FHLMC
Loan No. 504119192


Village
Oaks at Chandler







SECURITY, ASSIGNMENT AND
SUBORDINATION AGREEMENT FOR OPERATING LEASE


(Revision
Date 01-19-2007)







THIS SECURITY, ASSIGNMENT AND
SUBORDINATION AGREEMENT FOR OPERATING LEASE (the “Agreement”) is made effective
as of this 25th day of April, 2008, by and among EMERITUS PROPERTIES-NGH, LLC,
a limited liability company organized and existing under the laws of Washington
whose address is c/o Emeritus Corporation, 3131 Elliott Avenue, Suite 500,
Seattle, Washington 98121, as grantor (“Operator”); CAPMARK BANK, an industrial
bank organized and existing under the laws of the State of Utah, whose address
is 6955 Union Park Center, Suite 330, Midvale, Utah 84047,
Attn:  President, as lender (the “Lender”); and FRETUS INVESTORS CHANDLER LLC,
a limited liability company organized and existing under the laws of the State
of Delaware, whose address is c/o Emeritus Corporation, 3131 Elliott Avenue,
Suite 500, Seattle, Washington 98121 (“Borrower”).




RECITALS




A.           Borrower
is the owner of a senior housing project known as Village Oaks at Chandler
located in Chandler (Maricopa County), Arizona.





B.           Borrower
is the maker of a certain Multifamily Note (the "Note") of even date herewith,
payable to the order of Lender, in the original principal amount of
$6,350,000.00, bearing interest and being payable in accordance with the terms
and conditions therein set forth, which Note evidences a loan (the "Loan") made by Lender to
provide Borrower with financing for the Mortgaged Property (as defined
below).  The Loan is secured by a Multifamily Deed of Trust,
Assignment of Rents, Security Agreement and Fixture Filing(the "Security Instrument") that
creates a first lien on and encumbers the Mortgaged
Property.





C.           Borrower
has leased the Mortgaged Property to Operator pursuant to a certain lease
agreement, dated of even date herewith (the “Operating Lease”), as a result
of which Operator will derive substantial benefits from the Loan.





D.           The
Note, Security Instrument, this Agreement, and other documents evidencing and
securing the Loan are referred to as the “Loan Documents”.




E.           As
a condition precedent to Lender’s making the Loan to Borrower, Lender requires
that Operator execute this Agreement and other documents from Operator for the
benefit of Lender encumbering certain of Operator’s interests in the Collateral
Property.




F.           Operator
will benefit materially from Lender’s approval of the Operating Lease and from
the Loan transaction described hereinabove.




NOW, THEREFORE, for good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged by each
of the parties hereto, it is agreed as follows:




PAGE
1


ARTICLE
1


DEFINITIONS




As used
herein, the following terms shall have the meaning set forth below in this
Article.  Any term used in this Agreement and not defined shall have
the meaning given to that term in the Security Instrument:




1.
            “Accounts”means all of
      Operator’s inventory, accounts, accounts receivable, contract rights,
      general intangibles and all proceeds thereof in each case to the extent,
      but only to the extent, they are used in connection with or arise from the
      operation of the Collateral
Property.





2.
            “Awards” means all
      awards, payments and other compensation made or to be made by any
      municipal, state or federal authority with respect to the Land, the
      Improvements, the Fixtures, the Personalty or any other part of the
      Collateral Property, including any awards or settlements resulting from
      condemnation proceedings or the total or partial taking of the Land, the
      Improvements, the Fixtures, the Personalty or any other part of the
      Collateral Property under the power of eminent domain or otherwise and
      including any conveyance in lieu
thereof.





3.
            “Collateral Property”
      means all property in which a security interest is granted hereunder as
      further defined below.





4.
            “Contracts” means all
      contracts, options and other agreements for the sale of the Land, the
      Improvements, the Fixtures, the Personalty or any other part of the
      Collateral Property entered into by Operator now or in the future,
      including cash or securities deposited to secure performance by parties of
      their obligations.





5.
            “Controlled Property”
      means property of every kind and description in which Operator has or may
      acquire any interest arising with respect to or out of the operation of
      the Mortgaged Property, now or hereafter at any time in the possession or
      control of Lender for any reason and all dividends and distributions on or
      other rights in connection with such
property.





6.
            “Event of Default” means
      the occurrence of any event listed in Section 22 of the Security
      Instrument or a default by Borrower or Operator of any representation,
      warranty, obligation or covenant under this Agreement or the Operating
      Lease.





7.
            “Fixtures” means all
      property which is so attached to the Land or the Improvements as to
      constitute a fixture under applicable law, including: machinery;
      equipment; engines; boilers; incinerators; installed building materials;
      systems and equipment for the purpose of supplying or distributing
      heating, cooling, electricity, gas, water, air, or light; antennas, cable,
      wiring and conduits used in connection with radio, television, security,
      fire prevention, or fire detection or otherwise used to carry electronic
      signals; telephone systems and equipment; elevators and related machinery
      and equipment; fire detection, prevention and extinguishing systems and
      apparatus; security and access control systems and apparatus; plumbing
      systems; water heaters, ranges, stoves, microwave ovens, refrigerators,
      dishwashers, garbage disposals, washers, dryers and other appliances;
      light fixtures, awnings, storm windows and storm doors; pictures, screens,
      blinds, shades, curtains and curtain rods; mirrors; cabinets, paneling,
      rugs and floor and wall coverings; fences, trees and plants; swimming
      pools; and exercise equipment.





8.
            “Imposition Deposits”
      shall have the meaning as defined in Section 7(a) of the Security
      Instrument.


PAGE
2





9.
            “Impositions” shall have
      the meaning as defined in Section 7(a) of the Security
      Instrument.





10.
            “Improvements” means the
      buildings, structures, improvements, and alterations now constructed or at
      any time in the future constructed or placed upon the land described in
      Exhibit A
      attached hereto (the "Land"), including any
      future replacements and additions (the Land and the Improvements
      collectively referred to herein as the “Mortgaged
      Property”).





11.
            “Insurance Proceeds”
      means all proceeds paid or to be paid by any insurer of the Land, the
      Improvements, the Fixtures, the Personalty or any other part of the
      Collateral Property (as defined below), whether or not Operator obtained
      the insurance pursuant to Lender’s
requirement.





