Document:

EX 10.12.1 Purchase Sale Agreement HRT Mar 2007

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    AGREEMENT
      OF SALE AND PURCHASE

     

    THIS
      AGREEMENT OF SALE AND PURCHASE
      (the
“Agreement”) is dated as of March 7, 2007, to be effective as of the Effective
      Date, and is made and entered into by and between the entities that have
      executed this Agreement on the signature pages hereto as sellers (individually,
      a “Seller” and collectively, the “Sellers”), and EMERITUS
      CORPORATION, a
      Washington corporation, as purchaser (the “Purchaser”). Each Seller and
      Purchaser are sometimes individually referred to as a “Party” and collectively
      referred to as the “Parties”.

     

    WHEREAS,
      Sellers
      are the owners of the Facilities, the Emeritus Mortgage Loan and the Term
      Mortgage Loan as provided herein; and

     

    WHEREAS,
      Sellers
      desire to sell and Purchaser desires to purchase the Facilities and to terminate
      the Tenant Leases; and

     

    WHEREAS,
      in
      connection with the sale and purchase of the Facilities and the termination
      of
      the Tenant Leases, Purchaser has agreed either to pay the unpaid amounts owed
      under the Emeritus Mortgage Loan required to pay the Emeritus Mortgage Loan
      in
      full or to cause the purchase of the Emeritus Mortgage Loan at the Closing
      as
      provided herein; and

     

    WHEREAS,
      in
      connection with the sale and purchase of the Facilities and the termination
      of
      the Tenant Leases, Purchaser has agreed to pay the unpaid amounts owed under
      the
      Term Mortgage Loan required to pay the Term Mortgage Loan in full at the
      Closing;

     

    NOW,
      THEREFORE,
      in
      consideration of the sum of Ten Dollars ($10.00), the mutual covenants and
      agreements contained herein and other good and valuable consideration, the
      receipt and sufficiency of which are hereby acknowledged, the Parties agree
      as
      follows:

     

    ARTICLE
      I  

     

    DEFINITIONS
      AND INTERPRETATION

     

    1.1  Definitions. As
      used
      herein, the following defined terms shall have the meanings set forth
      below:

     

    “Affiliate”
      shall
      mean any Person that directly or indirectly controls, is under common control
      with, or is controlled by any other Person. For purposes of this definition,
      “controls”, “under common control with” and “controlled by” shall mean the
      possession, directly or indirectly, of the power to direct or cause the
      direction of the management and policies of such Person, whether through
      ownership of voting securities or otherwise.

     

    “Appurtenant
      Rights”
      shall
      mean all rights, privileges and easements appurtenant to the Land that
      permissibly pass by operation of law with the conveyance by the applicable
      Seller of the fee simple estate in the Land.

     

    “Assumed
      Business Agreements”
      shall
      mean all Business Agreements that (i) Purchaser agrees to assume as provided
      in
Section
      4.3
      hereof,
      and (ii) are assigned to Purchaser pursuant to the General Assignment for a
      Facility.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Assumed
      Liabilities”
      shall
      mean the following:

     

    (a)  all
      obligations of Sellers that arise or accrue under the Assumed Business
      Agreements relating to a particular Facility on and after the effective date
      of
      the General Assignment for such Facility;

     

    (b)  all
      obligations under any Permit and Warranty assigned to Purchaser that arise
      or
      accrue on or after the effective date of the General Assignment for the Facility
      to which such Permit and Warranty relates;

     

    (c)  all
      Property Taxes and all other obligations with respect to a Facility that accrued
      prior to the Closing Date for such Facility but which are not due for payment
      until after the Closing Date;

     

    (d)  all
      Property Taxes and all other obligations with respect to a Facility that accrue
      on and after the Closing Date; and

     

    (e)  all
      obligations, liabilities, damages, losses, claims, expenses and costs relating
      to the Facilities arising or accruing on or prior to the Closing Date that
      the
      Tenant under each of the Tenant Leases was obligated, liable or responsible
      to
      pay or perform under the terms of such Tenant Lease.

     

    “Bankruptcy/Dissolution
      Event” shall
      mean the occurrence of any of the following: (a) the commencement of a case
      under Title 11 of the U.S. Code, as now constituted or hereafter amended, or
      under any other applicable federal or state bankruptcy law or other similar
      law;
      (b) the appointment of a trustee or receiver of any property interest; (c)
      an
      assignment for the benefit of creditors; (d) an attachment, execution or other
      judicial seizure of a substantial property interest; (e) the taking of, failure
      to take, or submission to any action indicating an inability to meet financial
      obligations as they accrue; or (f) a dissolution or liquidation.

     

    “Bill
      of Sale”
      shall
      mean a bill of sale substantially in the form of Exhibit
      A
      hereto
      by which the applicable Seller for a Facility conveys to Purchaser such Seller’s
      right, title and interest, if any, in and to the Personal Property located
      at
      such Facility.

     

    “Business
      Agreement”
      shall
      mean any management agreement, service contract, contractor agreement,
      construction contract or other agreement or instrument affecting all or a
      portion of the Facilities or the operation thereof to which a Seller is party
      and that is assignable by such Seller without the consent or approval of any
      other Person.

     

    “Business
      Day”
      shall
      mean any calendar day other than a Saturday, a Sunday or a day on which national
      banks are not required or authorized by law to remain closed.

     

    “Closing”
      shall
      mean the closing of the purchase and sale of the Facilities contemplated by
      this
      Agreement.

     

    “Closing
      Date”
      shall
      mean March 16, 2007.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    “Code”
      shall
      mean the United States Internal Revenue Code of 1986, as amended, and all
      regulations promulgated thereunder.

     

    “Deeds”
      shall
      mean special warranty deeds substantially in the form of Exhibit
      B
      hereto,
      modified to reflect a special warranty deed (or the equivalent) for the
      applicable states where each of the Facilities is located, by which the
      applicable Seller conveys the Land, the Improvements and Appurtenant Rights
      comprising or relating to a Facility to Purchaser.

     

    “Earnest
      Money”
      shall
      have the meaning set forth in Section
      2.1
      hereof.

     

    “Effective
      Date”
      shall
      mean the latest of the dates of the execution of this Agreement by a Seller
      and
      Purchaser as evidenced by the dates appearing under their respective signatures
      hereto.

     

    “Emeritus
      Mortgage Loan”
      shall
      mean the mortgage loan identified on Exhibit
      G-1
      hereto
      that encumbers one or more of the Tenant Leases.

     

    “Escrow
      Agreement”
      shall
      mean an escrow agreement substantially in the form of Exhibit
      C
      hereto
      by and among Sellers, Purchaser and Title Company with respect to the terms
      of
      the escrow of the Earnest Money.

     

    “Facilities”
      shall
      mean the Land, the Improvements and the Appurtenant Interests associated
      therewith comprising the senior living facilities identified on Exhibit
      D
      hereto.

     

    “Forum”
      shall
      mean any federal, state, local or municipal court, governmental agency,
      administrative body or agency, tribunal, private alternative dispute resolution
      system or arbitration panel.

     

    “General
      Assignment”
      shall
      mean one of the assignments between Purchaser and the applicable Seller,
      substantially in the form of Exhibit
      E
      hereto,
      pursuant to which the right, title and interest of such Seller in and to the
      Assumed Business Agreements and the Permits and Warranties relating to a
      Facility are assigned to, and obligations thereunder are assumed by,
      Purchaser.

     

    “Government”
      shall
      mean any federal, state, local or municipal government or any department,
      commission, board, bureau, agency, instrumentality, unit or taxing authority
      thereof.

     

    “Governmental
      Requirements”
      shall
      mean any notices, filings or pre-approvals required by a Government in
      connection with the transfer of ownership of any of the Facilities.

     

    “HR”
      shall
      mean Healthcare Realty Trust Incorporated, a Maryland corporation and an
      Affiliate of Sellers.

     

    “Improvements”
      shall
      mean all buildings, improvements, structures and fixtures to the extent now,
      and
      on the Closing Date, owned by Sellers and comprising the Facilities, including
      landscaping, parking lot improvements and structures, drainage facilities and
      all above ground and underground utility structures and other so-called
      infrastructure improvements comprising a part thereof to the extent any of
      the
      same may be owned by Sellers.

     

    
      
        
        

      

      
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    “Land”
      means
      the real property owned in fee simple by Sellers upon which the Facilities
      are
      located.

     

    “Laws”
      means
      all federal, state and local laws, moratoria, initiatives, referenda,
      ordinances, rules, regulations, standards, orders and other governmental
      requirements, including those relating to the environment, health and safety,
      disabled or handicapped persons, and as applicable, to the licensing of a
      Facility.

     

    “Lease
      Termination”
      shall
      mean a lease termination agreement, substantially in the form of Exhibit
      F
      hereto,
      pursuant to which the applicable Seller and the Tenant under a Tenant Lease
      agree to terminate such Tenant Lease effective as of the Closing
      Date.

     

    “Mortgage
      Loan Assignee”
      shall
      mean an Affiliate of Purchaser designated by Purchaser in accordance with
Section
      2.3(a)
      hereto
      to purchase the Emeritus Mortgage Loan as provided herein.

     

    “Mortgage
      Assignment”
      shall
      mean an assignment and assumption agreement, substantially in the form of
Exhibit
      J
      hereto,
      pursuant to which HR’s right, title and interest in and to the Emeritus Mortgage
      Loan and the Mortgage Loan Documents relating thereto are assigned to, and
      HR’s
      obligations thereunder are assumed by, the Mortgage Loan Assignee.

     

    “Mortgage
      Loan Documents”
      shall
      mean all promissory notes, mortgages, deeds of trust, loan agreements,
      participation agreements and other documents evidencing or securing the Emeritus
      Mortgage Loan.

     

    “Orders”
      shall
      mean all applicable orders, writs, judgments, decrees, rulings, consent
      agreements and awards of or by any Forum or entered by consent of the party
      to
      be bound.

     

    “Permits
      and Warranties”
      shall
      mean the following, to the extent that they relate exclusively to the Facilities
      and are assignable by the applicable Seller without the consent or approval
      of
      any other Person: (i) certificates of occupancy and permits or approvals of
      any
      nature from any Government; and (ii)
      guarantees, warranties and indemnities, if any, pertaining to the ownership
      of
      the Land or the Improvements.

     

    “Permitted
      Exceptions”
      shall
mean
      (a)
      all liens for Property Taxes that are not yet due and payable; (b) easements,
      restrictions, covenants and other encumbrances of record as of the Effective
      Date; (c) any state of facts that would be disclosed by an accurate survey
      or
      independent inspection of the Facilities; (d) all applicable building and zoning
      ordinances, Laws, regulations and restrictions of any Government; (e) such
      easements, restrictions, covenants and other encumbrances that become matters
      of
      public record after the Effective Date and before the Closing to the extent
      that
      such matters are waived or accepted, or deemed to be waived or accepted, by
      Purchaser; and (f) the rights of residents of the Facilities.

     

    “Person”
      shall
      mean an individual, a partnership, a joint venture, a corporation, a limited
      liability company, a trust, an unincorporated organization, a Government and
      any
      other legal entity.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    “Personal
      Property”
      shall
      mean all tangible personal property of any kind located on or in the Facilities
      and owned by Sellers, including, without limitation, equipment, appliances,
      machinery, furniture, furnishings, signage and fixtures.

     

    “Property
      Taxes”
      shall
      mean all ad valorem, real property and personal property taxes, all general
      and
      special private and public assessments, all other property taxes, and all
      similar obligations relating to the Land and the Improvements.

     

    “Purchase
      Price”
      shall
      mean the amount of Ninety-Eight Million Nine Hundred Ninety-Eight Thousand
      Eight
      Hundred Fourteen and No/100 Dollars ($98,998,814.00).

     

    “Rent”
      shall
      mean all rental payments due under the Tenant Leases prior to the Closing
      Date.

     

    “Tenant”
      shall
      mean each party named as the tenant or lessee under any Tenant
      Lease.

     

    “Tenant
      Lease”
      shall
      mean each of the leases, license agreements and other occupancy agreements
      for
      the rental of a Facility identified on Exhibit
      H
      hereto,
      as amended, modified or extended through the Effective Date, together with
      all
      renewals, modifications, addenda, guarantees and other security documents
      relating to any and all such leases, license agreements or other occupancy
      agreements.

     

    “Term
      Mortgage Loan”
      shall
      mean the mortgage loan identified on Exhibit
      G-2
      hereto
      that encumbers one or more of the Tenant Leases.

     

    “Title
      Company”
      shall
      mean Fidelity
      National Title Insurance Company.

     

    1.2  Interpretation.
      In this
      Agreement, the singular includes the plural and the plural the singular; words
      importing any gender include the other gender; references to statutes,
      regulations or ordinances are to be construed as including all provisions
      consolidating, amending or replacing the referenced statute, regulation or
      ordinance; references to agreements and other contractual instruments shall
      be
      deemed to include all subsequent amendments to or changes in such agreements
      or
      instruments entered into in accordance with their respective terms; references
      to Persons include their permitted successors and assigns; use of the term
      “include” or “including” shall mean to include or including without limitation;
      and references to a “Section” or “Article” shall mean a section or article of
      this Agreement unless otherwise expressly stated.

     

    ARTICLE
      II  

     

    PURCHASE
      AND SALE

     

    2.1  Purchase
      and Sale.
      Upon
      the terms and subject to the conditions set forth in this Agreement, Sellers
      at
      the Closing shall sell, transfer and assign to Purchaser all right, title and
      interest of Sellers in and to the Facilities free and clear of any mortgage,
      security interest, lien, charge, claim or other encumbrance except the Permitted
      Exceptions, and Purchaser shall purchase such Facilities for the Purchase Price.
      Prior to the Effective Date, Purchaser has deposited with Title Company the
      amount of One Million Three Hundred Fourteen Thousand Two Hundred Seventy-Two
      and No/100 Dollars ($1,314,272.00) as an earnest money deposit 

     

    
      
        
        

      

      
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    (the
      “Earnest Money”), which Title Company shall continue to hold pursuant to the
      Escrow Agreement. Purchaser shall be entitled to apply the Earnest Money to
      the
      payment of the portion of the Purchase Price due from Purchaser at the Closing.
      The Earnest Money is refundable only in the event that this Agreement is
      terminated pursuant to Sections
      9.1(a)(i), 9.1(a)(ii), 9.1(a)(iii) or 9.1(a)(iv)
      hereof.
      Except as set forth in the immediately preceding sentence, the Earnest Money
      is
      not refundable to Purchaser under any circumstances and shall be deemed to
      be
      consideration earned by Sellers for the execution and delivery of this
      Agreement, and the forfeiture of any Earnest Money pursuant to this Agreement
      shall not be deemed to be liquidated damages or otherwise to limit Seller’s
      remedies for a breach or default by Purchaser under this Agreement.

     

    2.2  Assumption
      of Liabilities.
      Upon
      the terms and subject to the conditions set forth in this Agreement, Purchaser,
      as of the Closing Date, shall assume all of the Assumed
      Liabilities.

     

    2.3  Purchase
      Price.

     

    (a)  The
      Purchase Price shall be subject to adjustment only as set forth in this
Section
      2.3.
      Property Taxes, water/sewer charges, gas, electric, telephone and other
      utilities, and other operating expenses relating to the Facilities are the
      responsibility of the Tenants under the Tenant Leases and shall not be prorated.
      All unpaid Rent and any other amounts due and payable under the Tenant Leases
      as
      of the Closing Date shall be charged to Purchaser and paid at the Closing,
      and
      Rent for the month in which Closing occurs shall be prorated through the Closing
      Date. Sellers shall retain all security deposits and other similar deposits
      relating to the Tenant Leases, and Purchaser shall receive a credit for such
      deposits at the Closing. In addition to the payment of the Purchase Price,
      Purchaser shall, at and as a condition to the Closing, be obligated (i) to
      pay
      all unpaid amounts that are owed under the Term Mortgage Loan which are required
      to pay the Term Mortgage Loan in full, and (ii) either (A) to pay all unpaid
      amounts that are owed under the Emeritus Mortgage Loan which are required to
      pay
      the Emeritus Mortgage Loan in full or (B) to cause the Mortgage Loan Assignee
      to
      purchase the Emeritus Mortgage Loan from HR for a purchase price equal to all
      unpaid amounts that are owed under the Emeritus Mortgage Loan in consideration
      of HR’s execution and delivery of the Mortgage Assignment to the Mortgage Loan
      Assignee at the Closing. If Purchaser elects to pay the Emeritus Mortgage Loan
      in full at the Closing, Purchaser must provide, not less than two (2) Business
      Days prior to the Closing Date, written notice to Sellers of any such election,
      and, in the absence of such written notice of Purchaser’s election, Purchaser
      shall cause the Mortgage Loan Assignee to purchase the Emeritus Mortgage Loan
      from HR at the Closing for a purchase price equal to all unpaid amounts that
      are
      owed under the Emeritus Mortgage Loan. Purchaser shall identify the Mortgage
      Loan Assignee in a written notice to Sellers not less than three (3) Business
      Days prior to the Closing Date. Sellers shall cause HR to accept, or cause
      the
      acceptance of, prepayment of the Term Mortgage Loan and, as applicable, accept
      the prepayment, or complete the sale as contemplated herein, of the Emeritus
      Mortgage Loan irrespective of the failure of Purchaser to satisfy any applicable
      prepayment notice requirements, and to deliver a payoff letter to Purchaser
      at
      least three (3) Business Days prior to the Closing Date.

     

    (b)  In
      addition to any adjustments to the Purchase Price pursuant to Section
      2.3(a)
      hereof,
      the Purchase Price shall be subject to further adjustment as set forth
      below:

     

    
      
        
        

      

      
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    (i)  the
      Purchase Price shall be adjusted to reflect any expense paid by one Party that
      the other Party has agreed to pay or share pursuant to Section
      11.1
      hereof
      or otherwise pursuant to this Agreement; and

     

    (ii)  for
      any
      Facility that is not purchased by Purchaser pursuant to Section
      10.2
      hereof,
      the Purchase Price shall be decreased by an amount determined in accordance
      with
Section
      10.2
      hereof.

     

    (c)  After
      taking into account any adjustments to the Purchase Price as set forth above,
      the Purchase Price (plus the unpaid amounts owed under the Term Mortgage Loan
      required to pay the Term Mortgage Loan in full and either the unpaid amounts
      owed under the Emeritus Mortgage Loan required to pay the Emeritus Mortgage
      Loan
      in full or the purchase price of the Emeritus Mortgage Loan if it is to be
      purchased as provided herein) shall be paid by Purchaser (and the Mortgage
      Loan
      Assignee as provided herein) by wire transfer of immediately available funds
      to
      an escrow account maintained by Title Company for delivery to Sellers (and
      HR,
      as applicable) upon the consummation of the Closing. As soon as possible after
      the Closing (but not later than thirty (30) days after the Closing Date), the
      Parties shall reconcile the actual amount of any prorations that were estimated
      as of the Closing. To the extent that a Party subsequently verifies that the
      actual amounts differ from the amounts estimated and so prorated, the Parties
      agree to remit the correct amount of such items to the appropriate Party as
      and
      when they are determined. The terms of this Section
      2.3
      shall
      survive the Closing.

     

    2.4  Deliveries
      at Closing.

     

    (a)  At
      the
      Closing, Sellers shall deliver to Purchaser, or cause the delivery to Purchaser
      of, the following:

     

    (i)  A
      certificate of an authorized representative of each Seller, dated the Closing
      Date, certifying that attached thereto is a true and complete copy of
      resolutions or limited partnership documentation, as applicable, adopted by
      such
      Seller authorizing the execution, delivery and performance of this Agreement
      and
      the documents and instruments to be executed and delivered by such Seller
      pursuant hereto, and that all such resolutions or limited partnership
      documentation, as applicable, are still in full force and effect and have not
      been amended or modified;

     

    (ii)  A
      General
      Assignment, duly executed by the applicable Seller, assigning to Purchaser
      the
      Permits and Warranties and Assumed Business Agreements relating to the
      Facilities that are sold and transferred on the Closing Date;

     

    (iii)  A
      separate Lease Termination, duly executed by the applicable Seller, for each
      Tenant Lease by which such Seller agrees to the termination of such Tenant
      Lease
      as of the Closing Date;

     

    (iv)  A
      separate Bill of Sale, duly executed by the applicable Seller, for each Facility
      conveyed by such Seller to Purchaser;

     

    
      
        
        

      

      
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    (v)  The
      Deeds, duly executed by the applicable Sellers, relating to the Facilities
      that
      are sold and transferred on the Closing Date;

     

    (vi)  Releases
      of the leasehold mortgages or deeds of trust and other instruments that secure
      the repayment of the Term Mortgage Loan and the Emeritus Mortgage
      Loan;

     

    (vii)  A
      statement executed by each Seller in form and substance acceptable under Section
      1445 of the Internal Revenue Code, as amended, setting forth such Seller’s
      United States taxpayer identification number and certifying that Seller is
      not a
“foreign person” as that term is used under Section 1445(b)(2) of the Internal
      Revenue Code, as amended;

     

    (viii)  Copies
      of
      any engineering plans, drawings, specifications and blueprints in the possession
      of Sellers and relating to the Improvements;

     

    (ix)  A
      closing
      statement executed by the applicable Sellers itemizing the Purchase Price and
      all adjustments thereto as provided herein;

     

    (x)  An
      owner’s title affidavit substantially in the form of Exhibit
      I
      hereto
      duly executed by each applicable Seller relating to the Land and Improvements
      that are sold and transferred on the Closing Date and owned by such Seller;
      and

     

    (xi)  In
      the
      event that the Emeritus Mortgage Loan is to be purchased by the Mortgage Loan
      Assignee as permitted by this Agreement, the Mortgage Assignment duly executed
      by HR.

     

    (b)  At
      the
      Closing, Purchaser shall deliver to Sellers or HR, as applicable, or cause
      the
      delivery to Sellers or HR, as applicable of, the following:

     

    (i)  A
      certificate of the Secretary or an Assistant Secretary of Purchaser, dated
      the
      Closing Date, certifying that attached thereto is a true and complete copy
      of
      resolutions adopted by the board of directors of Purchaser authorizing the
      execution, delivery and performance of this Agreement and the documents and
      instruments to be executed and delivered by Purchaser pursuant hereto, and
      that
      all such resolutions are still in full force and effect and have not been
      amended or modified;

     

    (ii)  The
      funds
      constituting the portion of the Purchase Price allocable to the Facilities
      that
      are sold and transferred on the Closing Date, as required under Section
      2.3
      hereof;

     

    (iii)  All
      unpaid amounts that are owed under the Term Mortgage Loan which are required
      to
      pay the Term Mortgage Loan in full as of the Closing Date;

     

    (iv)  All
      unpaid amounts that are owed under the Emeritus Mortgage Loan which are required
      to pay the Emeritus Mortgage Loan in full as of the Closing Date, or, if the
      Emeritus Mortgage Loan is to be purchased and sold as provided herein, the
      purchase price of the Emeritus Mortgage Loan equal to all unpaid amounts under
      the Emeritus Mortgage Loan that would be required to pay the Emeritus Mortgage
      Loan in full;

     

    
      
        
        

      

      
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    (v)  A
      General
      Assignment, duly executed by Purchaser, by which Purchaser assumes the payment
      and performance of the obligations of the applicable Seller under the Permits
      and Warranties and Assumed Business Agreements assigned to Purchaser thereby
      and
      relating to a Facility that is sold and transferred by such Seller on the
      Closing Date;

     

    (vi)  A
      separate Lease Termination, duly executed by Purchaser, for each Tenant Lease
      by
      which the Tenant thereunder agrees to the termination of such Tenant
      Lease;

     

    (vii)  Executed
      waivers of the rights of first refusal under the Tenant Leases held by any
      Tenants (other than Purchaser) in a form acceptable to Sellers;

     

    (viii)  A
      closing
      statement executed by Purchaser itemizing the Purchase Price and all adjustments
      thereto as provided herein;

     

    (ix)  In
      the
      event that the Emeritus Mortgage Loan is to be purchased by the Mortgage Loan
      Assignee as permitted by this Agreement, the Mortgage Assignment duly executed
      by the Mortgage Loan Assignee.

     

    2.5  Further
      Assurances.
      From
      time to time after the Closing, Sellers shall, upon Purchaser’s reasonable
      request and at Purchaser’s sole expense, execute, acknowledge and deliver to
      Purchaser such other instruments of transfer and conveyance and shall take
      such
      other actions and execute and deliver such other documents, certifications
      and
      further assurances as Purchaser may reasonably require to vest more effectively
      in Purchaser, or to put Purchaser more fully in possession of, any of the
      Facilities, or to better enable Purchaser to complete, perform and discharge
      the
      Assumed Liabilities. Each Party shall cooperate with the other and shall execute
      and deliver to another Party such other instruments and documents and take
      such
      other actions as may be reasonably requested from time to time by another Party
      hereto as necessary to carry out, evidence and confirm the intended purposes
      of
      this Agreement.

     

    2.6  Delivery
      of Possession.
      Possession of the Facilities sold, transferred and assigned at the Closing
      shall
      be delivered to Purchaser effective as of the Closing Date.

     

    ARTICLE
      III  

     

    REPRESENTATIONS
      AND WARRANTIES OF SELLERS

     

    Sellers
      hereby represent and warrant to Purchaser as of the Effective Date as
      follows:

     

    3.1  Organization,
      Qualifications and Corporate Power. Each
      Seller is duly formed or incorporated, as the case may be, and validly existing
      and in good standing under the laws of its state of formation or incorporation,
      as the case may be, and is qualified or authorized to conduct business in each
      state where the failure to be so qualified or authorized could reasonably be
      expected to have a material adverse effect upon the business of Sellers taken
      as
      a whole. Sellers have the power and authority to execute, deliver and perform
      the Escrow Agreement, this Agreement and the other agreements, documents and
      certificates contemplated to be delivered by them pursuant to this
      Agreement.

     

    
      
        
        

      

      
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    3.2  Authorization.
      The
      execution, delivery and performance by Sellers of this Agreement and the
      instruments contemplated to be delivered by Sellers pursuant to this Agreement
      at the Closing have been duly authorized by necessary corporate or partnership
      action, as applicable.

     

    3.3  Validity.
      This
      Agreement has been duly executed and delivered by Sellers and constitutes the
      legal, valid and binding obligation of Sellers, enforceable in accordance with
      its terms, subject to general equity principles and to applicable bankruptcy,
      insolvency, reorganization, moratorium and similar laws from time to time in
      effect affecting the enforcement of creditors’ rights. The Escrow Agreement and
      each Deed, General Assignment, Bill of Sale, Lease Termination and other
      agreement, document and certificate to be executed and delivered by Sellers
      hereunder shall, when so executed and delivered in accordance with this
      Agreement by the applicable Sellers, constitute the legal, valid and binding
      obligation of the applicable Sellers enforceable in accordance with its terms,
      subject to general equity principles and to applicable bankruptcy, insolvency,
      reorganization, moratorium and similar laws from time to time in effect
      affecting the enforcement of creditors’ rights.

     

    3.4  Non-Contravention.
      The
      execution and delivery of this Agreement and the other agreements, documents
      and
      certificates contemplated to be executed and delivered by Sellers pursuant
      to
      this Agreement do not, and the consummation by Sellers of the transactions
      contemplated hereby and thereby shall not, violate any provision of their
      respective articles of incorporation or bylaws or partnership agreement, as
      the
      case may be.

     

    3.5  Litigation.
      No
      Seller is a party to or subject to any judgment, decree or order entered in
      any
      lawsuit or proceeding brought by any Government or other party seeking to
      prevent the execution of this Agreement or the consummation of the transactions
      contemplated hereby.

