Exhibit 10.6











COLLATERAL DISPOSITION AGREEMENT



By and among

ALS Holdings, Inc.,



ALS Wisconsin Holdings, Inc.,



Alterra Healthcare Corporation,



Washington Mutual Bank, FA,



U.S. Bank National Association, and

AmSouth Bank









Dated October 8, 2002







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COLLATERAL DISPOSITION AGREEMENT

TABLE OF CONTENTS





|  |      |                                                 | Page
|- | ---- | ----------------------------------------------- | ----
|1 |      | Definitions and Recitals.                       | 3   
|2 |      | Acknowledgments.                                | 8   
|  | 2.1  | Borrowers and Guarantor.                        | 8   
|  | 2.2  | Agent and Lenders.                              | 8   
|3 |      | Collateral Disposition.                         | 9   
|  | 3.1  | Foreclosure.                                    | 9   
|  | 3.2  | Deeds in Lieu.                                  | 9   
|  | 3.3  | Voluntary Sales.                                | 9   
|  | 3.4  | Absolute Conveyance.                            | 10  
|  | 3.5  | No Merger.                                      | 10  
|4 |      | Representations and Warranties.                 | 10  
|  | 4.1  | No Violation.                                   | 10  
|  | 4.2  | Approvals.                                      | 11  
|  | 4.3  | Leases.                                         | 11  
|  | 4.4  | Taxes.                                          | 11  
|  | 4.5  | Insurance.                                      | 11  
|  | 4.6  | Casualty, Condemnation and Similar Proceedings. | 11  
|  | 4.7  | Liens.                                          | 11  
|  | 4.8  | Utilities.                                      | 12  
|  | 4.9  | Notices of Violations.                          | 12  
|  | 4.1  | Borrowers Not Foreign Persons.                  | 12  
|  | 4.11 | Zoning Compliance.                              | 12  
|  | 4.12 | Environmental Requirements.                     | 12  
|  | 4.13 | Licenses.                                       | 13  
|  | 4.14 | Litigation, Etc.                                | 13  
|  | 4.15 | Title.                                          | 13  
|  | 4.16 | Affiliate Leases.                               | 13  
|  | 4.17 | Employee Matters.                               | 14  
|  | 4.18 | Trade Debt.                                     | 14  
|  | 4.19 | Ownership of Equipment.                         | 14  
|  | 4.2  | Structural Defects.                             | 15  
|5 |      | Management of Properties.                       | 15  
|6 |      | Future Assignments and Deliveries.              | 15  
|  | 6.1  | Guarantor's Bill of Sale.                       | 15  
|  | 6.2  | Certain Personal Property.                      | 15  
|  | 6.3  | Inventories.                                    | 15  
|  | 6.4  | Resident Matters.                               | 16  
|  | 6.5  | Books and Records.                              | 16  
|  | 6.6  | Lease and Management Agreements.                | 16  
|  | 6.7  | Amendment to Forbearance Agreement.             | 16  
|7 |      | Cooperation and Non-Interference.               | 16  

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|8  |      | Release of Released Lending Parties.                 | 19
|-- | ---- | ---------------------------------------------------- | --
|9  |      | Release of Released Borrowing Parties.               | 19
|   | 9.1  | Delivery of Waivers.                                 | 19
|   | 9.2  | Effect of Occurrence of Release Waiver Event.        | 21
|   | 9.3  | Definition of Release Waiver Event.                  | 21
|   | 9.4  | Preservation of Liability for Certain Matters.       | 22
|   | 9.5  | Cure Rights.                                         | 23
|10 |      | Covenants.                                           | 23
|   | 10.1 | Maintenance of Borrowers' Existence and Properties.  | 23
|   | 10.2 | Maintenance of Guarantor's Existence and Properties. | 24
|   | 10.3 | Maintenance of Insurance.                            | 24
|   | 10.4 | Reporting Requirements.                              | 24
|   | 10.5 | Title Exceptions.                                    | 25
|   | 10.6 | No Consolidation; Mergers.                           | 25
|   | 10.7 | Notice of Litigation.                                | 25
|   | 10.8 | Payment of Taxes and Trade Debt.                     | 25
|   | 10.9 | No Distributions.                                    | 25
|   | 10.1 | Compliance With Laws; Licenses.                      | 26
|   | 10.1 | Books and Records.                                   | 26
|   | 10.1 | Capital Expenditures.                                | 26
|   | 10.1 | Employees.                                           | 26
|   | 10.1 | Operation of Properties and Businesses.              | 26
|   | 10.2 | Payment of Excess Net Income to Agent.               | 26
|11 |      | Notice to Agent/Transferee.                          | 27
|12 |      | Bankruptcy.                                          | 27
|13 |      | Refinancing Requirement.                             | 28
|14 |      | Notices.                                             | 29
|15 |      | Indemnification.                                     | 30
|16 |      | No Assumption By Agent.                              | 30
|17 |      | Jury Trial Waiver.                                   | 30
|18 |      | Supplemental Rights.                                 | 31
|19 |      | Full Force and Effect.                               | 31
|20 |      | No Novation.                                         | 31
|21 |      | Further Assurances.                                  | 31
|22 |      | Complete Agreement.                                  | 31
|23 |      | Binding Effect.                                      | 31
|24 |      | Counterparts.                                        | 31
|25 |      | Third Party Beneficiaries.                           | 31
|26 |      | Relationship Among Parties.                          | 32
|27 |      | No Assumption of Liabilities.                        | 32
|28 |      | Legal Expenses.                                      | 32
|29 |      | Joint and Several Liability.                         | 32
|30 |      | Governing Law.                                       | 32
|31 |      | Notice and Agreement.                                | 32

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COLLATERAL DISPOSITION AGREEMENT

THIS COLLATERAL DISPOSITION AGREEMENT (as the same may be amended, modified or supplemented from time to time, this "Agreement"), dated as of October 8, 2002, is by and among:

(i)       ALS HOLDINGS, INC., a Delaware corporation, and ALS WISCONSIN HOLDINGS, INC., a Delaware corporation (collectively, "Borrowers");

(ii)     ALTERRA HEALTHCARE CORPORATION, a Delaware corporation formerly known as Alternative Living Services, Inc. ("Guarantor");

(iii)     WASHINGTON MUTUAL BANK, FA, a federal association which is the successor by merger to Bank United ("Bank United"), U.S. BANK NATIONAL ASSOCIATION f/k/a Firstar Bank Milwaukee, N.A., and AMSOUTH BANK, Lenders under, and as defined in, the Financing Agreement described below (in such capacity, "Lenders"); and

(iv)     WASHINGTON MUTUAL BANK, FA, a federal association which is the successor by merger to Bank United, in its capacity as agent for Lenders under the Financing Agreement (in such capacity, "Agent").

The above-named parties are referred to herein as the "Parties."  The Parties hereby agree as follows:



RECITALS

1. 
2. Agent and Lenders are the parties to an Agency Agreement dated as of February 12, 1999 (as amended to the date hereof, the "Agency Agreement"), as amended by a First Amendment to Agency Agreement dated as of October 29, 1999.
3. The Credit Facility provided for in the Financing Agreement (the "Credit Facility") is evidenced by the following (collectively, as amended to the date hereof, the "Notes"): (i) a Promissory Note dated September 28, 1998 in the principal amount of $45,000,000 in favor of Bank United as a Lender, as amended by a First Amendment to Promissory Note dated as of November 18, 1998; (ii) a Promissory Note dated February 12, 1999 in the principal amount of $20,000,000 in favor of Firstar Bank Milwaukee, N.A. as a Lender; (iii) a Promissory Note dated February 12, 1999 in the principal amount of $15,000,000 in favor of AmSouth Bank as a Lender; and (iv) an Additional Borrower Joinder Supplement dated December 10, 1998 and executed by Borrowers, Guarantor and Agent.
4. Borrowers' obligations under the Financing Agreement, the Notes and the documents and instruments related thereto are secured by certain mortgages and other Security Documents (as defined below) executed by Borrowers and Guarantor.  Under the terms of the Security Documents, Borrowers and Guarantor granted to Agent for the benefit of Lenders liens on, and security interests in, certain collateral, including, without limitation, all right, title and interest of Borrowers and Guarantor in and to all of the Properties (as defined below).
5. Guarantor has guaranteed the Credit Facility provided for in the Financing Agreement pursuant to the terms of the following (collectively, the "Guaranty"):  (i) the Guaranty of Payment Agreement dated September 28, 1998 executed by Guarantor in favor of Agent and Lenders, as amended by a First Amendment to Guaranty of Payment Agreement dated as of October 29, 1999, a Suspension, Waiver and Modification Agreement dated as of March 28, 2000, a Third Amendment to Guaranty of Payment Agreement dated as of May 10, 2000, and a Fourth Amendment to Guaranty of Payment Agreement dated as of May 31, 2000; and (ii) certain Guaranties of Performance executed by Guarantor on various dates in connection with individual Properties.
6. The Financing Agreement, the Notes, the Guaranty, the Agency Agreement, the Security Documents, and all other documents, instruments and agreements evidencing, securing or otherwise relating to the Credit Facility are collectively referred to as the "Financing Documents."
7. Borrowers, Guarantor, Lenders and Agent are parties to that certain Forbearance and Collateral Account Agreement dated as of November 1, 2001 (as amended to the date hereof, the "Forbearance Agreement") pursuant to which Agent and Lenders agreed to forbear for a limited time in the exercise of certain rights and remedies provided to Agent and Lenders under the Financing Documents on the terms and conditions set forth in the Forbearance Agreement.
8. Borrowers and Guarantor are in default under the Financing Documents by virtue, without limitation, of the failure to make payments when due under the Financing Documents (the "Maturity Default").  Borrowers and Guarantor are willing to permit Agent, on behalf of Lenders, to foreclose Lenders' interests in the Properties and the other Collateral with the cooperation of Borrowers and Guarantor or, alternatively at the option of Agent, to provide Agent or any one or more nominees of Agent with deeds in lieu of foreclosure with respect to some or all of the Properties and the other Collateral, and Agent and Lenders are willing to release Borrowers and Guarantor, prior to the Final Interim Deficiency Waiver Date (as defined below), from recourse liability for the Allocated Deficiency Waiver Amount (as defined below) applicable to each Property, as and when each such foreclosure occurs or such deed in lieu is recorded or, subject to the prior approval of Agent and Lenders pursuant to this Agreement, such Property is sold, with a release of Borrowers and Guarantor from all recourse liability other than for the Residual Deficiency Amount (as defined below) on the Final Interim Deficiency Waiver Date (as defined below), and with a final release upon the Final Deficiency Waiver Date (as defined below), all subject to, and upon, the terms and conditions set forth in this Agreement.

Accordingly, for valuable consideration, the receipt and sufficiency of which are acknowledged, Borrowers, Guarantor, Agent and Lenders agree as follows:

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AGREEMENT

"Agreement Event of Default" means the occurrence of any one or more of the following: (i) the untruth in any material respect of any representation and warranty made in this Agreement by Guarantor or either Borrower; or (ii) the failure in any material respect of Guarantor or either Borrower to perform any covenant or agreement made in this Agreement or in any agreement or document entered into pursuant to the terms of this Agreement unless such failure is cured within ten (10) days after written notice thereof from Agent.

"Agreement Principal Balance" means the aggregate principal balance owing under the terms of the Notes and the other Financing Documents as of the date of this Agreement, which aggregate principal balance is in the amount of $42,119,958.91.

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| | (a) | Leesburg, Florida                               | $2,628,142.08
| | --- | ----------------------------------------------- | -------------
| | (b) | Pin Oak, Florida (Clare Bridge)                 | $2,498,726.00
| | (c) | Pin Oak, Florida (Wynwood)                      | $3,753,066.53
| | (d) | Tequesta, Florida (Villas)                      | $2,727,692.92
| | (e) | Tequesta, Florida (Clare Bridge)                | $4,579,338.48
| | (f) | Michigan City, Indiana (Sterling Cottage)       | $3,155,761.52
| | (g) | Michigan City, Indiana (Sterling House)         | $3,484,279.28
| | (h) | Lenexa, Kansas                                  | $2,130,387.90
| | (i) | Lawrence, Kansas                                | $2,329,489.57
| | (j) | Owatonna, Minnesota (Clare Bridge)              | $1,194,610.04
| | (k) | Owatonna, Minnesota (Sterling House)            | $1,095,059.20
| | (l) | Southern Pines, North Carolina (Clare Bridge)   | $2,986,525.09
| | (m) | Southern Pines, North Carolina (Sterling House) | $2,289,669.24
| | (n) | Dublin Borough, Pennsylvania                    | $2,986,525.09
| | (o) | Appleton, Wisconsin                             | $4,280,685.97

"Bankruptcy Code" means the United States Bankruptcy Code, title 11 United States Code, or any successor thereto.