12.
            “Leases” means all
      present and future leases or agreements for use or occupancy of the
      Mortgaged Property, including but not limited to the Operating Lease,
      subleases, licenses, concessions or grants or other possessory interests
      now or hereafter in force, whether oral or written, covering or affecting
      the Collateral Property, or any portion of the Collateral Property
      (including proprietary leases or occupancy agreements if Operator is a
      cooperative housing corporation), and all modifications, extensions or
      renewals.  The term "Leases" shall also include any occupancy
      and admission agreements pertaining to occupants of the Mortgaged
      Property, including both residential and commercial
      agreements.





13.
            “Names” means all names
      under or by which any of the above Collateral Property may be operated or
      known, and all trademarks, trade names, and goodwill relating to any of
      the Collateral Property.





14.
            “Obligations” means the
      full and punctual payment, when due (whether at stated maturity, upon
      acceleration or otherwise), of any and all present and future
      indebtedness, liabilities and obligations of every kind and nature of
      Borrower to Lender, howsoever created, arising or evidenced, whether
      direct or indirect, absolute or contingent, joint or several, both now and
      hereafter existing, or due or to become due, arising under, out of, as a
      result of, or in connection with the Note, and the due and punctual
      performance of all of the other terms and provisions of the Note, this
      Agreement and other Loan Documents.





15.
            “Other Earnings” means
      all earnings, royalties, accounts receivable, issues and profits from the
      Land, the Improvements or any other part of the Collateral Property and,
      if Operator is a cooperative housing corporation, maintenance charges or
      assessments payable by shareholders or
  residents.





16.
            “Other Rights” means all
      current and future rights, including air rights, development rights,
      zoning rights and other similar rights or interests, easements, tenements,
      rights-of-way, strips and gores of land, streets, alleys, roads, sewer
      rights, waters, watercourses, and appurtenances related to or benefiting
      the Land or the Improvements, or both, and all rights-of-way, streets,
      alleys and roads related to the Mortgaged Property which may have been or
      may in the future be vacated.





17.
            “Payments” means all
      payments due, or received, from occupants, entrance fees, second party
      charges added to base rental income, base and/or additional meal sales,
      commercial operations located on the Mortgaged Property or provided as a
      service to the occupants of the Mortgaged Property, rental from guest
      suites, seasonal lease charges, furniture leases, and laundry
      services/leases, if any, and any and all other services provided to third
      parties in connection with the Mortgaged Property, if any, and any and all
      other personal property on


PAGE
3


the
Mortgaged Property, excluding personal property belonging to occupants of the
Mortgaged Property (other than property belonging to Operator).





18.
            “Permits”means to the
      extent assignable under applicable law, all permits, licenses and
      contracts, if any, relating to the operation and authority to operate the
      Mortgaged Property as a senior housing
project.





19.
            “Permitted Liens” means
      the Liens described in Exhibit B
      attached hereto and made a part
hereof.





20.
            “Personalty”means all
      equipment, inventory, general intangibles which are used now or in the
      future in connection with the ownership, management or operation of the
      Land or the Improvements or are located on the Land or in the
      Improvements, including furniture, furnishings, machinery, building
      materials, appliances, goods, supplies, tools, books, records (whether in
      written or electronic form), computer equipment (hardware and software)
      and other tangible personal property (other than Fixtures) which are used
      now or in the future in connection with the ownership, management or
      operation of the Land or the Improvements or are located on the Land or in
      the Improvements, and any operating leases relating to the Land or the
      Improvements, and any surveys, plans and specifications and contracts for
      architectural, engineering and construction services relating to the Land
      or the Improvements and all other intangible property and rights relating
      to the operation of, or used in connection with, the Land or the
      Improvements, including all governmental permits relating to any
      activities on the Land, also including all personal property currently
      owned or acquired by Operator after the date hereof used in connection
      with the ownership and operation of the Mortgaged Property as a senior
      housing project, all kitchen or restaurant supplies, dining room
      facilities, medical facilities, or related furniture and equipment, and
      any other equipment, supplies or furniture owned by Operator
      and  leased to any third party service provider or facility
      operator under any use, occupancy, or lease agreements, as well as all
      licenses, permits, certificates, and approvals required for the operation
      of the Mortgaged Property as a senior housing project, to the extent
      permitted by applicable law and regulations, including replacements and
      additions thereto.





21.
            “Persons” means an
      individual, a corporation, a partnership, a joint venture, a trust, an
      unincorporated association, a limited liability company, government or
      political subdivision or agency thereof, or any other
    entity.





22.
            “Proceeds” means all
      proceeds from the conversion, voluntary or involuntary, of any of the
      other Collateral Property into cash or liquidated claims, and the right to
      collect such proceeds.





23.
            “Refunds” means all
      refunds or rebates of Impositions with respect to the Collateral Property
      by any municipal, state or federal authority or insurance premiums (other
      than refunds applicable to periods before the real property tax year in
      which the Security Instrument is
dated).





24.
            “Rents” means all rents
      (whether from residential or non-residential space), revenues and other
      income of the Land or the Improvements, including entrance fees,
      application fees, processing fees, community fees and any other amounts or
      fees deposited by any resident or tenant, subsidy payments received from
      any sources (including, but not limited to payments under any housing
      assistance payments contract), including parking fees, laundry and vending
      machine income and fees and charges for food, health care and other
      services provided at the Mortgaged Property, whether now due, past due, or
      to become due, and deposits forfeited by tenants, together with and
      including all proceeds from any
private


PAGE
4


insurance
for tenants to cover rental charges and charges for services at or in connection
with the Mortgaged Property, and the right to Third Party Payments.





25.
            “Tenant Security
      Deposits” means all tenant or occupant security deposits that have
      not been forfeited by any tenant or occupant under any Lease with respect
      to the Mortgaged Property.





26.
            “Third Party Payments”
      means all rights to payments from Medicare or Medicaid programs, or
      similar federal, state or local programs, boards, bureaus or agencies, if
      any, and rights to payment from residents or private insurers, if any,
      arising from the operation of the Mortgaged Property as a senior housing
      project, utility deposits, unearned premiums, accrued, accruing or to
      accrue under insurance policies now or hereafter obtained by the Operator
      for the Collateral Property and all proceeds of any conversion of the
      Collateral Property or any part thereof including, without limitation,
      proceeds of hazard and title insurance and all awards and compensation for
      the taking by eminent domain, condemnation or otherwise, of all or any
      part of the Collateral Property or any easement
  therein.