     

    3.6  Assets.
      The
      applicable Seller has good and marketable title to each Facility to be conveyed
      by such Seller. At the Closing, each Facility shall be free and clear of any
      and
      all mortgages, pledges, security interests, liens, charges and conditional
      sales
      agreements granted by Sellers, except for the Permitted Exceptions and subject
      to execution and delivery by the Tenants of the Lease Terminations.
      To
      Sellers’ Knowledge, the zoning classification for each of the Facilities located
      in the Commonwealth of Pennsylvania is set forth in Schedule
      3.6
      hereto.

     

    3.7  No
      Bankruptcy or Dissolution.
      No
      Bankruptcy/Dissolution Event has occurred with respect to any
      Seller.

     

    ARTICLE
      IV  

     

    COVENANTS
      OF SELLERS

     

    4.1  Transfer
      of Permits.
      Sellers
      shall use commercially reasonable efforts to assist Purchaser with the
      assumption, transfer or reissuance of any licenses, permits or approvals
      required for the operation of the Facilities that do not constitute Permits
      and
      Warranties; provided, however, that Sellers shall not incur any material cost,
      expense or liability in connection with such efforts or in connection with
      the
      assumption, transfer or reissuance of any such licenses, permits or approvals
      that do not constitute Permits and Warranties.

     

    
      
        
        

      

      
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    4.2  Cooperation.
      Insofar
      as such conditions are within their reasonable control or influence, Sellers
      shall use commercially reasonable efforts to cause the conditions set forth
      in
Section
      7.2
      hereof
      to be satisfied and to facilitate and cause the consummation of the transactions
      contemplated hereby; provided, however, that no Seller shall be required to
      make
      any payment to any party (other than reimbursement of expenses), guarantee
      any
      Business Agreement or remain liable for the payment thereof following the
      Closing Date with respect to any matters arising on or after the Closing Date,
      or agree to any concessions or amendments to other contracts, leases or
      arrangements with such party in order to obtain any such consent or
      approval.

     

    4.3  Delivery
      of Documents.
      No later
      than five (5) Business Days after the Effective Date, Sellers shall provide,
      or
      otherwise make available, to Purchaser the following, to the extent such
      information and materials are in Sellers’ possession and available without
      immediate disclosure of the confidential nature of this Agreement:

     

    (a)  True
      copies of all Business Agreements;

     

    (b)  True
      copies of any existing surveys of any of the Facilities to the extent in the
      possession of Sellers; and

     

    (c)  True
      copies of title commitments with respect to the Facilities, each of which has
      an
      effective date that is not earlier than seventy-five (75) days prior to the
      date
      of this Agreement.

     

    Purchaser
      shall have the right to assume any such Business Agreements relating to a
      Facility pursuant to the General Assignment therefor so long as Purchaser
      provides written notice to Sellers no later than three (3) Business Days prior
      to the Closing Date that identifies those Business Agreements which Purchaser
      has elected to assume as of the Closing Date, and any Business Agreements not
      so
      assumed by Purchaser shall be terminated by Seller at its sole cost and
      expense.

     

    4.4  No
      New Business Agreements.
      During
      the period commencing on the Effective Date and continuing through the earlier
      of the Closing Date or the prior termination of this Agreement, no Seller shall,
      without the prior written consent of Purchaser, which may be given or withheld
      in Purchaser’s sole and absolute discretion, enter into or modify any Business
      Agreements, or any agreements for the use and occupancy of any of the
      Facilities, that will survive the Closing.

     

    ARTICLE
      V  

     

    REPRESENTATIONS
      AND WARRANTIES OF PURCHASER

     

    Purchaser
      represents and warrants to Sellers as follows:

     

    5.1  Organization,
      Corporate Power and Authorization.
      Purchaser is a corporation duly organized, validly existing and in good standing
      under the laws of the State of Washington and in each other jurisdiction in
      which it is lawfully required to qualify to conduct business. Purchaser has
      the
      corporate power and authority to execute, deliver and perform this Agreement
      and
      the other agreements, documents and certificates contemplated to be executed
      and
      delivered 

     

    
      
        
        

      

      
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    by
      Purchaser pursuant to this Agreement.
      If the
      Emeritus Mortgage Loan is to be purchased as provided in Section
      2.3(a)
      hereof,
      the Mortgage Loan Assignee shall have the legal power and authority to execute,
      deliver and perform the Mortgage Loan Assignment.

     

    5.2  Authorization.
      The
      execution, delivery and performance by Purchaser of this Agreement and the
      other
      agreements, documents and certificates contemplated to be executed and delivered
      by Purchaser pursuant to this Agreement have been duly authorized by all
      corporate action required by law.
      If the
      Emeritus Mortgage Loan is to be purchased as provided in Section
      2.3(a)
      hereof,
      the execution, delivery and performance by the Mortgage Loan Assignee of the
      Mortgage Assignment shall have been duly authorized by all action required
      by
      law.

     

    5.3  Non-Contravention.
      The
      execution and delivery of this Agreement and the other agreements, documents
      and
      certificates contemplated to be executed and delivered by Purchaser pursuant
      to
      this Agreement do not, and the consummation by Purchaser of the transactions
      contemplated hereby and thereby shall not, violate any provision of its articles
      of incorporation or bylaws.
      If the
      Emeritus Mortgage Loan is to be purchased as provided in Section
      2.3(a)
      hereof,
      the execution and delivery of the Mortgage Assignment by the Mortgage Loan
      Assignee shall not, and the consummation by the Mortgage Loan Assignee of the
      transaction contemplated thereby shall not, violate any provision of the
      Mortgage Loan Assignee’s articles of incorporation, bylaws, partnership
      agreement, operating agreement or other instrument governing the organization
      or
      operation thereof.

     

    5.4  Validity.
      This
      Agreement has been duly executed and delivered by Purchaser and constitutes
      the
      legal, valid and binding obligation of Purchaser, enforceable in accordance
      with
      its terms, subject to general equity principles and to applicable bankruptcy,
      insolvency, reorganization, moratorium and similar laws from time to time in
      effect affecting the enforcement of creditors’ rights. The Escrow Agreement and
      each General Assignment, Lease Termination and other agreement, document and
      certificate to be executed and delivered by Purchaser hereunder, shall, when
      so
      executed and delivered, constitute the legal, valid and binding obligation
      of
      Purchaser, enforceable in accordance with its terms, subject to general equity
      principles and to applicable bankruptcy, insolvency, reorganization, moratorium
      and similar laws from time to time in effect affecting the enforcement of
      creditors’ rights.
      If the
      Emeritus Mortgage Loan is to be purchased as provided in Section
      2.3(a)
      hereof,
      the Mortgage Assignment to be executed and delivered by the Mortgage Loan
      Assignee shall, when so executed and delivered, constitute the legal, valid
      and
      binding obligation of the Mortgage Loan Assignee, enforceable in accordance
      with
      its terms, subject to general equity principles and to applicable bankruptcy,
      insolvency, reorganization, moratorium and similar laws from time to time in
      effect affecting the enforcement of creditors’ rights.

     

    5.5  Litigation.
      Purchaser is not a party to or subject to any judgment, decree or order entered
      in any lawsuit or proceeding brought by any Government or other party seeking
      to
      prevent the execution of this Agreement or the consummation of the transactions
      contemplated hereby.

     

    
      
        
        

      

      
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    5.6  Tenant
      Leases.
      Purchaser and ESC
      IV,
      L.P. (d/b/a Texas-ESC IV, L.P.), a Washington limited partnership, are the
      sole
      Tenants under the Tenant Leases. ESC
      IV,
      L.P. (d/b/a Texas-ESC IV, L.P.), a Washington limited partnership, is a
      wholly-owned subsidiary of Purchaser.

     

    5.7  AS
      IS, WHERE IS.
      Purchaser acknowledges, represents and warrants that any information supplied
      or
      made available by Sellers, whether written or oral or in the form of maps,
      surveys, plats, environmental reports, engineering studies, inspection reports,
      plans, specifications or any other information whatsoever, without exception,
      pertaining to the Facilities, any and all records, rent rolls and other
      documents pertaining to the use or occupancy of the Facilities or any portion
      thereof, the income thereof, the costs and expenses of the maintenance thereof,
      and any and all other matters concerning the condition, suitability, integrity,
      marketability, compliance with Laws or other attributes of the Facilities or
      any
      part thereof, has been furnished to Purchaser solely to assist in Purchaser’s
      review and investigation of the Facilities. Further, Purchaser acknowledges
      that, as of the Effective Date, Purchaser is in possession of the Facilities
      and
      is familiar with the Facilities and has made all such independent investigations
      as Purchaser deems necessary or appropriate concerning the Facilities. AS SUCH,
      THE FACILITIES ARE SOLD BY SELLERS, AND ARE HEREBY ACCEPTED BY PURCHASER, AS
      IS,
      WHERE IS AND WITH ALL FAULTS, AND WITHOUT ANY REPRESENTATIONS OR WARRANTIES
      WHATSOEVER, EXPRESSED OR IMPLIED, WRITTEN OR ORAL. PURCHASER HEREBY
      UNCONDITIONALLY WAIVES AND EXCLUDES, AND SELLERS DISCLAIM, ALL REPRESENTATIONS
      AND WARRANTIES, INCLUDING ANY AND ALL EXPRESS OR IMPLIED REPRESENTATIONS AND
      WARRANTIES AS TO: (i) THE CONDITION OF THE FACILITIES OR ANY ASPECT THEREOF,
      INCLUDING ANY AND ALL EXPRESS OR IMPLIED REPRESENTATIONS AND WARRANTIES RELATED
      TO SUITABILITY FOR HABITATION, MERCHANTABILITY OR FITNESS FOR A PARTICULAR
      USE
      OR PURPOSE; (ii) THE NATURE OR QUALITY OF CONSTRUCTION, STRUCTURAL DESIGN OR
      ENGINEERING OF THE IMPROVEMENTS; (iii) THE QUALITY OF THE LABOR OR MATERIALS
      INCLUDED IN THE IMPROVEMENTS; (iv) THE SOIL CONDITIONS, DRAINAGE, TOPOGRAPHICAL
      FEATURES OR OTHER CONDITIONS OF THE FACILITIES OR WHICH AFFECT ANY THEREOF;
      (v)
      ANY FEATURES OR CONDITIONS AT OR WHICH AFFECT THE FACILITIES WITH RESPECT TO
      ANY
      PARTICULAR PURPOSE, USE, DEVELOPMENTAL POTENTIAL, CASH FLOW OR OTHERWISE; (vi)
      ALL EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES CREATED BY ANY AFFIRMATION
      OF FACT OR PROMISE OR BY ANY DESCRIPTION OF ANY OF THE FACILITIES; (vii) ANY
      ENVIRONMENTAL, GEOLOGICAL, METEOROLOGICAL, STRUCTURAL OR OTHER CONDITION OR
      HAZARD OR THE ABSENCE THEREOF HERETOFORE, NOW OR HEREAFTER AFFECTING IN ANY
      MANNER ANY OF THE FACILITIES; (viii) CLAIMS REGARDING DEFECTS WHICH WERE NOT
      OR
      ARE NOT DISCOVERABLE; (ix) PRODUCT LIABILITY CLAIMS IN ANY MANNER RELATED TO
      ANY
      OF THE FACILITIES; AND (x) ALL OTHER EXPRESS OR IMPLIED WARRANTIES AND
      REPRESENTATIONS BY SELLERS WHATSOEVER.

     

    
      
        
        

      

      
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    ARTICLE
      VI  

     

    COVENANTS
      OF PURCHASER

     

    6.1  Purchaser
      Performance.
      After
      the Closing, Purchaser shall promptly pay as they become due and otherwise
      perform all obligations of Sellers under the Assumed Liabilities relating to
      the
      Facilities and otherwise perform and fulfill all other obligations with respect
      to the Facilities to the extent relating to the period on and after the
      Closing.

     

    6.2  Confidentiality.
      Purchaser hereby agrees that any information, documents, financial records,
      architectural and construction plans or other materials provided to Purchaser
      pursuant to this Agreement shall be deemed to be confidential information
and
      shall
      not be disclosed to others except (i) to Purchaser’s attorneys, accountants,
      investors, lenders and agents who have agreed to treat such information,
      documents, financial records, architectural and construction plans and other
      materials as confidential information and not to disclose any thereof to others
      and
      (ii)
      insofar as any such information,
      documents, financial records, architectural and construction plans or other
      materials are
      published or are a matter of public knowledge (other than as a result of the
      disclosure thereof by Purchaser or any of its attorneys, accountants, investors,
      lenders or agents) or is required to be disclosed by applicable
      Laws.

     

    6.3  Filings
      and Notices.
      Within
      seven (7) Business Days after the Effective Date, Purchaser agrees to complete
      and submit such notices, filings and requests necessary to satisfy all
      Governmental Requirements imposed upon Purchaser as transferee of the
      Facilities.

     

    ARTICLE
      VII  

     

    CONDITIONS
      PRECEDENT

     

    7.1  Purchaser’s
      Conditions.
      Purchaser’s obligations under this Agreement are subject to the satisfaction of
      the following conditions:

     

    (a)  All
      representations and warranties of Sellers in this Agreement shall be true in
      all
      material respects at and as of the Closing, and Sellers shall have delivered
      to
      Purchaser a certificate to such effect dated as of the Closing
      Date;

     

    (b)  Sellers
      shall have performed and complied in all material respects with all of their
      obligations under this Agreement that are to be performed or complied with
      by
      Sellers prior to or on the Closing Date;

     

    (c)  No
      Order
      shall then exist that enjoins or prevents the consummation any of the
      transactions contemplated hereby; and

     

    (d)  Sellers
      shall have delivered or caused the delivery of the items required by
Section
      2.4(a)
      hereof.

     

    In
      the
      event that any of the conditions set forth in this Section
      7.1
      are not
      satisfied, in the reasonable judgment of Purchaser, prior to the Closing,
      Purchaser shall have the option either (x) to waive such unsatisfied condition
      and proceed in accordance with the terms of this Agreement, or (y) to terminate
      this Agreement.

     

    
      
        
        

      

      
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    7.2  Sellers’
      Conditions.
      The
      obligations of Sellers hereunder are subject to satisfaction of each of the
      following conditions:

     

    (a)  All
      representations and warranties of Purchaser in this Agreement shall be true
      in
      all material respects at and as of the Closing Date, and Purchaser shall have
      delivered to Sellers a certificate to such effect dated as of the Closing
      Date;

     

    (b)  Purchaser
      shall have performed and complied in all material respects with its obligations
      under this Agreement to close the transactions contemplated hereby on the
      Closing Date;

     

    (c)  Sellers
      shall have obtained all consents and approvals required for Seller to sell,
      transfer and assign the Facilities at the Closing;

     

    (d)  All
      Governmental Requirements shall have been satisfied or obtained;

     

    (e)  No
      Order
      shall then exist that enjoins or prevents the consummation any of the
      transactions contemplated hereby; and

     

    (f)  Purchaser
      shall have delivered or caused the delivery of the items required by and
      performed its obligations under Section
      2.4(b)
      hereof.

     

    In
      the
      event that any of the conditions set forth above are not satisfied, in the
      reasonable judgment of Sellers prior to the Closing, Sellers shall have the
      option either (x) to waive such unsatisfied condition and proceed in accordance
      with the terms of this Agreement, or (y) to terminate this
      Agreement.

     

    ARTICLE
      VIII  

     

    INDEMNIFICATION

     

    8.1  Purchaser’s
      Claims.
      Sellers
      shall indemnify, defend and hold Purchaser harmless from and against any costs
      (including reasonable attorneys’ fees and court costs and costs of
      investigation), losses, damages, liabilities or expenses incurred by Purchaser
      as a result of any claim for brokerage, finder’s fees or other commissions
      relating to this Agreement or any of the other agreements contemplated by this
      Agreement asserted by or on behalf of any broker or finder claiming to have
      been
      retained by Sellers or to have rendered services on Sellers’
behalf.

     

    8.2  Sellers’
      Claims.
      Purchaser shall indemnify, defend and hold Sellers harmless from and against
      all
      costs (including reasonable attorneys’ fees and court costs and costs of
      investigation), losses, damages, liabilities or expenses incurred by Sellers
      as
      a result of:

     

    (a)  The
      non-fulfillment of any covenant, agreement or obligation to be performed by
      Purchaser under or pursuant to this Agreement or any of the other agreements
      contemplated by this Agreement;

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    (b)  Any
      claim
      for brokerage, finder’s fees or other commissions relative to this Agreement or
      any of the other agreements contemplated by this Agreement asserted by or on
      behalf of any broker or finder claiming to have been retained by Purchaser
      or to
      have rendered services on Purchaser’s behalf;

     

    (c)  Any
      litigation, proceedings, controversies or claims relating to a Facility and
      arising from, in connection with or incident to any occurrence on or subsequent
      to the Closing Date;

     

    (d)  Any
      litigation, proceedings, controversies or claims arising or resulting from
      the
      occupancy, possession or operation of the Facilities by the Tenants under the
      Tenant Leases; and

     

    (e)  All
      obligations, liabilities, damages, losses, claims, expenses and costs relating
      to the Facilities arising or accruing on or prior to the Closing Date that
      the
      Tenant under each of the Tenant Leases is or was obligated, liable or
      responsible to pay or perform under the terms of such Tenant Lease.

     

    8.3  Defense
      of Third Party Claims.

     

    (a)  In
      the
      event of any claim by a Person not a Party to this Agreement with respect to
      any
      matter to which Sections
      8.1 or 8.2
      hereof
      relates, the indemnified party, after not less than thirty (30) days’ written
      notice to the indemnifying party containing the terms of the proposed
      settlement, may make settlement of such claim, and such settlement shall be
      binding on the Parties hereto for the purposes of this Section
      8.3;
      provided, however, that, if within such thirty (30) day period, the indemnifying
      party shall have requested the indemnified party to contest any such claim
      at
      the expense of the indemnifying party, the indemnified party shall promptly
      comply, and the indemnifying party shall have the right to direct the defense
      of
      such claim or any litigation based thereon at its own expense through counsel
      of
      its own choosing. The indemnified party also shall have the right to participate
      in the settlement of any such claim or in any such litigation so long as its
      participation is at its own expense and with the understanding that the
      indemnifying party may settle in its own discretion at its sole expense so
      long
      as any such settlement provides for a complete release and discharge of the
      indemnified party and does not impose any liabilities or obligations on the
      indemnified party. Any payment or settlement made by the indemnifying party
      in
      such contest, together with the total expense thereof, shall be binding on
      the
      indemnified party and the indemnifying party for the purposes of this
Section
      8.3.

     

    (b)  In
      the
      event that any litigation, proceeding, controversy, claim or other matter is
      initiated by a third party against Purchaser or a Seller, and Purchaser or
      Sellers, as the case may be, are obligated or potentially obligated to
      indemnify, defend and hold the other harmless under this Article
      VIII,
      the
      indemnified or potentially indemnified party will reasonably cooperate with
      the
      indemnifying or potentially indemnifying party with respect to the investigation
      and defense of such litigation, proceeding, controversy or claim or other
      matter.

     

    
      
        
        

      

      
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    8.4  Survival
      of Representations and Warranties.

     

    (a)  The
      representations and warranties of Sellers contained in this Agreement or any
      certificate delivered by or on behalf of Sellers pursuant to this Agreement
      or
      in connection with the transactions contemplated herein shall survive for a
      period of twelve (12) months after the Closing Date.

     

    (b)  The
      representations and warranties of Purchaser contained in this Agreement or
      any
      certificate delivered by or on behalf of Purchaser pursuant to this Agreement
      or
      in connection with the transactions contemplated herein shall survive the
      consummation of the transactions contemplated herein and shall continue in
      full
      force and effect for a period of twelve (12) months after the earlier of the
      (i)
      the Closing Date or (ii) the prior termination of this Agreement.

     

    (c)  Purchaser
      may not assert any claim against Sellers for breach of any covenant contained
      in
Article
      IV
      hereof
      and all such claims shall be deemed to be waived as of the Closing
      Date.

     

    ARTICLE
      IX  

     

    TERMINATION

     

    9.1  Termination.

     

    (a)  This
      Agreement may be terminated as follows:

     

    (i)  At
      any
      time by the mutual consent of Sellers and Purchaser;

     

    (ii)  By
      Purchaser because of the failure of any condition set forth in Section
      7.1
      hereof;

     

    (iii)  By
      Purchaser if Sellers fails to comply with their obligations under this Agreement
      to close the transactions contemplated hereby;

     

    (iv)  By
      Sellers because of the failure of any condition set forth in Sections
      7.2(c), (d) or (e)
      hereof;

     

    (v)  By
      Sellers because of the failure of any condition set forth in Sections
      7.2(a), (b) or (f)
      hereof;
      and

     

    (vi)  By
      Sellers if Purchaser fails to comply with its obligations under this Agreement
      to close the transactions contemplated hereby.

     

    (b)  In
      the
      event of the termination of this Agreement pursuant to Section
      9.1(a)
      hereof
      because Sellers or Purchaser, as the case may be, shall have willingly failed
      to
      fulfill its obligations hereunder, the other Party shall be entitled
      to pursue, exercise and enforce any and all remedies, rights, powers and
      privileges available to it at law or in equity.

     

    
      
        
        

      

      
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    (c)  Section
      2.3,
      Section
      6.2,
      Article
      VIII
      and
Sections
      11.1, 11.12 and 11.15
      hereof
      shall survive the Closing or the prior termination of this
      Agreement.

     

    ARTICLE
      X  

     

    CASUALTY
      AND CONDEMNATION

     

    10.1  Casualty
      Before Closing. In
      the
      event of damage to or destruction of all or any portion of a Facility by fire
      or
      other casualty prior to the Closing, Sellers shall assign to Purchaser at the
      Closing all available casualty insurance proceeds to which Sellers are entitled
      under existing insurance coverages, and this Agreement shall remain in full
      force and effect as to such damaged Facility with no adjustment to the Purchase
      Price.

     

    10.2  Condemnation
      Before Closing.
      In the
      event of a condemnation or other exercise of the power of eminent domain with
      respect to all or any portion of a Facility prior to the Closing that permits
      the Tenant of such affected Facility to terminate the Tenant Lease for such
      affected Facility, Purchaser shall have, as its sole and exclusive remedy,
      the
      option to exclude and eliminate such affected Facility from the terms of this
      Agreement and the Purchase Price shall be decreased by the value of such
      affected Facility, as reasonably determined by the applicable Seller and
      Purchaser, to reflect the exclusion of such affected Facility from the terms
      of
      this Agreement; provided, however, that this Agreement otherwise shall remain
      in
      full force and effect. As to any Facility affected by a condemnation or other
      exercise of the power of eminent domain prior to the Closing that is sold and
      transferred to Purchaser, the applicable Seller shall assign to Purchaser at
      the
      Closing its right to any award resulting from such condemnation or other
      exercise of the power of eminent domain and the Purchase Price shall not be
      adjusted.
      Except
      as described in the first sentence of this Section
      10.2,
      no
      condemnation or other exercise of the power of eminent domain with respect
      to
      all or any portion of a Facility prior to the Closing shall affect the
      obligations of Purchaser hereunder with respect to any Facility affected
      thereby.

     

    ARTICLE
      XI  

     

    MISCELLANEOUS

     

    11.1  Expenses.
      Each
      Party shall pay its own legal, accounting and similar expenses incidental to
      the
      preparation of this Agreement, the implementation of the provisions of this
      Agreement, and the consummation of the transactions contemplated hereby. If
      Purchaser elects to obtain owner’s title insurance policies for the Facilities,
      Sellers shall pay the premiums for obtaining such owner’s title insurance
      policies in an aggregate amount not exceeding the Purchase Price (without
      endorsements thereto or affirmative coverages thereunder). Purchaser shall
      pay,
      or reimburse Sellers for, all costs of obtaining title policy endorsements
      and
      affirmative coverages, all transfer, intangible, recording taxes and other
      fees
      with respect to the transfer of the Facilities, the costs of obtaining any
      surveys (and updates thereof), environmental investigations, studies, reports
      and all other costs of any investigation of the Facilities by Purchaser,
      one-half of any escrow fee charged by the Title Company, any costs associated
      with the transfer of any Permits and Warranties, the cost of obtaining other
      licenses, permits or approvals that do not constitute Permits and Warranties
      and
      the costs and expenses incurred in 

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    connection
      with the satisfaction of and compliance with the Governmental Requirements.
      Sellers shall pay one-half of any escrow fee charged by the Title
      Company.

     

    11.2  Contents
      of Agreement; Parties in Interest; etc.
      This
      Agreement sets forth the entire understanding of the Parties with respect to
      the
      transactions contemplated hereby and constitutes a complete statement of the
      terms of such transactions. This Agreement shall not be amended or modified
      except by written instrument duly executed by all of the Parties. Any previous
      agreements and understandings between or among the Parties regarding the subject
      matter hereof, whether written or oral, are superseded by this Agreement. No
      Party has been induced to enter into this Agreement by any statement,
      representation or warranty of the other Party not set forth in this Agreement,
      and no Party has relied upon any statement, representation or warranty of the
      other Party not set forth in this Agreement

     

    11.3  Assignment
      and Binding Effect. Purchaser
      shall not have the right to assign its rights hereunder unless Purchaser
      receives the prior written consent of Sellers to any such assignment, which
      consent Sellers may grant or without in their sole discretion; provided,
      however, that Purchaser shall have the right to assign this Agreement to one
      or
      more wholly owned subsidiaries of Purchaser; provided, further, however, that,
      regardless of any assignment by Purchaser of any of its rights hereunder,
      Purchaser shall remain responsible and liable for the payment and performance
      of
      all of its liabilities and obligations as set forth herein. Subject to the
      foregoing, all of the terms and provisions of this Agreement shall be binding
      upon and inure to the benefit of and be enforceable by the successors and
      permitted assigns of Sellers and Purchaser.

     

    11.4  Notices.
      All
      notices, requests and other communications under this Agreement shall be in
      writing and shall be either (a) delivered in person, (b) delivered by a
      recognized delivery service taking a receipt upon delivery or (c) sent by
      facsimile transmission and addressed as follows:

     

    If
      intended for Sellers:  c/o
      Healthcare Realty Trust Incorporated

     

    3310
      West
      End Avenue, Suite 700

     

    Nashville,
      Tennessee 37203

     

    Attn:
      General Counsel

     

    Phone:
      (615) 269-8175

     

    Facsimile:
      (615) 463-7739

     

    With
      a
      copy to:   Baker,
      Donelson, Bearman, Caldwell & Berkowitz, P.C.

     

    211
      Commerce Street, Suite 1000

     

    Nashville,
      Tennessee 37201

     

    Attn:
      David J. White.

     

    Phone:
      (615) 726-5776

     

    Facsimile:
      (615) 744-5776

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    If
      intended for Purchaser:  Emeritus
      Corporation

    3131
      Elliott Avenue, Suite 500

    Seattle,
      Washington 98121

    Attn:
      Eric Mendelsohn

    Phone:
      (206) 301-4493

    Facsimile:
      (206) 357-7388

    

    With
      a
      copy to:   Pircher,
      Nichols & Meeks

    900
      North
      Michigan Avenue, Suite 1050

    Chicago,
      Illinois 6011

    Attn:
      Real Estate Notices (JDL/EF)

    Phone:
      (312) 915-3112

    Facsimile:
      (3120 915-3348

     

    or
      at
      such other address, and to the attention of such other person, as a Party shall
      give notice as herein provided. A notice, request and other communication shall
      be deemed to be duly received if delivered in person or by a recognized delivery
      service, when left at the address of the recipient, and, if sent by facsimile
      transmission, upon receipt by the sender of an acknowledgment or transmission
      report generated by the machine from which the facsimile transmission was sent
      indicating that the facsimile was sent in its entirety to the recipient’s
      facsimile number; provided, however, that if a notice, request or other
      communication is delivered or served on a day which is not a Business Day,
      or
      after 5:00 p.m. on any Business Day at the recipient’s location, such notice or
      communication shall be deemed to be duly received by the recipient at 9:00
      a.m.
      on the first Business Day thereafter.