"Case" has the meaning given in Section 12.

"Collateral" means the Properties and all other real and personal property in which the Agent or the Lenders hold a lien or security interest to secure amounts owed under the Notes and the other Financing Documents.

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"Deed in Lieu" means a deed or other instrument in lieu of foreclosure of Agent's liens on and security interests in a Property and to which Agent and Lenders agree in accordance with Section 3.2.

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(a)     Leesburg, Florida;

     (b)     Pin Oak, Florida (Clare Bridge);
     (c)     Pin Oak, Florida (Wynwood);
     (d)     Tequesta, Florida (Villas);

     (e)     Tequesta, Florida (Clare Bridge);

     (f)     Michigan City, Indiana (Sterling Cottage); 
     (g)     Michigan City, Indiana (Sterling House);
     (h)     Lenexa, Kansas;
     (i)     Lawrence, Kansas;

     (j)     Owatonna, Minnesota (Clare Bridge);
     (k)     Owatonna, Minnesota (Sterling House);
     (l)     Southern Pines, North Carolina (Clare Bridge);
     (m)     Southern Pines, North Carolina (Sterling House);
     (n)     Dublin Borough, Pennsylvania; and
     (o)     Appleton, Wisconsin.

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1. Acknowledgments.

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12.3     As adequate protection for the use of the Cash Collateral and notwithstanding Section 552(a) of the Bankruptcy Code, Borrowers and Guarantor agree that, in addition to the security interests described in Section 552(b) of the Bankruptcy Code, Agent shall have a continuing first priority lien post-petition on all assets of a Borrower (which assets include, without limitation, all accounts, chattel paper, documents, equipment, fixtures, general intangibles, instruments, inventory, and rents, issues and profits), including the proceeds thereof, with such lien being deemed perfected upon entry of the Order without the necessity of filing any financing statements or taking any other action and with such perfection being binding on any subsequently appointed bankruptcy trustee.

12.4     
Borrowers and Guarantor agree that they will not seek authorization to incur any post-petition financing from any lender other than Agent which financing would be secured by any Collateral on which Agent holds a lien or security interest.

12.5     
Each Borrower and Guarantor hereby waives the benefit of the automatic stay of Section 362 of the Bankruptcy Code as to Agent and agrees that it shall consent to and not oppose a motion for relief from the automatic stay filed in a Case by Agent with respect to the Properties or the other Collateral.

12.6     At or before the confirmation of a plan of reorganization in a Case, the Borrower or Guarantor that is the debtor in such Case shall assume this Agreement pursuant to Bankruptcy Code Section 365.

12.7     
Guarantor hereby agrees that, in a Case, it shall not reject any Lease and Management Agreement without providing at least sixty (60) days' prior written notice to Agent of such rejection.

13.     Refinancing Requirement.  Borrowers and Guarantor shall refinance the Properties listed below on or before October 31, 2002:  Leesburg, Florida; Sterling Cottage of Michigan City, Indiana; Sterling House of Michigan City, Indiana; Dublin Borough, Pennsylvania; Clare Bridge of Owatonna, Minnesota; and Sterling House of Owatonna, Minnesota (collectively, the "Refinance Properties").  Lenders and Agent agree that they will not complete foreclosure upon the Refinance Properties, nor will they require that Borrowers or Guarantor deliver any Deeds in Lieu with respect to the Refinance Properties, prior to October 31, 2002; provided, however, that Lenders and Agent may institute and prosecute such foreclosure proceedings so long as no foreclosure sale is conducted prior to October 31, 2002.  In order for Lenders and Agent to consent to a release of the Refinance Properties with respect to the refinancing required by this Section 13, Lenders and Agent must receive at least the following net proceeds with respect to the following Refinance Properties:

|Refinance Property                    | Minimum Net Proceeds
|------------------------------------- | --------------------
|Leesburg, FL                          | $3,086,900          
|Sterling Cottage of Michigan City, IN | $3,482,800          
|Sterling House of Michigan City, IN   | $3,155,000          
|Dublin Borough, PA                    | $2,984,700          
|Clare Bridge of Owatonna, MN          | $1,196,400          
|Sterling House of Owatonna, MN        | $1,094,200          

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Borrowers and Guarantor hereby covenant and agree to keep Lenders and Agent apprised of the status of the negotiation of the refinancing on a regular basis.  Borrowers and Guarantor have previously delivered to Agent a copy of an executed commitment letter from a potential lender.  Such commitment letter provides for a refinancing which will provide the Minimum Net Proceeds to Agent and Lenders specified above.  If Borrowers and Guarantor fail to consummate the refinancing of the Refinance Properties on or prior to October 31, 2002, Agent and Lenders may complete foreclosures, arrange for the holding of foreclosure sales and/or require the delivery of Deeds in Lieu with respect to such Refinance Properties; provided, however, that Borrowers' and Guarantor's failure to complete the refinance of one, but not more than one, Refinance Property by such time shall not constitute an Agreement Event of Default.  Upon the receipt by Lenders and Agent on or before October 31, 2002 of the Minimum Net Proceeds from the refinance of any Refinance Property, Lenders and Agent shall deliver an Interim Deficiency Waiver with respect to such Refinance Property in the amount of the Allocated Deficiency Waiver Amount applicable to such Refinance Property.

If to Agent or Lenders:

Washington Mutual Bank, FA
Commercial Real Estate Asset Management
3200 Southwest Freeway, Suite 2630
Houston, Texas  77027
Attention:     Gordon Kovacs
Phone:      (713) 543-7951
Facsimile:      (713) 543-6469
Email:      gordon.kovacs@wamu.net

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If to Borrowers or Guarantor:

Email:      mohlendorf@assisted.com

with copies to counsel for Borrowers and Guarantor:

Any notice, request, demand or other communication delivered or sent in the manner aforesaid shall be deemed given or made (as the case may be) upon the earliest of (a) the date it is actually received, (b) the business day it is received by facsimile prior to 5:00 p.m., and, if after 5:00 p.m., on the next business day; (c) the business day after the day on which it is delivered by hand, (d) the business day after the day on which it is properly delivered to Federal Express (or a comparable overnight delivery service), or (e) the third business day after the day on which it is deposited in the United States mail.  Any of Borrowers, Guarantor, Agent or Lenders may change its address by notifying the other parties of the new address in any manner permitted by this Section 14.

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1. Relationship Among Parties.
2. No Assumption of Liabilities.
3. Legal Expenses.
4. Joint and Several Liability.
5. Governing Law.
6. Notice and Agreement.

Borrowers, Guarantor, Agent and Lenders hereby take notice of and agree to the following:

ORAL AGREEMENTS OR ORAL COMMITMENTS TO LEND MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

[SIGNATURES ON FOLLOWING PAGES]

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WITNESS the following signatures.

BORROWERS:

By:/s/ Mark W. Ohlendorf
Name:  Mark W. Ohlendorf
Title:  Vice President



ALS WISCONSIN HOLDINGS, INC.





By:/s/ Mark W. Ohlendorf
Name:  Mark W. Ohlendorf
Title:  Vice President



GUARANTOR:





By:  /s/ Mark W. Ohlendorf

Name:  Mark W. Ohlendorf
Title:  Vice President



AGENT AND LENDERS:





By:  /s/ Gordon Kovacs
Name:  Gordon Kovacs
Title:  First Vice President





U.S. BANK NATIONAL ASSOCIATION, f/k/a 
FIRSTAR BANK MILWAUKEE, N.A., as a
Lender





By:/s/ Dale L. Welke
Name:  Dale L. Welke
Title:  Vice President





AMSOUTH BANK, as a Lender
By:  /s/ Carl M. Ferris
Name:  Carl M. Ferris
Title:  Vice President



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ANNEX 1
Form of Deed in Lieu of Foreclosure Agreement

DEED IN LIEU OF FORECLOSURE AGREEMENT

THIS DEED IN LIEU OF FORECLOSURE AGREEMENT (this "Agreement") is made as of the ____ day of ____________, 2002 by and among:

(i)          ALS HOLDINGS, INC., a Delaware corporation ("ALS"); ALS WISCONSIN HOLDINGS, INC., a Delaware corporation ("ALS Wisconsin" and, collectively with ALS, "Borrowers");

(ii)     ALTERRA HEALTHCARE CORPORATION, a Delaware corporation formerly known as Alternative Living Services, Inc. ("Guarantor"); and

(iii)     WASHINGTON MUTUAL BANK, FA, a federal association which is the successor by merger to Bank United, in its capacity as agent for the Lenders under the Financing Agreement described below (in such capacity, "Agent").

The above-named parties are referred to herein as the "Parties."

RECITALS

A.     Borrowers, Agent and Lenders are parties to an Amended and Restated Financing and Security Agreement dated February 12, 1999 (as amended to the date hereof, the "Financing Agreement"), as amended by a First Amendment to Amended and Restated Financing and Security Agreement dated as of October 29, 1999, a Second Amendment to Amended and Restated Financing and Security Agreement dated as of May 10, 2000, and a Third Amendment to Amended and Restated Financing and Security Agreement dated as of May 31, 2000.

B.     Agent and Lenders are the parties to an Agency Agreement dated as of February 12, 1999 (as amended to the date hereof, the "Agency Agreement"), as amended by a First Amendment to Agency Agreement dated as of October 29, 1999.

C.     The Credit Facility provided for in the Financing Agreement (the "Credit Facility") is evidenced by the following (collectively, as amended to the date hereof, the "Notes"): (i) a Promissory Note dated September 28, 1998 in the principal amount of $45,000,000 in favor of Bank United as a Lender, as amended by a First Amendment to Promissory Note dated as of November 18, 1998; (ii) a Promissory Note dated February 12, 1999 in the principal amount of $20,000,000 in favor of Firstar Bank Milwaukee, N.A. as a Lender; (iii) a Promissory Note dated February 12, 1999 in the principal amount of $15,000,000 in favor of AmSouth Bank as a Lender; and (iv) an Additional Borrower Joinder Supplement dated December 10, 1998 and executed by Borrowers, Guarantor and Agent.

D.     Borrowers' obligations under the Financing Agreement, the Notes and the documents and instruments related thereto are secured by certain mortgages and other Security Documents (as defined below) executed by Borrowers and Guarantor.

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E.     Under the terms of the Security Documents, Borrowers and Guarantor granted to Agent for the benefit of Lenders liens on, and security interests in, certain collateral, including, without limitation, all right, title and interest of Borrowers and Guarantor in and to various senior living facilities including but not limited to that certain facility situated on the real property located at ____________________________ and more particularly described in Exhibit A attached to this Agreement, together with all improvements, fixtures, easements, appurtenances and other real property interests located thereon or relating thereto (collectively, the "Subject Real Property").  The Security Documents also contain a grant to Agent for the benefit of Lenders of a lien on and security interest in certain personal property located on or relating to the Subject Real Property or the senior living facility located thereon, which personal property (the "Subject Personal Property") is more particularly described in Exhibit B attached to this Agreement.  The Subject Real Property and the Subject Personal Property are referred to, collectively, in this Agreement as the "Property."  The Security Documents include but are not limited to the following documents relating specifically to the Property:

1.     [Mortgage] [Deed of Trust], Assignment and Security Agreement dated ___________, executed by _____________ ("Mortgagor") and Guarantor in favor of Agent, and recorded on ______________ under recording no. ___________ in the records of __________ County, ___________ (the "Mortgage");

2.     Assignment of Lessor's Interest in Leases dated ___________, executed by Mortgagor and Guarantor in favor of Agent, and recorded on ______________ under recording no. ___________ in the records of __________ County, ___________;

3.     Collateral Assignment of Licenses, Participation Agreements and Resident Agreements dated _____________ and executed by Mortgagor and Guarantor in favor of Agent;

4.     Collateral Assignment of Operating Agreements and Management Contracts dated _____________ and executed by Mortgagor and Guarantor in favor of Agent;

5.     Management Fee Subordination Agreement dated _________ and executed by Mortgagor and Guarantor in favor of Agent; and

6.     Various Uniform Commercial Code financing statements relating to the foregoing.

[**List Any Other Security Documents Specific to the Property**]

F.     Guarantor has guaranteed the Credit Facility provided for in the Financing Agreement pursuant to the terms of the following (collectively, the "Guaranty"):  (i) the Guaranty of Payment Agreement dated September 28, 1998 executed by Guarantor in favor of Agent and Lenders, as amended by a First Amendment to Guaranty of Payment Agreement dated as of October 29, 1999, a Suspension, Waiver and Modification Agreement dated as of March 28, 2000, a Third Amendment to Guaranty of Payment Agreement dated as of May 10, 2000, and a Fourth Amendment to Guaranty of Payment Agreement dated as of May 31, 2000; and (ii) certain Guaranties of Performance executed by Guarantor on various dates in connection with individual senior living facilities.