ARTICLE
2


UNIFORM
COMMERCIAL CODE SECURITY AGREEMENT





2.1  Collateral
Property.  As security for the payment, performance and
observance of the covenants and agreements of Operator contained in this
Agreement and of the Borrower under the Loan Documents, Operator hereby grants
to Lender a security interest in all of Operator’s now owned or hereafter
acquired or arising right, title and interest in and to the following property
(collectively the “Collateral
Property”) provided that the Collateral Property is strictly limited in
all cases (whether or not so specified below) to the extent, and only to the
extent, they are a part of the Mortgaged Property or attached to, used in
connection with or arising from the operation of the Mortgaged
Property:




a)
            Improvements;




b)
            Fixtures;




c)
            Personalty;




d)
            Other
      Rights;




e)
            Insurance
      Proceeds;




f)
            Awards;




g)
            Contracts;




h)
            Proceeds;




i)
            Rents;




j)
            Leases;




k)
            Other
      Earnings;




l)
            Imposition
      Deposits;




PAGE
5


m)
            Refunds;




n)
            Tenant
      Security Deposits;




o)
            Names;




p)
            Payments;




q)
            Permits;




r)
            Third
      Party Payments;




s)
            Accounts;
      and




t)
            Products
      of all the foregoing.




2.2  This
Agreement is also a security agreement under the Uniform Commercial Code (the
“Code”) for any of the
Collateral Property which, under applicable law, may be subjected to a security
interest under the Uniform Commercial Code, whether such Collateral Property is
owned now or acquired in the future, and all products and cash and non-cash
proceeds thereof (collectively, "UCC Collateral"), and Operator
hereby grants to Lender a security interest in the UCC
Collateral.  Operator hereby authorizes Lender to prepare and file
financing statements, continuation statements and financing statement amendments
in such form as Lender may require to perfect or continue the perfection of this
security interest and Operator agrees, if Lender so requests, to execute and
deliver to Lender such financing statements, continuation statements and
amendments.  Borrower shall pay all filing costs and all costs and
expenses of any record searches for financing statements and/or amendments that
Lender may require.  Without the prior written consent of Lender,
Operator shall not create or permit to exist any other lien or security interest
in any of the UCC Collateral.




2.3  Unless
Operator gives Notice to Lender within 30 days after the occurrence of any
of the following, and executes and delivers to Lender modifications or
supplements of this Agreement (and any financing statement which may be filed in
connection with this Agreement) as Lender may require, Operator shall not
(i) change its name, identity, structure or jurisdiction of organization;
(ii) change the location of its place of business (or chief executive
office if more than one place of business); or (iii) add to or change any
location at which any of the Collateral Property is stored, held or
located.




2.4  If an
Event of Default has occurred and is continuing, Lender shall have the remedies
of a secured party under the Uniform Commercial Code, in addition to all
remedies provided by this Agreement or existing under applicable
law.  In exercising any remedies, Lender may exercise its remedies
against the UCC Collateral separately or together, and in any order, without in
any way affecting the availability of Lender's other remedies.




ARTICLE
3


ASSIGNMENT
OF RENTS; APPOINTMENT OF RECEIVER; LENDER IN POSSESSION





3.1  As part
of the consideration for the Loan and approval of the Operating Lease, Operator
absolutely and unconditionally assigns and transfers to Lender all
Rents.  It is the intention of Operator to establish a present,
absolute and irrevocable transfer and




PAGE
6


assignment
to Lender of all Rents and to authorize and empower Lender to collect and
receive all Rents without the necessity of further action on the part of
Operator.  Promptly upon request by Lender, Operator agrees to execute
and deliver such further assignments as Lender may from time to time
require.  Operator and Lender intend this assignment of Rents to be
immediately effective and to constitute an absolute present assignment and not
an assignment for additional security only.  For purposes of giving
effect to this absolute assignment of Rents, and for no other purpose, Rents
shall not be deemed to be a part of the Collateral Property.  However,
if this present, absolute and unconditional assignment of Rents is not
enforceable by its terms under the laws of the Property Jurisdiction, then the
Rents shall be included as a part of the Collateral Property and it is the
intention of the Operator that in this circumstance this Agreement create and
perfect a lien on Rents in favor of Lender, which lien shall be effective as of
the date of this Agreement.




3.2  After the
occurrence of an Event of Default, Operator authorizes Lender to collect, sue
for and compromise Rents and directs each tenant of the Mortgaged Property to
pay all Rents to, or as directed by, Lender.  However, until the
occurrence of an Event of Default, Lender hereby grants to Operator a revocable
license to collect and receive all Rents, to hold all Rents in trust for the
benefit of Lender and to apply all Rents to pay the installments of interest and
principal then due and payable under the Note and the other amounts then due and
payable under the other Loan Documents, including Imposition Deposits, and to
pay the current costs and expenses of managing, operating and maintaining the
Mortgaged Property, including utilities, Taxes and insurance premiums (to the
extent not included in Imposition Deposits), tenant improvements and other
capital expenditures.  So long as no Event of Default has occurred and
is continuing, the Rents remaining after application pursuant to the preceding
sentence may be retained by Operator free and clear of, and released from,
Lender's rights with respect to Rents under this Agreement. From and after the
occurrence of an Event of Default, and without the necessity of Lender entering
upon and taking and maintaining control of the Mortgaged Property directly, or
by a receiver, Operator's license to collect Rents shall automatically terminate
and Lender shall without Notice be entitled to all Rents as they become due and
payable, including Rents then due and unpaid.  Operator shall pay to
Lender upon demand all Rents to which Lender is entitled.  At any time
on or after the date of Lender's demand for Rents, (i) Lender may give, and
Operator hereby irrevocably authorizes Lender to give, notice to all tenants of
the Mortgaged Property instructing them to pay all Rents to Lender, (ii) no
tenant shall be obligated to inquire further as to the occurrence or continuance
of an Event of Default, and (iii) no tenant shall be obligated to pay to
Operator any amounts which are actually paid to Lender in response to such a
notice.  Any such notice by Lender shall be delivered to each tenant
personally, by mail or by delivering such demand to each rental
unit.  Operator shall not interfere with and shall cooperate with
Lender's collection of such Rents.




