SECOND
AMENDMENT TO LOAN AGREEMENT




This
SECOND AMENDMENT TO LOAN
AGREEMENT(this “Amendment”), is made
and entered into as of December 29, 2008 (the “Effective Date”),
amongESC-ARBOR PLACE, LLC, a
Washington limited liability company (the “Borrower”), the
Lenders party hereto, and GENERAL ELECTRIC CAPITAL
CORPORATION (“GE Capital”), as
administrative agent and collateral agent for the Lenders party to the Loan
Agreement described below (in such capacity, and together with its successors
and permitted assigns,the
“Agent”).




W I T N E S S E T
H:




WHEREAS,Borrower, Lenders and
the Agent are parties to that certain Loan Agreement, dated June 30, 2006, as
amended by First Amendment thereto dated December 20, 2007 (as amended,
restated, replaced, supplemented or otherwise modified from time to time, the
“Loan
Agreement”; capitalized terms used but not defined in this Amendment have
the meanings given in the Loan Agreement), whereby Lenders have committed to
make certain loans and other extensions of credit to Borrower upon the terms and
conditions set forth therein; and




WHEREAS, in connection with
the repayment of the Arkansas Loan, Borrower has requested that the Lenders and
the Agent, and the Lenders and the Agent have agreed to, subject to terms and
conditions set forth herein, make certain modifications to the Loan Agreement as
further set forth herein; and




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




1.           Amendments
to Loan Agreement.Subject to the
terms and conditions of this Amendment, from and after the Effective Date the
Loan Agreement shall be amended as follows:




(a)           Section 2.2of the
Loan Agreement is hereby amended by deleting such section in its entirety and
substituting in lieu thereof, the following:




“Section
2.2                                Interest Rate; Late
Charge




The
      outstanding principal balance of the Loan (including any amounts added to
      principal under the Loan Documents) shall bear interest at a rate of
      interest equal to nine and two hundred twenty-nine thousandths of one
      percent (9.229%) per annum (the "Interest Rate").  Interest
      shall be computed on the basis of a fraction, the denominator of which is
      three hundred sixty (360) and the numerator of which is the actual number
      of days elapsed from the date on which the immediately preceding payment
      was due. If Borrower fails to pay any installment of interest or principal
      within five (5) days after the date on which the same is due, Borrower
      shall pay to Agent a late charge on such past due amount, as liquidated
      damages and not as a penalty, equal to the greater of (a) interest at the
      Default Rate on such amount from the date when due until paid, and (b)
      five percent (5%) of such amount, but not in excess of the maximum amount
      of interest allowed by applicable law.  While any Event of
      Default exists, the Loan shall bear interest at the Default
      Rate.”












(b)           Section 2.5 of the
Loan Agreement is hereby amended by deleting such section in its entirety and
substituting in lieu thereof, the following:




“Section
2.5                                Prepayment.




At
      any time on or after January 1, 2009, Borrower may prepay any of the
      outstanding principal balance of the Loan in full at any
      time.  If the Loan is accelerated for any reason other than
      casualty or condemnation, Borrower shall pay, in addition to all other
      amounts outstanding under the Loan Documents, a prepayment premium ("Prepayment Premium")
      equal to one percent (1%) of the outstanding principal balance of the
      Loan. Upon any prepayment of the Loan (regardless of the source of such
      prepayment and whether voluntary, by acceleration or otherwise), Borrower
      shall pay Lender, for the benefit of Lender the Breakage Amount.  “Breakage
      Amount”means an amount,
      as reasonably calculated by Lender, equal to the amount of any losses,
      expenses, liabilities (including, without limitation, any loss (including
      interest paid) and lost opportunity cost in connection with the
      re-employment of such funds) that Lender or its Affiliates may sustain in
      its capacity as a counterparty to any swap, collar, hedge or other
      instrument relating specifically to the Loan as a result of any prepayment
      of the Loan (regardless of the source of such prepayment and whether
      voluntary, by acceleration or
otherwise).”




(c)           Section 2.9 Defeasance of the
Loan Agreement is hereby amended by deleting such section in its entirety and
replacing it with “Section 2.9 [Reserved]”.




