MASTER
CREDIT FACILITY AGREEMENT




BY AND
BETWEEN




BORROWERS
SIGNATORY HERETO




AND




CAPMARK FINANCE
INC.,


a
California corporation




DATED AS
OF




April
1, 2008












TABLE
      OF CONTENTSPageARTICLE
      1 THE COMMITMENT
            2Section
      1.01.
            The
      Commitment to Make Fixed Advances.
            2Section
      1.02.
            Requests
      for Advances.
            2Section
      1.03.
            Maturity
      Date of Advances; Amortization.
            2Section
      1.04.
            Annual
      Interest Rate for Advances.
            3Section
      1.05.
            Notes.
            3ARTICLE
      2 THE ADVANCES
            3Section
      2.01.
            Rate
      Setting for an Advance.
            3Section
      2.02.
            Advances.
            4Section
      2.03.
            Determination
      of Allocable Facility Amount and Valuations.
            4Section
      2.04.
            Additional
      Advances Made on Increased Values.
            5Section
      2.05.
            Advances
      made for Additional Units
            5ARTICLE
      3 COLLATERAL CHANGES
            6Section
      3.01.
            Obligation
      to Add Collateral.
            6Section
      3.02.
            Right
      to Add Collateral.
            6Section
      3.03.
            Procedure
      for Adding Collateral.
            6Section
      3.04.
            Right
      to Obtain Releases of Collateral.
            7Section
      3.05.
            Procedure
      for Obtaining Releases of Collateral.
            8Section
      3.06.
            Substitutions.
            9ARTICLE
      4 INCREASE OF CREDIT FACILITY
            12Section
      4.01.
            Right
      to Increase Commitment.
            12Section
      4.02.
            Procedure
      for Obtaining Increases in Commitment.
            12Section
      4.03.
            Closing.
            12ARTICLE
      5 CONDITIONS PRECEDENT TO ALL REQUESTS
            12Section
      5.01.
            Conditions
      Applicable to All Requests.
            12Section
      5.02.
            Conditions
      Precedent to Initial Advance.
            14Section
      5.03.
            Conditions
      Precedent to Future Advances.
            14Section
      5.04.
            Conditions
      Precedent to Addition of an Additional Mortgaged Property to the
      Collateral Pool.
            15Section
      5.05.
            Conditions
      Precedent to Release of Property from the Collateral Pool.
            16Section
      5.06.
            Conditions
      Precedent to Increase in Commitment.
            17Section
      5.07.
            Delivery
      of Opinion Relating to Advance Request, Addition Request or Expansion
      Request.
            17Section
      5.08.
            Delivery
      of Property-Related Documents.
            17ARTICLE
      6 REPRESENTATIONS AND WARRANTIES
            18Section
      6.01.
            Representations
      and Warranties of Borrower.
            18Section
      6.02.
            Representations
      and Warranties of Lender.
            18ARTICLE
      7 AFFIRMATIVE COVENANTS OF BORROWER
            19Section
      7.01.
            Compliance
      with Agreements.
            19Section
      7.02.
            Maintenance
      of Existence.
            19Section
      7.03.
            Financial
      Statements; Accountants’ Reports; Other Information.
            19Section
      7.04.
            Certificate
      of Compliance.
            20


i





Section
      7.05.
            Alterations
      to the Mortgaged Properties.
            20Section
      7.06.
            Loan
      Document Taxes.
            21Section
      7.07.
            Further
      Assurances.
            21Section
      7.08.
            Transfer
      of Ownership Interests in Borrower.
            22Section
      7.09.
            Transfer
      of Ownership of Mortgaged Property.
            22Section
      7.10.
            Change
      in Senior Management.
            22Section
      7.11.
            Liquidity
      and Net Worth Tests.
            22ARTICLE
      8 NEGATIVE COVENANTS OF BORROWER
            22Section
      8.01.
            Other
      Activities.
            22Section
      8.02.
            Indebtedness.
            22Section
      8.03.
            Principal
      Place of Business.
            23Section
      8.04.
            Restrictions
      on Distributions.
            23Section
      8.05.
            Changes
      to Operating Leases.
            23Section
      8.06.
            Alzheimer’s
      Beds.
            23ARTICLE
      9 FEES
            23Section
      9.01.
            Origination
      Fees.
            23Section
      9.02.
            Due
      Diligence Fees.
            24Section
      9.03.
            Legal
      Fees and Expenses.
            24Section
      9.04.
            Failure
      to Close any Request.
            25ARTICLE
      10 EVENTS OF DEFAULT
            25Section
      10.01.
            Events
      of Default.
            25ARTICLE
      11 REMEDIES
            27Section
      11.01.
            Remedies;
      Waivers.
            27Section
      11.02.
            Waivers;
      Rescission of Declaration.
            27Section
      11.03.
            Lender’s
      Right to Protect Collateral and Perform Covenants and Other
      Obligations.
            28Section
      11.04.
            No
      Remedy Exclusive.
            28Section
      11.05.
            No
      Waiver.
            28Section
      11.06.
            No
      Notice.
            28ARTICLE
      12 LIMITS ON PERSONAL LIABILITY
            29Section
      12.01.
            Personal
      Liability of Borrower.
            29ARTICLE
      13 MISCELLANEOUS PROVISIONS
            29Section
      13.01.
            Counterparts.
            29Section
      13.02.
            Amendments,
      Changes and Modifications.
            29Section
      13.03.
            Payment
      of Costs, Fees and Expenses.
            29Section
      13.04.
            Payment
      Procedure.
            30Section
      13.05.
            Payments
      on Business Days.
            30Section
      13.06.
            Choice
      of Law; Consent to Jurisdiction; Waiver of Jury Trial.
            30Section
      13.07.
            Severability.
            32Section
      13.08.
            Notices.
            32Section
      13.09.
            Further
      Assurances and Corrective Instruments.
            34Section
      13.10.
            Term
      of this Agreement.
            34Section
      13.11.
            Assignments;
      Third-Party Rights.
            34Section
      13.12.
            Headings.
            34Section
      13.13.
            General
      Interpretive Principles.
            34Section
      13.14.
            Interpretation.
            35


ii





Section
      13.15.
            Standards
      for Decisions, Etc.
            35Section
      13.16.
            Decisions
      in Writing.
            35Section
      13.17.
            Approval
      of Waivers.
            35Section
      13.18.
            USA
      Patriot Act.
            35





iii


EXHIBITS




EXHIBIT
      A
            Schedule
      of Initial Mortgaged Properties and Initial Valuations


EXHIBIT
      B
            Note


EXHIBIT
      C
            Guaranty


EXHIBIT
      D
            Confirmation
      of Guaranty


EXHIBIT
      E
            Compliance
      Certificate


EXHIBIT
      F
            Organizational
      Certificate


EXHIBIT
      G
            Rate
      Form


EXHIBIT
      H
            Advance
      Request


EXHIBIT
      I
            Request
      (Addition/Release)


EXHIBIT
      J
            Confirmation
      of Obligations


EXHIBIT
      K
            Certificate
      of Borrower


EXHIBIT
      L
            Expansion
      Request








APPENDIX
I                                           Definitions












iv


MASTER
CREDIT FACILITY AGREEMENT




THIS
MASTER CREDIT FACILITY AGREEMENT is made as of the 1st day of
April, 2008, by and among (i) (a) PHNTUS ARBOR GARDENS INC., a
California corporation, (b) PHNTUS AUSTIN GARDENS INC, a
California corporation, (c) PHNTUS BECKETT MEADOWS LLC, a
Delaware limited liability company, (d) PHNTUS CANTERBURY WOODS LLC, a
Delaware limited liability company, (e) PHNTUS CHARLESTON GARDENS LLC,
a Delaware limited liability company, (f) PHNTUS CREEKSIDE LLC, a
Delaware limited liability company, (g) PHNTUS DESERT SPRINGS LLC, a
Delaware limited liability company, (h) PHNTUS HERITAGE HILLS LLC, a
Delaware limited liability company, (i) PHNTUS KP SHREVEPORT LLC, a
Delaware limited liability company, (j) PHNTUS LAKES LLC, a Delaware
limited liability company, (k) PHNTUS LO CAPE MAY LLC, a
Delaware limited liability company, (l) PHNTUS LO FOLSOM INC, a
California corporation, (m) PHNTUS LO JOLIET LLC, a
Delaware limited liability company, (n) PHNTUS LO ROCKFORD LLC, a
Delaware limited liability company, (o) PHNTUS OAK HOLLOW LLC, a
Delaware limited liability company, (p) PHNTUS PINEHURST LLC, a
Delaware limited liability company, (q) PHNTUS PINE MEADOW LLC, a
Delaware limited liability company, (r) PHNTUS PINES AT GOLDSBORO LLC,
a Delaware limited liability company, (s) PHNTUS QUAIL RIDGE LLC, a
Delaware limited liability company, (t) PHNTUS RICHLAND GARDENS LLC, a
Delaware limited liability company, (u) PHNTUS SILVERLEAF MANOR LLC, a
Delaware limited liability company, and (w) PHNTUS STONEBRIDGE LLC, a
Delaware limited liability company (individually and collectively, together with
any Additional Borrower becoming a party hereto, “Borrower”);
(ii) CAPMARK FINANCE
INC., a California corporation (“Lender”);
and (iii) EMERITUS
CORPORATION, a Washington corporation (“Guarantor”;
together with Borrower, “Borrower
Parties”).




RECITALS




A.           Borrower
owns one (1) or more Seniors Housing Facilities (unless otherwise defined or the
context clearly indicates otherwise, capitalized terms shall have the meanings
ascribed to such terms in Appendix I of this Agreement) as more particularly
described in Exhibit A to this
Agreement.




B.           Borrower
has requested that Lender establish a Credit Facility in favor of
Borrower.




C.           To
secure the obligations of Borrower under this Agreement and the other Loan
Documents issued in connection with the Credit Facility, Borrower shall create a
Collateral Pool in favor of Lender.  The Collateral Pool shall be
comprised of (i) the Seniors Housing Facilities listed on Exhibit A and
(ii) any other collateral pledged to Lender from time to time by Borrower
pursuant to this Agreement or any other Loan Documents.




D.           Each
Note and Security Document related to the Mortgaged Properties comprising the
Collateral Pool shall be cross-defaulted (i.e., a default under
any Note, Security Document relating to the Collateral Pool and under this
Agreement, shall constitute a default




1


under
each Note, Security Document and this Agreement related to the Mortgaged
Properties comprising the Collateral Pool) and cross-collateralized (i.e., each Security
Instrument related to the Mortgaged Properties within the Collateral Pool shall
secure all of Borrower’s obligations under this Agreement and the other Loan
Documents) and it is the intent of the parties to this Agreement that, after an
Event of Default, Lender may accelerate any Note without needing to accelerate
any other Note and that in the exercise of its rights and remedies under the
Loan Documents, Lender may, except as provided in this Agreement, exercise and
perfect any and all of its rights in and under the Loan Documents with regard to
any Mortgaged Property without needing to exercise and perfect its rights and
remedies with respect to any other Mortgaged Property and that any such exercise
shall be without regard to the Allocable Facility Amount assigned to such
Mortgaged Property and that Lender may recover an amount equal to the full
amount outstanding in respect of any of the Notes in connection with such
exercise and any such amount shall be applied as determined by Lender in its
sole and absolute discretion.




E.           Subject
to the terms, conditions and limitations of this Agreement, Lender has agreed to
establish the Credit Facility.




NOW,
THEREFORE, Borrower and Lender, in consideration of the mutual promises and
agreements contained in this Agreement, hereby agree as follows:




ARTICLE
1




THE
COMMITMENT




Section
      1.01.
            The Commitment to Make
      Fixed Advances.




Subject
to the terms, conditions and limitations of this Agreement, Lender agrees to
make Advances to Borrower from time to time during the Facility Availability
Period, pursuant to the terms of this Agreement and, in the case of $200,000,000
of the $241,889,868 Initial Advance pursuant to that certain loan commitment
dated as of February 7, 2008for each Initial
Mortgaged Property set forth on Exhibit A to this
Agreement.  The aggregate original principal of the Advances shall not
exceed the Commitment.  The borrowing of an Advance shall permanently
reduce the Commitment by the original principal amount of such
Advance.  Borrower may not re-borrow any part of the Advance which it
has previously borrowed and repaid. Except as set forth in Section 2.04 of
this Agreement, no Advances shall be made as a result of increases in the Debt
Service Coverage Ratio or decreases in the Loan to Value Ratio of any Mortgaged
Property.  Each Advance shall have conventional fixed rate financing
and is anticipated to be purchased by Fannie Mae for cash.




Section
      1.02.
            Requests
      for Advances.




Borrower
shall request an Advance by giving Lender an Advance Request in accordance with
Section
2.02.




Section
      1.03.
            Maturity
      Date of Advances; Amortization.




(a)           Advances;
Amortization.




(i)           The
maturity date of all Advances shall be April 1, 2018.




2


(ii)           Each
Advance shall require amortization based on the Amortization Period unless
otherwise waived by Lender.




(b)           Prepayment.  Subject
to the terms and conditions of Section 3.05,
Borrower may prepay all or a portion of any Advance pursuant to the prepayment
provisions of the applicable Note.  Any repaid Advances shall automatically
result in a reduction of the Commitment.




Section
      1.04.
            Annual
      Interest Rate for Advances.




(a)           The
Initial Advance made in connection with the closing of the Initial Mortgaged
Properties shall bear interest at the Interest Rate set forth in the Note dated
as of even date with this Agreement.




(b)           Each
Future Advance obtained pursuant to this Agreement shall bear interest at a
rate, per annum, equal to the sum of (1) the Cash Interest Rate for such
Advance, as determined pursuant to Section 2.01(b)
plus (2) the Facility Fee.




Section
      1.05.
            Notes.




The
obligation of Borrower to repay the Advances shall be evidenced by one (1) or
more Notes.  Each Note shall be payable to the order of Lender and
shall be made in the original principal amount of such Advance.




ARTICLE
2




THE
ADVANCES




Section
      2.01.
            Rate
      Setting for an Advance.




(a)           As
of the Initial Closing Date, Borrower and Lender have determined the Interest
Rate for the Initial Advance.  Such Interest Rate is set forth in the
Note dated as of even date with this Agreement.




(b)           Interest
Rates for any Future Advance shall be set in accordance with the following
procedures:




(i)           Preliminary, Nonbinding
Quote.  At Borrower’s request Lender shall quote an estimate of the
Interest Rate.  Lender’s quote shall be based on (1) the rate quoted by
Fannie Mae in the case of a cash execution and (2) the proposed terms and amount
of the Advance selected by Borrower.  The quote shall not be binding upon
Lender.




(ii)           Rate Setting. 
If Borrower satisfies all of the conditions to Lender’s obligation to make the
Future Advance, then Borrower may submit to Lender, by facsimile transmission
before 1:00 p.m. Washington, D.C. time on any Business Day (“Rate
Setting Date”), a completed and executed Rate Form.  The Rate Form
shall specify the amount, term, Facility Fee, the proposed maximum Interest
Rate, and Closing Date for the Advance.




3


(iii)           Rate
Confirmation.  Within one (1) Business Day after receipt of the Rate
Form, Lender shall obtain a commitment from Fannie Mae (“Fannie
Mae Commitment”) for the purchase of the proposed Advance having the
terms described in the related Rate Form.  Subject to the limitations set
forth in the Rate Form, Lender shall then complete and countersign the Rate Form
thereby confirming the amount, term, Cash Interest Rate, the Facility Fee, and
Closing Date for the Advance and shall immediately deliver by facsimile
transmission the Rate Form to Borrower.




(c)           Breakage and Other
Costs.  If Lender obtains, and then fails to fulfill, the Fannie Mae
Commitment because the Advance is not made (for a reason other than Lender’s
default), Borrower shall pay all reasonable out-of-pocket costs payable to the
potential investor and other reasonable costs, fees and damages incurred by
Lender in connection with its failure to fulfill the Fannie Mae
Commitment.  Lender reserves the right to require Borrower to post a
deposit at the time the Fannie Mae Commitment is obtained.  Such deposit
shall be refundable to Borrower upon the delivery of the applicable Note to
Fannie Mae and acceptance of such Note by Fannie Mae.




Section
      2.02.
            Advances.




Borrower
may deliver an Advance Request to Lender.




(a)           If
the Advance Request is to obtain the Initial Advance and all conditions
precedent contained in Section 5.02 and
the General Conditions contained in Section 5.01 are
satisfied on or before the Initial Closing Date, Lender shall make the Initial
Advance on the Initial Closing Date or on such other date as Borrower and Lender
may agree.




(b)           Any
Future Advance shall be in the minimum amount of $3,000,000.  If all
conditions precedent contained in Section 5.03 and
Section 5.04 (if
applicable) and the General Conditions contained in Section 5.01 are
satisfied, Lender shall make the requested Future Advance, at a closing to be
held at offices designated by Lender on a Closing Date selected or approved by
Lender, which date shall be not more than ten (10) Business Days after
Borrower’s receipt from Lender of the confirmed Rate Form (or on such other date
as Borrower and Lender may agree).




Section
      2.03.
            Determination
      of Allocable Facility Amount and Valuations.




(a)           Initial
Determinations.  On or before the Initial Closing Date, Lender
shall determine (1) the Allocable Facility Amount and Valuation for each
Mortgaged Property, (2) the Aggregate Debt Service Coverage Ratio and the
Aggregate Loan to Value Ratio, (3) the Advance Amount, and (4) the Commitment
amount.  The determinations made as of the Initial Closing Date shall
remain unchanged until the First Anniversary.  Changes in Allocable
Facility Amount, Valuations, the Aggregate Debt Service Coverage Ratio and the
Aggregate Loan to Value Ratio shall be made pursuant to Section 2.03(b).




