Document:

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.

    
      
         

      

      
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    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).

    
      
         

      

      
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    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

    
      
         

      

      
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    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:

    
      
         

      

      
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              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.

    
      
         

      

      
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    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

    
      
         

      

      
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    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.

    
      
         

      

      
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    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.

    
      
         

      

      
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    (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.

    
      
         

      

      
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    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

    
      
         

      

      
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    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.

    
      
         

      

      
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    (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.

    
      
         

      

      
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    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

    
      
         

      

      
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    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.

    
      
         

      

      
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    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_______________

    
      
         

      

      
        43ex107111.htm

    EX-10.71.11

     

    

    

     

    LIMITED
LIABILITY COMPANY AGREEMENT OF

     

    BATUS,
LLC

     

    A
Delaware Limited Liability Company

     

    Effective
as of October 15, 2008

     

    

     

    

     

    

     

    

     

    

     

    

     

    

     

    

     

    

     

    

     

    

     

    

     

    

     

    

     

    

     

    

     

    

     

    THE UNITS
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES ACT
OF ANY STATE.  THE UNITS MAY NOT BE RESOLD, TRANSFERRED, OR ASSIGNED
BY A MEMBER OR ASSIGNEE UNLESS THE MEMBER OR ASSIGNEE HAS COMPLIED WITH THE
TERMS OF THIS LIMITED LIABILITY COMPANY AGREEMENT AND APPLICABLE
LAW.

     

    
      
        
          

            

        

         

      

      
         

        
          

        

      

      
         

      

    

    TABLE
OF CONTENTS

    DRAFTING
NOTE: TO BE INSERTED ONCE DOCUMENT FINALIZED

    

    

    

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    LIMITED
LIABILITY COMPANY AGREEMENT

    OF

    BATUS,
LLC

     

    THIS
LIMITED LIABILITY COMPANY AGREEMENT (this “Agreement”) of BATUS, LLC (the
“Company”) is made and entered into effective as of October 15, 2008 (the
“Effective Date”), by and among the undersigned parties, who by their execution
of this Agreement have become members of the Company pursuant to the provisions
of the Delaware Limited Liability Company Act.

     

    ARTICLE
1

     

    DEFINITIONS

     

    The
following terms used in this Agreement shall have the following meanings (unless
otherwise expressly provided herein):

     

     “Act” means the
Delaware Limited Liability Company Act.

     

    “Additional Capital
Contribution” means with respect to each Member, the Capital
Contributions made by such Member pursuant to Section 8.2 hereof.

     

    “Administrative
Member” means SSL.

     

    “Affiliate” means with
respect to any Person:  (i) any Person directly or indirectly
controlling, controlled by or under common control with such Person; or (ii) any
other Person that owns beneficially, directly or indirectly, ten percent (10%)
or more of the outstanding capital stock, shares or equity interests of such
Person or (iii) any officer, director, general partner (or in the case of a
limited liability company, manager) of such Person or any Person controlling or
controlled by such Person.  For purposes of this definition, the term
“controls,” “is controlled by,” or “is under common control with” shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise. Solely for purposes of
this Agreement, Baty shall not be deemed to be Affiliates of Emeritus or SSL or
vice versa.

     

    “Allocated Invested
Capital” means the portion of the Invested Capital of the Company
reasonably allocated by the Administrative Member from time to time to each of
the Project Entities.

     

    “Allocation Year”
means (i) the period commencing on the Effective Date and ending on December 31,
2009, (ii) any subsequent twelve (12) month period commencing on January 1 and
ending on December 31, or (iii) any portion of the period described in clauses
(i) or (ii) for which the Company is required to allocate profits, losses and
other items of Company income, gain, loss or deduction pursuant to Section 9
hereof.

     

    “Assumed Cap Ex
Amount” means during the period from the Effective Date to the first
anniversary of the Effective Date, $450 per unit located at the applicable
Project Property increased by $50 per year on each anniversary of the Effective
Date but in no event more than $650 per unit located at the applicable Project
Property.

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    “Assumed Management
Fee” means an amount equal to 5% of the Gross Revenues of the applicable
Project Property.

     

    “Bankruptcy” means
with respect to any Member, the filing of a voluntary or involuntary petition in
bankruptcy by or against a Member pursuant to Chapters 7 or 11 of the United
States Bankruptcy Code, unless such petition is denied or dismissed within
thirty (30) days after filing in the case of a voluntary petition, or within
ninety (90) days after filing in the case of an involuntary petition; the entry
of an order of relief in bankruptcy of a Member; the assignment by a Member of
its Membership Interest or any interest therein for the benefit of creditors;
the appointment of a receiver or trustee for a Member’s property; and the
attachment of a Member’s Membership Interest which is not released within thirty
(30) days; or the undertaking by any Member of any course or action amounting to
the commencement of liquidation or dissolution proceedings.

     

    “Baty” means Daniel R.
Baty.

     

    “Baty Buy Out Notice”
has the meaning set forth in Section 12.3(b).

     

    “Baty Buy Out Option”
has the meaning set forth in Section 12.3(b).

     

     “Baty Buy Out Purchase
Price” means an amount equal to the lesser of (i) the Fair Market Value
of the Membership Interest of Baty, or (ii) 50% of the NOI Value of the Project
Properties, taken as a whole, but in no event less than an amount equal to the
Invested Capital of Baty.

     

    “Buy Out Date” means
the date on which SSL or its designee acquires the interest of the Company in
any Project Entity pursuant to the terms of Section 12.3 of this
Agreement.

     

    “Capital Contribution”
means, with respect to any Member, the amount of money or the fair market value
of services contributed to the Company with respect to the interests in the
Company held or purchased by such Member, including Additional Capital
Contributions.

     

    “Capital Transaction”
means (i) the sale of all or substantially all of the assets of any Project
Entity or of the Company’s ownership interest in any Project Entity or (ii) the
refinancing or replacement of the initial mortgage used for the acquisition of
the Project Property owned by any Project Entity.

     

    “Cash Flow Agreement”
means that Agreement of even date herewith by and between Emeritus and Baty
providing for the sharing of the positive and negative cash flow of each Project
Property.

     

    “Certificate of
Formation” means the certificate of formation pursuant to which the
Company was formed, as originally filed with the office of the Secretary of
State of the State of Delaware, and as amended from time to time.

     

    “Code” means the
Internal Revenue Code of 1986, as amended, or corresponding provisions of
subsequent superseding federal revenue laws.

     

    “Company” means
“Batus, LLC.”

     

    “Company Buy Out
Notice” has the meaning set forth in Section 12.3(a).

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    “Company Buy Out
Option” has the meaning set forth in Section 12.3(a).

     

     “Company Buy Out Purchase
Price” means the lesser of (i) the Fair Market Value of the Project
Property owned by the applicable Project Entity or (ii) the NOI Value of the
Project Property owned by the applicable Project Entity but in no event less
than the Allocated Invested Capital.

     

    “Contributing Member”
has the meaning set forth in Section 8.3(b).

     

    “Contribution Loan”
has the meaning set forth in Section 8.3(b).

     

    “Contribution Notice”
has the meaning set forth in Section 8.3(a).

     

    “Defaulting Member”
has the meaning set forth in Section 16.1.

     

    “Delayed Additional Capital
Contribution” has the meaning set forth in Section 8.3(b).

     

    “Emeritus” means
Emeritus Corporation, a Washington corporation and the parent of
SSL.