3.3  Operator
represents and warrants to Lender that Operator has not executed any prior
assignment of Rents (other than an assignment of Rents securing any indebtedness
that will be paid off and discharged with the proceeds of the loan evidenced by
the Note), that Operator has not performed, and Operator covenants and agrees
that it will not perform, any acts and has not executed, and shall not execute,
any instrument which would prevent Lender from exercising its rights under this
Section, and that at the time of execution of this Agreement there has been no
anticipation or prepayment of any Rents for more than two months prior to the
due dates of such Rents.  Operator shall not collect or accept payment
of any Rents more than two months prior to the due dates of such
Rents.




PAGE
7


3.4  If an
Event of Default has occurred and is continuing, Lender may, regardless of the
adequacy of Lender's security or the solvency of Operator and even in the
absence of waste, enter upon and take and maintain full control of the Mortgaged
Property in order to perform all acts that Lender in its discretion determines
to be necessary or desirable for the operation and maintenance of the Mortgaged
Property, including the execution, cancellation or modification of Leases, the
collection of all Rents, the making of repairs to the Mortgaged Property and the
execution or termination of contracts providing for the management, operation or
maintenance of the Mortgaged Property, for the purposes of enforcing the
assignment of Rents pursuant to Section 3.1 protecting the Mortgaged
Property or the security of this Agreement, or for such other purposes as Lender
in its discretion may deem necessary or desirable.  Alternatively, if
an Event of Default has occurred and is continuing, regardless of the adequacy
of Lender's security, without regard to Operator’s solvency and without the
necessity of giving prior notice (oral or written) to Operator, Lender may
apply to any court having jurisdiction for the appointment of a receiver for the
Mortgaged Property to take any or all of the actions set forth in the preceding
sentence.  If Lender elects to seek the appointment of a receiver for
the Mortgaged Property at any time after an Event of Default has occurred and is
continuing, Operator, by its execution of this Agreement, expressly consents to
the appointment of such receiver, including the appointment of a receiver ex parte if permitted by
applicable law.  Lender or the receiver, as the case may be, shall be
entitled to receive a reasonable fee for managing the Mortgaged
Property.  Immediately upon appointment of a receiver or immediately
upon the Lender's entering upon and taking possession and control of the
Mortgaged Property, Operator shall surrender possession of the Mortgaged
Property to Lender or the receiver, as the case may be, and shall deliver to
Lender or the receiver, as the case may be, all documents, records (including
records on electronic or magnetic media), accounts, surveys, plans, and
specifications relating to the Mortgaged Property and all security deposits and
prepaid Rents.  In the event Lender takes possession and control of
the Mortgaged Property, Lender may exclude Operator and its representatives from
the Mortgaged Property.  Operator acknowledges and agrees that the
exercise by Lender of any of the rights conferred under this Section shall not
be construed to make Lender a mortgagee-in-possession of the Mortgaged Property
so long as Lender has not itself entered into actual possession of the Land and
Improvements.




3.5  If Lender
enters the Mortgaged Property, Lender shall be liable to account only to
Operator and only for those Rents actually received.  Except to the
extent of Lender's gross negligence or willful misconduct, Lender shall not be
liable to Operator, anyone claiming under or through Operator or anyone having
an interest in the Mortgaged Property, by reason of any act or omission of
Lender under Section 3.4, and Operator hereby releases and discharges
Lender from any such liability to the fullest extent permitted by
law.




3.6  If the
Rents are not sufficient to meet the costs of taking control of and managing the
Mortgaged Property and collecting the Rents, any funds expended by Lender for
such purposes shall become an additional part of the Indebtedness as provided in
Section 12 of the Security Instrument.




3.7  Any
entering upon and taking of control of the Mortgaged Property by Lender or the
receiver, as the case may be, and any application of Rents as provided in this
Agreement shall not cure or waive any Event of Default or invalidate any other
right or remedy of Lender under applicable law or provided for in this Agreement
or in the Security Instrument.







PAGE
8


ARTICLE
4


ASSIGNMENT
OF LEASES; LEASES AFFECTING THE MORTGAGED PROPERTY





4.1  As part
of the consideration for the Loan and approval of the Operating Lease, Operator
absolutely and unconditionally assigns and transfers to Lender all of Operator’s
right, title and interest in, to and under the Leases, including Operator’s
right, power and authority to modify the terms of any such Lease, or extend or
terminate any such Lease.   It is the intention of Operator to
establish a present, absolute and irrevocable transfer and assignment to Lender
of all of Operator‘s right, title and interest in, to and under the
Leases.  Operator and Lender intend this assignment of the Leases to
be immediately effective and to constitute an absolute present assignment and
not an assignment for additional security only.  For purposes of
giving effect to this absolute assignment of the Leases, and for no other
purpose, the Leases shall not be deemed to be a part of the Mortgaged
Property.  However, if this present, absolute and unconditional
assignment of the Leases is not enforceable by its terms under the laws of the
Property Jurisdiction, then the Leases shall be included as a part of the
Mortgaged Property and it is the intention of the Operator that in this
circumstance this Agreement create and perfect a lien on the Leases in favor of
Lender, which lien shall be effective as of the date of this
Agreement.




4.2  Until
Lender gives Notice to Operator of Lender's exercise of its rights under this
Section, Operator shall have all rights, power and authority granted to Operator
under any Lease (except as otherwise limited by this Section or any other
provision of this Agreement), including the right, power and authority to modify
the terms of any Lease or extend or terminate any Lease.  Upon the
occurrence of an Event of Default, the permission given to Operator pursuant to
the preceding sentence to exercise all rights, power and authority under Leases
shall automatically terminate.  Operator shall comply with and observe
Operator’s obligations under all Leases, including Operator’s obligations
pertaining to the maintenance and disposition of Tenant Security
Deposits.