G.     The Financing Agreement, the Notes, the Guaranty, the Agency Agreement, the Security Documents, and all other documents, instruments and agreements evidencing, securing or otherwise relating to the Credit Facility are collectively referred to as the "Financing Documents."

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H.     Borrowers and Guarantor are in default under the Financing Documents.  As a result of such defaults (collectively, the "Default"), Borrowers, Guarantor, Agent and Lenders have entered into a Collateral Disposition Agreement dated as of October 8, 2002 (the "Collateral Disposition Agreement").  Among other things, the Collateral Disposition Agreement provides for Borrowers to provide one or more deeds in lieu of foreclosure to Agent or its designee or nominee (in any such case, "Transferee") under certain circumstances more specifically set forth therein.  The Parties enter into this Agreement in order to provide for such a deed in lieu of foreclosure with respect to the Property.

I.     Mortgagor owns fee simple title to the Subject Real Property and owns all or substantially all of the Subject Personal Property, provided that Guarantor does, or may, own or have some interest in certain of the Subject Personal Property.  As used in this Agreement, the term "Owner" means Mortgagor and, to the extent of any interest either thereof may own or hold in any of the Property, Guarantor and the Borrower which is not Mortgagor.

J.     As of __________, 2002, the total outstanding principal balance of the Credit Facility was $______________ and certain accrued and unpaid interest thereon and fees and expenses in connection therewith were also owing to Agent and/or Lenders under the terms of the Financing Documents.

K.     Owner has determined that it is to Owner's advantage that the parties resolve the Default by Owner's conveyance of the Property to Transferee in lieu of foreclosure and has, therefore, requested that Agent agree to such a conveyance.

L.     Pursuant to the terms of the Collateral Disposition Agreement, in connection with the Closing hereunder, [i] Transferee and Guarantor will enter into a Lease and Management Agreement substantially in the form attached as an annex to the Collateral Disposition Agreement (the "Lease and Management Agreement") [and (ii) Agent and Lenders will deliver the [Interim Deficiency Waiver] [Final Deficiency Waiver] substantially in the form annexed to the Collateral Disposition Agreement (the "Waiver")].

M.     The fair market value of the Property does not exceed the Allocated Deficiency Waiver Amount (as defined in the Collateral Disposition Agreement) with respect to the Property.

N.     Agent wishes to accept the conveyance of the Property to Transferee pursuant to this Agreement to avoid the necessity of litigation, foreclosure, the delays associated therewith, and to avoid the delays associated with Owner's statutory redemption rights, if any, with respect to the Property.

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AGREEMENT

NOW, THEREFORE, for and in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrowers, Guarantor and Agent agree as follows:

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4.     Title

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[END OF TEXT]

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DATED the date first set forth above.

BORROWERS:



By:
Name:
Title:ALS WISCONSIN HOLDINGS, INC.By:
Name:
Title:

AGENT:





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LIST OF EXHIBITS

EXHIBIT A     Legal Description of Subject Real Property

EXHIBIT B     Description of Subject Personal Property

EXHIBIT C     Permitted Exceptions

EXHIBIT D     Unassignable Leases

EXHIBIT E     Assigned Contracts

EXHIBIT F     List of Excluded Permits

EXHIBIT G     List of Excluded Miscellaneous Personal Property

EXHIBIT H     Form of Owner's Affidavit

EXHIBIT I     Form of Escrow Agreement

EXHIBIT J     Form of Lien Certificate

EXHIBIT K     Form of Deed

EXHIBIT L     Form of Bill of Sale

EXHIBIT M     Form of Assignment of Contracts

EXHIBIT N     Form of Assignment and Acceptance of Leases

EXHIBIT O     Form of Non-Foreign Status Certificate

EXHIBIT P     Form of Rent Roll Certificate

EXHIBIT Q     Form of Deed in Lieu of Foreclosure Certificate

EXHIBIT R     Exceptions to Each Party's Responsibility for Own Expenses

EXHIBIT S     Exceptions to Accuracy of Representations and Warranties

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EXHIBIT A



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EXHIBIT B

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EXHIBIT C

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EXHIBIT D

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EXHIBIT E

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EXHIBIT F

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EXHIBIT G

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EXHIBIT H

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EXHIBIT I

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EXHIBIT J

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EXHIBIT K

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EXHIBIT L

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EXHIBIT M

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EXHIBIT N

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EXHIBIT O

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EXHIBIT P

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EXHIBIT Q

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EXHIBIT R

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EXHIBIT S

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ANNEX 2
Form of Lease and Management Agreement

LEASE AND MANAGEMENT AGREEMENT

By and among





and



Alterra Healthcare Corporation



Dated

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LEASE AND MANAGEMENT AGREEMENT

TABLE OF CONTENTS

|ARTICLE I    | Definitions; Incorporation of Recitals                        | 1 
|------------ | ------------------------------------------------------------- | --
|Section 1.1  | Definitions.                                                  | 1 
|Section 1.2  | Incorporation of Recitals.                                    | 3 
|ARTICLE II   | Lease of Property and Term                                    | 3 
|Section 2.1  | Lease of Property; Termination Upon Failure to Acquire Title. | 3 
|Section 2.2  | Term; Termination for Failure to Acquire Title.               | 4 
|Section 2.3  | Services as Manager.                                          | 4 
|ARTICLE II   | I Rental and Compensation and Expenses of Lessee              | 12
|Section 3.1  | Rental.                                                       | 13
|Section 3.2  | Management Fee.                                               | 13
|Section 3.3  | Costs and Expenses to be Borne by Lessee.                     | 13
|Section 3.4  | Additional Payments.                                          | 14
|ARTICLE IV   | Personnel                                                     | 14
|Section 4.1  | Stability of Management Team.                                 | 14
|Section 4.2  | Affiliates..                                                  | 15
|ARTICLE V    | [RESERVED]                                                    | 15
|ARTICLE VI   | Accounting and Financing Matters                              | 15
|Section 6.1  | Books and Records.                                            | 15
|Section 6.2  | Reports and Reconciliation of Property Accounts.              | 15
|Section 6.3  | Contracts and Other Agreements.                               | 16
|Section 6.4  | Final Accounting.                                             | 16
|Section 6.5  | Tax Returns.                                                  | 16
|Section 6.6  | Inspections.                                                  | 16
|ARTICLE VII  | RENT Account                                                  | 16
|Section 7.1  | [INTENTIONALLY OMITTED]                                       | 16
|Section 7.2  | Rent Account.                                                 | 16
|ARTICLE VIII | Insurance and Indemnity                                       | 20
|Section 8.1  | Indemnity.                                                    | 20
|Section 8.2  | Lessee's Insurance Responsibility.                            | 20
|Section 8.3  | Approval of Insurance Companies.                              | 21
|Section 8.4  | Additional Insureds.                                          | 21
|Section 8.5  | Lessee's Duties in Case of Loss.                              | 21
|Section 8.6  | Waiver of Subrogation.                                        | 22
|ARTICLE IX   | Relationship of Parties                                       | 22
|Section 9.1  | Representations and Warranties.                               | 22
|Section 9.2  | Nature of Relationship.                                       | 23
|Section 9.3  | Lessee Not to Pledge Owner's Credit                           | 24
|Section 9.4  | Estoppel Certificate                                          | 24
|Section 9.5  | Subordination.                                                | 24
|Section 9.6  | Confidentiality.                                              | 24
|Section 9.7  | Third-Party Reporting.                                        | 24

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|ARTICLE X     | Termination                                     | 24
|------------- | ----------------------------------------------- | --
|Section 10.1  | Default                                         | 24
|Section 10.2  | Termination.                                    | 25
|Section 10.3  | Orderly Transition                              | 25
|Section 10.4  | Rights Which Survive Termination or Expiration. | 26
|ARTICLE XI    | General                                         | 26
|Section 11.1  | Notices.                                        | 26
|Section 11.2  | Entire Agreement.                               | 27
|Section 11.3  | Amendments and Waivers.                         | 27
|Section 11.4  | Invalidity of Provision                         | 27
|Section 11.5  | Governing Law.                                  | 27
|Section 11.6  | Time.                                           | 27
|Section 11.7  | Assignment                                      | 27
|Section 11.8  | Counterparts.                                   | 27
|Section 11.9  | Exculpation.                                    | 27
|Section 11.10 | Attorneys' Fees.                                | 28
|Section 11.11 | Further Assurances.                             | 28
|Section 11.12 | No Waiver.                                      | 28
|Section 11.13 | References.                                     | 28
|Section 11.14 | Consent.                                        | 28
|Section 11.15 | Owner's Designated Representative.              | 28
|Section 11.16 | WAIVER OF RIGHT TO JURY TRIAL.                  | 28

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LEASE AND MANAGEMENT AGREEMENT

THIS LEASE AND MANAGEMENT AGREEMENT ("Agreement") is made as of this ____ day of_________, 2002, by and between _____________________, a _________________ ("Owner"), and ALTERRA HEALTHCARE CORPORATION, a Delaware corporation ("Lessee").  Owner and Lessee are referred to herein as the "Parties."

RECITALS

A.     The Parties contemplate that Owner will become the owner of the assisted living/Alzheimer's care facility known as "___________," formerly owned by __________________________, located at ________________________________________, as more particularly described in Exhibit A attached hereto and made a part hereof (such land, together with the improvements thereon, is referred to as the "Real Property").  Owner desires to lease the Real Property and the personal property included in the Property (as defined below) to Lessee and have Lessee lease the Property from Owner and operate and manage the Property in accordance with the terms and conditions of this Agreement, and Lessee desires to lease the Property from Owner and to operate and manage the Property, in a good and prudent manner, consistent with all federal, state and local licensing and operating requirements and otherwise consistent with the standard of care exercised by management companies in the assisted living/Alzheimer's care industry (the "Management Standard") and in accordance with the terms and conditions of this Agreement.

B.     Lessee's personnel are experienced in the management, operation and supervision of assisted living/Alzheimer's care facilities in the geographic area where the Property is located.

C.     The parties desire to set forth in this Agreement the terms and conditions under which Lessee shall lease, manage and operate the Property.

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, Owner and Lessee agree as follows:




Section 1.1.1     Affiliate.  The term "Affiliate" shall mean any person or entity controlling, controlled by or under common control with another identified person or entity.  A person or entity shall be deemed to control a corporation or other entity if such person or entity possesses, directly or indirectly, the power to direct or cause the direction of management and policies of such corporation or other entity, whether through the ownership of equity interests, by contract or otherwise.