     

    “Entity” means any
general partnership, limited partnership, limited liability company,
corporation, joint venture, trust, business trust, cooperative or association or
any other organization that is not a natural person.

     

    “Fair Market Value”
means the fair market value of a Project Property as determined by mutual
agreement of the Members or if no such agreement can be reached within thirty
(30) days after delivery of the Buy Out Notice, then as determined in accordance
with the appraisal procedure set forth in Exhibit A.

     

    “Gross Revenues” means
all revenues generated by the operation of a Project Property, but shall not
include proceeds from the sale of equipment located at the Project Property, any
insurance or condemnation proceeds or any Net Proceeds.

     

    “Invested Capital” of
a Member at any time means (i) the amount of the Member’s total Capital
Contributions to the Company, less (ii) all distributions made to such Member as
a return of Capital Contributions.  For purposes of this definition,
distributions shall first be deemed made from profits of the Company and only
after all profits have been distributed shall distributions constitute a return
of Capital Contributions to the Members.

     

    “Matching
Contribution” has the meaning set forth in Section 8.3(b).

     

    “Member” means each
Person who executes a counterpart of this Agreement as a Member, in connection
with the initial execution of this Agreement or in connection with the
subsequent admission of such Person as a Member in accordance with the
provisions of this Agreement.

     

    “Membership Interest”
means all of a Member’s share in the profits, losses, and other tax items of the
Company and distributions of the Company’s assets, and all of a Member’s rights
to participate in the affairs of the Company including the right to vote on,
consent to or otherwise participate in any decision of the Members, all pursuant
to this Agreement and the Act.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    “Net Cash Flow” means
the gross cash proceeds of the Company less the portion thereof used to pay or
establish reserves for all Company expenses, debt payments, capital
improvements, replacements, management fees and contingencies, all as reasonably
determined by the Administrative Member. “Net Cash Flow” shall not be reduced by
depreciation, amortization, cost recovery deductions, or similar allowances, but
shall be increased by any reductions of reserves previously established pursuant
to the first sentence of this definition.

     

    “Net Proceeds” means
the net proceeds from a Capital Transaction after the payment by the Company or
the applicable Project Entity of all costs and expenses associated with that
Capital Transaction.

     

    “NOI Value” means (A)
the sum of (i) the net operating income of the applicable Project Property for
the twelve month period immediately preceding the date of the Buy Out Notice,
less (ii) the Assumed Cap Ex Amount, less (iii) the Assumed Management Fee, (B)
divided by a capitalization rate of 8.25% and (C) less the outstanding principal
balance of the Project Debt.

     

    “Noncontributing
Member” has the meaning set forth in Section 8.3(b).

     

    “Percentage Interest”
means with respect to any Member, the percentage set forth opposite such
Member’s name on Schedule 1 of this Agreement, as amended from time to
time.

     

    “Person” means any
individual or Entity, and the heirs, executors, administrators, legal
representatives, successors, and assigns of such Person where the context so
permits.

     

    “Project Debt” means
the debt secured by a Project Property.

     

    “Project Entities”
means the limited liability companies and corporations listed on Exhibit C
hereto which are the owners of the Project Property.

     

    “Project Property”
means individually and collectively, as the context may require, that certain
real property described in Exhibits B-1 through B-8 hereof and the improvements
thereon and furniture fixtures and equipment therein, all of which comprise the
licensed assisted living facilities described in Exhibit C hereto.

     

    “Regulations” includes
proposed, temporary and final Treasury regulations promulgated under the Code
and the corresponding sections of any regulations subsequently issued that amend
or supersede such regulations.

     

    “Securities Acts” has
the meaning set forth in Section 17.14.

     

     “SSL” means
Summerville Senior Living, Inc., a Delaware corporation, one of the Members of
the Company.

     

    “Units” means the
Membership Interest owned by a Member, expressed as a number equal to the
Percentage Interest held by such Member.

     

    ARTICLE
2

     

    FORMATION
OF COMPANY

     

    
      
         

      

      
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    2.1           Formation.  One
or more Persons has acted as an organizer or organizers to form the Company by
preparing, executing and filing with the Delaware Secretary of State the
Certificate of Formation in accordance with and pursuant to the
Act.

     

    2.2           Name  The
name of the Company is “Batus, LLC.”

     

    2.3           Principal Place of
Business  The principal place of business of the Company shall
be 3131 Elliott Avenue, Suite 500, Seattle, WA 98121.  The Company may
locate its places of business at any other place or places as the Administrative
Member may from time to time deem advisable.

     

    2.4           Registered Office and
Registered Agent  The Company's initial registered agent and
the address of its initial registered office in the State of Delaware are as
follows:

     

    Name                                                      Address

     

    Corporation
Service
Company                                                                2711
Centerville Road

    Suite 400

    Wilmington, Delaware
19808

     

    The
registered office and registered agent may be changed by the Administrative
Member from time to time.

     

    2.5.           Term.  The
term of the Company commenced on August 18, 2008 and shall continue until the
Company is dissolved and terminated in accordance with the provisions of this
Agreement.

     

    ARTICLE
3

     

    BUSINESS
OF COMPANY

     

    The
business of the Company shall be:

     

    (a)           prior
to the Buy Out Date with respect to any Project Entity, to be the sole member of
the Project Entities; and

     

    (b)           to
exercise all other powers necessary to or reasonably connected with the
foregoing purpose which may be legally exercised by limited liability companies
under the Act.

     

    The
business of the Company shall not be modified except with the express consent of
the Members of the Company.

     

    ARTICLE
4

     

    NAMES
AND ADDRESSES OF MEMBERS

     

    The
names, addresses, Percentage Interest and number of Units of each Member are set
forth on attached Schedule 1, as amended or restated from time to
time.

     

    ARTICLE
5

     

    
      
         

      

      
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    RIGHTS
AND OBLIGATIONS OF MEMBERS

     

    5.1           Management of the
Company.  The Members, in their capacities as members, shall
not be entitled to participate in the day-to-day affairs and management of the
Company, but instead, the Members' right to vote or otherwise participate with
respect to matters relating to the Company shall be limited to those matters as
to which the express terms of the Act or this Agreement vest in the Members the
right to so vote or otherwise participate.

     

    5.2           Election and Appointment of
Administrative Member.  SSL is hereby appointed by the Members
as the Administrative Member of the Company.

     

    5.3           Limitation of
Liability.  Each Member's liability shall be limited as set
forth in this Agreement and the Act.  As between the Members with
respect to Company obligations, the liability for those obligations, including
any and all personal guarantees given by the Members for Company obligations,
shall be shared by the Members in accordance with their respective Percentage
Interests.  The Company and each Member shall indemnify, defend and
hold harmless any Member against any Company liability in excess of that
Member's Percentage Interest.

     

    5.4           Indemnification.  The
Company shall indemnify the Members, in each Member’s capacity as a Member, for
all costs, losses, liabilities and damages paid or accrued by such Member, and
advance expenses incurred by the Member in connection with the business of the
Company, to the fullest extent provided or allowed by the Act, unless such debt,
obligation or liability is incurred by the Member in violation of the terms of
this Agreement or as a prohibited exercise of the Member's
authority.

     

    5.5           Inspection of
Records.  Upon reasonable request, each Member shall have the
right to inspect and copy at such Member's expense, during ordinary business
hours the records required to be maintained by the Company pursuant to Section
11.4.

     

    5.6           No Priority and Return of
Capital.  Except as expressly provided in Article 9 or 10, no
Member shall have priority over any other Member, either as to the return of
Capital Contributions or as to profits, losses or distributions; provided; that this
Section 5.6 shall not apply to loans made by a Member to the
Company.

