $90,000)

      Total
        Unreturned Capital Contributions

       

      1,145,000   
        =   11.34%

      10,100,000

       

      ARC’s
        Percentage Interest will be increased by 1.34% (11.34% 10%) and SHP’s Percentage
        Interest will be reduced by 1.34%.

       

       

      
        
          
          

        

        
          
          

          
            
2