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ARTICLE II 
LEASE OF PROPERTY AND TERM

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(c)     
Lessee shall not exceed the amount of any item or items shown on the Approved Capital Budget by more than an aggregate of $35,000 per annum or the amount of any item or items shown on the Approved Operating Budget by more than 5% per annum for any single line item or 2% of the aggregate Approved Operating Budget without explicit advance written authorization from Owner (other than any expenditure reasonably and necessarily incurred by Lessee in an Emergency during which Lessee is unable to contact Owner for authorization; provided, however, that Owner shall be informed of any such expenditures and the reasons therefor immediately and in no event later than the end of the second business day immediately following the Emergency).  The variance of $35,000 per annum for the Approved Capital Budget is hereinafter referred to as the "Permitted Capital Variance," the variance of 5% per line item (subject to a limit of 2% of the aggregate Approved Operating Budget) for the Approved Operating Budget is herein referred to as the "Permitted Operating Variance" and the Permitted Capital Variance and the Permitted Operating Variance are herein collectively referred to as the "Permitted Variances."  Subject to the Permitted Variances, Lessee shall (a) use reasonable efforts to ensure that the actual cost of maintaining and operating the Property will not exceed the Approved Operating Budget, (b) obtain Owner's prior written approval for any expenditure exceeding the Approved Operating Budget or the Approved Capital Budget, as applicable, other than the Permitted Variances and (c) diligently seek to minimize the cost of overtime labor consistent with maintaining and operating the Property in accordance with the Management Standard and Applicable Laws.  Lessee shall obtain and credit to Owner all discounts, rebates or commissions obtainable with respect to purchases, contracts, maintenance and repair work or other transactions made on Owner's behalf consistent with maintaining and operating the Property in accordance with the Management Standard and Applicable Laws.

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ARTICLE V 
[RESERVED)





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ARTICLE VIII 
INSURANCE AND INDEMNITY


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[SIGNATURES ON FOLLOWING PAGE]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above.

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ALTERRA HEALTHCARE CORPORATION



By:

Name:

Title:

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Description of Property


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EXHIBIT B

Approved Operating Budget for Year Ending December 31, 2002

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EXHIBIT C

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ANNEX 6
Form of Interim Deficiency Waiver

INTERIM DEFICIENCY WAIVER





This Interim Deficiency Waiver (this "Agreement") is made and entered into this __ day of _______, 200_, by and among Washington Mutual Bank, FA, a federal association which is the successor by merger to Bank United ("Bank United"), U. S. Bank National Association f/k/a Firstar Bank Milwaukee, N.A. and AmSouth Bank (collectively, "Lenders") and Washington Mutual Bank, a federal association which is successor by merger to Bank United, in its capacity as agent for Lenders (in such capacity, "Agent") in favor of ALS Holdings, Inc., a Delaware corporation ("Holdings") and ALS Wisconsin Holdings, Inc., a Delaware corporation ("Wisconsin Holdings") (Holdings and Wisconsin Holdings collectively referred to as "Borrowers") and Alterra Healthcare Corporation, a Delaware corporation formerly known as Alternative Living Services, Inc. ("Guarantor").

RECITALS



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WITNESS the following signatures.

BORROWERS:



ALS WISCONSIN HOLDINGS, INC.



By:
Name:
Title:



GUARANTOR:



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AGENT AND LENDERS:



By:
Name:
Title:

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U.S. BANK NATIONAL ASSOCIATION, f/k/a 
FIRSTAR BANK MILWAUKEE, N.A., as a 
Lender



By:
Name:
Title:

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AMSOUTH BANK, as a Lender



Name:
Title:

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ANNEX 7
Form of Final Interim Deficiency Waiver

FINAL INTERIM DEFICIENCY WAIVER



This Final
Interim Deficiency Waiver (this "Agreement") is made and entered into this __
day of _______, 200_, by and among Washington Mutual Bank, FA, a federal
association which is the successor by merger to Bank United ("Bank United"),
U.S. Bank National Association f/k/a Firstar Bank Milwaukee, N.A. and AmSouth
Bank (collectively "Lenders") and Washington Mutual Bank, a federal association
which is successor by merger to Bank United, in its capacity as agent for
Lenders (in such capacity, "Agent") in favor of ALS Holdings, Inc., a Delaware
corporation ("Holdings") and ALS Wisconsin Holdings, Inc., a Delaware
corporation ("Wisconsin Holdings") (Holdings and Wisconsin Holdings collectively
referred to as "Borrowers") and Alterra Healthcare Corporation, a Delaware
corporation formerly known as Alternative Living Services, Inc.
("Guarantor").

RECITALS











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WITNESS the following signatures.

BORROWERS:





Name:Title:

ALS WISCONSIN HOLDINGS, INC.



By:

Name:Title:



GUARANTOR:





Name:Title:

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Name:Title:

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Name:Title:

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Name:Title:

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ANNEX 8
Form of Final Deficiency Waiver

Exhibit 10.8



SPACE ABOVE THIS LINE RESERVED FOR CLERK'S USE



Recording requested by and

when recorded return to:







Assumption, Extension and Modification Agreement

NOTICES TO RECORDERS:



FLORIDA     This Assumption, Extension and Modification Agreement extends and modifies that certain Mortgage, Assignment of Leases and Rents and Security Agreement recorded in Official Records Book 4218, at Page 0842 of the Public Records of Escambia County, Florida.  The Notes described in this Modification Agreement were executed and delivered outside of the State of Florida and are secured by property located both inside and outside of the State of Florida.  The value of the real property located in Florida is $5,300,000 and the value of the real property located outside the State of Florida is $48,000,000.  The percentage that the value of the Florida real property bears to the value of all mortgaged property located both inside and outside the State of Florida is 9.797%.  However, the Mortgagee has agreed to limit its recovery from the Florida property to less than the total amount of the Notes and has chosen the amount to be secured by Florida property to be $3,043,500.  Accordingly, upon recordation hereof documentary stamp taxes are being paid in the amount of $10,653 and intangibles taxes are being paid in the amount of $6,087.

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This ASSUMPTION, EXTENSION AND MODIFICATION AGREEMENT dated as of the 26th day of July, 2002, by and among ALS WEST, INC., a Delaware corporation doing business in Arizona as AHC West, Inc. (hereinafter called "Borrower"), GUARANTY BANK (formerly known as Guaranty Federal Bank, F.S.B.), a federal savings bank (hereinafter called "Lender"), and ALTERRA HEALTHCARE CORPORATION (formerly known as Alternative Living Services, Inc.),  a Delaware corporation (hereinafter called "Alterra");









WHEREAS, Borrower, Lender, in its capacity as agent and as a lender, and Alterra entered into that certain Master Loan Agreement dated as of January 8 1999, as modified by Modification of Master Loan Agreement dated March 15, 2000 and Second Modification of Master Loan Agreement dated May 31, 2000 (hereinafter called the "Master Loan Agreement");

WHEREAS, Alterra has executed and delivered to Lender one certain promissory note (hereinafter called the "Mesa Note") dated December 22, 1997, payable to the order of Lender in the original principal sum of $2,344,000, with interest and principal payable as therein provided, a Construction Deed of Trust, Assignment of Leases and Rents,  Security Agreement and Fixture Filing (as modified and amended by Extension and Modification Agreement dated as of January 4, 1999, letter agreement dated March 22, 1999, Modification Agreement dated March 15, 2000, Fourth Modification Agreement dated May 31, 2000, and Fifth Extension Agreement dated January 4, 2001, hereinafter called the "Mesa Mortgage") dated of even date with the Mesa Note, securing the payment of the Mesa Note, covering certain real and personal property described therein (hereinafter called the "Mesa Property", the real property forming a part of which is more particularly described in Exhibit A-1 attached hereto and incorporated herein) recorded under File No. 97-0902731, Official Records of Maricopa County, Arizona, and an Assignment of Leases and Rents ( hereinafter called the "Mesa Assignment") dated of even date with the Mesa Note, providing a source of future payment of the Mesa Note, recorded under File No. 97-0902730, Official Records of Maricopa County, Arizona, reference being here made to the Mesa Mortgage and the Mesa Assignment and the record thereof for all purposes (the foregoing documents and all other documents executed by Alterra and/or any other party or parties evidencing or securing or otherwise in connection with the loan evidenced by the Mesa Note, being herein collectively called the "Mesa Loan Documents");



WHEREAS, Alterra has executed and delivered to Lender one certain promissory note (hereinafter called the "Peoria Note") dated December 22, 1997, payable to the order of Lender in the original principal sum of $2,448,000, with interest and principal payable as therein provided, a Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing (as modified and amended by Extension and Modification Agreement dated as of January 4, 1999, letter agreement dated March 22, 1999, Modification Agreement dated March 15, 2000, Fourth Modification Agreement dated May 31, 2000, and Fifth Extension Agreement dated January 4, 2001, hereinafter called the "Peoria Mortgage") dated of even date with the Peoria Note, securing the payment of the Peoria Note, covering certain real and personal property described therein (hereinafter called the "Peoria Property", the real property forming a part of which is more particularly described in Exhibit A-2 attached hereto and incorporated herein) recorded under File No. 97-0902732, Official Records of Maricopa County, Arizona, and an Assignment of Leases and Rents (hereinafter called the "Peoria Assignment") dated of even date with the Peoria Note, providing a source of future payment of the Peoria Note, recorded under File No. 97-0902733, reference being here made to the Peoria Mortgage and the Peoria Assignment and the record thereof for all purposes (the foregoing documents and all other documents executed by Alterra and/or any other party or parties evidencing or securing or otherwise in connection with the loan evidenced by the Peoria Note, being herein collectively called the "Peoria Loan Documents");

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WHEREAS, Alterra has executed and delivered to Lender one certain promissory note (hereinafter called the "Pensacola Note") dated January 22, 1998, payable to the order of Lender in the original principal sum of $2,644,000, with interest and principal payable as therein provided, a Mortgage, Assignment of Leases and Rents and Security Agreement (as modified and amended by Extension and Modification Agreement dated as of January 4, 1999, letter agreement dated March 22, 1999, Modification Agreement dated March 15, 2000, Fourth Modification Agreement dated May 31, 2000, and Fifth Extension Agreement dated January 4, 2001, hereinafter called the "Pensacola Mortgage") dated of even date with the Pensacola Note, securing the payment of the Pensacola Note, covering certain real and personal property described therein (hereinafter called the "Pensacola Property", the real property forming a part of which is more particularly described in Exhibit A-3 attached hereto and incorporated herein) recorded under Instrument 98-454064 in Official Records Book 4218, Page 0842, Public Records of Escambia County, Florida, and an Assignment of Leases and Rents ( hereinafter called the "Pensacola Assignment") dated of even date with the Pensacola Note, providing a source of future payment of the Pensacola Note, recorded under Instrument 98-454065 in Official Records Book 4218, Page 0843, Public Records of Escambia County, Florida, reference being here made to the Pensacola Mortgage and the Pensacola Assignment and the record thereof for all purposes (the foregoing documents and all other documents executed by Alterra and/or any other party or parties evidencing or securing or otherwise in connection with the loan evidenced by the Pensacola Note, being herein collectively called the "Pensacola Loan Documents");



WHEREAS, Alterra has executed and delivered to Lender one certain promissory note (hereinafter called the "Tucson Note") dated February 5, 1998, payable to the order of Lender in the original principal sum of $2,112,000, with interest and principal payable as therein provided, a Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing (as modified and amended by Extension and Modification Agreement dated as of February 5, 1999, letter agreement dated March 22, 1999, Modification Agreement dated March 15, 2000, Fourth Modification Agreement dated May 31, 2000, and Fifth Extension Agreement dated January 4, 2001, hereinafter called the "Tucson Mortgage") dated of even date with the Tucson Note, securing the payment of the Tucson Note, covering certain real and personal property described therein (hereinafter called the "Tucson Property", the real property forming a part of which is more particularly described in Exhibit A-4 attached hereto and incorporated herein) recorded in Pima County, Arizona by instrument in Docket 10729, Page 11, and an Assignment of Leases and Rents (hereinafter called the "Tucson Assignment") dated of even date with the Tucson Note, providing a source of future payment of the Tucson Note, recorded in Pima County, Arizona by instrument in Docket 10729, Page 64, reference being here made to the Tucson Mortgage and the Tucson Assignment and the record thereof for all purposes (the foregoing documents and all other documents executed by Alterra and/or any other party or parties evidencing or securing or otherwise in connection with the loan evidenced by the Tucson Note, being herein collectively called the "Tucson Loan Documents");