     

    11.5  Applicable
      Laws.
      This
      Agreement and the transactions contemplated hereby shall be governed by and
      construed in accordance with the Laws of the State of Tennessee.

     

    11.6  Exhibits.
      All
      Exhibits referred to herein are intended to be and hereby are specifically
      made
      a part of this Agreement.

     

    11.7  Severability.
      Any
      provision of this Agreement that is invalid or unenforceable in any jurisdiction
      shall be ineffective to the extent of such invalidity or unenforceability
      without invalidating or rendering unenforceable the remaining provisions hereof,
      and any such invalidity or unenforceability in any jurisdiction shall not
      invalidate or render unenforceable such provision in any other
      jurisdiction.

     

    11.8  Public
      Announcements. No
      Party
      to this Agreement shall make, or cause to be made, any press release or public
      announcement with respect to this Agreement or the transactions contemplated
      hereby or otherwise communicate with any news media without the prior written
      consent of the other Parties, and the Parties shall cooperate as to the timing
      and contents of any such press release or public announcement; provided,
      however, that, to the extent any Party is advised by legal counsel that it
      is
      required by Laws or the rules and regulations of any applicable securities
      exchange to make such a press release or public announcement, such Party may
      issue such a release or make such an announcement, the contents of which shall
      be reasonably satisfactory to the other Parties.

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    11.9  Construction.
      The
      Parties hereto have participated jointly in the negotiation and drafting of
      this
      Agreement. In the event that any ambiguity or question of intent or
      interpretation arises, this Agreement shall be construed as if drafted jointly
      by the Parties hereto and no presumption or burden of proof shall arise by
      virtue of the authorship of any of the provisions of this
      Agreement.

     

    11.10  Time.
      Time is
      and shall be of the essence of this Agreement.

     

    11.11  Days
      for Performance.
      If the
      date for the performance of any obligation or notification hereunder falls
      upon
      a day that is not a Business Day, then such date shall be read and construed
      for
      all purposes herein to mean the next day which is a Business Day.

     

    11.12  Delivery
      of Due Diligence Materials.
      In the
      event that Purchaser shall terminate this Agreement as permitted herein,
      Purchaser shall provide, or cause to be provided, to Sellers, within five (5)
      Business Days after such termination and to the extent such items are in the
      possession of Purchaser or its attorneys, original copies of all surveys,
      original copies of all environmental reports, appraisals, studies and
      investigations prepared by or at the request of Purchaser with respect to the
      Facilities, and copies of all other reports, searches, investigations, studies
      and materials prepared by or at the request of Purchaser with respect to the
      Facilities, excluding any internal memoranda and attorney work product. Upon
      the
      request of Sellers, Purchaser shall consent to and reasonably cooperate with
      Sellers in any request from Sellers to any preparer of any such surveys,
      reports, appraisals, searches, studies, investigations or materials to provide
      to Sellers written confirmation from such preparer that is addressed to Sellers
      in form and substance reasonably satisfactory to Sellers and stating that its
      surveys, reports, appraisals, searches, studies, investigations or materials
      are
      certified to Sellers and Sellers are entitled to rely thereon.

     

    11.13  Counterparts.
      This
      Agreement may be executed in multiple counterparts, each of which shall be
      deemed an original and all of which, together upon full execution, shall
      constitute one and the same instrument.

     

    11.14  No
      Recording.
      Purchaser shall not record this Agreement or any short form, memorandum or
      notice thereof in any public or governmental office.

     

    11.15  Attorneys’
      Fees.
      In the
      event of any litigation between the Parties under this Agreement, including
      with
      respect to the enforcement of any right or provision herein, the prevailing
      Party, in addition to those damages and other awards given such Party therein,
      shall be entitled to reasonable attorneys’ fees and court costs at all trial and
      appellate levels.

     

    11.16  Waiver
      of Jury Trial.
      TO THE
      EXTENT NOT PROHIBITED BY APPLICABLE LAWS WHICH CANNOT BE WAIVED, EACH OF THE
      PARTIES HERETO (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE) HEREBY WAIVES
      ANY
      RIGHT TO TRIAL BY JURY IN ANY FORUM WITH RESPECT TO ANY ISSUE OR ACTION, CLAIM,
      CAUSE OF ACTION OR SUIT (IN CONTRACT, TORT OR OTHERWISE), INQUIRY, PROCEEDING
      OR
      INVESTIGATION ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER
      HEREOF OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE TRANSACTIONS
      

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    CONTEMPLATED
      HEREBY, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING. PURCHASER
      ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY SELLERS THAT THIS SECTION
      11.16
      CONSTITUTES A MATERIAL INDUCEMENT UPON WHICH SELLERS ARE RELYING AND WILL RELY
      IN ENTERING INTO THIS AGREEMENT AND ANY OTHER AGREEMENTS RELATING HERETO OR
      CONTEMPLATED HEREBY. ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A
      COPY
      OF THIS SECTION
      11.16
      WITH ANY
      COURT AS WRITTEN EVIDENCE OF THE CONSENT OF EACH SUCH PARTY TO THE WAIVER OF
      ITS
      RIGHT TO TRIAL BY JURY.

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      the
      Parties hereto have executed this Agreement to be effective as of the Effective
      Date.

     

    PURCHASER:

     

    EMERITUS
      CORPORATION,
      a

    Washington
      corporation

    

    

    By:   
       /s/
      Eric Mendelsohn      

    Title:     
      Director
      of Real Estate and Legal Affairs      

                                            Date:
      March
      8,
      2007

     

    

     

    SELLERS:

     

    HR
      ACQUISITION I CORPORATION,

    a
      Maryland corporation

    

    

    By:  /s/
      James C. Douglas      

    Title:
      Vice
      President      

                                            Date:
      March
      7,
      2007

     

    

     

    HR
      ACQUISITION OF

    PENNSYLVANIA,
      INC.,
      a
      Pennsylvania

    corporation

    

    

    By:
/s/
      James C. Douglas      

    Title:
      Vice
      President      

                                            Date:
      March
      7,
      2007

     

    

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    HR
      ACQUISITION OF SAN ANTONIO,

    LTD.,
      an
      Alabama limited partnership

    

    By: HEALTHCARE
      ACQUISITION

    OF
      TEXAS, INC.,
      an
      Alabama

    corporation,
      General Partner

    

    

    By:
/s/
      James C. Douglas      

    Title: 
      Vice
      President      

                                            Date:
      March
      7,
      2007

     

    

     

    HRT
      HOLDINGS, INC.,
      a
      Delaware

    corporation

    

    

    By:
/s/
      James C. Douglas      

    Title:
      Vice
      President      

                                            Date:
      March
      7,
      2007

     

    The
      undersigned hereby executes this Agreement solely for the purpose of
      acknowledging its waiver of any notice of prepayment requirements set forth
      in
      the Emeritus Mortgage Loan and the Term Mortgage Loan.

    

    HEALTHCARE
      REALTY TRUST INCORPORATED,
      a
      Maryland

    corporation

    

    

    By:
/s/
      James C. Douglas      

    Title:
      Vice
      President      

                                            Date:
      March
      7,
      2007

     

    

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

        
          

        

      

    

    EXHIBITS

     

     

    

      
        	
                Exhibits

              	 	
                Title

              
	
                A

              	 	
                Form
                  of Bill of Sale

              
	
                B

              	
                 

              	
                Form
                  of Special Warranty Deed

              
	
                C

              	 	
                Form
                  of Escrow Agreement

              
	
                D

              	 	
                List
                  of Facilities

              
	
                E

              	 	
                Form
                  of General Assignment

              
	
                F

              	 	
                Form
                  of Lease Termination

              
	
                G-1

              	 	
                Emeritus
                  Mortgage Loan

              
	
                G-2

              	 	
                Term
                  Mortgage Loan

              
	
                H

              	 	
                List
                  of Tenant Leases

              
	
                I

              	 	
                Form
                  of Title Affidavit

              
	
                J

              	 	
                Form
                  of Mortgage Assignment

              

      

    

     

    

     

    
      
        
        

      

      
        A-1

        
          

        

      

      
        
        

        
          

        

      

    

    Exhibit
      A

    to
      Agreement of Sale and Purchase

    

    Form
      of
      Bill of Sale

    

    BILL
      OF SALE

    

    KNOW
      ALL MEN BY THESE PRESENTS
      that the
      undersigned, ______________________________,
      a
      ____________________________ (the “Seller”), for and in consideration of the sum
      of One and No/100 Dollars ($1.00) and other good and valuable consideration,
      the
      receipt and sufficiency of which are hereby acknowledged, does hereby agree
      as
      follows:

    

    Seller
      hereby grants, bargains, sells, transfers, sets over and delivers to
_______________________________,
      a
      __________________________
      (the
“Buyer”), all of Seller’s right, title and interest, if any, in and to the
      property described in Exhibit
      A
      hereto
      (the “Personal Property”).

    

    SELLER
      MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO
      THE
      PERSONAL PROPERTY, INCLUDING, WITHOUT LIMITATION, THE HABITABILITY, CONDITION
      OR
      FITNESS THEREOF FOR ANY PARTICULAR USE OR PURPOSE. BUYER
      AGREES THAT THE PERSONAL PROPERTY IS CONVEYED BY SELLER AND ACCEPTED BY BUYER
      IN
      AN “AS IS, WHERE IS” CONDITION, AND SELLER SPECIFICALLY DISCLAIMS ALL WARRANTIES
      OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE.

    

    Executed
      as of the _____ day of ____________, 2007.

    

    _________________________,
      a

    _________________________

    

    

    By:
       

    Name:
       

    Title:
       

    
      
        
        

      

      
        A-1

        
          

        

      

      
        
        

      

    

    Exhibit
      A

    to
      Bill
      of Sale

    

    Personal
      Property

    

    The
      following described property to the extent such property is located on the
      real
property
      described in Exhibit
      B
      hereto
      and owned by Seller: all tangible personal property, including, without
      limitation, equipment, appliances, machinery, furniture, furnishings, signage
      and fixtures.

    
      
        
        

      

      
        A-2

        
          

        

      

      
        
        

      

    

    Exhibit
      B

    to
      Bill
      of Sale

    

    Real
      Property

    

    Description
      of Real Property from Special

    [or
      Limited] Warranty Deed from Seller to Buyer

    

    
      
        
        

      

      
        A-3

        
          

        

      

      
        
        

        
          

        

      

    

    Exhibit
      B

    to
      Agreement of Sale and Purchase

    

    Form
      of
      Special Warranty Deed

    

    This
      instrument was prepared by:

     

     

     

    

    SPECIAL
      [OR LIMITED] WARRANTY DEED

    

    THIS
      SPECIAL [OR LIMITED] WARRANTY DEED
      is made
      as of the ____ day of _____________, 2007, from _______________________________,
      a ________________________________ (the “Grantor”), to
      _________________________________, a ________________________ (the “Grantee”),
      with an address of ______________________________________________.

    

    W
      I T N E S S E T H:

    

    That
      Grantor, for and in consideration of the sum of Ten and No/100 Dollars ($10.00)
      and other good and valuable consideration, the receipt and sufficiency of which
      are hereby acknowledged by Grantor, has granted, bargained, sold, aliened,
      conveyed and confirmed, and does hereby grant, bargain, sell, alien, convey
      and
      confirm, to Grantee, and Grantee’s successors and assigns forever, the real
      property located in _________________________ and more particularly described
      in
Exhibit
      A
      hereto
      (the “Property “), subject to the following (the “Permitted Encumbrances”): (a)
all
      liens
      for ad valorem, real property and personal property taxes, all general and
      special private and public assessments, all other property taxes, and all
      similar obligations relating to the Property, not yet due and payable; (b)
      easements, restrictions, covenants and other such encumbrances of record as
      of
      the date hereof; (c) any state of facts that would be disclosed by an accurate
      survey or independent inspection of the property conveyed hereby; (d) all
      applicable building and zoning ordinances, moratoria,
      initiatives, referenda, ordinances, rules, regulations, standards, orders and
      other governmental requirements, including those relating to the environment,
      health and safety, disabled or handicapped persons, and as applicable, to the
      licensing of the use of the improvements on the Property,
      regulations and restrictions of any federal, state, local or municipal
      government or any department, commission, board, bureau, agency,
      instrumentality, unit or taxing authority thereof; and (e) the rights of
      residents and licensed occupants of the improvements located on the
      Property;

     

    Together
      with all of Grantor’s right, title and interest, if any, in and to rights,
      privileges, easements, servitudes, rights-of-way and appurtenances belonging
      or
      appurtenant to the Property and all improvements on the Property.

     

    Notwithstanding
      any reference to acreage or square footage contained in the description of
      the
      property conveyed hereby, Grantor makes no representation or warranty, express
      or 

     

    
      
        
        

      

      
        B-1

        
          

        

      

      
        
        

      

    

    implied,
      as to the exact amount of acreage or square footage in the property conveyed
      hereby. Grantor further makes no representation or warranty, express or implied,
      with respect to the ownership of oil, gas or other minerals located on, under
      or
      within the property conveyed hereby.

     

    This
      is
      improved property known as ___________________________________.

     

    TO
      HAVE AND TO HOLD the
      Property, together with all and singular the rights, privileges, easements,
      servitudes, rights-of-way and appurtenances belonging or appurtenant to the
      Property, and the rents, issues and profits thereof, and all the estate, right,
      title, interest, property, claim and demand whatsoever of Grantor, in law,
      equity or otherwise, and all improvements on the Property, to Grantee, and
      Grantee’s successors and assigns forever, subject to the Permitted
      Encumbrances.

     

    Grantor
      does hereby bind itself, and its successors and assigns, to warrant and forever
      defend all and singular the Property, subject to the terms of this Special
      [or
      Limited] Warranty Deed, unto Grantee and unto Grantee’s successors and assigns,
      against every person whomsoever lawfully claiming or to claim the Property
      or
      any part thereof by, through or under Grantor, but not otherwise, subject to
      the
      Permitted Encumbrances.

     

    EXCEPT
      FOR THE SPECIAL [OR LIMITED] WARRANTY OF TITLE CONTAINED HEREIN, GRANTOR MAKES
      NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE
      PROPERTY, INCLUDING, WITHOUT LIMITATION, THE CONDITION OF THE PROPERTY
      (INCLUDING, WITHOUT LIMITATION, IMPROVEMENTS) CONVEYED HEREBY, INCLUDING,
      WITHOUT LIMITATION, THE HABITABILITY, CONDITION OR FITNESS THEREOF FOR ANY
      PARTICULAR USE OR PURPOSE OR THE ENVIRONMENTAL CONDITION OF THE PROPERTY
      (INCLUDING, WITHOUT LIMITATION, IMPROVEMENTS) CONVEYED HEREBY. GRANTEE AGREES
      THAT THE PROPERTY (INCLUDING, WITHOUT LIMITATION, IMPROVEMENTS) CONVEYED HEREBY
      IS CONVEYED BY GRANTOR AND ACCEPTED BY GRANTEE IN AN “AS-IS, WHERE-IS”
CONDITION.

     

    

    
      
        
        

      

      
        B-2

        
          

        

      

      
        
        

      

    

    [PENNSYLVANIA
      NOTICES TO BE PROVIDED AS REQUIRED:

     

    NOTICE—THIS
      DOCUMENT DOES NOT SELL, CONVEY, TRANSFER, INCLUDE OR INSURE THE TITLE TO THE
      COAL AND RIGHT OF SUPPORT UNDERNEATH THE SURFACE LAND DESCRIBED OR REFERRED
      TO
      HEREIN, AND THE OWNER OR OWNERS OF SUCH COAL HAVE THE COMPLETE LEGAL RIGHT
      TO
      REMOVE ALL OF SUCH COAL AND, IN THAT CONNECTION, DAMAGE MAY RESULT TO THE
      SURFACE OF THE LAND AND ANY HOUSE, BUILDING OR OTHER STRUCTURE ON OR IN SUCH
      LAND. THE INCLUSION OF THIS NOTICE DOES NOT ENLARGE, RESTRICT OR MODIFY ANY
      LEGAL RIGHTS OR ESTATES OTHERWISE CREATED, TRANSFERRED, EXCEPTED OR RESERVED
      BY
      THIS INSTRUMENT.

     

    [This
      notice is set forth in the manner provided in 52 P.S. §1551 and is not intended
      as notice of unrecorded instruments, if any.]

     

    Notice
      THE
      UNDERSIGNED, AS EVIDENCED BY THE SIGNATURE TO THIS NOTICE AND THE ACCEPTANCE
      AND
      RECORDING OF THIS DEED, IS FULLY COGNIZANT OF THE FACT THAT THE UNDERSIGNED
      MAY
      NOT BE OBTAINING THE RIGHT OF PROTECTION AGAINST SUBSIDENCE AS TO THE PROPERTY
      HEREIN CONVEYED RESULTING FROM COAL MINING OPERATIONS AND THAT THE PURCHASED
      PROPERTY, HEREIN CONVEYED, MAY BE PROTECTED FROM DAMAGE DUE TO MINE SUBSIDENCE
      BY A PRIVATE CONTRACT WITH THE OWNERS OF THE ECONOMIC INTEREST IN THE
      COAL.

     

    [This
      notice is provided to comply with 52 P.S. §1406.14.]

     

    _________________________,
      a

    _____________________________

    

    

    By:      

    Name:      

    Title:      

    

     

    [INSERT
      APPROPRIATE ACKNOWLEDGEMENT FORM]]

    

    
      
        
        

      

      
        B-3

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      Grantor
      has caused this Special [or Limited] Warranty Deed to be duly executed and
      delivered as of the day and year first above written.

    

    _________________________,
      a

    _____________________________

    

    

    By:      

    Name:      

    Title:      

    

    [INSERT
      APPROPRIATE ACKNOWLEDGEMENT

    FORM
      AND
      RECORDING REQUIREMENTS]

    
      
        
        

      

      
        B-4

        
          

        

      

      
        
        

      

    

    Exhibit
      A

    to
      Special [or Limited] Warranty Deed

    

    Description
      of Property from Recorded Vesting Deed(s) of Grantor

    

    
      
        
        

      

      
        B-5

        
          

        

      

      
        
        

        
          

        

      

    

    Exhibit
      C

    to
      Agreement of Sale and Purchase

    

    Form
      of
      Escrow Agreement

    

    ESCROW
      AGREEMENT

    

    THIS
      ESCROW AGREEMENT
      (the
“Agreement”) is made as of the ____ day of _______________, 2007, by and among
the
      entities that have executed this Agreement on the signature pages hereto as
      sellers (individually, a “Seller” and collectively, the “Sellers”),
      and
EMERITUS
      CORPORATION, a
      Washington corporation, as purchaser (the
      “Purchaser”), and FIDELITY
      NATIONAL TITLE INSURANCE COMPANY,
      a
      California corporation (the “Escrow Agent”).

    

    W
      I T N E S S E T H:

    

    WHEREAS,
      pursuant to the Agreement of Sale and Purchase, dated as of ___________, 2007,
      as hereafter amended or modified by the parties thereto (the “Purchase
      Agreement”), by and among Sellers and Purchaser, Sellers have agreed to sell and
      Purchaser has agreed to purchase certain assets of Sellers as set forth therein;
      and

    

    WHEREAS,
      pursuant to the Purchase Agreement, Purchaser must deposit the Earnest Money
      (as
      herein defined) with Escrow Agent to be held and paid in accordance with the
      Purchase Agreement and this Agreement;

    

    NOW,
      THEREFORE,
      for and
      in consideration of the above and foregoing premises and the mutual covenants
      and agreements set forth hereinbelow, together with other good and valuable
      consideration, the receipt and sufficiency of which are hereby acknowledged
      by
      the parties hereto, Sellers, Purchaser and Escrow Agent hereby agree as
      follows:

    

    1. Escrow.
      Purchaser hereby delivers to Escrow Agent the sum of One
      Million Three Hundred Fourteen Thousand Two Hundred Seventy-Two and No/100
      Dollars ($1,314,272.00) (the
      “Earnest Money”) to be held by Escrow Agent in accordance with the terms of the
      Purchase Agreement and this Agreement. Escrow Agent shall deposit the Earnest
      Money in an interest-bearing account that is maintained at depository
      institution reasonably acceptable to Sellers and Purchaser.

    

    2. Purpose
      of Escrow.
      Purchaser has deposited the Earnest Money with Escrow Agent to comply with
      Purchaser’s obligations pursuant to Section
      2.1
      of the
      Purchase Agreement.

    

    3. Disbursement
      of Earnest Money.
      Subject
      to the terms of the Purchase Agreement and this Agreement, Escrow Agent shall
      disburse the Earnest Money pursuant to the terms of the Purchase Agreement,
      including, but not limited to, Section
      2.1
      of the
      Purchase Agreement. Within two (2) Business Days (the term “Business Day” having
      the same meaning herein as in the Purchase Agreement) after receipt of written
      notification from Sellers (the “Sellers’ Default Notice”) that 

    
      
        
        

      

      
        C-1

        
          

        

      

      
        
        

      

    

    Purchaser
      has breached or defaulted under the Purchase Agreement and Sellers are entitled,
      pursuant to the Purchase Agreement, to disbursement of the Earnest Money (or
      so
      much thereof not previously disbursed pursuant to the terms of the Purchase
      Agreement), Escrow Agent shall send to Purchaser a written notification (the
      “Purchaser’s Notice”) advising Purchaser that Escrow Agent intends to disburse
      the Earnest Money (or so much thereof not previously disbursed pursuant to
      the
      terms of the Purchase Agreement) to Sellers no earlier than two (2) Business
      Days after Purchaser’s receipt of such written notice from Escrow Agent. Sellers
      also shall provide a copy of Sellers’ Default Notice to Purchaser. Escrow Agent
      shall be entitled to rely, for purposes of this Agreement, upon any statement
      delivered by Sellers or Purchaser pursuant to this Section
      3.
      Escrow
      Agent shall disburse the Earnest Money (or so much thereof not previously
      disbursed pursuant to the terms of the Purchase Agreement) no earlier than
      two
      (2) Business Days after Purchaser’s receipt of Purchaser’s Notice, provided,
      however, that Purchaser has not notified Escrow Agent that it disputes Sellers’
Default Notice. In the event of any disputes among the parties hereto in
      connection with the Earnest Money or this Agreement, Escrow Agent shall refuse
      to comply with the claims and demands by Sellers or Purchaser so long as the
      dispute shall then continue. In so refusing, Escrow Agent shall make no delivery
      or other disposition of the Earnest Money, except as permitted under
Section
      6(a)
      below,
      and, in so doing, Escrow Agent shall not be or become liable in any way to
      any
      person for its failure or refusal to comply with conflicting or adverse demands
      and it shall continue to refrain from acting and refuse to act until it receives
      authorization as follows:

    

    
      	 	
              (a)

            	
              Written
                authorization to act that is executed by Sellers and Purchaser;
                or

            

    

    

    
      	 	
              (b)

            	
              A
                certified and file-stamped copy of a court order resolving the
                disagreement or directing specific
                action.

            

    

    

    Upon
      the
      receipt of either such document, Escrow Agent shall promptly act according
      to
      its terms.

    

    4. Termination
      of Escrow.
      This
      Agreement shall terminate upon the disbursement of all of the Earnest Money
      pursuant to the terms of the Purchase Agreement or this Agreement. Interest
      that
      accrues on the Earnest Money shall be combined with and treated as a part of
      the
      Earnest Money. In the event all or a portion of the Earnest Money is paid to
      Sellers pursuant to this Agreement, any interest on the Earnest Money in the
      possession of Escrow Agent at the time such Earnest Money is paid to Sellers
      shall be paid to Sellers. Interest on any portion of the Earnest Money that
      is
      to be refunded to Purchaser pursuant to the Purchase Agreement shall be paid
      to
      Purchaser.

    

    5. No
      Representations by Escrow Agent.
      Escrow
      Agent shall not be liable for the performance or non-performance or delay in
      performance of any obligation of Sellers, Purchaser or any other person or
      entity.

    

    6. Escrow
      Agent.
      The
      escrow of the Earnest Money shall be subject to the following
      provisions:

    

    (a) Duties
      and Authorization.
      The
      payment of the Earnest Money to Escrow Agent is for the accommodation of Sellers
      and Purchaser. The duties of Escrow Agent shall 

    
      
        
        

      

      
        C-2

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              be
                determined solely by the express provisions of this Agreement. Sellers
                and
                Purchaser authorize Escrow Agent, without creating any obligation
                on the
                part of Escrow Agent, in the event this Agreement or the Earnest
                Money
                become involved in litigation, to deposit the Earnest Money with
                the clerk
                of the court in which the litigation is pending and thereupon Escrow
                Agent
                shall be fully relieved and discharged of any further responsibility
                under
                this Agreement. Sellers and Purchaser also authorize Escrow Agent,
                if it
                is threatened with litigation, to interplead all interested parties
                in any
                court of competent jurisdiction and to deposit the Earnest Money
                with the
                clerk of the court and thereupon Escrow Agent shall be fully relieved
                and
                discharged of any further responsibility
                hereunder.

            

    

    

    (b) Liability.
      Escrow
      Agent shall not be liable for any mistake of fact or error of judgment or any
      acts or omissions of any kind unless caused by its willful misconduct or
      negligence. Escrow Agent shall be entitled to rely on any instrument or
      signature reasonably believed by it to be genuine and may assume that any person
      purporting to give any written notice or instruction in connection with this
      Agreement is duly authorized to do so by the party on whose behalf such writing,
      notice or instruction is given.

    

    (c) Indemnification
      of Escrow Agent.
      Sellers
      and Purchaser will jointly and severally indemnify Escrow Agent from and hold
      it
      harmless against any loss, liability or expense incurred without negligence
      or
      willful misconduct on the part of Escrow Agent arising out of or in connection
      with the acceptance of, or the performance of its duties under, this Agreement,
      as well as the costs and expenses of defending against any claim or liability
      arising under this Agreement. This Section
      6(c)
      shall
      survive the termination of this Agreement.

    

    7. Counterparts.
      This
      Agreement may be executed in several counterparts, each of which, when executed,
      shall be deemed to be an original, and all such counterparts shall together
      constitute one and the same instrument.

    

    8. Notices.
      All
      notices required or permitted to be given hereunder shall be in writing and
      shall
      be
      either (a) delivered in person, (b) delivered by a recognized delivery service
      taking a receipt upon delivery or (c) sent by facsimile transmission and
      addressed as follows:

    

    To
      Sellers:    Healthcare
      Realty Trust Incorporated

     

    3310
      West
      End Avenue, Suite 700

     

    Nashville,
      Tennessee 37203

     

    Attn:
      General Counsel

     

    Facsimile:
      (615) 463-7739

     

    with
      a
      copy to:   Baker,
      Donelson, Bearman, Caldwell & Berkowitz, P.C.

     

    211
      Commerce Street, Suite 1000

     

    Nashville,
      Tennessee 37201

     

    Attn:
      David J. White

     

    Facsimile:
      (615) 744-5776

     

     

    
      
        
        

      

      
        C-3

        
          

        

      

      
        
        

      

    

    To
      Purchaser:   Emeritus
      Corporation

    3131
      Elliott Avenue, Suite 500

    Seattle,
      Washington 98121

    Attn:
      Eric Mendelsohn

    Facsimile:
      (206) 357-7388

    

    with
      a
      copy to:   Pircher,
      Nichols & Meeks

    900
      North
      Michigan Avenue, Suite 1050

    Chicago,
      Illinois 6011

    Attn:
      Real Estate Notices (JDL/EF)

    Facsimile:
      (312) 915-3348

    

    To
      Escrow
      Agent:  Fidelity
      National Title Insurance Company

    7130
      Glen
      Forest Drive, Suite 403

    Richmond,
      Virginia 23226

    Attn:
      Melodie T. Rochelle

    Facsimile:
      (804) 673-3308

    

    or
      at
      such other address, and to the attention of such other person, as the parties
      hereto shall give notice as herein provided. A notice, request and other
      communication shall be deemed to be duly received if delivered in person or
      by a
      recognized delivery service, when left at the address of the recipient and
      if
      sent by facsimile transmission, upon receipt by the sender of an acknowledgment
      or transmission report generated by the machine from which the facsimile
      transmission was sent indicating that the facsimile was sent in its entirety
      to
      the recipient’s facsimile number; provided, however, that if a notice, request
      or other communication is delivered or served on a day which is not a Business
      Day, or after 5:00 p.m. on any Business Day at the recipient’s location, such
      notice or communication shall be deemed to be duly received by the recipient
      at
      9:00 a.m. on the first Business Day thereafter.