(b)           Monitoring
Determinations.  Once each Calendar Year, within twenty (20)
Business Days after Borrower has delivered to Lender the reports required in Section 7.03,
Lender shall determine the Aggregate Debt Service Coverage Ratio and the
Aggregate Loan to Value Ratio, the Valuations and whether Borrower is in
compliance with the other covenants set




4


forth in
the Loan Documents.  After the First Anniversary, on an annual basis,
and if Lender reasonably decides that changed market or property conditions
warrant, Lender shall determine Valuations.  In determining
Valuations, Lender shall use Cap Rates based on its internal survey and analysis
of cap rates for comparable sales in the vicinity of the Mortgaged Property,
with such adjustments as Lender deems appropriate and without any obligation to
use any information provided by Borrower.  If Lender is unable to
determine a Cap Rate for a Mortgaged Property, Lender shall have the right, not
more than once annually, to obtain, at Borrower’s expense (at a cost not to
exceed the cost for similar studies required by Lender for loans sold to Fannie
Mae), a market study in order to establish a Cap Rate.  Lender shall
promptly disclose its determinations to Borrower.  Until redetermined,
the outstanding Valuations shall remain in effect.  Notwithstanding
anything in this Agreement to the contrary, no change in the Aggregate Loan to
Value Ratio or the Aggregate Debt Service Coverage Ratio shall, unless resulting
from the removal of Collateral from the Collateral Pool, (5) result in a
Potential Event of Default or Event of Default, (6) require the prepayment of
any Advances, or (7) require the addition of Collateral to the Collateral
Pool.




Section
      2.04.
            Additional
      Advances Made on Increased Values.




(a)           Notwithstanding
anything to the contrary in this Agreement, after the First Anniversary, no more
than one (1) time during the Facility Availability Period, and provided Borrower
has increased the Commitment prior to the First Anniversary pursuant to Article 4 of this
Agreement, Borrower shall be entitled to a Future Advance based on decreases in
the Aggregate Loan to Value Ratio and increases in the Aggregate Debt Service
Coverage Ratio as determined by Lender in accordance with this Agreement. 
The minimum
aggregate amount of such Future Advances shall be
$3,000,000.  The maximum aggregate
amount of such Future Advance shall be equal to the amount which, when combined
with Advances already Outstanding, equals the maximum amount of Advances that
could be Outstanding that would result in an Aggregate Loan to Value Ratio less
than or equal to seventy-five percent (75%) and an Aggregate Debt Service
Coverage Ratio greater than or equal to 1.30:1.0.




(b)           Borrower
shall request a Future Advance pursuant to this Section 2.04 by
giving Lender an Advance Request in accordance with Section
2.02.  Upon the closing of such Future Advance, the
Allocable Facility Amount attributed to each Mortgaged Property shall be
increased as determined by Lender.  Each Borrower shall enter into a
new Note evidencing such Future Advance.




(c)           In
connection with the closing of any Future Advance pursuant to this Section 2.04,
Borrower shall pay the Re-Underwriting Fee and Additional Origination
Fee.




Section
      2.05.
            Advances made for
      Additional Units




(a)           Notwithstanding
anything to the contrary in this Agreement, after the First Anniversary, no more
than one (1) time during the Facility Availability Period, and provided Borrower
has increased the Commitment prior to the First Anniversary pursuant to Article 4 of this
Agreement, Borrower may request that Lender approve a Future Advance based on
the addition or proposed addition of units to be constructed on or adjacent to a
Mortgaged Property in the Collateral Pool.   Lender may approve such
request in its sole discretion based on factors




5


including
but not limited to the then current Valuation of the Mortgaged Properties, the
then current Aggregate Debt Service Coverage Ratio, the then current Aggregate
Loan to Value Ratio, the strength of the Guarantor, the quality of the markets
where the Mortgaged Properties are located, and then current terms and
conditions for similar loans anticipated to be sold to Fannie Mae.  
If required by Lender, this Agreement shall be amended to incorporate the terms
and provisions of Future Advances made pursuant to this Section 2.05.  Any proposed
Alterations to Mortgaged Property shall be subject to the terms of Section 7.05 of this
Agreement.




(b)           Upon
the closing of such Future Advance, the Allocable Facility Amount attributed to
each Mortgaged Property shall be increased as determined by Lender.  Each
Borrower shall enter into a new Note evidencing such Future
Advance.




(c)           In
connection with the closing of any Future Advance pursuant to this Section 2.05, Borrower shall pay the
Re-Underwriting Fee and Additional Origination Fee.




ARTICLE
3




COLLATERAL
CHANGES




Section
      3.01.
            Obligation
      to Add Collateral.




As of the
Initial Closing Date, Borrower shall add the Initial Mortgaged Properties as set
forth on Exhibit
A.




Section
      3.02.
            Right
      to Add Collateral.




Subject
to the terms and conditions of this Article 3,
provided that Borrower has increased the Commitment prior to the First
Anniversary pursuant to Article 4 ,
Borrower shall have the right, from time to time during the Facility
Availability Period, to add Seniors Housing Facilities to the Collateral Pool in
connection with a Future Advance.




Section
      3.03.
            Procedure
      for Adding Collateral.




The
procedure for adding Collateral contained in this Section 3.03
shall apply to all additions of Collateral.




(a)           Request.  From
time to time during the Facility Availability Period, Borrower may deliver to
Lender an Addition Request to add one (1) or more Seniors Housing Facilities to
the Collateral Pool.  Each Addition Request shall be accompanied by
the following:  (8) the quality and type of property-related
information required by Lender in connection with the Initial Advances made
hereunder and any additional information Lender may reasonably request; and (9)
the payment of all Additional Collateral Due Diligence Fees.




(b)           Underwriting.  Prior
to the First Anniversary, Borrower may add any Additional Mortgaged Property
provided that, after such addition, the Coverage and LTV Tests are
satisfied.  On and after the First Anniversary, the proposed Additional
Mortgaged Property must itself have a Debt Service Coverage Ratio of not less
than 1.30:1.0 and a Loan to Value Ratio of not more than seventy-five percent
(75%), and, after such addition, the Coverage and




6


LTV Tests
must be satisfied.  Notwithstanding the foregoing, at Borrower’s
request, Lender may, in its sole discretion, agree to add an Additional
Mortgaged Property to the Collateral Pool if, after the completion of such
addition, the Coverage and LTV tests are not satisfied, based on factors that
are not in conflict with Lender’s Underwriting Requirements, including but not
limited to the then current Valuation of the Mortgaged Properties, the then
current Aggregate Debt Service Coverage Ratio, the then current Aggregate Loan
to Value Ratio, the strength of the Guarantor, the quality of the markets where
the Mortgaged Properties are located and the quality of any Additional
Collateral.  Lender shall evaluate the proposed Additional Mortgaged
Property in accordance with the Underwriting Requirements, and shall make
underwriting determinations as to the Debt Service Coverage Ratio and the Loan
to Value Ratio of the proposed Additional Mortgaged Property and the Aggregate
Debt Service Coverage Ratio and the Aggregate Loan to Value Ratio applicable to
the Collateral Pool on the basis of the lesser of (10) the acquisition price of
the proposed Additional Mortgaged Property if purchased by Borrower within
twelve (12) months of the related Addition Request, and (11) a Valuation made
with respect to the proposed Additional Mortgaged Property.  Within
thirty (30) Business Days after receipt of (a) the Addition Request and (b) all
reports, certificates and documents required by the Underwriting Requirements,
Lender shall notify Borrower whether it has determined whether the proposed
Additional Mortgaged Property meets the conditions for addition of a Mortgaged
Property as determined by Lender.  If Lender determines that the
proposed Additional Mortgaged Property meets the conditions set forth in this
Agreement, it shall set forth the Aggregate Debt Service Coverage Ratio, the
Aggregate Loan to Value Ratio, and the Advance Amount that Lender estimates
shall result from the addition of the proposed Additional Mortgaged Property.
Within ten (10) Business Days after receipt of Lender’s written consent to the
Addition Request, Borrower shall notify Lender in writing whether it elects to
add the proposed Additional Mortgaged Property to the Collateral
Pool.  If Borrower fails to respond within the period of ten (10)
Business Days, it shall be conclusively deemed to have elected not to add the
proposed Additional Mortgaged Property to the Collateral Pool.




(c)           Closing.  If
Lender determines that the proposed Additional Mortgaged Property meets the
conditions set forth in this Agreement, Borrower timely elects to add the
proposed Additional Mortgaged Property to the Collateral Pool and all conditions
precedent contained in Section 5.04 and
all General Conditions contained in Section 5.01 are
satisfied, the proposed Additional Mortgaged Property shall be added to the
Collateral Pool, at a closing to be held at offices designated by Lender on a
Closing Date selected by Lender, occurring within thirty (30) Business Days
after Lender’s receipt of Borrower’s election (or on such other date as Borrower
and Lender may agree).




(d)           Geographic
Diversity.  Lender may reject an Addition Request on the basis
of the resulting geographic diversity of the Collateral Pool after the closing
of such Addition, in Lender’s sole discretion.  Lender hereby consents
to the geographic diversity of the Collateral Pool on the Initial Closing
Date.




Section
      3.04.
            Right
      to Obtain Releases of Collateral.




Subject
to the terms and conditions of this Article 3,
Borrower shall have the right from time to time to obtain a release of
Collateral from the Collateral Pool.




7


Section
3.05.                                Procedure
for Obtaining Releases of Collateral.




(a)           Request.  To
obtain a release of Collateral from the Collateral Pool, Borrower may deliver a
Release Request to Lender.  The closing of the transaction
contemplated by the Release Request shall automatically result in a termination
of such portion of the Credit Facility repaid in connection with the
release.




(b)           Closing.  If
all conditions precedent contained in Section 5.05 and
all General Conditions contained in Section 5.01 are
satisfied, Lender shall cause the Release Property to be released, at a closing
to be held at offices designated by Lender on a Closing Date selected by Lender,
and occurring within thirty (30) days after Lender’s receipt of the Release
Request (or on such other date as Borrower and Lender may agree), by executing
and delivering, and causing all applicable parties to execute and deliver, all
at the sole cost and expense of Borrower, the Release Documents.  If
required by Lender, Borrower shall prepare the Release Documents and submit them
to Lender for its review.




(c)           Release
Price.  The “Release
Price” for each Release Property means the greater of (12) one hundred
percent (100%) of the Allocable Facility Amount for the Release Property and
(13) one hundred percent (100%) of the amount, if any, of Advances Outstanding
that are required to be repaid by Borrower to Lender in connection with the
proposed release of the Release Property from the Collateral Pool so that,
immediately after the release, (a) the Aggregate Debt Service Coverage Ratio is
at least the greater of (i) the Aggregate Debt Service Coverage Ratio
immediately prior to the release or (ii) 1.30:1.0; and (b) the Aggregate Loan to
Value Ratio is no greater than the lesser of (i) the Aggregate Loan to Value
Ratio immediately prior to the release or (ii) seventy-five percent
(75%).  In addition to the Release Price, subject to the terms of Section 3.02(d) and Section 3.02(e), Borrower
shall pay to Lender all associated prepayment premiums and other amounts due
under the Note(s) being repaid.




(d)           Application of Release
Price.




(i)           The
Release Price for the Release Property shall be applied against the Outstanding
Advances provided that any prepayment premium due and owing is
paid.




(ii)           In
the event the Loan may not be prepaid under the terms of the Note, the Release
Price, if any, shall be held by Lender (or its appointed collateral agent) in an
interest-bearing accountdesignated by Lender as
substitute Collateral (collectively, with any interest thereon, “Substitute
Cash Collateral”), in accordance with a security agreement (if required
by Lender) and other documents in form and substance acceptable to Lender. 
Upon the release of the Substitute Cash Collateral (when the Loan can be prepaid
under the Note), any interest on such collateral shall be delivered to
Borrower.  Any Substitute Cash Collateral remaining after payment of the
Release Price will be returned to Borrower on the date all Loans are repaid in
full or after an event that brings the Collateral Pool into compliance with the
Release Price provisions in Section 3.05(c).




(e)           Geographic
Diversity.  Lender may reject a Release Request on the basis of
the resulting geographic diversity of the Collateral Pool after the closing of
such Release, in




8


Lender’s
sole discretion.  Lender hereby consents to the geographic diversity
of the Collateral Pool on the Initial Closing Date.




Section
      3.06.
            Substitutions.




(a)           Right to Substitute
Collateral.  Subject to the terms, conditions and limitations
of Article 3 and Article 5,
Borrower shall have the right to obtain the release of one or more Release
Properties from the Collateral Pool by replacing such Release Property with one
or more Additional Mortgaged Properties that meet the requirements of this
Agreement (the “Substitute
Mortgaged Property”) thereby effecting a “Substitution” of Collateral,
provided that –




(i)           prior
to the First Anniversary, (c) the Aggregate Debt Service Coverage Ratio after
the completion of such Substitution is at least equal to the Aggregate Debt
Service Coverage Ratio immediately prior to the Substitution, and (d) the Loan
to Value Ratio after the completion of such Substitution is no greater than the
Aggregate Loan to Value Ratio immediately prior to the Substitution,
and




(ii)           on
and after the First Anniversary, (e) the  Substitute Mortgaged
Property itself must have a Debt Service Coverage Ratio of at least 1.30:1.0 and
a Loan to Value Ratio no greater than seventy-five percent (75%), and (f) the
Aggregate Debt Service Coverage Ratio after the completion of the Substitution
is the greater of (i) the Aggregate Debt Service Coverage Ratio in effect
immediately prior to the Substitution, or (ii) 1.30:1.0 and (g) Aggregate Loan
to Value Ratio after the completion of the Substitution is the lesser of (i) the
Aggregate Loan to Value Ratio in effect immediately prior to the Substitution,
or (ii) seventy-five percent (75%).




(b)           Request.  Borrower
shall deliver to Lender both a completed and executed Addition Request and
Release Request (together, the “Substitution
Request”).  Each Substitution Request shall be accompanied by
the following:  (14) the information required by the Underwriting
Requirements with respect to the proposed Substitute Mortgaged Property and any
additional information Lender reasonably requests; (15) the payment of all
Additional Collateral Due Diligence Fees; and (16) the payment of a deposit of
$25,000 (the “Substitution
Cost Deposit”). The Substitution Cost Deposit shall be used by Lender to
cover all out-of-pocket costs and expenses incurred by Lender and Fannie Mae,
including any out-of-pocket legal fees, expenses and due diligence costs
incurred by Fannie Mae and Lender in connection with such Substitution whether
the Substitution actually closes.




(c)           Underwriting.




(i)           Lender
shall determine whether the proposed Substitute Mortgaged Property satisfies the
Underwriting Requirements.




(ii)           Within
thirty (30) Business Days after receipt of (a) the Substitution Request and (b)
all reports, certificates and documents required by the Underwriting
Requirements and this Agreement, including a zoning analysis required by Lender
in connection with similar loans anticipated to be sold to Fannie Mae, Lender
shall notify the applicable Borrower whether the Substitute Mortgaged Property
meets the requirements of this Section
3.06




9


and the
Underwriting Requirements and the other requirements for the Addition of a
Mortgaged Property as determined by Lender.  Within ten (10) Business
Days after receipt of Lender’s written notice in response to the Substitution
Request, Borrower shall notify Lender whether it elects to proceed with the
Substitution.  If Borrower fails to respond within the period of ten
(10) Business Days, it shall be conclusively deemed to have elected not to
proceed with the Substitution.




(d)           Closing.  If,
pursuant to this Section 3.06,
Lender determines that the conditions set forth herein for the Substitution of
the proposed Substitute Mortgaged Property into the Collateral Pool in
replacement of the proposed Release Property are satisfied, and Borrower timely
elects to cause such Substitution to occur and all conditions contained in this
Section 3.06 and
Section 5.01, Section 5.04 and
Section 5.05, to
the extent Lender determines such Sections are applicable, are satisfied, then
the proposed Substitute Mortgaged Property shall be substituted into the
Collateral Pool in replacement of the proposed Release Property, at a closing to
be held at offices designated by Lender on a Closing Date selected or approved
by Lender, and occurring --




(i)           if
the Substitution of the proposed Substitute Mortgaged Property is to occur
simultaneously with the release of the proposed Release Property, within thirty
(30) days after Lender’s receipt of Borrower’s election (or on such other date
to which Borrower and Lender may agree); or




(ii)           if
the Substitution of the proposed Substitute Mortgaged Property is to occur
subsequent to the release of the Release Property, within ninety (90) days after
the release of the Release Property (provided however, if Borrower is diligently
pursuing a 1031 exchange with respect to such Release Property and provides
evidence to Lender’s satisfaction of the same, such ninety (90) day period may
be extended for up to one additional ninety (90) day period, provided such date
does not exceed one hundred eighty (180) days after Lender’s receipt of the
applicable Borrower’s election, unless otherwise agreed to by Lender) (the
“Property
Delivery Deadline”) in accordance with the terms of this Section 3.06(d).




(iii)           If
the addition of the proposed Substitute Mortgaged Property to the Collateral
Pool does not occur on or before the Property Delivery Deadline, then Borrower
shall have waived its right to substitute such Release Property with the
proposed Substitute Mortgaged Property, and Borrower shall comply with the
requirement set forth in Section 5.05 not
previously satisfied with respect to the Release Property, including payment of
the Release Price from the Substitution Deposit as set forth in Section 3.06(e).  Such
Release Price, or the applicable portion thereof, shall be applied in the manner
set forth in Section
3.05(d).




(e)           Substitution
Deposit.




