ex107110.htm


    
EX-10.71.10

    
 

    


     

    LOAN
AGREEMENT

     

    for a
loan in the amount of

     

    $9,802,500.00

     

    MADE BY
AND BETWEEN

     

    EMERITOL STONECREEK LODGE LLC,
a Delaware limited liability company, and

     

    EMERITOL MEADOWBROOK LLC, a
Delaware limited liability company

     

    


     

    as
Borrowers

     

    and

     

    KEYBANK NATIONAL
ASSOCIATION,

     

    a
national banking association

     

    


     

    as
Lender

     

    Key
Healthcare Finance

     

    WA
31-13-2313

    1301
Fifth Avenue, 23rd Floor

    Seattle,
WA 98101

     

    Dated as
of October 17, 2008


    
      
         


      

      
         


        
          

        

      

      
         


      

    


     

    TABLE
OF CONTENTS

    

      
        	
                Article
      1.

              	
                INCORPORATION
      OF RECITALS AND EXHIBITS

              	
                1

              
	
                1.1

              	
                Incorporation
      of Recitals.

              	
                1

              
	
                1.2

              	
                Incorporation
      of Exhibits.

              	
                1

              
	
                Article
      2.

              	
                DEFINITIONS

              	
                2

              
	
                2.1

              	
                Defined
      Terms.

              	
                2

              
	
                2.2

              	
                Other
      Definitional Provisions.

              	
                11

              
	
                Article
      3.

              	
                BORROWERS'
      REPRESENTATIONS AND WARRANTIES

              	
                11

              
	
                3.1

              	
                Representations
      and Warranties.

              	
                11

              
	
                3.2

              	
                Survival
      of Representations and Warranties.

              	
                15

              
	
                Article
      4.

              	
                LOAN
      AND LOAN DOCUMENTS

              	
                16

              
	
                4.1

              	
                Agreement
      to Borrow and Lend.

              	
                16

              
	
                4.2

              	
                Loan
      Documents.

              	
                16

              
	
                4.3

              	
                Allocation
      of Loan.

              	
                16

              
	
                4.4

              	
                Term
      of the Loan.

              	
                17

              
	
                4.5

              	
                Payments.

              	
                17

              
	
                4.6

              	
                Prepayments.

              	
                17

              
	
                4.7

              	
                Late
      Charge.

              	
                17

              
	
                Article
      5.

              	
                LOAN
      STRUCTURE PROVISIONS.

              	
                17

              
	
                5.1

              	
                Cross-Default
      and Cross-Collateralization.

              	
                17

              
	
                5.2

              	
                Loan
      Structure.

              	
                18

              
	
                5.3

              	
                Certain
      Consequences of Loan Structure.

              	
                18

              
	
                5.4

              	
                Allocation
      and Distribution of Loan Proceeds.

              	
                19

              
	
                5.5

              	
                Representations
      Regarding Loan Structure and Terms.

              	
                19

              
	
                5.6

              	
                Representations
      Regarding Borrowers' Solvency.

              	
                19

              
	
                5.7

              	
                Indemnity.

              	
                20

              
	
                Article
      6.

              	
                INTEREST

              	
                20

              
	
                6.1

              	
                Interest
      Rate.

              	
                20

              
	
                6.2

              	
                Interest
      Rate Agreements.

              	
                21

              
	
                Article
      7.

              	
                COSTS
      OF MAINTAINING LOAN

              	
                21

              
	
                7.1

              	
                Increased
      Costs and Capital Adequacy.

              	
                21

              
	
                7.2

              	
                Borrower
      Withholding.

              	
                22

              
	
                Article
      8.

              	
                LOAN
      EXPENSE AND ADVANCES

              	
                23

              
	
                8.1

              	
                Loan
      and Administration Expenses.

              	
                23

              
	
                8.2

              	
                Loan
      Origination Fee.

              	
                23

              
	
                8.3

              	
                Lender's
      Attorney Fees and Disbursements.

              	
                23

              
	
                8.4

              	
                Time
      of Payment of Fees and Expenses.

              	
                23

              
	
                8.5

              	
                Expenses
      and Advances Secured by Loan Documents.

              	
                24

              
	
                8.6

              	
                Right
      of Lender to Make Advances to Cure Borrower's Defaults.

              	
                24

              


      


      
        
           


        

        
          i

          
            

          

        

        
           


        

      


      
        	
                Article
      9.

              	
                CONDITIONS
      TO CLOSING AND DISBURSEMENT OF THE LOAN

              	
                24

              
	
                9.1

              	
                Conditions
      to Closing.

              	
                24

              
	
                Article
      10.

              	
                OTHER
      COVENANTS

              	
                26

              
	
                10.1

              	
                Mechanics'
      Liens.

              	
                26

              
	
                10.2

              	
                Renewal
      of Insurance.

              	
                27

              
	
                10.3

              	
                Payment
      of Taxes.

              	
                27

              
	
                10.4

              	
                Tax
      and Insurance Escrow Accounts.

              	
                27

              
	
                10.5

              	
                Personal
      Property.

              	
                27

              
	
                10.6

              	
                Leasing
      Restrictions.

              	
                28

              
	
                10.7

              	
                Condition
      of Facilities.

              	
                28

              
	
                10.8

              	
                Inventory
      and Equipment.

              	
                28

              
	
                10.9

              	
                Lender's
      Attorneys' Fees for Enforcement of Agreement.

              	
                28

              
	
                10.1

              	
                Appraisals.

              	
                29

              
	
                10.11

              	
                Financial
      Information.

              	
                29

              
	
                10.12

              	
                Financial
      Covenants.

              	
                29

              
	
                10.13

              	
                Lost
      Note.

              	
                30

              
	
                10.14

              	
                Indemnification.

              	
                30

              
	
                10.15

              	
                No
      Additional Debt.

              	
                31

              
	
                10.16

              	
                Compliance
      With Laws.

              	
                31

              
	
                10.17

              	
                Organizational
      Documents.

              	
                31

              
	
                10.18

              	
                Management
      Contracts.

              	
                31

              
	
                10.19

              	
                Furnishing
      Notices.

              	
                31

              
	
                10.2

              	
                Authorized
      Representative.

              	
                31

              
	
                10.21

              	
                Single
      Purpose Entity Provisions.

              	
                31

              
	
                10.22

              	
                Right
      of First Refusal.

              	
                33

              
	
                Article
      11.

              	
                CASUALTIES
      AND CONDEMNATION

              	
                34

              
	
                11.1

              	
                Lender's
      Election to Apply Proceeds on Indebtedness.

              	
                34

              
	
                11.2

              	
                Borrowers'
      Obligation to Rebuild and Use of Proceeds Therefor.

              	
                34

              
	
                Article
      12.

              	
                ASSIGNMENTS
      BY LENDER AND BORROWER

              	
                35

              
	
                12.1

              	
                Assignments
      and Participations.

              	
                35

              
	
                12.2

              	
                Prohibition
      of Assignments and Transfers by Borrowers.

              	
                35

              
	
                12.3

              	
                Prohibition
      of Transfers in Violation of ERISA.

              	
                35

              
	
                12.4

              	
                Successors
      and Assigns.

              	
                36

              
	
                Article
      13.

              	
                DEFAULT

              	
                36

              
	
                13.1

              	
                Events
      of Default.

              	
                36

              
	
                13.2

              	
                Remedies
      Conferred Upon Lender.

              	
                38

              
	
                Article
      14.

              	
                GENERAL
      PROVISIONS

              	
                38

              
	
                14.1

              	
                Time
      is of the Essence.

              	
                38

              
	
                14.2

              	
                Captions.

              	
                38

              
	
                14.3

              	
                Modification;
      Waiver.

              	
                38

              
	
                14.4

              	
                Governing
      Law.

              	
                39

              
	
                14.5

              	
                Disclaimer.

              	
                39

              
	
                14.6

              	
                Partial
      Invalidity; Severability.

              	
                39

              


      


      
        
           


        

        
          ii

          
            

          

        

        
           


        

      


      
        	
                14.7

              	
                Definitions
      Include Amendments.

              	
                39

              
	
                14.8

              	
                Execution
      in Counterparts.

              	
                39

              
	
                14.9

              	
                Entire
      Agreement.

              	
                39

              
	
                14.1

              	
                Waiver
      of Damages.

              	
                40

              
	
                14.11

              	
                Claims
      Against Lender.

              	
                40

              
	
                14.12

              	
                Jurisdiction.

              	
                40

              
	
                14.13

              	
                Set-Offs.

              	
                41

              
	
                14.14

              	
                Notices.

              	
                41

              
	
                14.15

              	
                Waiver
      of Jury Trial.

              	
                41

              
	
                14.16

              	
                Statutory
      Notice.

              	
                42

              


      

    

     

     

     LIST
OF EXHIBITS TO LOAN AGREEMENT

     

    Exhibit
A                                Insurance
Requirements

    Exhibit
B                                Compliance
Certificate

    


     

    



    
      
         


      

      
        iii

        
          

        

      

      
         


      

    



    LOAN
AGREEMENT


     

    “Emeritol
Facilities”

     

    THIS LOAN
AGREEMENT (“Agreement”)
dated as of October 17, 2008, is made by, between and among EMERITOL STONECREEK
LODGE LLC, a Delaware limited liability company and EMERITOL MEADOWBROOK LLC, a
Delaware limited liability company (each a “Borrower”
and collectively, “Borrowers”)
and KEYBANK NATIONAL ASSOCIATION, a national banking association, its successors
and assigns (“Lender”).

     

    Recitals

     

    Borrowers
are the owners of the following assisted living facilities (each a “Facility”
and together the “Facilities”):

    
      	
              Name of Borrower

            	
              Name and Address of
  Facility

            
	
              Emeritol
      Stonecreek Lodge LLC

            	
              Stonecreek
      Lodge

              9251
      Stonestreet Rd.

              Louisville,
      KY  40272

            
	
              Emeritol
      Meadowbrook LLC

            	
              Meadowbrook

              1372
      SW 8th
      Ave.

              Ontario,
      OR  97914

            


    

     

    Borrowers
have applied to Lender for a loan (the “Loan”) in
the principal amount of NINE MILLION EIGHT HUNDRED TWO THOUSAND FIVE HUNDRED and
NO/100 DOLLARS ($9,802,500.00) to be secured by the
Facilities.  Lender is willing to make the Loan on the terms and
conditions hereinafter set forth.

     

    Agreement

     

    NOW,
THEREFORE, in consideration of the mutual covenants and agreements herein
contained, the parties hereto agree as follows:

     

    ARTICLE
1.                                

     

     

    INCORPORATION
OF RECITALS AND EXHIBITS

     

     

    1.1 Incorporation
of Recitals.

     

    The
foregoing preambles and all other recitals in this Agreement are made a part of
this Agreement by this reference.

     

    1.2 Incorporation
of Exhibits.

     

    The
Exhibits to this Agreement are incorporated in this Agreement and expressly made
a part hereof by this reference.


    
      
         


      

      
        1

        
          

        

      

      
         


      

    


     

    ARTICLE
2.     

     

    DEFINITIONS

     

     

    2.1 Defined
Terms.

     

    The
following terms as used herein shall have the following meanings:

     

    Adjusted
LIBOR Rate:  The LIBOR Rate plus the LIBOR Margin, adjusting on
the first day of each calendar month throughout the term of the
Loan.

     

    Adjusted
Prime Rate:  A rate per annum equal to the sum of (a) the Prime
Rate Margin and (b) the greater of (i) the Prime Rate, or (ii) one percent (1%)
in excess of the Federal Funds Effective Rate.  Any change in the
Adjusted Prime Rate shall be effective immediately from and after such change in
the Adjusted Prime Rate.

     

    Affiliate:  With
respect to a specified person or entity, any individual, partnership,
corporation, limited liability company, trust, unincorporated organization,
association or other entity which, directly or indirectly, through one or more
intermediaries, controls or is controlled by or is under common control with
such person or entity, including, without limitation, any general or limited
partnership in which such person or entity is a partner.

     

    Agreement:  This
Loan Agreement.

     

    Applicable
Rate:  The Adjusted LIBOR Rate unless the Default Rate is then
applicable or the provisions of Section 6.1 below are
then applicable.

     

    Appraisal.  An
MAI certified appraisal of each of the Facilities performed in accordance with
FIRREA and Lender’s appraisal requirements by an appraiser selected and retained
by Lender.

     

    Assignments
of Rents:  Collectively, the Assignments of Rents and Leases of
even date herewith from each Borrower and the Master Tenant assigning the rents,
Leases and revenues of each Facility to Lender as security for the
Obligations.

     

    Authorized
Representative:  As such term is defined in Section 10.20.

     

    Bankruptcy
Code:  Title 11 of the United States Code entitled “Bankruptcy”
as now or hereafter in effect, or any successor thereto or any other present or
future bankruptcy or insolvency statute.

     

    Business
Day:  A day of the year on which banks are not required or
authorized to close in Seattle, Washington or Cleveland, Ohio.

     

    Change of
Control:  The occurrence of any of the following:

     

    
      	
              ·  

            	
              Any
      Person (including a Person’s Affiliates and associates) or group (as that
      term is understood under Section 13(d) of the Securities Exchange Act of
      1934, as amended [the “Exchange
      Act”] and the rules and regulations thereunder) shall have acquired
      beneficial ownership (within the meaning of Rule 13d-3 under the Exchange
      Act) of a percentage (based on voting power, in the event different
      classes of stock shall have

            


    


    
      
         


      

      
        2

        
          

        

      

      
         


      

    


     

    different
voting powers) of the voting stock of Emeritus equal to at least thirty percent
(30%);

     

    
      	
              ·  

            	
              As
      of any date a majority of the Board of Directors (the “Board”)
      of Emeritus consists of individuals who were not either (i) directors or
      trustees of Emeritus as of the corresponding date of the previous year, or
      (ii) selected or nominated to become directors by the Corporate Governance
      and Nominating Committee of Emeritus which is comprised solely of
      independent directors, as required by the New York Stock Exchange, and
      approved by a majority of the Board of Emeritus, which majority consisted
      of individuals described in clause (i) above, or (iii) selected or
      nominated to become directors or trustees by the Corporate Governance and
      Nominating Committee of Emeritus and approved by a majority of the Board
      of Emeritus, which majority consisted of individuals described in clause
      (i) above and individuals described in clause (ii), above (excluding, in
      the case of both clause (ii) and (iii) above, any individual whose initial
      nomination for, or assumption of office as, a member of the Board occurs
      as a result of an actual or threatened solicitation of proxies or consents
      for the election or removal of one or more directors or trustees by any
      Person or group other than a solicitation for the election of one or more
      directors or trustees by or on behalf of the Board);
  or

            


    

     

    
      	
              ·  

            	
              Emeritus
      consolidates with, is acquired by, or merges into or with any Person,
      unless such Person satisfies all of the Emeritus Covenants and is
      otherwise reasonably acceptable to
Lender.