     

    5.7           Withdrawal of
Member.  No Member shall voluntarily resign or otherwise
withdraw as a Member.

     

    ARTICLE
6

     

    ACTION
BY MEMBERS

     

    6.1           General.  In
exercising their rights as provided in this Agreement or in the Act, and in
exercising any other voting rights, the Members shall act collectively through
meetings and/or written consents as provided in this Article.

     

    6.2           No
Meetings.  In light of the fact that, except as otherwise
required by this Agreement or the Act, all decisions of the Company are to be
made by the Administrative Member, the Company will not have meetings of any
kind unless requested by a Member, nor shall any action of the Company require a
vote at a meeting.

     

    
      
         

      

      
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    6.3           Action by Members Without a
Meeting.  Any action requiring Member consent may be taken
without a meeting if one or more written consents describing such action are
executed by Members holding sufficient Units to approve such
action.  Such consents shall be delivered to the Administrative Member
for inclusion in the Company's minutes and notice of such action shall be given
to each Member who did not sign such consent as provided in Section 17.1, within
three (3) business days.  Action taken under this Section 6.3 shall be
effective when the requisite Members have signed the consent or consents and
delivered them to the Administrative Member, unless such consents specify a
different effective date.  The record date for determining Members
entitled to take action without a meeting shall be the date the first Member
signs a consent.

     

    ARTICLE
7

     

    ADMINISTRATIVE
MEMBER

     

    7.1           Management.  Except
as otherwise expressly provided in this Agreement or in the Act, the powers of
the Company shall be exercised by or under the authority of, and the business
and affairs of the Company shall be managed by, the Administrative
Member.  Accordingly, the Administrative Member shall have full and
complete authority, power and discretion to manage and control the business,
affairs and properties of the Company, to make all decisions regarding those
matters and to perform any and all other acts or activities customary or
incident to the management of the Company's business in the ordinary
course.  Without limiting the generality of the foregoing, the
Administrative Member shall have power and authority, on behalf of the Company
acting on behalf of itself and/or on behalf and in the name of the Project
Entities in its capacity as the sole member of the Project
Entities:

     

    (i)           to
acquire property from any Person;

     

    (ii)           to
borrow money from financial institutions, and in connection therewith, to
hypothecate, encumber and grant security interests in the assets of the Company
and/or the Project Entities to secure repayment of the borrowed
sums;

     

    (iii)           to
purchase liability and other insurance to protect the Company's and/or the
Project Entities’ property and business;

     

    (iv)           to
acquire, improve, manage, charter, operate, sell, transfer, exchange, encumber,
pledge or dispose of any real or personal property of the Company or the Project
Entities including, but not limited to, some or all of the Project Properties
and/or its ownership interests in the Project Entities, subject, however, to any
limitations which may be imposed under any loan documents to which the Company
or the Project Entities may be a party;

     

    (v)           to
invest Company and/or Project Entity funds temporarily in time deposits,
short-term governmental obligations, commercial paper or other short-term
investments;

     

    (vi)           to
execute instruments and documents, including without limitation, checks, drafts,
notes and other negotiable instruments, mortgages or deeds of trust, security
agreements, financing statements, documents providing for the acquisition,
mortgage or disposition of the Company's and/or the Project Entities’ property,
including, but not limited to, some or all of the Project Properties and/or its
ownership interests in the Project Entities, subject, however, to any
limitations which may be imposed under any loan documents to which

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    the
Company or the Project Entities may be a party, and any other instruments or
documents necessary to the business of the Company and/or the Project Entities;
provided, however, to the extent any debt documents to which the Company is a
party require personal Guarantees such Guarantees shall be provided by the
Members or, if required by the lender, by Emeritus and Baty and, to the extent
acceptable to the lender shall be pro rata based on their Percentage Interests
in the Company or if the lender will not accept such pro rata guarantees then
the guarantors shall concurrently enter into a Contribution Agreement providing
for reimbursement of one guarantor by the other to the extent the amount paid by
such guarantor exceeds its or its Affiliate’s Percentage Interest in the
Company;

     

    (vii)           subject
to Section 7.5, to employ accountants, legal counsel, managing agents or other
experts to perform services for the Company and/or the Project Entities and to
compensate them from Company and/or Project Entity funds, as
applicable;

     

    (viii)           to
establish reasonable reserves in connection with the ownership of the assets of
the Company and the operation of the business of the Company;

     

    (ix)           enter
into any and all other agreements with any other Person for any purpose related
to the business of the Company and/or the Project Entities;

     

    (x)           to
open bank accounts in the name of the Company and/or the Project
Entities;

     

    (xi)           to
make elections available to the Company and/or the Project Entities under the
Code; and

     

    (xii)           to
do and perform all other acts as may be necessary or appropriate to the conduct
of the Company's business and the business of the Project Entities.

     

    Unless
authorized to do so by this Agreement or by the Administrative Member, no
Member, employee or other agent of the Company shall have any power or authority
to bind the Company or any Project Entity in any way, to pledge its credit or to
render it liable for any purpose.

     

    7.2           Responsibility of
Administrative Member.  The Administrative Member shall have
those duties and responsibilities as provided in the Act.

     

    7.3           Payment of Salary and
Expenses.  The Company shall pay all of its expenses of
operation.  The Company shall also pay or reimburse the Administrative
Member for reasonable out-of-pocket expenses incurred by the Administrative
Member on behalf of the Company including all expenses incurred in the
organization of the Company.  Fees and costs incurred by Members in
connection with the purchase of an interest in the Company shall be borne solely
by that Member. The Company shall not otherwise compensate, through salary or
otherwise, the Administrative Member, any Member or any of their respective
Affiliates.

     

    7.6           Limitation on Liability;
Indemnification.  The Administrative Member shall not be
liable, responsible or accountable, in damages or otherwise, to the Company or
to any Member for any act or omission by any such Administrative Member
performed in good faith pursuant to the authority granted to such Administrative
Member by this Agreement or in accordance with its provisions, and in a manner
reasonably believed by such Administrative Member to be within the scope of the
authority granted to such Administrative Member and in the best interest of
the

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    Company;
provided that such act or omission did not constitute gross negligence,
intentional misconduct, a knowing violation of the law, or a transaction from
which the Administrative Member will personally receive a benefit in money,
property, or services to which the Administrative Member is not legally entitled
as determined by binding dispute resolution. The Company shall indemnify and
hold harmless the Administrative Member and each director, officer, partner,
employee, or agent of the Administrative Member, against any liability, loss,
damage, cost or expense incurred by them on behalf of the Company or in
furtherance of the Company's best interest without relieving the Administrative
Member of liability for gross negligence, intentional misconduct, a knowing
violation of the law or the terms of this Agreement, or any transaction from
which the Administrative Member will personally receive a benefit in money,
property, or services to which the Administrative Member is not legally
entitled.  No Member shall have any personal liability with respect to
the satisfaction of any required indemnification of the above-mentioned
Administrative Member.

     

    Any
indemnification required to be made by the Company shall be made promptly
following the fixing of the liability, loss, damage, cost or expense incurred or
suffered by a final judgment of any court, settlement, contract or
otherwise.  In addition, the Company may advance funds to a
Administrative Member claiming indemnification under this Section 7.6 for legal
expenses and other costs incurred as a result of a legal action brought against
such person only if (i) the legal action relates to the performance of duties or
services by the Administrative Member on behalf of the Company, (ii) the legal
action is initiated by a party other than a Member, and (iii) such
Administrative Member undertakes to repay the advanced funds to the Company if
it is determined that such Administrative Member is not entitled to
indemnification pursuant to the terms of this Agreement.