    

    
      
        
        

      

      
        C-4

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      this
      Agreement has been executed as of the date and year first set forth
      above.

    

    SELLERS:

    

    HR
      ACQUISITION I CORPORATION,

    a
      Maryland corporation

    

    

    By:      

    Title:      

     

    HR
      ACQUISITION OF

    PENNSYLVANIA,
      INC.,
      a
      Pennsylvania

    corporation

    

    

    By:      

    Title:      

     

    HR
      ACQUISITION OF SAN ANTONIO,

    LTD.,
      an
      Alabama limited partnership

    

    By: HEALTHCARE
      ACQUISITION

    OF
      TEXAS, INC.,
      an
      Alabama

    corporation,
      General Partner

    

    

    By:      

    Title:      

     

    HRT
      HOLDINGS, INC.,
      a
      Delaware

    corporation

    

    

    By:      

    Title:      

     

    
      
        
        

      

      
        C-5

        
          

        

      

      
        
        

      

    

    PURCHASER:

    

    EMERITUS
      CORPORATION,
      a

    Washington
      corporation

    

    

    By:      

    Title:      

     

    ESCROW
      AGENT:

    

    FIDELITY
      NATIONAL TITLE INSURANCE COMPANY

    

    

    By:      

    Title:      

     

    

    
      
        
        

      

      
        C-6

        
          

        

      

      
        
        

        
          

        

      

    

    Exhibit
      D

    to
      Agreement of Sale and Purchase

    

    List
      of
      Facilities

    

    1. Loyalton
      at Bloomsburg

    420
      Shaffer Road

    Bloomsburg,
      PA

    

    2. Loyalton
      at Danville

    432
      Hermitage Drive

    Danville,
      VA

    

    3. Loyalton
      at Harrisburg

    3560
      N.
      Progress Ave.

    Harrisburg,
      PA

    

    4. Loyalton
      at Harrisonburg

    2101
      Deryerle Ave.

    Harrisonburg,
      VA

    

    5. Loyalton
      at Creekview

    1100
      Grandon Way

    Mechanicsburg,
      PA

    

    6. Loyalton
      at Greensboro

    3823
      Lawndale Drive

    Greensboro,
      NC

    

    7. Loyalton
      at Ravenna

    141
      Chestnut Hill Drive

    Ravenna,
      OH

    

    8. Loyalton
      at Roanoke

    3585
      Brambleton Ave.

    Roanoke,
      VA

    

    9. Kingsley
      Place of Henderson

    100
      Richardson Drive, 

    Henderson,
      TX

    

    10. Kingsley
      Place of McKinney

    1650
      S.
      Stonebridge

    McKinney,
      TX

    
      
        
        

      

      
        D-1

        
          

        

      

      
        
        

      

    

    

    11. Kingsley
      Place Medical Oakwell

    9000
      Floyd Curl Road

    San
      Antonio, TX

    

    12. Kingsley
      Place of Oakwell

    1970
      Oakwell Farms Parkway

    San
      Antonio, TX

    

    

    
      
        
        

      

      
        D-2

        
          

        

      

      
        
        

        
          

        

      

    

    Exhibit
      E

    to
      Agreement of Sale and Purchase

    

    Form
      of
      General Assignment

    

    GENERAL
      ASSIGNMENT

    

    THIS
      GENERAL ASSIGNMENT
      (this
“Assignment”) is made and entered into as of the ____ day of __________________,
      2007, by and between ________________________, a ___________________ (the
“Assignor”), and ___________________________, a ________________________ (the
“Assignee”).

    

    W
      I T N E S S E T H:

    

    WHEREAS,
      Assignor and Assignee are parties to that certain Agreement of Sale and
      Purchase, dated as of ____________, 2007, [as amended] (the “Agreement”),
      pertaining to the sale of the [senior living or skilled nursing facility] (the
      “Facility”) described on Exhibit
      A
      hereto
      and incorporated herein by reference; and

    

    WHEREAS,
      the
      Agreement provides that Assignor shall assign to Assignee, and Assignee shall
      assume, Assignor’s rights, title and interest in certain [permits, guarantees,
      warranties, licenses and agreements] relating to the ownership of the
      Facility;

    

    NOW,
      THEREFORE,
      in
      consideration of the foregoing and the covenants and agreements contained herein
      and in the Agreement, Assignor and Assignee agree as follows:

    

    1. Assignment
      and Assumption.
      Assignor hereby assigns to Assignee all of Assignor’s right, title and interest
      in and to and all of Assignor’s obligations under any of the following that are
      listed in Exhibit
      B
      hereto
      (collectively, the “Assigned Rights”), to the extent that they relate
      exclusively to the Facility and are assignable by Seller under the terms and
      conditions thereof without the consent or approval of any other individual,
      partnership, joint venture, corporation, limited liability company, trust,
      unincorporated organization, Government (as herein defined) or other legal
      entity: [(i) certificates of occupancy and permits or approvals of any nature
      from any federal, state, local or municipal government or any department,
      commission, board, bureau, agency, instrumentality, unit or taxing authority
      thereof ( a “Government”); (ii)
      guarantees, warranties and indemnities pertaining to the ownership of the
      Facility; and (iii) management agreements, service contracts, contractor
      agreements, construction contracts or other agreements or instruments affecting
      all or a portion of the Facility.]
      Assignee
      hereby accepts all of such right, title and interest to, in and under the
      Assigned Rights and assumes all of the obligations of Assignor under the
      Assigned rights and arising or accruing on or after _____________, 2007 (the
      “Effective Date”).

    

    2. Indemnification.
      Assignee agrees to indemnify, defend and hold Assignor harmless from and against
      any liability, loss, damage, cost, claim or expense directly or indirectly
      related to or in any way associated with the Assigned Rights arising from the
      obligations of Assignee to be 

    
      
        
        

      

      
        E-1

        
          

        

      

      
        
        

      

    

    performed
      on or after the Effective Date. Assignor agrees to indemnify, defend and hold
      Assignee harmless from and against any liability, loss, damage, cost, claim
      or
      expense directly or indirectly related to or in any way associated with the
      Assigned Rights arising from the obligations of Assignor under the Assigned
      Rights and incurred prior to the Effective Date. Any claim made by Assignee
      or
      Assignor against the other under this Section
      2
      shall be
      made in accordance with the provisions of Section
      8.3
      of the
      Agreement.

    

    IN
      WITNESS WHEREOF,
      the
      parties hereto have caused this Assignment to be duly executed and delivered
      on
      the day and year first above written.

    

    ASSIGNOR:

    

    ___________________________,
      a ___________

    

    

    By:      

    Title:      

    

    ASSIGNEE:

    

    ___________________________,
      a ___________

    

    

    By:      

    Title:      

    
      
        
        

      

      
        E-2

        
          

        

      

      
        
        

      

    

    Exhibit
      A

    to
      General Assignment

    
      
        
        

      

      
        E-3

        
          

        

      

      
        
        

      

    

    Exhibit
      B

    to
      General Assignment

    

    
      
        
        

      

      
        E-4

        
          

        

      

      
        
        

        
          

        

      

    

    Exhibit
      F

    to
      Agreement of Sale and Purchase

    

    Form
      of
      Lease Termination

    

    This
      instrument was prepared by:

     

     

     

     

    

     

    LEASE
      TERMINATION AGREEMENT

     

    THIS
      LEASE TERMINATION AGREEMENT
      (the
“Termination”) is dated as of ______________, 2007, and effective at the
      Effective Time (as defined in Section
      1
      hereof),
      and is by and among _______________________________,
      _____________________________________ (the “Landlord”), with an address of
      __________________________________, and _________________________________,
      a
      __________________________________ (the “Tenant”), with an address of
      __________________________________.

    

    PRELIMINARY
      STATEMENTS

     

    A. Pursuant
      to that certain [Lease Agreement identified on Exhibit
      A
      attached
      hereto] (the “Lease”), Tenant leased from Landlord the premises more
      particularly described as the “____________” in the Lease (the
“Premises”).

     

    B. In
      conjunction with the conveyance of the Premises by Landlord to Tenant, Landlord
      and Tenant wish to agree and consent to the termination of the Lease.

     

    TERMS

     

    NOW,
      THEREFORE,
      in
      consideration of the sum of Ten and No/100 Dollars ($10.00) and other good
      and
      valuable consideration, the receipt and sufficiency of which are hereby
      acknowledged, and the mutual promises contained in this Termination, the
      parties, intending to be legally bound, agree as follows:

     

    1. Landlord
      and Tenant hereby agree and consent to the termination of the Lease, effective
      as of ______ __.m. (Central Time) on the date hereof (the “Effective Time”);
      provided, however, that Tenant is not released from any liabilities, duties
      or
      obligations under the Lease that arose or accrued prior to the Effective Time,
      including, without limitation, the obligation, responsibility or liability
      for
      the payment to Landlord or any other person or entity for any losses,
      liabilities, damages, injuries, penalties, fines, costs, expenses, claims and
      other amounts of any and every kind whatsoever (including, without limitation,
      reasonable attorneys’ fees and expenses) that
      relate to (a) the Lease; (b) Tenant’s occupancy of the Premises or the
      improvements thereon; (c) the 

    
      
        
        

      

      
        F-1

        
          

        

      

      
        
        

      

    

    use
      or
      enjoyment of any appurtenances, easements, rights and privileges belonging
      to
      the Premises by Tenant or its invitees, officers,
      contractors, subcontractors, agents, representatives or employees;
      or (d)
causes
      of
      action, claims, suits, actions or other proceedings (i) pending at the Effective
      Time or (ii) filed or made at or after the Effective Time and relating to
events
      occurring or liabilities or obligations arising or accruing prior to the
      Effective Time.

    

    2. Tenant
      hereby releases and forever discharges Landlord from all known or unknown causes
      of action, claims, suits, actions, demands or other proceedings of any kind
      that
      Tenant has as of the Effective Time or may have after the Effective Time on
      account of or in any way arising out of or related to the Lease or the
      Premises.

    

    3. This
      Termination shall be construed and interpreted in accordance with the laws
      of
      the State in which the Premises are located.

    

    4. This
      Termination shall inure to the benefit of the successors and assigns of the
      parties hereto.

    

    5. This
      Termination may be executed in any number of counterparts, each of which shall
      be deemed an original hereof and all of which together shall constitute but
      one
      Termination. In the event of any conflict between the terms of this Termination
      and the terms of the Lease, the terms of this Termination shall govern and
      shall
      be controlling.

     

    IN
      WITNESS WHEREOF,
      the
      parties hereto have executed this instrument effective on the date set forth
      above.

     

    LANDLORD:

    

    ___________________________,
      a

    ____________________________

    

    

    By:      

    Name:      

    Title:      

    

    TENANT:

    

    ___________________________,
      a

    ____________________________

    

    

    By:      

    Name:      

    Title:      

    

    
      
        
        

      

      
        F-2

        
          

        

      

      
        
        

      

    

    [INSERT
      APPROPRIATE ACKNOWLEDGEMENT

    FORM
      AND
      RECORDING REQUIREMENTS]

    
      
        
        

      

      
        F-3

        
          

        

      

      
        
        

      

    

    Exhibit
      A

    to
      Lease
      Termination

    

    Description
      of Lease

    

    

    
      
        
        

      

      
        F-4

        
          

        

      

      
        
        

        
          

        

      

    

    

    Exhibit
      G-1

    to
      Agreement of Sale and Purchase

    

    Emeritus
      Mortgage Loan

    

    Promissory
      Note, dated June 30, 2005, executed by Emeritus Corporation in the principal
      amount of $10.8 million and payable to Healthcare Realty Trust Incorporated,
      as
      amended, renewed, modified or extended. As of the February 28, 2007, the
      outstanding principal balance thereunder was $10.8 million and non-default
      rate
      of interest thereunder was 10% per annum.

    

    

    
      
        
        

      

      
        F-1

        
          

        

      

      
        
        

        
          

        

      

    

    

    Exhibit
      G-2

    to
      Agreement of Sale and Purchase

    

    Term
      Mortgage Loan

    

    Term
      Loan
      Note, dated May 1, 2003, executed by Emeritus Corporation in the principal
      amount of $600,000 and payable to HR Acquisition I Corporation, as amended,
      renewed, modified or extended. As of February 28, 2007, the outstanding
      principal balance thereunder was $600,000 and the non-default rate of interest
      thereunder was 10% per annum.

    

    
      
        
        

      

      
        G-1

        
          

        

      

      
        
        

        
          

        

      

    

    

    Exhibit
      H

    to
      Agreement of Sale and Purchase

    

    List
      of
      Tenant Leases

    

    1. Lease
      Agreement, dated May 1, 2003, by and between HR Acquisition I Corporation,
      Capstone Capital of Pennsylvania, Inc., and HRT Holdings, Inc., as lessor,
      and
      Emeritus Corporation, as lessee, as amended, modified, extended or assigned,
      and
      including any recorded lease memoranda or short form leases thereof, as amended,
      modified, extended or assigned.

    

    2. Lease
      Agreement, dated as of December 31, 1996, by and between Capstone Capital of
      San
      Antonio, Ltd. (d/b/a Cahaba of San Antonio, Ltd.), as lessor, and Integrated
      Living Communities of McKinney, Inc., as lessee, as amended, modified, extended
      or assigned, and including any recorded lease memoranda or short form leases
      thereof, as amended, modified, extended or assigned.

    

    3. Lease
      Agreement, dated as of December 31, 1996, by and between Capstone Capital of
      San
      Antonio, Ltd. (d/b/a Cahaba of San Antonio, Ltd.), as lessor, and Integrated
      Living Communities of Henderson, Inc., as lessee, as amended, modified, extended
      or assigned, and including any recorded lease memoranda or short form leases
      thereof, as amended, modified, extended or assigned.

    

    4. Lease
      Agreement, dated as of December 31, 1996, by and among Capstone Capital of
      San
      Antonio, Ltd. (d/b/a Cahaba of San Antonio, Ltd.), as lessor, and Integrated
      Living Communities of Oakwell, Inc., as lessee, and Integrated Living
      Communities, Inc., as amended, modified, extended or assigned, and including
      any
      recorded lease memoranda or short form leases thereof, as amended, modified,
      extended or assigned.

    

    5. Lease
      Agreement, dated as of December 31, 1996, by and among Capstone Capital of
      San
      Antonio, Ltd. (d/b/a Cahaba of San Antonio, Ltd.), as lessor, and Integrated
      Living Communities of San Antonio, Inc., as lessee, and Integrated Living
      Communities, Inc., as amended, modified, extended or assigned, and including
      any
      recorded lease memoranda or short form leases thereof, as amended, modified,
      extended or assigned.

    

    
      
        
        

      

      
        H-1

        
          

        

      

      
        
        

        
          

        

      

    

    

    Exhibit
      I

    to
      Agreement of Sale and Purchase

    

    Form
      of
      Title Affidavit

    

    TITLE
      AFFIDAVIT

    

    BEFORE
      ME, the undersigned authority, on this day personally appeared
      _________________________ (the “Affiant”), personally known to be the person
      whose name is subscribed hereto, and upon his oath deposes and says as
      follows:

    

    
      	
              1.

            	
              Affiant
                is the _________________ of __________________________, a
                _____________________ (the “Owner”). Deponent has knowledge of the
                statements made herein and is qualified and authorized to make and
                deliver
                this Title Affidavit on behalf of
                Owner.

            

    

    

    
      	
              2.

            	
              Owner
                is the present owner of the property described in Exhibit
                A
                attached hereto (the “Property”).

            

    

    

    
      	
              3.

            	
              To
                the best of Affiant’s knowledge, there are no pending disputes
                concerning
                the location of the boundary lines, fences, driveways, walks,
                encroachments or improvements, either onto or from the
                Property.

            

    

    

    
      	
              4.

            	
              To
                the best of Affiant’s knowledge, there are no currently pending suits,
                proceedings or judgments that adversely affect the title to the
                Property.

            

    

    

    
      	
              5.

            	
              There
                are no tenancies, leases, subleases, occupancies or parties in possession
                of the Property except for
                _______________________________________________.

            

    

    

    
      	
              6.

            	
              No
                bankruptcy proceedings in any federal court, federal tax liens, state
                tax
                liens and/or judgments have been or are being filed against or by
                Owner.

            

    

    

    
      	
              7.

            	
              There
                are no liens for past due taxes of any nature or any unpaid assessments
                of
                any kind against the Property, other than shown on Commitment No.
                _____________ (the “Commitment”) issued by Fidelity National Title
                Insurance Company (“Fidelity”).

            

    

    

    8. As
      of the
      closing of the sale of the Property, there will be no financing statements
      under
      which Owner is the debtor encumbering the Property and no outstanding
      indebtedness of Owner for equipment, appliances or other fixtures attached
      to
      the Property.

    

    
      	
              9.

            	
              This
                Title Affidavit is being delivered to Fidelity in connection with
                the
                conveyance of the Property to __________________________, a
                _____________________.

            

    

    

    
      
        
        

      

      
        E-1

        
          

        

      

      
        
        

      

    

    
      	
              10.

            	
              There
                are no unpaid debts or liens for work, improvements or repairs that
                have
                been undertaken by or at the request of Owner on the Property preceding
                the date of the making of this Title
                Affidavit.

            

    

    
      
        
        

      

      
        E-2

        
          

        

      

      
        
        

      

    

    

    EXECUTED
      this _____ day of _______________, 2007.

    

    ________________________________

    

    

    By:      

    Title:      

    

    

    SUBSCRIBED
      AND SWORN TO BEFORE ME this ___ day of ______________, 2007.

    

    

     

    
      	 	 	 	 	 	 	
              Notary
                Public, State of ___________

            

    

    

     

    My
      commission expires:   Printed
      Name

    

    ______________________     [SEAL]

    
      
        
        

      

      
        E-3

        
          

        

      

      
        
        

      

    

    Exhibit
      A

    to
      Title
      Affidavit

    

    Description
      of Property

    

    
      
        
        

      

      
        E-4

        
          

        

      

      
        
        

        
          

        

      

    

    

    Exhibit
      J

    to
      Agreement of Sale and Purchase

    

    Form
      of
      Mortgage Assignment

    

    ASSIGNMENT
      AND ASSUMPTION

    OF
      LOAN AND LOAN DOCUMENTS

    

    THIS
      ASSIGNMENT AND ASSUMPTION OF LOAN AND LOAN DOCUMENTS (the
      “Assignment”) is made as of ________________, by and between
      ______________________, a ___________________________ (the “Assignor”), and
      _____________________________, a ___________________________ (the
“Assignee”).

    

    FOR
      A VALUABLE CONSIDERATION AND THE MUTUAL COVENANTS HEREIN
      CONTAINED,
      the
      receipt and sufficiency of which are hereby acknowledged, the parties, intending
      to be legally bound, agree as follows:

    

    1. Assignor
      hereby bargains,
      sells, assigns, transfers and conveys unto Assignee, without recourse or
      warranty, all of Assignor’s right, title and interest in and to those loan
      documents (collectively, the “Loan Documents”) listed and identified in
Exhibit
      A
      hereto,
      the loan indebtedness (the “Loan”) evidenced and secured, respectively, by the
      Note and the [____________________] identified in Exhibit
      A
      hereto
      and all rights, options, benefits and privileges granted to Assignor in the
      Loan
      Documents. Assignee
      hereby accepts such assignment and assumes, effective as of _____________,
      2007
      (the “Effective Date”), all liabilities, duties and obligations of Assignor
      under the Loan Documents and hereby agrees to be bound by and upon all of the
      covenants, agreements, terms, provisions and conditions of the Loan
      Documents.

     

    2. ASSIGNOR
      MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO
      THE
      LOAN, THE LOAN DOCUMENTS, THE COLLATERAL SECURITY FOR THE LOAN, IF ANY, OR
      THE
      ABILITY OF THE OBLIGORS UNDER ANY OF THE LOAN DOCUMENTS TO SATISFY THEIR
      RESPECTIVE OBLIGATIONS THEREUNDER. ASSIGNEE AGREES THAT THE LOAN AND THE LOAN
      DOCUMENTS ARE ACCEPTED BY ASSIGNEE IN “AS-IS, WHERE-IS” CONDITION, AND ASSIGNOR
      SPECIFICALLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR
      A
      PARTICULAR PURPOSE.

    

    3. Assignee
      hereby releases and forever discharges Assignor from all known or unknown causes
      of action, claims, suits, actions, demands or other proceedings of any kind
      relating to the Loan, the Loan Documents or the ability of the obligors under
      any of the Loan Documents to satisfy their respective obligations thereunder.
      REGARDLESS OF ANY STATEMENTS OR REPRESENTATIONS IN THE LOAN DOCUMENTS TO THE
      CONTRARY, ASSIGNEE ACKNOWLEDGES AND AGREES THAT REPAYMENT
      OF THE LOAN IS UNSECURED
      AND ANY
      PRIOR COLLATERAL SECURITY FOR THE LOAN WAS RELEASED OR EXTINGUISHED PRIOR TO
      THIS ASSIGNMENT.

    

     

    
      
        
        

      

      
        E-1

        
          

        

      

      
        
        

      

    

    4. This
      Assignment shall be construed and interpreted in accordance with the laws of
      the
      State of _________________.

    

    5. This
      Assignment shall inure to the benefit of the successors and assigns of the
      parties hereto.

    

    6. This
      Assignment may be executed in any number of counterparts, each of which shall
      be
      deemed an original hereof and all of which together shall constitute but one
      Assignment. In the event of any conflict between the terms of this Assignment
      and the terms of the Lease, the terms of this Assignment shall govern and shall
      be controlling.

    

    IN
      WITNESS WHEREOF,
      the
      parties hereto have executed this Assignment to be effective as of the Effective
      Date.

    

    ASSIGNOR:

    

    ___________________________,
      a ___________

    

    

    By:      

    Title:      

    

    ASSIGNEE:

    

    ___________________________,
      a ___________

    

    

    By:      

    Title:      

    

    

    [INSERT
      APPROPRIATE ACKNOWLEDGEMENT

    FORM
      AND
      RECORDING REQUIREMENTS]

    

    
      
        
        

      

      
        E-2

        
          

        

      

      
        
        

      

    

    Exhibit
      A

    to
      Assignment and Assumption of Loan and Loan Documents

    

     

    
      
        
        

      

      
        E-3

        
          

        

      

      
        
        

        
          

        

      

    

    

      Schedule
        3.6

      to
        Agreement of Sale and Purchase

      

       

      Facility   Zoning
        Classification 

       

      Loyalton
        at Bloomsburg   C
        (General Commercial District)

      420
        Shaffer Road

      Bloomsburg,
        Pennsylvania

      

      Loyalton
        at Harrisburg   B.O.R.
        (Business, Office, Residential)

      3560
        N.
        Progress Ave.

      Harrisburg,
        Pennsylvania

      

      Loyalton
        at Creekview   R-T
        (Residential Towne)

      1100
        Grandon Way

      Hampden,
        Pennsylvania

    

     

    
 

    
      
        
        

      

      
        E-1Ex 10.12.2 HRT purchase Fixed Loan Agreement with Capmark

Back
    to 10-Q

    LOAN
      AGREEMENT

    

     

    THIS
      LOAN AGREEMENT
      (this
“Agreement”) is made as of March 15, 2007,
      by and
      among the twelve (12) Delaware limited liability companies or limited
      partnerships listed on Schedule
      A
      attached
      hereto and made a part hereof (together with their respective successors and
      assigns, the “Borrowers”, and individually, a “Borrower”), and CAPMARK BANK, a
      Utah industrial bank (together with its successors and assigns,
“Lender”).

     

    RECITALS

     

    A. Borrowers
      have requested a loan in the principal amount of $88,000,000.00.

     

    B. Lender
      has agreed to make such loan on the terms and conditions hereinafter set
      forth.

     

    AGREEMENT

     

    NOW,
      THEREFORE,
      it is
      hereby agreed as follows:

     

    ARTICLE
      I  

     

    DEFINITIONS,
      ACCOUNTING PRINCIPLES, UCC TERMS.

     

    1.1  As
      used
      in this Agreement, the following terms shall have the following meanings unless
      the context hereof shall otherwise indicate:

     

    “Accounts”
      means
      any rights of Borrowers, if any, arising from the operation of a Facility to
      payment for goods sold or leased or for services rendered, not evidenced by
      an
      Instrument, including, without limitation, (i) all accounts arising from the
      operation of a Facility, (ii) all moneys and accounts held by or for the
      benefit of Lender of this Agreement and under the Mortgage, and (iii) all rights
      to payment from Medicare or Medicaid programs, or similar state or federal
      programs, boards, bureaus or agencies and rights to payment from residents,
      private insurers, and others arising from the operation of the Facility,
      including rights to payment pursuant to Reimbursement Contracts. Accounts shall
      include the proceeds thereof (whether cash or noncash, moveable or immoveable,
      tangible or intangible) received from the sale, exchange, transfer, collection
      or other disposition or substitution thereof. 

     

    “Affiliate”
      means,
      with respect to any Person, (a) each Person that controls, is controlled by
      or is under common control with such Person, (b) each Person that, directly
      or indirectly, owns or controls, whether beneficially or as a trustee, guardian
      or other fiduciary, any of the Stock of such Person, and (c) each of such
      Person’s officers, directors, members, joint venturers and
      partners.

     

    “Assignment
      of Leases and Rents”
      means
      that certain Assignment of Leases and Rents by each Borrower in favor of
      Lender.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    “Assignment
      of Licenses”
      means,
      collectively, those certain Assignment of Licenses, Permits and Contracts to
      and
      for the benefit of Lender.

     

    “Business
      Day”
      means a
      day, other than Saturday or Sunday and legal holidays, when Lender is open
      for
      business.

     

    “Closing
      Date”
      means
      the date on which all or any part of the Loan is disbursed by Lender to or
      for
      the benefit of Borrower.

     

    “Collateral”
      means,
      collectively, the Borrowers’ interest in the Mortgaged Property, Improvements,
      Equipment, Rents, Accounts, General Intangibles, Instruments, Inventory, Money,
      Permits (to the full extent assignable), Reimbursement Contracts, and all
      Proceeds, all whether now owned or hereafter acquired, and including
      replacements, additions, accessions, substitutions, and products thereof and
      thereto, and all other property which is or hereafter may become subject to
      a
      Lien in favor of Lender as security for any of the Loan
      Obligations.

    

    “Commitment
      Letter”
      means
      the commitment letter issued by Lender to Borrowers dated of even date
      herewith.

     

    “Default”
      means
      the occurrence or existence of any event which, but for the giving of notice
      or
      expiration of time or both, would constitute an Event of Default.

     

    “Default
      Rate”
      with
      respect to each Note, has the meaning given to that term in such
      Note.

     

    “Emeritus”
      means
      Emeritus Corporation, a publicly-traded company organized under the laws of
      the
      State of Washington.

    

    “Environmental
      Permit”
means
      any permit, license, or other authorization issued under any Hazardous Materials
      Law with respect to any activities or businesses conducted on or in relation
      to
      the Land and/or the Improvements.