            


    

     

    Concurrent
Loan:  The loan in the principal amount of $17,595,000.00 being
made by Lender to Emeritol Dowlen Oaks LLC, a Delaware limited liability
company, Emeritol Saddleridge Lodge LLC and Emeritol Seville Estates LLC, a
Delaware limited liability company, concurrently herewith.

     

    Control:  As
such term is used with respect to any person or entity, including the
correlative meanings of the terms “controlled by” and “under common control
with”, shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of the management policies of such person or entity,
whether through the ownership of voting securities, by contract or
otherwise.

     

    Debt
Service:  (a) For each quarterly period (based on calendar
quarters) commencing October 1, 2008, and continuing through September 30, 2010,
interest-only payments on the Loan (assuming that the Loan was outstanding
commencing October 1, 2008) during such period at the greater of the Applicable
Rate or 6.85% per annum, and (b) for each calendar quarter thereafter, the total
payments of principal and interest which would be required during such period in
order to fully amortize the stated principal amount of the Loan ($17,595,000.00)
over a 25 year amortization period at an interest rate equal to the greater of
the Applicable Rate or 6.85% per annum.

     

    Debt
Service Coverage:  For each calendar quarter commencing with
the calendar quarter ending December 31, 2008, the ratio of the aggregate Net
Operating Income of the Facilities during such period, to the Debt Service
during such period.


    
      
         


      

      
        3

        
          

        

      

      
         


      

    


    Default:  Any
event, circumstance or condition which, if it were to continue uncured, would,
with notice or lapse of time or both, constitute an Event of Default
hereunder.

     

    Default
Rate:  A rate per annum equal to three percent (3%) in excess
of the Adjusted LIBOR Rate, but shall not at any time exceed the highest rate
permitted by law.

     

    Emeritus:  Emeritus
Corporation, a Washington corporation.

     

    Emeritus
Covenants:  The covenants of Emeritus set out in its Guaranty
whereby Emeritus agrees (a) to maintain minimum Liquid Assets of Twenty Million
Dollars ($20,000,000.00); (b) maintain a minimum Fixed Charge Coverage Ratio of
1.10 to 1.00 (measured at the end of each calendar quarter beginning with the
calendar quarter ending December 31, 2008, and building to the previous four
calendar quarters); and (c) to permit no Change of Control without the prior
written consent of Lender; provided, however, that in the event Emeritus agrees
with any other entity providing financing to Emeritus or to any Affiliate of
Emeritus to comply with any more restrictive covenants than the foregoing,
failure by Emeritus to comply with those more restrictive covenants within any
applicable grace period or cure period shall, at the option of Lender, be an
Event of Default hereunder.

     

    Environmental
Indemnity:  The Environmental and Hazardous Substances
Indemnity Agreement from Borrowers of even date herewith.

     

    Environmental
Laws:  All federal, state and local statutes, ordinances,
rules, regulations, and other laws relating to environmental protection,
contamination or cleanup.

     

    Environmental
Proceedings:  Any proceedings under any Environmental Law,
whether civil (including actions by private parties), criminal, or
administrative, relating to any of the Facilities.

     

    Environmental
Reports:  Environmental reports with respect to the Facilities
prepared at Borrowers’ expense by a qualified environmental consultant approved
by Lender and addressed to Lender (or subject to separate letter agreement
permitting Lender to rely on such environmental report).

     

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

     

    Event of
Default:  As such term is defined in Section 13.1.

     

    Federal
Funds Effective Rate:  Shall mean, for any day, the rate per
annum, rounded upward to the nearest on one-hundredth of one percent (1/100 of
1%), announced by the Federal Reserve Bank of Cleveland on such day as being the
weighted average of the rates on overnight federal funds transactions arranged
by federal funds brokers on the previous trading day, as computed and announced
by such Federal Reserve Bank in substantially the same manner as such Federal
Reserve Bank computes and announces the weighted average it refers to as the
“Federal Funds Effective Rate.”

     

    FIRREA:  The
Financial Institutions Reform, Recovery And Enforcement Act of 1989, as amended
from time to time.


    
      
         


      

      
        4

        
          

        

      

      
         


      

    


    Fixed
Charge Coverage Ratio:  The ratio of EBITDAR to Fixed Charges
where “EBITDAR” means net income computed in accordance with generally accepted
accounting principles, plus income taxes,
facility lease expense, interest expense depreciation, amortization, asset
impairment and other non-cash charges and plus or minus, as applicable,
non-recurring and/or extraordinary items, and where “Fixed Charges” means
interest expense, facility lease expense and principal payments on
indebtedness.

     

    Governmental
Authority:  Any federal, state, county or municipal government,
or political subdivision thereof, any governmental or quasi-governmental agency,
authority, board, bureau, commission, department, instrumentality, or public
body, or any court, administrative tribunal, or public utility.

     

    Gross
Revenues:  For any period, all revenues of the Master Tenant,
determined on a cash basis, derived from the ownership, operation, use, leasing
and occupancy of the Facilities during such period; provided, however, that in
no event shall Gross Revenues include (i) any loan proceeds,
(ii) proceeds or payments under insurance policies (except proceeds of
business interruption insurance); (iii) condemnation proceeds; (iv) any security
deposits received from Residents or tenants of the Facilities, unless and until
the same are applied to rent or other obligations in accordance with the
Residency Agreement or Lease; or (v) any other extraordinary items, in
Lender’s reasonable discretion.

     

    Guarantor:  Emeritus.

     

    Guaranty:  The
Unconditional Guaranty of even date herewith from Guarantor to
Lender.

     

    Hazardous
Material:  Means and includes gasoline, petroleum, asbestos
containing materials, explosives, radioactive materials or any hazardous or
toxic material, substance or waste which is defined by those or similar terms or
is regulated as such under any Law of any Governmental Authority having
jurisdiction over any of the Facilities or any portion thereof or its use,
including: (i) any “hazardous substance” defined as such in (or for
purposes of) the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C.A. § 9601(14) as may be amended from time to
time, or any so-called “superfund” or “superlien” Law, including the judicial
interpretation thereof; (ii) any “pollutant or contaminant” as defined in
42 U.S.C.A. § 9601(33); (iii) any material now defined as
“hazardous waste” pursuant to 40 C.F.R. Part 260; (iv) any petroleum,
including crude oil or any fraction thereof; (v) natural gas, natural gas
liquids, liquefied natural gas, or synthetic gas usable for fuel; (vi) any
“hazardous chemical” as defined pursuant to 29 C.F.R. Part 1910;
and  (vii) any other toxic substance or contaminant that is
subject to any other Law or other past or present requirement of any
Governmental Authority.  Any reference above to a Law, includes the
same as it may be amended from time to time, including the judicial
interpretation thereof.

     

    Healthcare
Licenses:  As defined in Section 3.1(t) of this
Agreement.

     

    Healthcare
Requirements:  All Federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions or agreements, in each case, pertaining to or concerned
with the establishment, construction, ownership, operation, use or occupancy of
a Facility or any part thereof as an assisted living facility, and all material
permits, licenses and authorizations and regulations relating
thereto,


    
      
         


      

      
        5

        
          

        

      

      
         


      

    


    including
all material rules, orders, regulations and decrees of and agreements with
Governmental Authorities as pertaining to such Facility.

     

    Including
or including:  Including but not limited to.

     

    Indemnified
Party:  As such term is defined in Section 10.14.

     

    Interest
Rate Agreement:  As such term is defined in Section 6.2.

     

    Interest
Rate Protection Product:  As such term is defined in Section 6.2.

     

    Internal
Revenue Code:  The Internal Revenue Code of 1986, as amended
from time to time.

     

    Late
Charge:  As defined in Section 4.7.

     

    Laws:  Collectively,
all federal, state and local laws, statutes, codes, ordinances, orders, rules
and regulations, including judicial opinions or precedential authority in the
applicable jurisdiction.

     

    Leases:  The
collective reference to all leases, subleases, Residency Agreements and
occupancy agreements affecting the Facilities or any part thereof now existing
or hereafter executed and all amendments, modifications or supplements
thereto.

     

    Lender:  As
defined in the opening paragraph of this Agreement, and including any successor
holder of the Loan from time to time.

     

    LIBOR
Business Day:  A Business Day on which dealings in U.S. dollars
are carried on in the London Interbank Market.

     

    LIBOR
Margin:  Three percent (3.00%) per annum.

     

    LIBOR
Rate: The rate per annum which Lender determines with reference to the
rate as shown in Dow Jones Markets (formerly Telerate) (Page 3750) at which one
month deposits in United States dollars in an amount comparable to the principal
balance outstanding on the Loan are offered by prime banks in the London
Interbank Eurodollar Market two LIBOR Business Days prior to the last day of
each calendar month.

     

    Liquid
Assets:  The following assets, provided that such assets (A)
are not subject to any lien, claim or other encumbrance; (B) are not the subject
of any arrangement with any creditor to have such creditor’s claim satisfied out
of such asset prior to general creditors; (C) if not cash, may be converted to
cash within five (5) days; and (D) are not subject to any legal or contractual
restrictions (other than those inherent in or typical to the
instrument):

     

    (a) cash on
hand;

     

    (b) United
States Treasury notes, bonds, bills, or certificates of indebtedness, or those
for which the full faith and credit of the United States are pledged for the
full and timely payment of principal and interest (including State and Local
Government Series);


    
      
         


      

      
        6

        
          

        

      

      
         


      

    


    (c) obligations,
participations, or other instruments of or issued by a federal agency or a
United States government-sponsored enterprise, the principal of and interest on
which is unconditionally guaranteed by the United States;

     

    (d) any
obligations on which the interest is exempt from federal income taxation and
which are rated by a nationally recognized rating service in one of its two
highest long-term or short-term rating categories;

     

    (e) certificates
of deposit issued by, or time or demand deposits or other banking arrangements
with, a nationally or state-chartered bank or a savings association having a
minimum capital of $500,000,000 and rated within the top two ratings of a
nationally recognized rating service;

     

    (f) taxable
government money market portfolios rated “AAA” by a nationally recognized rating
service and restricted to obligations with maturities of one year or less issued
or guaranteed as to payment of principal and interest by the full faith and
credit of the United States of America, and which are rated by such nationally
recognized rating service in one of its two highest short term rating
categories; and

     

    (g) Readily
Marketable Securities.

     

    Loan:  As
defined in the Recitals.

     

    Loan
Amount:  The amount of the Loan as set forth in Section 4.1, as reduced
by principal payments made from time to time.

     

    Loan
Closing or Loan Closing Date:  The date all conditions to the
disbursement of the Loan have been satisfied.

     

    Loan
Documents:  The collective reference to this Agreement, the
documents and instruments listed in Section 4.2, and all the
other documents and instruments entered into from time to time, evidencing or
securing the Loan or any obligation of payment thereof or performance of
Borrowers’ or Guarantor’s obligations in connection with the transaction
contemplated hereunder and any Interest Rate Agreement, each as
amended.  Notwithstanding any provision of this Agreement or any other
Loan Document, none of the obligations of Borrowers under the Environmental
Indemnity or of Guarantor under the Guaranty are secured by the Mortgages or any
other collateral for the Loan.

     

    Master
Leases: The leases of each Facility from each Borrower to the Master
Tenant which have been approved by Lender.

     

    Master
Tenant:  Emeritus.

     

    Material
Adverse Change or material adverse change:  If, in Lender’s
reasonable discretion, the business prospects, operations or financial condition
of a person, entity or property has changed in a manner which could materially
impair the value of Lender’s security for the Loan, prevent timely repayment of
the Loan or otherwise prevent the applicable person or entity from timely
performing any of its material obligations under the Loan
Documents.


    
      
         


      

      
        7

        
          

        

      

      
         


      

    


    Maturity
Date:  October 16, 2011.

     

    Medicaid:  Title
XIX of the Social Security Act, which was enacted in 1965 to provide a
cooperative Federal-state program for low income and medically indigent persons,
which is partially funded by the Federal government and administered by the
states.

     

    Medicare:  Title
XVIII of the Social Security Act, which was enacted in 1965 to provide a
Federally funded and administered health program for the aged and certain
disabled persons.

     

    Mortgages:  Collectively
the Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing of
even date herewith encumbering the Meadowbrook Facility and the Mortgage,
Assignment of Rents, Security Agreement and Fixture Filing of even date herewith
encumbering the Stonecreek Lodge Facility, given by Borrowers to or for the
benefit of Lender as security for the Obligations, subject only to the Permitted
Exceptions.

     

    Net
Operating Income:  For the applicable period, the aggregate net
income, computed in accordance with generally accepted accounting principles, of
all Facilities before taxes, depreciation, amortization of intangible assets and
before interest expense, management fees, and rental payments under the Master
Leases, decreased by (i) an annual replacement reserve of $300.00 per Unit in
each Facility, and (ii) an allowance for management fees equal to 5% of the
Gross Revenues of the Facilities.

     

    Note:  A
Promissory Note in the Loan Amount, executed by Borrowers and payable to the
order of Lender, evidencing the Loan.

     

    Obligations.  All
obligations of Borrowers under this Agreement and the other Loan
Documents.

     

    Occupancy.  The
percentage of Units in a Facility which are actually occupied by Residents on a
full rent-paying basis under Residency Agreements in effect as of the date of
this Agreement or, as to Residency Agreements hereafter entered into by
Borrowers, in the form approved by Lender without material
modification.

     

    Organizational
Documents:  (a) For any limited liability company, a true copy
of the articles of organization or certificate of formation of such limited
liability company evidencing the creation of such limited liability company, the
limited liability company agreement or operating agreement of such limited
liability company with all amendments thereto, certified by the manager or such
authorized person of such limited liability company as being true, correct and
complete, together with a current certificate of existence and good standing of
such limited liability company issued by the applicable authority for the state
of organization; and if appropriate, a current certificate of qualification and
good standing (or other similar instruments) from the appropriate authority of
each state in which it must be qualified to do business, (b) for any limited
partnership, a true copy of the certificate of limited partnership of such
limited partnership evidencing the creation of such limited partnership, the
limited partnership agreement of such limited partnership with all amendments
thereto, certified by the general partner or such authorized person of such
limited partnership as being true, correct and complete, together with a current
certificate of existence and good standing of such limited partnership issued by
the applicable authority for the state of organization; and if appropriate, a
current certificate of qualification and good standing (or other similar
instruments) from the


    
      
         


      

      
        8

        
          

        

      

      
         


      

    


    appropriate
authority of each state in which it must be qualified to do business, and (c)
for any corporation, a true copy of the articles of incorporation of such
corporation evidencing the creation of such corporation, together with all
amendments thereto, the bylaws of such corporation with all amendments thereto,
certified by a responsible officer of such corporation as being true, correct
and complete, together with a current certificate of existence and good standing
of such corporation issued by the applicable authority for the state of
organization; and if appropriate, a current certificate of qualification and
good standing (or other similar instruments) from the appropriate authority of
each state in which it must be qualified to do business.

     

    Permitted
Exceptions:  Those matters listed on Schedule B to each of the
Title Policies to which title to the Facilities is subject at the Loan Closing
and thereafter such other title exceptions as Lender may approve in
writing.