     

    7.7           Right to Rely on
Administrative Member.

     

    7.7.1                      Any
person dealing with the Company may rely upon a certificate signed by the
Administrative Member as to:

     

    (a) The
identity of the Administrative Member or a Member;

     

    (b) The
existence or nonexistence of any fact or facts regarding the affairs of the
Company; or

     

    (c) The
Administrative Member and/or Members who are authorized to execute and deliver
any instrument or document on behalf of the Company.

     

    7.7.2                      Provided
that the action either has been duly authorized by the Members as provided in
this Agreement or is within the authority of the Administrative Member under
this Agreement, the signature of the Administrative Member shall be all that is
necessary and sufficient to bind the Company to any document, agreement or
instrument, and all of the Members agree that a copy of this Agreement may be
shown to the appropriate parties in order to confirm the same, and further agree
that the signature of the Administrative Member shall be sufficient to execute
any “statement of company” or other documents necessary to effectuate this or
any other provision of this Agreement.

     

    7.8           Standard of Care;
Liability.  The Administrative Member shall discharge its
duties as Administrative Member in good faith, with the care an ordinarily
prudent person in a like position would exercise under similar circumstances,
and in a manner it reasonably believes to be in the best interests of the
Company.

     

    
      
         

      

      
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    ARTICLE
8

     

    CAPITAL
CONTRIBUTIONS; CAPITAL ACCOUNTS

     

    8.1           Capital Accounts and
Members’ Initial Capital Contributions.

     

    8.1.1                      A
separate capital account (“Capital Account”) will be maintained for each Member
throughout the term of the Company in accordance with Code Section 704(b) and
the regulations promulgated thereunder.

     

    8.1.2                      Each
Member shall contribute capital described in this Agreement, the amount and form
of which is as set forth in the attached Schedule 1, as such Member's share of
the Members' initial Capital Contribution, at such times and as provided in this
Section 8.1.  A Member shall not be entitled to receive interest on
any portion of its Capital Contributions or Capital Account.  A Member
will, however, be entitled to receive interest on any loans it makes to the
Company pursuant to Section 8.3.

     

    8.2           Additional Capital
Contributions.

     

    (a)           In
addition to the initial Capital Contributions described in Section 8.1, each
Member shall contribute to the Company upon demand by the Administrative Member,
on no less than thirty (30) days notice, such additional capital in proportion
to their respective Percentage Interests (“Additional Capital Contributions”) as
may be required: (1) to pay operating costs of the Company and/or the Project
Entities which are not funded out of the capital (including Contribution Loans)
and earnings of the Company and/or the Project Entities; (2) to make payments on
optional loans under Section 8.3 which are not funded out of the capital or
earnings of the Company and/or the Project Entities; or (3) for other purposes
as the Administrative Member may determine to be in the best interests of the
Company and/or the Project Entities.  Additional Capital Contributions
pursuant to this Section 8.2 shall be made by the Members on the thirtieth
(30th) day
following receipt of notice from the Administrative Member of such Additional
Capital Contributions (the “Contribution Notice”).  The provisions of
this Section 8.2(a) shall not create any rights in any third
party.  No person or Entity shall have the right to enforce this
Section 8.2 except the Company.

     

    (b)           If
a Member fails to make all or any part of any Additional Capital Contribution
required by Section 8.2(a) (“Noncontributing Member”), the other Member (the
“Contributing Member”) shall make an Additional Capital Contribution in an
amount equal to the Additional Capital Contribution made by the Noncontributing
Member (the “Matching Contribution”), and may, but is not required to, lend to
the Company an amount equal to the amount of such Additional Capital
Contribution not contributed by the Noncontributing Member (a “Contribution
Loan”).  A Contribution Loan shall bear interest at the rate of
fifteen percent (15%).  At any time during the term of the
Contribution Loan, the Noncontributing Member shall be entitled to contribute,
as an Additional Capital Contribution, an amount equal to the principal and
interest due on the Contribution Loan (“Delayed Additional Capital
Contribution”), in which case, the Company shall immediately repay the
Contribution Loan.  The principal portion of the Delayed Additional
Capital Contribution only shall be added to the contributor's Invested Capital
and Capital Account, and the Percentage Interests and Membership Interests of
the Members shall be as though the original contribution was made when called
for.

     

    

     

    
      
         

      

      
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    (c)           In
the event that a Member makes an Additional Capital Contribution in excess of
the amount required pursuant to this Section 8.2, such excess amount shall be
returned to such Member within ten (10) business days of the contribution
date.

     

    8.3           Optional Loans by
Members.

     

    8.3.1                      Optional
Loans.  With the approval of the Administrative Member, a
Member may, but will not be required to, advance additional monies to the
Company (which the Company may in turn loan to one or more of the Project
Entities) as a loan upon such terms as the lending Member and the Administrative
Member may agree.  The interest rate on any loan by a Member to the
Company shall be determined by the Administrative Member and the lending
Member.  Notwithstanding the foregoing, however, no Member may make an
optional loan to the Company pursuant to this Section 8.3 without prior written
notice from the Company to all Members and an opportunity to all Members to loan
the Company the necessary funds in their respective Percentage Interests as
optional loans.

     

    8.3.2                      Treatment of
Loans.  No loan will result in an increase in the Percentage
Interest of the lending Member, and the amount of any such loan will not be
credited to the lending Member's Capital Account, except, in either case, in
accordance with Section 8.2(b).  Any loan will be an obligation of the
Company to the lending Member, with interest, and will be repaid to the lending
Member before any amount may be distributed to any Member with respect to its
Percentage Interest.  Interest on such loans will be payable without
regard to the profits or losses of the Company and will be treated as a
transaction with a Member other than in its capacity as a Member of the Company
pursuant to Section 707(a) of the Code.  All such loans will be
repayable solely from the Company's assets and represented by promissory notes
executed by the Company.

     

    8.4           Withdrawal or Reduction of
Members’ Contributions to Capital.  A Member shall not receive
out of the Company's property any part of its Capital Contribution until all
liabilities of the Company, except liabilities to Members on account of their
Capital Contributions, have been paid and there remains property of the Company
sufficient to pay them.  A Member, irrespective of the nature of its
Capital Contribution, has only the right to demand and receive cash in return
for its Capital Contribution.

     

    ARTICLE
9

     

    ALLOCATIONS
OF NET PROFITS AND LOSSES

     

    Profits
and losses for any Allocation Year shall be allocated to the Members in
proportion to their Percentage Interests.

     

    ARTICLE
10

     

    DISTRIBUTIONS

     

    10.1           Net Cash
Flow.  Except as otherwise provided in Article 14 hereof, Net
Cash Flow, if any, shall be distributed not later than ninety (90) days after
the end of each calendar year, or more frequently as the Administrative Member
may determine in its discretion, to the Members in proportion to their
Percentage Interests.

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    10.2           Amounts
Withheld.  All amounts withheld pursuant to the Code or any
provision of any state, local or foreign tax law with respect to any payment,
distribution or allocation to the Company or the Members shall be treated as
amounts paid or distributed, as the case may be, to the Members with respect to
which such amount was withheld pursuant to this Section 10.2 for all purposes
under this Agreement.  The Company is authorized to withhold from
payments and distributions, or with respect to allocations to the Members, and
to pay over to any federal, state and local government or any foreign
government, any amounts required to be so withheld pursuant to the Code or any
provisions of any other federal, state or local law or any foreign law, and
shall allocate any such amounts to the Members with respect to which such amount
was withheld.