     

    “Equipment”
      means
      all beds, linens, televisions, carpeting, telephones, cash registers, computers,
      lamps, glassware, rehabilitation equipment, restaurant and kitchen equipment,
      and other fixtures and equipment, if any, owned by Borrowers located on,
      attached to or used or useful in connection with any of the Property or the
      Facilities and all renewals and replacements thereof and substitutions therefor;
      provided, however, that with respect to any items which are leased for the
      benefit of a Facility and not owned by a Borrower, the Equipment shall include
      the leasehold interest only of such Borrower together with any options to
      purchase any of said items and any additional or greater rights with respect
      to
      such items which such Borrower may hereafter acquire, but the foregoing shall
      not be construed to mean that such leasing shall be permitted hereunder and
      under the other Loan Documents.

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    “Event
      of Default”
      means
      any “Event of Default” as defined in Article VII hereof.

     

    “Exhibit”
      means an
      Exhibit to this Agreement, unless the context refers to another document, and
      each such Exhibit shall be deemed a part of this Agreement to the same extent
      as
      if it were set forth in its entirety wherever reference is made
      thereto.

     

    “Facilities”
      means
      the twelve (12) facilities listed on Schedule
      B
      attached
      hereto and made a part hereof located on the Land, as they may now or hereafter
      exist, together with any other general or specialized care facilities, if any
      (including any Alzheimer’s care unit, subacute, and any other healthcare related
      facility), now or hereafter operated on the Land, and, individually, a
“Facility”.

     

    “GAAP”
      means,
      as in effect from time to time, generally accepted accounting principles
      consistently applied as promulgated by the American Institute of Certified
      Public Accountants.

     

    “General
      Intangibles”
      means
      all intangible personal property of Borrowers arising out of or connected with
      the Mortgaged Property or the Facilities and all renewals and replacements
      thereof and substitutions therefor (other than Accounts, Rents, Instruments,
      Inventory, Money, Permits, and Reimbursement Contracts), including, without
      limitation, things in action, contract rights and other rights to payment of
      money. 

    

    “Governmental
      Authority”
      means
      any nation or government, any state or other political subdivision thereof,
      and
      any Person exercising executive, legislative, judicial, regulatory or
      administrative functions of or pertaining to such government.

     

    “Guarantor”
      means
      Emeritus.

     

    “Guaranty
      Agreement”
      means
      that certain Guaranty Agreement of even date herewith executed by Emeritus
      in
      favor of Lender.

     

    “Hazardous
      Materials”
      means
      petroleum and petroleum products and compounds containing them, including
      gasoline, diesel fuel and oil; explosives; flammable materials; radioactive
      materials; polychlorinated biphenyls (“PCBs”) and compounds containing them;
      lead and lead-based paint; asbestos or asbestos-containing materials in any
      form
      that is or could become friable; underground storage tanks, whether empty or
      containing any substance; any substance the presence of which on the Land and/or
      the Improvements is prohibited by any federal, state or local authority; any
      substance that requires special handling; and any other material or substance
      now or in the future defined as a “hazardous substance,” “hazardous material,”
“hazardous waste,” “toxic substance,” “toxic pollutant,” “contaminant,” or
“pollutant” within the meaning of any Hazardous Materials Law.

     

    “Hazardous
      Materials Laws”
      means
      all federal, state, and local laws, ordinances and regulations and standards,
      rules, policies and other governmental requirements, administrative rulings
      and
      court judgments and decrees in effect now or in the future and 

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    including
      all amendments, that relate to Hazardous Materials and apply to Borrower or
      to
      the Land and/or the Improvements. Hazardous Materials Laws include, but are
      not
      limited to, the Comprehensive Environmental Response, Compensation and Liability
      Act, 42 U.S.C. Section 9601, et seq., the Resource Conservation and Recovery
      Act, 42 U.S.C. Section 6901, et seq., the Toxic Substance Control Act, 15 U.S.C.
      Section 2601, et seq., the Clean Water Act, 33 U.S.C. Section 1251, et seq.,
      and
      the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, and their
      state analogs.

     

    “Improvements”
      means
      all buildings, structures and improvements of every nature whatsoever now or
      hereafter situated on the Land, including but not limited to, all gas and
      electric fixtures, radiators, heaters, engines and machinery, boilers, ranges,
      elevators and motors, plumbing and heating fixtures, carpeting and other floor
      coverings, water heaters, awnings and storm sashes, and cleaning apparatuses
      which are or shall be attached to the Land or said buildings, structures or
      improvements.

     

    “Indebtedness”
      means
      any (a) obligations for borrowed money, (b) obligations, payment for which
      is
      being deferred by more than ninety (90) days, representing the deferred purchase
      price of property other than accounts payable arising in connection with the
      purchase of inventory customary in the trade and in the ordinary course of
      Borrower’s business, (c) obligations, whether or not assumed, secured by Liens
      or payable out of the proceeds or production from the Accounts and/or property
      now or hereafter owned or acquired, and (d) the amount of any other obligation
      (including obligations under financing leases) which would be shown as a
      liability on a balance sheet prepared in accordance with GAAP.

     

    “Instruments”
      means
      all instruments, chattel paper, documents or other writings obtained from or
      in
      connection with the operation of the Mortgaged Property or the Facilities
      (including, without limitation, all ledger sheets, computer records and
      printouts, data bases, programs, books of account and files relating
      thereto).

     

    “Intercreditor
      Agreement”
      means
      the Intercreditor and Subordination Agreement executed by and between Lender
      and
      Columbia Pacific Opportunity Fund, L.P., related to the Subordinated
      Debt.

     

    “Inventory”
      means
      all
      inventories of food, beverages and other comestibles held by Borrowers for
      sale
      or use at or from the Mortgaged Property or the Facilities, and soap, paper
      supplies, medical supplies, drugs and all other such goods, wares and
      merchandise held by Borrowers for sale to or for consumption by guests, or
      residents of the Mortgaged Property or the Facilities and all such other goods
      returned to or repossessed by Borrowers.

     

    “Land”
      means
      the land described in Exhibit
      “A”
      attached
      hereto and made a part hereof.

     

    “Leases”
      has the
      meaning given to that term in the Mortgage.

     

    “Lien”
      means
      any voluntary or involuntary mortgage, security deed, deed of trust, lien,
      pledge, assignment, security interest, title retention agreement, financing
      lease, levy, 

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    execution,
      seizure, judgment, attachment, garnishment, charge, lien or other encumbrance
      of
      any kind, including those contemplated by or permitted in this Agreement and
      the
      other Loan Documents.

     

    “Loan”
      means
      the loan in the principal sum of $88,000,000.00 made by Lender to Borrowers
      as
      of the date hereof.

     

    “Loan
      B”
      means
      the loan in the amount of $13,600,000.00 of even date from Capmark Finance
      Inc.,
      to Borrowers.

     

    “Loan
      Documents”
      means,
      collectively, the Commitment Letter, this Agreement, the Note, the Mortgage,
      the
      Assignment of Leases and Rents, the Assignment of Licenses, the Guaranty
      Agreement, and the Subordination Agreement, together with any and all other
      documents executed by Borrowers, Guarantor or others, evidencing, securing
      or
      otherwise relating to the Loan.

     

    “Loan
      Obligations”
      means
      the aggregate of all principal and interest owing from time to time under the
      Note and all expenses, charges and other amounts from time to time owing under
      the Note, this Agreement or the other Loan Documents and all covenants,
      agreements and other obligations from time to time owing to, or for the benefit
      of, Lender pursuant to the Loan Documents.

     

    “Managed
      Care Plans”
      means
      any health maintenance organization, preferred provider organization, individual
      practice association, competitive medical plan, or similar arrangement, entity,
      organization, or Person.

     

    “Management
      Agreement”
      means
      those two (2) certain Master Lease and Management Agreements dated of even
      date
      with this Agreement, between Manager and each Borrower, obligating Manager
      to
      operate and manage the Facilities.

     

    “Manager”
      means
      Emeritus for the non-Texas Facilities, and ESC IV, L.P., a Washington limited
      partnership, for the Texas Facilities, and any successor manager of the
      Facilities approved by Lender in writing.

     

    “Maturity
      Date”
      means
      April 1, 2012.

     

    “Medicaid”
      means
      that certain program of medical assistance, funded jointly by the federal
      government and the States, for impoverished individuals who are aged, blind
      and/or disabled, and/or members of families with dependent children, which
      program is more fully described in Title XIX of the Social Security Act (42
      U.S.C. §§ 1396 et
      seq.)
      and
      the regulations promulgated thereunder.

     

    “Medicare”
      means
      that certain federal program providing health insurance for eligible elderly
      and
      other individuals, under which physicians, hospitals, skilled nursing homes,
      home health care and other providers are reimbursed for certain covered services
      they provide to 

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    the
      beneficiaries of such program, which program is more fully described in Title
      XVIII of the Social Security Act (42 U.S.C. §§ 1395 et
      seq.)
      and
      the regulations promulgated thereunder.

     

    “Money”
      means
      all monies, cash, rights to deposit or savings accounts or other items of legal
      tender obtained from or for use in connection with the operation of a
      Facility.

     

    “Mortgage”
      means
      collectively those certain twelve (12) Mortgages or Deeds of Trust and Security
      Agreements executed by Borrowers in favor of or for the benefit of Lender and
      covering each Borrower’s respective Mortgaged Property.

     

    “Mortgaged
      Property”
      has the
      meaning given to that term in the Mortgage.

     

    “Note”
      means
      that certain Promissory Note of even date herewith in the principal amount
      of
      the Loan payable by Borrower to the order of Lender.

     

    “OFAC
      List”
      means
      the list of specially designated nationals and blocked persons subject to
      financial sanctions that is maintained by the U.S. Treasury Department, Office
      of Foreign Assets Control and any other similar list maintained by the U.S.
      Treasury Department, Office of Foreign Assets Control pursuant to any
      Requirements of Law, including, without limitation, trade embargo, economic
      sanctions, or other prohibitions imposed by Executive Order of the President
      of
      the United States. The OFAC List currently is accessible through the internet
      website www.treas.gov/ofac/t11sdn.pdf.

     

    “O&M
      Program”
      means a
      written program of operations and maintenance established or approved in writing
      by Lender relating to any Hazardous Materials in, on or under the Land and/or
      the Improvements.

     

    “Permits”
      means
      all licenses, permits and certificates used or necessary in connection with
      the
      construction, ownership, operation, use or occupancy of the Mortgaged Property
      and/or the Facility, including, without limitation, business licenses, state
      health department licenses, food service licenses, licenses to conduct business,
      certificates of need and all such other permits, licenses and rights, obtained
      from any governmental, quasi-governmental or private person or entity whatsoever
      concerning ownership, operation, use or occupancy.

     

    “Permitted
      Encumbrances”
      has the
      meaning given to that term in Section 5.2 hereof.

     

    “Person”
      means an
      individual, partnership, limited partnership, corporation, limited liability
      company, business trust, joint stock company, trust, unincorporated association,
      joint venture, governmental authority or other entity of whatever
      nature.

     

    “Proceeds”
      means
      all proceeds (including proceeds of insurance and condemnation) from the sale,
      exchange, transfer, collection, loss, damage, disposition, substitution or
      replacement of any of the Collateral.

     

    “Reimbursement
      Contracts”
      means
      all third-party reimbursement contracts relating to the Facility which are
      now
      or hereafter in effect with respect to residents or patients 

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    qualifying
      for coverage under the same, including Medicare and Medicaid, Managed Care
      Plans
      and private insurance agreements, and any successor program or other similar
      reimbursement program and/or private insurance agreements, now or hereafter
      existing.

     

    “Rents”
      means
      all rent and other payments of whatever nature from time to time payable
      pursuant to leases of the Mortgaged Property or the Facilities, or for retail
      space or other space at the Mortgaged Property (including, without limitation,
      rights to payment earned under leases for space in the Improvements for the
      operation of ongoing retail businesses such as newsstands, barbershops, beauty
      shops, physicians’ offices, pharmacies and specialty shops).

     

    “Requirements
      of Law”
      means
      (a) the organizational documents of an entity, and (b) any law, regulation,
      ordinance, code, decree, treaty, ruling or determination of an arbitrator,
      court
      or other Governmental Authority, or any Executive Order issued by the President
      of the United States, in each case applicable to or binding upon such Person
      or
      to which such Person, any of its property or the conduct of its business is
      subject including, without limitation, laws, ordinances and regulations
      pertaining to the zoning, occupancy and subdivision of real
      property.

     

    “Single
      Purpose Entity” means
      a
      Person which complies with the requirements of Section 5.4.

     

    “Stock”
      means
      all shares, options, warrants, general or limited partnership interests,
      membership interests, participations or other equivalents (regardless of how
      designated) in a corporation, limited liability company, partnership or any
      equivalent entity, whether voting or nonvoting, including, without limitation,
      common stock, preferred stock, or any other “equity security” (as such term is
      defined in Rule 3a11-1 of the General Rules and Regulations promulgated by
      the
      Securities and Exchange Commission under the Securities Exchange Act of 1934,
      as
      amended).

     

    “Subordinated
      Debt”
      has the
      meaning given to such term in Section
      2.5.

     

    “Subordination
      Agreement”
      means
      that certain Subordination of Management Agreement of even date herewith by
      and
      among Borrower, Manager, and Lender.

     

    1.2  Singular
      terms shall include the plural forms and vice versa, as applicable, of the
      terms
      defined.

     

    1.3  Each
      term
      contained in this Agreement and defined in the Uniform Commercial Code (the
      “UCC”) in effect from time to time in the state in which the Land is located
      shall have the meaning given to such term in the UCC, unless the context
      otherwise indicates, and shall include, without limitation, the meaning set
      forth in this Agreement.

     

    1.4  All
      accounting terms used in this Agreement shall be construed in accordance with
      GAAP, except as otherwise specified.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    1.5  All
      references to other documents or instruments shall be deemed to refer to such
      documents or instruments as they may hereafter be extended, renewed, modified,
      or amended and all replacements and substitutions therefor.

     

    1.6  All
      references herein to “Medicaid” and “Medicare” shall be deemed to include any
      successor program thereto.

     

    ARTICLE
      II  

     

    TERMS
      OF THE LOAN

     

    2.1  The
      Loan.
      Each
      Borrower has agreed to borrow the Loan from Lender, and Lender has agreed to
      make the Loan to Borrowers, subject to Borrowers’ compliance with and observance
      of the terms, conditions, covenants, and provisions of this Agreement and the
      other Loan Documents, and each Borrower has made the covenants, representations,
      and warranties herein and therein as a material inducement to Lender to make
      the
      Loan.

     

    2.2  Security
      for the Loan.
      The
      Loan will be evidenced, secured and guaranteed by the Loan Documents and the
      Collateral.

     

    2.3  Limitation
      on Interest.
      All
      agreements between Borrowers and Lender, whether now existing or hereafter
      arising and whether written or oral, are hereby limited so that in no
      contingency, whether by reason of acceleration of the maturity of any
      indebtedness governed hereby or otherwise, shall the interest contracted for,
      charged or received by Lender exceed the maximum amount permissible under
      applicable law. If, from any circumstance whatsoever, interest would otherwise
      be payable to Lender in excess of the maximum lawful amount, the interest
      payable to Lender shall be reduced to the maximum amount permitted under
      applicable law; and, if from any circumstance the Lender shall ever receive
      anything of value deemed interest by applicable law in excess of the maximum
      lawful amount, an amount equal to any excessive interest shall be applied to
      the
      reduction of the principal of the Loan and not to the payment of interest,
      or,
      if such excessive interest exceeds the unpaid balance of principal of the Loan,
      such excess shall be refunded to Borrowers. All interest paid or agreed to
      be
      paid to Lender shall, to the extent permitted by applicable law, be amortized,
      prorated, allocated, and spread throughout the full period until payment in
      full
      of the principal of the Loan (including the period of any renewal or extension
      thereof) so that interest thereon for such full period shall not exceed the
      maximum amount permitted by applicable law. This paragraph shall control all
      agreements between the Borrowers and Lender.

     

    2.4  Additional
      Financing.
      Lender
      acknowledges that Emeritus has borrowed the amount of $10,800,000.00 from
      Columbia Pacific Opportunity Fund, L.P., in order to complete the acquisition
      of
      the Facilities (the “Subordinated Debt”). The Subordinated Debt is secured by
      third, subordinate liens on the Facilities.

     

    

     

    ARTICLE
      III  

     

    BORROWER’S
      REPRESENTATIONS AND WARRANTIES

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    To
      induce
      Lender to enter into this Agreement, and to make the Loan to Borrowers, each
      Borrower with respect to itself and its Facility, represents and warrants to
      Lender as follows:

     

    3.1  Existence,
      Power and Qualification.
      Borrower is a duly organized and validly existing Delaware limited liability
      company or Delaware limited partnership, as the case may be, has the power
      to
      own its properties and to carry on its business as is now being conducted,
      and
      is duly qualified to do business and is in good standing in every jurisdiction
      in which the character of the properties owned by it or in which the transaction
      of its business makes its qualification necessary, specifically including,
      without limitation, the State in which its applicable Facility is
      located.

     

    3.2  Power
      and Authority.
      Borrower has full power and authority to borrow the indebtedness evidenced
      by
      the Note and to incur the Loan Obligations provided for herein, all of which
      have been authorized by all proper and necessary action. All consents, approvals
      authorizations, orders or filings of or with any court or governmental agency
      or
      body, if any, required for the execution, delivery and performance of the Loan
      Documents by Borrower have been obtained or made.

     

    3.3  Single
      Purpose Entity.
      Borrower is a Single Purpose Entity.

     

    3.4  Due
      Execution and Enforcement.
      Each of
      the Loan Documents to which Borrower is a party constitutes a valid and legally
      binding obligation of Borrower, enforceable in accordance with its respective
      terms (except as such enforcement may be limited by bankruptcy, insolvency,
      reorganization, receivership, moratorium, or other laws relating to the rights
      of creditors generally and by general principles of equity) and does not
      violate, conflict with, or constitute any default under any law, government
      regulation, decree, judgment, Borrower’s articles of organization, partnership
      agreement or operating agreement, as applicable, or any other agreement or
      instrument binding upon Borrower.

     

    3.5  Pending
      Matters.

     

    (a)  Operations;
      Financial Condition.
      No
      action or investigation is pending or, to the best of Borrower’s knowledge,
      threatened before or by any court or administrative agency which might result
      in
      any material adverse change in the financial condition, operations or prospects
      of Borrower or any lower reimbursement rate under the Reimbursement Contracts.
      Borrower is not in violation of any agreement, the violation of which might
      reasonably be expected to have a material adverse effect on its business or
      assets, and Borrower is not in violation of any order, judgment, or decree
      of
      any court, or any statute or governmental regulation to which it is
      subject.

     

    (b)  Land
      and Improvements.
      There
      are no proceedings pending, or, to the best of Borrower’s knowledge, threatened,
      to acquire through the exercise of any power of condemnation, eminent domain
      or
      similar proceeding any part of the Land, the Improvements or any interest
      therein, or to enjoin or similarly prevent or restrict the use of the Land
      or
      the operation of the Facility in any manner. None of the Improvements is subject
      to any unrepaired casualty or other damage. 

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    3.6  Financial
      Statements Accurate.
      All
      financial statements heretofore or hereafter provided by Borrower are and will
      be true and complete in all material respects as of their respective dates
      and
      fairly present the financial condition of Borrower, and there are no material
      liabilities, direct or indirect, fixed or contingent, as of the respective
      dates
      of such statements which are not reflected therein or in the notes thereto
      or in
      a written certificate delivered with such statements. The financial statements
      of Borrower have been prepared in accordance with GAAP. There has been no
      material adverse change in the financial condition, operations, or prospects
      of
      Borrower since the dates of such statements except as fully disclosed in writing
      with the delivery of such statements. All financial statements of the operations
      of the Facility heretofore or hereafter provided to Lender are and will be
      true
      and complete in all material respects as of their respective dates.

     

    3.7  Compliance
      with Facility Laws.
      Each
      Facility is duly licensed as an assisted living facility and is currently
      operated at the licensed unit/bed capacity set forth on Schedule
      B
      attached
      hereto and made a part hereof under the applicable laws of the state where
      the
      Facility is located. To Borrower’s actual knowledge, Borrower or Manager has
      obtained all Permits for the Facility, including, without limitation, the
      Certificate of Need, if applicable, which (a) are in full force and effect,
      (b) constitute all of the permits, licenses and certificates required for
      the use, operation and occupancy thereof, (c) have not been pledged as
      collateral for any loan or Indebtedness other than the Loan, (d) are held
      free from restrictions or any encumbrance which would materially adversely
      affect the use or operation of the Facility, and (e) except as set forth on
Schedule
      3.7
      attached
      hereto and made a part hereof, are not provisional, probationary or restricted
      in any way. Borrower, the Facility and, to Borrower's actual knowledge, Manager
      are in compliance in all material respects with the applicable provisions of
      assisted living facility laws, rules, regulations and published interpretations
      to which the Facility is subject. No waivers of any laws, rules, regulations,
      or
      requirements (including, but not limited to, minimum foot requirements per
      bed)
      are required for the Facility to operate at the current licensed unit and/or
      bed
      capacity. To the extent required, Borrower is and, to Borrower’s actual
      knowledge, Manager is in good standing with all the respective agencies
      governing such applicable licenses and program certification. Borrower and/or
      the Facility is current in the payment of all so-called provider specific taxes
      or other assessments, if applicable. Borrower will maintain or cause to be
      maintained by Manager (without allowing to lapse) the Certificate of Need,
      if
      applicable, and any required Permits.

     

    3.8  Maintain
      Unit Capacity.
      Neither
      Borrower nor Manager has granted to any third party the right to reduce the
      number of licensed beds or units in the Facility or to apply for approval to
      transfer the right to any or all of the licensed Facility units to any other
      location.

     

    3.9  Medicare
      and Medicaid Compliance.
      The
      Facilities described in Schedule
      III
      are
      certified to participate in Medicaid. Except as set forth in Schedule
      III,
      none of
      the Facilities participates in any other Third-Party Payors’ Programs (as
      defined in Section
      3.10
      below).

     

    3.10  Third
      Party Payors.
      There
      is no threatened or pending revocation, suspension, termination, probation,
      restriction, limitation, or nonrenewal affecting Borrower, Manager or the
      Facility or any participation or provider agreement with any third-party payor,
      including Medicare, Medicaid, Blue Cross and/or Blue Shield, and any other
      private commercial insurance 

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    managed
      care and employee assistance program (such programs, the “Third-Party Payors’
Programs”) to which Borrower or Manager presently is subject. All Medicare (if
      any), Medicaid (if any) and private insurance cost reports and financial reports
      submitted by Borrower or Manager are and will be materially accurate and
      complete and have not been and will not be misleading in any material respects.
      No cost reports for the Facility remain “open” or unsettled except as otherwise
      disclosed.

     

    3.11  Governmental
      Proceedings and Notices.
      Neither
      Borrower nor Guarantor nor Manager nor the Facility is currently the subject
      of
      any proceeding by any governmental agency, and no notice of any violation has
      been received from any federal, state or local government or quasi-governmental
      body or agency or any administrative or investigative body that would, directly
      or indirectly, or with the passage of time:

     

    (a)  have
      a
      material adverse impact on Borrower’s or Manager’s ability to accept and/or
      retain residents or result in the imposition of a fine, a sanction, a lower
      rate
      certification or a lower reimbursement rate for services rendered to eligible
      residents; 

     

    (b)  modify,
      limit or annul or result in the transfer, suspension, revocation or imposition
      of probationary use of any of the Permits; or

     

    (c)  affect
      Borrower’s continued participation in the Medicare or Medicaid programs or any
      other Third-Party Payors’ Programs, or any successor programs thereto, at
      current rate certifications.

     

    3.12  Physical
      Plant Standards.
      The
      Facility and the use thereof comply in all material respects with all applicable
      local, state and federal building codes, fire codes, health care,
      nursing/assisted living/senior housing facility (as applicable) and other
      similar regulatory requirements (the “Physical Plant Standards”), and no waivers
      of Physical Plant Standards exist at the Facility.

     

    3.13  Pledge
      of Receivables.
      Borrower has not pledged its Accounts as collateral security for any loan or
      Indebtedness other than, if applicable, the Loan.

     

    3.14  Payment
      of Taxes and Property Impositions.
      Borrower has filed all federal, state, and local tax returns which it is
      required to file and has paid, or made adequate provision for the payment of,
      all taxes and assessments which are shown pursuant to such returns or are
      required to be shown thereon, including, without limitation, provider taxes
      which are due and owing as of the date hereof. All such returns are complete
      and
      accurate in all respects. Borrower has paid or made adequate provision for
      the
      payment of all applicable water and sewer charges, ground rents (if applicable)
      and Taxes (as defined in the Mortgage) with respect to the Land and/or the
      Improvements which are due and owing as of the date hereof.

     

    3.15  Title
      to Mortgaged Property.
      Borrower has good and marketable title to all of the Mortgaged Property, subject
      to no lien, mortgage, pledge, encroachment, zoning violation, or encumbrance,
      except Permitted Encumbrances (specifically including special exceptions
      reflected in Lender’s title insurance policies insuring the Mortgage) which do
      not materially 

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    interfere
      with the security intended to be provided by the Mortgage or the current use
      or
      operation of the Land and the Improvements or the current ability of the
      Facility to generate net operating income sufficient to service the Loan. All
      Improvements situated on the Land are situated wholly within the boundaries
      of
      the Land.

     

    3.16  Priority
      of Mortgage.
      The
      Mortgage constitutes a valid first lien against the real and personal property
      described therein, prior to all other liens or encumbrances, including those
      which may hereafter accrue, excepting only Permitted Encumbrances.

     

    3.17  Location
      of Chief Executive Offices.
      The
      location of Borrower’s chief executive office is set forth on Exhibit
      “B”
      hereto.
      Borrower has no place of business other than the locations of the Facilities
      listed on Schedule
      “B”.

     

    3.18  Disclosure.
      All
      information furnished or to be furnished by Borrower to Lender in connection
      with the Loan or any of the Loan Documents is, or will be at the time the same
      is furnished, accurate and correct in all material respects and complete insofar
      as completeness may be necessary to provide Lender with true and accurate
      knowledge of the subject matter.

     

    3.19  Trade
      Names.
      Borrower has not changed its name, been known by any other name, or been a
      party
      to a merger, reorganization or similar transaction within the last five (5)
      years.

     

    3.20  ERISA.
      As of
      the date hereof and throughout the term of this Agreement,

     

    (a)  Borrower
      is not an “employee benefit plan,” as defined in Section 3(3) of the Employee
      Retirement Income Security Act of 1974, as amended (“ERISA”), subject to Title I
      of ERISA, and none of the assets of Borrower constitute “plan assets” (within
      the meaning of Department of Labor Regulation Section 2510.3-101) of one or
      more
      such plans, and

     

    (b)  Borrower
      is not a “governmental plan” within the meaning of Section 3(32) of ERISA, and
      transactions by or with Borrower are not be subject to state statutes regulating
      investments of, and fiduciary obligations with respect to, governmental
      plans.

     

    The
      execution and delivery of the Loan Documents and the borrowing of indebtedness
      hereunder do not constitute a non-exempt prohibited transaction under Section
      406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended
      (the “Code”).

     

    3.21  Ownership.
      The
      ownership interests of the Persons comprising Borrower and each of the
      respective interests in Borrower are correctly and accurately set forth on
      Exhibit
      “C”
      hereto.

     

    3.22  Compliance
      with Applicable Laws.
      The
      Facility and its operations and the Land and Improvements comply in all material
      respects with all covenants and restrictions of record and applicable laws,
      ordinances, rules and regulations, including, without limitation, the Americans
      with Disabilities Act and the regulations thereunder, and all laws, ordinances,
      rules 

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    and
      regulations relating to zoning, setback requirements and building codes and
      there are no waivers of any building codes currently in existence for the
      Facility.

     

    3.23  Solvency.
      Borrower is solvent for purposes of 11 U.S.C. § 548, and the borrowing of the
      Loan will not render Borrower insolvent for purposes of 11 U.S.C. §
548.