     

    Permitted
Transfer:  (a) Residency Agreements entered into in the
ordinary course of business provided the same are in the form reasonably
approved by Lender without material modification and are in compliance with
Laws, (b) arms-length non-residential Leases entered into by the Master Tenant
in the ordinary course of business for premises in the Facilities intended for
non-residential use, (c) Transfers of stock in Emeritus not resulting in a
Change of Control, and (d) any Transfer of shares of common stock, limited
partnership interests limited liability company membership interests or other
beneficial or ownership interests or other forms of securities in any Borrower
or in any direct or indirect owner of membership interests in any Borrower so
long as Emeritus retains Control of each Borrower and continues to own 100% of
the beneficial ownership interests in each Borrower, either directly or through
the ownership of intervening entities.

     

    Person:  Any
individual, corporation, company, voluntary association, partnership, limited
liability company, joint venture, trust, unincorporated organization or
government (or any agency, instrumentality or political subdivision
thereof).

     

    Prime
Rate:  That interest rate established from time to time by
KeyBank National Association as its Prime Rate, whether or not such rate is
publicly announced; the Prime Rate may not be the lowest interest rate charged
by KeyBank National Association for commercial or other extensions of
credit.

     

    Prime
Rate Margin:  One and one-half percent (1.50%) per
annum.

     

    Pro-Forma
Projection:  A pro forma statement of projected income and
expenses of a Facility.

     

    Readily
Marketable Securities:  Marketable securities listed or
admitted to trading on the New York Stock Exchange or the American Stock
Exchange or quoted on the NASDAQ National Market with a market price equal to or
greater than $2.00 per share, so long as, in the case of any such securities the
transfer of which is restricted by Rule 144, a minimum of two years shall have
elapsed since the later of (a) the date of the acquisition by the owner of such
marketable securities from the respective issuers thereof or from any affiliate
(as that term is defined in paragraph (a)(1) of Rule 144) of any of such issuers
and (b) the date of payment by the owner of the full purchase price or other
consideration paid or given to acquire such marketable securities from the
respective issuers thereof or from any affiliate (as that term is defined in
paragraph (a)(1) of Rule 144).


    
      
         


      

      
        9

        
          

        

      

      
         


      

    


    Reimbursement
Contracts: All managed care
agreements, and all third party reimbursement contracts or programs for the
Facilities which are now or hereafter in effect with respect to Residents
qualifying for coverage under the same, including Medicare, Medicaid, any
successor or similar reimbursement program and private insurance
agreements.

     

    Resident:  Any
person residing in any of the Facilities.

     

    Residency
Agreements:  All agreements providing for residential occupancy
of a Facility.

     

    Security
Agreements:  Collectively, each Security Agreement of even date
herewith executed by each Borrower and the Master Tenant granting Lender a first
priority security interest in all tangible and intangible personal property with
respect to the Facilities, including, without limitation, all accounts
receivable and healthcare receivables as security for payment and performance of
the Obligations.

     

    Security
Instrument Default:  The occurrence of any default by any
Borrower or the Master Tenant under any Security Instrument which is not cured
within any applicable cure period thereunder.

     

    Security
Instruments:  Collectively, the Mortgages, the Assignments of
Rents and the Security Agreements required hereunder and all UCC Financing
Statements required by Lender in connection therewith.

     

    State:  The
state in which the applicable Facility is located.

     

    Title
Insurer:  Chicago Title Insurance Company, or such other title
insurance company approved in writing by Lender.

     

    Title
Policies:  Collectively, the title insurance policies issued by
the Title Insurer to Lender with respect to each Mortgage, insuring each
Mortgage as a valid first, prior and paramount lien on the applicable Facility
and all appurtenant easements, and subject to no other exceptions other than the
Permitted Exceptions and containing such endorsements as Lender may
require.

     

    Transfer:  (a)
Any sale, transfer, lease, conveyance, alienation, pledge, assignment, mortgage,
encumbrance, hypothecation or other disposition of (i) all or any portion of the
Facilities or any portion of any other security for the Loan, or (ii) all or any
portion of any Borrower’s or the Master Tenant’s right, title and interest
(legal or equitable) in and to the Facilities or any portion of any other
security for the Loan, (b) any issuance, sale, transfer, alienation, pledge,
assignment, encumbrance, hypothecation or other disposition of (i) any
membership interest in any Borrower, or (ii) any ownership interest in any
member of Borrower or in any entity which holds an interest in, or directly or
indirectly controls any member of Borrower, (c) any change in the identity of
the manager or managing member of any Borrower, or (d) any Change of
Control.

     

    TRICARE:
Collectively, a program of medical benefits covering former and active members
of the uniformed services and certain of their dependents, financed and
administered by the United States Departments of Defense, Health and Human
Services and Transportation, which program was formerly known as the "Civilian
Health and Medical Program of the Uniformed Services
(CHAMPUS)".


    
      
         


      

      
        10

        
          

        

      

      
         


      

    


    UCC-1
Financing Statements:  As defined in Section
4.2.

     

    Unit:  Each
residential living unit in a Facility.

     

    2.2 Other
Definitional Provisions.

     

    All terms
defined in this Agreement shall have the same meanings when used in any other
Loan Documents, or any certificate or other document made or delivered pursuant
hereto.  The words “hereof”, “herein” and “hereunder” and words of
similar import when used in this Agreement shall refer to this
Agreement.

     

    ARTICLE
3.                                

     

     

    BORROWERS’
REPRESENTATIONS AND WARRANTIES

     

     

    3.1 Representations
and Warranties.

     

    To induce
Lender to execute this Agreement and perform its obligations hereunder,
Borrowers represent and warrant to Lender as follows:

     

    (a) Borrowers
have good and marketable fee simple title to the Facilities subject only to the
Permitted Exceptions.

     

    (b) Except as
previously disclosed to Lender in writing, no litigation or proceedings are
pending, or to the best of Borrowers’ knowledge threatened in writing, against
any Borrower or Guarantor or any Facility, which could, if adversely determined,
cause a Material Adverse Change with respect to any Borrower, Guarantor or any
Facility.  There are no pending Environmental Proceedings and
Borrowers have no knowledge of any Environmental Proceedings threatened in
writing or any facts or circumstances which may give rise to any future
Environmental Proceedings.

     

    (c) Each
Borrower is a duly organized and validly existing limited liability company and
has full power and authority to execute, deliver and perform all Loan Documents
to which such Borrower is a party, and such execution, delivery and performance
have been duly authorized by all requisite action on the part of each
Borrower.  The sole member of each Borrower is Summerville Senior
Living, Inc., a Delaware corporation, whose sole shareholder is
Emeritus.

     

    (d) Guarantor
is a duly organized and validly existing corporation and has full power and
authority to execute, deliver and perform all Loan Documents to which it is a
party, and such execution, delivery and performance have been duly authorized by
all requisite action on the part of Guarantor.

     

    (e) Except to
the extent the same have been obtained in writing and copies thereof provided to
Lender prior to the Loan Closing Date, no consent, approval or authorization of
or declaration, registration or filing with any Governmental Authority or
nongovernmental person or entity, including any creditor or owner of any
Borrower, Guarantor or the Master Tenant, is required in connection with the
execution, delivery and performance of this Agreement or any of the Loan
Documents other than the recordation of the Mortgages and the Assignments of
Rents and the filing of the UCC-1 Financing Statements, except for such
consents, approvals or


    
      
         


      

      
        11

        
          

        

      

      
         


      

    


    authorizations
of or declarations or filings with any Governmental Authority or
non-governmental person or entity which have been obtained as of any date on
which this representation is made or remade.

     

    (f) The
execution, delivery and performance of this Agreement, the execution and payment
of the Note and the granting of the Mortgages and other security interests under
the other Loan Documents have not constituted and will not constitute, upon the
giving of notice or lapse of time or both, a breach or default under any other
agreement to which any Borrower, the Master Tenant or Guarantor is a party or
may be bound or affected, or a violation of any law or court order which may
affect the Facilities, any part thereof, any interest therein, or the use
thereof.

     

    (g) There is
no Default or Event of Default under this Agreement or the other Loan
Documents.

     

    (h) (i) No
condemnation of any portion of the Facilities, (ii) no condemnation or
relocation of any roadways abutting any of the Facilities, and (iii) no
proceeding to deny access to any of the Facilities from any point or planned
point of access to the Facilities, has commenced or, to the best of Borrowers’
knowledge, is contemplated by any Governmental Authority.

     

    (i) The
Facilities and the use thereof do not violate (i) any Laws (including
subdivision, zoning, building, environmental protection and wetland protection
Laws), or (ii) any building permits, restrictions of record, or agreements
affecting the Facilities or any part thereof.  Neither the zoning
authorizations, approvals or variances nor any other right to use the Facilities
is to any extent dependent upon or related to any real estate other than the
Land.

     

    (j) No
brokerage fees or commissions are payable by or to any person in connection with
this Agreement or the Loan.

     

    (k) All
financial statements and other information previously furnished by Borrowers,
the Master Tenant or Guarantor to Lender in connection with the Loan are true,
complete and correct and fairly present the financial conditions of the subjects
thereof as of the respective dates thereof and do not fail to state any material
fact necessary to make such statements or information not misleading, and no
Material Adverse Change with respect to any Borrower, Guarantor or the Master
Tenant has occurred since the respective dates of such statements and
information.  None of Borrowers, Master Tenant or Guarantor have any
material liability, contingent or otherwise, not disclosed in such financial
statements.

     

    (l) Except as
disclosed by Borrowers to Lender in writing, (i) each of the Facilities is in a
clean, safe and healthful condition, and, except for materials used in the
ordinary course of construction, maintenance and operation thereof, is free of
all Hazardous Material and is in compliance with all applicable Environmental
Laws; (ii) no Borrower or the Master Tenant nor, to the best of Borrowers’
knowledge, any other person or entity, has ever caused or permitted any
Hazardous Material to be placed, held, located or disposed of on, under, at or
in a manner to affect any Facility, or any part thereof, and no Facility has
never been used (whether by Borrower or, to the best knowledge of Borrowers, by
the Master Tenant or any other person or entity) for any activities involving,
directly or indirectly, the use, generation, treatment, storage, transportation,
or disposal of any Hazardous Material; (iii) no Facility and no Borrower or
the


    
      
         


      

      
        12

        
          

        

      

      
         


      

    


    Master
Tenant is subject to any existing, pending, or, to the best of Borrowers’
knowledge, threatened investigation or inquiry by any Governmental Authority,
and no Facility is subject to any remedial obligations under any applicable
Environmental Law; and (iv) there is no underground tank, vessel, or similar
facility for the storage, containment or accumulation of Hazardous Materials of
any sort on, under or affecting any of the Facilities.

     

    (m) Each
Facility is located on a parcel of parcels of real estate which is taxed
separately without regard to any other property and for all purposes each
Facility may be mortgaged, conveyed and otherwise dealt with as an independent
parcel.

     

    (n) Except
for the Master Leases and Leases which have been disclosed to Lender in the rent
roll or census report provided to Lender in connection with the closing of the
Loan, neither Borrowers nor the Master Tenant has entered into any Leases or
other arrangements for occupancy of space within the Facilities.

     

    (o) The Loan
is not being made for the purpose of purchasing or carrying “margin stock”
within the meaning of Regulation G, T, U or X issued by the Board of
Governors of the Federal Reserve System, and Borrowers agree to execute all
instruments necessary to comply with all the requirements of Regulation U
of the Federal Reserve System.

     

    (p) None of
Borrower, the Master Tenant or Guarantor is a party in interest to any plan
defined or regulated under ERISA, and none of the assets of any Borrower, Master
Tenant or Guarantor are “plan assets” of any employee benefit plan covered by
ERISA or Section 4975 of the Internal Revenue Code.

     

    (q) No
Borrower, Guarantor or the Master Tenant is a “foreign person” within the
meaning of Section 1445 or 7701 of the Internal Revenue Code.

     

    (r) Each
Borrower’s place of formation or organization is the State of Delaware and each
Borrower is duly qualified to conduct business in the state in which the
Facility owned by such Borrower is located.

     

    (s) No
Borrower, the Master Tenant or Guarantor is (or will be) a person with whom
Lender is restricted from doing business under OFAC (including, those Persons
named on OFAC’s Specially Designated and Blocked Persons list) or under any
statute, executive order (including, the September 24, 2001 Executive Order
Blocking Facilities and Prohibiting Transactions With Persons Who Commit,
Threaten to Commit, or Support Terrorism), or other governmental action and is
not and shall not engage in any dealings or transactions or otherwise be
associated with such persons.  In addition, each Borrower hereby
agrees to provide to Lender with any additional information Lender reasonably
deems necessary from time to time in order to ensure compliance with all
applicable Laws concerning money laundering and similar activities.

     

    (t) All
Medicare, Medicaid and TRICARE provider agreements, certifications, governmental
licenses, permits, regulatory agreements or other material agreements and
improvements, including certificates of operation, completion and occupancy, and
state assisted-living facility licenses or other licenses required by healthcare
Governmental Authorities for the legal use and occupancy of each Facility
(collectively, the "Healthcare
Licenses") have been obtained by the Master Tenant and are in full force
and effect.  The Master


    
      
         


      

      
        13

        
          

        

      

      
         


      

    


    Tenant
for each Facility owns and/or possesses, and holds free from restrictions or
conflicts with the rights of others, all such Healthcare Licenses in respect of
such Facility, and operates such Facility in such a manner that the Healthcare
Licenses shall remain in full force and effect.

     

    (u) The
Master Tenant and the operation of each Facility are in compliance in all
material respects with all Healthcare Requirements of all Governmental
Authorities having jurisdiction over the ownership, use, occupancy or operation
of any Facility, including, (i) staffing requirements, (ii) health and fire
safety codes, including quality and safety standards, (iii) accepted
professional standards and principles that apply to professionals providing
services at each Facility, (iv) Federal, state or local laws, rules, regulations
or published interpretations or policies relating to the prevention of fraud and
abuse, (v) insurance, reimbursement and cost reporting requirements, (vi)
government payment program requirements and disclosure of ownership and related
information requirements, (vii) requirements of applicable healthcare
Governmental Authorities, including those relating to each Facility's physical
structure and environment, licensing, quality and adequacy of medical care,
distributions of pharmaceuticals, rate setting, equipment, personnel, operating
policies and services and fee splitting, (viii) Section 1128B(b) of the Social
Security Act, as amended (42 U.S.C. Section l320a-7(b) (Criminal Penalties for
Acts involving Federal Health Care Programs), commonly referred to as the "Federal
Anti-Kickback Statute") and (ix) any other applicable laws, regulations
or agreements for reimbursement for the type of care or services provided with
respect to each Facility.

     

    (v) Each
Master Tenant is in compliance in all material respects with the requirements
for participation in the Medicare, Medicaid and TRICARE programs with respect to
each Facility that currently participates in such programs, including the
Medicaid and Medicare Patient and Program Protection Act of 1987.