4.3  Operator
acknowledges and agrees that the exercise by Lender, either directly or by a
receiver, of any of the rights conferred under this Section shall not be
construed to make Lender a mortgagee-in-possession of the Mortgaged Property so
long as Lender has not itself entered into actual possession of the Land and the
Improvements.  The acceptance by Lender of the assignment of the
Leases pursuant to Section 4.1 shall not at any time or in any event
obligate Lender to take any action under this Agreement or to expend any money
or to incur any expenses.  Except to the extent of Lender's gross
negligence or willful misconduct, Lender shall not be liable in any way for any
injury or damage to person or property sustained by any person or persons, firm
or corporation in or about the Mortgaged Property.  Prior to Lender's
actual entry into and taking possession of the Mortgaged Property, Lender shall
not (i) be obligated to perform any of the terms, covenants and conditions
contained in any Lease (or otherwise have any obligation with respect to any
Lease); (ii) be obligated to appear in or defend any action or proceeding
relating to the Lease or the Mortgaged Property; or (iii) be responsible
for the operation, control, care, management or repair of the Mortgaged Property
or any portion of the Mortgaged Property.  The execution of this
Agreement by Operator shall constitute conclusive evidence that all
responsibility for the operation, control, care, management and repair of the
Mortgaged Property is and shall be that of Operator, prior to such actual entry
and taking of possession.




4.4  Upon
delivery of Notice by Lender to Operator of Lender's exercise of Lender's rights
under this Section at any time after the occurrence of an Event of Default,
and without the necessity of Lender entering upon and taking and maintaining
control of the Mortgaged Property directly, by a receiver, or by any other
manner or proceeding




PAGE
9


permitted
by the laws of the Property Jurisdiction, Lender immediately shall have all
rights, powers and authority granted to Operator under any Lease, including the
right, power and authority to modify the terms of any such Lease, or extend or
terminate any such Lease.




4.5  Operator
shall, promptly upon Lender's request, deliver to Lender an executed copy of
each residential Lease then in effect.  All Leases for residential
dwelling units shall be on forms approved by Lender and shall not include
options to purchase.




4.6  Operator
shall not lease any portion of the Mortgaged Property for non-residential use
except with the prior written consent of Lender and Lender's prior written
approval of the Lease agreement.  Operator shall not modify the terms
of, or extend or terminate, any Lease for non-residential use (including any
Lease in existence on the date of this Agreement) without the prior written
consent of Lender.  However, Lender's consent shall not be required
for the modification or extension of a non-residential Lease if such
modification or extension is on terms at least as favorable to Operator as those
customary at that time in the applicable market and the income from the extended
or modified Lease will not be less than the income received from the Lease as of
the date of this Agreement.  Operator shall, without request by
Lender, deliver an executed copy of each non-residential Lease to Lender
promptly after such Lease is signed.  All non-residential Leases,
including renewals or extensions of existing Leases, shall specifically provide
that (i) such Leases are subordinate to the lien of this Agreement;
(ii) the tenant shall attorn to Lender and any purchaser at a foreclosure
sale, such attornment to be self-executing and effective upon acquisition of
title to the Mortgaged Property by any purchaser at a foreclosure sale or by
Lender in any manner; (iii) the tenant agrees to execute such further
evidences of attornment as Lender or any purchaser at a foreclosure sale may
from time to time request; (iv) the Lease shall not be terminated by
foreclosure or any other transfer of the Mortgaged Property; (v) after a
foreclosure sale of the Mortgaged Property, Lender or any other purchaser at
such foreclosure sale may, at Lender's or such purchaser's option, accept or
terminate such Lease; and (vi) the tenant shall, upon receipt after the
occurrence of an Event of Default of a written request from Lender, pay all
Rents payable under the Lease to Lender.







4.7  Operator
shall not receive or accept Rent under any Lease (whether residential or
non-residential) for more than two months in advance.




ARTICLE
5


REPRESENTATIONS
      AND WARRANTIES OF OPERATOR




Operator
represents, warrants and agrees to the following:




5.1  Title to Collateral
Property. The Operator has good and marketable title to all of the
Collateral Property and none of the Collateral Property is subject to any Lien
except for Permitted Liens and the security interest created pursuant to this
Agreement.




5.2  Bankruptcy.  During
the term of this Agreement, Operator will not commence, or join with any other
creditor in commencing any bankruptcy, reorganization, arrangement, insolvency
or liquidation proceedings with respect to Borrower, without Lender’s prior
written consent, and Operator has not filed and is not subject to any filing for
bankruptcy or reorganization under any applicable bankruptcy or insolvency
laws.




PAGE
10


ARTICLE
6


COVENANTS
OF THE OPERATOR




6.1  Operator
shall (1) not commit waste or permit impairment or deterioration of the
Collateral Property, (2) not abandon the Collateral Property, (3) restore or
repair or cause to be restored or repaired promptly, in a good and workmanlike
manner, any damaged part of the Collateral Property to the equivalent of its
original condition, or such other condition as Lender may approve in writing,
whether or not Insurance Proceeds or condemnation awards are available to cover
any costs of such restoration or repair, (4) keep or caused to be kept the
Collateral Property in good repair, including the replacement of Personalty and
Fixtures with items of equal or better function and quality, and
(5)  give notice to Lender of and, unless otherwise directed in
writing by Lender, shall appear in and defend any action or proceeding
purporting to affect the Collateral Property, Lender's security or Lender's
rights under this Agreement.  Operator shall not (and shall not permit
any tenant or other person to) remove, demolish or alter, other than in a
commercially reasonable manner or in the ordinary course of business, the
Collateral Property or any part of the Collateral Property except in connection
with the replacement of tangible Personalty.




6.2  All
expenses of protecting, storing, warehousing, insuring, handling and shipping of
the Collateral Property, all costs of keeping the Collateral Property free of
any Liens prohibited by this Agreement and of removing the same if they should
arise, and any and all excise, property, sales and use taxes imposed by any
state, federal or local authority on any of the Collateral Property or in
respect of the sale thereof, shall be borne and paid by Operator and if Operator
fails to promptly pay any thereof when due, Lender may, at its option, but shall
not be required to, pay the same whereupon the same shall constitute Obligations
and shall be secured by the security interest granted hereunder.




6.3  Unless
Operator gives notice to Lender within 30 days after the occurrence of any
of the following, and executes and delivers to Lender modifications or
supplements of this Agreement (and any financing statement which may be filed in
connection with this Agreement) as Lender may require, Operator shall not
(i) change its name, identity, structure or jurisdiction of organization;
(ii) change the location of its place of business (or chief executive
office if more than one place of business); or (iii) add to or change any
location at which any of the Collateral Property is stored, held or
located.