(i)           The
Deposit.                                
If an addition of the proposed Substitute Mortgaged Property is to occur
subsequent to the release of the Release Property pursuant to Section 3.06(d), at the
Closing Date of the release of the Release Property, Borrower shall deposit with
Lender the “Substitution
Deposit” described in Section 3.06(e)(ii) in the form
of cash or, in lieu of depositing cash for the Substitution Deposit, Borrower
may post a letter of credit issued by a




10


financial
institution acceptable to Lender and having terms and conditions acceptable to
Lender, having a face amount equal to the Substitution Deposit.




(ii)           Substitution Deposit
Amount. The “Substitution
Deposit” for each proposed Substitution shall be an amount equal to the
sum of (c) the Release Price for the Release Property, plus (d) any and all of
the yield maintenance or prepayment premium required by the Note through the end
of the month in which the Property Delivery Deadline occurs, as if the Note were
to be prepaid in such month, plus (e) interest on the Note through the end of
the month in which the Property Delivery Deadline occurs, plus (f) the
Substitution Cost Deposit.  In the event that the Borrower elects to
post a letter of credit in lieu of cash for the Substitution Deposit, Borrower
shall also be obligated to make any regularly scheduled payments of principal
and interest due under the applicable Note during any period between the closing
of the Release Property and the earlier of the closing of the Substitute
Mortgaged Property and the date of prepayment of the Note.




(iii)           Failure to Close
Substitution.  If the addition of the proposed Substitute
Mortgaged Property does not occur by the Property Delivery Deadline in
accordance with Section 3.06(d)(ii), then
Borrower shall have irrevocably waived its right to substitute such Release
Property with the proposed Substitute Mortgaged Property, and the release of the
Release Property shall be deemed to be a Release pursuant to Section
3.02.  The Property Delivery Deadline shall be no later
than the date ninety (90) days after the effective date the Lender’s lien on
such Release Property is released (as such date may be extended pursuant to
Section 3.06(c)(ii)).  Any Note being prepaid shall be deemed to be
prepaid as of the end of the month in which the Property Delivery Deadline
falls, and the Lender, shall follow standard Fannie Mae procedures for the
prepayment of the Note, including delivery of the Substitution Deposit, together
with all yield maintenance, fee maintenance, or prepayment premium, if any, then
due, to Fannie Mae in accordance with such procedures.




(iv)           Substitution Deposit
Disbursement.  At closing of the Substitution, Lender shall
disburse the Substitution Deposit, including any portion of the Substitution
Cost Deposit, directly to Borrower at such time as the conditions set forth in
Section 5.01 and
Section 5.04 have
been satisfied, which must occur no later than the Property Delivery
Deadline.




(f)           Conditions Precedent to
Substitutions.  The obligation of Lender to make a requested
Substitution is subject to Lender’s determination that each of the conditions
precedent for additions of Additional Mortgaged Properties and releases of
Release Mortgaged Properties set forth in Section 5.01, Section 5.04 and
Section 5.05 of
this Agreement have been satisfied.




(g)           Geographic
Diversity.  Lender may reject a Substitution Request on the
basis of the resulting geographic diversity of the Collateral Pool after the
closing of such Substitution, in Lender’s sole discretion.




11


ARTICLE
4




INCREASE
OF CREDIT FACILITY




Section
      4.01.
            Right
      to Increase Commitment.




Subject
to the terms, conditions and limitations of this Article, Borrower shall have
the right, prior to the First Anniversary, to increase the
Commitment.  Borrower’s right to increase the Commitment is subject to
the following limitations:




(a)           Maximum Amount of Increase
in Commitment.  The maximum amount by which the Commitment may
be increased is $8,110,132 (for a maximum total Commitment of
$250,000,000).




(b)           Minimum
Request.  Each Request for an increase in the Commitment shall
be in the minimum amount of $3,000,000.




(c)           Terms and
Conditions.  The terms and conditions (including the Facility
Fee) applicable to any increase in the Commitment shall be mutually agreed upon
by Lender and Borrower.




Section
      4.02.
            Procedure for
      Obtaining Increases in Commitment.




To obtain
an increase in the Commitment, Borrower shall deliver an Expansion Request to
Lender.




Section
      4.03.
            Closing.




If all
conditions precedent contained in Section 5.06 of
this Agreement and all applicable General Conditions contained in Section 5.01 of
this Agreement are satisfied, Lender shall permit the Expansion Request to
occur, at a closing to be held at offices designated by Lender on a Closing Date
selected by Lender, and occurring within fifteen (15) Business Days after
Lender’s receipt of the Expansion Request (or on such other date as Borrower and
Lender may agree).




ARTICLE
5




CONDITIONS
PRECEDENT TO ALL REQUESTS




Section
      5.01.
            Conditions
      Applicable to All Requests.




Borrower’s
right to close the transaction requested in a Request shall be subject to
Lender’s determination that all of the following general conditions precedent
(“General
Conditions”) have been satisfied, in addition to any other conditions
precedent contained in this Agreement:




(a)           Payment of
Expenses.  The payment by Borrower of Lender’s and Fannie Mae’s
reasonable third party out-of-pocket fees and expenses payable in accordance
with this Agreement, including, but not limited to, the legal fees and expenses
described in Section
9.03.




12


(b)           No Material Adverse
Change.  There has been no material adverse change in the
financial condition or business of Borrower or Guarantor or in the physical
condition, operating performance or value of any of the Mortgaged Properties
since the date of the most recent Compliance Certificate (or, with respect to
the conditions precedent to the Initial Advance, from the condition or business
reflected in the financial statements, reports and other information obtained by
Lender during its review of Borrower and Guarantor and the Initial Mortgaged
Properties).




(c)           No
Default.  There shall exist no Event of Default or Potential
Event of Default on the Closing Date for the Request and, after giving effect to
the transaction requested in the Request, no Event of Default or Potential Event
of Default shall have occurred.




(d)           No Insolvency.
Receipt by Lender on the Closing Date for the Request of evidence satisfactory
to Lender that neither Borrower nor Guarantor is insolvent (within the meaning
of any applicable federal or state laws relating to bankruptcy or fraudulent
transfers) or will be rendered insolvent by the transactions contemplated by the
Loan Documents, including the making of a Future Advance, or, after giving
effect to such transactions, will be left with an unreasonably small capital
with which to engage in its business or undertakings, or will have intended to
incur, or believe that it has incurred, debts beyond its ability to pay such
debts as they mature or will have intended to hinder, delay or defraud any
existing or future creditor.




(e)           No Untrue
Statements.  The Loan Documents shall not contain any untrue or
misleading statement of a material fact and shall not fail to state a material
fact necessary to make the information contained therein not
misleading.




(f)           Representations and
Warranties.  All representations and warranties made by
Borrower and Guarantor in the Loan Documents shall be true and correct in all
material respects on the Closing Date for the Request with the same force and
effect as if such representations and warranties had been made on and as of the
Closing Date for the Request.




(g)           No Condemnation or
Casualty.  Except in connection with a Release Request, there
shall not be pending or threatened any condemnation or other taking, whether
direct or indirect, against the Mortgaged Property and there shall not have
occurred any casualty to any improvements located on the Mortgaged Property,
which casualty would have a material adverse effect on the continued operations
of such Mortgaged Property.




(h)           Delivery of Closing
Documents.  The receipt by Lender of the following, each dated
as of the Closing Date for the Request, in form and substance satisfactory to
Lender in all respects:




(i)           The
Loan Documents relating to such Request;




(ii)           A
Compliance Certificate;




(iii)           An
Organizational Certificate; and




13


(iv)           Such
other documents, instruments, approvals (and, if requested by Lender, certified
duplicates of executed copies thereof) and opinions as Lender may reasonably
request.




(i)           Covenants.  Borrower
is in full compliance with each of the covenants contained in Article 7 and Article 8 of this
Agreement, without giving effect to any notice and cure rights of
Borrower.




Section
      5.02.
            Conditions
      Precedent to Initial Advance.




The
obligation of Lender to make the Initial Advance is subject to the following
conditions precedent:




(a)           Receipt
by Lender of the fully executed Advance Request;




(b)           Delivery
to the Title Company, for filing and/or recording in all applicable
jurisdictions, of all applicable Loan Documents required by Lender, including
duly executed and delivered original copies of the Note, the Guaranty, the
Initial Security Instruments covering the Initial Mortgaged Properties and UCC-1
Financing Statements covering the portion of the Collateral comprised of
personal property, and other appropriate instruments, in form and substance
satisfactory to Lender and in form proper for recordation, as may be necessary
in the opinion of Lender to perfect the Liens created by the applicable Security
Instruments and any other Loan Documents creating a Lien in favor of Lender, and
the payment of all taxes, fees and other charges payable in connection with such
execution, delivery, recording and filing;




(c)           Receipt
by Lender of the Initial Origination Fee pursuant to Section 9.01(a)
and the Initial Due Diligence Fees pursuant to Section
9.02(a).




Section
      5.03.
            Conditions
      Precedent to Future Advances.




A Future
Advance is subject to the satisfaction of the following conditions
precedent:




(a)           Receipt
by Lender of the fully executed Advance Request;




(b)           In
connection with a Future Advance made pursuant to Section 2.04 or
Section 2.05, after giving effect to the
requested Future Advance, the requirements of Section 2.04 or
Section 2.05, as applicable, will be
satisfied;




(c)           Delivery
of a Note, duly executed by Borrower, in the amount and reflecting all of the
terms of the Advance;




(d)           In
connection with a Future Advance made pursuant to Section 2.04 or
Section 2.05, receipt by Lender of an
endorsement to the Title Insurance Policy, amending the effective date of the
Title Insurance Policy to the Closing Date and showing no additional exceptions
to coverage other than the exceptions shown on the Initial Closing Date or the
Closing Date such Mortgaged Property was added to the Collateral Pool and other
exceptions approved by Lender;




14


(e)           Receipt
by Lender of the Additional Origination Fee applicable to such Future
Advance;




(f)           If
such Future Advance is made pursuant to Section 2.04 or
Section 2.05, receipt by Lender of the
Re-Underwriting Fee; and




(g)           Receipt
by Lender of a Confirmation of Guaranty.




Section
      5.04.
            Conditions
      Precedent to Addition of an Additional Mortgaged Property to the
      Collateral Pool.




The
addition of an Additional Mortgaged Property to the Collateral Pool on the
applicable Closing Date is subject to the satisfaction of the following
conditions precedent:




(a)           Prior
to the First Anniversary, the Coverage and LTV Tests shall be met;




(b)           After
the First Anniversary, the proposed Additional Mortgaged Property has a Debt
Service Coverage Ratio of not less than 1.30:1.0 and a Loan to Value Ratio of
not more than seventy-five percent (75%) and immediately after giving effect to
the requested addition, the Coverage and LTV Tests will be
satisfied;




(c)           If
the Additional Mortgaged Property is being added to the Collateral Pool in
connection with a Substitution made pursuant to Section 3.06
–




(i)           prior
to the First Anniversary, (g) the Aggregate Debt Service Coverage Ratio after
the completion of such Substitution is at least equal to the Aggregate Debt
Service Coverage Ratio immediately prior to the Substitution, and (h) the Loan
to Value Ratio after the completion of such Substitution is no greater than the
Aggregate Loan to Value Ratio immediately prior to the Substitution,
and




(ii)           on
and after the First Anniversary, (i) the  Substitute Mortgaged
Property itself must have a Debt Service Coverage Ratio of at least 1.30:1.0 and
a Loan to Value Ratio no greater than seventy-five percent (75%), and (j) the
Aggregate Debt Service Coverage Ratio after the completion of the Substitution
is the greater of (i) the Aggregate Debt Service Coverage Ratio in effect
immediately prior to the Substitution, or (ii) 1.30:1.0 and (k) Aggregate Loan
to Value Ratio after the completion of the Substitution is the lesser of (i) the
Aggregate Loan to Value Ratio in effect immediately prior to the Substitution,
or (ii) seventy-five percent (75%).




(d)           If
the Additional Mortgaged Property is being added in connection with a
substitution made pursuant to Section 3.06 of
this Agreement, receipt by Lender of the Substitution Fee;




(e)           Immediately
after giving effect to such addition, the percentage of Alzheimer Beds in the
Collateral Pool shall not exceed thirty-eight percent (38%).




(f)           For
each Additional Mortgaged Property, delivery to the Title Company, with fully
executed instructions directing the Title Company to file and/or record in
all




15


applicable
jurisdictions, all applicable Addition Loan Documents required by Lender,
including duly executed and delivered original copies of any Security
Instruments and UCC-1 Financing Statements covering the portion of the
Additional Mortgaged Property comprised of personal property, and other
appropriate documents, in form and substance satisfactory to Lender and in form
proper for recordation, as may be necessary in the opinion of Lender to perfect
the Lien created by the applicable additional Security Instrument, and any other
Addition Loan Document creating a Lien in favor of Lender, and the payment of
all taxes, fees and other charges payable in connection with such execution,
delivery, recording and filing;




(g)           If
required by Lender, new Note(s) or amendments to the Notes and the Security
Instruments, reflecting the addition of the Additional Mortgaged Property to the
Collateral Pool and, as to any Security Instrument so amended, the receipt by
Lender of an endorsement to the Title Insurance Policy insuring the lien of the
Security Instrument, amending the effective date of the Title Insurance Policy
to the Closing Date and showing no additional exceptions to coverage other than
the exceptions shown on the Initial Closing Date and other exceptions approved
by Lender; and




(h)           Receipt
by Lender of a Title Insurance Policy for the Additional Mortgaged Property with
a tie-in Endorsement, if available in the jurisdiction in which the Additional
Mortgaged Property is located, and an endorsement to each other Title Insurance
Policy containing a tie-in Endorsement (if available in the jurisdiction in
which the other Mortgaged Property is located), adding a reference to the
Additional Mortgaged Property.




Section
      5.05.
            Conditions
      Precedent to Release of Property from the Collateral Pool.




The
release of a Mortgaged Property from the Collateral Pool is subject to the
satisfaction of the following conditions precedent on or before the Closing
Date:




(a)           Immediately
after giving effect to the requested release, (l) the Aggregate Debt Service
Coverage Ratio is at least the greater of (i) the Aggregate Debt Service
Coverage Ratio immediately prior to the release or (ii) 1.30:1.0; and (m) the
Aggregate Loan to Value Ratio is no greater than the lesser of (i) the Aggregate
Loan to Value Ratio immediately prior to the release or (ii) seventy-five
percent (75%).  In addition to the Release Price, Borrower shall pay
to Lender all associated prepayment premiums and other amounts due under the
Notes being repaid;




(b)           Immediately
after giving effect to the requested release, the percentage of Alzheimer Beds
in the Collateral Pool shall not exceed thirty-eight percent (38%).




(c)           Receipt
by Lender of the Release Price;




(d)           Receipt
by Lender of the Release Fee;




(e)           Receipt
by Lender on the Closing Date of one (1) or more counterparts of each Release
Document, dated as of the Closing Date, signed by each of the parties (other
than Lender) who is a party to such Release Document;




16


(f)           If
required by Lender, amendments to the Notes and the Security Instruments,
reflecting the release of the Release Property from the Collateral Pool;
and




(g)           Receipt
by Lender on the Closing Date of a Confirmation of Obligations, dated as of the
Closing Date, signed by Borrower and Guarantor, pursuant to which Borrower and
Guarantor confirm their remaining obligations under the Loan Documents in the
form attached hereto as Exhibit J (the
“Confirmation
of Obligations”).




Section
      5.06.
            Conditions Precedent
      to Increase in Commitment.




The right
of Borrower to increase the Commitment is subject to the satisfaction of the
following conditions precedent on or before the Closing Date:




(a)           Receipt
by Lender of the Additional Origination Fee;




(b)           Receipt
by Lender of an endorsement to each Title Insurance Policy, amending the
effective date of the Title Insurance Policy to the Closing Date, increasing the
limits of liability to the Commitment, as increased under this Article 5,
showing no additional exceptions to coverage other than the exceptions shown on
the applicable Title Insurance Policy and other exceptions approved by Lender,
together with any reinsurance agreements required by Lender; and




(c)           Receipt
by Lender of fully executed original copies of all Expansion Loan Documents,
each of which shall be in full force and effect, and in form and substance
satisfactory to Lender in all respects.




Section
      5.07.
            Delivery
      of Opinion Relating to Advance Request, Addition Request or Expansion
      Request.




With
respect to the closing of an Advance Request, an Addition Request or an
Expansion Request, it shall be a condition precedent that Lender receives
favorable opinions of counsel (including local and in house counsel, as
applicable) to Borrower, as to the due organization and qualification of
Borrower, the due authorization, execution, delivery and enforceability of each
Loan Document executed in connection with the Request and such other matters as
Lender may reasonably require, each dated as of the Closing Date for the
Request, in form and substance satisfactory to Lender in all
respects.




Section
      5.08.
            Delivery
      of Property-Related Documents.




With
respect to each of the Initial Mortgaged Properties or an Additional Mortgaged
Property, it shall be a condition precedent that Lender receive from Borrower
each of the documents and reports required by Lender pursuant to the
Underwriting Requirements in connection with the pledge of such Mortgaged
Property and, each of the following, each dated as of the Closing Date for the
Initial Mortgaged Property or an Additional Mortgaged Property, as the case may
be, in form and substance satisfactory to Lender in all respects:




(a)           A
commitment for the Title Insurance Policy applicable to the Mortgaged Property
and a pro forma Title Insurance Policy based on the title
commitment.




17


(b)           The
Insurance Policy (or a certified copy of the Insurance Policy) applicable to the
Mortgaged Property.




(c)           The
Survey applicable to the Mortgaged Property.




(d)           Evidence
satisfactory to Lender of compliance of the Mortgaged Property with Property
Laws.




(e)           An
Appraisal of the Mortgaged Property.