     

    3.24  Management
      Agreement.
      The
      Management Agreement is in full force and effect, and there are no defaults
      (either monetarily or non-monetarily) by Manager or Borrower
      thereunder.

     

    3.25  Other
      Indebtedness.
      Borrower has no outstanding Indebtedness, secured or unsecured, direct or
      contingent (including any guaranties), other than indebtedness which represents
      trade payables or accrued expenses incurred in the ordinary course of business
      of owning and operating the Mortgaged Property and other than Loan B; no other
      debt incurred by Borrower after the date hereof will be secured (senior,
      subordinate or pari
      passu)
      by the
      Mortgaged Property other than Loan B.

     

    3.26  Other
      Obligations.
      Borrower has no material financial obligation under any indenture, mortgage,
      deed of trust, loan agreement or other agreement or instrument to which Borrower
      is a party or by which Borrower or the Mortgaged Property is otherwise bound,
      other than obligations incurred in the ordinary course of the operation of
      the
      Mortgaged Property and other than obligations under the Mortgage and the other
      Loan Documents. 

     

    3.27  Fraudulent
      Conveyances.
      Borrower (a) has not entered into this Agreement or any of the other Loan
      Documents with the actual intent to hinder, delay, or defraud any creditor
      and
      (b) Borrowers together have received reasonably equivalent value in
      exchange for their collective obligations under the Loan Documents. Giving
      effect to the transactions contemplated by the Loan Documents, the fair saleable
      value of Borrower’s assets exceeds and will, immediately following the execution
      and delivery of the Loan Documents, be greater than Borrower’s probable
      liabilities, including the maximum amount of its contingent liabilities or
      its
      debts as such debts become absolute and mature. Borrower’s assets do not and,
      immediately following the execution and delivery of the Loan Documents will
      not,
      constitute unreasonably small capital to carry out its business as conducted
      or
      as proposed to be conducted. Borrower does not intend to, and does not believe
      that it will, incur debts and liabilities (including, without limitation,
      contingent liabilities and other commitments) beyond its ability to pay such
      debts as they mature (taking into account the timing and amounts to be payable
      on or in respect of obligations of Borrower).

     

    3.28  Representations
      and Warranties.
      Borrower agrees that its representations and warranties and covenants contained
      herein are true and correct as of the date hereof and shall survive the making
      of the Loan and the assignment and delivery of the Loan to any participant
      of
      the Loan. 

     

    3.29  Use
      of Loan Proceeds.
      The
      Loan is primarily for commercial or business purposes and are not primarily
      for
      personal, family or household purposes.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    3.30  No
      Change in Facts or Circumstances.
      All
      information in any application for the Loan submitted to Lender (the “Loan
      Application”) and in all financial statements, rent rolls, reports, certificates
      and other documents submitted in connection with the Loan Application are
      complete and accurate in all material respects. There has been no material
      adverse change in any fact or circumstance that would make any such information
      incomplete or inaccurate.

     

    3.31  Fraud
      and Abuse.

     

    (a) Anti-Kickback
      Law.
      After
      consultation with counsel concerning the federal anti-kickback law (42 U.S.C.A.
      SEC. 1320a-7b(b)), neither Borrower nor its agent have offered or given any
      remuneration or thing of value to any person to encourage referral to the
      facility nor has Borrower or its agent solicited or received any remuneration
      or
      thing of value in exchange for Borrower’s agreement to make referrals or to
      purchase goods or services for the Facility.

     

    (b) Relationships.
      No
      physician or other healthcare practitioner has an ownership interest in, or
      financial relationship with, Borrower, Manager or the Facility.

     

    (c) Required
      Adjustments.
      All cost
      report periods for all Facility payors have been closed and settled, and all
      required adjustments have been fully paid and/or implemented, if
      applicable.

     

    3.32  No
      Illegal Activity as Source of Funds.
      No
      portion of the Mortgaged Property has been or will be purchased, improved,
      equipped or furnished with proceeds of any illegal activity.

     

    3.33  Compliance
      with Anti-Terrorism, Embargo, Sanctions and Anti-Money Laundering
      Laws.
      Borrower, and to the best of Borrower's knowledge, after having made diligent
      inquiry, (a) each Person owning an interest of 20% or more in Borrower and
      in
      the Single Purpose Entity that is the managing member or general partner of
      Borrower, (b) Guarantor,  and
      (c)
      Manager: (i) is not currently identified on OFAC List, and (ii) is not a Person
      with whom a citizen of the United States is prohibited to engage in transactions
      by any trade embargo, economic sanction, or other prohibition of United States
      law, regulation, or Executive Order of the President of the United States.
      Borrower has implemented procedures, and will consistently apply those
      procedures throughout the term of the Loan, to ensure the foregoing
      representations and warranties remain true and correct during the term of the
      Loan.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    

     

    ARTICLE
      IV  

     

    AFFIRMATIVE
      COVENANTS OF BORROWER

     

    Each
      Borrower agrees with and covenants unto Lender that until the Loan Obligations
      have been paid in full, Borrower shall, with respect to its
      Facility:

     

    4.1  Payment
      of Loan/Performance of Loan Obligations.
      Duly
      and punctually pay or cause to be paid the principal and interest of the Note
      in
      accordance with its terms and duly and punctually pay and perform or cause
      to be
      paid or performed all Loan Obligations hereunder and under the other Loan
      Documents.

     

    4.2  Maintenance
      of Existence.
      Maintain Borrower’s existence as a Delaware limited liability company or
      Delaware limited partnership, as applicable, and, in each jurisdiction in which
      the character of the property owned by it or in which the transaction of its
      business makes qualification necessary, maintain good standing, and
      qualification to do business.

     

    4.3  Maintenance
      of Single Purpose Status.
      Maintain its existence as a Single Purpose Entity.

     

    4.4  Accrual
      and Payment of Taxes.
      During
      each fiscal year, make accurate provision for the payment in full of all current
      tax liabilities of all kinds including, without limitation, federal and state
      income taxes, franchise taxes, payroll taxes, provider taxes (to the extent
      necessary to participate in and receive maximum funding pursuant to
      Reimbursement Contracts), Taxes (as defined in the Mortgage), all required
      withholding of income taxes of employees, all required old age and unemployment
      contributions, and all required payments to employee benefit plans, and pay
      the
      same when they become due.

     

    4.5  Insurance.
      Maintain, at its expense, the following insurance coverages and policies with
      respect to the Mortgaged Property and the Facility, which coverages and policies
      must be acceptable to Lender’s insurance consultant in its sole
      discretion:

     

    (a)  Comprehensive
      “all risk” or “special” cause of loss insurance, including coverage for
      windstorms and hail, in an amount equal to 100% of the full replacement cost
      of
      the Facility, which replacement cost shall be determined by the “Insurable
      Value” or “Cost Approach to Value” reflected in the most recent Lender approved
      appraisal for the Facility, without deduction for depreciation. Such insurance
      shall also include (i) agreed insurance amount endorsement waiving all
      co-insurance provisions, and (ii) an “Ordinance or Law Coverage” endorsement if
      the Facility or the use thereof shall constitute a legal non-conforming
      structure or use.

     

    (b)  Commercial
      general liability insurance against claims for sexual harassment abuse of
      residents and/or patients, personal injury, bodily injury, death or property
      damage, in or about the Facility to be on a so-called “occurrence” basis for at
      least $1,000,000.00 per occurrence and $3,000,000.00 in the aggregate with
      a
      $10,000,000.00 umbrella coverage.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    (c)  Professional
      liability insurance against claims for personal injury, bodily injury or death,
      in or about the Facility to be on a so-called “occurrence” basis for at least
      $1,000,000.00 per occurrence and $5,000,000.00 in the aggregate.

     

    (d)  Business
      interruption income insurance for the Facility in an amount equal to 100% of
      the
      net income plus carrying costs and extraordinary expenses of the Facility for
      a
      period of eighteen (18) months as projected by Lender, containing a 180-day
      extended period of indemnity endorsement.

     

    (e)  Flood
      Hazard insurance if any portion of the Improvements is located in a “flood zone
      area,” as identified in the Federal Register by the Federal Emergency Management
      Agency as a 100-year flood zone or “special flood hazard area” and in which
      flood insurance is available. In lieu thereof, Lender will accept proof,
      satisfactory to it in its sole discretion, that the Improvements are not within
      the boundaries of a designated area.

     

    (f)  Workers’
      compensation insurance, if applicable and required by state law, subject to
      applicable state statutory limits, and employer’s liability insurance with a
      limit of $1,000,000.00 per accident and per disease per employee with respect
      to
      the Facility.

     

    (g)  Comprehensive
      boiler and machinery insurance, including property damage coverage and time
      element coverage in an amount equal to 100% of the full replacement cost,
      without deduction for depreciation, of the Facility housing the machinery,
      if
      steam boilers, pipes, turbines, engines or any other pressure vessels are in
      operation with respect to the Facility. Such insurance coverage shall include
      a
“joint loss” clause if such coverage is provided by an insurance carrier other
      than that which provides the comprehensive “all risk” insurance described
      above.

     

    (h)  During
      the period of any construction and/or renovation of capital improvements with
      respect to the Facility or any new construction at the Facility, builder’s risk
      insurance for any improvements under construction and/or renovation, including,
      without limitation, costs of demolition and increased cost of construction
      or
      renovation, in an amount equal the amount of the general contract plus the
      value
      of any existing purchase money financing for improvements and materials stored
      on or off the Property, including “soft cost” coverage.

     

    (i)  If
      the
      Facility is located in a seismically active area or an area prone to geologic
      instability and mine subsidence, Lender may require an inspection by a qualified
      structural or geological engineer satisfactory to Lender, and at Borrower’s
      expense. The Facility must be structurally and geologically sound and capable
      of
      withstanding normal seismic activity or geological movement. Lender reserves
      the
      right to require earthquake insurance or Maximum Probable Loss insurance on
      a
      case by case basis in amounts determined by Lender.

     

    (j)  Such
      other insurance coverages as may be deemed necessary at any time during the
      term
      of the Loan and as shall be provided within such time periods as Lender may
      determine, in each case, in its commercially reasonable discretion.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    All
      insurance policies shall have a term of not less than one year and shall be
      in
      the form and amount and with deductibles as, from time to time, shall be
      acceptable to Lender in its sole discretion. All such policies shall provide
      for
      loss payable solely to Lender and shall contain a standard “non-contributory
      mortgagee” endorsement or its equivalent relating, among other things, to
      recovery by Lender notwithstanding the negligent or willful acts or omissions
      of
      Borrower and notwithstanding (i) occupancy or use of the Facility for
      purposes more hazardous than those permitted by the terms of such policy, (ii)
      any foreclosure or other action taken by Lender pursuant to the Mortgage upon
      the occurrence of an Event of Default thereunder, or (iii) any change in title
      or ownership of the Facility.

     

    All
      insurance policies must be written by an admitted carrier licensed in the State
      in which the Facility is located and such insurance carrier must have a
      long-term senior debt rating of at least “A” by Standard and Poor’s Rating
      Service; provided, that if the initial principal balance of the Loan is in
      excess of $25,000,000.00, such insurance carrier must have a long-term senior
      debt rating of at least “AA” by Standard & Poor’s Rating
      Service.

     

    All
      liability insurance policies (including, but not limited to, general liability,
      professional liability and any applicable blanket and/or umbrella policies)
      must
      name “Capmark Bank” and its successors and/or assigns” as additional insureds,
      and all property insurance policies must name “Capmark Bank” and its successors
      and/or assigns” as the named mortgage holder entitled to all insurance proceeds.
      Lender shall have the right, without Borrower’s consent, by notice to the
      insurance company, to change the additional insured and named mortgagee
      endorsements in connection with any sale of the Loan.

     

    All
      insurance policies for the above-required insurance must provide for thirty
      (30)
      days prior written notice of cancellation to Lender.

     

    Policies
      or binders, together with evidence of the above required insurance on ACORD
      Form
      27 or its equivalent, must be submitted to Lender prior to setting the interest
      rate on the Loan.

     

    With
      respect to insurance policies which require payment of premiums annually, not
      less than thirty (30) days prior to the expiration dates of the insurance
      policies obtained pursuant to this Agreement, Borrower shall pay such amount,
      except to the extent Lender is escrowing sums therefor pursuant to the Loan
      Documents. Not less than thirty (30) days prior to the expiration dates of
      the
      insurance policies obtained pursuant to this Agreement, originals or certified
      copies of renewals of such policies (or certificates evidencing such renewals)
      bearing notations evidencing the payment of premiums or accompanied by other
      evidence satisfactory to Lender of such payment, which premiums shall not be
      paid by Borrower through or by any financing arrangement, shall be delivered
      by
      Borrower to Lender at the address set forth in Section 8.7 hereof. Borrower
      shall not carry separate insurance, concurrent in kind or form or contributing
      in the event of loss, with any insurance required under this Section 4.5. If
      the
      limits of any policy required hereunder are reduced or eliminated due to a
      covered loss, Borrower shall pay the additional premium, if any, in order to
      have the original limits of insurance reinstated, or Borrower shall purchase
      new
      insurance in the same type and amount that existed immediately prior to the
      loss.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    If
      Borrower fails to maintain and deliver to Lender the original policies or
      certificates of insurance required by this Agreement, Lender may, at its option,
      procure such insurance and Borrower shall pay or, as the case may be, reimburse
      Lender for, all premiums thereon promptly, upon demand by Lender, with interest
      thereon at the Default Rate from the date paid by Lender to the date of
      repayment and such sum shall constitute a part of the Loan
      Obligations.

     

    The
      insurance required by this Agreement may, at the option of Borrower, be effected
      by blanket and/or umbrella policies issued to Borrower or to an Affiliate of
      Borrower covering the Facility and the properties of such Affiliate; provided
      that, in each case, the policies otherwise comply with the provisions of this
      Agreement and allocate to the Facility, from time to time, the coverage
      specified by this Agreement, without possibility of reduction or coinsurance
      by
      reason of, or damage to, any other property (real or personal) named therein.
      If
      the insurance required by this Agreement shall be effected by any such blanket
      or umbrella policies, Borrower shall furnish to Lender original policies or
      certified copies thereof, with schedules attached thereto showing the amount
      of
      the insurance provided under such policies which is applicable to the
      Facility.

     

    Neither
      Lender nor its agents or employees shall be liable for any loss or damage
      insured by the insurance policies required to be maintained under this
      Agreement; it being understood that (a) Borrower shall look solely to its
      insurance company for the recovery of such loss or damage, (b) such
      insurance company shall have no rights of subrogation against Lender, its agents
      or employees, and (c) Borrower shall use its best efforts to procure from
      such insurance company a waiver of subrogation rights against Lender. If,
      however, such insurance policies do not provide for a waiver of subrogation
      rights against Lender (whether because such a waiver is unavailable or
      otherwise), then Borrower hereby agrees, to the extent permitted by law and
      to
      the extent not prohibited by such insurance policies, to waive its rights of
      recovery, if any, against Lender, its agents and employees, whether resulting
      from any damage to the Facility, any liability claim in connection with the
      Facility or otherwise. If any such insurance policy shall prohibit Borrower
      from
      waiving such claims, then Borrower must obtain from such insurance company
      a
      waiver of subrogation rights against Lender.

     

    Borrower
      appoints Lender as Borrower’s attorney-in-fact, which appointment shall be
      deemed irrevocable and coupled with an interest, to cause the issuance of an
      endorsement of any insurance policy to bring Borrower into compliance herewith
      and, as limited above, at Lender’s sole option, to make any claim for, receive
      payment for, and execute and endorse any documents, checks or other instruments
      in payment for loss, theft, or damage covered under any such insurance policy;
      provided, however, that in no event will Lender be liable for failure to collect
      any amounts payable under any insurance policy.

     

    Subject
      to the terms of any forbearance letter issued by Lender in connection with
      the
      Loan, each Borrower appoints Lender as Borrower’s attorney-in-fact to cause the
      issuance of an endorsement of any insurance policy to bring Borrower into
      compliance herewith and, as limited above, at Lender’s sole reasonable option,
      to make any claim for, receive payment for, and execute and endorse any
      documents, checks or other instruments in payment for loss, theft, or damage
      covered under any such insurance policy; provided, however, that in no event
      will Lender be liable for failure to collect any amounts payable under any
      insurance policy.

     

    
      
        
        

      

      
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    4.6  Proceeds
      of Insurance or Condemnation.
      If,
      after damage to or destruction of or condemnation of the Mortgaged Property
      (or
      any part thereof), the net Proceeds of insurance or condemnation (after payment
      of Lender’s reasonable costs and expenses in connection with the administration
      thereof) are:

     

    (a)  less
      than
      Two Hundred Fifty Thousand Dollars ($250,000.00), Lender shall deliver such
      proceeds to Borrower to be applied within thirty (30) days thereafter to the
      repair, restoration and replacement by Borrower of the Improvements, Equipment
      and Inventory damaged, destroyed or taken, 

     

    or
      

     

    (b)  Two
      Hundred Fifty Thousand Dollars ($250,000.00) or more and Lender agrees, at
      its
      option, to make such net Proceeds available to Borrower, Lender shall make
      such
      net Proceeds available to Borrower on the following terms:

     

    (i)  The
      aggregate amount of all such Proceeds shall not exceed the aggregate amount
      of
      all such Loan Obligations;

     

    (ii)  At
      the
      time of such loss or damage and at all times thereafter while Lender is holding
      any portion of such Proceeds, there shall exist no Default or Event of
      Default;

     

    (iii)  The
      Improvements, Equipment, and Inventory to which loss or damage has resulted
      shall be capable of being restored to its preexisting condition and utility
      in
      all material respects with a value equal to or greater than that which existed
      prior to such loss or damage and such restoration shall be capable of being
      completed prior to the earlier to occur of (i) the expiration of business
      interruption insurance as determined by an independent inspector or (ii) the
      Maturity Date;

     

    (iv)  Within
      thirty (30) days from the date of such loss or damage Borrower shall have given
      Lender a written notice electing to have the Proceeds applied for such
      purpose;

     

    (v)  Within
      sixty (60) days following the date of notice under the preceding subparagraph
      (iv) and prior to any Proceeds being disbursed to Borrower, Borrower shall
      have
      provided to Lender all of the following:

     

    (A)  complete
      plans and specifications for restoration, repair and replacement of the
      Improvements, Equipment and Inventory damaged to the condition, utility and
      value required by (iii) above,

     

    (B)  if
      loss
      or damage exceeds Fifty Thousand Dollars ($50,000), fixed-price or guaranteed
      maximum cost bonded construction contracts for completion of the repair and
      restoration work in accordance with such plans and specifications,

     

    (C)  builder’s
      risk insurance for the full cost of construction with Lender named under a
      standard mortgagee loss-payable clause

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    (D)  such
      additional funds as in Lender’s reasonable opinion are necessary to complete
      such repair, restoration and replacement, and

     

    (E)  copies
      of
      all permits and licenses necessary to complete the work in accordance with
      the
      plans and specifications;

     

    (vi)  Lender
      may, at Borrower’s expense, retain an independent inspector to review and
      approve plans and specifications and completed construction and to approve
      all
      requests for disbursement, which approvals shall be conditions precedent to
      release of Proceeds as work progresses;

     

    (vii)  No
      portion of such Proceeds shall be made available by Lender for architectural
      reviews or for any other purposes which are not directly attributable to the
      cost of repairing, restoring or replacing the Improvements, Equipment and
      Inventory to which a loss or damage has occurred unless the same are covered
      by
      such insurance;

     

    (viii)  Borrower
      shall diligently pursue such work and shall complete such work prior to the
      earlier to occur of the expiration of business interruption insurance or the
      Maturity Date;

     

    (ix)  Each
      disbursement by Lender of such Proceeds and deposits shall be funded subject
      to
      conditions and in accordance with disbursement procedures which a commercial
      construction lender would typically establish in the exercise of sound banking
      practices and shall be made only upon receipt of disbursement requests on an
      AIA
      G702/703 form (or similar form approved by Lender) signed and certified by
      Borrower and, if required by Lender, its architect and general contractor with
      appropriate invoices and lien waivers as required by Lender; and

     

    (x)  Lender
      shall have a first lien on and security interest in all building materials
      and
      completed repair and restoration work and in all fixtures and equipment acquired
      with such Proceeds, and Borrower shall execute and deliver such mortgages,
      deeds
      of trust, security agreements, financing statements and other instruments as
      Lender shall request to create, evidence, or perfect such lien and security
      interest.

     

    In
      the
      event and to the extent that such Proceeds are not required to be used for
      the
      repair, restoration and replacement of the Improvements, Equipment and Inventory
      to which a loss or damage has occurred, or, if the conditions set forth herein
      for such application are otherwise not satisfied, then Lender shall be entitled
      without notice to or consent from Borrower to apply such Proceeds, or the
      balance thereof, at Lender’s option either (a) to the full or partial payment or
      prepayment of the Loan Obligations (without premium) in the manner aforesaid
      or
      (b) to the repair, restoration and/or replacement of all or any part of such
      Improvements, Equipment and Inventory to which a loss or damage has occurred.
      Any excess Proceeds after such application by Lender shall be paid to
      Borrower.

     

    4.7  Financial
      and Other Information.
      Provide
      Lender, and cause Guarantor and Manager to provide to Lender, at its address
      set
      forth in Section 8.7 and at Capmark Bank, 2801 

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    Highway
      280 South, Suite 305, Birmingham, AL 35223, the following financial statements
      and information on a continuing basis during the term of the Loan:

     

    (a)  Within
      one hundred twenty (120) days after the end of each fiscal year of Borrower,
      unaudited financial statements prepared in accordance with GAAP by a nationally
      recognized accounting firm or independent certified public accounting firm
      acceptable to the Lender, which statements shall include a balance sheet and
      a
      statement of income and expenses for the year then ended.

     

    (b)  Within
      one hundred twenty (120) days after the end of each fiscal year of Emeritus
      audited financial statements of Emeritus prepared in accordance with GAAP by
      a
      nationally recognized accounting firm or independent certified public accounting
      firm acceptable to the Lender, which statements shall include a balance sheet
      and a statement of income and expenses for the year then ended. In lieu of
      its
      obligations hereunder, Emeritus may submit to Lender, upon its filing thereof,
      a
      copy of its Form 10-K as filed with the United States Securities and Exchange
      Commission.

     

    (c)  Within
      forty-five (45) days after the end of each of the first three (3) fiscal
      quarters, and within one hundred-twenty (120) days after the end of the fourth
      fiscal quarter of each Facility, unaudited interim financial statements of
      the
      operations of each Facility, certified as true and correct in all material
      respects by a financial officer of Borrower, prepared in accordance with GAAP,
      which statements shall include a balance sheet, statement of income and expenses
      and occupancy information for the quarter then ended. Such statements of the
      Facility shall be accompanied by the Summary of Financial Statements and Census
      Data attached hereto as Exhibit
      “D”.

     

    (d)  Within
      sixty (60) days after the end of each of the first three (3) fiscal quarters
      of
      Emeritus, financial statements of Emeritus, including a balance sheet and a
      statement of income and expenses for the quarter then ended, which shall be
      satisfied by providing a copy of Form 8-K as filed by Emeritus with the United
      States Securities and Exchange Commission.

     

    (e)  If
      requested by Lender, within thirty (30) days after the filing deadline, as
      may
      be extended from time to time, copies of all federal, state and local tax
      returns of Borrower and Emeritus, together with all supporting documentation
      and
      required schedules.

     

    (f)  If
      and to
      the extent applicable, within twenty (20) days after filing or receipt, all
      Medicaid cost reports and any amendments thereto filed with respect to the
      Facility and all responses, audit reports, or other inquiries with respect
      to
      such cost reports.

     

    (g)  If
      and to
      the extent applicable, within twenty (20) days after receipt, copies of all
      licensure and certification survey reports and statements of deficiencies (with
      plans of correction attached thereto).

     

    (h)  If
      and to
      the extent applicable, within ten (10) days after receipt, a copy of the
“Medicaid Rate Calculation Worksheet” (or the equivalent thereof) from the
      applicable agency.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    (i)  If
      and to
      the extent applicable, within ten (10) days of receipt, a statement of the
      number of resident days for which the Facility has received the Medicare default
      rate for any applicable period. For purposes herein, “default rate” shall have
      the meaning ascribed to it in that certain applicable Medicare rate notification
      letter prepared in connection with any review or survey of the
      Facility.

     

    (j)  Within
      three (3) days after receipt, any and all notices (regardless of form) from
      any
      and all licensing and/or certifying agencies, including but not limited to,
      that
      the Facility’s license is being downgraded to a substandard category, revoked or
      suspended, or that action is pending or being considered to downgrade to a
      substandard category, revoke or suspend the Facility’s license or
      certification.

     

    (k)  If
      requested by Lender, evidence of payment by Borrower or Manager of
      any
      applicable provider bed taxes or similar taxes.

     

    (l)  If
      requested by Lender, within forty-five (45) days after the end of each June
      and
      December, and more frequently if requested by Lender, an aged accounts
      receivable report for each Facility in sufficient detail to show amounts due
      from each class of resident-mix, if applicable (i.e.,
      private, Medicare, Medicaid and V.A.), by the account age classifications of
      30
      days, 60 days, 90 days, 120 days, and over 120 days.

     

    Lender
      reserves the right to require that the annual and/or quarterly financial
      statements of each Borrower and Emeritus be audited and prepared by a nationally
      recognized accounting firm or independent certified public accounting firm
      acceptable to Lender, at their respective sole cost and expense, if (i) an
      Event
      of Default exists, (ii) if required by internal policy or by any investor in
      any
      securities backed in whole or in part by the Loan or any rating agency rating
      such securities, or (iii) if Lender has reasonable grounds to believe that
      the
      unaudited financial statements do not accurately represent the financial
      condition of Borrower or Guarantor, as the case may be.

     

    Lender
      further reserves the right to require such other financial information of
      Borrower, Emeritus, Manager and/or
      each Facility, at such other times (including monthly or more frequently) as
      it
      shall deem necessary. All financial statements must be in the form and detail
      as
      Lender shall from time to time request.

     

    4.8  Compliance
      Certificate.
      At the
      time of furnishing the quarterly operating statements required under Section
      4.7
      herein, furnish to Lender a compliance certificate in the form attached hereto
      as Exhibit
      “E”
      executed
      by a financial officer of Borrower.

     

    4.9  Books
      and Records.
      Keep
      and maintain at all times at the Facility or Manager’s offices, and upon
      Lender’s request make available at the Facility, complete and accurate books of
      account and records (including copies of supporting bills and invoices) adequate
      to reflect correctly the results of the operation of the Facility, and copies
      of
      all written contracts, leases (if any), and other instruments which affect
      the
      Mortgaged Property, which books, records, contracts, leases (if any) and other
      instruments shall be subject to examination and inspection at any reasonable
      time by Lender (upon reasonable advance notice, which for such purposes only
      

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    may
      be
      given orally, except in the case of an emergency or following an Event of
      Default, in which case no advance notice shall be required); provided, however,
      that if an Event of Default has occurred and is continuing, Borrower shall
      deliver to Lender upon written demand all books, records, contracts, leases
      (if
      any) and other instruments relating to the Facility or its operation and
      Borrower authorizes Lender to obtain a credit report on Borrower at any
      time.

     

    4.10  Payment
      of Indebtedness.
      Duly
      and punctually pay or cause to be paid all other Indebtedness now owing or
      hereafter incurred by Borrower in accordance with the terms of such
      Indebtedness, except such Indebtedness owing to those other than Lender which
      is
      being contested in good faith and with respect to which any execution against
      properties of Borrower has been effectively stayed and for which reserves and
      collateral for the payment and security thereof have been established in
      sufficient amounts as determined by Lender in its sole commercially reasonable
      discretion.