6.4  Operator
will not use the Collateral Property, or knowingly permit the Collateral
Property to be used, for any unlawful purpose or in violation of any federal,
state or municipal law.




6.5  Immediately
upon Operator becoming aware of the existence of any Event of Default under the
Operating Lease, this Agreement or any other Loan Document, Operator will give
notice to Lender that such Event of Default exists, stating the nature thereof,
the period of existence thereof, and what action Operator proposes to take with
respect thereto.




6.6  Operator
will execute, from time to time, such financing statements, assignments, and
other documents covering the Collateral Property as Lender may request in order
to create, evidence, perfect, maintain or continue its security interest in the
Collateral Property (including any additional Collateral Property acquired by
the Operator after the date hereof) and will notify Lender promptly upon
acquiring any additional Collateral Property.




PAGE
11


6.7  The
Operator appoints Lender, or any other person, whom Lender may from time to time
designate, as Operator’s attorney with power, after the occurrence and during
the continuance of an Event of Default, to endorse Operator’s name on any
checks, notes, acceptances, drafts, or other forms of payment or security that
may come into Lender’s possession, to sign Operator’s name on any invoice or
bill of lading relating to any Collateral Property, on drafts against customers,
on schedules and confirmatory assignments of Collateral Property, on notices of
assignment, financing statements under the Code and other public records, on
verifications of Collateral Property and on notices to customers, to notify the
post office authorities to change the address for delivery of Operator’s mail to
an address designated by Lender, to receive and open all mail addressed to
Operator, to send requests for verification of Collateral Property to customers
and to do all things necessary to carry out this Agreement in each case to the
extent, but only to the extent, such actions relate to the Collateral Property.
The Operator ratifies and approves all acts of the attorney taken within the
scope of the authority granted. Neither Lender nor the attorney will be liable
for any acts of commission or omission nor for any error in judgment or mistake
of fact or law. This power, being coupled with an interest, is irrevocable so
long as any Indebtedness remains unpaid.  The Operator waives
presentment and protest of all instruments and notice thereof, notice of default
and dishonor and all other notices to which Operator may otherwise be
entitled.




ARTICLE
7


COLLECTIONS




7.1  Except as
otherwise provided in this Article, the Operator shall continue to collect at
its own expense, all amounts due or to become due to the Operator with respect
to the Collateral Property.  In connection with such collections, the
Operator may take (and, at the Lender’s direction, shall take) such action as
the Operator or the Lender may deem necessary or advisable to enforce collection
of any Awards, Proceeds, Rents, Other Earnings, Refunds, Payments, Third Party
Payments or Accounts; provided, however,
that the Lender shall have the right, at any time upon the occurrence of an
Event of Default to notify the debtors and/or payors of any Awards, Proceeds,
Rents, Other Earnings, Refunds, Payments, Third Party Payments or Accounts of
the assignment of such amounts to the Lender and to direct such debtors and/or
payors to make payment of all amounts due or to become due to the Operator
thereunder directly to the Lender. Upon such notification and at the expense of
Operator, the Lender shall have the right to enforce collection of such Awards,
Proceeds, Rents, Other Earnings, Refunds, Payments, Third Party Payments or
Accounts and to adjust, settle, or compromise the amount or payment thereof in
the same manner and to the same extent as the Operator might have done. The
Lender shall apply all collections hereunder in accordance with Section
9.6.




7.2  Upon an
Event of Default and during the continuation thereof, the Operator shall deposit
into a collection account (the “Collection Account”)
maintained with the Lender or Loan Servicer immediately upon receipt all
payments and receipts of other Collateral Property in the original form such
payments are received, except for endorsement where necessary. The Lender is
hereby authorized and directed to apply all such collected funds to the payment
of the Indebtedness in the manner and in the priority determined by the Lender
in the exercise of their sole discretion.  Upon an Event of Default,
such funds shall be applied in accordance with Section 9.6.




ARTICLE
8


ASSIGNMENT




8.1  If Lender
gives notice to Operator that Lender is exercising its rights under this
Agreement, Operator shall continue, at Lender's direction (but on behalf of and
as




PAGE
12


agent for
the Borrower) to perform the management and other services provided by Operator
under the Operating Lease in accordance with the Operating Lease. Any rent
payments or fees due to Borrower or Operator which become due and payable after
the date Lender gives Operator notice under this Section shall continue to be
paid in accordance with the terms of the Operating Lease, subject to the terms
of Section 8.4(a), notwithstanding any contrary direction from
Borrower.  However, Lender neither assumes nor has any obligation to
the Operator to exercise its rights under this Agreement or to declare a default
under the Loan Documents.  If Lender exercises its rights under this
Section, Lender shall have no obligation to pay for services performed by
Operator before Lender gave it notice under this Section.




8.2  Upon
notice from Lender or its successors or assigns holding title to the Mortgaged
Property (the "New Owner"), Operator shall recognize Lender or the New Owner as
the owner of the Mortgaged Property for purposes of the Operating Lease and the
Operating Lease shall continue in full force and effect as a direct Operating
Lease between Operator and Lender or New Owner, subject to the following terms
and conditions:




(a)
            Neither
      Lender nor the New Owner shall be:




(i)           liable
      for any act or omission of Borrower or any previous owner of the Mortgaged
      Property;





(ii)
            subject
      to any offset or counterclaim or setoff which Operator might be entitled
      to assert against Borrower or any previous owner of the Mortgaged
      Property;





(iii)           bound
      by any payment made by Operator to Borrower or any previous owner of the
      Mortgaged Property for more than one (1) month in advance of the date such
      payment or payments are due;


(iv)           bound
      by any modification or amendment of the Operating Lease made without the
      prior written consent of Lender or New
Owner;


(v)           bound
      by any of Borrower's obligations under the Operating Lease which were to
      be performed before Lender gave the Operator the above notice under this
      Section;


(vi)           bound
      by any obligation of Borrower or any previous owner of the Mortgaged
      Property to maintain, repair or rebuild the Mortgaged Property under the
      Operating Lease; or


(vii)           bound
      by any obligation to indemnify Operator under the Operating
      Lease.





8.3  Operator
agrees as follows:




(a)
            After
      notice from Lender to Operator, Operator will pay to Lender, or to such
      person, entity or firm designated by Lender, all income and other moneys
      due and to become due Borrower under the Operating Lease, until further
      notice from Lender.