     

    (w) To the
best of Borrowers’ knowledge, neither the Master Tenant nor any Facility is a
target of, or participant in, any action, proceeding, suit, audit, investigation
or sanction by any healthcare Governmental Authority or any other administrative
or investigative body or entity or any other third party or any patient or
resident (including whistleblower suits, or suits brought pursuant to federal or
state false claims acts, and Medicaid, Medicare, TRICARE, state fraud or abuse
laws) which may result, directly or indirectly or with the passage of time, in
(i) the imposition of a fine, penalty, alternative, interim or final sanction, a
lower rate certification, recoupment, recovery, suspension or discontinuance of
all or part of reimbursement from any healthcare Governmental Authority,
third-party payor, insurance carrier or private payor, or a lower reimbursement
rate for services rendered, except in each case as could not reasonably be
expected to result in a Material Adverse Effect, or (ii) any other civil or
criminal remedy, in the appointment of a receiver or manager, or in the
modification, limitation, annulment, revocation, transfer, surrender, suspension
or other impairment of a Healthcare License or affect any Borrower's
participation in the Medicare, Medicaid, TRICARE or third-party payor program,
as applicable, or any successor program thereto, nor to its knowledge has any
such action, proceeding, suit, investigation proceeding or audit been
threatened, except in each case as could not reasonably be expected to result in
a Material Adverse Effect.

     

    (x) There are
no agreements with Residents of any Facility, or with any other persons or
organizations, which deviate in any material adverse respect from, or which
conflict with, any Healthcare Requirements and all resident records at each
Facility, including resident


    
      
         


      

      
        14

        
          

        

      

      
         


      

    


    (y) accounts
records, are maintained in all material respects in accordance with applicable
Healthcare Requirements.

     

    (z) Neither
the execution and delivery of this Agreement and the other Loan Documents, nor
the performance thereof by Borrowers or the Master Tenant will (i) adversely
affect, in any material respect, the right of any Facility to receive Medicaid,
Medicare, TRICARE, insurance company, managed care company, or other third-party
insurance payments or reimbursements or to receive private payor payments or
reimbursements, (ii) materially reduce the Medicaid, Medicare, TRICARE,
insurance company, managed care company, or other third-party insurance payments
or reimbursements or materially reduce private payor payments or reimbursements
which any Facility is receiving as of the date hereof or (iii) materially
adversely affect the Healthcare Licenses.

     

    (aa) Each
Facility is in compliance in all material respects with all requirements and
conditions of each Reimbursement Contract currently in effect with respect to
such Facility and each such Reimbursement Contract is in full force and effect
and in good standing.

     

    (bb) To the
best of Borrowers’ knowledge, all cost reports and financial reports submitted
to any third party payor with respect to each of the Facilities have been
materially accurate and complete as of the date of submission and have not been
misleading in any material respects.  To the best of Borrowers’
knowledge, except as have been disclosed to Lender in writing, there are no
material recoupment claims made or contests pending or threatened with respect
to any Facility.

     

    (cc) Except as
disclosed in writing to Lender, the Master Tenant has not received any notice of
any claim, requirement or demand of any governmental authority, accreditation
body, third party payor or any insurance body having or claiming any licensing,
certifying, supervising, evaluating or accrediting authority over any of the
Facilities to rework or redesign any Facility, its professional staff or its
professional services, procedures or practices in any material respect or to
provide additional furniture, fixtures, equipment or inventory so as to make
such Facility conform to or comply with any Law.

     

    (dd) Borrowers
have delivered or caused to be delivered to Lender true and correct copies of
all inspection reports relating to each of the Facilities, issued by any
governmental authority or accreditation body during the most recent licensing
period, together with all plans of correction relating thereto.

     

    3.2 Survival
of Representations and Warranties.

     

    Borrowers
agree that all of the representations and warranties set forth in Section 3.1 and elsewhere
in this Agreement are true as of the date hereof, will be true at the Loan
Closing and, except for matters which have been disclosed in writing by
Borrowers to Lender, at all times thereafter.  It shall be a condition
precedent to the Loan Closing that each of said representations and warranties
is true and correct as of the date of the Loan Closing.


    
      
         


      

      
        15

        
          

        

      

      
         


      

    


    ARTICLE
4.                                

     

    LOAN
AND LOAN DOCUMENTS

     

     

    4.1 Agreement
to Borrow and Lend.

     

    Subject
to the terms, provisions and conditions of this Agreement and the other Loan
Documents, Borrowers jointly and severally agree to borrow from Lender and
Lender agrees to lend to Borrowers the Loan in the principal amount of NINE
MILLION EIGHT HUNDRED TWO THOUSAND FIVE HUNDRED and NO/100 DOLLARS
($9,802,500.00), for the purposes and subject to all of the terms, provisions
and conditions contained in this Agreement.

     

    4.2 Loan
Documents.

     

    Borrowers
will, on or before the Loan Closing Date, execute and deliver or cause to be
executed and delivered to Lender the following documents (“Loan
Documents”) in form and substance acceptable to Lender:

     

    (a) The
Note.

     

    (b) The
Mortgages.

     

    (c) The
Assignments of Rents.

     

    (d) The
Security Agreements.

     

    (e) The
Guaranty.

     

    (f) The
Environmental Indemnity.

     

    (g) With
respect to each Facility, an Assignment and Subordination of Master Lease from
the Master Tenant in favor of Lender whereby the Master Lease for such Facility
is assigned to Lender as security for the Obligations and the Master Lease is
subordinated to the Mortgages and the Obligations.

     

    (h) Such
other documents, instruments or certificates as Lender may reasonably require,
including such documents as Lender in its sole discretion deems necessary or
appropriate to effectuate the terms and conditions of this Agreement and the
Loan Documents, and to comply with the laws of the State.

     

    Borrowers
authorize Lender to file such UCC financing statements (each, a “UCC-1 Financing
Statement”) as Lender determines are advisable or necessary to perfect or
notify third parties of the security interests intended to be created by the
Loan Documents.  The foregoing authorization includes Borrowers’
irrevocable authorization for Lender at any time and from time to time to file
any initial financing statements and amendments thereto that describe the
collateral as “all assets” of Borrowers or words of similar effect.

     

    4.3 Allocation
of Loan.

     

    (a) The
principal amount of the Loan shall be allocated between the Facilities as
follows:


    
      
         


      

      
        16

        
          

        

      

      
         


      

    


    


    
      	
              Facility

            	
              Allocated
      Amount

            
	
              Stonecreek
      Lodge

            	
              $7,207,500.00

            
	
              Meadowbrook

            	
              $2,595,000.00

            


    

     

    4.4 Term of
the Loan.

     

    All
principal, interest and other sums due under the Loan Documents shall be due and
payable in full on the Maturity Date.

     

    4.5 Payments.

     

    (a) Borrower
shall pay interest in arrears on the first (1st) day of
every calendar month in the amount of all interest accrued and unpaid through
the last day of the immediately preceding calendar month.

     

    (b) All
payments (whether of principal or of interest) shall be deemed credited to
Borrower’s account only if received by 12:00 noon Seattle time on a Business
Day; otherwise, such payment shall be deemed received on the next Business
Day.

     

    (c) All
principal shall be due and payable in full on the Maturity Date, as it may be
extended hereunder.

     

    4.6 Prepayments.

     

    Borrower
shall have the right to make prepayments of the Loan, in whole or in part,
without prepayment penalty, upon not less than seven (7) days prior written
notice to Lender.

     

    4.7 Late
Charge.

     

    Any and
all amounts due hereunder or under the other Loan Documents which remain unpaid
more than five (5) days after the date said amount was due and payable shall
incur a fee (the “Late
Charge”) equal to the greater of four percent (4%) of the amount of such
payment or Twenty-Five Dollars ($25.00), which payment shall be in addition to
all of Lender’s other rights and remedies under the Loan Documents, provided
that no Late Charge shall apply to the final payment of principal on the
Maturity Date or as a result of any earlier acceleration.

     

    ARTICLE
5.

     

     

    LOAN
STRUCTURE PROVISIONS.

     

     

    5.1 Cross-Default
and Cross-Collateralization.

     

    In
consideration of the benefits to Borrowers from the Loan, the receipt and
sufficiency of which are hereby acknowledged, Borrowers agree as
follows:

     

    (a) The
occurrence of any Security Instrument Default shall be an Event of Default under
this Agreement.


    
      
         


      

      
        17

        
          

        

      

      
         


      

    


    (b) Each
Borrower acknowledges and agrees that because each of the Security Instruments
secures the entire Loan and a Security Instrument Default with respect to any
Facility will be an Event of Default under this Agreement, each Borrower has a
direct and material interest in preventing the occurrence of an Event of
Default. Accordingly each Borrower is willing to commit to make or receive loans
(each an "Intra-Party
Loan" and collectively, the "Intra-Party
Loans") in order to provide for the payment of all amounts due under the
Loan Documents and, in so doing, to avoid an Event of Default hereunder.
Borrowers each acknowledge and agree that Lender is an intended third party
beneficiary of Borrowers' obligations hereunder.  If and to the extent
that net revenues from any Facility (herein, a “Contributing
Facility”) are applied to make payments on the Loan in excess of the
payments due on the Allocated Loan Amount with respect to the Contributing
Facility, the Borrower who owns the Contributing Facility shall be deemed to
have made an Intra-Party Loan to the other Borrowers (proportionate to their
respective Allocated Loan Amounts) in the amount of such proceeds so
applied.

     

    (c) All
Intra-Party Loans deemed to be made under this Agreement shall be evidenced by
this Agreement, shall be an obligation of the party which owes such Intra-Party
Loan to the party making same solely by its execution of this Agreement, shall
not be evidenced by any separate instrument and, notwithstanding anything
contained herein or in the other Loan Documents to the contrary, shall not be
prohibited hereunder or under any of the other Loan Documents.  Each
Borrower waives presentment, notice of dishonor, protest and notice of
non-payment or non-performance with respect to each Intra-Party Loan for which
it is liable under this Agreement.  Intra-Party Loans shall be subject
and subordinate in all cases to the terms, conditions and liens of the Loan
Documents, and revenues from the other Facilities shall be the sole and
exclusive source of payment of any Intra-Party Loan.  Intra-Party
Loans may be repaid in whole or in part provided there is then no Default or
Event of Default and no Default or Event of Default would result from such
repayment.

     

    5.2 Loan
Structure.

     

    Each
Borrower acknowledges that (i) the Loan is evidenced by and made pursuant to the
Note and that the Note shall be secured by the Security Instruments; (ii) the
Note provides for joint and several liability of each Borrower; (iii) any
nonpayment of principal or interest, whether or not resulting from one
Borrower’s failure to pay any portion of the Note or any installment of
principal or interest due thereunder as may be agreed among Borrowers to be
payable by another one or more of the Borrowers, may result in an Event of
Default under the Loan Documents and acceleration of the Loan; (iv) in that
event, all proceeds of the foreclosure sale of each Borrower’s Facility may be
applied to satisfy the Note; and (v) such foreclosure sale proceeds may be
applied to satisfy the Note even if the value of such Borrower’s Facility is
greater than the Loan Amount allocable to such Facility as agreed among the
Borrowers hereunder.

     

    5.3 Certain
Consequences of Loan Structure.

     

    Each
Borrower has been informed and understands that the consequence of becoming
obligated under the Security Instruments is that each Borrower’s Facility is
being encumbered as collateral for the entire Loan without any specific
agreed-upon reconveyance price, and that even upon prepayment in part of the
Loan allocated among the Borrowers to a particular


    
      
         


      

      
        18

        
          

        

      

      
         


      

    


    Facility,
that Facility owned by a particular Borrower will not necessarily be reconveyed
if the Loan remains outstanding.  Each Borrower further understands
and has been informed that if an Event of Default occurs under the Loan
Documents, all Borrowers must act together for purposes of curing such Event of
Default, and that the failure to do so could result in the foreclosure and sale,
and ultimate loss, of each Borrower’s respective Facility.

     

    5.4 Allocation
and Distribution of Loan Proceeds.

     

    Borrowers
have agreed that the Loan proceeds shall be allocated among the Facilities in
accordance with Section 4.3
above.  Each Borrower agrees that it shall jointly and severally
reimburse and indemnify each other Borrower (each, an “Indemnitee”) for any losses suffered or
paid by the Indemnitee (including payments of the Loan and the loss of the
Indemnitee’s’ Facility or Facilities as a result of the exercise of the remedies
under the Loan Documents) because (i) such Borrower fails to make its
allocated share of payments under the Loan (based on the Allocated Loan Amounts
for which the respective Borrowers are liable, as agreed among themselves, as
set forth in Section
4.3 above), or
(ii) at the time of foreclosure or transfer by deed in lieu of foreclosure,
the actual value of such Borrower’s Facility or Facilities has declined
proportionately more (based on the percentages reflected by such pro rata share)
than the Indemnitee’s Facility or Facilities since the date of this
Agreement.  Notwithstanding anything contained herein or in the other
Loan Documents to the contrary, any such payment shall not be prohibited
hereunder or under any of the other Loan Documents.

     

    5.5 Representations
Regarding Loan Structure and Terms.

     

    Each
Borrower represents and warrants to Lender as follows:

     

    (a) The Loan
has been structured as one loan to Borrowers in the aggregate rather than as a
number of smaller loans to each Borrower at the request of
Borrowers.

     

    (b) The
interest rates and repayment terms of the Loan are more favorable than those
that each individual Borrower could have obtained on its own without such
“pooling” of the Facilities as security for the Loan, and without the
cross-collateralization, cross-default, and joint and several liability features
of the Loan Documents.

     

    (c) The
structure of the Loan has been devised in order to accommodate Borrower’s
existing operational structure in order to best serve Borrowers’ collective
interests, and to enable Lender to assign a collective value to the Facilities
in an amount greater than they otherwise would have if each Facility had been
separately financed.

     

    5.6 Representations
Regarding Borrowers’ Solvency.

     

    Borrowers
represent and warrant to Lender as follows:

     

    (a) The
application of the Loan proceeds constitutes reasonably equivalent value in
exchange for all of the transfers for security made and obligations incurred by
each Borrower under the Loan Documents.

     

    (b) No
Security Instrument is being executed by any Borrower for or on account of any
antecedent debt owed by any Borrower to any Lender.


    
      
         


      

      
        19

        
          

        

      

      
         


      

    


    (c) No
Borrower is insolvent as of the date hereof.

     

    (d) The
execution, delivery and, where applicable, the recordation or filing of the
Security Instruments is intended by Borrowers and Lender to be a contemporaneous
exchange for new value given to Borrowers and shall in fact be a substantially
contemporaneous exchange.

     

    (e) The
transfers for security made and obligations incurred by Borrowers under the Loan
Documents are not made with actual intent to hinder, delay, or defraud any
entity to which any Borrower was, is, or subsequently becomes
indebted.