     

    4.11  Records
      of Accounts.
      Maintain all records, including records pertaining to the Accounts of Borrower,
      at the principal place of business of Borrower as set forth in this
      Agreement.

     

    4.12  Conduct
      of Business.
      Conduct, or cause Manager to conduct, the operation of the Facility at all
      times
      in a manner consistent with the level of operation of the Facility as of the
      date hereof, including without limitation, the following:

     

    (a)  to
      maintain the standard of care for the residents of the Facility at all times
      at
      a level necessary to ensure quality care for the residents of the Facility
      in
      accordance with customary and prudent industry standards;

     

    (b)  to
      operate the Facility in a prudent manner and in compliance with applicable
      laws
      and regulations relating thereto and cause all Permits, Reimbursement Contracts
      (if any), and any other agreements necessary for the use and operation of the
      Facility or, if applicable, as may be necessary for participation in the
      Medicaid, Medicare, or other applicable reimbursement programs (if any) to
      remain in effect without reduction in the number of licensed beds authorized
      for
      use in the Medicaid, Medicare, or other applicable reimbursement
      programs;

     

    (c)  to
      maintain sufficient Inventory and Equipment of types and quantities at the
      Facility to enable Borrower to perform operations of the Facility
      adequately;

     

    (d)  to
      keep
      all Improvements and Equipment located on or used or useful in connection with
      the Facility in good repair, working order and condition, reasonable wear and
      tear excepted, and from time to time make all needed and proper repairs,
      renewals, replacements, additions, and improvements thereto to keep the same
      in
      good operating condition;

     

    (e)  to
      complete the repairs described on Schedule
      4.12
      attached
      hereto within 120 days of the date hereof;

     

    (f)  to
      maintain sufficient cash in the operating accounts of the Facility in order
      to
      satisfy the working capital needs of the Facility; and

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    (g)  to
      keep
      all required Permits current and in full force and effect.

     

    4.13  Periodic
      Surveys.
      Furnish
      or cause Manager to furnish to Lender, within twenty (20) days of receipt,
      a
      copy of any Medicare, Medicaid, or other licensing agency survey or report
      and
      any statement of deficiencies and/or any other report indicating that any action
      is pending or being considered to downgrade the Facility to a substandard
      category, and within the time period required by the particular agency for
      furnishing a plan of correction also furnish or cause to be furnished to Lender
      a copy of the plan of correction generated from such survey or report for the
      Facility, and correct or cause to be corrected any deficiency, the curing of
      which is a condition of continued licensure or for full participation in
      Medicaid, Medicare or other reimbursement program pursuant to any Reimbursement
      Contract for existing residents or for new residents to be admitted with
      Medicaid or Medicare coverage, by the date required for cure by such agency
      (plus extensions granted by such agency).

     

    4.14  Capital
      Expenditures.
      Maintain, and/or cause Manager to maintain, the Facility in good condition
      and
      make minimum capital expenditures for the Facility in each fiscal year, in
      an
      amount equal to $300 per
      unit
      (or the appropriate prorated amount for any partial fiscal year), (which capital
      expenditures may include ordinary repairs and routine maintenance), commencing
      the first year of the Loan term and continuing throughout the Loan term, and,
      within forty-five (45) days after the end of each fiscal year, provide evidence
      thereof satisfactory to Lender. In the event that Borrower shall fail to meet
      such requirement or to provide such evidence, Borrower shall, upon Lender’s
      written request, immediately establish and maintain a capital expenditures
      reserve fund with Lender equal to the difference between the required amount
      per
      unit and the amount per unit actually spent by Borrower. Borrower grants to
      Lender a lien on and a right of setoff against all moneys in the capital
      expenditures reserve fund, and Borrower shall not permit any other Lien to
      exist
      upon such fund. Moneys on deposit in such capital expenditures reserve fund
      will
      be disbursed to Borrower monthly upon Lender’s receipt of satisfactory evidence
      that Borrower has caused to be made the required capital expenditures. Upon
      Borrower’s or Manager’s failure to adequately maintain the Facility in good
      condition, Lender may, but shall not be obligated to, make such capital
      expenditures and may apply the moneys in the capital expenditures reserve fund
      for such purpose. To the extent there are insufficient moneys in such capital
      expenditures reserve fund for such purposes, all funds advanced by Lender to
      make such capital expenditures shall constitute a portion of the Loan
      Obligations, shall be secured by the Mortgage and shall accrue interest at
      the
      Default Rate until paid. Upon the occurrence of an Event of Default, Lender
      may
      apply any moneys in the capital expenditures reserve fund to the Loan
      Obligations, in such order and manner as Lender may elect. For any partial
      fiscal year during which the Loan is outstanding, the required expenditure
      amount shall be prorated by multiplying the required amount per unit amount
      by a
      fraction, the numerator of which is the number of days during such year for
      which all or part of the Loan is outstanding and the denominator of which is
      the
      number of days in such year. During the term of the Loan, Lender may, from
      time
      to time, engage a professional building inspector to conduct an inspection
      of
      the Facility. If the inspector’s report indicates that repairs or replacements
      are necessary over and above the $300 per unit requirement in this Section
      4.14,
      then Lender shall require a non-interest bearing repair escrow fund to ensure
      completion of such necessary repairs or replacements. The amount of any such
      repair escrow fund shall be one hundred twenty-five 

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    percent
      (125%) of the estimated cost of repairs as determined by such inspector and
      Lender. Lender also shall require an agreement satisfactory to Lender, in its
      commercially reasonable discretion, which will provide for completion of the
      repairs and the disbursement of the escrow funds. All commercially reasonable
      fees and costs associated with the inspection, report and subsequent inspections
      (if required) shall be paid by Borrower.

     

    4.15  Management
      Agreement.
      Maintain the Management Agreement in full force and effect and timely perform
      all of Borrower’s obligations thereunder and enforce performance of all
      obligations of Manager thereunder and not permit the termination, amendment
      or
      assignment of the Management Agreement unless the prior written consent of
      Lender is first obtained, which consent may be in the sole and absolute
      discretion of Lender. Borrower will enter into and cause Manager to enter into
      the Subordination Agreement. Borrower will not enter into any other management
      agreement without Lender’s prior written consent, which consent may be in the
      sole and absolute discretion of Lender.

     

    4.16  Updated
      Appraisals.
      For so
      long as the Loan remains outstanding, if any Event of Default shall occur
      hereunder, or if, in Lender’s judgment, a material depreciation in the value of
      the Land and/or the Improvements shall have occurred, then in any such event,
      Lender, may cause the Land and Improvements to be appraised by an appraiser
      selected by Lender, and in accordance with Lender’s appraisal guidelines and
      procedures then in effect, and Borrower agrees to cooperate in all respects
      with
      such appraisals and furnish to the appraisers all requested information
      regarding the Land and Improvements and the Facility. Borrower agrees to pay
      all
      reasonable costs incurred by Lender in connection with such appraisal which
      costs shall be secured by the Mortgage and shall accrue interest at the Default
      Rate until paid.

     

    4.17  Comply
      with Covenants and Laws.
      Comply,
      in all material respects, with all applicable covenants and restrictions of
      record and all laws, ordinances, rules and regulations and keep the Facility
      and
      the Land and Improvements in compliance with all applicable laws, ordinances,
      rules and regulations, including, without limitation, the Americans with
      Disabilities Act and regulations promulgated thereunder, and laws, ordinances,
      rules and regulations relating to zoning, health, building codes, setback
      requirements, Medicaid and Medicare laws and keep the Permits for the Facility
      in full force and effect.

     

    4.18  Taxes
      and Other Charges.
      Subject
      to Borrower’s right to contest the same as set forth in Section 9(c) of the
      Mortgage, pay all taxes, assessments, charges, claims for labor, supplies,
      rent,
      and other obligations which, if unpaid, might give rise to a Lien against real
      or personal property of the Borrower, except Liens to the extent permitted
      by
      this Agreement.

     

    4.19  Commitment
      Letter.
      Provide
      all items and pay all amounts required by the Commitment Letter. If any term
      of
      the Commitment Letter shall conflict with the terms of this Agreement, this
      Agreement shall govern and control. As to any matter contained in the Commitment
      Letter, and as to which no mention is made in this Agreement or the other Loan
      Documents, the Commitment Letter shall continue to be in effect and shall
      survive the execution of this Agreement and all other Loan
      Documents.

     

    
      
        
        

      

      
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    4.20  Certificate.
      Upon
      Lender’s written request, furnish Lender with a certificate stating that
      Borrower has complied with and is in compliance with all terms, covenants and
      conditions of the Loan Documents to which Borrower is a party and that there
      exists no Default or Event of Default or, if such is not the case, that one
      or
      more specified events have occurred, and that the representations and warranties
      contained herein are true and correct with the same effect as though made on
      the
      date of such certificate.

     

    4.21  Notice
      of Fees or Penalties.
      Immediately notify Lender, upon Borrower’s knowledge thereof, of the assessment
      by any state or, if applicable, any Medicare, Medicaid, health or licensing
      agency of any fines or penalties against Borrower, Manager, or the
      Facility.

     

    4.22  Loan
      Closing Certification.
      Immediately notify Lender in writing, in the event any representation or
      warranty contained in that certain Loan Closing Certification of even date
      herewith, executed by Borrower for the benefit of Lender, becomes untrue or
      there shall have been any material adverse change in any such representation
      or
      warranty.

     

    4.23  Compliance
      with Anti-Terrorism, Embargo, Sanctions and Anti-Money Laundering
      Laws.
      Borrower
      shall comply with all Requirements of Law relating to money laundering,
      anti-terrorism, trade embargos and economic sanctions, now or hereafter in
      effect. Upon Lender's request from time to time during the term of the Loan,
      Borrower shall certify in writing to Lender that Borrower's representations,
      warranties and obligations under Sections 3.32 and 3.33 and this Section 4.23
      remain true and correct and have not been breached. Borrower shall immediately
      notify Lender in writing if any of such representations, warranties or covenants
      are no longer true or have been breached or if Borrower has a reasonable basis
      to believe that they may no longer be true or have been breached. In connection
      with such an event, Borrower shall comply with all Requirements of Law and
      directives of Governmental Authorities and, at Lender's request, provide to
      Lender copies of all notices, reports and other communications exchanged with,
      or received from, Governmental Authorities relating to such an event. Borrower
      shall also reimburse Lender any expense incurred by Lender in evaluating the
      effect of such an event on the Loan and Lender's interest in the collateral
      for
      the Loan, in obtaining any necessary license from Governmental Authorities
      as
      may be necessary for Lender to enforce its rights under the Loan Documents,
      and
      in complying with all Requirements of Law applicable to Lender as the result
      of
      the existence of such an event and for any penalties or fines imposed upon
      Lender as a result thereof.

     

    4.24  Renovations.
      Obtain
      the prior written consent from Lender for any renovations or expansions of
      a
      Facility costing in excess of $750,000.00. 

     

    ARTICLE
      V  

     

    NEGATIVE
      COVENANTS OF BORROWER

     

    Until
      the
      Loan Obligations have been paid in full, no Borrower shall:

     

    5.1  Assignment
      of Licenses and Permits.
      Assign
      or transfer any of its interest in any Permits or Reimbursement Contracts
      (including rights to payment thereunder) pertaining to the Facility, or assign,
      transfer, or remove or permit any other Person to assign, transfer, or remove
      

     

    
      
        
        

      

      
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    any
      records pertaining to the Facility including, without limitation, resident
      records, medical and clinical records (except for removal of such
      resident records
      as directed by the residents owning such records and except as may be required
      by law), without Lender’s prior written consent, which consent may be granted or
      refused in Lender’s sole discretion.

     

    5.2  No
      Liens; Exceptions.
      Create,
      incur, assume or suffer to exist any Lien upon or with respect to the Facility,
      any of its properties, rights, income or other assets relating thereto,
      including, without limitation, the Mortgaged Property whether now owned or
      hereafter acquired, other than the following permitted Liens (“Permitted
      Encumbrances”):

     

    (a)  Liens
      at
      any time existing in favor of Lender;

     

    (b)  Liens
      permitted pursuant to the terms of the Mortgage;

     

    (c)  Inchoate
      Liens arising by operation of law for the purchase of labor, services,
      materials, equipment or supplies, provided payment shall not be delinquent
      and,
      if such Lien is a lien upon any of the Land or Improvements, such Lien must
      be
      fully disclosed to Lender and bonded off and removed from the Land and
      Improvements within thirty (30) days of its creation, in a manner satisfactory
      to Lender in its reasonable discretion;

     

    (d)  Liens
      incurred in the ordinary course of business in connection with workers’
compensation, unemployment insurance or other forms of governmental insurance
      or
      benefits, or to secure performance of tenders, statutory obligations, leases
      and
      contracts (other than for money borrowed or for credit received with respect
      to
      property acquired) entered into in the ordinary course of business as presently
      conducted or to secure obligations for surety or appeal bonds; 

     

    (e)  Liens
      for
      current year’s taxes, assessments or governmental charges or levies provided
      payment thereof shall not be delinquent;

     

    (f)  Second
      and subordinate liens on the Facilities held by Capmark Finance Inc., securing
      a
      debt in the amount of $13,600,000.00; and

     

    (g)  Third
      and
      subordinate liens on the Facilities securing the Subordinated Debt.

     

    5.3  Merger,
      Consolidation, etc.
      Except
      as otherwise provided in the Mortgage, consummate any merger, consolidation
      or
      similar transaction, or sell, assign, lease or otherwise dispose of (whether
      in
      one transaction or in a series of transactions), all or substantially all of
      its
      assets (whether now or hereafter acquired), without the prior written consent
      of
      Lender, which consent may be granted or refused in Lender’s sole
      discretion.

     

    5.4  Maintain
      Single Purpose Entity Status.
      

     

    (a)  Engage
      in
      any business or activity other than the ownership, operation and maintenance
      of
      the Mortgaged Property, and activities incidental thereto;

     

    
      
        
        

      

      
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    (b)  Acquire
      or own any material assets other than (i) the Mortgaged Property, and (ii)
      such
      incidental machinery, equipment, fixtures and other personal property as may
      be
      necessary for the operation of the Mortgaged Property;

     

    (c)  Merge
      into or consolidate with any Person or dissolve, terminate or liquidate in
      whole
      or in part, transfer or otherwise dispose of all or substantially all of its
      assets (except as permitted in the Loan Documents) or change its legal
      structure, without in each case Lender’s consent;

     

    (d)  Without
      the prior written consent of Lender, amend, modify, terminate or fail to comply
      with the provisions of its Partnership Agreement or Articles of Organization,
      as
      same may be further amended or supplemented, if such amendment, modification,
      termination or failure to comply would adversely affect its status as a Single
      Purpose Entity or its ability to perform its obligations hereunder, under the
      Note or any other document evidencing or securing the Loan;

     

    (e)  Own
      any
      subsidiary or make any investment in, any Person without the consent of
      Lender;

     

    (f)  Commingle
      its funds or assets with assets of, or pledge its assets with or for, any of
      its
      general partners, members, shareholders, Affiliates, principals or any other
      Person, except as permitted under the Loan Documents or the Management
      Agreement;

     

    (g)  Incur
      any
      debt, secured or unsecured, direct or contingent (including guaranteeing any
      obligation), other than the Loan and trade payables incurred in the ordinary
      course of business, payable within 90 days of the date incurred, based on
      historical amounts;

     

    (h)  Fail
      to
      maintain its records, books of account and bank accounts separate and apart
      from
      those of its general partners, members, shareholders, principals and Affiliates,
      the Affiliates of any of its general partners, members, shareholders,
      principals, and any other Person;

     

    (i)  Enter
      into any contract or agreement with any of its general partners, members,
      shareholders, principals or Affiliates, or the Affiliates of any of its general
      partners, members, shareholders, principals except upon terms and conditions
      that are intrinsically fair and substantially similar to those that would be
      available on an arms-length basis with third parties;

     

    (j)  Seek
      its
      dissolution or winding up in whole, or in part;

     

    (k)  Maintain
      its assets in such a manner that it will be costly or difficult to segregate,
      ascertain or identify its individual assets from those of any of its general
      partners, members, shareholders, principals and Affiliates, the Affiliates
      of
      any of its general partners, members, shareholders, principals or any other
      Person;

     

    (l)  Hold
      itself out to be responsible for the debts of another Person or pay another
      Person’s liabilities out of its own funds, except as expressly provided in the
      Loan Documents;

     

    
      
        
        

      

      
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    (m)  Make
      any
      loans or advances to any third party, including any of its general partners,
      members, shareholders, principals or Affiliates, or the Affiliates of any of
      its
      general partners, members, shareholders, principals;

     

    (n)  Fail
      to
      have prepared and filed its own tax returns;

     

    (o)  Fail
      either to hold itself out to the public as a legal Person separate and distinct
      from any other Person or to conduct its business solely in its own name, in
      order not (i) to mislead others as to the identity with which such other party
      is transacting business, or (ii) to suggest that it is responsible for the
      debts
      of any third party (including any of its members or Affiliates, or any general
      partner, member, principal or Affiliate thereof); or

     

    (p)  Fail
      to
      maintain adequate capital for the normal obligations reasonably foreseeable
      in a
      business of its size and character and in light of its contemplated business
      operations.

     

    5.5  Change
      of Business.
      Make
      any material change in the nature of its business as it is being conducted
      as of
      the date hereof.

     

    5.6  Changes
      in Accounting.
      Change
      its methods of accounting, unless such change is permitted by GAAP, and provided
      such change does not have the effect of curing or preventing what would
      otherwise be an Event of Default or Default had such change not taken
      place.

     

    5.7  ERISA.

     

    (a)  Agree
      to,
      enter into or consummate any transaction which would render it unable to confirm
      that (i) it is not an “employee benefit plan” as defined in Section 3(32) of
      ERISA, which is subject to Title I of ERISA, or a “governmental plan” within the
      meaning of Section 3(32) of ERISA; (ii) it is not subject to state statutes
      regulating investments and fiduciary obligations with respect to governmental
      plans; and (iii) less than twenty-five percent (25%) of each of its outstanding
      class of equity interests are held by “benefit plan investors” within the
      meaning of 29 C.F.R. § 2510.3-101(f)(2);

     

    (b)  Engage
      in
      a non-exempt prohibited transaction described in Section 406 of ERISA or Section
      4975 of the Code, as such sections relate to Borrower, or in any transaction
      that would cause any obligation or action taken or to be taken hereunder (or
      the
      exercise by Lender of any of its rights under the Loan Documents) to be a
      non-exempt prohibited transaction under ERISA.

     

    5.8  Transactions
      with Affiliates.
      Enter
      into any transaction with a Person which is an Affiliate of Borrower other
      than
      in the ordinary course of its business and on fair and reasonable terms no
      less
      favorable to Borrower, than those they could obtain in a comparable arms-length
      transaction with a Person not an Affiliate.

     

    5.9  Transfer
      of Ownership Interests.
      Except
      as otherwise allowable under the Mortgage, permit a change in the percentage
      ownership interest of the Persons owning the 

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

    Borrower,
      unless the written consent of Lender is first obtained, which consent may be
      granted or refused in Lender’s sole discretion.

     

    5.10  Change
      of Use.
      Alter
      or change the use of the Facility or enter into any management agreement for
      the
      Facility other than the Management Agreement or enter into any operating lease
      for the Facility, unless Borrower first notifies Lender and provides Lender
      a
      copy of the proposed lease agreement or management agreement, obtains Lender’s
      written consent thereto, which consent may be withheld in Lender’s sole
      discretion, and obtains and provides Lender with a subordination agreement
      in
      form satisfactory to Lender, as determined by Lender in its sole discretion,
      from such manager or lessee subordinating to all rights of Lender.

     

    5.11  Place
      of Business.
      Change
      its chief executive office or its principal place of business without first
      giving Lender at least thirty (30) days prior written notice thereof and
      promptly providing Lender such information and amendatory financing statements
      as Lender may request in connection therewith.

     

    5.12  Acquisitions.
      Directly or indirectly, purchase, lease, manage, own, operate, or otherwise
      acquire any property or other assets (or any interest therein) which are not
      used in connection with the operation of the Facility.

     

    5.13  Dividends,
      Distributions and Redemptions.
      Except
      as hereinafter provided or as otherwise consented to by Lender in writing,
      declare or pay any distributions to its shareholders, members or partners,
      as
      applicable, or purchase, redeem, retire, or otherwise acquire for value, any
      ownership interests in Borrower now or hereafter outstanding, return any capital
      to its shareholders, members or partners, as applicable, or make any
      distribution of assets to its shareholders, members, or partners, as
      applicable.

     

    5.14  Indebtedness.
      Incur,
      create, assume or permit to exist any indebtedness or liability on account
      of
      deposits or advances or any indebtedness or liability for borrowed money, or
      any
      other indebtedness or liability evidenced by notes, bonds, debentures or similar
      obligations, except (a) indebtedness evidenced by the Note, and any of the
      other
      Loan Obligations, (b) only if Borrower assumes responsibility for the operations
      of the Facility, indebtedness incurred in the ordinary course of business,
      (c)
      the Subordinated Debt, and (d) Loan B.

     

    ARTICLE
      VI  

     

    ENVIRONMENTAL
      HAZARDS

     

    6.1  Prohibited
      Activities and Conditions.
      Except
      for matters covered by a written program of operations and maintenance approved
      in writing by Lender (an “O&M Program”) or matters described in Section 6.2,
      Borrower shall not cause or permit to exist any of the following:

     

    (a)  The
      presence, use, generation, release, treatment, processing, storage (including
      storage in above ground and underground storage tanks), handling, or disposal
      of
      any 

     

    
      
        
        

      

      
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    Hazardous
      Materials in, on or under the Land or any Improvements, in violation of
      applicable Hazardous Materials Laws;

     

    (b)  The
      transportation of any Hazardous Materials to, from, or across the Land in
      violation of Hazardous Materials Laws;

     

    (c)  Any
      occurrence or condition on the Land or in the Improvements, which occurrence
      or
      condition is or may be in violation of Hazardous Materials Laws;

     

    (d)  Any
      violation of or noncompliance with the terms of any Environmental Permit with
      respect to the Land or the Improvements; or

     

    (e)  Any
      Lien
      (whether or not such Lien has priority over the Lien created by the Mortgage)
      upon the Land or any Improvements imposed pursuant to any Hazardous Materials
      Laws.

     

    The
      matters described in clauses (a) through (e) above are referred to collectively
      in this Article VI as “Prohibited Activities and Conditions” and individually as
      a “Prohibited Activity and Condition.”

     

    6.2  Exclusions.
      Notwithstanding any other provision of Article VI to the contrary, “Prohibited
      Activities and Conditions” shall not include the safe and lawful use and storage
      of quantities of (a) pre-packaged supplies, medical waste, Hazardous Materials,
      cleaning materials and petroleum products customarily used in the operation
      and
      maintenance of comparable facilities, (b) cleaning materials, personal grooming
      items and other items sold in pre-packaged containers for consumer use and
      used
      by occupants of the Facility, and (c) petroleum products used in the operation
      and maintenance of motor vehicles from time to time located on the Land’s
      parking areas, so long as all of the foregoing are used, stored, handled,
      transported and disposed of in compliance with Hazardous Materials
      Laws.

     

    6.3  Preventive
      Action.
      Borrower shall take all appropriate and reasonable steps (including the
      inclusion of appropriate provisions in any Leases approved by Lender which
      are
      executed after the date of this Agreement) to prevent its employees, agents,
      contractors, tenants and occupants of the Facility from causing or permitting
      any Prohibited Activities and Conditions.

     

    6.4  O
      & M Program Compliance.
      If an
      O&M Program has been established with respect to Hazardous Materials,
      Borrower shall comply in a timely manner with, and cause all employees, agents
      and contractors of Borrower and any other Persons (excluding trespassers)
      present on the Land to comply with the O&M Program. All costs of performance
      of Borrower’s obligations under any O&M Program shall be paid by Borrower,
      and Lender’s out-of-pocket costs incurred in connection with the monitoring and
      review of the O&M Program and Borrower’s performance shall be paid by
      Borrower upon demand by Lender. Any such out-of-pocket costs of Lender which
      Borrower fails to pay promptly shall become an additional part of the Loan
      Obligations.

     

    
      
        
        

      

      
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    6.5  Borrower’s
      Environmental Representations and Warranties.
      Borrower represents and warrants to Lender that, except as previously disclosed
      by Borrower to Lender in writing:

     

    (a)  Borrower
      has not at any time caused or permitted any Prohibited Activities and
      Conditions.

     

    (b)  No
      Prohibited Activities and Conditions exist or, to Borrower’s knowledge, have
      existed.

     

    (c)  The
      Land
      and the Improvements do not now contain any underground storage tanks, and,
      to
      the best of Borrower’s knowledge, the Land and the Improvements have not
      contained any underground storage tanks in the past. If there is an underground
      storage tank located on the Land or the Improvements which has been previously
      disclosed by Borrower to Lender in writing, that tank complies with all
      requirements of Hazardous Materials Laws.

     

    (d)  Borrower
      has complied with all Hazardous Materials Laws, including all requirements
      for
      notification regarding releases of Hazardous Materials, relating to the Land.
      Without limiting the generality of the foregoing, Borrower has obtained all
      Environmental Permits required for the operation of the Land and the
      Improvements in accordance with Hazardous Materials Laws now in effect and
      all
      such Environmental Permits are in full force and effect. During Borrower’s
      ownership of the Land, and, to the best of Borrower’s knowledge, no event has
      occurred with respect to the Land and/or Improvements that constitutes or,
      with
      the passing of time or the giving of notice, would constitute, noncompliance
      with the terms of any Environmental Permit.

     

    (e)  There
      are
      no actions, suits, claims or proceedings pending or, to the best of Borrower’s
      knowledge, threatened that involve the Land and/or the Improvements and allege,
      arise out of, or relate to any Prohibited Activity and Condition.

     

    (f)  Borrower
      has not received any written complaint, order, notice of violation or other
      communication from any Governmental Authority with regard to air emissions,
      water discharges, noise emissions or Hazardous Materials, or any other
      environmental, health or safety matters affecting the Land or the Improvements.
      The representations and warranties in this Article VI shall be continuing
      representations and warranties that shall be deemed to be made by Borrower
      throughout the term of the Loan evidenced by the Note and until all of the
      Loan
      Obligations have been paid in full.

     

    6.6  Notice
      of Certain Events.
      Borrower shall promptly notify Lender in writing of any and all of the following
      that may occur:

     

    (a)  Borrower’s
      discovery of any Prohibited Activity and Condition.

     

    (b)  Borrower’s
      receipt of or knowledge of any complaint, order, notice of violation or other
      communication from any Governmental Authority or other Person with regard

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

    to
      present or future alleged Prohibited Activities and Conditions or any other
      environmental, health or safety matters affecting the Land or the
      Improvements.

     

    (c)  Any
      representation or warranty in this Article VI which becomes untrue at any time
      after the date of this Agreement.

     

    Any
      such
      notice given by Borrower shall not relieve Borrower of, or result in a waiver
      of, any obligation under this Agreement, the Note, or any of the other Loan
      Documents.