PAGE
13


(b)
            After
      the date of this Agreement, no amendment or modification of the Operating
      Lease shall be valid as against Lender unless Lender has approved such
      amendment or modification in
writing.




(c)
            The
      Operator shall not terminate the Operating Lease or cease to perform the
      services contracted for under the Operating Lease for any reason,
      including but not limited to Borrower's failure to make any payments to
      the Operator, without giving Lender thirty (30) days' prior notice of such
      intention, in order that Lender may cure the Borrower's default and/or
      exercise its rights under this
Agreement.




(d)
            Upon
      the occurrence of an Event of Default under the Loan Documents, Operator
      may be removed and the Operating Lease terminated by Lender, without
      payment of any cancellation or termination fee, penalty or other
      liability, at any time upon notice to the Operator of such Event of
      Default and termination.




8.4  Subordination of Operating
Lease.




(a)
            Operator
      hereby subordinates all contractual and statutory liens and security
      interests (whether choate or inchoate) which Operator may be (or may
      become) entitled to assert against the Mortgaged Property to all of the
      assignments, liens, and security interests securing the Loan contemplated
      by the Loan Documents (including any future amendments), and Operator
      fully and completely waives any and all rights that Operator may have, now
      or in the future (and to the extent permitted by law, the rights that
      Operator's suppliers, and laborers may have now or in the future), to
      claim, directly or indirectly, a priority of lien or security interest, in
      whole or in part, against or in the Mortgaged Property over any
      assignments, liens, and security interests that Lender may claim against
      the Mortgaged Property under the Loan Documents (including any future
      amendments). This subordination shall be self-operative and no further
      instrument of subordination shall be required.  However, in
      further confirmation of such subordination, Operator and Borrower shall,
      promptly upon the request of Lender execute, acknowledge and deliver to
      Lender such instruments as Lender reasonably
  requires.




(b)
            Operator
      hereby agrees that (i) any fees payable to Operator by Borrower pursuant
      to the Operating Lease are and shall be subordinated in right of payment,
      to the prior payment in full of the Indebtedness, and (ii) the Operating
      Lease is and shall be subject and subordinate in all respects to the
      liens, terms, covenants and conditions of the Security Instrument and the
      other Loan Documents and to all advances heretofore made or which may
      hereafter be made pursuant to the Security Instrument (including all sums
      advanced for the purposes of (x) protecting or further securing the lien
      of the Security Instrument, curing defaults by Borrower under the Security
      Instrument or for any other purposes expressly permitted by the Security
      Instrument, or (y) constructing, renovating, repairing, furnishing,
      fixturing or equipping the Mortgaged
Property).




PAGE
14





ARTICLE
9


RIGHTS
AND REMEDIES ON DEFAULT




Upon the occurrence of an Event of
Default, and at any time thereafter until such Event of Default is cured to the
satisfaction of Lender, and in addition to the rights granted to Lender under
Article 6 hereof or under any other Loan Document, Collateral Agreement or other
instrument evidencing, securing or otherwise relating to any of the
Indebtedness, Lender may exercise any one or more of the following rights and
remedies:




9.1  Declare
any and all Indebtedness to be immediately due and payable, and the same shall
thereupon become immediately due and payable without further notice or
demand.




9.2  In the
name of Operator or otherwise, demand, collect, receive and receipt for,
compound, compromise, settle and give acquittance for and prosecute and
discontinue any suits or proceedings in respect of any or all of the Collateral
Property.




9.3  Take any
action that Lender may deem necessary or desirable in order to realize on the
Collateral Property, including, without limitation, the power to perform any
contract, to endorse in the name of Operator any checks, drafts, notes, or other
instruments or documents received in payment of or on account of the Collateral
Property.




9.4  Enter
upon and into and take possession of all or such part or parts of the Collateral
Property as may be necessary or appropriate in the judgment of Lender, to permit
or enable Lender to store, lease, sell or otherwise dispose of or collect all or
any part of the Collateral Property, and use and operate said property for such
purposes and for such length of time as Lender may deem necessary or appropriate
for said purposes without the payment of any compensation to Operator therefor.
Operator shall provide Lender with all information and assistance requested by
Lender to facilitate the storage, leasing, sale or other disposition or
collection of the Collateral Property after an Event of Default.




9.5  Exercise
any and all other rights and remedies available to Lender by law, in equity or
by agreement, including rights and remedies under the law of the Property
Jurisdiction or any other applicable law as they relate to the Collateral
Property and including all remedies available to Lender under Article 9 of the
Uniform Commercial Code of the Property Jurisdiction, and, in connection
therewith, Lender may require Operator to assemble the Collateral Property and
make it available to Lender at a place to be designated by Lender, and any
notice (as hereinafter defined) of intended disposition of any of the Collateral
Property required by law shall be deemed reasonable if such notice is mailed or
delivered to Operator pursuant to this Agreement at least ten (10) days before
the date of such disposition. The Lender may sell or otherwise dispose of any or
all of the Collateral Property in a single unit or in multiple units and the
Lender may be the purchaser at such sale or other disposition.




9.6  All
proceeds of sale or disposition of the Collateral Property shall be applied
toward the Indebtedness of Borrower in such manner and order as the Lender may
elect.







PAGE
15


ARTICLE
10


MISCELLANEOUS




10.1  No Liability on
Collateral. It is understood that Lender does not in any way assume any
of the Operator’s obligations under any of the Collateral Property, this
Agreement or any guaranty executed in connection with the Loan.




10.2  No Waiver. Lender
shall not be deemed to have waived any of its rights hereunder or under the
Note, the Security Instrument or any other Loan Document or Collateral Agreement
signed by Operator unless such waiver is in writing and signed by
Lender.  No delay or omission on the part of Lender in exercising any
right shall operate as a waiver of such right or any other right. A waiver on
any one occasion shall not be construed as a bar to or waiver of any right or
remedy on any future occasion.




10.3  Remedies Cumulative.
All rights and remedies of Lender shall be cumulative and may be exercised
singularly or concurrently, at its option, and the exercise or enforcement of
any one such right or remedy shall not bar or be a condition to the exercise or
enforcement of any other.




10.4  Governing Law; Consent to
Jurisdiction and Venue.




(a)
            This
      Agreement, and any other Loan Document which does not itself expressly
      identify the law that is to apply to it, shall be governed by the laws of
      the jurisdiction in which the Land is located (the "Property
      Jurisdiction").