     

    10.3           Distributions in
Kind.  Non-cash assets, if any, shall be distributed in a
manner that reflects how cash proceeds from the sale of such assets for fair
market value would have been distributed (after any unrealized gain or loss
attributable to such non-cash assets has been allocated among the Members in
accordance with Article 9).  No Member shall be entitled to demand a
distribution in kind.

     

    10.4           Limitation Upon
Distributions.  The Company shall not make a distribution if,
after giving effect to the distribution, (a) the Company would not be able to
pay its debts as they become due in the usual course of business, or (b) all
liabilities of the Company, other than liabilities to the Members on account of
their Units and liabilities for which the recourse of creditors is limited to
specified property, exceed the fair value of the Company's assets, except that
the fair value of property that is subject to a liability for which the recourse
of creditors is limited shall be included in the assets of the Company only to
the extent that the fair value of that property exceeds that
liability.

     

    10.5           Capital
Transaction.  In the event of a Capital Transaction, the Net
Proceeds shall be distributed to Members pro rata in accordance with their
respective Percentage Interest; provided, however, in the event there are not
Net Proceeds and a capital contribution is required in order to enable the
Company or the applicable Property Entity to consummate such Capital
Transaction, then the Members shall contribute any funds necessary to consummate
such Capital Transaction pro rata in accordance with their respective Percentage
Interest.

     

    ARTICLE
11

     

    ACCOUNTING,
BOOKS AND RECORDS

     

    11.1           Accounting
Principles.  The Company's books and records shall be kept, and
its income tax returns prepared, under such sound method of accounting,
consistently applied, as the Administrative Member determines is in the best
interest of the Company and its Members.

     

    11.2           Interest on and Return of
Capital Contributions.  No Member shall be entitled to interest
on its Capital Contribution or to return of its Capital Contribution, except as
otherwise specifically provided for herein.

     

    11.3           Accounting
Period.  The Company's accounting and tax period shall be the
calendar year.

     

    11.4           Records, Audits and
Reports.  At the expense of the Company, the Administrative
Member shall maintain records and accounts of all operations and
expenditures

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    of the
Company.  At a minimum the Company shall keep at its principal place
of business the following records:

     

    (a)           A
current list and past list, setting forth the full name and last known mailing
address of each Member;

     

    (b)           A
copy of the Certificate of Formation and all amendments thereto;

     

    (c)           Copies
of this Agreement and all amendments hereto;

     

    (d)           Copies
of the Company's federal, state, and local tax returns and reports, if any, for
the three (3) most recent years;

     

    (e)           Minutes
of every meeting of the Members and any written consents obtained from Members
for actions taken by Members without a meeting; and

     

    (f)           Copies
of the Company's financial statements for the three (3) most recent
years.

     

    11.5           Tax Matters
Partner.

     

    11.5.1                      Designation.  The
Administrative Member shall be the “Tax Matters Partner” of the Company pursuant
to Code Section 6231(a)(7).

     

    11.5.2                      Expenses of Tax Matters
Partner; Indemnification.  The Company shall indemnify and
reimburse the Tax Matters Partner for all reasonable expenses, including legal
and accounting fees, claims, liabilities, losses and damages incurred in
connection with any administrative or judicial proceeding with respect to the
tax liability of the Members attributable to the Company.  The payment
of all such expenses shall be made before any distributions are made to Members
(and such expenses shall be taken into consideration for purposes of determining
Net Cash Flow) or any discretionary reserves are set aside.  Neither
the Tax Matters Partner nor any Member shall have any obligation to provide
funds for such purpose.  The provisions for exculpation and
indemnification of Administrative Member set forth in Section 7.6 of this
Agreement shall be fully applicable to the Member acting as Tax Matters Partner
for the Company.

     

    11.6           Returns and Other
Elections.  The Administrative Member shall cause the
preparation and timely filing of all tax and information returns required to be
filed by the Company pursuant to the Code and all other tax and information
returns deemed necessary and required in each jurisdiction in which the Company
does business.  Copies of such returns shall be furnished to the
Members within a reasonable time after the end of the Company's fiscal
year.

     

    11.7           Information
Reports.  The Administrative Member shall provide to the
Members copies of any financial statements prepared by the Project Entities for
delivery to their lenders or landlords under the terms of any applicable lease
or loan documents to which the Project Properties may be
subject.  Upon request by a Member, the Administrative Member shall
provide the requesting Member a copy of the most recently prepared financial
statements for any or all of the Project Entities.

     

    ARTICLE
12

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    TRANSFERABILITY

     

    12.1           General.  Except
as otherwise expressly provided in this Agreement, a Member shall have no right
to:

     

    (a)           sell,
encumber, assign, transfer, exchange or otherwise transfer for consideration,
(collectively, “sell” or “sale”),

     

    (b)           except
in accordance with Section 12.4, gift, bequeath or otherwise transfer for no
consideration whether or not by operation of law, except in the case of
bankruptcy (collectively “gift”),

     

    all or
any part of its Membership Interest.  In particular, each Member
hereby acknowledges that no sale or gift of any Membership Interest shall be
permitted other than to the other Member without the consent of the
Administrative Member, which may be withheld in its sole and absolute
discretion.  Each Member hereby acknowledges the reasonableness of the
restrictions on sale and gift of Membership Interests imposed by this Agreement
in view of the Company's purposes and the relationship of the
Members.  Accordingly, the restrictions on sale and gift contained
herein shall be specifically enforceable.  Any sale, gift or other
transfer in violation of this Agreement shall be void and of no force and
effect.  In the event that any Member pledges or otherwise encumbers
any of its Membership Interest as security for repayment of a liability as
permitted under this Agreement, any such pledge or hypothecation shall be made
pursuant to a pledge or hypothecation agreement that requires the pledgee or
secured party to be bound by all the terms and conditions of this Article
12.

     

    12.2.                      Pledge as Security.
Notwithstanding the foregoing, the Members shall have the right to pledge their
Membership Interests in the Company and the Administrative Member shall have the
right to pledge the Company’s Membership Interest in each of the Project
Entities to one or more lenders as security for the loan obligations of the
Project Entities.

     

    12.3.                      Buy Out
Options.

     

    (a)           SSL
or its designee(s) shall have the right (the “Company Buy Out Option’) from time
to time at anytime from and after January 1, 2011 on written notice to the
Company (the “Company Buy Out Notice”) to acquire the membership interest of the
Company in any or all of the Project Entities (the “Applicable Project Entity
Interest”) for the Company Buy Out Purchase Price. In the event of the exercise
on one or more occasions of by SSL of the Company Buy Out Option, the closing of
the purchase and sale of the Applicable Project Entity Interest shall occur on
the date specified by SSL in the Company Buy Out Notice, which date shall be no
less than thirty (30) days nor more than one hundred twenty (120) days after the
date of the Company Buy Out Notice. The Company Buy Out Purchase Price shall be
due by wire transfer of immediately available funds at the closing of the
Company Buy Out Option.  At the Closing, the Company shall execute
such documents as may be reasonably requested by SSL to reflect the transfer and
conveyance of the Applicable Project Entity Interest free and clear of all
liens, charges and encumbrances.   For the avoidance of doubt the
parties acknowledge and agree that the Company Buy Out Option may be exercised
on one or more occasions and as to one or more of the Project
Entities.