(f)           A
Replacement Reserve Agreement, providing for the establishment of a replacement
reserve account, to be pledged to Lender, in which the owner shall (unless
waived by Lender) periodically deposit amounts for replacements for improvements
at the Mortgaged Property and as additional security for Borrower’s obligations
under the Loan Documents.




(g)           A
Completion/Repair and Security Agreement, together with required escrows, on the
standard form required by Lender, if applicable.




(h)           An
Assignment of Management Agreement, on the standard form required by Lender, if
applicable.




(i)           An
Assignment of Leases and Rents, if Lender determines one to be necessary or
desirable, provided that the provisions of any such assignment shall be
substantively identical to those in the Security Instrument covering the
Collateral, with such modifications as may be necessitated by applicable state
or local law.




(j)           A
Certificate of Borrower.




(k)           An
Operating Lease in a form approved by Lender.




(l)           If
required by Lender, a Subordination, Assignment and Security Agreement
(Operator) with respect to the Operating Lease on the standard form required by
Lender.




(m)           If
required by Lender, a Subordination, Assignment and Security Agreement (Manager)
with respect to the Management Agreement on the standard form required by
Lender.




ARTICLE
6




REPRESENTATIONS
AND WARRANTIES




Section
      6.01.
            Representations
      and Warranties of Borrower.




The
representations and warranties of Borrower Parties are contained in the “Certificate
of Borrower,” the form of which is attached to this Agreement as Exhibit
K.




Section
      6.02.
            Representations
      and Warranties of Lender.




Lender
hereby represents and warrants to Borrower as follows:




18


(a)           Due
Organization.  Lender is a corporation duly organized, validly
existing and in good standing under the laws of California.




(b)           Power and
Authority.  Lender has the requisite power and authority to
execute and deliver this Agreement and to perform its obligations under this
Agreement.




(c)           Due
Authorization.  The execution and delivery by Lender of this
Agreement, and the consummation by it of the transactions contemplated hereby,
and the performance by it of its obligations hereunder, have been duly and
validly authorized by all necessary action and proceedings by it or on its
behalf.




ARTICLE
7




AFFIRMATIVE
COVENANTS OF BORROWER




Borrower
agrees and covenants with Lender that, at all times during the Term of this
Agreement:




Section
      7.01.
            Compliance
      with Agreements.




Borrower
and Guarantor shall comply with all the terms and conditions of each Loan
Document to which it is a party or by which it is bound; provided, however, that
Borrower’s or Guarantor’s failure to comply with such terms and conditions shall
not be an Event of Default until the expiration of the applicable notice and
cure periods, if any, specified in the applicable Loan Document.




Section
      7.02.
            Maintenance
      of Existence.




Each
Borrower Party shall maintain its existence and continue to be organized under
the laws of the state of its organization. Borrower shall continue to be duly
qualified to do business in each jurisdiction in which such qualification is
necessary to the conduct of its business and where the failure to be so
qualified would adversely affect the validity of, the enforceability of, or the
ability to perform, its obligations under this Agreement or any other Loan
Document.




Section
      7.03.
            Financial
      Statements; Accountants’ Reports; Other Information.




Each Borrower Party shall keep and
maintain at all times complete and accurate books of accounts and records in
sufficient detail to correctly reflect (17) all of Borrower’s and Guarantor’s
financial transactions and assets and (18) the results of the operation of each
Mortgaged Property and copies of all written contracts, Leases and other
instruments which affect each Mortgaged Property (including all bills, invoices
and contracts for electrical service, gas service, water and sewer service,
waste management service, telephone service and management
services).  In addition, Borrower shall furnish, or cause to be
furnished, to Lender:




(a)           Annual and Quarterly
Statements.  All reports required pursuant to Section 14 of
each Security Instrument.




(b)           Accountants’ Reports; Other
Reports.  Within ten (10) days upon receipt thereof: (19)
copies of any reports or management letters submitted to Borrower by
its




19


independent
certified public accountants in connection with the examination of its financial
statements made by such accountants (except for reports otherwise provided
pursuant to subsection (a) above); provided, however, that Borrower shall only
be required to deliver such reports and management letters to the extent that
they relate to Borrower or any Mortgaged Property; and (20) all schedules,
financial statements or other similar reports delivered by Borrower pursuant to
the Loan Documents or requested by Lender with respect to Borrower’s business
affairs or condition (financial or otherwise) or any of the Mortgaged
Properties.




(c)           Annual
Budgets.  On the later of (21) prior to the start of its fiscal
year or (22) within ten (10) days after completion, an annual budget for each
Mortgaged Property for such fiscal year, setting forth an estimate of all of the
costs and expenses, including capital expenses, of maintaining and operating
each Mortgaged Property.




(d)           Reports; Licensing
Information.  Within thirty (30) days of receipt by Borrower, copies
of all written inspection reports, reviews and certifications prepared by, for,
or on behalf of any licensing or regulatory authority relating to any Mortgaged
Property and any legal actions, orders, notices, or reports relating to any
Mortgaged Property issued by the applicable regulatory or licensing
authorities.




(e)           Services and
Operations.  Upon the written request of Lender, copies of all
reports relating to the services and operations of any Mortgaged Property,
including, if applicable, Medicaid cost reports and records relating to account
balances due to or from Medicaid or any private insurer.




(f)           Incident
Reports.  Quarterly, with the financial statements Borrower is
required to submit to Lender pursuant to Section 14 of the Security Instrument,
copies of all loss runs and claims history submitted to any liability insurance
carrier or any elderly affairs, regulatory or licensing authority.




Section
      7.04.
            Certificate of
      Compliance.




Borrower
shall deliver to Lender concurrently with the delivery of the financial
statements and/or reports required by Section 7.03(a) a certificate
signed by an authorized representative of Borrower reasonably acceptable to
Lender (23) setting forth in reasonable detail the calculations required to
establish whether Borrower and Guarantor were in compliance with the
requirements of Section 7.11 of
this Agreement on the date of such financial statements, and (24) stating that,
to the best knowledge of such individual following reasonable inquiry, no Event
of Default or Potential Event of Default has occurred, or if an Event of Default
or Potential Event of Default has occurred, specifying the nature thereof in
reasonable detail and the action Borrower is taking or proposes to
take.  Any certificate required by this Section shall run directly to
and be for the benefit of Lender and Fannie Mae.




Section
      7.05.
            Alterations to the
      Mortgaged Properties.




Borrower
shall have the right to undertake, or cause to be undertaken, any alteration,
improvement, demolition, removal or construction (collectively, “Alterations”)
to the Mortgaged Property which Borrower owns without the prior consent of
Lender; provided,
however, that in any case, no such Alteration shall be made to any
Mortgaged Property without




20


the prior
written consent of Lender if (25) such Alteration could reasonably be expected
to adversely affect the value of such Mortgaged Property or its operation as a
seniors housing facility in substantially the same manner in which it is being
operated on the date such property became Collateral, (26) the construction of
such Alteration could reasonably be expected to result in interference to the
occupancy of tenants of such Mortgaged Property such that tenants in occupancy
with respect to five percent (5%)or more of the Resident
Agreements would
be permitted to terminate their Resident Agreementsor to abate the payment
of all or any portion of their rent, or (27) such Alteration will be completed
in more than twelve (12) months from the date of commencement or in the last
year of the Term of this Agreement.  Notwithstanding the foregoing,
Borrower must obtain Lender’s prior written consent to construct Alterations
with respect to the Mortgaged Property having a cost in excess of, with respect
to any Mortgaged Property, $250,000 (or having a cost in excess of $1,000,000
with respect to all Mortgaged Properties in the aggregate over any twelve (12)
month period) and Borrower must give prior written notice to Lender of its
intent to construct Alterations with respect to any Mortgaged Property having a
cost in excess of $100,000; provided, however, that the preceding requirements
shall not be applicable to Alterations made, conducted or undertaken as part of
the routine maintenance and repair of the Mortgaged Properties as required by
the Loan Documents.




Section
      7.06.
            Loan Document
      Taxes.




If any
tax, assessment or Imposition (other than a franchise tax or excise tax imposed
on or measured by, the net income or capital (including branch profits tax) of
Lender (or any transferee or assignee thereof, including a participation
holder)) (“Loan
Document Taxes”) is levied, assessed or charged by the United States, or
any State in the United States, or any political subdivision or taxing authority
thereof or therein upon any of the Loan Documents or the obligations secured
thereby, the interest of Lender in the Mortgaged Properties, or Lender by reason
of or as holder of the Loan Documents, Borrower shall pay all such Loan Document
Taxes to, for, or on account of Lender (or provide funds to Lender for such
payment, as the case may be) as they become due and payable and shall promptly
furnish proof of such payment to Lender, as applicable.  In the event
of passage of any law or regulation permitting, authorizing or requiring such
Loan Document Taxes to be levied, assessed or charged, which law or regulation
in the opinion of counsel to Lender may prohibit Borrower from paying the Loan
Document Taxes to or for Lender, Borrower shall enter into such further
instruments as may be permitted by law to obligate Borrower to pay such Loan
Document Taxes.




Section
      7.07.
            Further
      Assurances.




Borrower,
at the request of Lender, shall execute and deliver and, if necessary, file or
record such statements, documents, agreements, UCC financing and continuation
statements and such other instruments and take such further action as Lender
from time to time may reasonably request as reasonably necessary, desirable or
proper to carry out more effectively the purposes of this Agreement or any of
the other Loan Documents or to subject the Collateral to the lien and security
interests of the Loan Documents or to evidence, perfect or otherwise implement,
to assure the lien and security interests intended by the terms of the Loan
Documents or in order to exercise or enforce its rights under the Loan
Documents.




21


Section
7.08.                                Transfer
of Ownership Interests in Borrower.




Transfer
provisions shall be as set forth in each Security Instrument, as such provisions
may be modified from time to time pursuant to an amendment to this Agreement or
an amendment to the Security Instrument.




Section
      7.09.
            Transfer of Ownership
      of Mortgaged Property.




Transfer
provisions shall be as set forth in each Security Instrument, as such provisions
may be modified from time to time pursuant to an amendment to this Agreement or
an amendment to the Security Instrument.




Section
      7.10.
            Change in Senior
      Management.




Borrower
shall give Lender notice of any change in the identity of Senior
Management.




Section
      7.11.
            Liquidity and Net
      Worth Tests.




(a)           Liquidity
Test.  Guarantor shall at all times maintain cash and Cash
Equivalents of not less than $7,500,000.




(b)           Net Worth
Test.  Guarantor shall at all times maintain its Net Worth so
that it is not less than $91,000,000.




ARTICLE
8




NEGATIVE
COVENANTS OF BORROWER




Borrower
agrees and covenants with Lender that, at all times during the Term of this
Agreement:




Section
      8.01.
            Other
      Activities.




(a)           Borrower
shall not amend its Organizational Documents in any material respect without the
prior written consent of Lender;




(b)           Borrower
and Guarantor shall not dissolve or liquidate in whole or in part;




(c)           Borrower
shall not, except as otherwise provided in this Agreement, without the prior
written consent of Lender, merge or consolidate with any Person; or




(d)           Borrower
shall not use, or permit to be used, any Mortgaged Property for any uses or
purposes other than as a Seniors Housing Facility and ancillary uses consistent
with Seniors Housing Facilities.




Section
      8.02.
            Indebtedness.




Borrower
shall not incur or be obligated at any time with respect to any Indebtedness
(other than Advances) in connection with any of the Mortgaged
Properties.  Neither Borrower nor any owner of Borrower shall incur
any “mezzanine debt,” issue any preferred equity or incur




22


any
similar Indebtedness or equity with respect to any Mortgaged Property, provided
that Guarantor shall be permitted to issue preferred equity or incur similar
Indebtedness or equity as long as the same is not “mezzanine debt” or secured by
the Mortgage Property. For the purposes of this Section 8.02, “mezzanine debt”
shall mean any debt secured by a pledge of the ownership interest in Borrower or
any owner of Borrower.




Section
      8.03.
            Principal Place of
      Business.




Borrower
shall not change its principal place of business or the location of its books
and records, each as set forth in Borrower’s Certificate, without first giving
thirty (30) days’ prior written notice to Lender.




Section
      8.04.
            Restrictions on
      Distributions.




Borrower
shall not make any distributions of any nature or kind whatsoever to the owners
of its Ownership Interests as such if, at the time of such distribution, a
Potential Event of Default or an Event of Default has occurred and remains
uncured.




Section
      8.05.
            Changes to Operating
      Leases.




No
Mortgaged Property may be master leased, provided that each Mortgaged Property
shall be master leased to Operator pursuant to an Operating Lease approved by
Lender.  Borrower shall not, without the prior written consent of Lender,
which consent shall be given in Lender’s reasonable discretion, agree to any
material modification or amendment to any Operating Lease and shall not
terminate any Operating Lease without Lender’s prior written consent, unless
after such termination all Resident Agreements related to the relevant Mortgaged
Property shall remain in full force and effect with Borrower or a successor
Operator becoming a landlord under such Resident Agreements, provided that
Lender’s consent shall no longer be required after a Mortgaged Property is
released from the Collateral Pool.  In the event that any Operating Lease
matures earlier than the Termination Date, no later than ninety (90) days prior
to expiration of such Operating Lease Borrower shall extend the term of such
Operating Lease, and provide written evidence to Lender of the same in a form
approved by Lender.




Section
      8.06.
            Alzheimer’s
      Beds.




The total
percent of all Alzheimer’s Beds in the Collateral Pool shall not exceed
thirty-eight percent (38%).




ARTICLE
9




FEES




Section
      9.01.
            Origination
      Fees.




(a)           Initial Origination
Fee.  Borrower shall pay to Lender on or before the Initial
Closing Date an origination fee (“Initial
Origination Fee”) equal to $1,814,174 (75  basis points (0.75%)
multiplied by the total Advances made on the Initial Closing Date) (which
includes a 10 basis point facility fee due to Fannie Mae).




23


(b)           Additional Origination
Fees.  Upon the closing of an Advance Request for a Future
Advance, Borrower shall pay to Lender an origination fee (“Additional
Origination Fee”) equal to the product obtained by multiplying
(28) the amount Advanced as a result of such Request, by (29) 75 basis
points (0.75%) (which includes a 10 basis point facility fee due to Fannie
Mae).  Borrower shall pay the Additional Origination Fee on or before
the Closing Date for such Request.




Section
      9.02.
            Due Diligence
      Fees.




(a)           Initial Due Diligence
Fees.  Borrower shall pay to Lender due diligence fees (“Initial
Due Diligence Fees”) with respect to each Initial Mortgaged Property in
an amount equal to the actual costs of Lender’s due diligence for such Initial
Mortgaged Properties, including but not limited to third party reports required
by Lender plus
(30) a $1,500 fee per Initial Mortgaged Property payable by Lender to Fannie Mae
plus (31) a
$4,600 processing fee per Initial Mortgaged Property payable to Lender by
Borrower.  All Initial Due Diligence Fees shall be paid by Borrower on the
Initial Closing Date (or, if the proposed Initial Mortgaged Properties do not
become part of the Collateral Pool, on demand).  Lender acknowledges that
Borrower has previously paid a deposit with respect to such Initial Due
Diligence Fees and such deposit shall be applied against the Initial Due
Diligence Fees due hereunder.




(b)           Additional Collateral Due
Diligence Fees for Additional Collateral.  Borrower shall pay to
Lender a deposit equal to $15,000 per Additional Mortgaged Property to cover
additional due diligence fees (the “Additional
Collateral Due Diligence Fees”) with respect to each proposed Additional
Mortgaged Property in an amount equal to the actual costs of Lender’s due
diligence for such Mortgaged Properties, including but not limited to third
party reports required by Lender plus (32) a $1,500
fee per Additional Mortgaged Property payable by Lender to Fannie Mae plus (33) a $4,600
processing fee per Additional Mortgaged Property payable to Lender by
Borrower.  The Additional Collateral Due Diligence Fees shall be paid by
Borrower on the Closing Date (or if the proposed Additional Mortgaged Property
does not become part of a Collateral Pool, on demand) for the Additional
Mortgaged Property.  Any portion of the deposit paid to Lender not actually
used by Lender to cover reasonable due diligence expenses shall be promptly
refunded to Borrower.




Section
      9.03.
            Legal Fees and
      Expenses.




(a)           Initial Legal
Fees.  Borrower shall pay, or reimburse Lender for, all
out-of-pocket third party legal fees and expenses incurred by Lender and by
Fannie Mae in connection with the preparation, review and negotiation of this
Agreement and any other Loan Documents executed on the date of this
Agreement.  Lender acknowledges that Borrower has previously paid a
deposit with respect to the initial legal fees and such deposit shall be applied
against the initial legal fees due hereunder.




(b)           Fees and Expenses Associated
with Requests.  Borrower shall pay, or reimburse Lender for,
all reasonable out-of-pocket third party costs and expenses incurred by Lender,
including the out-of-pocket legal fees and expenses incurred by Lender in
connection with the preparation, review and negotiation of all documents,
instruments and certificates to be executed and delivered in connection with
each Request, the performance by Lender of any of its




24


obligations
with respect to the Request, the satisfaction of all conditions precedent to
Borrower’s rights or Lender’s obligations with respect to the Request, and all
transactions related to any of the foregoing, including the cost of title
insurance premiums and applicable recordation and transfer taxes and charges and
all other reasonable costs and expenses in connection with a
Request.  The obligations of Borrower under this subsection shall be
absolute and unconditional, regardless of whether the transaction requested in
the Request actually occurs.  Borrower shall pay such costs and
expenses to Lender on the Closing Date for the Request, or, as the case may be,
after demand by Lender when Lender determines that such Request will not
close.




Section
      9.04.
            Failure to Close any
      Request.