(b)
            Operator
      agrees that any controversy arising under or in relation to, this
      Agreement, or any other Loan Document shall be litigated exclusively in
      the Property Jurisdiction. The state and federal courts and authorities
      with jurisdiction in the Property Jurisdiction shall have exclusive
      jurisdiction over all controversies that shall arise under or in relation
      to this Agreement, any security for the Indebtedness, or any other Loan
      Document. Operator irrevocably consents to service, jurisdiction, and
      venue of such courts for any such litigation and waives any other venue to
      which it might be entitled by virtue of domicile, habitual residence or
      otherwise.




10.5  Successors and
Assigns. This Agreement shall bind, and the rights granted by this
Agreement shall inure to, the respective successors and assigns of Lender,
Borrower and Operator.




10.6  Recitals. The above
Recitals are true and correct as of the date hereof and constitute a part of
this Agreement.




10.7  Copy of Agreement as
Financing Statement. The Lender may prepare and file financing statements
with respect to the Collateral Property and may file a copy or photostatic copy
or other reproduction of this Agreement as a financing statement.




10.8  Notice.




(a)
            All
      notices, demands and other communications ("notice") under or
      concerning this Agreement shall be in writing.  Each notice
      shall be addressed to the intended recipient at its address set forth
      below, and shall be deemed given on the earliest to occur of (1) the date
      when the notice is received by the addressee; (2) the first Business Day
      after the notice is delivered to a recognized overnight courier service,
      with arrangements made for payment of charges for next Business
      Day




PAGE
16


delivery;
or (3) the third Business Day after the notice is deposited in the United States
mail with postage prepaid, certified mail, return receipt
requested.  As used in this Section, the term "Business Day" means any
day other than a Saturday, a Sunday or any other day on which Lender is not open
for business.




(b)
            Any
      party to this Agreement may change the address to which notices intended
      for it are to be directed by means of notice given to the other party in
      accordance with this Section.  Each party agrees that it will
      not refuse or reject delivery of any notice given in accordance with this
      Section, that it will acknowledge, in writing, the receipt of any notice
      upon request by the other party and that any notice rejected or refused by
      it shall be deemed for purposes of this Section 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 or the courier
      service.




(c)
            Any
      notice under this Agreement shall be sent to the parties hereto as
      follows:




To
Lender:





6955
Union Park Center, Suite 330


Midvale,
Utah 84047


Attention:  President





To
      Operator:





c/o
Emeritus Corporation


3131
Elliott Avenue, Suite 500


Seattle,
Washington 98121


Attention:  Eric
Mendelsohn





To
      Borrower:





c/o
Emeritus Corporation


3131
Elliott Avenue, Suite 500


Seattle,
Washington 98121


Attention:  Eric
Mendelsohn





10.9  Multiple
Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, and all of which shall
constitute one and the same agreement.




10.10  Further
Assurances.  Operator and Borrower each will, at Borrower's
expense and at any time and from time to time, promptly execute and deliver all
further instruments and documents, and take all further action that may be
reasonably necessary or desirable, or that Lender may reasonably request, in
order to protect any right or interest granted hereby or to enable Lender to
exercise and enforce its rights and remedies hereunder.




10.11  THIS
AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS.  THERE ARE NO UNWRITTEN
OR ORAL AGREEMENTS BETWEEN THE PARTIES.




PAGE
17





ATTACHED
EXHIBITS.  The following Exhibits are attached to this
Agreement (check as applicable):





|X|           Exhibit
A                                Description
of Land





||           Exhibit
B                                Permitted
Liens





||           Exhibit
C                                Modifications
to Agreement





IN WITNESS WHEREOF, the Operator,
Borrower and Lender have caused the execution of this Agreement by its duly
authorized representatives as of the date and year first above
written





[SIGNATURES
ON FOLLOWING PAGE]





PAGE
18





OPERATOR:





EMERITUS PROPERTIES-NGH,
      LLC, a Washington limited liability
  company





By:
            Emeritus
      Corporation, a Washington corporation, its
  member











By:  /s/  Eric
Mendelsohn


Eric
Mendelsohn


Senior
Vice President Corporate Development














STATE OF
_Washington_________________




CITY/COUNTY
OF _King______, to-wit:




The
foregoing instrument was acknowledged before me in the above-stated jurisdiction
this 18th_ day of __April___, 2008 by Eric Mendelsohn who is Senior Vice
President Corporate Development of Emeritus Corporation, a Washington
corporation, member of Emeritus Properties-NGH, LLC, a Washington limited
liability company, for and on behalf of the limited liability
company.









/s/ Lloyd
A.
Chee


Notary
Public




My
commission expires:  5-9-11


PAGE
19


BORROWER:





FRETUS INVESTORS CHANDLER
      LLC, a Delaware limited liability
company





By:
            FRETUS
      Investors LLC, a Washington limited liability company, its
      manager





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











By:  /s/  Eric
Mendelsohn


Eric
Mendelsohn


Senior
Vice President Corporate Development











STATE OF
_Washington_______




CITY/COUNTY
OF __King______, to-wit:




The
foregoing instrument was acknowledged before me in the above-stated jurisdiction
this _18th_ day of _April___, 2008 by Eric Mendelsohn who is Senior Vice
President Corporate Development of Emeritus Corporation, a Washington
corporation, administrative member of FRETUS Investors LLC, a Washington limited
liability company, manager of FRETUS Investors Chandler LLC, a Delaware limited
liability company, for and on behalf of the limited liability
company.









/s/  Lloyd
A. Chee


Notary
Public




My
commission expires:  5-9-11


PAGE
20


LENDER:





CAPMARK BANK, a Utah
      industrial bank











By:  /s/  Max
W.
Foore


Max W.
Foore


Limited
Signer























COMMONWEALTH
OF VIRGINIA




CITY OF
RICHMOND, to-wit:




The
foregoing instrument was acknowledged before me in the above-stated jurisdiction
this _18th_ day of April, 2008 by Max W. Foore who is Limited Signer of Capmark
Bank, a Utah industrial bank, for and on behalf of the industrial
bank.









/s/  Lisa
P. Crumption


Notary
Public




My
commission expires:8-31-09











PAGE
21