(d)           Section 7.28 of the
Loan Agreement is hereby amended by deleting such section in its entirety and
substituting in lieu of the following:




“(a)
            Commencing
      on September 30, 2008, and as of the last day of each calendar quarter
      thereafter during the term of the Loan, the average daily occupancy at the
      Project for the immediately preceding three (3) month period shall be
      greater than eighty-five percent (85%) of the average daily occupancy at
      both the Project for the three (3) month period immediately preceding the
      Closing.  “Occupancy” under this
      Section
      7.28(a) shall mean beds occupied by a resident at the Project and
      paying at least applicable Medicare, Medicaid or insurance reimbursement
      rates.




(b)
            Commencing
      on September 30, 2008, and as of the last day of each calendar quarter
      thereafter during the term of the Loan, the Debt Service Coverage Ratio
      (as determined by Agent) for the immediately preceding six (6) month
      period shall equal or exceed 0.90:1.00 and the Project Yield (as
      determined by Agent) for the immediately preceding six (6) month period
      shall equal or exceed ten percent
(10.0%).”





(e)           Section
9.14 of the Loan Agreement is hereby amended by deleting such section in its
entirety and replacing it with “Section
9.14  [Reserved]”.





(f)           Schedule I of the
Loan Agreement is hereby amended as follows:





(i)           The
definition of Debt Service Coverage Ratio is hereby amended by deleting the
following sentence from the end of the definition of such term:





“For purposes of Section 7.28(b), Debt
Service Coverage Ratio shall mean the ratio of (i) the sum of the Net Operating
Income (calculated in accordance with Schedule II attached hereto) from the
Project and the Net Operating Income from the Arkansas Project, each taken as a
whole, for a particular period, to (ii) the sum of the payments of interest due
on the Loan and the payments of interest due on the Arkansas Loan for the same
period plus principal and amortization during the same period.”





(ii)           The
definition of Project Yield is hereby amended by deleting the following sentence
from the end of the definition of such term:





“For purpose of Section 7.28(b),
Project Yield shall mean the ratio, expressed as a percentage, of (a) the sum of
the annualized Net Operating Income for the Project plus the annualized Net
Operating Income for the Arkansas Project, each taken as a whole, as determined
by Agent for a particular period, to (b) the sum of the outstanding principal
balance of the Loan plus the outstanding principal balance on the Arkansas
Loan.”





(g)           Schedule I of the
Loan Agreement is hereby further amended by deleting the defined term Arkansas
Project”.





(h)           Any
and all references in the Loan Agreement to the “Arkansas Borrower,” the
“Arkansas Loan,” the “Arkansas Loan Agreement,” the “Arkansas Mortgages,” the
“Arkansas Mortgage Amendments” and the “Arkansas Note” shall be and hereby are
of no further force and effect.





2.           Representations
and Warranties.  Borrower hereby
represents and warrants to the Agent and Lenders that this Amendment has been
duly authorized, executed and delivered by Borrower and that, after giving
effect to the amendments set forth in Section 1 of this
Amendment, (a) neither an Event of Default nor any event that, with the passage
of time or notice or both, would, unless cured or waived, become an Event of
Default, has occurred and is continuing as of this date, and (b) all of the
representations and warranties made by Borrower or Guarantor in the Loan
Agreement  or any other Loan Document are true and correct in all
material respects on and as of the date of this Amendment (except to the extent
such representations and warranties specifically relate to an earlier date, in
which case they were true, correct and complete in all material respects on and
as of such earlier date).





3.           Guarantor
Acknowledgement.




(a)  Guarantor
hereby acknowledges that it has reviewed the terms and provisions of the Loan
Agreement and this Amendment.  Guarantor hereby confirms that its
Guaranty and the Guaranty of Payment and Performance (the “Guaranty Agreement”)
to which it is a party or otherwise bound will continue to guarantee to the
fullest extent possible in accordance with such Guaranty Agreement, the payment
and performance of all of the “Liabilities” as such term is defined in the
Guaranty Agreement.