If
Borrower makes a Request and fails to close on the Request for any reason other
than the default by Lender, then Borrower shall pay to Lender and Fannie Mae all
damages incurred by Lender and Fannie Mae in connection with the failure to
close.




ARTICLE
10




EVENTS
OF DEFAULT




Section
      10.01.
            Events of
      Default.




Each of
the following events shall constitute an “Event of
Default” under this Agreement, whatever the reason for such event and
whether it shall be voluntary or involuntary, or within or without the control
of Borrower or be effected by operation of law or pursuant to any judgment or
order of any court or any order, rule or regulation of any Governmental
Authority:




(a)           the
occurrence of a default under any Loan Document beyond the cure period, if any,
set forth therein; or




(b)           the
failure by Borrower to pay when due any amount payable by Borrower under any
Note, any Security Instrument, this Agreement or any other Loan Document,
including any fees, costs or expenses; or




(c)           the
failure by Borrower to perform or observe any covenant set forth in Section 7.05
(Alterations to Mortgaged Properties), Section 7.08
(Transfer of Ownership Interests in Borrower), Section 7.09
(Transfer of Ownership of Mortgaged Property), Section 7.11
(Liquidity and Net Worth Tests), Section 8.01
(Other Activities), Section 8.02
(Indebtedness), Section 8.04
(Restrictions on Distributions), Section 8.05
(Changes to Operating Leases), or Section 8.06
(Alzheimer’s Beds); or




(d)           the
failure by Borrower to perform or observe any covenant contained in Article 7 or Article 8 (other
than those sections specifically referenced in Section 10.01(c) above) for
thirty (30) days after receipt of notice of such failure by Borrower from
Lender, provided that such period shall be extended for up to thirty (30)
additional days if Borrower, in the discretion of Lender, is diligently pursuing
a cure of such default within thirty (30) days after receipt of notice from
Lender; or




25


(e)           any
warranty, representation or other written statement made by or on behalf of
Borrower or Guarantor contained in this Agreement, any other Loan Document or in
any instrument furnished in compliance with or in reference to any of the
foregoing, is false or misleading in any material respect on any date when made
or deemed made; or




(f)           (34)
Borrower or Guarantor shall (a) commence a voluntary case under the Federal
bankruptcy laws (as now or hereafter in effect), (b) file a petition seeking to
take advantage of any other laws, domestic or foreign, relating to bankruptcy,
insolvency, reorganization, debt adjustment, winding up or composition or
adjustment of debts, (c) consent to or fail to contest in a timely and
appropriate manner any petition filed against it in an involuntary case under
such bankruptcy laws or other laws, (d) apply for or consent to, or fail to
contest in a timely and appropriate manner, the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of itself or of a
substantial part of its property, domestic or foreign, (e) admit in writing
its inability to pay, or generally not be paying, its debts as they become due,
(f) make a general assignment for the benefit of creditors, (g) assert that
Borrower or Guarantor (solely with respect to the Guaranty) has no liability or
obligations under this Agreement or any other Loan Document to which it is a
party; or (h) take any action for the purpose of effecting any of the foregoing;
or (35) a case or other proceeding shall be commenced against Borrower or
Guarantor in any court of competent jurisdiction seeking (a) relief under the
Federal bankruptcy laws (as now or hereafter in effect) or under any other laws,
domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding
upon or composition or adjustment of debts, or (b) the appointment of a trustee,
receiver, custodian, liquidator or the like of Borrower or Guarantor, or of all
or a substantial part of the property, domestic or foreign, of Borrower or
Guarantor and any such case or proceeding shall continue undismissed or unstayed
for a period of sixty (60) consecutive calendar days, or any order granting the
relief requested in any such case or proceeding against Borrower or Guarantor
(including an order for relief under such Federal bankruptcy laws) shall be
entered; or




(g)           if
any provision of this Agreement or any other Loan Document or the lien and
security interest purported to be created hereunder or under any Loan Document
shall at any time for any reason cease to be valid and binding in accordance
with its terms on Borrower or Guarantor, or shall be declared to be null and
void, or the validity or enforceability hereof or thereof or the validity or
priority of the lien and security interest created hereunder or under any other
Loan Document shall be contested by Borrower or Guarantor seeking to establish
the invalidity or unenforceability hereof or thereof, or Borrower or Guarantor
(only with respect to the Guaranty) shall deny that it has any further liability
or obligation hereunder or thereunder; or




(h)           (36)
the execution by Borrower of a chattel mortgage or other security agreement on
any materials, fixtures or articles used in the construction or operation of the
improvements located on any Mortgaged Property or on articles of personal
property located therein (other than in connection with any Permitted Liens), or
(37) if any such materials, fixtures or articles are purchased pursuant to any
conditional sales contract or other security agreement or otherwise so that the
Ownership thereof will not vest unconditionally in Borrower free from
encumbrances, or (38) if Borrower does not furnish to Lender upon request the
contracts, bills of sale, statements, receipted vouchers and agreements, or any
of them, under which Borrower claim title to such materials, fixtures, or
articles; or




26


(i)           the
failure by Borrower to comply with any requirement of any Governmental Authority
within thirty (30) days after written notice of such requirement shall have been
given to Borrower by such Governmental Authority; provided that, if action is
commenced and diligently pursued by Borrower within such thirty (30) days, then
Borrower shall have an additional thirty (30) days to comply with such
requirement; or




(j)           a
dissolution or liquidation for any reason (whether voluntary or involuntary) of
Borrower Party; or




(k)           any
judgment against Borrower or Guarantor, any attachment or other levy against any
portion of Borrower’s or Guarantor’s assets with respect to a claim or claims in
an amount in excess of$250,000in the aggregate remains
unpaid, unstayed on appeal undischarged, unbonded, not fully insured or
undismissed for a period of ninety (90) days;




(l)           the
failure by Borrower or Guarantor to perform or observe any material term,
covenant, condition or agreement hereunder, other than as contained in
subsections (a) through (k) above, or in any other Loan Document, within thirty
(30) days after receipt of notice from Lender identifying such failure, provided
such period shall be extended for up to thirty (30) additional days if Borrower,
in the discretion of Lender, is diligently pursuing a cure of such default
within thirty (30) days after receipt of notice from Lender.




ARTICLE
11




REMEDIES




Section
      11.01.
            Remedies;
      Waivers.




Upon the
occurrence of an Event of Default, Lender may do any one or more of the
following (without presentment, protest or notice of protest, all of which are
expressly waived by Borrower Party):




(a)           by
written notice to Borrower, to be effective upon dispatch, terminate the
Commitment and declare the principal of, and interest on, the Advances and all
other sums owing by Borrower to Lender under any of the Loan Documents forthwith
due and payable, whereupon the Commitment will terminate and the principal of,
and interest on, the Advances and all other sums owing by Borrower to Lender
under any of the Loan Documents will become forthwith due and
payable.




(b)           Lender
shall have the right to pursue any other remedies available to it under any of
the Loan Documents.




(c)           Lender
shall have the right to pursue all remedies available to it at law or in equity,
including obtaining specific performance and injunctive relief.




Section
      11.02.
            Waivers; Rescission of
      Declaration.




Lender
shall have the right, to be exercised in its complete discretion, to waive any
breach hereunder (including the occurrence of an Event of Default), by a writing
setting forth the terms, conditions, and extent of such waiver signed by Lender
and delivered to Borrower.




27


Unless
such writing expressly provides to the contrary, any waiver so granted shall
extend only to the specific event or occurrence which gave rise to the waiver
and not to any other similar event or occurrence which occurs subsequent to the
date of such waiver.




Section
      11.03.
            Lender’s Right to
      Protect Collateral and Perform Covenants and Other
      Obligations.




If
Borrower or Guarantor fails to perform the covenants and agreements contained in
this Agreement or any of the other Loan Documents when due or within any
applicable cure period (if any) provided for herein or therein, then Lender at
Lender’s option may make such appearances, disburse such sums and take such
action as Lender deems necessary, in its sole discretion, to protect Lender’s
interest, including (39) disbursement of reasonable attorneys’ fees, (40) entry
upon the Mortgaged Property to make repairs and replacements, (41) procurement
of satisfactory insurance as provided in Section 5 of the Security Instrument
encumbering the Mortgaged Property, and (42) if the Security Instrument is on a
leasehold, exercise of any option to renew or extend the ground lease on behalf
of Borrower and the curing of any default of Borrower in the terms and
conditions of the ground lease.  Any amounts disbursed by Lender
pursuant to this Section, with interest thereon, shall become additional
indebtedness of Borrower secured by the Loan Documents.  Unless
Borrower and Lender agree to other terms of payment, such amounts shall be
immediately due and payable and shall bear interest from the date of
disbursement at the weighted average, as determined by Lender, of the interest
rates in effect from time to time for each Advance unless collection from
Borrower of interest at such rate would be contrary to applicable law, in which
event such amounts shall bear interest at the highest rate which may be
collected from Borrower under applicable law.  Nothing contained in
this Section shall require Lender to incur any expense or take any action
hereunder.




Section
      11.04.
            No Remedy
      Exclusive.




Unless
otherwise expressly provided, no remedy herein conferred upon or reserved is
intended to be exclusive of any other available remedy, but each remedy shall be
cumulative and shall be in addition to other remedies given under the Loan
Documents or existing at law or in equity.




Section
      11.05.
            No
      Waiver.




No delay
or omission to exercise any right or power accruing under any Loan Document upon
the happening of any Event of Default or Potential Event of Default shall impair
any such right or power or shall be construed to be a waiver thereof, but any
such right and power may be exercised from time to time and as often as may be
deemed expedient.




Section
      11.06.
            No
      Notice.




To
entitle Lender to exercise any remedy reserved to Lender in this Article, it
shall not be necessary to give any notice, other than such notice as may be
required under the applicable provisions of this Agreement or any of the other
Loan Documents.




28


ARTICLE
12




LIMITS ON
PERSONAL LIABILITY




Section
      12.01.
            Personal Liability of
      Borrower.




Personal
liability of Borrower shall be as set forth in each Note.




ARTICLE
13




MISCELLANEOUS
PROVISIONS




Section
      13.01.
            Counterparts.




To
facilitate execution, this Agreement may be executed in any number of
counterparts.  It shall not be necessary that the signatures of, or on
behalf of, each party, or that the signatures of all persons required to bind
any party, appear on each counterpart, but it shall be sufficient that the
signature of, or on behalf of, each party, appear on one (1) or more
counterparts.  All counterparts shall collectively constitute a single
agreement.  It shall not be necessary in making proof of this
Agreement to produce or account for more than the number of counterparts
containing the respective signatures of, or on behalf of, all of the parties
hereto.




Section
      13.02.
            Amendments, Changes
      and Modifications.




This
Agreement may be amended, changed, modified, altered or terminated only by
written instrument or written instruments signed by all of the parties
hereto.




Section
      13.03.
            Payment of Costs, Fees
      and Expenses.




Borrower
shall pay, on demand, all reasonable third party out-of-pocket fees, costs,
charges or expenses (including the fees and expenses of attorneys, accountants
and other experts) incurred by Lender in connection with:




(a)           Any
amendment, consent or waiver to this Agreement or any of the Loan Documents
(whether or not any such amendments, consents or waivers are entered
into).




(b)           Defending
or participating in any litigation arising from actions by third parties and
brought against or involving Lender with respect to (43) any Mortgaged Property,
(44) any event, act, condition or circumstance in connection with any Mortgaged
Property or (45) the relationship between Lender and Borrower and Guarantor in
connection with this Agreement or any of the transactions contemplated by this
Agreement.




(c)           The
administration or enforcement of, or preservation of rights or remedies under,
this Agreement or any other Loan Documents or in connection with the foreclosure
upon, sale of or other disposition of any Collateral granted pursuant to the
Loan Documents.




(d)           Any
disclosure documents required for any Advance under this Agreement, including
the reasonable fees and expenses of Lender’s attorneys and
accountants.




29


Borrower
shall also pay, on demand, any transfer taxes, documentary taxes, assessments or
charges made by any governmental authority by reason of the execution, delivery,
filing, recordation, performance or enforcement of any of the Loan Documents or
the Advances.  However, Borrower will not be obligated to pay any
franchise, excise, estate, inheritance, income, excess profits or similar tax on
Lender.  Any attorneys’ fees and expenses payable by Borrower pursuant
to this Section shall be recoverable separately from and in addition to any
other amount included in such judgment, and such obligation is intended to be
severable from the other provisions of this Agreement and to survive and not be
merged into any such judgment.  Any amounts payable by Borrower
pursuant to this Section, with interest thereon if not paid when due, shall
become additional indebtedness of Borrower secured by the Loan
Documents.  Such amounts shall bear interest from the date such
amounts are due until paid in full at the weighted average, as determined by
Lender, of the interest rates in effect from time to time for each Advance
unless collection from Borrower of interest at such rate would be contrary to
applicable law, in which event such amounts shall bear interest at the highest
rate which may be collected from Borrower under applicable law.  The
provisions of this Section are cumulative with, and do not exclude the
application and benefit to Lender of, any provision of any other Loan Document
relating to any of the matters covered by this Section.




Section
      13.04.
            Payment
      Procedure.




All
payments to be made to Lender pursuant to this Agreement or any of the Loan
Documents shall be made in lawful currency of the United States of America and
in immediately available funds by wire transfer to an account designated by
Lender before 1:00 p.m. (Eastern Standard Time) on the date when
due.




Section
      13.05.
            Payments on Business
      Days.




In any
case in which the date of payment to Lender or the expiration of any time period
hereunder occurs on a day which is not a Business Day, then such payment or
expiration of such time period need not occur on such date but may be made on
the next succeeding Business Day with the same force and effect as if made on
the day of maturity or expiration of such period, except that interest shall
continue to accrue for the period after such date to the next Business
Day.




Section
      13.06.
            Choice of Law; Consent
      to Jurisdiction; Waiver of Jury
Trial.




NOTWITHSTANDING
ANYTHING IN THE NOTES, THE SECURITY DOCUMENTS OR ANY OF THE OTHER LOAN DOCUMENTS
TO THE CONTRARY, EACH OF THE TERMS AND PROVISIONS, AND RIGHTS AND OBLIGATIONS OF
BORROWER UNDER THIS AGREEMENT AND THE NOTES, GUARANTOR UNDER THE GUARANTY, AND
BORROWER AND GUARANTOR UNDER THE OTHER LOAN DOCUMENTS, SHALL BE GOVERNED BY,
INTERPRETED, CONSTRUED AND ENFORCED PURSUANT TO AND IN ACCORDANCE WITH THE LAWS
OF THE DISTRICT OF COLUMBIA (EXCLUDING THE LAW APPLICABLE TO CONFLICTS OR CHOICE
OF LAW) EXCEPT TO THE EXTENT OF PROCEDURAL AND SUBSTANTIVE MATTERS RELATING ONLY
TO (46) THE CREATION, PERFECTION AND FORECLOSURE OF LIENS AND SECURITY
INTERESTS, AND ENFORCEMENT OF THE




30


RIGHTS
AND REMEDIES, AGAINST THE MORTGAGED PROPERTIES, WHICH MATTERS SHALL BE GOVERNED
BY THE LAWS OF THE JURISDICTION IN WHICH THE MORTGAGED PROPERTY IS LOCATED, (47)
THE PERFECTION, THE EFFECT OF PERFECTION AND NON-PERFECTION AND FORECLOSURE OF
SECURITY INTERESTS ON PERSONAL PROPERTY (OTHER THAN DEPOSIT ACCOUNTS), WHICH
MATTERS SHALL BE GOVERNED BY THE LAWS OF THE JURISDICTION DETERMINED BY THE
CHOICE OF LAW PROVISIONS OF THE UNIFORM COMMERCIAL CODE IN EFFECT FOR THE
JURISDICTION IN WHICH THE MORTGAGED PROPERTY IS LOCATED AND (48) THE PERFECTION,
THE EFFECT OF PERFECTION AND NON-PERFECTION AND FORECLOSURE OF DEPOSIT ACCOUNTS,
WHICH MATTERS SHALL BE GOVERNED BY THE LAWS OF THE JURISDICTION IN WHICH THE
DEPOSIT ACCOUNT IS LOCATED.  BORROWER AND GUARANTOR AGREE THAT ANY
CONTROVERSY ARISING UNDER OR IN RELATION TO THE NOTES, THE SECURITY DOCUMENTS
(OTHER THAN THE SECURITY INSTRUMENTS) OR ANY OTHER LOAN DOCUMENT SHALL BE,
EXCEPT AS OTHERWISE PROVIDED HEREIN, LITIGATED IN DISTRICT OF
COLUMBIA.  THE LOCAL AND FEDERAL COURTS AND AUTHORITIES WITH
JURISDICTION IN DISTRICT OF COLUMBIA SHALL, EXCEPT AS OTHERWISE PROVIDED HEREIN,
HAVE JURISDICTION OVER ALL CONTROVERSIES WHICH MAY ARISE UNDER OR IN RELATION TO
THE LOAN DOCUMENTS, INCLUDING THOSE CONTROVERSIES RELATING TO THE EXECUTION,
JURISDICTION, BREACH, ENFORCEMENT OR COMPLIANCE WITH THE NOTES, THE SECURITY
DOCUMENTS (OTHER THAN THE SECURITY INSTRUMENTS) OR ANY OTHER ISSUE ARISING
UNDER, RELATING TO, OR IN CONNECTION WITH ANY OF THE LOAN
DOCUMENTS.  BORROWER AND GUARANTOR IRREVOCABLY CONSENT TO SERVICE,
JURISDICTION, AND VENUE OF SUCH COURTS FOR ANY LITIGATION ARISING FROM THE
NOTES, THE SECURITY DOCUMENTS OR ANY OF THE OTHER LOAN DOCUMENTS, AND WAIVES ANY
OTHER VENUE TO WHICH IT MIGHT BE ENTITLED BY VIRTUE OF DOMICILE, HABITUAL
RESIDENCE OR OTHERWISE.  NOTHING CONTAINED HEREIN, HOWEVER, SHALL
PREVENT LENDER FROM BRINGING ANY SUIT, ACTION OR PROCEEDING OR EXERCISING ANY
RIGHTS AGAINST BORROWER AND GUARANTOR AND AGAINST THE COLLATERAL IN ANY OTHER
JURISDICTION.  INITIATING SUCH SUIT, ACTION OR PROCEEDING OR TAKING
SUCH ACTION IN ANY OTHER JURISDICTION SHALL IN NO EVENT CONSTITUTE A WAIVER OF
THE AGREEMENT CONTAINED HEREIN THAT THE LAWS OF DISTRICT OF COLUMBIA SHALL
GOVERN THE RIGHTS AND OBLIGATIONS OF BORROWER AND GUARANTOR AND LENDER AS
PROVIDED HEREIN OR THE SUBMISSION HEREIN BY BORROWER AND GUARANTOR TO PERSONAL
JURISDICTION WITHIN THE DISTRICT OF COLUMBIA.  EACH OF LENDER,
BORROWER AND GUARANTOR (I) COVENANT AND AGREE NOT TO ELECT A TRIAL BY JURY WITH
RESPECT TO ANY ISSUE ARISING UNDER ANY OF THE LOAN DOCUMENTS TRIABLE BY A JURY
AND (II) WAIVE ANY RIGHT TO TRIAL BY JURY TO THE EXTENT THAT ANY SUCH RIGHT
SHALL NOW OR HEREAFTER EXIST.  THIS WAIVER IS INTENDED TO ENCOMPASS
INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A JURY TRIAL
WOULD OTHERWISE ACCRUE.  FURTHER, BORROWER AND GUARANTOR HEREBY
CERTIFY THAT NO REPRESENTATIVE OR




31


AGENT OF
LENDER (INCLUDING, BUT NOT LIMITED TO, LENDER’S COUNSEL) HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, TO BORROWER AND GUARANTOR THAT LENDER WILL NOT SEEK TO
ENFORCE THE PROVISIONS OF THIS SECTION. THE FOREGOING PROVISIONS WERE KNOWINGLY,
WILLINGLY AND VOLUNTARILY AGREED TO BY BORROWER AND GUARANTOR UPON CONSULTATION
WITH INDEPENDENT LEGAL COUNSEL SELECTED BY BORROWER’S AND GUARANTOR’S FREE
WILL.