     

    (f) No
Borrower is or shall be insolvent (as defined above) on the date that any
transfer is to be made or obligation to be incurred under the terms of the Loan
Documents, nor shall any Borrower become insolvent as a result of such transfer
or obligation.

     

    (g) No
Borrower is engaged in business or a transaction, or is about to engage in
business or a transaction, for which any property remaining with such Borrower
is an unreasonably small amount of capital in relation to such business or
transaction.

     

    (h) No
Borrower intends to incur, or believes that it will incur, debts that would be
beyond such Borrowers ability to pay as such debts mature.

     

    5.7 Indemnity.

     

    Borrowers,
severally and jointly, shall hold harmless, protect, indemnify and defend Lender
against any losses suffered or incurred by Lender in the event any warranty or
representation by any Borrower in this Article 5 is false or
misleading, or contains a statement of fact, which if not accurate, would make
such warranty or representation false or misleading.

     

    ARTICLE
6.

     

     

    INTEREST

     

     

    6.1 Interest
Rate.

     

    (a) The Loan
will bear interest at the Adjusted LIBOR Rate which will be the Applicable Rate
hereunder, unless the Default Rate is applicable.  Adjustments in the
Adjusted LIBOR Rate shall occur on the first day of each calendar month
throughout the term.

     

    (b) If Lender
determines (which determination shall be conclusive and binding upon Borrowers,
absent manifest error) (i) that no adequate basis exists for determining the
LIBOR Rate, or (ii) that, due to circumstances affecting the London interbank
market generally, the LIBOR Rate will not adequately and fairly reflect the cost
to Lender of funding the Loan, or (iii) that any applicable Law or regulation or
compliance therewith by Lender prohibits or restricts or makes impossible the
charging of interest based on the LIBOR Rate, or (iv) that the Adjusted LIBOR
Rate would be in excess of the maximum interest rate which Borrower may by law
pay and Lender so notifies Borrowers in writing, then until Lender notifies
Borrowers in writing that the circumstances giving rise to such suspension no
longer exist, interest shall accrue and be payable at the Adjusted Prime
Rate.


    
      
         


      

      
        20

        
          

        

      

      
         


      

    


    (c) Interest
at the Applicable Rate (whether the Adjusted LIBOR Rate or Default Rate, as
applicable) shall be calculated for the actual number of days elapsed on the
basis of a 360-day year, including the first date of the applicable period to,
but not including, the date of repayment.

     

    6.2 Interest
Rate Agreements.

     

    (a) If
Borrowers institute an interest rate hedging program through the purchase of an
interest rate swap, cap or such other interest rate protection product (“Interest Rate
Protection Product”) from Lender or any Affiliate of Lender, Borrowers
shall enter into such party’s customary form of agreement (“Interest Rate
Agreement”) relating to such Interest Rate Protection
Product.  Any indebtedness incurred pursuant to an Interest Rate
Agreement entered into by Borrowers and Lender shall constitute indebtedness
evidenced by the Note and secured by the Mortgages and the other Loan Documents
to the same extent and effect as if the terms and provisions of such Interest
Rate Agreement were set forth herein, whether or not the aggregate of such
indebtedness, together with the disbursements made by Lender of the proceeds of
the Loan, shall exceed the face amount of the Note.

     

    (b) Borrowers
hereby collaterally assign to Lender any and all Interest Rate Protection
Products purchased or to be purchased by Borrowers in connection with the Loan,
as additional security for the Loan, and agree to provide Lender with any
additional documentation requested by Lender in order to confirm or perfect such
security interest during the term of the Loan.  If Borrowers obtain an
Interest Rate Protection Product from a party other than Lender, Borrowers shall
deliver to Lender such third party’s consent to such collateral
assignment.  No Interest Rate Protection Product purchased from a
third party may be secured by an interest in any Borrower or the
Facilities.

     

    ARTICLE
7.

     

     

    COSTS
OF MAINTAINING LOAN

     

     

    7.1 Increased
Costs and Capital Adequacy.

     

    (a) Borrowers
recognize that the cost to Lender of maintaining the Loan or any portion thereof
may fluctuate and, Borrowers agree to pay Lender additional amounts to
compensate Lender for any increase in its actual costs incurred in maintaining
the Loan or any portion thereof outstanding or for the reduction of any amounts
received or receivable from Borrowers as a result of:

     

    (i) any
change after the date hereof in any applicable Law, regulation or treaty, or in
the interpretation or administration thereof, or by any domestic or foreign
court, (A) changing the basis of taxation of payments under this Agreement to
Lender (other than taxes imposed on all or any portion of the overall net income
or receipts of Lender), or (B) imposing, modifying or applying any reserve,
special deposit or similar requirement against assets of, deposits with or for
the account of, credit extended by, or any other acquisition of funds for loans
by Lender (which includes the Loan or any applicable portion thereof), or
(C) imposing on Lender, or the London interbank market generally, any other
condition affecting the Loan, provided that the result of the foregoing is to
increase the cost to Lender of maintaining the Loan or any portion thereof or to
reduce the amount of any sum received or receivable from Borrowers by Lender
under the Loan Documents; or


    
      
         


      

      
        21

        
          

        

      

      
         


      

    


    (ii) the
maintenance by Lender of reserves in accordance with reserve requirements
promulgated by the Board of Governors of the Federal Reserve System of the
United States with respect to “Eurocurrency Liabilities” of a similar term to
that of the applicable portion of the Loan (without duplication for reserves
already accounted for in the calculation of a LIBOR Rate pursuant to the terms
hereof).

     

    (b) If the
application of any Law, rule, regulation or guideline adopted or arising out of
the July, 1988 report of the Basel Committee on Banking Regulations and
Supervisory Practices entitled “International Convergence of Capital Measurement
and Capital Standards”, or the adoption after the date hereof of any other Law,
rule, regulation or guideline regarding capital adequacy, or any change after
the date hereof in any of the foregoing, or in the interpretation or
administration thereof by any domestic or foreign Governmental Authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by Lender, with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has the effect of reducing the
rate of return on such Lender’s capital to a level below that which such Lender
would have achieved but for such application, adoption, change or compliance
(taking into consideration the policies of such Lender with respect to capital
adequacy), then, from time to time Borrower shall pay to such Lender such
additional amounts as will compensate such Lender for such reduction with
respect to any portion of the Loan outstanding.

     

    (c) Any
amount payable by Borrowers under Section 7.1 (a) or (b) shall be
paid within five (5) days of receipt by Borrowers of a certificate signed by an
authorized officer of Lender setting forth the amount due and the basis for the
determination of such amount, which statement shall be conclusive and binding
upon Borrowers, absent manifest error.  Failure on the part of Lender
to demand payment from Borrowers for any such amount attributable to any
particular period shall not constitute a waiver of Lender’s right to demand
payment of such amount for any subsequent or prior period.  Lender
shall use reasonable efforts to deliver to Borrowers prompt notice of any event
described in Section 7.1 (a) or (b) of the
amount of the reserve and capital adequacy payments resulting therefrom and the
reasons therefor and of the basis of calculation of such amount; provided,
however, that any failure by Lender to so notify Borrowers shall not affect
Borrowers’ obligation to pay the reserve and capital adequacy payment resulting
therefrom.

     

    7.2 Borrower
Withholding.

     

    If by
reason of a change in any applicable Laws occurring after the date hereof, any
Borrower is required by Law to make any deduction or withholding in respect of
any taxes (other than taxes imposed on or measured by the net income of Lender
or any franchise tax imposed on Lender), duties or other charges from any
payment due under the Note to the maximum extent permitted by law, the sum due
from Borrowers in respect of such payment shall be increased to the extent
necessary to ensure that, after the making of such deduction or withholding,
Lender receives and retains a net sum equal to the sum which it would have
received had no such deduction or withholding been required to be
made.


    
      
         


      

      
        22

        
          

        

      

      
         


      

    


    ARTICLE
8.

     

    LOAN
EXPENSE AND ADVANCES

     

     

    8.1 Loan and
Administration Expenses.

     

    Except as
otherwise provided in this Agreement and the other Loan Documents, Borrowers
unconditionally agree to pay all reasonable out-of-pocket expenses of the Loan,
including all amounts payable pursuant to Sections 8.2 and 8.3 and any and
all other fees owing to Lender pursuant to the Loan Documents, and also
including, without limiting the generality of the foregoing, all recording,
filing and registration fees and charges, mortgage or documentary taxes, all
insurance premiums, title insurance premiums and other charges of the Title
Insurer, printing and photocopying expenses, survey fees and charges, cost of
certified copies of instruments, cost of premiums on surety company bonds and
the Title Policies, all appraisal fees, insurance consultant’s fees, travel
related expenses and all costs and expenses incurred by Lender in connection
with the determination of whether or not Borrowers have performed the
obligations undertaken by Borrowers hereunder or have satisfied any conditions
precedent to the obligations of Lender hereunder and, if any Default or Event of
Default occurs hereunder or under any of the Loan Documents or if the Loan or
Note or any portion thereof is not paid in full when and as due, all costs and
expenses of Lender (including, without limitation, court costs and reasonable
counsel’s fees and disbursements and fees and costs of paralegals) incurred in
attempting to enforce payment of the Loan and expenses of Lender incurred
(including court costs and reasonable counsel’s fees and disbursements and fees
and costs of paralegals) in attempting to realize, while a Default or Event of
Default exists, on any security or incurred in connection with the sale or
disposition (or preparation for sale or disposition) of any security for the
Loan.  Borrowers agree to pay all brokerage, finder or similar fees or
commissions payable in connection with the transactions contemplated hereby and
shall indemnify and hold Lender harmless against all claims, liabilities, costs
and expenses (including attorneys’ fees and expenses) incurred in relation to
any claim by broker, finder or similar person.

     

    8.2 Loan
Origination Fee.

     

    On or
before the Loan Closing Date, Borrowers shall pay Lender a loan origination fee
in the amount of $63,716.25.  Such fee is fully earned and
non-refundable.

     

    8.3 Lender’s
Attorney Fees and Disbursements.

     

    Borrowers
agree to pay Lender’s reasonable attorneys fees and disbursements incurred in
connection with this Loan, including (i) the preparation of this Agreement,
any intercreditor agreements and the other Loan Documents and the preparation of
the closing binders, (ii) the disbursement and administration (but not
syndication or sale) of the Loan and (iii) the enforcement of the terms of
this Agreement and the other Loan Documents.

     

    8.4 Time of
Payment of Fees and Expenses.

     

    Borrowers
shall pay all expenses and fees incurred by Lender as of the Loan Closing as
described in Section
8.1 above on the
Loan Closing Date (unless sooner required herein) and at the Loan Closing,
Lender may pay all Loan expenses from the proceeds of the Loan.  All
other costs, fees and expenses for which Borrowers are liable hereunder shall be
due and payable


    
      
         


      

      
        23

        
          

        

      

      
         


      

    


    within
ten (10) days after demand by Lender or as otherwise provided in the Loan
Documents, and if not paid when due, shall thereafter bear interest until paid
at the Default Rate.

     

    8.5 Expenses
and Advances Secured by Loan Documents.

     

    Any and
all advances or payments made by Lender under this Article 8 from
time to time, and any amounts expended by Lender pursuant to Section 13.2, shall, as
and when advanced or incurred, constitute additional indebtedness evidenced by
the Note and secured by the Mortgages and the other Loan Documents.

     

    8.6 Right of
Lender to Make Advances to Cure Borrower’s Defaults.

     

    In the
event Borrowers fail to perform any of their covenants, agreements or
obligations contained in this Agreement or any of the other Loan Documents
(including the obligation to pay accrued interest upon the Loan when due) (after
the expiration of applicable grace periods, except in the event of an emergency
or other exigent circumstances), Lender may (but shall not be required to)
perform any of such covenants, agreements and obligations, and any amounts
expended by Lender in so doing and shall constitute additional indebtedness
evidenced by the Note and secured by the Mortgages and the other Loan Documents
and shall bear interest at a rate per annum equal to the Applicable Rate (or
Default Rate following an Event of Default).

     

    ARTICLE
9.                                

     

     

    CONDITIONS
TO CLOSING AND DISBURSEMENT OF THE LOAN

     

     

    9.1 Conditions to
Closing.

     

    Borrowers
agree that Lender’s obligation to close the Loan and to advance the proceeds of
the Loan is conditioned upon Borrowers’ delivery, performance and satisfaction
of the following conditions precedent in form and substance satisfactory to
Lender in its sole discretion:

     

    (a) Loan
Documents.  The Loan Documents shall have been duly executed
and delivered to Lender and the Mortgages and the Assignments of Rents shall
have been duly delivered for recordation and Lender shall have been authorized
to file the UCC-1 Financing Statements.

     

    (b) Title
Policies.  The Title Insurer shall have unconditionally
committed to Lender to issue the Title Policies.

     

    (c) Survey.  Lender
shall have received and approved surveys of each of the
Facilities.  

     

    (d) Insurance
Requirements.  Lender shall have received and approved
certificates of insurance evidencing that insurance coverage is in effect with
respect to the Facilities and Borrower, in accordance with the Insurance
Requirements attached hereto as Exhibit A, for which
the premiums have been fully prepaid with endorsements reasonably satisfactory
to Lender.

     

    (e) Minimum
Facility Occupancy.  Each Facility shall have had Occupancy of
not less than seventy percent (70%) as of August 31, 2008.


    
      
         


      

      
        24

        
          

        

      

      
         


      

    


    (f) Minimum
Occupancy.  As of August 31, 2008, the average Occupancy of all
of the Facilities shall have been at least eighty percent (80%).

     

    (g) Minimum
Debt Service Coverage.  Lender shall have reasonably determined
that the Debt Service Coverage for the Facilities for the three month period
ending August 31, 2008, was at least 1.0 to 1.0.

     

    (h) Master
Leases.  The Master Leases shall have been approved by
Lender.

     

    (i) No
Litigation.  No uninsured litigation or proceedings shall be
pending or threatened in writing which could reasonably be expected to cause a
Material Adverse Change with respect to the Master Tenant or any Borrower,
Guarantor, or Facility.

     

    (j) Healthcare
Licenses.  Lender shall have received and approved copies of
all Healthcare Licenses for operation and occupancy of the
Facilities.

     

    (k) Residency
Agreements and Rent Roll.  Lender shall have received and
approved all Leases (if any) and Residency Agreements in effect, the form of the
standard Residency Agreement for the Facilities, and a current rent roll of each
of the Facilities certified by the Master Tenant to be complete and correct in
all material respects.

     

    (l) Attorney
Opinion Letters.  Borrowers shall have furnished to Lender
customary legal opinions from counsel for Borrowers, the Master Tenant and
Guarantor covering due authorization, execution and delivery and enforceability
of the Loan Documents.

     

    (m) Appraisals.  Lender
shall have received and approved an Appraisal of each Facility.

     

    (n) Lien
Searches.  Lender shall have received current bankruptcy,
federal tax lien and judgment searches and searches of all Uniform Commercial
Code financing statements with respect to each Borrower and Master Tenant,
demonstrating the absence of adverse claims.