     

    (b)           SSL
or its designee shall also have the right (the “Baty Buy Out Option”) at any
time from and after January 1, 2001 on written notice to Baty to acquire the
membership interest of Baty in the Company for the Baty Buy Out Purchase
Price.  In the event of the exercise by

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    SSL of
the Baty Buy Out Option, the closing of the purchase and sale of the Membership
Interest of Baty in the Company shall occur on the date specified by SSL in the
Baty Buy Out Notice, which date shall be no less than thirty (30) days nor more
than one hundred twenty (120) days after the date of the Baty Buy Out Notice.
The Baty Buy Out Purchase Price shall be due by wire transfer of immediately
available funds at the closing of the Baty Buy Out Option.  At the
Closing, Baty shall execute such documents as may be reasonably requested by SSL
to reflect the transfer and conveyance of the Membership Interest of Baty free
and clear of all liens, charges and encumbrances.

     

    (c)           If
SSL or its designee(s) exercise the Company Buy Out Option or the Baty Buy Out
Option under this Section 12.3, it will be a condition of the Closing of any
such option that either (i) any guaranty made by Baty of any debt or obligation
of the Company (or the Applicable Project Entity or Entities if less than all of
the Project Entities are being purchased) will be released upon Closing or (ii)
at Closing SSL or its designee(s) shall provide an indemnity to Baty with
respect to his guaranty obligations, which indemnity shall be in form and
substance acceptable to Baty.

     

    12.4           Transfer for Estate
Planning.  Baty may gift or devise all or any portion of his
Membership Interest without the consent of the Administrative Member; provided,
that (a) the transferee is Baty’s spouse, or lineal descendent (including
adopted children) or a trust in which such persons are the sole beneficiaries
and (b) the transferee agrees in writing to be bound by the terms of this
Agreement.  In the event of the gift or devise of all or any portion
of Baty’s Membership Interest to one or more transferees who are under the age
of twenty-one (21), one or more trusts shall be established to hold the gifted
interests for the benefit of such transferee(s) until all of the transferee(s)
reach the age of at least twenty-one (21) years.

     

    ARTICLE
13

     

    ADDITIONAL
MEMBERS

     

    The
Members acknowledge and agree that given the nature of the relationship between
them being established by this Agreement they do not contemplate admitting any
other Members to the Company.

     

    ARTICLE
14

     

    DISSOLUTION
AND TERMINATION

     

    14.1           Events of Causing
Dissolution.  Except as otherwise provided in this Agreement,
the Company shall dissolve upon the earliest to occur of the
following:

     

    (a)           The
time, if any, for dissolution specified in the Certificate of Formation, or in
Section 2.5 of this Agreement;

     

    (b)           As
soon as practical after the sale or other disposition of all or substantially
all of the assets of the Company and/or of the Project Entities, it being
understood and agreed that, it is the intent of the Members to make a
determination on or before the tenth (10th)
anniversary of the Effective Date whether to (i) continue the business of the
Company, (ii) sell the Project Properties then owned by the Project Entities
and/or the Company’s interest in the Project Entities then owned by the Company
and/or (iii) roll some or all of the assets of the

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

    Company
up into the business and operations of SSL and/or Emeritus, or an entity owned
or controlled by or under common control with Baty;

     

    (c)           The
entry of a decree of judicial dissolution;

     

    (d)           Upon
the expiration of two (2) years after the effective date of administrative
dissolution;

     

    (e)           The
unanimous consent of the Members; or

     

    (f)           Any
other event or act causing dissolution of the Company pursuant to the Act or
this Agreement.

     

    The
Company shall not dissolve upon an event of dissociation of a
Member.  The events described in this Section 14.1 shall be the
exclusive causes of a dissolution of the Company.

     

    14.2           Allocation of Profit and
Loss in Liquidation.  The allocation of profits, losses and
other items of the Company following the date of dissolution, including but not
limited to gain or loss upon the sale of all or substantially all of the
Company's assets, shall be determined in accordance with the provisions of
Article 9 and shall be credited or charged to the Capital Accounts of the
Members in the same manner as profits, losses, and other items of the Company
would have been credited or charged if there were no dissolution and
liquidation.

     

    14.3           Winding Up, Liquidation and
Distribution of Assets.  Upon dissolution, the Administrative
Member shall immediately proceed to wind up the affairs of the
Company.  The Administrative Member shall sell or otherwise liquidate
all of the Company's assets as promptly as practicable (except to the extent the
Administrative Member may determine to distribute any assets in kind) and shall
apply the proceeds of such sale and the remaining Company assets in the
following order of priority:

     

    (a)           Payment
of creditors, including Members who are creditors, to the extent otherwise
permitted by law, in satisfaction of liabilities of the Company, other than
liabilities for distributions to Members;

     

    (b)           To
establish any reserves that the Administrative Member deems reasonably necessary
for contingent or unforeseen obligations of the Company and, at the expiration
of such period as the Administrative Member shall deem advisable, the balance
then remaining in the manner provided in Paragraph (c) below:

     

    (c)           By
the end of the taxable year in which the liquidation occurs (or, if later,
within ninety (90) days after the date of such liquidation), to the Members in
proportion to the positive balances in their respective Capital Accounts, and
then by their respective Percentage Interests.

     

    14.4           No Obligation to Restore
Negative Capital Account Balance on
Liquidation.  Notwithstanding anything to the contrary in this
Agreement, upon a liquidation within the meaning of Regulation Section
1.704-1(b)(2)(ii)(g), if any Member has a negative Capital Account balance
(after giving effect to all contributions, distributions, allocations and other
Capital Account adjustments for all taxable years, including the year during
which such liquidation occurs), such Member shall have no obligation to make any
Capital Contribution to the Company, and the negative balance of such Member's
Capital Account shall not be

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

    considered
a debt owed by such Member to the Company or to any other Person for any purpose
whatsoever.

     

    14.5           Termination.  The
Members shall comply with any applicable requirements of applicable law
pertaining to the winding up of the affairs of the Company and the final
distribution of its assets.  Upon completion of the winding up,
liquidation and distribution of the assets, the Company shall be deemed
terminated.

     

    14.6           Certificate of
Cancellation.  When all debts, liabilities and obligations have
been paid and discharged or adequate provisions have been made therefor and all
of the remaining property and assets have been distributed to the Members, the
Administrative Member shall file a certificate of cancellation as required by
the Act.  Upon filing the certificate of cancellation, the existence
of the Company shall cease, except as otherwise provided in the
Act.

     

    14.7           Return of Contribution
Nonrecourse to Other Members.  Except as provided by law or as
expressly provided in this Agreement, upon dissolution, each Member shall look
solely to the assets of the Company for the return of its Capital
Contribution.  If the property remaining after the payment or
discharge of liabilities of the Company is insufficient to return the
contributions of Members, no Member shall have recourse against any other
Member.

     

    ARTICLE
15

     

    ACTIVITIES
OF ADMINISTRATIVE MEMBER AND MEMBERS

     

    15.1           Independent
Activities.  Each Member and Administrative Member, and their
respective Affiliates shall be entitled to enter into transactions that may be
considered to be competitive with, or a business opportunity that may be
beneficial to, the Company, it being expressly understood that some of the
Members and their Affiliates may enter into transactions that are similar to the
transactions into which the Company may enter, and the Company and each Member
waives the right or claim to participate therein.