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WHEREAS, pursuant to the terms of the Master Loan Agreement, Borrower has executed and delivered to Lender one certain promissory note (hereinafter called the "Olympia Note") dated January 8, 1999, payable to the order of Lender in the original principal sum of $4,938,738, with interest and principal payable as therein provided, a Deed of Trust (with Security Agreement, Fixture Filing and Assignment of Leases and Rents) ( hereinafter called the "Olympia Mortgage") dated of even dated with the Olympia Note, covering certain real and personal property described therein (hereinafter called the "Olympia Property", the real property forming a part of which is more particularly described in Exhibit A-5 attached hereto and incorporated herein) recorded under File Nos. 3205188, 3205189, 3205190 and 3205191 in Thurston County, Washington, and an Assignment of Leases and Rents (hereinafter called the "Olympia Assignment") dated of even date with the Olympia Deed of Trust, providing a source of future payment of the Olympia Note, recorded under File No. 3205192 in Thurston County, Washington, reference being here made to the Olympia Mortgage and the Olympia Assignment and the record thereof for all purposes (the foregoing documents and all other documents executed by Borrower and/or any other party or parties evidencing or securing or otherwise in connection with the loan evidenced by the Olympia Note being herein collectively called the "Olympia Loan Documents");



WHEREAS, pursuant to the terms of the Master Loan Agreement, Borrower has executed and delivered to Lender one certain promissory note (hereinafter called the "Spokane Note") dated January 8, 1999, payable to the order of Lender in the original principal sum of $4,542,758, with interest and principal payable as therein provided, a Deed of Trust (with Security Agreement, Fixture Filing and Assignment of Leases and Rents) (hereinafter called the "Spokane Mortgage") dated of even date with the Spokane Note, covering certain real and personal property described therein (hereinafter called the "Spokane Property", the real property forming a part of which is more particularly described in Exhibit A-6 attached hereto and incorporated herein) recorded under File Nos. 4319410, 4319411, 4319412 and 4319413 in Spokane  County, Washington, and an Assignment of Leases and Rents (hereinafter called the "Spokane Assignment") dated of even date with the Spokane Mortgage, providing a source of future payment of the Spokane Note, recorded under File Nos. 4319414 and 4319415 in Spokane County, Washington, reference being here made to the Spokane Mortgage and the Spokane Assignment and the record thereof for all purposes (the foregoing documents and all other documents executed by Borrower and/or any other party or parties evidencing or securing or otherwise in connection with the loan evidenced by the Spokane Note being herein collectively called the "Spokane Loan Documents");



WHEREAS, pursuant to the terms of the Master Loan Agreement, Borrower has executed and delivered to Lender one certain promissory note (hereinafter called the "Puyallup Note") dated January 8, 1999, payable to the order of Lender in the original principal sum of $4,633,862, with interest and principal payable as therein provided, a Deed of Trust (with Security Agreement, Fixture Filing and Assignment of Leases and Rents) (hereinafter called the "Puyallup Mortgage") dated of even date with the Puyallup Note, securing the payment of the Puyallup Note, covering certain real and personal property described therein (hereinafter called the "Puyallup Property", the real property forming a part of which is more particularly described in Exhibit A-7 attached hereto and incorporated herein) recorded under Recording Number 9901191056 in Pierce County, Washington, and an Assignment of Leases and Rents (hereinafter called the "Puyallup Assignment") dated of even date with the Puyallup Note, providing a source of future payment of the Puyallup Note, recorded under Recording Number 9901191057 in Pierce County, Washington, reference being here made to the Puyallup Mortgage and the Puyallup Assignment and the record thereof for all purposes (the foregoing documents and all other documents executed by Borrower and/or any other party or parties evidencing or securing or otherwise in connection with the loan evidenced by the Puyallup Note being herein collectively called the "Puyallup Loan Documents");



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WHEREAS, pursuant to the terms of the Master Loan Agreement, Borrower has executed and delivered to Lender one certain promissory note (hereinafter called the "Plymouth Note") dated January 8, 1999, payable to the order of Lender in the original principal sum of $4,880,809, with interest and principal payable as therein provided, a Mortgage and Security Agreement (and Fixture Financing Statement) (hereinafter called the "Plymouth  Mortgage") dated of even date with the Plymouth Note, securing the payment of the Plymouth Note, covering certain real and personal property described therein (hereinafter called the "Plymouth Property", the real property forming a part of which is more particularly described in Exhibit A-8 attached hereto and incorporated herein) recorded under Document No. 1017926, Office of the Registrar of Titles, Hennepin County, Minnesota, and an Assignment of Leases and Rents (hereinafter called the "Plymouth Assignment") dated of even date with the Plymouth Note, providing a source of future payment of the Plymouth Note, recorded under Document No. 1017926, Office of Registrar of Titles, Hennepin County, Minnesota, reference being here made to the Plymouth Mortgage and the Plymouth Assignment and the record thereof for all purposes (the foregoing documents and all other documents executed by Borrower and/or any other party or parties evidencing or securing or otherwise in connection with the loan evidenced by the Plymouth Note being herein collectively called the "Plymouth Loan Documents");



WHEREAS, pursuant to the terms of the Master Loan Agreement, Borrower has executed and delivered to Lender one certain promissory note (hereinafter called the "North Oaks Note") dated January 8, 1999, payable to the order of Lender in the original principal sum of $4,795,657, with interest and principal payable as therein provided, a Mortgage and Security Agreement (and Fixture Financing Statement) (hereinafter called the "North Oaks Mortgage") dated of even date with the North Oaks Note, securing the payment of the North Oaks Note, covering certain real and personal property described therein (hereinafter called the "North Oaks Property", the real property forming a part of which is more particularly described in Exhibit A-9 attached hereto and incorporated herein) recorded under Document No. 1528770 in the Registrar of Titles, Ramsey County, Minnesota, and an Assignment of Leases and Rents (hereinafter called the "North Oaks Assignment") dated of even date with the North Oaks Note, providing a source of future payment of the North Oaks Note, recorded under Document No. 1528770 in the Registrar of Titles, Ramsey County, Minnesota, reference being here made to the North Oaks Mortgage and the North Oaks Assignment and the record thereof for all purposes (the foregoing documents and all other documents executed by Borrower and/or any other party or parties evidencing or securing or otherwise in connection with the loan evidenced by the North Oaks Note being herein collectively called the "North Oaks Loan Documents");



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WHEREAS, pursuant to the terms of the Master Loan Agreement, Borrower has executed and delivered to Lender one certain promissory note (hereinafter called the "Eden Prairie Note") dated January 8, 1999, payable to the order of Lender in the original principal sum of $5,074,914, with interest and principal payable as therein provided, a Mortgage and Security Agreement (and Fixture Financing Statement) (hereinafter called the "Eden Prairie Mortgage") dated of even date with the Eden Prairie Note, securing the payment of the Eden Prairie Note, covering certain real and personal property described therein (hereinafter called the "Eden Prairie Property", the real property forming a part of which is more particularly described in Exhibit A-10 attached hereto and incorporated herein) recorded under Document No. 7037784, Hennepin County, Minnesota, and an Assignment of Leases and Rents (hereinafter called the "Eden Prairie Assignment") dated of even date with the Eden Prairie Mortgage, providing a source of future payment of the Eden Prairie Note, recorded under Document No. 7037785, Hennepin County, Minnesota, reference being here made to the Eden Prairie Mortgage and the Eden Prairie Assignment and the record thereof for all purposes (the foregoing documents and all other documents executed by Borrower and/or any other party or parties evidencing or securing or otherwise in connection with the loan evidenced by the Eden Prairie Note being herein collectively called the "Eden Prairie Loan Documents");



WHEREAS, pursuant to the terms of the Master Loan Agreement, Borrower has executed and delivered to Lender one certain promissory note (hereinafter called the "Salem Note") dated February 23, 1999, payable to the order of Lender in the original principal sum of $2,084,073, with interest and principal payable as therein provided, an Open-End Mortgage, Assignment of Rents and Security Agreement (hereinafter called the "Salem Mortgage") dated of even date with the Salem Note, securing the payment of the Salem Note, covering certain real and personal property described therein (hereinafter called the "Salem Property", the real property forming a part of which is more particularly described in Exhibit A-11 attached hereto and incorporated herein) recorded in Volume 720, Page 790, Columbiana County, Ohio, and an Assignment of Leases and Rents (hereinafter called the "Salem Assignment") dated of even date with the Salem Note, providing a source of future payment of the Salem Note, in Volume 720, Page 830, Columbiana County, Ohio, reference being here made to the Salem Mortgage and the Salem Assignment and the record thereof for all purposes (the foregoing documents and all other documents executed by Borrower and/or any other party or parties evidencing or securing or otherwise in connection with the loan evidenced by the Salem Note being herein collectively called the "Salem Loan Documents");



WHEREAS, pursuant to the terms of the Master Loan Agreement, Borrower has executed and delivered to Lender one certain promissory note (hereinafter called the "Portage Note") dated February 19, 1999, payable to the order of Lender in the original principal sum of $2,966,706, with interest and principal payable as therein provided, a Mortgage, Assignment of Leases and Rents, Security Agreement and Financing Statement (hereinafter called the "Portage Mortgage") dated of even date with the Portage Note, securing the payment of the Portage Note, covering certain real and personal property described therein (hereinafter called the "Portage Property", the real property forming a part of which is more particularly described in Exhibit A-12 attached hereto and incorporated herein) recorded under File No. 1999-007160, Porter County, Indiana, and an Assignment of Leases and Rents (hereinafter called the "Portage Assignment") dated of even date with the Portage Note, providing a source of future payment of the Portage Note, under File No. 1999-007161, Porter County, Indiana, reference being here made to the Portage Mortgage and the Portage Assignment and the record thereof for all purposes (the foregoing documents and all other documents executed by Borrower and/or any other party or parties evidencing or securing or otherwise in connection with the loan evidenced by the Portage Note being herein collectively called the "Portage Loan Documents");



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WHEREAS, pursuant to the terms of the Master Loan Agreement, Borrower has executed and delivered to Lender one certain promissory note (hereinafter called the "Merrillville Note") dated February 19, 1999, payable to the order of Lender in the original principal sum of $3,126,422, with interest and principal payable as therein provided, a Mortgage, Assignment of Leases and Rents, Security Agreement and Financing Statement (hereinafter called the "Merrillville Mortgage") dated of even date with the Merrillville Note, securing the payment of the Merrillville Note, covering certain real and personal property described therein (hereinafter called the "Merrillville Property", the real property forming a part of which is more particularly described in Exhibit A-13 attached hereto and incorporated herein) recorded under File No. 99020714, Lake County, Indiana, and an Assignment of Leases and Rents (hereinafter called the "Merrillville Assignment") dated of even date with the Merrillville Note, providing a source of future payment of the Merrillville Note, under File No. 99020715, Lake County, Indiana, reference being here made to the Merrillville Mortgage and the Merrillville Assignment and the record thereof for all purposes (the foregoing documents and all other documents executed by Borrower and/or any other party or parties evidencing or securing or otherwise in connection with the loan evidenced by the Merrillville Note being herein collectively called the "Merrillville Loan Documents");



WHEREAS, pursuant to the terms of the Master Loan Agreement, Borrower has executed and delivered to Lender one certain promissory note (hereinafter called the "Richmond Note") dated February 19, 1999, payable to the order of Lender in the original principal sum of $3,002,792, with interest and principal payable as therein provided, a Mortgage, Assignment of Leases and Rents, Security Agreement and Financing Statement (hereinafter called the "Richmond Mortgage") dated of even date with the Richmond Note, securing the payment of the Richmond Note, covering certain real and personal property described therein (hereinafter called the "Richmond Property", the real property forming a part of which is more particularly described in Exhibit A-14 attached hereto and incorporated herein) recorded under Instrument 1999002717, Wayne County, Indiana, and an Assignment of Leases and Rents (hereinafter called the "Richmond Assignment") dated of even date with the Richmond Note, providing a source of future payment of the Richmond Note, under Instrument 1999002718, Wayne County, Indiana, reference being here made to the Richmond Mortgage and the Richmond Assignment and the record thereof for all purposes (the foregoing documents and all other documents executed by Borrower and/or any other party or parties evidencing or securing or otherwise in connection with the loan evidenced by the Richmond Note being herein collectively called the "Richmond Loan Documents");