Section
      13.07.
            Severability.




In the
event any provision of this Agreement or in any other Loan Document shall be
held invalid, illegal or unenforceable in any jurisdiction, such provision will
be severable from the remainder hereof as to such jurisdiction and the validity,
legality and enforceability of the remaining provisions will not in any way be
affected or impaired in any jurisdiction.




Section
      13.08.
            Notices.




(a)           Manner of Giving
Notice.  Each notice, direction, certificate or other
communication hereunder (in this Section referred to collectively as “notices”
and singly as a “notice”)
which any party is required or permitted to give to the other party pursuant to
this Agreement shall be in writing and shall be deemed to have been duly and
sufficiently given if:




(i)           personally
delivered with proof of delivery thereof (any notice so delivered shall be
deemed to have been received at the time so delivered);




(ii)           sent
by Federal Express (or other similar reputable overnight courier) designating
morning delivery (any notice so delivered shall be deemed to have been received
on the Business Day it is delivered by the courier);




(iii)           sent
by telecopier or facsimile machine which automatically generates a transmission
report that states the date and time of the transmission, the length of the
document transmitted, and the telephone number of the recipient’s telecopier or
facsimile machine (to be confirmed with a copy thereof sent in accordance with
paragraphs (i) or (ii) above within two Business Days) (any notice so delivered
shall be deemed to have been received (a) on the date of transmission, if so
transmitted before 5:00 p.m. (local time of the recipient) on a Business Day, or
(b) on the next Business Day, if so transmitted on or after 5:00 p.m. (local
time of the recipient) on a Business Day or if transmitted on a day other than a
Business Day);




addressed
to the parties as follows:




As to
Borrower:                                           c/o
Emeritus Corporation


3131
Elliott Avenue


Suite
500


Seattle,
WA 98121


Attention:
            Eric
      Mendelsohn, SVP Corporate
Development


Telecopy:                      (206)
357-7388


32


with a copy
to:                                           The
Nathanson Group PLLC


One Union
Square


600
University Street


Suite
2000


Seattle,
WA 98101


Attention:                                Randi
S. Nathanson


Telecopy:                      (206)
623-1738





As to
Lender:                                           Capmark
Finance Inc.


116 Welsh
Road


Horsham ,
PA 19044


Attention:                                Executive
Vice President - Servicing


Telecopy:                      (215)
328-3478





with a
copy
to:                                           Troutman
Sanders


1001
Haxall Point


Richmond,
VA 23219


Attention:                                Mark
Shiembob, Esq.


Telecopy:                      (804)
698-6004





As
      to Fannie Mae:
            Fannie
      Mae


3900
Wisconsin Avenue, N.W.


Washington,
D.C.  20016-2899


Attention:
            Vice
      President for


Multifamily
      Asset Management


Telecopy
No.:  (301) 280-2064




with a copy
to:                                           Venable
LLP


575 7th Street,
N.W.


Washington,
D.C.  20004


Attention:                                Stephanie
L. DeLong, Esq.


Telecopy
No.:                                (202)
344-8300







(b)           Change of Notice
Address.  Any party may, by notice given pursuant to this
Section, change the person or persons and/or address or addresses, or designate
an additional person or persons or an additional address or addresses, for its
notices, but notice of a change of address shall only be effective upon
receipt.  Each party agrees that it shall not refuse or reject
delivery of any notice given hereunder, that it shall acknowledge, in writing,
receipt of the same upon request by the other party and that any notice rejected
or refused by it shall be deemed for all purposes of this Agreement to have been
received by the rejecting party on the date so refused or rejected, as
conclusively established by the records of the U.S. Postal Service, the courier
service or facsimile.




33


Section
13.09.                                Further
Assurances and Corrective Instruments.




(a)           Further
Assurances.  To the extent permitted by law, the parties hereto
agree that they shall, from time to time, execute, acknowledge and deliver, or
cause to be executed, acknowledged and delivered, such supplements hereto and
such further instruments as Lender or Borrower may reasonably request and as may
be required in the opinion of Lender or its counsel to effectuate the intention
of or facilitate the performance of this Agreement or any Loan
Document.




(b)           Further
Documentation.  Without limiting the generality of subsection
(a), in the event any further documentation or information is required by Lender
to correct patent mistakes in the Loan Documents, materials relating to the
Title Insurance Policies or the funding of the Advances, Borrower shall provide,
or cause to be provided to Lender, at their cost and expense, such documentation
or information.  Borrower shall execute and deliver to Lender such
documentation, including any amendments, corrections, deletions or additions to
the Notes, the Security Instruments or the other Loan Documents as is reasonably
required by Lender.




Section
      13.10.
            Term of this
      Agreement.




This
Agreement shall continue in effect until the Termination Date.




Section
      13.11.
            Assignments;
      Third-Party Rights.




No
Borrower shall assign this Agreement, or delegate any of its obligations
hereunder, without the prior written consent of Lender.  Lender may
assign its rights and obligations under this Agreement separately or together,
without Borrower’s consent, only to Fannie Mae or other entity if such
assignment is made with the intent that such entity will further assign such
rights and obligations to Fannie Mae, but may not delegate its obligations under
this Agreement unless it first receives Fannie Mae’s written
approval.  Upon assignment to Fannie Mae, Fannie Mae shall be
permitted to further assign its rights and obligations under this
Agreement.




Section
      13.12.
            Headings.




Article
and Section headings used herein are for convenience of reference only, are not
part of this Agreement and are not to affect the construction of, or to be taken
into consideration in interpreting, this Agreement.




Section
      13.13.
            General Interpretive
      Principles.




For
purposes of this Agreement, except as otherwise expressly provided or unless the
context otherwise requires, (49) the terms defined in Appendix I and elsewhere
in this Agreement have the meanings assigned to them in this Agreement and
include the plural as well as the singular, and the use of any gender herein
shall be deemed to include the other genders; (50) accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
GAAP; (51) references herein to “Articles,” “Sections,” “subsections,”
“paragraphs” and other subdivisions without reference to a document are to
designated Articles, Sections, subsections, paragraphs and other subdivisions of
this Agreement; (52) a reference to a subsection without further reference to a
Section is a reference to such subsection as contained in




34


the same
Section in which the reference appears, and this rule shall also apply to
paragraphs and other subdivisions; (53) a reference to an Exhibit or a Schedule
without a further reference to the document to which the Exhibit or Schedule is
attached is a reference to an Exhibit or Schedule to this Agreement; (54) the
words “herein,” “hereof,” “hereunder” and other words of similar import refer to
this Agreement as a whole and not to any particular provision; and (55) the word
“including” means “including, but not limited to.”




Section
      13.14.
            Interpretation.




The
parties hereto acknowledge that each party and their respective counsel have
participated in the drafting and revision of this Agreement and the Loan
Documents.  Accordingly, the parties agree that any rule of
construction which disfavors the drafting party shall not apply in the
interpretation of this Agreement and the Loan Documents or any amendment or
supplement or exhibit hereto or thereto.




Section
      13.15.
            Standards for
      Decisions, Etc.




Unless
otherwise provided herein, if Lender’s approval is required for any matter
hereunder, such approval may be granted or withheld in Lender’s sole and
absolute discretion.  Unless otherwise provided herein, if Lender’s
designation, determination, selection, estimate, action or decision is required,
permitted or contemplated hereunder, such designation, determination, selection,
estimate, action or decision shall be made in Lender’s sole and absolute
discretion.




Section
      13.16.
            Decisions in
      Writing.




Any
approval, designation, determination, selection, action or decision of Lender or
Borrower must be in writing to be effective.




Section
13.17.                                Approval of
Waivers.




Unless
otherwise agreed by Lender, any modifications set forth in this Agreement and
the other Loan Documents which are modifications to or waivers from the terms
and conditions applicable to similar loans made by Lender and sold to Fannie Mae
shall remain in effect only for so long as Borrower is controlled by Guarantor,
Borrower is a party to this Agreement and such Loans are subject to this
Agreement.




Section
13.18.                                USA Patriot Act.




Lender
hereby notifies each Borrower that pursuant to the requirements of the USA
Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), it
is required to obtain, verify and record information that identifies each
Borrower, which information includes the name and address of each Borrower and
other information that will allow such Lender to identify each Borrower in
accordance with such Act.




[Remainder
of page intentionally left blank.]




35


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




BORROWER
PARTIES:




PHNTUS ARBOR GARDENS INC., a
California corporation





By:
            Emeritus
      Corporation, a Washington corporation, its sole
  shareholder











By:           /s/
Eric
Mendelsohn


Eric
Mendelsohn


Senior
Vice President Corporate Development








PHNTUS AUSTIN GARDENS INC, a
California corporation





By:
            Emeritus
      Corporation, a Washington corporation, its sole
  shareholder











By:           /s/
Eric
Mendelsohn


Eric
Mendelsohn


Senior
Vice President Corporate Development








PHNTUS BECKETT MEADOWS LLC, a
Delaware limited liability company





By:
            Emeritus
      Corporation, a Washington corporation, its sole
  member











By:           /s/
Eric
Mendelsohn


Eric
Mendelsohn


Senior
Vice President Corporate Development








PHNTUS CANTERBURY WOODS LLC, a
Delaware limited liability company





By:
            Emeritus
      Corporation, a Washington corporation, its sole
  member











By:           /s/
Eric Mendelsohn (SEAL)


Eric
Mendelsohn


Senior
Vice President Corporate Development








PHNTUS CHARLESTON GARDENS LLC,
a Delaware limited liability company





By:
            Emeritus
      Corporation, a Washington corporation, its sole
  member











By:           /s/
Eric
Mendelsohn


Eric
Mendelsohn


Senior
Vice President Corporate Development








PHNTUS CREEKSIDE LLC, a
Delaware limited liability company





By:
            Emeritus
      Corporation, a Washington corporation, its sole
  member











By:           /s/
Eric
Mendelsohn


Eric
Mendelsohn


Senior
Vice President Corporate Development











PHNTUS DESERT SPRINGS LLC, a
Delaware limited liability company





By:
            Emeritus
      Corporation, a Washington corporation, its sole
  member











By:           /s/
Eric
Mendelsohn


Eric
Mendelsohn


Senior
Vice President Corporate Development








PHNTUS HERITAGE HILLS LLC, a
Delaware limited liability company





By:
            Emeritus
      Corporation, a Washington corporation, its sole
  member











By:           /s/
Eric
Mendelsohn                                           
(SEAL)


Eric
Mendelsohn


Senior
Vice President Corporate Development








PHNTUS KP SHREVEPORT LLC, a
Delaware limited liability company





By:
            Emeritus
      Corporation, a Washington corporation, its sole
  member











By:           /s/
Eric
Mendelsohn


Eric
Mendelsohn


Senior
Vice President Corporate Development











PHNTUS LAKES LLC, a Delaware
limited liability company





By:
            Emeritus
      Corporation, a Washington corporation, its sole
  member











By:           /s/
Eric
Mendelsohn


Eric
Mendelsohn


Senior
Vice President Corporate Development








PHNTUS LO CAPE MAY LLC, a
Delaware limited liability company





By:
            Emeritus
      Corporation, a Washington corporation, its sole
  member











By:           /s/
Eric
Mendelsohn


Eric
Mendelsohn


Senior
Vice President Corporate Development








PHNTUS LO FOLSOM INC, a
California corporation





By:
            Emeritus
      Corporation, a Washington corporation, its sole
  shareholder











By:           /s/
Eric
Mendelsohn


Eric
Mendelsohn


Senior
Vice President Corporate Development








PHNTUS LO JOLIET LLC, a
Delaware limited liability company





By:
            Emeritus
      Corporation, a Washington corporation, its sole
  member











By:


Eric
Mendelsohn


Senior
Vice President Corporate Development








PHNTUS LO ROCKFORD LLC, a
Delaware limited liability company





By:
            Emeritus
      Corporation, a Washington corporation, its sole
  member











By:           /s/
Eric
Mendelsohn


Eric
Mendelsohn


Senior
Vice President Corporate Development








PHNTUS OAK HOLLOW LLC, a
Delaware limited liability company





By:
            Emeritus
      Corporation, a Washington corporation, its sole
  member











By:           /s/
Eric
Mendelsohn


Eric
Mendelsohn


Senior
Vice President Corporate Development








PHNTUS PINEHURST LLC, a
Delaware limited liability company





By:
            Emeritus
      Corporation, a Washington corporation, its sole
  member











By:           /s/
Eric
Mendelsohn


Eric
Mendelsohn


Senior
Vice President Corporate Development








PHNTUS PINE MEADOW LLC, a
Delaware limited liability company





By:
            Emeritus
      Corporation, a Washington corporation, its sole
  member











By:           /s/
Eric
Mendelsohn


Eric
Mendelsohn


Senior
Vice President Corporate Development








PHNTUS PINES AT GOLDSBORO LLC,
a Delaware limited liability company





By:
            Emeritus
      Corporation, a Washington corporation, its sole
  member











By:           /s/
Eric
Mendelsohn                                           
(SEAL)


Eric
Mendelsohn


Senior
Vice President Corporate Development








PHNTUS QUAIL RIDGE LLC, a
Delaware limited liability company





By:
            Emeritus
      Corporation, a Washington corporation, its sole
  member











By:           /s/
Eric
Mendelsohn


Eric
Mendelsohn


Senior
Vice President Corporate Development








PHNTUS RICHLAND GARDENS LLC, a
Delaware limited liability company





By:
            Emeritus
      Corporation, a Washington corporation, its sole
  member











By:           /s/
Eric
Mendelsohn


Eric
Mendelsohn


Senior
Vice President Corporate Development








PHNTUS SILVERLEAF MANOR LLC, a
Delaware limited liability company





By:
            Emeritus
      Corporation, a Washington corporation, its sole
  member











By:           /s/
Eric
Mendelsohn


Eric
Mendelsohn


Senior
Vice President Corporate Development








PHNTUS STONEBRIDGE LLC, a
Delaware limited liability company





By:
            Emeritus
      Corporation, a Washington corporation, its sole
  member











By:           /s/
Eric
Mendelsohn


Eric
Mendelsohn


Senior
Vice President Corporate Development








EMERITUS CORPORATION, a
Washington corporation









By:           /s/
Eric
Mendelsohn


Eric
Mendelsohn


Senior
Vice President Corporate Development





LENDER:





CAPMARK FINANCE INC., a
California corporation








By:           /s/ Max W.
Foore


Name:                      Max W.
Foore


Title:                      Vice
President





APPENDIX
I




DEFINITIONS




For all
purposes of the Agreement, the following terms shall have the respective
meanings set forth below:




“Addition Loan
Documents” means the Security Instrument covering an Additional Mortgaged
Property and any other documents, instruments or certificates reasonably
required by Lender in form and substance satisfactory to Lender and Borrower in
connection with the addition of the Additional Mortgaged Property to the
Collateral Pool pursuant to Article
3.




“Addition Request”
means a written request, substantially in the form of Exhibit I to the
Agreement, to add Additional Mortgaged Properties to the Collateral Pool as set
forth in Section
3.03(a).




“Additional Borrower”
means the owner of an Additional Mortgaged Property, which entity has been
approved by Lender and becomes a Borrower under the Agreement and the applicable
Loan Documents and is an Affiliate of and controlled by Guarantor.