     

    15.2           Transactions with Members
and Affiliates.  Nothing herein shall prohibit the Company or
any Project Entity from engaging in any transactions with its Members or its or
their Affiliates provided the same are arm length transactions on commercially
reasonable terms which are no less favorable to the Company or the applicable
Project Entity than the terms available from an unrelated third
party.

     

    ARTICLE
16

     

    DEFAULT

     

    16.1           Default.  A
Member shall be in default (“Defaulting Member”) hereunder upon the occurrence
of any of the following events:

     

    (a)           If
any Member makes an assignment for the benefit of creditors or applies for the
appointment of a trustee, liquidator or receiver of any part of its/his assets
or commences any proceedings relating to such Member under any federal or state
law relating to bankruptcy, insolvency, reorganization or similar
laws;

     

    (b)           If
any Member has a proceeding commenced against him/it relating to the appointment
of a trustee, liquidator or receiver pursuant to any proceedings under any
federal or

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    state law
relating to bankruptcy, insolvency, reorganization or similar laws which is not
actively contested by such Member, provided that such Member shall be in default
hereunder if the subject proceeding is adversely determined to the Member’s
position;

     

    (c)           If
any Member suffers his/its interest in the Company to become subject to any
attachment, levy, execution or other judicial seizure;

     

    (d)           If
any Member transfers his/its interest in violation of Section 12.1;

     

    (e)           If
any Member breaches or fails to perform any other material provision of this
Agreement and such breach or failure is not cured within thirty (30) days after
written notice of breach approved by the non-breaching Member; provided,
however, that while failure to provide funds in response to a call for
Additional Capital Contributions may result in certain consequences described in
Section 8, it shall not cause a Member to become a Defaulting
Member.

     

    16.2           Remedies.  Upon
any Member becoming a Defaulting Member, the Company may take any one or more of
the following actions as determined by the Administrative Member, in addition to
the other actions permitted by this Agreement:

     

    (a)           Dissolve
and terminate the Company as provided in Article 14 and offset against any
amount to be distributed to the Defaulting Member the damages caused to the
Company by the Defaulting Member; or

     

    (b)           Pursue
any remedy at law or in equity against the Defaulting Member.

     

    16.3           Defaulting
Member.  A Defaulting Member shall have no right to vote upon
or otherwise participate in management of the Company, whether as a
Administrative Member or to vote a Percentage Interest, regardless of whether
the remaining Members have commenced to exercise any available
remedies.

     

    16.4           Attorneys’
Fees.  In the event of any litigation, arbitration or other
proceeding (including proceedings in bankruptcy and probate and on appeal),
declaratory or otherwise brought to enforce or interpret this Agreement,
including an action to collect or enforce a judgment or order entered in any
such litigation or proceeding, the prevailing party therein shall be entitled to
the award of its reasonable attorneys' fees from the non-prevailing
party.  “Attorneys' Fees” means and includes all costs and expenses,
including attorneys', paralegals', clerical and consultants' respective fees and
charges expended or incurred in connection with a matter or proceeding arising
out of or in connection with this Agreement.

     

    ARTICLE
17

     

    MISCELLANEOUS
PROVISIONS

     

    17.1           Notices.  Any
notice, demand, or communication required or permitted under this Agreement
shall be deemed to have been duly given if delivered personally to the party to
whom directed or, if mailed by registered or certified mail, postage and charges
prepaid, addressed:

     

    (a)           if
to Baty:

    

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

    c/o
Columbia Pacific Management

    1910
Fairview Avenue East l Suite 500

    Seattle
WA, 98102

    

    (b)           if
to SSL:

     

    c/o Emeritus Corporation

    3131 Elliott Avenue

    Seattle, WA 98121

    Attn:  Eric Mendelsohn, SVP
Corp. Development

    

    with a copy to:

     

    The Nathanson Group PLLC

    One Union Square

    600 University

    Suite 2000

    Seattle,
WA  98101

    Attn: Randi S. Nathanson

    

    (c)           if
to the Company:

     

    to the Company at the address specified
in Section 2.3.

     

    Except as
otherwise provided herein, any such notice shall be deemed to be given when
personally delivered or, if mailed, three (3) business days after the date of
mailing.  A Member or the Company may change its address for the
purposes of notices hereunder by giving notice to the others specifying such
changed address in the manner specified in this Section 17.1.

     

    17.2           Governing
Law.  This Agreement shall be construed and enforced in
accordance with the internal laws, not the law of conflicts, of the State of
Delaware.

     

    17.3           Amendments.  This
Agreement may not be amended except in writing, signed by all of the
Members.

     

    17.4           Construction.  Whenever
the singular number is used in this Agreement and when required by the context,
the same shall include the plural and vice versa, and the masculine gender shall
include the feminine and neuter genders and vice versa.

     

    17.5           Arbitration.  Any
matter that arises involving the performance or interpretation of this Agreement
or the operation and management of the Company that the Members are unable to
settle by mutual agreement, or that requires the consent of both Members and
they are unable to reach agreement, and in any case in which this Agreement
provides for adjustments, changes, settlements, or determinations by mutual
agreement of the parties and the parties are unable to reach a mutually
satisfactory agreement within a reasonable time, shall be settled and determined
by arbitration.  The dispute, controversy or claim may be submitted to
arbitration by either Member by giving the other Member thirty (30) days prior
written notice of intent to do so.  The arbitration shall be conducted
in accordance with the Commercial Rules of the American Arbitration Association,
which shall administer the arbitration and act as appointing
authority.  The arbitration shall be conducted in Seattle,
Washington.

     

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

    17.6           Headings.  The
headings in this Agreement are inserted for convenience only and shall not
affect the interpretations of this Agreement.

     

    17.7           Waivers.  The
failure of any Person to seek redress for violation of or to insist upon the
strict performance of any covenant or condition of this Agreement shall not
prevent a subsequent act, which would have originally constituted a violation,
from having the effect of an original violation.

     

    17.8           Rights and Remedies
Cumulative.  The rights and remedies provided by this Agreement
are cumulative and the use of any one right or remedy shall not preclude or
waive the right to use any or all other remedies.  Said rights and
remedies are given in addition to any other rights the parties may have by law,
statute, ordinance or otherwise.

     

    17.9           Severability.  If
any provision of this Agreement or the application thereof to any Person or
circumstance shall be invalid, illegal or unenforceable to any extent, the
remainder of this Agreement and the application thereof shall not be affected
and shall be enforceable to the fullest extent permitted by law.

     

    17.10                      Heirs, Successors and
Assigns.  Each of the covenants, terms, provisions and
agreements herein contained shall be binding upon and inure to the benefit of
the parties hereto and, to the extent permitted by this Agreement, their
respective heirs, legal representatives, successors and assigns.

     

    17.11                      Creditors.  None
of the provisions of this Agreement shall be for the benefit of or enforceable
by any creditors of the Company.

     

    17.12                      Counterparts.  This
Agreement may be executed in counterparts, each of which shall be deemed an
original and all of which shall constitute one and the same instrument. Delivery of an executed counterpart of a
signature page of this Agreement by electronic transmission or telecopy shall be
effective as delivery of a manually executed counterpart of this
Agreement.

     

    17.13                      Representation as to
Non-Foreign Status.  Each Member represents and warrants to the
other Members and to the Administrative Member that the Member is neither a
“foreign person” nor a “foreign partner” as such terms are defined for purposes
of Sections 1445 and 1446 of the Code.  Each Member agrees to promptly
notify the Company in writing of any change in such status.