     

    (o) Financial
Statements.  Lender shall have received current annual
financial statements of Guarantor and the Master Tenant and such other persons
or entities connected with the Loan as Lender may reasonably request, each in
form and substance and certified as acceptable to Lender together with such
other financial information regarding Guarantor, the Master Tenant and the
Facilities as Lender may reasonably require.

     

    (p) Pro Forma
Projection.  Lender shall have received a Pro Forma Projection
for each Facility covering the succeeding five year period.

     

    (q) Flood
Hazard.  Lender shall have received and approved evidence that
non of the Facilities are located in an area designated by the Secretary of
Housing and Urban Development as a special flood hazard area, or flood hazard
insurance acceptable to Lender in its sole discretion.

     

    (r) Zoning.  Lender
shall have received evidence satisfactory to Lender regarding the zoning of the
Facilities and compliance of the Facilities with zoning and similar
laws.


    
      
         


      

      
        25

        
          

        

      

      
         


      

    


    (s) Organizational
Documents.  Lender shall have received and approved the
Organizational Documents for Borrowers, the members of Borrowers, the Master
Tenant, Emeritus and such other entities as Lender may require, together, if
required by such Organizational Documents, with certified resolutions in form
and content satisfactory to Lender, authorizing execution, delivery and
performance of the Loan Documents, and such other documentation as Lender may
reasonably require to evidence the authority of the persons executing the Loan
Documents.

     

    (t) Property
Condition Reports.  Lender shall have received and approved a
property condition report with respect to each Facility prepared by an architect
or engineer approved by Lender, which shall, at a minimum, (A) demonstrate the
absence of any structural or otherwise potentially hazardous defect in any
Facility, and (B) describe the condition of each Facility and identify defects
and all reasonably necessary or prudent repairs and/or
replacements.

     

    (u) Environmental
Reports.  Lender shall have received and approved the
Environmental Reports which shall, at a minimum, (A) demonstrate the absence of
any existing or potential Hazardous Material contamination or violations of
environmental Laws at the Facilities, except as acceptable to Lender in its sole
and absolute discretion, (B) include the results of all sampling or monitoring
to confirm the extent of existing or potential Hazardous Material contamination
at any of the Facilities, including the results of leak detection tests for each
underground storage tank located at any of the Facilities, if any, (C) describe
response actions appropriate to remedy any existing or potential Hazardous
Material contamination, and report the estimated cost of any such appropriate
response, (D) confirm that any prior removal of Hazardous Material or
underground storage tanks from any of the Facilities was completed in accordance
with applicable Laws, and (E) confirm whether or not any of the Facilities are
located in a wetlands district.

     

    (v) Additional
Documents.  Borrowers shall have furnished to Lender such other
materials, documents, papers or requirements regarding the Facilities,
Borrowers, the Master Tenant and Guarantor as Lender shall reasonably
request.

     

    (w) No
Default.  There shall be no Default or Event of Default
hereunder.

     

    (x) No
Material Adverse Change.  There shall have been no Material
Adverse Change with respect to any Borrower, Facility or Guarantor or the Master
Tenant.

     

    (y) Closing
of Concurrent Loan.  The Concurrent Loan shall have closed
concurrently with the closing of the Loan hereunder.

     

    ARTICLE
10.

     

     

    OTHER
COVENANTS

     

     

    Borrowers
further covenant and agree as follows:

     

    10.1 Mechanics’
Liens.

     

    Borrowers
will promptly cause any mechanics’ lien filed against any of the Facilities to
be discharged or bonded over to Lender’s reasonable
satisfaction.


    
      
         


      

      
        26

        
          

        

      

      
         


      

    


    10.2 Renewal
of Insurance.

     

    Borrowers
shall cause insurance policies to be maintained in compliance with this
Agreement at all times.  Borrowers shall timely pay or cause to be
paid all premiums on all insurance policies required hereunder, and as and when
any policies of insurance may expire, furnish or cause to be furnished to Lender
additional and renewal insurance policies with companies, coverage and in
amounts satisfactory to Lender in accordance with Section 9.1(d).

     

    10.3 Payment
of Taxes.

     

    Borrowers
shall pay or cause to be paid all real estate taxes and assessments and charges
of every kind upon the Facilities before the same become delinquent; provided,
however, that Borrower shall have the right to pay such tax under protest or to
otherwise contest in good faith any such tax or assessment, but only if (i) such
contest has the effect of preventing the collection of such taxes so contested
and also of preventing the sale or forfeiture of a Facility or any part thereof
or any interest therein, (ii) Borrower has notified Lender of Borrower’s intent
to contest such taxes, and (iii) Borrower has deposited security in form and
amount reasonably satisfactory to Lender, and has increased the amount of such
security so deposited promptly after Lender’s reasonably request
therefor.  If Borrower fails to commence such contest or, having
commenced to contest the same, and having deposited such security required by
Lender for its full amount, shall thereafter fail to prosecute such contest in
good faith or with due diligence, or, upon adverse conclusion of any such
contest, shall fail to pay such tax, assessment or charge is not paid when due,
Lender may, at its election (but shall not be required to), pay and discharge
any such tax, assessment or charge, and any interest or penalty thereon, and any
amounts so expended by Lender shall be included in the Obligations, shall be due
on demand and shall bear interest from the date of demand until paid at the
Default Rate.  Borrowers shall furnish to Lender evidence that taxes
are paid at least five (5) days prior to the last date for payment of such taxes
and before imposition of any penalty or accrual of interest.

     

    10.4 Tax and
Insurance Escrow Accounts.

     

    Borrowers
shall, following the written request of Lender after the occurrence of any
delinquency in payment of taxes or insurance premiums or after the occurrence of
any Event of Default, make or cause to be made insurance and tax escrow
deposits, in amounts reasonably determined by Lender from time to time as being
needed to pay taxes and insurance premiums when due, in an interest bearing
escrow account held by Lender in Lender’s name and under its sole dominion and
control.  All payments deposited in the escrow account, and all
interest accruing thereon, are pledged as additional collateral for the Loan.
Notwithstanding Lender’s holding of the escrow account, nothing herein shall
obligate Lender to pay any insurance premiums or real property taxes with
respect to any portion of the Facilities unless any Default has been cured to
the satisfaction of Lender.  If the Default has been satisfactorily
cured, Lender shall make available to Borrowers such funds as may be deposited
in the escrow account from time to time for Borrowers’ payment of insurance
premiums or real property taxes due with respect to the Facilities.

     

    10.5 Personal
Property.

     

    All of
Borrowers’ and the Master Tenant’s personal property, fixtures, attachments and
equipment delivered upon, attached to or used in connection with the operation
of the Facilities


    
      
         


      

      
        27

        
          

        

      

      
         


      

    


    shall
always be located at the Facilities and shall be kept free and clear of all
liens, encumbrances and security interests.

     

    10.6 Leasing
Restrictions.

     

    Without
the prior written consent of Lender (such consent not to be unreasonably
withheld, conditioned or delayed), Borrowers shall not and shall not permit the
Master Tenant to (i) enter into any non-residential Lease other than
arms-length Leases of non-residential space in the Facilities entered into in
the ordinary course of business, (ii) accept any rental payment under any
Lease more than one month in advance of its due date (except in circumstances
where a Resident of the Facilities intends to be away from the Facilities for a
period in excess of one month), or (iii) enter into any Lease or occupancy
agreement other than arms-length transactions in the ordinary course of
operation of the Facilities.  Borrowers will not and will not permit
the Master Tenant to enter into any residential Lease for a term of more than
one year without Lender’s prior written consent, which consent shall not be
unreasonably withheld, conditioned, or delayed, and all residential Leases shall
be on a form approved by Lender without material modification.

     

    10.7 Condition
of Facilities.

     

    Borrowers
will cause all buildings, improvements and equipment located on or used or
useful in connection with the Facilities to be kept and maintained in good
repair, working order and condition, reasonable wear and tear excepted, and,
from time to time, cause all needed and proper repairs, renewals, replacements,
additions, and improvements thereto to be done in order to keep the same in good
operating condition.

     

    10.8 Inventory
and Equipment.

     

    Borrowers
will cause sufficient inventory and equipment of types and quantities to be
maintained at the Facilities to adequately operate the Facilities.

     

    10.9 Lender’s
Attorneys’ Fees for Enforcement of Agreement.

     

    In case
of any Default or Event of Default hereunder, Borrowers (in addition to Lender’s
attorneys’ fees, if any, to be paid pursuant to Section 8.3) will pay
Lender’s reasonable attorneys’ and paralegal fees (including, without
limitation, any reasonable attorney and paralegal fees and costs incurred in
connection with any litigation or bankruptcy or administrative hearing and any
appeals therefrom and any post-judgment enforcement action including, without
limitation, supplementary proceedings) in connection with the enforcement of
this Agreement; without limiting the generality of the foregoing, if at any time
or times hereafter Lender employs counsel with respect to a Default (whether or
not any suit has been or shall be filed and whether or not other legal
proceedings have been or shall be instituted) for advice or other representation
with respect to the Facilities, this Agreement, or any of the other Loan
Documents, or to protect, collect, lease, sell, take possession of, or liquidate
any of the Facilities, or to attempt to enforce any security interest or lien in
any portion of the Facilities, or to enforce any rights of Lender or Borrowers’
obligations hereunder, then in any of such events all of the reasonable
attorneys’ fees arising from such services, and any reasonable out-of-pocket
expenses, costs and charges relating thereto (including fees and costs of
paralegals), shall constitute an additional liability owing by Borrowers to
Lender, payable on demand.


    
      
         


      

      
        28

        
          

        

      

      
         


      

    


    10.10 Appraisals.

     

    Lender
shall have the right to obtain new or updated Appraisals of the Facilities from
time to time.  Borrowers shall cooperate with Lender in this
regard.  If the Appraisal is obtained to comply with this Agreement or
any applicable law or regulatory requirement, or bank policy promulgated to
comply therewith, or if an Event of Default exists, Borrower shall pay for any
such Appraisal upon Lender’s request.

     

    10.11 Financial
Information.

     

    Borrowers
shall deliver or cause to be delivered to Lender the following, all of which
shall be in form satisfactory to Lender:

     

    (a) Internally
prepared quarterly and year-to-date financial statements for each Facility,
including occupancy statistics and payor mix, within 45 days after the end of
each fiscal quarter;

     

    (b) Quarterly
internally prepared financial statements for Guarantor within 60 days after the
end of each fiscal quarter, certified as correct and complete by the chief
financial officer of Guarantor.

     

    (c) Annual
consolidated and consolidating financial statements for Guarantor within 120
days after the end of each fiscal year, which financial statements shall be
audited by a CPA acceptable to Lender.

     

    (d) Within 45
days after the end of each calendar quarter, Quarterly Compliance Certificates
in the form of Exhibit
B attached with respect to the Emeritus Covenants and Borrowers’
financial covenants described in Section 10.12
below.

     

    (e) Copies of
all state or federal regulatory, survey or reimbursement reports or
documentation regarding the Facilities, promptly after the issuance
thereof.

     

    All such
financial statements shall be in a format approved by
Lender.  Borrowers shall provide such additional financial information
Lender reasonably requires.  Borrowers shall during regular business
hours permit Lender or any of its agents or representatives to have access to
and examine all of its books and records regarding the Facilities.

     

    10.12 Financial
Covenants.

     

    Borrowers
agree to comply with each of the following covenants throughout the term of the
Loan:

     

    (a) Minimum
Facility Occupancy.  As of the end of each calendar quarter
commencing with the calendar quarter ending December 31, 2008, the Occupancy of
each Facility shall no time be less than 90% of the Occupancy for such Facility
as of September 30, 2008.


    
      
         


      

      
        29

        
          

        

      

      
         


      

    


    (b) Minimum
Debt Service Coverage.  For each calendar quarter commencing
with the calendar quarter ending December 31, 2008, the Debt Service Coverage
shall be no less than the required Debt Service Coverage set out
below:

    


    
      	
              Quarter End

            	
              Required Debt Service
    Coverage

            
	
              12/31/2008

            	
              1.00

            
	
              3/31/2009

            	
              1.00

            
	
              6/30/2009

            	
              1.00

            
	
              9/30/2009

            	
              1.00

            
	
              12/31/2009

            	
              1.10

            
	
              3/31/2010

            	
              1.10

            
	
              6/30/2010

            	
              1.10

            
	
              9/30/2010

            	
              1.10

            
	
              12/31/2010

            	
              1.10

            
	
              3/31/2011

            	
              1.15

            
	
              6/30/2011

            	
              1.20

            
	
              9/30/2011

            	
              1.25

            


    

     

    In the
event the minimum Debt Service Coverage is not met for any calendar quarter,
such shall not be an Event of Default hereunder if by the date the Quarterly
Compliance Certificate for such calendar quarter is due under Section 10.11(d) above,
Borrowers make a principal payment on the Loan in an amount sufficient to cause
such Debt Service Coverage to be met.

     

    10.13 Lost
Note.

     

    Upon
Lender’s furnishing to Borrowers an affidavit to such effect and an indemnity
reasonably acceptable to Borrowers, Borrowers shall, if the Note is mutilated,
destroyed, lost or stolen, deliver to Lender, in substitution therefor, a new
note containing the same terms and conditions as the Note.

     

    10.14 Indemnification.

     

    Borrowers
shall indemnify Lender, including each party owning an interest in the Loan and
their respective officers, directors, employees and consultants (each, an “Indemnified
Party”) and defend and hold each Indemnified Party harmless from and
against all claims, injury, damage, loss and liability, cost and expense
(including reasonable attorneys’ fees, costs and expenses) of any and every kind
to any persons or property by reason of (i) the operation or maintenance of
the Facilities; (ii) any breach of representation or warranty, Default or
Event of Default; or (iii) any other matter arising in connection with the Loan,
Borrower or the Facilities.  No Indemnified Party shall be entitled to
be indemnified against its own gross negligence or willful
misconduct.  The foregoing indemnification shall survive repayment of
the Loan and shall continue to benefit Lender following any assignment of the
Loan with respect to matters arising or accruing prior to such
assignment.


    
      
         


      

      
        30

        
          

        

      

      
         


      

    


    10.15 No
Additional Debt.

     

    Except
for the Loan, Borrowers shall not incur any indebtedness (whether personal or
nonrecourse, secured or unsecured) other than customary trade payables paid
within sixty (60) days after they are incurred.

     

    10.16 Compliance
With Laws.

     

    Borrowers
shall comply with all applicable and material requirements (including applicable
Laws) of any Governmental Authority having jurisdiction over Borrowers or any of
the Facilities.

     

    10.17 Organizational
Documents.

     

    Without
the prior written consent of Lender, not to be unreasonably withheld, no
Borrower shall permit or suffer (i) a material amendment or modification of
its Organizational Documents, (ii) the admission of any new member, or (iii) any
dissolution or termination of its existence.

     

    10.18 Management
Contracts.

     

    No
Borrower shall enter into, modify, amend, terminate or cancel any management
contracts for the Facilities or agreements with agents or brokers, without the
prior written approval of Lender, such approval not to be unreasonably withheld,
conditioned or delayed.