WHEREAS, pursuant to the terms of the Master Loan Agreement, Borrower has executed and delivered to Lender one certain promissory note (hereinafter called the "Austintown Note") dated March 26, 1999, payable to the order of Lender in the original principal sum of $2,555,726, with interest and principal payable as therein provided, an Open-End Mortgage, Assignment of Rents and Security Agreement (hereinafter called the "Austintown Mortgage") dated of even date with the Austintown Note, securing the payment of the Austintown Note, covering certain real and personal property described therein (hereinafter called the "Austintown Property", the real property forming a part of which is more particularly described in Exhibit A-15 attached hereto and incorporated herein) recorded in Volume 4111, Page 76, under File No. 9900013032, Mahoning County, Ohio, and an Assignment of Leases and Rents (hereinafter called the "Austintown Assignment") dated of even date with the Austintown Note, providing a source of future payment of the Austintown Note, in Volume 4111, Page 116, under File No. 9900013033, Mahoning County, Ohio, reference being here made to the Austintown Mortgage and the Austintown Assignment and the record thereof for all purposes (the foregoing documents and all other documents executed by Borrower and/or any other party or parties evidencing or securing or otherwise in connection with the loan evidenced by the Austintown Note being herein collectively called the "Austintown Loan Documents");



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WHEREAS, pursuant to the terms of the Master Loan Agreement, Borrower has executed and delivered to Lender one certain promissory note (hereinafter called the "Columbus Note") dated March 26, 1999, payable to the order of Lender in the original principal sum of $2,729,703, with interest and principal payable as therein provided, an Open-End Mortgage, Assignment of Rents and Security Agreement (hereinafter called the "Columbus Mortgage") dated of even date with the Columbus Note, securing the payment of the Columbus Note, covering certain real and personal property described therein (hereinafter called the "Columbus Property", the real property forming a part of which is more particularly described in Exhibit A-16 attached hereto and incorporated herein) recorded under Instrument 199904020082584, Franklin County, Ohio, and an Assignment of Leases and Rents (hereinafter called the "Columbus Assignment") dated of even date with the Columbus Note, providing a source of future payment of the Columbus Note, under Instrument 199904020082588, Franklin County, Ohio, reference being here made to the Columbus Mortgage and the Columbus Assignment and the record thereof for all purposes (the foregoing documents and all other documents executed by Borrower and/or any other party or parties evidencing or securing or otherwise in connection with the loan evidenced by the Columbus Note being herein collectively called the "Columbus Loan Documents");



WHEREAS, pursuant to the terms of the Master Loan Agreement, Borrower has executed and delivered to Lender one certain promissory note (hereinafter called the "Middletown Note") dated March 26, 1999, payable to the order of Lender in the original principal sum of $2,314,985, with interest and principal payable as therein provided, a Open-End Mortgage, Assignment of Rents and Security Agreement (hereinafter called the "Middletown Mortgage") dated of even date with the Middletown Note, securing the payment of the Middletown Note, covering certain real and personal property described therein (hereinafter called the "Middletown Property", the real property forming a part of which is more particularly described in Exhibit A-17 attached hereto and incorporated herein) recorded in OR Book 6346, Page 1754, Butler County, Ohio, under File No. 990002704, and an Assignment of Leases and Rents (hereinafter called the "Middletown Assignment") dated of even date with the Middletown Note, providing a source of future payment of the Middletown Note, in OR Book 6346, Page 1794, Butler County, Ohio, under File No. 9900026705, reference being here made to the Middletown Mortgage and the Middletown Assignment and the record thereof for all purposes (the foregoing documents and all other documents executed by Borrower and/or any other party or parties evidencing or securing or otherwise in connection with the loan evidenced by the Middletown Note being herein collectively called the "Middletown Loan Documents");



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WHEREAS, the Sterling House Mortgages provide that the indebtedness secured thereby may, at the option of the holder thereof, be accelerated if Alterra sells or conveys any or all of the Sterling House Mortgaged Properties without the consent of Lender;



WHEREAS, Lender has been requested to consent to the conveyance of the Sterling House Mortgaged Properties to Borrower and Lender is willing so to consent upon compliance with the terms and provisions of this Agreement;



WHEREAS, one or more of the Notes is currently due and payable;



WHEREAS, Borrower has requested that Lender extend the term of the Notes to June 30, 2004, and otherwise modify certain terms of the Loan Documents, and Lender is willing to do so on the terms and conditions herein set forth;



WHEREAS, Alterra has executed and delivered to Lender a Guaranty (herein collectively called the "Guaranties") with respect to each Project Loan;



WHEREAS, Lender is the owner and holder of the Notes and the Borrower is the owner of the legal and equitable title to the Mortgaged Properties;



NOW, THEREFORE, for and in consideration of the mutual covenants contained herein and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:



1. Definitions.  As used herein, the following terms shall have the meanings assigned to them below:
2. "Alterra Leases":  The lease agreements between ALS West and Alterra of even date herewith with respect to the Sterling House Mortgaged Properties.
3. "Assignment" or "Assignments":  Individually or collectively (as applicable), the Mesa Assignment, Peoria Assignment, Pensacola Assignment, Tucson Assignment, Olympia Assignment, Spokane Assignment, Puyallup Assignment, Plymouth Assignment, North Oaks Assignment, Eden Prairie Assignment, Salem Assignment, Portage Assignment, Merrillville Assignment, Richmond Assignment, Austintown Assignment, Columbus Assignment and Middletown Assignment.
4. "Benefits":  All existing 401(k) employee benefits, dental health insurance benefits, general health insurance benefits and other similar benefits paid by the Borrower with respect to employees of the Projects.
5. "Collateral Assignment":  A Collateral Assignment of even date herewith made by Borrower and Alterra in favor of Lender in connection with the Sterling House Mortgaged Properties.
6. "Confirmation Date":  The date of confirmation of a bankruptcy plan of reorganization with respect to Alterra.
7. "Corporate Allocations":  Expenses, if any, related to the Projects which are incurred on a corporate wide basis by Alterra and allocated to the Borrower (including, without limitation malpractice insurance, liability insurance, property insurance and advertising costs and expenses), which expenses are, in any case, allocable to the Projects, directly or on a per bed basis, and which expenses and allocations are otherwise acceptable to the Lender.
8. "Credit Card Expenses":  With respect to any Project, expenses relating to the day to day operation of the Project, which expenses are charged by the local on-site administrator or staff of the Project on the credit card provided to it by Borrower.
9. "Depository":  Wells Fargo Bank, Wisconsin, N.A.
10. "Eligible Account":  A separate and identifiable account from all other funds held by the holding institution that is an account or accounts maintained with an Eligible Institution.
11. "Eligible Institution".  A  depository institution or trust company, insured by the Federal Deposit Insurance Corporation, having a combined capital and surplus of at least $50,000,000.00.
12. "Leased Mortgaged Property" or "Leased Mortgaged Properties":  Individually or collectively (as applicable), the Austintown Mortgaged Property, Portage Mortgaged Property and Richmond Mortgaged Property.
13. "Loan Agreement" or "Loan Agreements":  Individually or collectively (as applicable), the Mesa Loan Agreement, Peoria Loan Agreement, Pensacola Loan Agreement, Tucson Loan Agreement, Olympia Loan Agreement, Spokane Loan Agreement, Puyallup Loan Agreement, Plymouth Loan Agreement, North Oaks Loan Agreement, Eden Prairie Loan Agreement, Salem Loan Agreement, Portage Loan Agreement, Merrillville Loan Agreement, Richmond Loan Agreement, Austintown Loan Agreement, Columbus Loan Agreement and Middletown Loan Agreement.
14. "Loan Documents":  Individually or collectively (as applicable), the Master Loan Agreement, Mesa Loan Documents, Peoria Loan Documents, Pensacola Loan Documents, Tucson Loan Documents, Olympia Loan Documents, Spokane Loan Documents, Puyallup Loan Documents, Plymouth Loan Documents, North Oaks Loan Documents, Eden Prairie Loan Documents, Salem Loan Documents, Portage Loan Documents, Merrillville Loan Documents, Richmond Loan Documents, Austintown Loan Documents, Columbus Loan Documents and Middletown Loan Documents.
15. "Lock-Box":  The post office lockbox of Borrower at Regulus.
16. "Lock-Box Agreement":   A Lock-Box Agreement between Borrower, Lender, Depository and Regulus.
17. "Monthly Reserve Deposit":  An amount equal to the following:
18. "Mortgage" or "Mortgages":  Individually or collectively (as applicable), the
19. "Mortgaged Property" or "Mortgaged Properties":  Individually or collectively (as applicable), the Mesa Property, Peoria Property, Pensacola Property, Tucson Property, Olympia Property, Spokane Property, Puyallup Property, Plymouth Property, North Oaks Property, Eden Prairie Property, Salem Property, Portage Property, Merrillville Property, Richmond Property, Austintown Property, Columbus Property and Middletown Property.
20. "Note" or "Notes":  Individually or collectively (as applicable), the Mesa Note, Peoria Note, Pensacola Note, Tucson Note, Olympia Note, Spokane Note, Puyallup Note, Plymouth Note, North Oaks Note, Eden Prairie Note, Salem Note, Portage Note, Merrillville Note, Richmond Note, Austintown Note, Columbus Note and Middletown Note.
21. "Operating Expenses": With respect to any period, all reasonably incurred and documented operating expenses incurred by the Borrower in connection with the operation of the Projects, determined on a cash basis, including but not limited to the following expenses:
22. "Payment Event of Default":  An Event of Default which arises as a result of the failure to pay a sum of money.
23. "Pledge Agreement":  A Pledge Agreement of even date herewith made by Borrower in favor of Lender.
24. "Project Loan" or "Project Loans":  Individually or collectively (as applicable), the loans evidenced by the Notes.
25. "Regulus":  Regulus West LLC.
26. "Remittances":  All funds, items, instruments, investments, securities and other things of value at any time, paid, deposited, credited or held in, or in transit to, the Lock-Box.
27. "Rents":  All rents, revenues, income and proceeds due from residents of the Projects for using, occupying or otherwise enjoying the Projects.
28. "Replacements":   The costs of any repairs, improvements, equipment, alterations, additions, changes, replacements and other items which, under GAAP, are properly classified as capital expenditures or capital improvements by the Borrower's auditors, but excluding (i) costs of routine maintenance to a Project; (ii) the costs of salaries, benefits and administrative expenses related to the employment of (A) officers and executives of Borrower, and of employees of Borrower above the level of building manager, and (B) employees of Borrower at or below the level of building manager, except in the case of those costs which Borrower can demonstrate to Lender's satisfaction to be properly allocable to the work performed by such employees in connection with Replacements; (iii) the cost of any items for which Borrower is reimbursed by insurance or otherwise; and (iv) the cost of any landscaping work to a Project.
29. "Restricted Account":  An Eligible Account to be established and maintained with Depository.
30. "Restructure Documents":  This Agreement, the Lock-Box Agreement, Pledge Agreement, Stock Pledge Agreement, Sterling House Guaranty, Security Agreement, Collateral Assignment, Subordination of Management Agreement and Subordination and Attornment Agreement.
31. "Security Agreement":  A Security Agreement of even date herewith made by Borrower and Alterra in favor of Lender in connection with the Sterling House Mortgaged Properties.
32. "Sterling House Assignment" or "Sterling House Assignments":  Individually or collectively (as applicable), the Mesa Assignment, Peoria Assignment, Pensacola Assignment and Tucson Assignment.
33. "Sterling House Guaranty":  A Guaranty of even date herewith made by Alterra with respect to the Sterling House Notes.
34. "Sterling House Loan Documents":  Individually or collectively (as applicable), the Mesa Loan Documents, Peoria Loan Documents, Pensacola Loan Documents and Tucson Loan Documents.
35. "Sterling House Mortgage"or"Sterling House Mortgages":  Individually or collectively (as applicable), the Mesa Mortgage,, Peoria Mortgage, Pensacola Mortgage and Tucson Mortgage.
36. "Sterling House Mortgaged Property"or"Sterling House Mortgaged Properties":  Individually or collectively (as applicable), the Mesa Mortgaged Property, Peoria Mortgaged Property, Pensacola Mortgaged Property and Tucson Mortgaged Property.
37. "Sterling House Note"or"Sterling House Notes":  Individually or collectively (as applicable), the Mesa Note, Peoria Note, Pensacola Note and Tucson Note.
38. "Stock Pledge Agreement":  A Stock Pledge Agreement of even date herewith made by Alterra in favor of Lender.
39. "Straight-Line Payment":  An amount equal to the following:
40. "Subordination and Attornment Agreement":  A Subordination and Attornment Agreement of even date herewith made by Alterra in favor of Lender with respect to the Sterling House Mortgaged Properties.
41. "Subordination of Management Agreement":  A Subordination of Management Agreement of even date herewith made by Alterra in favor of Lender.
42. "Third Party Leases":  The lease agreements between Borrower and Sterling Cottage of Austintown LLC, Sterling House of Portage LLC and Sterling House of Richmond LLC with respect to the Austintown Mortgaged Property, Portage Mortgaged Property and Richmond Mortgaged Property, respectively.
43. Consent to Conveyance.  Lender hereby consents to the above described conveyance of the Sterling House Mortgaged Properties and waives its option to accelerate as provided in the Sterling House Mortgages, without prejudice to its rights with respect to any future conveyance of said property or any interest therein.
44. Assumption.  Borrower hereby assumes and promises to pay according to the terms thereof all principal and interest now remaining unpaid on the Sterling House Notes and also assumes and promises to keep and perform all other covenants and obligations in the Sterling House Notes to be performed by the maker thereof, in the Sterling House Mortgages to be performed by the grantor thereof and in the Sterling House Assignments to be performed by the assignor thereof and all other obligations of the maker of the Sterling House Notes under any and all other Sterling House Loan Documents as any of the foregoing may be modified as provided herein.
45. Extension Fee; Exit Fee.  In consideration for the agreements made herein, Borrower will pay to Lender an extension fee in the amount of $822,864, payable as follows:  (i) one-half ($411,432) contemporaneously with the execution of this Agreement, and (ii) one-half ($411,432) on the earlier to occur of (x) June 30, 2003 or (y) the date the Project Loans are paid in full.  At the time of payment in full of each Project Loan and prior to release of the Mortgage related to the Project Loan, Borrower shall pay Lender an exit fee in the amount set forth on Schedule I attached hereto and made a part hereof.
46. Maturity Date Extension.  The maturity date of each of the Notes is hereby extended to June 30, 2004.  The liens, security interests, assignments and other rights evidenced by the Loan Documents are hereby renewed and extended to secure payment of the Notes as extended hereby.
47. Modifications of Notes.
48. Master Loan Agreement.  The Master Loan Agreement is modified as follows:
49. Replacement Reserves.
50. Management Fees.  Notwithstanding anything to the contrary contained in any management agreement between Borrower and Manager or any Subordination of Management Agreement or any similar agreement, the monthly management fee payable to Manager on all Projects shall be limited to six percent (6%) of gross revenues.  No "incentive fee" may be paid to Manager.
51. Tax Escrow.  Borrower shall commence the escrow of taxes with Lender in accordance with the terms of Section 2.2(n) of each Mortgage.  Commencing on July 1, 2002 and on the first day of each month through and including December 1, 2002, Borrower shall make a monthly escrow deposit for such purpose of $80,000.  Commencing January 1, 2003 and on the first day of each month through and including June 1, 2003, Borrower shall make a monthly escrow deposit for such purpose of $57,516.  Thereafter, the monthly escrow deposit shall be an amount estimated by Lender to be sufficient to pay the next maturing taxes when due, all as more particularly described in Section 2.2(n) of each Mortgage.  In furtherance, but not in limitation, of the requirements of each Mortgage, Borrower shall provide Lender copies of any notices setting forth and/or changing the taxes payable with respect to a Mortgaged Property.  In addition, Borrower shall promptly provide Lender copies of all tax bills when received and make written request to Lender thirty (30) days prior to the due date for payment of such bills, to the extent of monies escrowed for that purpose.  In the event, escrowed funds are insufficient for that purpose, Lender will so notify Borrower and Borrower will pay the deficiency before Lender releases any escrowed funds.
52. Pledge Agreement.  Upon execution of this Agreement, Borrower shall execute and deliver to Lender the Pledge Agreement with respect to, inter alia, tax escrows, CAPEX escrows and insurance indemnity payments deposited with Lender.
53. Stock Pledge Agreement.  Upon execution of this Agreement, Alterra shall execute and deliver to Lender the Stock Pledge Agreement with respect to the stock in Borrower, together with originals of all ALS West, Inc. stock certificates, a stock power and a UCC financing statement.
54. Sterling House Guaranty.  Upon execution of this Agreement, Alterra shall execute and deliver to Lender the Sterling House Guaranty.
55. Lock-Box Agreement.
56. Modification of Mesa Mortgage.  Paragraphs 1.1 and 1.2 on page 4 of the Mesa Mortgage are hereby deleted in their entirety and there is inserted in lieu thereof the following:
57. Modification of Peoria Mortgage.  Paragraphs 1.1 and 1.2  on page 4 of the Peoria Mortgage are hereby deleted in their entirety and there is inserted in lieu thereof the following:
58. Modification of Pensacola Mortgage.  Paragraphs 1.1 and 1.2  on pages 3 and 4 of the Pensacola Mortgage are hereby deleted in their entirety and there is inserted in lieu thereof the following:
59. Modification of Tucson Mortgage.  Paragraphs 1.1 and 1.2 on page 4 of the Tucson Mortgage are hereby deleted in their entirety and there is inserted in lieu thereof the following:
60. Modification of Salem Mortgage.  Subparagraph 1.1(a) beginning on page 3 of the Salem Mortgage is hereby deleted in its entirety and there is inserted in lieu thereof the following:
61. Modification of Portage Mortgage.  Subparagraph 1.1(a) on page 4 of the Portage Mortgage is hereby deleted in its entirety and there is inserted in lieu thereof the following:
62. Modification of Merrillville Mortgage.  Subparagraph 1.1(a) on page 4 of the Merrillville Mortgage is hereby deleted in its entirety and there is inserted in lieu thereof the following:
63. Modification of Richmond Mortgage.   Subparagraph 1.1(a) on page 4 of the Richmond Mortgage is hereby deleted in its entirety and there is inserted in lieu thereof the following:
64. Modification of Austintown Mortgage.   Subparagraph 1.1(a) beginning on page 3 of the Austintown Mortgage is hereby deleted in its entirety and there is inserted in lieu thereof the following:
65. Modification of Columbus Mortgage.    Subparagraph 1.1(a) on page 3 of the Columbus Mortgage is hereby deleted in its entirety and there is inserted in lieu thereof the following:
66. Modification of Middletown Mortgage.   Subparagraph 1.1(a) beginning on page 3 of the Middletown Mortgage is hereby deleted in its entirety and there is inserted in lieu thereof the following:
67. Modification of Mesa Assignment.  The first paragraph at the top of page 2 of the Mesa Assignment is hereby deleted in its entirety and there is inserted in lieu thereof the following:
68. Modification of Peoria Assignment.  The first paragraph at the top of page 2 of the Peoria Assignment is hereby deleted in its entirety and there is inserted in lieu thereof the following:
69. Modification of Pensacola Assignment.  The first paragraph at the top of page 2 of the Pensacola Assignment is hereby deleted in its entirety and there is inserted in lieu thereof the following:
70. Modification of Tucson Assignment.  The first paragraph at the top of page 2 of the Tucson Assignment is hereby deleted in its entirety and there is inserted in lieu thereof the following:
71. Modification of Salem Assignment.  Subparagraph (a) on page 2 of the Salem Assignment is hereby deleted in its entirety and there is inserted in lieu thereof the following:
72. Modification of Portage Assignment.   Subparagraph (a) on page 2 of the Portage Assignment is hereby deleted in its entirety and there is inserted in lieu thereof the following:
73. Modification of Merrillville Assignment.   Subparagraph (a) on page 2 of the Merrillville Assignment is hereby deleted in its entirety and there is inserted in lieu thereof the following:
74. Modification of Richmond Assignment.   Subparagraph (a) on page 2 of the Richmond Assignment is hereby deleted in its entirety and there is inserted in lieu thereof the following:
75. Modification of Austintown Assignment.  Subparagraph (a) on page 2 of the Austintown Assignment is hereby deleted in its entirety and there is inserted in lieu thereof the following:
76. Modification of Columbus Assignment.   Subparagraph (a) on page 2 of the Columbus Assignment is hereby deleted in its entirety and there is inserted in lieu thereof the following:
77. Modification of Middletown Assignment.  Subparagraph (a) on page 2  of the Middletown Assignment is hereby deleted in its entirety and there is inserted in lieu thereof the following:
78. Insurance.
79. Intentionally Omitted.
80. Third Party Leases.  The following agreements are made with respect to the Third Party Leases:
81. Management Agreements.  Borrower and Alterra acknowledge and agree that the Management Agreements between the two parties of even date herewith with respect to each of the Mortgaged Properties (other than Austintown Mortgaged Property, Richmond Mortgaged Property and Portage Mortgaged Property) constitute Operating Agreements and Management Contracts.
82. Financing Statements.  Borrower and Alterra hereby authorize Lender to file any financing statement or financing statement amendment covering the Collateral or relating to the security interest created therein.
83. Medicare/Medicaid.  Borrower agrees that it shall not enter into, nor will it permit any other party to enter into, a Medicare, Medicaid or similar contract with respect to a Project.
84. Loan Document.  This Agreement and each of the Restructure Documents constitutes a Loan Document.  In the event of a conflict between the terms of this Agreement and the terms of any Loan Document, the terms of this Agreement shall control.  References herein and in the Loan Documents to Loan Documents are references to such agreements as modified from time to time.
85. Agent/Lender.  Guaranty Bank is the sole Lender (as such term is used in the Master Loan Agreement) under the Master Loan Agreement.  Accordingly, the terms Lender and Agent as used therein and herein may be used interchangeably.