     

    17.14                      Investment
Representations.  The Units have not been registered under the
Securities Act of 1993, the Securities Act of Delaware or any other state
securities laws (collectively, the “Securities Acts”) because the Company is
issuing the Units in reliance upon the exemptions from the registration
requirements of the Securities Acts, and the Company is relying upon the fact
that the Units are to be held by each Member for
investment.  Accordingly, each Member hereby confirms the Units have
been acquired for such Member's own account, for investment and not with a view
to the resale or distribution thereof and may not be offered or sold to anyone
unless there is an effective registration or other qualification relating
thereto under all applicable Securities Acts or unless such Member delivers to
the Company an opinion of counsel, satisfactory to the Company, that such
registration or other qualification is not required.  The Members
understand that the Company is under no obligation to register the Units or to
assist any Member in complying with any exemption from registration under the
Securities Acts.

     

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

    Executed
by the undersigned Members effective as of the date first above
written.

     

    (Signature
Pages Follow)

     

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

    

     

    SUMMERVILLE SENIOR LIVING,
INC.

    

    By /s/ Eric
Mendelsohn                                                                

          Eric
Mendelsohn

          Its Senior
V.P. Corporate Development

     

    

    

    

    /s/ Daniel R.
Baty                                           

    DANIEL R. BATY

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    SCHEDULE
1

    

    MEMBER
INFORMATION

    

    
      	
              Member Name and Address

            	
               

              Capital Contribution1

            	
               

              Number of Units

            	
               

              Percentage Interest

            
	
               

              Daniel
      R. Baty

              c/o
      Columbia Pacific Management, Inc.

              1910
      Fairview Avenue East

              Suite
      500

              Seattle,
      WA 98102

               

            	 
      	
               

              50

            	
               

              50%

            
	
               

              Summerville
      Senior Living, Inc.

              3131
      Elliott Avenue

              Suite
      500

              Seattle,
      WA 98121

            	 
      	
               

              50

            	
               

              50%

            

    

    

    

    

    

      

    

     

      1 The Members’ initial Capital Contributions will be based on
the equity required to complete the acquisition of the Project Properties. Once
determined, the Members will enter into a First Amendment to this Agreement
confirming the amounts of the Members’ initial Capital
Contributions.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    EXHIBIT
A

    APPRAISAL
PROCEDURE

    

    Each
party shall within ten (10)
days after written demand by the other select one MAI Appraiser to
participate in the determination of Fair Market Value.  For all
purposes, the Fair Market Value shall be the fair market value of the Project
Property unencumbered by any operating lease to which it may then be subject and
without any value being attributed to the benefits, if any, of the Net Cash Flow
Agreement. Within ten (10)
days of such selection, the MAI Appraisers so selected by the parties
shall select a third (3rd) MAI
Appraiser.  The three (3) selected MAI Appraisers shall each determine
the Fair Market Value of the Project Property within thirty (30) days of the
selection of the third (3rd)
appraiser.  To the extent consistent with sound appraisal practices as
then existing at the time of any such appraisal, and if requested by the
Members, such appraisal shall be made on a basis consistent with the basis on
which the Project Property was appraised at the time of its acquisition by the
applicable Project Entity.  The Members shall share the fees and
expenses of any MAI Appraiser retained pursuant to this Exhibit pro rata based
on their Percentage Interests.

     

    If either
party fails to select a MAI Appraiser within the time period set forth in the
foregoing paragraph, the MAI Appraiser selected by the other party shall alone
determine the fair market value of the Project Property in accordance with the
provisions of this Exhibit and the Fair Market Value so determined shall be
binding upon the parties. If the MAI Appraisers selected by the parties are
unable to agree upon a third (3rd) MAI
Appraiser within the time period set forth in the foregoing paragraph, either
party shall have the right to apply to the presiding judge of the court of
original trial jurisdiction in the county in which the Project Property is
located to name the third (3rd) MAI
Appraiser. The cost of any such proceeding shall be shared by the Members pro
rata based on their Percentage Interests.

     

    Within
five (5) days after
completion of the third (3rd) MAI
Appraiser’s appraisal, all three (3) MAI Appraisers shall meet and a majority of
the MAI Appraisers shall attempt to determine the fair market value of the
Project Property. If a majority are unable to determine the fair market value at
such meeting, the three (3) appraisals shall be added together and their total
divided by three (3).  The resulting quotient shall be the Fair Market
Value.  If, however, either or both of the low appraisal or the high
appraisal are more than ten
percent (10%) lower or higher than the middle appraisal, any such lower
or higher appraisal shall be disregarded.  If only one (1) appraisal
is disregarded, the remaining two (2) appraisals shall be added together and
their total divided by two (2), and the resulting quotient shall be such Fair
Market Value.  If both the lower appraisal and higher appraisal are
disregarded as provided herein, the middle appraisal shall be such Fair Market
Value.  In any event, the result of the foregoing appraisal process
shall be final and binding.

     

    “MAI Appraiser” shall mean an
appraiser licensed or otherwise qualified to do business in the state where the
Project Property is located and who has substantial experience in performing
appraisals of facilities similar to the Project Property and is certified as a
member of the American Institute of Real Estate Appraisers or certified as a
SRPA by the Society of Real Estate Appraisers, or, if such organizations no
longer exist or certify appraisers, such successor organization or such other
organization as is approved by the Members.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
B-1 THROUGH B-8

     

    THE
PROJECT PROPERTIES LEGAL DESCRIPTIONS

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
C

     

    THE
FACILITIES

     

    

     

    
      	
              Facility
      Name, Address and Number of Beds/Units

            	
              Project
      Entity Owner

            	
              Tenant

            
	
              Emeritus
      at Grand Terrace

              22325
      Barton Road

              Grand
      Terrace, CA 92313

            	
              EMERITOL
      GRAND TERRACE INC

            	
              Emeritus
      Corporation

            
	
              Seville
      Estates

              7401
      Seville Drive

              Amarillo,
      TX 79121

            	
              EMERITOL
      SEVILLE ESTATES LLC

            	
              ESC
      IV, L.P., a Washington limited partnership

            
	
              Dowlen
      Oaks

              2250
      Dowlen Road

              Beaumont,
      TX 77706

            	
              EMERITOL
      DOWLEN OAKS LLC

            	
              ESC
      IV, L.P., a Washington limited partnership

            
	
              Saddleridge
      Lodge

              1808
      W Loop 250 N

              Midland,
      TX 79705

            	
              EMERITOL
      SADDLERIDGE LODGE LLC

            	
              ESC
      IV, L.P., a Washington limited partnership

            
	
              Meadowlands
      Terrace

              3801
      Martin Luther King Jr. Blvd

              Waco,
      TX 76708

            	
              EMERITOL
      MEADOWLANDS TERRACE LLC

            	
              ESC
      IV, L.P., a Washington limited partnership

            
	
              Lakeridge
      Place

              2649
      Plaza Parkway

              Wichita
      Falls, TX 76308

            	
              EMERITOL
      LAKERIDGE PLACE LLC

            	
              ESC
      IV, L.P., a Washington limited partnership

            
	
              Eastman
      Estates

              2920
      N. Eastman Road

              Longview,
      TX  75605

            	
              EMERITOL
      EASTMAN ESTATES LLC

            	
              ESC
      IV, L.P., a Washington limited
partnership

            

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    
      	
              Harbour
      Pointe Shores

              1020
      Catala Avenue SE

              Ocean
      Shores, WA 98569

            	
              EMERITOL
      HARBOUR POINTE SHORES LLC

            	
              Emeritus
      Corporation

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