     

    10.19 Furnishing
Notices.

     

    Borrowers
shall provide Lender with copies of all material notices pertaining to the
Facilities received by any Borrower or the Master Tenant from any Governmental
Authority or insurance company within seven (7) days after such notice is
received.

     

    10.20 Authorized
Representative.

     

    Borrowers
appoint Eric Mendelsohn as their authorized representative (“Authorized
Representative”) for purposes of dealing with Lender on behalf of
Borrowers in respect of any and all matters in connection with this Agreement,
the other Loan Documents, and the Loan.  The Authorized Representative
shall have the power, in his discretion, to give and receive all notices,
monies, approvals, and other documents and instruments, and to take any other
action on behalf of Borrowers.  All actions by the Authorized
Representative shall be final and binding on Borrowers.  Lender may
rely on the authority given to the Authorized Representative until actual
receipt by Lender of a duly authorized resolution substituting a different
person as the Authorized Representative.  No more than one person
shall serve as Authorized Representative at any given time.

     

    10.21 Single
Purpose Entity Provisions.

     

    (a) The sole
purpose for which each Borrower is organized is to acquire, own, hold, maintain
and operate its Facility, together with such other activities as may be
necessary or advisable in connection with such limited purpose.  No
Borrower shall engage in any business


    
      
         


      

      
        31

        
          

        

      

      
         


      

    


    unrelated
to the foregoing purpose and shall not acquire any real property or own assets
other than those in furtherance of the limited purposes of such
Borrower.

     

    (b) No
Borrower shall have the authority to perform any act in violation of any
(i) applicable laws or regulations or (ii) the Loan Documents.

     

    (c) No
Borrower shall during the term of the Loan and/or prior to the full and
indefeasible repayment of the Loan:

     

    (i) except
for Intra-Party Loans or otherwise as permitted by Lender in writing, make any
loans to any member of Borrower or any Affiliate of any member;

     

    (ii) dissolve,
wind up or liquidate Borrower;

     

    (iii) merge,
consolidate or acquire all or substantially all of the assets of any other
entity; or

     

    (iv) change
the nature of the business of Borrower.

     

    (d) No
Borrower shall, and no person or entity on behalf of Borrower shall: (a)
institute proceedings to be adjudicated bankrupt or insolvent; (b) consent to
the institution of bankruptcy or insolvency proceedings against Borrower; (c)
file a petition seeking, or consenting to, reorganization or relief under any
applicable federal or state law relating to bankruptcy; (d) consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of Borrower or a substantial part of its property; (e) make
any assignment for the benefit of creditors; (f) admit in writing Borrower’s
inability to pay its debts generally as they become due or declare or effect a
moratorium on its debts; or (g) take any action in furtherance of any such
action.

     

    (e) Borrowers
shall at times observe the applicable legal requirements for the recognition of
each Borrower as a legal entity separate from any of its Affiliates, including,
without limitation, as follows:

     

    (i) Each
Borrower shall hold itself out to the public (including any of its Affiliates’
creditors) under such Borrower’s own name and as a separate and distinct entity
and not as a department, division or otherwise of any Affiliate.

     

    (ii) Each
Borrower shall observe all customary formalities regarding the existence of
Borrower.

     

    (iii) Each
Borrower shall hold title to its assets in its own name and act solely in its
own name and through its own duly authorized members and agents.  No
Affiliate shall be appointed or act as agent of Borrower, other than, as
applicable, a property manager with respect to the Facilities.

     

    (iv) Investments
shall be made in the name of each Borrower directly by such Borrower or on its
behalf by brokers engaged and paid by such Borrower or its agents.

     

    (v) Each
Borrower is and will be solvent.


    
      
         


      

      
        32

        
          

        

      

      
         


      

    


    (vi) Each
Borrower shall maintain its assets in such a manner that it is not costly or
difficult to segregate, ascertain or identify its individual assets from those
of any Affiliate or other person or entity.

     

    (vii) Each
Borrower shall pay or cause to be paid its own liabilities and expenses of any
kind, including but not limited to salaries of its employees, if any, only out
of its own separate funds and assets or through Intra-Party Loans.

     

    (viii) Each
Borrower shall at all times be adequately capitalized to engage in the
transactions contemplated at its formation; provided, however, that this
provision shall not require any direct or indirect member of Borrowers to make
additional capital contributions to any Borrower.

     

    (ix) No
Borrower shall do any act which would make it impossible to carry on the
ordinary business of Borrower.

     

    (x) None of
any Borrower’s funds shall be invested in securities issued by, nor shall any
Borrower acquire the indebtedness or obligation of, any Affiliate.

     

    (xi) Each
Borrower shall correct any misunderstanding that is known by Borrower regarding
its name or separate identity.

     

    (f) Any
indemnification obligation of Borrower in favor of its members or any other
Affiliate shall (i) be fully subordinated to the Loan and (ii) not constitute a
claim against Borrower or its assets until such time as the Loan has been
indefeasibly paid in accordance with its terms and otherwise has been fully
discharged.

     

    10.22 Right of
First Refusal.

     

    Borrowers
grant Lender a right of first refusal (“Lender’s
ROFR”) with respect to any refinancing of the Loan or any of the
Facilities which secure the Loan.  Lender (which, as used in this
paragraph includes any Affiliate of Lender) shall have the right, but not the
obligation, to match the terms of any such financing offered to any Borrower(s)
by any reputable institutional real estate lender.  If within 30 days
after Lender receives a copy of any such firm financing offer to any Borrower(s)
from a reputable institutional real estate lender, Lender offers such Borrower
financing on terms which, in the reasonable judgment of Borrowers and Lender,
are comparable in all material respects to the terms of any such offered
financing, such Borrower(s) may decline to accept the financing offered by
Lender only if Borrowers pay Lender a termination fee (the “Termination
Fee”) in an amount equal to $98,025.00 multiplied by the allocable
percentage of the Loan (based on the allocation in Section 4.3) applicable
to such Facility or Facilities.  The Termination Fee shall be due and
payable when the Loan is due in full or is paid in full, or when Lender releases
such Facility(ies) from the lien of the Security Instruments, whichever is
earlier, and such fee shall be included in the indebtedness secured by the
Mortgages.  If Lender does not, in writing, irrevocably offer such
Borrower(s) financing on terms which, in the reasonable judgment of Borrowers
and Lender, are comparable in all material respects to the terms of any such
offered financing, Borrowers shall not be obligated to pay any Termination Fee
or any other fees to Lender in connection with the refinancing of the
Loan.  Lender’s ROFR is personal to Lender and shall not be subject to
any assignment by Lender without Borrowers’ prior written
consent.


    
      
         


      

      
        33

        
          

        

      

      
         


      

    


    ARTICLE
11.                                

     

    CASUALTIES
AND CONDEMNATION

     

     

    11.1 Lender’s
Election to Apply Proceeds on Indebtedness.

     

    (a) Subject
to the provisions of Section 11.1(b) below,
Lender may elect to collect, retain and apply upon the indebtedness of Borrowers
under this Agreement or any of the other Loan Documents all proceeds of
insurance or condemnation (individually and collectively referred to as “Proceeds”)
after deduction of all expenses of collection and settlement, including
attorneys’ and adjusters’ fees and charges.  Any proceeds remaining
after repayment of the indebtedness under the Loan Documents shall be paid by
Lender to Borrower.

     

    (b) Notwithstanding
anything in Section
11.1(a) to the
contrary, in the event of any casualty to a Facility or any condemnation of part
of a Facility, Lender agrees to make the Proceeds available to pay costs of
restoration of the Facility if (i) there is then no Default or Event of
Default, (ii) all Proceeds are deposited with Lender, (iii) in Lender’s
reasonable judgment, the amount of Proceeds available for restoration of the
Facilities (together with any sums or other security acceptable to Lender
deposited with Lender by Borrower for such purpose) is sufficient to pay the
full and complete costs of such restoration, (iv) if the cost of
restoration exceeds ten percent (10%) of the Loan Amount allocable to such
Facility determined based on Section 4.3 above, in
Lender’s sole determination after completion of restoration the Loan Amount
allocable to such Facility will not exceed 75% of the “stabilized” fair market
value of the Facility, (vi) in Lender’s reasonable determination, the
Facility can be restored to an architecturally and economically viable project
in compliance with applicable Laws, (vii) each Guarantor reaffirms its Guaranty
in writing, and (viii) in Lender’s reasonable determination, such
restoration is likely to be completed not later than three (3) months prior to
the Maturity Date.

     

    11.2 Borrowers’
Obligation to Rebuild and Use of Proceeds Therefor.

     

    In case
Lender does not elect to apply or does not have the right to apply the Proceeds
to the indebtedness of Borrowers under this Agreement or any of the other Loan
Documents, as provided in Section 11.1 above,
Borrowers shall:

     

    (a) Proceed
with diligence to make settlement with insurers or the appropriate governmental
authorities and cause the Proceeds to be deposited with Lender;

     

    (b) In the
event of any delay in making settlement with insurers or the appropriate
governmental authorities or effecting collection of the Proceeds, deposit with
Lender the full amount required to complete construction as aforesaid;
and

     

    (c) Promptly
proceed with construction of the Facility, including the repair of all damage
resulting from such fire, condemnation or other cause and restoration to its
former condition.

     

    Lender
may condition the disbursement of Proceeds and other funds deposited with Lender
for the cost of restoration on Lender’s reasonable approval of the plans and
specifications for the restoration, contractor’s cost estimates, architect’s
certificates, waivers of liens, sworn statements of mechanics and materialmen,
and such other evidence of costs, percentage


    
      
         


      

      
        34

        
          

        

      

      
         


      

    


    completion
of construction, application of payments and satisfaction of liens as Lender may
reasonably require.

     

    ARTICLE
12.                                

     

     

    ASSIGNMENTS
BY LENDER AND BORROWER

     

     

    12.1 Assignments
and Participations.

     

    Lender
may from time to time sell the Loan and the Loan Documents (or any interest
therein) and may grant participations in the Loan to any entity or person
(herein, a “Lender
Transferee”).  Borrowers agree to cooperate with Lender’s
efforts to do any of the foregoing and to execute all documents reasonably
required by Lender in connection therewith which do not materially adversely
affect Borrowers’ rights under the Loan Documents.  If such Lender
Transferee (or its owner if the Lender Transferee is a disregarded entity for
United States federal income tax purposes) is a “foreign person” within the
meaning of Section 1445 or 7701 of the Internal Revenue Code, and if Borrower is
obligated to withhold United States withholding taxes from interest payments on
the Loan to such Lender Transferee, Borrower shall be entitled to deduct such
withholding taxes from each such interest payment provided that Borrower remits
such withholding taxes to the Internal Revenue Service in accordance with
applicable Law.

     

    12.2 Prohibition
of Assignments and Transfers by Borrowers.

     

    Borrowers
shall not assign or attempt to assign its rights under this Agreement and any
purported assignment shall be void.  Without the prior written consent
of Lender, in Lender’s sole discretion, Borrowers shall not suffer or permit any
Transfer other than a Permitted Transfer.

     

    12.3 Prohibition
of Transfers in Violation of ERISA.

     

    In
addition to the prohibitions set forth in Section 12.2 above, no
Borrower shall assign, sell, pledge, encumber, transfer, hypothecate or
otherwise dispose of its interest or rights in this Agreement or in any of the
Facilities, or attempt to do any of the foregoing or suffer any of the
foregoing, nor shall any party owning a direct or indirect interest in any
Borrower assign, sell, pledge, encumber, transfer, hypothecate or otherwise
dispose of any of its rights or interest (direct or indirect) in any Borrower,
attempt to do any of the foregoing or suffer any of the foregoing, if such
action would cause the Loan, or the exercise of any of Lender’s rights in
connection therewith, to constitute a prohibited transaction under ERISA or the
Internal Revenue Code or otherwise result in Lender being deemed in violation of
any applicable provision of ERISA.  Borrowers agree to indemnify and
hold Lender free and harmless from and against all losses, reasonable
out-of-pocket costs (including reasonable attorneys’ fees and expenses), taxes,
damages and reasonable expenses Lender may suffer by reason of the
investigation, defense and settlement of claims and in obtaining any prohibited
transaction exemption under ERISA necessary or desirable in Lender’s sole
judgment or by reason of a breach of the foregoing prohibitions.  The
foregoing indemnification shall be a recourse obligation of Borrowers and shall
survive repayment of the Note, notwithstanding any limitations on recourse
contained herein or in any of the Loan Documents.


    
      
         


      

      
        35

        
          

        

      

      
         


      

    


    12.4 Successors
and Assigns.

     

    Subject
to the foregoing restrictions on transfer and assignment contained in this Article 12, this
Agreement shall inure to the benefit of and shall be binding on the parties
hereto and their respective successors and permitted assigns.

     

    ARTICLE
13.                                

     

     

    DEFAULT

     

     

    13.1 Events of
Default.

     

    The
occurrence of any one or more of the following shall constitute an “Event of
Default” as said term is used herein:

     

    (a) Failure
of Borrowers to make any payment of principal or interest on the Note within
five (5) days after the date when due.

     

    (b) Failure
by Borrowers to pay the Loan in full by the Maturity Date.

     

    (c) Failure
of Borrowers to observe or perform any of the other covenants or conditions by
Borrowers to be performed under the terms of this Agreement or any other Loan
Document concerning the payment of money, for a period of ten (10) days after
written notice from Lender that the same is due and payable.

     

    (d) Failure
of Borrowers for a period of thirty (30) days after written notice from Lender,
to observe or perform any non-monetary covenant or condition contained in this
Agreement or any other Loan Documents; provided that if any such failure
concerning a non-monetary covenant or condition is susceptible to cure and
cannot reasonably be cured within said thirty (30) day period, then
Borrowers shall have an additional sixty (60) day period to cure such failure
and no Event of Default shall be deemed to exist hereunder so long as Borrowers
commence such cure within the initial thirty (30) day period and diligently
and in good faith pursue such cure to completion within such resulting ninety
(90) day period from the date of Lender’s written notice; provided however that
if a different notice or grace period is specified under any other subsection of
this Section 13.1 with respect
to a particular breach, the specific provision shall control.

     

    (e) Any
Transfer or other disposition in violation of Article
12.

     

    (f) If any
material warranty, representation, statement, report or certificate made now or
hereafter by any Borrower or Guarantor is untrue or incorrect at the time made
or delivered, provided that if such breach is reasonably susceptible of cure,
then no Event of Default shall exist so long as Borrowers cure (or cause the
cure of) said breach (i) within the notice and cure period provided in
Section 13.1(c) above for
a breach that can be cured by the payment of money or (ii) within the
notice and cure period provided in Section 13.1(d) above for
any other breach.