“Additional Collateral Due
Diligence Fees” means the due diligence fees paid by Borrower to Lender
with respect to each Additional Mortgaged Property, as set forth in Section
9.02(a).




“Additional Mortgaged
Property” means each Seniors Housing Facility owned by Borrower (either
in fee simple or as tenant under a ground lease meeting all of Lender’s
requirements for similar loans anticipated to be sold to Fannie Mae) and added
to the Collateral Pool after the Initial Closing Date pursuant to Article
3.




“Additional Origination
Fee” has the meaning set forth in Section
9.01(b).




“Advance” means a loan
made by Lender pursuant to this Agreement.




“Advance Amount” means
the lesser of (a) the amount that would result in an Aggregate Loan to
Value Ratio of seventy-five percent (75%), or (b) the amount that would
result in an Aggregate Debt Service Coverage Ratio of 1.30:1.0; provided that an
exit analysis is performed by Lender and is acceptable to Fannie
Mae.




“Advance Request”
means a written request, substantially in the form of Exhibit H to the
Agreement, for an Advance made pursuant to Section
2.04.




“Affiliate” means, as
applied to any Person, any other Person directly or indirectly controlling,
controlled by, or under common control with, that Person.  For the
purposes of this definition, “control” (including with correlative meanings, the
terms “controlling,” “controlled by” and “under common control with”), as
applied to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management (other than property
management) and policies of that Person, whether through the ownership of voting
securities, partnership interests or by contract or otherwise.







“Aggregate Debt Service
Coverage Ratio” means, for any specified date, the ratio (expressed as a
percentage) of--




(a)           the
aggregate of the Net Operating Income for the Mortgaged Properties, taken as a
whole




to




(b)           the
Facility Debt Service on the specified date.




“Aggregate Loan to Value
Ratio” means, for any specified date, the ratio (expressed as a
percentage) of--




(a)
            the
      Advances Outstanding on the specified
date,




to




(b)
            the
      aggregate of the Valuations most recently obtained prior to the specified
      date for all of the Mortgaged Properties, taken as a
  whole.




“Agreement” means the
Master Credit Facility Agreement dated as of April 1, 2008, as it may be
amended, supplemented or otherwise modified from time to time, including all
Recitals and Exhibits to the Agreement, each of which is hereby incorporated
into the Agreement by this reference.




“Allocable Facility
Amount” means the portion of the Credit Facility allocated to a
particular Mortgaged Property by Lender in accordance with the
Agreement.




“Alterations” shall
have the meaning set forth in Section
7.05.




“Alzheimer’s Beds”
means a bed in a Mortgaged Property that is leased to a resident with
Alzheimer’s.




“Amortization Period”
means the period of thirty (30) years.




“Applicable Law” means
(a) all applicable provisions of all constitutions, statutes, rules, regulations
and orders of all governmental bodies, all Governmental Approvals and all
orders, judgments and decrees of all courts and arbitrators, (b) all zoning,
building, environmental and other laws, ordinances, rules, regulations and
restrictions of any Governmental Authority affecting the ownership, management,
use, operation, maintenance or repair of any Mortgaged Property, including the
Americans with Disabilities Act (if applicable), the Fair Housing Amendment Act
of 1988 and Hazardous Materials Laws (as defined in the Security Instrument),
(c) any building permits or any conditions, easements, rights-of-way, covenants,
restrictions of record or any recorded or unrecorded agreement affecting or
concerning any Mortgaged Property including planned development permits,
condominium declarations, and reciprocal easement and regulatory agreements with
any Governmental Authority, (d) all laws, ordinances, rules and regulations,
whether in the form of rent control, rent stabilization or otherwise, that limit
or impose conditions on the amount of rent that may be collected from the units
of any Mortgaged







Property,
and (e) requirements of insurance companies or similar organizations, affecting
the operation or use of any Mortgaged Property or the consummation of the
transactions to be effected by the Agreement or any of the other Loan
Documents.




“Appraisal” means an
appraisal of Seniors Housing Facility conforming to the requirements of Lender
for similar loans anticipated to be sold to Fannie Mae and accepted by
Lender.




“Appraised Value”
means the value set forth in an Appraisal.




“Borrower” means,
individually and collectively, (a) PHNTUS ARBOR GARDENS INC., a California
corporation, (b) PHNTUS AUSTIN GARDENS INC, a California corporation, (c) PHNTUS
BECKETT MEADOWS LLC, a Delaware limited liability company, (d) PHNTUS CANTERBURY
WOODS LLC, a Delaware limited liability company, (e) PHNTUS CHARLESTON GARDENS
LLC, a Delaware limited liability company, (f) PHNTUS CREEKSIDE LLC, a Delaware
limited liability company, (g) PHNTUS DESERT SPRINGS LLC, a Delaware limited
liability company, (h) PHNTUS HERITAGE HILLS LLC, a Delaware limited liability
company, (i) PHNTUS KP SHREVEPORT LLC, a Delaware limited liability company, (j)
PHNTUS LAKES LLC, a Delaware limited liability company, (k) PHNTUS LO CAPE MAY
LLC, a Delaware limited liability company, (l) PHNTUS LO FOLSOM INC, a
California corporation, (m) PHNTUS LO JOLIET LLC, a Delaware limited liability
company, (n) PHNTUS LO ROCKFORD LLC, a Delaware limited liability company, (o)
PHNTUS OAK HOLLOW LLC, a Delaware limited liability company, (p) PHNTUS
PINEHURST LLC, a Delaware limited liability company, (q) PHNTUS PINE MEADOW LLC,
a Delaware limited liability company, (r) PHNTUS PINES AT GOLDSBORO LLC, a
Delaware limited liability company, (s) PHNTUS QUAIL RIDGE LLC, a Delaware
limited liability company, (t) PHNTUS RICHLAND GARDENS LLC, a Delaware limited
liability company, (u) PHNTUS SILVERLEAF MANOR LLC, a Delaware limited liability
company, and (w) PHNTUS STONEBRIDGE LLC, a Delaware limited liability company
and any Additional Borrower becoming a party to the Agreement and any other Loan
Documents, each of which entity (i) is and shall be owned not less than
seventy-five percent (75%) by Guarantor, (ii) is controlled, directly or
indirectly, by Guarantor, and (iii) does and shall comply with the definition of
Single-Purpose as set forth herein.




“Business Day” means a
day on which Fannie Mae is open for business.




“Calendar Quarter”
means, with respect to any year, any of the following three month
periods:  (a) January-February-March; (b) April-May-June; (c)
July-August-September; and (d) October-November-December.




“Calendar Year” means
the 12-month period from the first day of January to and including the last day
of December, and each 12-month period thereafter.




“Cash Equivalents”
means




(a)
            securities
      issued or fully guaranteed or insured by the United States Government or
      any agency thereof and backed by the full faith and credit of the United
      States







having
      maturities of not more than twelve (12) months from the date of
      acquisition.




(b)
            certificates
      of deposit, time deposits, demand deposits, eurodollar time deposits,
      repurchase agreements, reverse repurchase agreements, or bankers’
      acceptances, having in each case a term of not more than twelve
      (12) months, issued by any commercial bank having membership in the
      FDIC, or by any U.S. commercial lender (or any branch or agency of a
      non-U.S. bank licensed to conduct business in the U.S.) having combined
      capital and surplus of not less than $100,000,000 whose short-term
      securities are rated at least A-1 by Standard & Poor’s Corporation or
      P-1 by Moody’s Investors Service, Inc.;
and




(c)
            commercial
      paper of an issuer rated at least A-1 by Standard & Poor’s Corporation
      or P-1 by Moody’s Investors Service, Inc. and in either case having a term
      of not more than twelve
(12) months.




“Cash Interest Rate”
means a rate of interest, per annum, established by Fannie Mae for loans
purchased for cash by Fannie Mae of similar characteristics then offered by
Fannie Mae.




“Certificate of
Borrower” means the form attached hereto as Exhibit K with
Borrower Parties representations and warranties.




“Closing Date” means
the Initial Closing Date and each date after the Initial Closing Date on which
the funding or other transaction requested in a Request is required to take
place.




“Collateral” means the
Mortgaged Properties and other collateral from time to time or at any time
encumbered by the Security Instruments, or any other property securing
Borrower’s obligations under the Loan Documents.




“Collateral Pool”
means all of the Collateral.




“Commitment” means
$241,889,868, plus such amount as Borrower may increase the Commitment in
accordance with Article 4,
provided that the Commitment shall not exceed $250,000,000.




“Compliance
Certificate” means a certificate of Borrower substantially in the form of
Exhibit E to the
Agreement.




“Confirmation of
Guaranty” means a confirmation of the Guaranty executed by Guarantor in
connection with any Request after the Initial Closing, substantially in the form
of Exhibit D to the
Agreement.




“Confirmation of
Obligations” has the meaning set forth in Section 5.05(g)
of this Agreement.




“Coverage and LTV
Tests” mean, for any specified date, each of the following financial
tests:




(a)           The
Aggregate Debt Service Coverage Ratio is not less than 1.30:1.0.







(b)           The
Aggregate Loan to Value Ratio does not exceed seventy-five percent
(75%).




“Credit Facility”
means the agreement of Lender to make Advances to Borrower pursuant to Section
1.01.




“Debt Service Coverage
Ratio” means, for any Mortgaged Property, for any specified date, the
ratio (expressed as a percentage) of --




(a)           the
Net Operating Income for the subject Mortgaged Property as determined by Lender
pursuant to Lender's Underwriting Requirements




to




(b)           the
Facility Debt Service on the specified date, assuming, for the purpose of
calculating the Facility Debt Service for this definition, that Advances
Outstanding shall be the Allocable Facility Amount for the subject Mortgaged
Property.




“ERISA” means the
Employee Retirement Income Security Act of 1974, as amended from time to time,
and the regulations promulgated thereunder.




“Event of Default”
means any event defined to be an “Event of Default” under Article
10.




“Expansion Loan
Documents” means amendments to the Note or additional Notes, as the case
may be, increasing the amount of such Note to the amount of the Commitment, as
increased in accordance with Article 4 and
amendments to the Security Instruments, increasing the maximum amount to be
secured by such Security Instruments to the amount of the Commitment, as
required by Lender.




“Expansion Request”
means a written request, substantially in the form of Exhibit L to the
Agreement, to obtain an Expansion pursuant to Article
4.




“Facility Availability
Period means the period beginning on the Initial Closing Date and ending
on the date five (5) years after the Initial Closing Date.




“Facility Debt
Service” means --




(a)
            For
      use in determining the Initial Advance amount, the sum of the amount of
      interest and principal amortization that would be payable during the
      twelve (12) month period immediately succeeding the Initial Closing Date,
      with respect to the full amount of the Advance, except that, such amount
      of the Advance shall be deemed to require level monthly payments of
      principal and interest (at an interest rate equal to (A) the base
      United States Treasury Index Rate for securities having a maturity
      substantially similar to the maturity of the Note(s) plus (B) the
      anticipated investor spread (as determined by Lender) for the Note(s)
      based on an actual/360 execution plus (C) the Facility Fee) in an
      amount necessary to fully amortize the original principal amount of the
      Advance over the Amortization







Period,
      with such amortization to commence on the first day of the twelve (12)
      month period.




(b)
            For
      use in determining the additional borrowing capacity created pursuant to a
      Future Advance made under Section
      2.04, or in connection with the addition of a Mortgaged
      Property to the Collateral Pool the sum of the amount of interest and
      principal amortization, during the twelve (12) month period immediately
      succeeding the specified date, with respect to the Advances Outstanding on
      the specified date and Advances to be obtained pursuant to Section
      2.04, or in connection with the addition of a Mortgaged
      Property to the Collateral Pool except that, for these
      purposes:




(i)
            each
      Advance Outstanding shall require level monthly payments of principal and
      interest (at the actual Interest Rate for the Advance) in an amount
      necessary to fully amortize the original principal amount of the Advance
      over the Amortization Period, with such amortization to commence on the
      first day of the twelve (12) month period;
and




(ii)
            each
      Advance to be obtained shall be deemed to require level monthly payments
      of principal and interest at a rate equal to the estimated Interest Rate
      for such Advance in an amount necessary to fully amortize the original
      principal amount of such Advance over the Amortization Period, with such
      amortization deemed to commence on the first day of the twelve (12) month
      period.




(c)
            For
      use in determining the Aggregate Debt Service Coverage Ratio, for purposes
      of determining compliance with the Coverage and LTV Tests, and for other
      ongoing monitoring purposes, as of any specified date, the sum of the
      amount of interest and principal amortization, during the twelve (12)
      month period immediately succeeding the specified date, with respect to
      the Advances Outstanding on the specified date, except that, for these
      purposes each Advance shall require level monthly payments of principal
      and interest (at the actual Interest Rate for such Advance) in an amount
      necessary to fully amortize the original principal amount of the Advance
      over the Amortization Period, with such amortization to commence on the
      first day of the twelve (12) month
period.




“Facility Fee” means
(i) for the Initial Advance drawn from the Commitment in connection with the
addition of the Initial Mortgaged Properties, a component of the Interest Rate
set forth in the Note dated as of the Initial Closing Date, and (ii) for any
Future Advance, the number of basis points determined at the time of such
increase or conversion by Lender as the Facility Fee for such
Advances.




“Fannie Mae” means the
federally-chartered and stockholder-owned corporation organized and existing
under the Federal National Mortgage Association Charter Act, 12 U.S.C.
§ 1716 et
seq.




“Fannie Mae
Commitment” shall have the meaning set forth in Section
2.01(b).







“Fees” means
Additional Collateral Due Diligence Fee, Additional Origination Fee, Facility
Fee, Initial Origination Fee, Release Fee, Re-Underwriting Fee, Substitution
Fee, any and all other fees specified in the Agreement.




“First Anniversary”
means the date that is one year after the Initial Closing Date.




“Future Advance” means
an Advance made after the Initial Closing Date.




“GAAP” means generally
accepted accounting principles in the United States in effect from time to time,
consistently applied.




“General Conditions”
shall have the meaning set forth in Article
5.




“Governmental
Approval” means an authorization, permit, consent, approval, license,
registration or exemption from registration or filing with, or report to, any
Governmental Authority.




“Governmental
Authority” means any court, board, agency, commission, office or
authority of any nature whatsoever for any governmental unit (federal, state,
county, district, municipal, city or otherwise) whether now or hereafter in
existence.




“Gross Revenues”
means, for any specified period, with respect to any Seniors Housing Facility,
all income in respect of such Seniors Housing Facility as reflected on the
certified operating statement for such specified period as adjusted to exclude
unusual income (e.g. temporary or nonrecurring income), income not allowed by
Lender for similar loans anticipated to be sold to Fannie Mae (e.g. interest
income, furniture income, etc.), and the value of any unreflected
concessions.




“Guarantor” means
EMERITUS CORPORATION, a Washington corporation.




“Guaranty” means those
certain Exceptions to Non-Recourse Guaranty to be executed by Guarantor in the
form of Exhibit C to the
Agreement.




“Impositions” means,
with respect to any Mortgaged Property, all (1) water and sewer charges which,
if not paid, may result in a lien on all or any part of the Mortgaged Property,
(2) premiums for fire and other hazard insurance, rent loss insurance and such
other insurance as Lender may require under any Security Instrument, (3) Taxes,
and (4) amounts for other charges and expenses which Lender at any time
reasonably deems necessary to protect the Mortgaged Property, to prevent the
imposition of liens on the Mortgaged Property, or otherwise to protect Lender’s
interests.




“Indebtedness” means,
with respect to any Person, as of any specified date, without duplication,
all:




(a)           indebtedness
of such Person for borrowed money or for the deferred purchase price of property
or services (other than (i) current trade liabilities incurred in the ordinary
course of business and payable in accordance with customary practices, and (ii)
for







construction
of improvements to property, if such person has a non-contingent contract to
purchase such property);




(b)           other
indebtedness of such Person which is evidenced by a note, bond, debenture or
similar instrument;




(c)           obligations
of such Person under any lease of property, real or personal, the obligations of
the lessee in respect of which are required by GAAP to be capitalized on a
balance sheet of the lessee or to be otherwise disclosed as such in a note to
such balance sheet;




(d)           obligations
of such Person in respect of acceptances (as defined in Article 3 of the Uniform
Commercial Code of the District of Columbia) issued or created for the account
of such Person;




(e)           liabilities
secured by any Lien on any property owned by such Person even though such Person
has not assumed or otherwise become liable for the payment of such liabilities;
and




(f)           as
to any Person (“guaranteeing
person”), any obligation of (a) the guaranteeing person or (b) another
Person (including any bank under any letter of credit) to induce the creation of
a primary obligation (as defined below) with respect to which the guaranteeing
person has issued a reimbursement, counterindemnity or similar obligation, in
either case guaranteeing, or in effect guaranteeing, any indebtedness, lease,
dividend or other obligation (“primary obligations”)
of any third person (“primary obligor”) in
any manner, whether directly or indirectly, including any obligation of the
guaranteeing person, whether or not contingent, to (1) purchase any such primary
obligation or any property constituting direct or indirect security therefor,
(2) advance or supply funds for the purchase or payment of any such primary
obligation or to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency of the primary
obligor, (3) purchase property, securities or services primarily for the purpose
of assuring the owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation, or (4) otherwise
assure or hold harmless the owner of any such primary obligation against loss in
respect of the primary obligation, provided, however, that the term “Contingent
Obligation” shall not include endorsements of instruments for deposit or
collection in the ordinary course of business.  The amount of any
Contingent Obligation of any guaranteeing person shall be deemed to be the
lesser of (i) an amount equal to the stated or determinable amount of the
primary obligation in respect of which such Contingent Obligation is made and
(ii) the maximum amount for which such guaranteeing person may be liable
pursuant to the terms of the instrument embodying such Contingent Obligation,
unless such primary obligation and the maximum amount for which such
guaranteeing person may be liable are not stated or determinable, in which case
the amount of such Contingent Obligation shall be such guaranteeing person’s
maximum reasonably anticipated liability in respect thereof as determined by
Owner in good faith.