(b)  Guarantor
acknowledges and agrees that its Guaranty and the Guaranty Agreement to which it
is a party or otherwise bound shall continue in full force and effect and that
all of its obligations thereunder shall be valid and enforceable and shall not
be impaired or limited by the execution or effectiveness of this
Amendment.  Guarantor represents and warrants







that all
representations and warranties contained in the Loan Agreement, this Amendment
and the other Loan Documents to which it is a party or otherwise bound are true,
correct and complete in all material respects on and as of the date hereof to
the same extent as though made on and as of that date, except to the extent such
representations and warranties specifically relate to an earlier date, in which
case they were true, correct and complete in all material respects on and as of
such earlier date.




(c)  Guarantor
acknowledges and agrees that (i) notwithstanding the conditions to effectiveness
set forth in this Amendment, Guarantor is not required by the terms of the Loan
Agreement or any other Loan Document to consent to the amendments of the Loan
Agreement effected pursuant to this Amendment and (ii) nothing in the Loan
Agreement and this Amendment or any other Loan Document shall be deemed to
require the consent of Guarantor to any future amendments to the Loan
Agreement.




4.           Conditions
to Effectiveness.  This Amendment
shall be effective as of the Date of this Amendment upon the receipt by Agent
of:




(a)           counterparts
of this Amendment, duly executed, completed and delivered by GE Capital as
Lender, Agent, Borrower and Guarantor; and




(b)           payoff
in full of the loan on the Arkansas Project; and




(c)           an
amendment fee paid by Borrower to Agent in the amount of $78,000 in immediately
available funds (the “Amendment Fee”) in
connection with this Amendment; such Amendment Fee is non-refundable and shall
be deemed to be fully earned and payable on the date hereof.




5.           Reimbursement
of Expenses.  Borrower hereby
agrees that it shall reimburse the Agent on demand for all reasonable costs and
expenses (including without limitation reasonable attorneys’ fees) incurred by
the Agent in connection with the negotiation, documentation and consummation of
this Amendment and the other documents executed in connection herewith and
therewith and the transactions contemplated hereby and thereby.




6.           Governing
Law.  THIS AMENDMENT
SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW
OF THE STATE OF ILLINOIS.




7.           Severability
of Provisions.  Any provision of
this Amendment which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.  To the extent permitted by applicable law, Borrower
hereby waives any provision of law that renders any provision hereof prohibited
or unenforceable in any respect.




8.           Counterparts.  This Amendment
may be executed in any number of counterparts, all of which shall be deemed to
constitute but one original and shall be binding upon all parties, their
successors and permitted assigns.  Delivery of an executed counterpart
of a







signature
page of this Amendment by facsimile or e-mail image shall be effective as
delivery of a manually executed counterpart of this Amendment.




9.           Effect of
this Amendment.  Except as
specifically set forth in Section 1 of this
Amendment, no other amendments, changes, modifications, consents or waivers to
the Loan Documents are intended or implied and in all other respects the Loan
Documents are hereby specifically ratified, restated and confirmed by all
parties hereto as of the effective date hereof.  To the extent of
conflict between the terms of this Amendment and the other Loan Documents, the
terms of this Amendment shall control.  The Loan Agreement and this
Amendment shall be read and construed as one agreement.




10.           Entire
Agreement.  The Loan
Agreement and this Amendment embody the entire agreement between the parties
hereto relating to the subject matter hereof and supersede all prior agreements,
representations and understandings, if any, relating to the subject matter
hereof.









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IN WITNESS WHEREOF, the
parties have caused this First Amendment to Loan Agreement to be duly executed
by their respective officers thereunto duly authorized, as of the date first
above written.




BORROWER:





ESC-ARBOR
PLACE, LLC





By: /s/ Eric
Mendelsohn


Name:
Eric
Mendelsohn


Title:
SVP Corporate Development











GUARANTOR:





EMERITUS
CORPORATION





By: /s/ Eric
Mendelsohn


Name:
Eric
Mendelsohn


Title:  SVP
Corporate Development

















ADMINISTRATIVE
AGENT AND LENDER:





GENERAL
ELECTRIC CAPITAL CORPORATION








By:                  /s/ Ellen
Ross


Name:
Ellen
Ross


Title:   Its
Duly Authorized Signatory