     

    (g) Any
Borrower or Guarantor shall commence a voluntary case concerning any Borrower or
Guarantor under the Bankruptcy Code; or an involuntary proceeding is commenced
against any Borrower or Guarantor under Bankruptcy Code and relief is
ordered


    
      
         


      

      
        36

        
          

        

      

      
         


      

    


    against
any Borrower or Guarantor, or the petition is controverted but not dismissed or
stayed within sixty (60) days after the commencement of the case, or a custodian
(as defined in Bankruptcy Code) is appointed for or takes charge of all or
substantially all of the property of any Borrower or Guarantor; or any Borrower
or Guarantor commences any other proceedings under any reorganization,
arrangement, readjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar Law of any jurisdiction whether now or hereafter in
effect relating to any Borrower or Guarantor; or there is commenced against any
Borrower or Guarantor any such proceeding which remains undismissed or unstayed
for a period of sixty (60) days; or any Borrower or Guarantor fails to
controvert in a timely manner any such case under Bankruptcy Code or any such
proceeding, or any order of relief or other order approving any such case or
proceeding is entered; or any Borrower or Guarantor by any act or failure to act
indicates its consent to, approval of, or acquiescence in any such case or
proceeding or the appointment of any custodian or the like of or for it for any
substantial part of its property or suffers any such appointment to continue
undischarged or unstayed for a period of sixty (60) days.

     

    (h) Any
Borrower or Guarantor shall make an assignment for the benefit of creditors, or
shall admit in writing its inability to pay its debts generally as they become
due, or shall consent to the appointment of a receiver or trustee or liquidator
of all of its property or the major part thereof or if all or a substantial part
of the assets of any Borrower or Guarantor are attached, seized, subjected to a
writ or distress warrant, or are levied upon, or come into the possession of any
receiver, trustee, custodian or assignee for the benefit of
creditors.

     

    (i) If any
Borrower is enjoined, restrained or in any way prevented by any court order from
operating any of the Facilities.

     

    (j) One or
more final judgments are entered (i) against any Borrower in amounts aggregating
in excess of $100,000 or (ii) against Guarantor in amounts aggregating in excess
of $250,000, and said judgments are not satisfied, stayed or bonded over within
thirty (30) days after entry.

     

    (k) If any
Borrower or Guarantor shall fail to pay any debt (which term shall not include
judgments under clause (j) above) owed by it or is in default under any
agreement with Lender or any other party (other than a failure or default for
which such Borrower’s maximum liability does not exceed $100,000 and Guarantor’s
maximum liability does not exceed $250,000) and such failure or default
continues after any applicable grace period specified in the instrument or
agreement relating thereto.

     

    (l) Failure
by Guarantor to comply with any of the Emeritus Covenants.

     

    (m) If a
Material Adverse Change occurs with respect to any Borrower, any of
the  Facilities or Guarantor.

     

    (n) The
occurrence of any other event or circumstance denominated as an Event of Default
herein or under any of the other Loan Documents and the expiration of any
applicable grace or cure periods, if any, specified for such Event of Default
herein or therein, as the case may be.


    
      
         


      

      
        37

        
          

        

      

      
         


      

    


    (o) Any
default by any Borrower or by the Master Tenant under any Master Lease which is
not cured within any applicable cure period thereunder.

     

    13.2 Remedies
Conferred Upon Lender.

     

    Upon the
occurrence of any Event of Default, Lender may pursue any one or more of the
following remedies concurrently or successively, it being the intent hereof that
none of such remedies shall be to the exclusion of any other:

     

    (a) Take
possession of the Facilities and do anything which is necessary or appropriate
in its sole judgment to fulfill the obligations of Borrower under this Agreement
and the other Loan Documents;

     

    (b) Declare
the Note to be immediately due and payable;

     

    (c) Use and
apply any monies or letters of credit deposited by Borrower with Lender,
regardless of the purposes for which the same was deposited, to cure any such
Event of Default or to apply on account of any indebtedness under this Agreement
which is due and owing to Lender;

     

    (d) Exercise
or pursue any other remedy or cause of action permitted under this Agreement or
any other Loan Documents, or conferred upon Lender by operation of
Law.

     

    Notwithstanding
the foregoing, upon the occurrence of any Event of Default under Section 13.1(g), all
amounts evidenced by the Note shall automatically become due and payable,
without any presentment, demand, protest or notice of any kind to
Borrowers.

     

    ARTICLE
14.                                

     

     

    GENERAL
PROVISIONS

     

     

    14.1 Time is
of the Essence.

     

    Borrowers
agree that time is of the essence under this Agreement; provided, however, that
if any payment or performance is due on day that is not a Business Day, such
payment or performance shall be due on the Business Day immediately following
such date.

     

    14.2 Captions.

     

    The
captions and headings of various Articles, Sections and subsections of this
Agreement and Exhibits pertaining hereto are for convenience only and are not to
be considered as defining or limiting in any way the scope or intent of the
provisions hereof.

     

    14.3 Modification;
Waiver.

     

    No
modification, waiver, amendment or discharge of this Agreement or any other Loan
Document shall be valid unless the same is in writing and signed by the party
against which the enforcement of such modification, waiver, amendment or
discharge is sought.


    
      
         


      

      
        38

        
          

        

      

      
         


      

    


    14.4 Governing
Law.

     

    Borrowers
and Lender agree that this Agreement and the other Loan Documents shall be
construed, enforced and otherwise governed by the laws of the State of
Washington without regard to its conflict of laws rules, except that the
validity and enforcement of each Security Instrument shall be governed by the
laws of the State in which the applicable Facility is located.

     

    14.5 Disclaimer.

     

    This
Agreement is made for the sole benefit of Borrowers and Lender and no other
person or persons shall have any benefits, rights or remedies under or by reason
of this Agreement, or by reason of any actions taken by Lender pursuant to this
Agreement.  Lender shall not be liable for any debts or claims
accruing in favor of any such parties against Borrowers or others or against the
Facilities.  By making the Loan or taking any action pursuant to any
of the Loan Documents, Lender shall not be deemed a partner or a joint venturer
with any Borrower or a fiduciary of any Borrower.

     

    14.6 Partial
Invalidity; Severability.

     

    If any of
the provisions of this Agreement, or the application thereof to any person,
party or circumstances, shall, to any extent, be invalid or unenforceable, the
remainder of this Agreement, or the application of such provision or provisions
to persons, parties or circumstances other than those as to whom or which it is
held invalid or unenforceable, shall not be affected thereby, and every
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law.

     

    14.7 Definitions
Include Amendments.

     

    Definitions
contained in this Agreement which identify documents, including, but not limited
to, the Loan Documents, shall be deemed to include all amendments and
supplements to such documents from the date hereof, and all future amendments
and supplements thereto entered into from time to time to satisfy the
requirements of this Agreement or otherwise with the consent of
Lender.  Reference to this Agreement contained in any of the foregoing
documents shall be deemed to include all amendments and supplements to this
Agreement.

     

    14.8 Execution
in Counterparts.

     

    This
Agreement may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed shall be deemed
to be an original and all of which taken together shall constitute one and the
same agreement.

     

    14.9 Entire
Agreement.

     

    This
Agreement, taken together with all of the other Loan Documents and all
certificates and other documents delivered by Borrower to Lender, embody the
entire agreement and supersede all prior agreements, written or oral, relating
to the subject matter hereof.


    
      
         


      

      
        39

        
          

        

      

      
         


      

    


    14.10 Waiver of
Damages.

     

    In no
event shall Lender be liable to any Borrower for punitive, exemplary or
consequential damages, including, without limitation, lost profits, whatever the
nature of a breach by Lender of its obligations under this Agreement or any of
the Loan Documents, and Borrowers waive all claims for punitive, exemplary or
consequential damages.

     

    14.11 Claims
Against Lender.

     

    Lender
shall not be in default under this Agreement, or under any other Loan Documents,
unless a written notice specifically setting forth the claim of Borrower shall
have been given to Lender within three (3) months after Borrowers first had
knowledge of the occurrence of the event which Borrowers allege gave rise to
such claim and Lender does not remedy or cure the default, if any there be,
promptly thereafter.  Borrowers waive any claim, set-off or defense
against Lender arising by reason of any alleged default by Lender as to which
Borrowers do not give such notice timely as aforesaid.  Borrowers
acknowledge that such waiver is or may be essential to Lender’s ability to
enforce its remedies without delay and that such waiver therefore constitutes a
substantial part of the bargain between Lender and Borrowers with regard to the
Loan.

     

    14.12 Jurisdiction.

     

    TO THE
GREATEST EXTENT PERMITTED BY LAW, BORROWERS HEREBY WAIVE ANY AND ALL RIGHTS TO
REQUIRE MARSHALING OF ASSETS BY LENDER.  WITH RESPECT TO ANY SUIT,
ACTION OR PROCEEDINGS RELATING TO THIS AGREEMENT (EACH, A “PROCEEDING”),
EACH BORROWER IRREVOCABLY (A) SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE
STATE AND FEDERAL COURTS HAVING JURISDICTION IN THE CITY OF SEATTLE, STATE OF
WASHINGTON, AND (B) WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE
LAYING OF VENUE OF ANY PROCEEDING BROUGHT IN ANY SUCH COURT, WAIVES ANY CLAIM
THAT ANY PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER WAIVES
THE RIGHT TO OBJECT, WITH RESPECT TO SUCH PROCEEDING, THAT SUCH COURT DOES NOT
HAVE JURISDICTION OVER SUCH PARTY.  NOTHING IN THIS AGREEMENT SHALL
PRECLUDE LENDER FROM BRINGING A PROCEEDING IN ANY OTHER JURISDICTION NOR WILL
THE BRINGING OF A PROCEEDING IN ANY ONE OR MORE JURISDICTIONS PRECLUDE THE
BRINGING OF A PROCEEDING IN ANY OTHER JURISDICTION.  BORROWER FURTHER
AGREES AND CONSENTS THAT, IN ADDITION TO ANY METHODS OF SERVICE OF PROCESS
PROVIDED FOR UNDER APPLICABLE LAW, ALL SERVICE OF PROCESS IN ANY PROCEEDING IN
ANY WASHINGTON STATE OR UNITED STATES COURT SITTING IN THE STATE OF WASHINGTON
MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, DIRECTED
TO BORROWER AT THE ADDRESS INDICATED BELOW, AND SERVICE SO MADE SHALL BE
COMPLETE UPON RECEIPT; EXCEPT THAT IF BORROWER SHALL REFUSE TO ACCEPT DELIVERY,
SERVICE SHALL BE DEEMED COMPLETE FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN SO
MAILED.


    
      
         


      

      
        40

        
          

        

      

      
         


      

    


    14.13 Set-Offs.

     

    After the
occurrence and during the continuance of an Event of Default, each Borrower
hereby irrevocably authorizes and directs Lender from time to time to charge
Borrower’s accounts and deposits with Lender (or its Affiliates), and to pay
over to Lender an amount equal to any amounts from time to time due and payable
to Lender hereunder, under the Note or under any other Loan
Document.  Each Borrower hereby grants to Lender a security interest
in and to all such accounts and deposits maintained by Borrower with Lender (or
its Affiliates).

     

    14.14 Notices.

     

    All
notices required or permitted hereunder shall be in writing and shall be given
to the parties as follows:

     

    
      	
               
      

            	
              If
      to Lender:

            	
              KeyBank
      National Association

            


    

     

    
      	
               
      

            	
              Healthcare
      Services

            


    

     

    
      	
               
      

            	
              800
      Superior Avenue, 6th
      Floor

            


    

     

    
      	
               
      

            	
              Cleveland,
      OH  44114

            


    

     

    
      	
               
      

            	
              Attn:  CRE
      Client Services

            


    

     

    
      	
               
      

            	
              Mail
      Code:  OH-01-02-0628

            


    

     

    
      	
               
      

            	
              Fax
      No.:  216-828-7521

            


    

     

    
      	
              If
      to Borrowers:

            	
              c/o
      Emeritus Corporation

            


    

     

    
      	
               
      

            	
              3131
      Elliott Avenue #500

            


    

     

    
      	
               
      

            	
              Seattle,
      WA  98121

            


    

     

    
      	
               
      

            	
              Attn:
      Eric Mendelsohn

            


    

     

    
      	
               
      

            	
              Fax
      No.:  206-204-1490

            


    

     

    
      	
               
      

            	
              With
      a copy to:

            	
              Pircher,
      Nichols & Meeks

            


    

     

    
      	
               
      

            	
              900
      North Michigan Avenue, Suite 1050

            


    

     

    
      	
               
      

            	
              Chicago,
      Illinois  60611

            


    

     

    
      	
               
      

            	
              Attn:
      Real Estate Notices (JDL/MJK)

            


    

     

    
      	
               
      

            	
              Fax
      No.:  312-915-3348

            


    

     

    Any such
notices shall be sent by (a) a nationally recognized overnight courier, in which
case notice shall be deemed delivered one Business Day after deposit with such
courier; or (b) served personally, in which case notice shall be deemed
given on the date of such service, or (c) delivered by facsimile
transmission followed by delivery by personal service or nationally recognized
courier service on the next business day after facsimile transmission, in which
case notice shall be deemed to have been given on the date of facsimile
transmission.  The above addresses may be changed by written notice to
the other party; provided that no notice of a change of address shall be
effective until actual receipt of such notice.

     

    14.15 Waiver of
Jury Trial.

     

    BORROWERS
AND LENDER EACH WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING
TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS OR RELATING THERETO OR ARISING FROM THE LENDING RELATIONSHIP WHICH IS
THE SUBJECT OF THIS


    
      
         


      

      
        41

        
          

        

      

      
         


      

    


    AGREEMENT
AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND
NOT BEFORE A JURY.

     

    14.16 Statutory
Notice.

     

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


    
      
         


      

      
        42

        
          

        

      

      
         


      

    


     

    IN
WITNESS WHEREOF, the parties have signed this Agreement as of the date written
above.

     

    “Borrowers”

     

    EMERITOL
STONECREEK LODGE LLC,

     

    a  Delaware
limited liability company

     

    
      	
               
      

            	
              By:

            	
              Summerville
      Senior Living, Inc., a Delaware corporation, its Sole
    Member

            


    

    


    


    
      	
               
      

            	
              By:

            	
              /s/
      Eric Mendelsohn _____________

            


    

    
      	
               
      

            	
              Eric
      Mendelsohn, Senior VP Corporate
Development

            


    

     

    EMERITOL
MEADOWBROOK LLC,

     

    a
Delaware limited liability company

     

    
      	
               
      

            	
              By:

            	
              Summerville
      Senior Living, Inc., a Delaware corporation, its Sole
    Member

            


    

    


    


    
      	
               
      

            	
              By:

            	
              /s/
      Eric Mendelsohn ______________

            


    

    
      	
               
      

            	
              Eric
      Mendelsohn, Senior VP Corporate
Development

            


    

     

     “Lender”

     

    KEYBANK
NATIONAL ASSOCIATION,

     

    a
national banking association

     

    


    By:           /s/
Joe Schoder_______________

    Name:                      Joe
Schoder ___________________

    Title:                      Vice
President_______________


    
      
         


      

      
        43