“Initial Advance”
means the Advance made on the Initial Closing Date in the amount of
$241,889,868.







“Initial Closing Date”
means the date of the Agreement.




“Initial Due Diligence
Fees” shall have the meaning set forth in Section
9.02(a).




“Initial Mortgaged
Properties” means the Seniors Housing Facilities which are made part of
the Collateral Pool on the Initial Closing Date.




“Initial Origination
Fee” shall have the meaning set forth in Section 9.01(a)
of the Agreement.




“Initial Security
Instruments” means the Security Instruments covering the Initial
Mortgaged Properties.




“Initial Valuation”
means, when used with reference to specified Collateral, the Valuation initially
performed for the Collateral as of the date on which the Collateral was added to
the Collateral Pool.  The Initial Valuation for each of the Mortgaged
Properties is as set forth in Exhibit A to the
Agreement.




“Insurance Policy”
means, with respect to a Mortgaged Property, the insurance coverage and
insurance certificates evidencing such insurance required to be maintained
pursuant to the Security Instrument encumbering the Mortgaged
Property.




“Interest Rate” means,
(i) in connection with the Initial Advance, the interest rate for the Note set
forth in such Note (which rate includes the Facility Fee), and (ii) in
connection with Future Advances, the sum of the Cash Interest Rate and the
Facility Fee.




“Internal Revenue
Code” means the Internal Revenue Code of 1986, as
amended.  Each reference to the Internal Revenue Code shall be deemed
to include (a) any successor internal revenue law and (b) the applicable
regulations whether final, temporary or proposed.




“Lease” means, other
than a Resident Agreement, any lease, any sublease or subsublease, license,
concession or other agreement (whether written or oral and whether now or
hereafter in effect) pursuant to which any Person is granted a possessory
interest in, or right to use or occupy all or any portion of any space in any
Mortgaged Property, and every modification, amendment or other agreement
relating to such lease, sublease, subsublease or other agreement entered into in
connection with such lease, sublease, subsublease or other agreement, and every
guarantee of the performance and observance of the covenants, conditions and
agreements to be performed and observed by the other party thereto.




“Lender” shall have
the meaning set forth in the first paragraph of the Agreement, but shall refer
to any replacement Lender.




“Lien” means any
mortgage, deed of trust, deed to secure debt, security interest or other lien or
encumbrance (including both consensual and non-consensual liens and
encumbrances).




“Loan Document Taxes”
shall have the meaning set forth in Section
7.06.







“Loan Documents” means
the Agreement, the Notes, the Security Documents, all documents executed by
Borrower or Guarantor pursuant to the General Conditions set forth in Article 5 of the
Agreement and any other documents executed by Borrower or Guarantor from time to
time in connection with the Agreement or the transactions contemplated by the
Agreement.




“Loan to Value Ratio”
means, for a Mortgaged Property, for any specified date, the ratio (expressed as
a percentage) of --




(a)           the
Allocable Facility Amount of the subject Mortgaged Property on the specified
date,




to




(b)           the
Valuation most recently obtained prior to the specified date for the subject
Mortgaged Property.




“Material Adverse
Effect” means, with respect to any circumstance, act, condition or event
of whatever nature (including any adverse determination in any litigation,
arbitration, or governmental investigation or proceeding), whether singly or in
conjunction with any other event or events, act or acts, condition or
conditions, or circumstance or circumstances, whether or not related, a material
adverse change in or a materially adverse effect upon any of (a) the business,
operations, property or condition (financial or otherwise) of Borrower, to the
extent specifically referred to in the applicable provision of the Loan
Document, (b) the present or future ability of Borrower, to the extent
specifically referred to in the applicable provision of the Loan Document, to
perform the Obligations for which it is liable, (c) the validity, priority,
perfection or enforceability of the Agreement or any other Loan Document or the
rights or remedies of Lender under any Loan Document, or (d) the value of, or
Lender’s ability to have recourse against, any Mortgaged Property.




“Moody’s” means
Moody’s Investors Service, Inc., a corporation organized and existing under the
laws of the State of Delaware, and its successors and assigns, if such
successors and assigns shall continue to perform the functions of a securities
rating agency.




“Mortgaged Properties”
means, collectively, the Additional Mortgaged Properties and the Initial
Mortgaged Properties, but excluding each Release Property from and after the
date of its release from the Collateral Pool.




“Net Operating Income”
means, for any specified period, with respect to any Seniors Housing Facility,
the aggregate net income during such period equal to Gross Revenues during such
period less the aggregate Operating Expenses during such period.  If a
Mortgaged Property is not owned by a Borrower or an Affiliate of a Borrower for
the entire specified period, the Net Operating Income for the Mortgaged Property
for the time within the specified period during which the Mortgaged Property was
owned by a Borrower or an Affiliate of a Borrower shall be the Mortgaged
Property’s pro forma net operating income determined by Lender in accordance
with the underwriting procedures set forth by Lender for similar loans
anticipated to be sold to Fannie Mae.







“Net Worth” means, as
of any specified date, for any Person, the excess of the Person’s assets over
the Person’s liabilities, determined in accordance with GAAP on a consolidated
basis, provided that all real property shall be valued on an undepreciated
basis.




“Note” means a
promissory note, in the form attached as Exhibit B to the
Agreement, which will be issued by Borrower to Lender, concurrently with the
funding of each Advance, to evidence Borrower’s obligation to repay the
Advance.




“Obligations” means
the aggregate of the obligations of Borrower and Guarantor under the Agreement
and the other Loan Documents.




“Operating Expenses”
means, for any period, with respect to any Seniors Housing Facility, all
expenses in respect of the Seniors Housing Facility, as determined by Lender
based on the certified operating statement for such specified period as adjusted
to provide for the following: (i) all appropriate types of expenses, including a
management fee and deposits to the Replacement Reserves (whether funded or not),
are included in the total operating expense figure; (ii) upward adjustments to
individual line item expenses to reflect market norms or actual costs and
correct any unusually low expense items, which could not be replicated by a
different owner or manager (e.g., a market rate
management fee will be included regardless of whether or not a management fee is
charged, market rate payroll will be included regardless of whether shared
payroll provides for economies, etc.); and (iii) downward adjustments to
individual line item expenses to reflect unique or aberrant costs (e.g., non-recurring
capital costs, non-operating borrower expenses, etc.).




“Operating Lease”
means, individually and collectively, one or more leases of a Mortgaged Property
to Operator or another Affiliate of Guarantor or another lessee approved by
Lender, which Operating Lease shall contain terms and conditions satisfactory to
Lender.




“Operator” means
EMERITUS CORPORATION, a Washington corporation/ESC IV, L.P., a Washington
limited partnership.




“Organizational
Certificate” means, collectively, certificates from Borrower and
Guarantor to Lender, in the form of Exhibit F to the
Agreement, certifying as to certain organizational matters with respect to each
Borrower and Guarantor.




“Organizational
Documents” means all certificates, instruments and other documents
pursuant to which an organization is organized or operates, including but not
limited to, (i) with respect to a corporation, its articles of incorporation and
bylaws, (ii) with respect to a limited partnership, its limited partnership
certificate and partnership agreement, (iii) with respect to a general
partnership or joint venture, its partnership or joint venture agreement and
(iv) with respect to a limited liability company, its articles of organization
and operating agreement.




“Outstanding” means,
when used in connection with promissory notes, other debt instruments or
Advances, for a specified date, promissory notes or other debt instruments which
have been issued, or Advances which have been made, to the extent not repaid in
full as of the specified date.







“Ownership Interests”
means, with respect to any entity, any ownership interests in the entity and any
economic rights (such as a right to distributions, net cash flow or net income)
to which the owner of such ownership interests is entitled.




“PBGC” means the
Pension Benefit Guaranty Corporation or any entity succeeding to any or all of
its functions under ERISA.




“Permits” means all
permits, or similar licenses or approvals issued and/or required by an
applicable Governmental Authority or any Applicable Law in connection with the
ownership, use, occupancy, leasing, management, operation, repair, maintenance
or rehabilitation of any Mortgaged Property or any Borrower’s
business.




“Permitted Liens”
means, with respect to a Mortgaged Property, (i) the exceptions to title to the
Mortgaged Property set forth in the Title Insurance Policy for the Mortgaged
Property which are approved by Lender, (ii) the Security Instrument encumbering
the Mortgaged Property, (iii) any other Liens approved by Lender or permitted
under the terms of the Security Instrument, (iv) mechanics liens provided the
same is removed or bonded within thirty (30) days of notice of filing, and (v)
real estate taxes and water and sewer and other utility charges that
area  lien but not yet due and payable.




“Person” means an
individual, an estate, a trust, a corporation, a partnership, a limited
liability company or any other organization or entity (whether governmental or
private).




“Plan” means a
“multiemployer plan” as defined in Section 4001(3) of ERISA and a “single
employee plan” as defined in Section 4001(5) of ERISA.




“Potential Event of
Default” means any event which, with the giving of notice or the passage
of time, or both, would constitute an Event of Default.




“Property” means any
estate or interest in any kind of property or asset, whether real, personal or
mixed, and whether tangible or intangible.




“Rate Form” means the
completed and executed document from Borrower to Lender pursuant to Section 2.01(b),
substantially in the form of Exhibit G to the
Agreement, specifying the terms and conditions of the interest rate for the
requested Future Advance.




“Rate Setting Date”
shall have meaning set forth in Section
2.01(b).




“Release Documents”
mean instruments releasing the applicable Security Instrument as a Lien on a
Mortgaged Property, and UCC-3 Termination Statements terminating the UCC-1
Financing Statements, and such other documents and instruments to evidence the
release of such Mortgaged Property from the Collateral Pool.




“Release Fee” means
with respect to each Mortgaged Property released from the Collateral Pool
pursuant to Article 3, a fee
equal to $10,000.




“Release Property”
means the Mortgaged Property to be released pursuant to Article
3.







“Release Price” shall
have the meaning set forth in Section
3.05(c).




“Release Request”
means a written request, substantially in the form of Exhibit I to the
Agreement, to obtain a release of Collateral from the Collateral Pool pursuant
to Section
3.05(a).




“Replacement Reserve
Agreement” means a Replacement Reserve and Security Agreement, reasonably
required by Lender, and completed in accordance with requirements of Lender for
similar loans anticipated to be sold to Fannie Mae.




“Request” means an
Advance Request, an Addition Request, an Expansion Request, or a Release
Request.




“Resident Agreement”
means a written agreement for occupancy of a portion of a Mortgaged Property by
an individual senior resident.




“Re-Underwriting Fee”
means $6,100 per property in the Collateral Pool plus all out-of-pocket third
party costs and expenses.




“Security” means a
“security” as set forth in Section 2(1) of the Securities Act of 1933, as
amended.




“Security Documents”
means the Security Instruments, the Replacement Reserve Agreements, the
Subordination, Assignment and Security Agreements, and any other documents
executed by Borrower from time to time to secure any of Borrower’s obligations
under the Loan Documents.




“Security Instrument”
means, for each Mortgaged Property, a Multifamily Mortgage, Deed of Trust or
Deed to Secure Debt, Assignment of Leases and Rents and Security Agreement given
by a Borrower to or for the benefit of Lender to secure the obligations of
Borrower under the Loan Documents.  With respect to each Mortgaged Property
owned by a Borrower, the Security Instrument shall be substantially in the form
published by Fannie Mae from time to time for use in the state in which the
Mortgaged Property is located and shall include the Fannie Mae form of Rider for
Seniors Housing Facilities and such other Riders as may be necessary to include
changes requested by Borrower and approved by Lender and Fannie Mae.  The
amount secured by the Security Instrument shall be equal to the Commitment in
effect from time to time.




“Seniors Housing
Facility” means a residential housing facility which qualifies as
“housing for older persons” under the Fair Housing Amendments Act of 1988 and
the Housing for Older Persons Act of 1995 comprised of congregate living units
and assisted living units, but which does not include any nursing care units,
and conforms to the requirements of Lender for similar loans anticipated to be
sold to Fannie Mae.




“Senior Management”
means Ray Brandstrom, Daniel Baty, Granger Cobb, and Justin
Hutchens.




“Single-Purpose”
means, with respect to a Person which is any form of partnership or corporation
or limited liability company, that such Person at all times since its
formation:







(i)           has
been a duly formed and existing partnership, corporation or limited liability
company, as the case may be;




(ii)
            has
      been duly qualified in each jurisdiction in which such qualification was
      at such time necessary for the conduct of its
  business;




(iii)
            has
      complied with the provisions of its organizational documents and the laws
      of its jurisdiction of formation in all
  respects;




(iv)
            has
      observed all customary formalities regarding its partnership or corporate
      existence, as the case may be;




(v)
            has
      accurately maintained its financial statements, accounting records and
      other partnership or corporate documents separate from those of any other
      Person;




(vi)
            has
      not commingled its assets or funds with those of any other
      Person;




(vii)
            has
      identified itself in all dealings with creditors (other than trade
      creditors in the ordinary course of business and creditors for the
      construction of improvements to property on which such Person has a
      non-contingent contract to purchase such property) under its own name and
      as a separate and distinct entity;




(viii)
            has
      been adequately capitalized in light of its contemplated business
      operations;




(ix)
            has
      not assumed, guaranteed or become obligated for the liabilities of any
      other Person (except in connection with the Credit Facility or the
      endorsement of negotiable instruments in the ordinary course of business)
      or held out its credit as being available to satisfy the obligations of
      any other Person;




(x)
            has
      not acquired obligations or securities of any other
  Person;




(xi)
            in
      relation to a Borrower, except for loans made in the ordinary course of
      business to Affiliates, has not made loans or advances to any other
      Person;




(xii)
            has
      not entered into and was not a party to any transaction with any Affiliate
      of such Person, except in the ordinary course of business and on terms
      which are no less favorable to such Person than would be obtained in a
      comparable arm’s-length transaction with an unrelated third
      Party;




(xiii)
            has
      paid the salaries of its own employees, if any, and maintained a
      sufficient number of employees in light of its contemplated business
      operations;




(xiv)
            has
      allocated fairly and reasonably any overhead for shared office
      space;




(xv)
            has
      not engaged in a non-exempt prohibited transaction described in Section
      406 of ERISA or Section 4975 of the Internal Revenue Code;
    and




(xvi)
            has
      complied with the requirements of Section 33 of the Security
      Instrument.







“Substitution
      Deposit” shall have the meaning set forth in Section
      3.06(b).




“Substitution Fee”
means with respect to any Substitution effected in accordance with Section 3.06, a
fee in the amount equal to the product obtained by multiplying (i) the Allocable
Facility Amount attributed to such Substitute Mortgaged Property by seventy-five
basis points (0.75).




“Substitution Request”
shall have the meaning set forth in Section
3.06(b).




“Surveys” means the
as-built surveys of the Mortgaged Properties prepared in accordance with
Lender’s requirements for similar loans that are anticipated to be sold to
Fannie Mae.




“Taxes” means all
taxes, assessments, vault rentals and other charges, if any, general, special or
otherwise, including all assessments for schools, public betterments and general
or local improvements, which are levied, assessed or imposed by any public
authority or quasi-public authority, and which, if not paid, will become a lien,
on the Mortgaged Properties.




“Term of this
Agreement” shall be determined as provided in Section
13.10.




“Termination Date”
means, at any time during which Advances are Outstanding, the latest maturity
date for any Advance Outstanding.




“Title Company” means
Chicago Title Insurance Company.




“Title Insurance
Policies” means the mortgagee’s policies of title insurance issued by the
Title Company from time to time relating to each of the Security Instruments,
conforming to Lender’s requirements for similar loans anticipated to be sold to
Fannie Mae, together with such endorsements, coinsurance, reinsurance and direct
access agreements with respect to such policies as Lender may, from time to
time, consider necessary or appropriate, including variable credit endorsements,
if available, and tie-in endorsements, if available, and with an aggregate limit
of liability under all of the Title Insurance Policies (subject to the
limitations contained in sections of the Stipulations and Conditions of the
policy relating to a Determination and Extent of Liability) equal to the total
amount of Advances then Outstanding in the aggregate, among all Title Insurance
Policies, (taking into account tie-in endorsements).




“Underwriting
Requirements” means Lender’s overall underwriting requirements for
Seniors Housing Facilities in connection with loans anticipated to be sold to
Fannie Mae as such requirements may be amended, modified, updated, superseded,
supplemented or replaced from time to time.




“Valuation” means, for
any specified date, with respect to a Seniors Housing Facility, (a) if an
Appraisal of the Seniors Housing Facility was more recently obtained than a Cap
Rate for the Seniors Housing Facility, the Appraised Value of such Seniors
Housing Facility, or (b) if a Cap Rate for the Seniors Housing Facility was more
recently obtained than an Appraisal of the Seniors Housing Facility, the value
derived by dividing--




(i)
            the
      Net Operating Income of such Seniors Housing Facility,
  by







(ii)
            the
      most recent Cap Rate determined by
Lender.




Notwithstanding
the foregoing, any Valuation for a Seniors Housing Facility calculated for a
date occurring before the first anniversary of the date on which the Seniors
Housing Facility becomes a part of the Collateral Pool shall equal the Appraised
Value of such Seniors Housing Facility, unless Lender determines that changed
market or property conditions warrant that the value be determined as set forth
in the preceding sentence.