86. Notice of Change.  Borrower and Alterra agree to give prompt written notice to the Lender of:  (a) any Event of Default under the Loan Documents; (b) any occurrence which might mature into an Event of Default (whether by the passage of time, giving of notice or otherwise); (c) any default under any material agreement to which the Borrower or Alterra is a party or by which any of the Mortgaged Properties are bound or the acceleration of the maturity of any indebtedness owing by the Borrower or Alterra, provided that such notice shall be required with respect to Alterra only after the Confirmation Date; (d) all litigation or claims affecting the Borrower, Alterra, or any of the Mortgaged Properties which if adversely determined could reasonably be expected to result in a material adverse change in the financial condition of Borrower or Alterra or a material adverse change in the value of any of the Mortgaged Properties; and (e) any other matter the occurrence of which could reasonably be expected to result in a material adverse change in the financial condition of the Borrower or Alterra or a material adverse change in the value of any of the Mortgaged Properties.  Such notice will describe the foregoing matters with particularity and the actions which the Borrower and Alterra are taking or propose to take with respect thereto.
87. Borrower's Existence and Authority.  Borrower hereby represents and warrants that (a) it is the sole legal and beneficial owner of the Mortgaged Properties; (b) it is a corporation and is duly organized and legally existing under the laws of the state of its corporation and is duly qualified to do business in the state where the Mortgaged Properties are located; (c) the execution and delivery of, and performance under this Agreement are within its power and authority without the joinder or consent of any other party and have been duly authorized by all requisite action and are not in contravention of law or the powers of Borrower's organizational documents; (d) this Agreement constitutes the legal, valid and binding obligations of Borrower enforceable in accordance with its terms;  (e) the execution and delivery of this Agreement by Borrower do not contravene, result in a breach of or constitute a default under any deed of trust, loan agreement, indenture or other contract, agreement or undertaking to which it is a party or by which it or any of its properties may be bound (nor would such execution and delivery constitute such a default with the passage of time or the giving of notice or both) and, to the best of its knowledge, do not violate or contravene any law, order, decree, rule or regulation to which Borrower is subject; and (f) other than the Alterra Leases and Third-Party Leases, there are no Lease Agreements or Sublease Agreements affecting the Mortgaged Properties.  Borrower agrees to indemnify and hold Lender harmless against any loss, claim, damage, liability or expense (including without limitation attorneys' fees) incurred as a result of any representation or warranty made by it herein proving to be untrue in any respect.
88. Alterra Existence and Authority.  Alterra hereby represents and warrants that (a) Alterra is duly organized and legally existing under the laws of the state of its incorporation; (b) the execution and delivery of, and performance under this Agreement are within Alterra's power and authority without the joinder or consent of any other party and have been duly authorized by all requisite action and are not in contravention of law or the powers of Alterra's charter, by-laws or other corporate papers; (c) this Agreement constitutes the legal, valid and binding obligations of Alterra enforceable in accordance with its terms; and (d) the execution and delivery of this Agreement by Alterra do not contravene, result in a breach of or constitute a default under any deed of trust, loan agreement, indenture or other contract, agreement or undertaking to which Alterra is a party or by which Alterra or any of its properties may be bound (nor would such execution and delivery constitute such a default with the passage of time or the giving of notice or both) and do not violate or contravene any law, order, decree, rule or regulation to which Alterra is subject.  Alterra agrees to indemnify and hold Lender harmless against any loss, claim, damage, liability or expense (including without limitation attorneys' fees) incurred as a result of any representation or warranty made by it herein proving to be untrue in any respect.
89. Other Documents.  Alterra and Borrower agree to execute, upon request from Lender, such other and further documents as may be necessary (in Lender's reasonable judgment) to consummate the transactions contemplated herein or to perfect the liens and security interests intended to secure the payment of the Project Loans.  The foregoing shall include, without limitation, the execution of additional copies of this Agreement in order to satisfy local filing requirements.
90. Default.  If Alterra or Borrower shall fail to keep or perform any of the covenants or agreements contained herein or if any statement, representation or warranty contained herein is false, misleading or erroneous in any material respect, after the expiration of any grace or cure period provided by the applicable Loan Documents, such party shall be deemed to be in default hereunder and Lender shall be entitled at its option to exercise any and all of the rights and remedies granted pursuant to the Loan Documents, or to which Lender may otherwise be entitled, whether at law or in equity.
91. Events of Default.  Borrower hereby represents and warrants that, to the best of Borrower's knowledge, after giving effect hereto, there exists no uncured default under the Notes, Mortgages, Assignments, or any other Loan Documents, except as disclosed on Schedule II attached hereto and made a part hereof.  Lender represents and warrants that it has no knowledge that any Event of Default exists under the Loan Documents except those described on Schedule II.  No representation or waiver is made with respect to any Event of Default with respect to which Lender has no knowledge.  Without waiving its ability to declare Events of Default with respect to acts or omissions of Borrower or other parties to the Loan Documents which occur after the date hereof, Lender hereby waives each Event of Default listed on Schedule II.  Prior to the Confirmation Date, Lender will not declare an Event of Default as the result, after the date hereof, of Alterra's failure generally to pay (or admission in writing of its inability to pay) its debts as such debts become due.
92. Title Endorsements.  Contemporaneously with the execution and delivery hereof, Borrower shall, at its sole cost and expense, obtain and deliver to Lender an endorsement of the Mortgagee Title Policy insuring the lien of each Mortgage, under the applicable title insurance rules and regulations, in form and content reasonably acceptable to Lender, stating that the company issuing said Mortgagee Title Policy will not claim that policy coverage has terminated, or that policy coverage has been reduced, solely by reason of the execution of this Agreement and maintaining the liability thereunder for the period of limitation applicable to the indebtedness secured by the lien of such Mortgage calculated from the renewed and extended maturity date as provided herein.
93. Ratification.  Except as provided herein, the terms and provisions of the Master Loan Agreement, Notes, the Mortgages, the Assignments, and the other Loan Documents shall remain unchanged and shall remain in full force and effect.  Any modification herein of the Master Loan Agreement, the Notes, the Mortgages, the Assignments, and the other Loan Documents shall in no way affect the security of the Mortgages, the Assignments, and the other Loan Documents for the payment of the Notes.  The promissory note(s) described in each Mortgage, Assignment, and other Loan Documents as the note(s) secured thereby shall hereafter mean such note(s) as modified by this Agreement.  The Master Loan Agreement, the Notes, the Mortgages, the Assignments, the Guaranties and the other Loan Documents, as modified and amended hereby, are hereby ratified and confirmed in all respects.  All liens, security interests, mortgages and assignments granted or created by or existing under the Mortgages, the Assignments, and the other Loan Documents remain unchanged and continue, unabated, in full force and effect, to secure the obligations described therein.
94. Validity.  Borrower hereby acknowledges that the liens, security interests, and assignments created and evidenced by the Mortgages and the assignments created by the Assignments are valid and subsisting and further acknowledges and agrees that there are no offsets, claims, or defenses to the Notes, Mortgages or Assignments or any other Loan Documents.
95. Entire Agreement. This Agreement supersedes and merges all prior and contemporaneous promises, representations and agreements with respect to its subject matter.  No modification of this Agreement or any document referenced herein, or any waiver of rights under any of the foregoing, shall be effective unless made by supplemental agreement, in writing, executed by Lender and the affected party or parties.  The parties hereto further agree that this Agreement may not in any way be explained or supplemented by a prior, existing, or future course of dealings between the parties or by any prior, existing, or future performance between the parties pursuant to this Agreement or otherwise.
96. Notice.  Any notice or communication required or permitted hereunder or, after the date hereof, under any Loan Document shall be given in writing, sent by (a) personal delivery, or (b) expedited delivery service with proof of delivery, or (c) United States mail, postage prepaid, registered or certified mail, addressed as follows:
97. Opinions.  Upon execution of this Agreement, Borrower and Alterra shall each deliver to Lender an opinion of counsel, in form and substance reasonably satisfactory to Lender, stating that the Borrower and Alterra are duly organized and validly existing under the laws of the state of their organization, Borrower is qualified to do business in each state in which a Mortgaged Property is located, the execution of each of the Restructure Documents by Alterra and Borrower has been duly authorized and each of the Restructure Documents has been properly executed and delivered by Alterra and Borrower.
98. Costs.  Contemporaneous with the execution and delivery hereof, Borrower shall pay, or cause to be paid, all costs and expenses incident to the preparation hereof and the consummation of the transactions specified herein, including without limitation title insurance policy and/or endorsement charges, recording fees, and reasonable fees and expenses of legal counsel to Lender.
99. Release.  Alterra and Borrower hereby release, remise, acquit and forever discharge Lender, together with its employees, agents, representatives, consultants, attorneys, fiduciaries, participants, servants, officers, directors, partners, predecessors, successors and assigns, subsidiary corporations, parent corporations, and related corporate divisions (all of the foregoing hereinafter called the "Released Parties"), from any and all actions and causes of action, judgments, executions, suits, debts, claims, demands, liabilities, obligations, damages and expenses of any and every character, known or unknown, direct and/or indirect, at law or in equity, of whatsoever kind or nature, whether heretofore or hereafter accruing, for or because of any matter or things done, omitted or suffered to be done by any of the Released Parties prior to and including the date hereof, and in any way directly or indirectly arising out of or in any way connected to this Agreement, the Master Loan Agreement, the Notes, the Mortgages, the Assignments, or any other Loan Document, or any of the transactions associated therewith, or the Mortgaged Properties, including specifically but not limited to claims of usury, REGARDLESS OF WHETHER THE MATTER RELEASED IS THE RESULT OF THE NEGLIGENCE OF ONE OR MORE OF THE RELEASED PARTIES.
100. Counterpart Execution.  This Agreement may be executed in any number of counterparts with the same effect as if all parties hereto had signed the same document.  All such counterparts shall be construed together and shall constitute one instrument, but in making proof hereof it shall only be necessary to produce one such counterpart, provided that the counterpart produced must be the counterpart executed by the party against whom enforcement is sought.
101. Severance.  If any covenant, condition, or provision herein contained is held to be invalid by final judgment of any court of competent jurisdiction, the invalidity of such covenant, condition, or provision shall not in any way affect any other covenant, condition or provision herein contained.
102. Time of the Essence.  It is expressly agreed by the parties hereto that time is of the essence with respect to this Agreement.
103. Construction.  The parties acknowledge and confirm that each of their respective attorneys have participated jointly in the review and revision of this Agreement and that it has not been written solely by counsel for one party.  The parties hereto therefore stipulate and agree that the rule of construction to the effect that any ambiguities are to or may be resolved against the drafting party shall not be employed in the interpretation of this Agreement to favor any party against the other.
104. Governing Law.  This Agreement and the rights and duties of the parties hereunder shall be governed for all purposes by the law of the State of Texas and the law of the United States applicable to transactions within said State.
105. Successors.  The terms and provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their representatives, successors, and assigns.
106. Notice and Agreement.  Alterra, Borrower and Lender hereby take notice of and agree to the following:
107. Bankruptcy Matters.
108. No Waiver.  Lender in the past may have accepted, without exercising the remedies to which Lender was entitled, payments and performance by Borrower that constituted defaults under the Loan Documents.  Alterra and Borrower acknowledge that no such acceptance or grace granted by Lender in the past, or Lender's agreement to the modifications evidenced hereby, has in any manner diminished Lender's right in the future to insist that Alterra and Borrower strictly comply with the terms of the Loan Documents, as modified by the terms hereof.  Furthermore, Alterra and Borrower specifically acknowledge that any future grace or forgiveness of default by Lender shall not constitute a waiver or diminishment of any right of Lender with respect to any future default of Alterra or Borrower, whether or not similar to any default with respect to which Lender has in the past chosen, or may in the future choose, not to exercise all of the rights and remedies granted to it under the Loan Documents.
109. Recording.  For ease of recording, certain signature pages, exhibits and schedules to this Agreement may not be recorded in all of the jurisdictions in which this Agreement is recorded.  Nevertheless, the parties are bound by all terms and provisions hereof.
110. any failure to make payments to Lender when due;
111. any failure to comply with the financial covenants of Sections 6.16-6.19, 6.22 or 6.23;
112. any failure to maintain general liability or professional liability insurance as required by the Mortgages;
113. any failure to deliver certificates evidencing renewal of insurance policies at least 15 days before the insurance expired;
114. any failure to notify Lender, prior to the occurrence thereof, of the name change from Alternative Living Services, Inc. to Alterra Healthcare Corporation, the address change from 450 Sunnyslope Drive to 10000 Innovation Drive or the merger of Sterling House Corporation with Alterra Healthcare Corporation;
115. any failure of Alterra or Borrower generally to pay (or any admission in writing of inability to pay) its debts as such debts become due;
116. any failure to deliver rent rolls for the Projects;
117. any failure to deliver an Officer's Certificate identifying, or to notify Lender in the format or within the time frame required by the Loan Documents of, or to remedy (a) any Default described in paragraphs (i) through (vii) above, (b) any Material Adverse Change in the financial condition of Borrower or Alterra, (c) the filing of any suit or proceeding against Alterra which was disclosed in Alterra's filings on Form 10K or 10Q with the Securities and Exchange Commission, or (d) the following proceedings against Borrower:
118. Ramsey v. Amoco Oil, et al., "In the Matter of the Condemnation of Certain Lands for Highway Purposes," Case 62C201011916 filed in the Second Judicial District Court, Ramsey County, MN;
119. Tim Foley Plumbing Service, inc. et al. v. Eby Development and Management Co., L.L.C., et al., Cause No. 89C01-9904-CP-061 filed in the Wayne Circuit Court, Wayne County, IN; and
120. Claim for slip and fall incident in October, 2001 at the Alterra Clare Bridge of Olympia residence.  Liability estimated at $5,000.
121. the imposition of, and any failure to deliver an Officer's Certificate identifying, or to notify Lender in the format or within the time frame required by the Loan Documents of, the following bans on admissions at the Alterra Clare Bridge of Olympia residence:
122. The Department of Social and Health Services ("Department") conducted a survey on various dates from March 24, 2000, through June 6, 2000.  The Department alleged that the residence failed to ensure appropriate care for residents with a significant change of condition, failed to properly evaluate its ability to provide medication management at night and failed to notify a resident's family of injury of unknown source.  Based upon these findings, on June 16, 2000, the Department issued a ban on admissions and a fine of $700.00.  The ban on admissions was lifted on August 15, 2000 and the fine was paid.
123. The Department conducted an investigation on July 23, 2001.  The Department alleged that the residence failed to discharge a resident in a timely fashion.  The Department issued a stop placement and assessed a forfeiture in the amount of $7,500.  The ban on admissions was lifted on August 9, 2001.
124. the issuance of, and any failure to deliver an Officer's Certificate identifying, or to notify Lender in the format or within the time frame required by the Loan Documents of, a notice issued by the Ohio Department of Health on May 2, 2002 proposing to revoke the license for the Alterra Clare Bridge of Austintown based on a violation related to exceeding the 120-day limit on providing intermittent skilled nursing care.  The proposed revocation is being appealed.