     

    6.7  Costs
      of Inspection.
      Borrower shall pay promptly the reasonable costs of any environmental
      inspections, tests or audits (“Environmental Inspections”) required by Lender in
      connection with any foreclosure or deed in lieu of foreclosure or, if required
      by Lender, as a condition of Lender’s consent to any “Transfer” (as defined in
      the Mortgage), or required by Lender following a commercially reasonable
      determination by Lender that Prohibited Activities and Conditions may exist.
      Any
      such costs incurred by Lender (including the reasonable fees and out-of-pocket
      costs of attorneys and technical consultants whether incurred in connection
      with
      any judicial or administrative process or otherwise) which Borrower fails to
      pay
      promptly shall become an additional part of the Loan Obligations. The results
      of
      all Environmental Inspections made by Lender shall at all times remain the
      property of Lender, and Lender shall have no obligation to disclose or otherwise
      make available to Borrower or any other party such results or any other
      information obtained by Lender in connection with its Environmental Inspections.
      Lender hereby reserves the right, and Borrower hereby expressly authorizes
      Lender, to make available to any prospective bidder at a foreclosure sale of
      the
      Mortgaged Property, the results of any Environmental Inspections made by Lender
      with respect to the Mortgaged Property. Borrower consents to Lender notifying
      said party of the results of any of Lender’s Environmental Inspections. Borrower
      acknowledges that Lender cannot control or otherwise assure the truthfulness
      or
      accuracy of the results of any of its Environmental Inspections and that the
      release of such results to prospective bidders at a foreclosure sale of the
      Mortgaged Property may have a material and adverse effect upon the amount which
      a party may bid at such sale. Borrower agrees that Lender shall have no
      liability whatsoever as a result of delivering the results of any of its
      Environmental Inspections to said third party, and Borrower hereby releases
      and
      forever discharges Lender from any and all claims, damages, or causes of action,
      arising out of, connected with or incidental to the results of, such delivery
      of
      any of Lender’s Environmental Inspections.

     

    6.8  Remedial
      Work.
      If any
      investigation, site monitoring, containment, clean-up, restoration or other
      remedial work (“Remedial Work”) is required to bring Borrower into compliance
      with any Hazardous Materials Law or order of any Governmental Authority that
      has
      or acquires jurisdiction over the Land, the Improvements or the use, operation
      or improvement of the Land under any Hazardous Materials Law, Borrower shall,
      by
      the earlier of (a) the applicable deadline required by Hazardous Materials
      Law
      or (b) thirty (30) days after notice from Lender demanding such action, begin
      performing the Remedial Work, and thereafter diligently prosecute it to
      completion, and shall in any event complete such work by the time required
      by
      applicable Hazardous Materials Law. If Borrower fails to begin on a timely
      basis
      or diligently prosecute any required Remedial Work, Lender may, at its option,
      cause the Remedial Work to be 

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

    completed,
      in which case Borrower shall reimburse Lender on demand for the cost of doing
      so. Any reimbursement due from Borrower to Lender shall become part of the
      Loan
      Obligations.

     

    6.9  Cooperation
      with Governmental Authorities.
      Borrower shall cooperate with any inquiry by any Governmental Authority and
      shall comply with any governmental or judicial order which arises from any
      alleged Prohibited Activity and Condition. Notwithstanding the foregoing,
      Borrower shall be entitled to challenge in good faith the validity, scope or
      extent of any such governmental or judicial order.

     

    6.10  Indemnity.

     

    (a)  Borrower
      shall hold harmless, defend and indemnify (i) Lender, (ii) any prior owner
      or
      holder of the Note, (iii) any Person who is or will have been involved in the
      servicing of the Note, (iv) the officers, directors, partners, agents,
      shareholders, employees and trustees of any of the foregoing, and (v) the heirs,
      legal representatives, successors and assigns of each of the foregoing
      (together, the “Indemnitees”) from and against all proceedings, claims, damages,
      losses, expenses, penalties and costs (whether initiated or sought by any
      Governmental Authority or private parties), including fees and out of pocket
      expenses of attorneys and expert witnesses, investigatory fees, and remediation
      costs, whether incurred in connection with any judicial or administrative
      process or otherwise, arising directly or indirectly from any of the
      following:

     

    (i)  Any
      breach of any representation or warranty of Borrower in this Article
      VI;

     

    (ii)  Any
      failure by Borrower to perform any of its obligations under this Article
      VI;

     

    (iii)  The
      existence or alleged existence of any Prohibited Activity and
      Condition;

     

    (iv)  The
      presence or alleged presence of Hazardous Materials in, on, around or under
      the
      Land or the Improvements; or

     

    (v)  The
      actual or alleged violation of any Hazardous Materials Law.

     

    (b)  Counsel
      selected by Borrower to defend Indemnitees shall be subject to the reasonable
      approval of those Indemnitees. Notwithstanding anything contained herein, any
      Indemnitee may elect to defend any claim or legal or administrative proceeding
      at Borrower’s reasonable expense. Nothing contained herein shall prevent an
      Indemnitee from employing separate counsel in any such action at any time and
      participating in the defense thereof at its own expense.

     

    (c)  Borrower
      shall not, without the prior written consent of those Indemnitees who are named
      as parties to a claim or legal or administrative proceeding (a “Claim”) settle
      or compromise the Claim if the settlement (i) results in the entry of any
      judgment that does not include as an unconditional term the delivery by the
      claimant or plaintiff to Lender of a written 

     

    
      
        
        

      

      
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    release
      of those Indemnitees, reasonably satisfactory in form and substance to Lender;
      or (ii) may materially and adversely affect any Indemnitee, as determined by
      such Indemnitee in its sole discretion.

     

    (d)  The
      liability of Borrower to indemnify the Indemnitees shall not be limited or
      impaired by any of the following, or by any failure of Borrower or any guarantor
      to receive notice of or consideration for any of the following:

     

    (i)  Any
      amendment or modification of any Loan Document;

     

    (ii)  Any
      extensions of time for performance required by any of the Loan
      Documents;

     

    (iii)  The
      accuracy or inaccuracy of any representations and warranties made by Borrower
      under this Agreement or any other Loan Document;

     

    (iv)  The
      release of Borrower or any other Person, by Lender or by operation of law,
      from
      performance of any obligation under any of the Loan Documents;

     

    (v)  The
      release or substitution in whole or in part of any security for the Loan
      Obligations; or

     

    (vi)  Lender’s
      failure to properly perfect any lien or security interest given as security
      for
      the Loan Obligations; or

     

    (vii)  Any
      provision in any of the Loan Documents limiting Lender’s recourse to property
      securing the Loan or limiting the personal liability of Borrower or any party
      for payment of all or any part of the Loan.

     

    (e)  Borrower
      shall, at its own cost and expense, do all of the following:

     

    (i)  Pay
      or
      satisfy any judgment or decree that may be entered against any Indemnitee or
      Indemnitees in any legal or administrative proceeding incident to any matters
      against which Indemnitees are entitled to be indemnified under this Article
      VI,
      subject to Borrower’s right to lawfully defend and challenge same;

     

    (ii)  Reimburse
      Indemnitees for any reasonable expenses paid or incurred in connection with
      any
      matters against which Indemnitees are entitled to be indemnified under this
      Article VI; and

     

    (iii)  Reimburse
      Indemnitees for any and all reasonable expenses, including fees and costs of
      attorneys and expert witnesses, paid or incurred in connection with the
      enforcement by Indemnitees of their rights under this Article VI, or in
      monitoring and participating in any legal or administrative
      proceeding.

     

    (f)  In
      any
      circumstances in which the indemnity under this Article VI applies, Lender
      may
      employ its own legal counsel and consultants to prosecute, defend or negotiate
      any 

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

    claim
      or
      legal or administrative proceeding and Lender, with the prior written consent
      of
      Borrower (which shall not be unreasonably withheld, delayed or conditioned)
      may
      settle or compromise any action or legal or administrative proceeding. Borrower
      shall reimburse Lender upon demand for all reasonable costs and expenses
      incurred by Lender, including all costs of settlements entered into in good
      faith, and the reasonable fees and out of pocket expenses of such attorneys
      and
      consultants.

     

    (g)  The
      provisions of this Article VI shall be in addition to any and all other
      obligations and liabilities that Borrower may have under the applicable law
      or
      under the other Loan Documents, and each Indemnitee shall be entitled to
      indemnification under this Article VI without regard to whether Lender or that
      Indemnitee has exercised any rights against the Land and/or the Improvements
      or
      any other security, pursued any rights against any guarantor, or pursued any
      other rights available under the Loan Documents or applicable law. If Borrower
      consists of more than one Person or entity, the obligation of those Persons
      or
      entities to indemnify the Indemnitees under this Article VI shall be joint
      and
      several. The obligations of Borrower to indemnify the Indemnitees under this
      Article VI shall survive any repayment or discharge of the Loan Obligations,
      any
      foreclosure proceeding, any foreclosure sale, any delivery of any deed in lieu
      of foreclosure, and any release of record of the lien of the
      Mortgage.

     

    ARTICLE
      VII  

     

    EVENTS
      OF DEFAULT AND REMEDIES

     

    7.1  Events
      of Default.
      The
      occurrence of any one or more of the following shall constitute an “Event of
      Default” hereunder:

     

    (a)  The
      failure by Borrower to pay any installment of principal, interest, or other
      payments required under the Note, any Mortgage or any other Loan Document on
      the
      day such payment becomes due after the expiration of any applicable cure
      period;

     

    (b)  Any
      failure by Borrower to provide and maintain in full force and effect the
      insurance coverage required by Section 4.5(a) - (j), inclusive, of this
      Agreement;

     

    (c)  The
      violation by Borrower of any covenant set forth in Article V hereof;

     

    (d)  The
      failure by Borrower to deliver or cause to be delivered the financial statements
      and information set forth in Section 4.7 of this Agreement within the times
      required, and such failure is not cured within thirty (30) days following
      Lender’s written notice to Borrower thereof;

     

    (e)  The
      failure by Borrower or Guarantor to establish and maintain the capital
      expenditures reserve fund in accordance with Section 4.14 of this
      Agreement;

     

    (f)  The
      failure of Borrower properly and timely to perform or observe any covenant
      or
      condition set forth in this Agreement (other than those specified in this
      Section 7.1) or any of the other Loan Documents which failure is not cured
      within any applicable cure period as set forth herein or in such other Loan
      Document, or, if no cure period is specified therefor, is 

     

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

    not
      cured
      within thirty (30) days after notice to Borrower of such Default; provided,
      however, that if such Default cannot be cured within such thirty (30) day
      period, such cure period shall be extended for an additional sixty (60) days,
      as
      long as Borrower is diligently and in good faith prosecuting said cure to
      completion;

     

    (g)  The
      filing by Borrower, Guarantor or Manager of a voluntary petition, or the
      adjudication of any of the aforesaid Persons, or the filing by any of the
      aforesaid Persons of any petition or answer seeking or acquiescing in any
      reorganization, arrangement, composition, readjustment, liquidation, dissolution
      or similar relief for itself under any present or future federal, state or
      other
      statute, law or regulation relating to bankruptcy, insolvency or other relief
      for debtors, or if any of the aforesaid Persons should seek or consent to or
      acquiesce in the appointment of any trustee, receiver or liquidator for itself
      or of all or any substantial part of its property or of any or all of the rents,
      revenues, issues, earnings, profits or income thereof, or the mailing of any
      general assignment for the benefit of creditors or the admission in writing
      by
      any of the aforesaid Persons of its inability to pay its debts generally as
      they
      become due;

     

    (h)  The
      entry
      by a court of competent jurisdiction of an order, judgment, or decree approving
      a petition filed against Borrower, Guarantor or Manager which
      petition seeks any reorganization, arrangement, composition, readjustment,
      liquidation, dissolution or similar relief under any present or future federal,
      state or other statute, law or regulation relating to bankruptcy, insolvency,
      or
      other relief for debtors, which order, judgment or decree remains unvacated
      and
      unstayed for an aggregate of sixty (60) days (whether or not consecutive) from
      the date of entry thereof, or the appointment of any trustee, receiver or
      liquidator of any of the aforesaid Persons or of all or any substantial part
      of
      its properties or of any or all of the rents, revenues, issues, earnings,
      profits or income thereof which appointment shall remain unvacated and unstayed
      for an aggregate of sixty (60) days (whether or not consecutive); 

     

    (i)  Unless
      otherwise permitted hereunder or under any other Loan Documents, the sale,
      transfer, lease, assignment, or other disposition, voluntarily or involuntarily,
      of the Mortgaged Property, or any part thereof, except for Permitted
      Encumbrances as described in Section 5.2 above, or any further encumbrance
      of
      the Mortgaged Property (except for Permitted Encumbrances), unless the prior
      written consent of Lender is obtained; 

     

    (j)  Any
      certificate, statement, representation, warranty or audit heretofore or
      hereafter furnished by or on behalf of Borrower, Guarantor or Manager or any
      of
      their respective officers, directors or trustees pursuant to or in connection
      with this Agreement (including, without limitation, representations and
      warranties contained herein or in any Loan Documents) or as an inducement to
      Lender to make the Loan to Borrowers, (i) proves to have been false in any
      material respect at the time when the facts therein set forth were stated or
      certified, or (ii) proves to have omitted any substantial contingent or
      unliquidated liability or claim against Borrower, Guarantor or Manager or
      (iii) on the date of execution of this Agreement there shall have been any
      materially adverse change in any of the acts previously disclosed by any such
      certificate, statement, representation, warranty or audit, which change shall
      not have been disclosed to Lender in writing at or prior to the time of such
      execution; 

     

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

    (k)  The
      failure of Borrower to correct or to cause Manager to correct, within the time
      deadlines set by any applicable Medicare, Medicaid or licensing agency, any
      deficiency which would result in the following actions by such agency with
      respect to the Facility;

     

    (i)  a
      termination of any Reimbursement Contract or any Permit; or

     

    (ii)  a
      ban on
      new admissions generally or, if applicable, on admission of patients otherwise
      qualifying for Medicare or Medicaid coverage;

     

    (l)  The
      assessment against Borrower, Manager, or the Facility of any fines or penalties
      by any state or any Medicare, Medicaid, health or licensing agency having
      jurisdiction over such Persons or the Facility in excess of $150,000;

     

    (m)  A
      final
      judgment is rendered by a court of law or equity against Borrower, Guarantor
      or
      Manager in excess of $250,000.00, and the same remains undischarged for a period
      of thirty (30) days, unless such judgment is either (i) fully covered by
      collectible insurance and such insurer has within such period acknowledged
      such
      coverage in writing, or (ii) although not fully covered by insurance,
      enforcement of such judgment has been effectively stayed, such judgment is
      being
      contested or appealed by appropriate proceedings and Borrower, Guarantor or
      Manager as the case may be, has established reserves adequate for payment in
      the
      event such Person is ultimately unsuccessful in such contest or appeal and
      evidence thereof is provided to Lender; 

     

    (n)  The
      occurrence of any material adverse change in the financial condition or
      prospects of Borrower or Guarantor or Manager, or the existence of any other
      condition which, in Lender’s reasonable determination, constitutes a material
      impairment of any such Person’s ability to operate the Facility or of such
      Person’s ability to perform their respective obligations under the Loan
      Documents, which is not remedied within thirty (30) days after written notice;
      

     

    (o)  The
      occurrence of an Event of Default under, and as defined in the documents related
      to, the Subordinated Debt; or

     

    (p)  The
      violation of any covenant in the Intercreditor Agreement.

     

    Notwithstanding
      anything in this Section, all requirements of notice shall be deemed eliminated
      if Lender is prevented from declaring an Event of Default by bankruptcy or
      other
      applicable law. The cure period, if any, shall then run from the occurrence
      of
      the event or condition of Default rather than from the date of
      notice.

     

    Notwithstanding
      anything in this Section, the occurrence of any one or more of the events
      described in subsections l and m above with respect to any one or more Facility
      (ies) shall not constitute an Event of Default unless such occurrence(s) is/are
      of a magnitude as to have material adverse effect on the Facilities in the
      aggregate, as determined by Lender in its reasonable discretion.

     

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

    7.2  Remedies.
      Upon
      the occurrence of any one or more of the foregoing Events of Default, Lender
      may, at its option:

     

    (a)  Declare
      the entire unpaid principal of the Loan Obligations to be, and the same shall
      thereupon become, immediately due and payable, without presentment, protest
      or
      further demand or notice of any kind, all of which are hereby expressly waived;
      and/or

     

    (b)  Proceed
      to protect and enforce its rights by action at law (including, without
      limitation, bringing suit to reduce any claim to judgment), suit in equity
      and
      other appropriate proceedings including, without limitation, for specific
      performance of any covenant or condition contained in this Agreement;
      and/or

     

    (c)  Exercise
      any and all rights and remedies afforded by the laws of the United States,
      the
      states in which any of the Mortgaged Property is located or any other
      appropriate jurisdiction as may be available for the collection of debts and
      enforcement of covenants and conditions such as those contained in this
      Agreement and the Loan Documents; and/or

     

    (d)  Exercise
      the rights and remedies of setoff and/or banker’s lien against the interest of
      Borrower in and to every account and other property of Borrower which is in
      the
      possession of Lender or any Person who then owns a participating interest in
      the
      Loan, to the extent of the full amount of the Loan; and/or

     

    (e)  Exercise
      its rights and remedies pursuant to any other Loan Documents.

     

    7.3  Segregation
      of Obligations.
      The
      Facilities are located in five (5) different states, with the Mortgage related
      to a particular Facility being governed by the laws of the State where the
      Facility is located. It is the intent of the parties to avoid triggering what
      is
      known in some states as “one action” rules by including in a foreclosure of any
      Borrower’s Mortgage, the obligations of any other Borrower under this Agreement.
      Accordingly, each Borrower’s liability hereunder shall only include the
      obligations under this Agreement that pertain to such Borrower and such
      Borrower’s assets only and shall not include obligations under this Agreement
      that pertain to any other Borrower or its assets, with the result that no
      Borrower shall be personally liable for any other Borrower’s obligations under
      this Agreement. It is agreed, however, that the Default of any one Borrower
      hereunder shall constitute a Default by the other Borrowers.

     

    

     

    ARTICLE
      VIII  

     

    MISCELLANEOUS

     

    8.1  Waiver.
      No
      remedy conferred upon, or reserved to, a party in this Agreement or any of
      the
      other Loan Documents is intended to be exclusive of any other remedy or
      remedies, and each and every remedy shall be cumulative and shall be in addition
      to every other remedy given hereunder or now or hereafter existing in law or
      in
      equity. Exercise of or omission to exercise any right of a party shall not
      affect any subsequent right of such party to exercise the same. No course of
      dealing between Borrower and Lender or any delay on a party’s part in exercising
      any 

     

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

    rights
      shall operate as a waiver of any of such party’s rights. No waiver of any
      Default under this Agreement or any of the other Loan Documents shall extend
      to
      or shall affect any subsequent or other, then existing, Default or shall impair
      any rights, remedies or powers of either party.

     

    8.2  Costs
      and Expenses.
      Each
      Borrower will bear all taxes, fees and expenses (including actual, reasonable
      attorneys’ fees and expenses of counsel for Lender) in connection with the Loan,
      the Note, the preparation of this Agreement and the other Loan Documents
      (including any amendments hereafter made), and in connection with any
      modifications thereto and the recording of any of the Loan Documents. If, at
      any
      time, a Default occurs or Lender becomes a party to any suit or proceeding
      in
      order to protect its interests or priority in any collateral for any of the
      Loan
      Obligations or its rights under this Agreement or any of the Loan Documents,
      or
      if Lender is made a party to any suit or proceeding by virtue of the Loan,
      this
      Agreement or any Mortgaged Property and as a result of any of the foregoing,
      Lender employs counsel to advise or provide other representation with respect
      to
      this Agreement, or to collect the balance of the Loan Obligations, or to take
      any action in or with respect to any suit or proceeding relating to this
      Agreement, any of the other Loan Documents, any Mortgaged Property, Borrower,
      Guarantor or Manager, or to protect, collect, or liquidate any of the security
      for the Loan Obligations, or attempt to enforce any security interest or lien
      granted to Lender by any of the Loan Documents, then in any such events, all
      of
      the actual, reasonable attorney’s fees arising from such services, including
      attorneys’ fees for preparation of litigation and in any appellate or bankruptcy
      proceedings, and any reasonable expenses, costs and charges relating thereto
      shall constitute additional obligations of Borrowers to Lender payable on demand
      of Lender. Without limiting the foregoing, each Borrower has undertaken the
      obligation for payment of, and shall pay, all recording and filing fees, revenue
      or documentary stamps or taxes, intangibles taxes, and other taxes, expenses
      and
      charges payable in connection with this Agreement, any of the Loan Documents,
      the Loan Obligations, or the filing of any financing statements or other
      instruments required to effectuate the purposes of this Agreement, and should
      Borrowers fail to do so, Borrowers agree to reimburse Lender for the amounts
      paid by Lender, together with penalties or interest, if any, incurred by Lender
      as a result of underpayment or nonpayment. Such amounts shall constitute a
      portion of the Loan Obligations, shall be secured by the Mortgage and shall
      bear
      interest at the Default Rate (as defined in the Note) from the date advanced
      until repaid.

     

    8.3  Performance
      of Lender.
      At its
      option, upon Borrowers’ failure to do so, Lender may make any payment or do any
      act on Borrowers’ behalf that Borrower or others are required to do to remain in
      compliance with this Agreement or any of the other Loan Documents, and Borrower
      agrees to reimburse Lender, on demand, for any payment made or expense incurred
      by Lender pursuant to the foregoing authorization, including, without
      limitation, actual, reasonable attorneys’ fees, and until so repaid any sums
      advanced by Lender shall constitute a portion of the Loan Obligations, shall
      be
      secured by the Mortgage and shall bear interest at the Default Rate (as defined
      in the Note) from the date advanced until repaid.

     

    8.4  Indemnification.
      Borrowers shall, at their sole cost and expense, protect, defend, indemnify
      and
      hold harmless the Indemnified Parties from and against any and all claims,
      suits, liabilities (including, without limitation, strict liabilities), actions,
      proceedings, obligations, 

     

    
      
        
        

      

      
        40

        
          

        

      

      
        
        

      

    

    debts,
      damages, losses, costs, expenses, fines, penalties, charges, fees, expenses,
      judgments, awards, amounts paid in settlement, punitive damages, foreseeable
      and
      unforeseeable consequential damages, of whatever kind or nature (including
      but
      not limited to actual, reasonable attorneys’ fees and other costs of defense)
      imposed upon or incurred by or asserted against Lender by reason of
      (a) ownership of the Note, the Mortgage, the Mortgaged Property or any
      interest therein or receipt of any Rents, (b) any amendment to, or restructuring
      of, the Loan Obligations and/or any of the Loan Documents, (c) any and all
      lawful action that may be taken by Lender in connection with the enforcement
      of
      the provisions of the Mortgage or the Note or any of the other Loan Documents,
      whether or not suit is filed in connection with same, or in connection with
      Borrower, Guarantor, Manager and/or any partner, joint venturer, member or
      shareholder thereof becoming a party to a voluntary or involuntary federal
      or
      state bankruptcy, insolvency or similar proceeding, (d) any accident, injury
      to
      or death of persons or loss of or damage to property occurring in, on or about
      the Land, the Improvements or any part thereof or on the adjoining sidewalks,
      curbs, adjacent property or adjacent parking areas, streets or ways, (e) any
      use, nonuse or condition in, on or about the Land, the Improvements or any
      part
      thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent
      parking areas, streets or ways, (f) any failure on the part of Borrower,
      Guarantor or Manager to perform or comply with any of the terms of this
      Agreement or any of the other Loan Documents, (g) any claims by any broker,
      Person or entity claiming to have participated in arranging the making of the
      Loan evidenced by the Note, (h) any failure of the Land and/or Improvements
      to
      be in compliance with any applicable laws, (i) performance of any labor or
      services or the furnishing of any materials or other property with respect
      to
      the Land, the Improvements or any part thereof, (j) the failure of any
      Person to file timely with the Internal Revenue Service an accurate Form 1099-b,
      statement for recipients of proceeds from real estate, broker and barter
      exchange transactions, which may be required in connection with the Mortgage,
      or
      to supply a copy thereof in a timely fashion to the recipient of the proceeds
      of
      the transaction in connection with which the Loan is made, (k) any
      misrepresentation made to Lender in this Agreement or in any of the other Loan
      Documents, (l) any tax on the making and/or recording of the Mortgage, the
      Note
      or any of the other Loan Documents; (m) the violation of any requirements of
      the
      Employee Retirement Income Security Act of 1974, as amended, (n) any fines
      or
      penalties assessed or any corrective costs incurred by Lender if the Facility
      or
      any part of the Land and/or Improvements is determined to be in violation of
      any
      covenants, restrictions of record, or any applicable laws, ordinances, rules
      or
      regulations, or (o) the enforcement by any of the Indemnified Parties of the
      provisions of this Section 8.4. Any amounts payable to Lender by reason of
      the
      application of this Section 8.4, shall become immediately due and payable,
      and
      shall constitute a portion of the Loan Obligations, shall be secured by the
      Mortgage and shall accrue interest at the Default Rate (as defined in the Note).
      The obligations and liabilities of Borrower under this Section 8.4 shall survive
      any termination, satisfaction, assignment, entry of a judgment of foreclosure
      or
      exercise of a power of sale or delivery of a deed in lieu of foreclosure of
      the
      Mortgage. For purposes of this Section 8.4, the term “Indemnified Parties” means
      Lender and any Person who is or will have been involved in the origination
      of
      the Loan, any Person who is or will have been involved in the servicing of
      the
      Loan, any Person in whose name the encumbrance created by the Mortgage is or
      will have been recorded, any Person who may hold or acquire or will have held
      a
      full or partial interest in the Loan (including, without limitation, any
      investor in any securities backed in whole or in part by the Loan) as well
      as
      the respective directors, officers, shareholder, 

     

    
      
        
        

      

      
        41

        
          

        

      

      
        
        

      

    

    partners,
      members, employees, agents, servants, representatives, contractors,
      subcontractors, affiliates, subsidiaries, participants, successors and assigns
      of any and all of the foregoing (including, without limitation, any other Person
      who holds or acquires or will have held a participation or other full or partial
      interest in the Loan or the Mortgaged Property, whether during the term of
      the
      Mortgage or as a part of or following a foreclosure of the Loan and including,
      without limitation, any successors by merger, consolidation or acquisition
      of
      all or a substantial portion of Lender’s assets and business).

     

    8.5  Headings.
      The
      headings of the Sections of this Agreement are for convenience of reference
      only, are not to be considered a part hereof, and shall not limit or otherwise
      affect any of the terms hereof.

     

    8.6  Survival
      of Covenants.
      All
      covenants, agreements, representations and warranties made herein and in
      certificates or reports delivered pursuant hereto shall be deemed to have been
      material and relied on by Lender, notwithstanding any investigation made by
      or
      on behalf of Lender, and shall survive the execution and delivery to Lender
      of
      the Note and this Agreement.

     

    8.7  Notices,
      etc.
      Any
      notice or other communication required or permitted to be given by this
      Agreement or the other Loan Documents or by applicable law shall be in writing
      and shall be deemed received (a) on the date delivered, if sent by hand delivery
      (to the person or department if one is specified below) with receipt
      acknowledged by the recipient thereof, (b) three (3) Business Days following
      the
      date deposited in U.S. mail, certified or registered, with return receipt
      requested, or (c) one (1) Business Day following the date deposited with Federal
      Express or other national overnight carrier, and in each case addressed as
      follows:

     

    If
      to
      Borrower:

     

    Emeritus
      Corporation

    3131
      Elliott Avenue, #500

    Seattle,
      WA 98121

    Attention: Eric
      Mendelsohn, Director of

    Real
      Estate and Business Legal Affairs

    

    with
      a
      copy to:

    

    Pircher,
      Nichols & Meeks

    900
      N.
      Michigan Avenue, Suite 1050

    Chicago,
      IL 60611

    Attention:
      Real Estate Notices (JDL/KMR)

    Fax: 312-915-3348

    

    If
      to
      Lender:

     

    Capmark
      Bank

    200
      Witmer Road

    P.O.
      Box
      1015

    
      
        
        

      

      
        42

        
          

        

      

      
        
        

      

    

    Horsham,
      Pennsylvania 19044-0809

    Attn:
      Servicing - Accounting Manager

    

    with
      a
      copy to:

     

    Kay
      K.
      Bains

    Bradley
      Arant Rose & White LLP

    One
      Federal Place

    1819
      Fifth Avenue North 

    Birmingham,
      AL 35203

    Phone:
      205-521-8220

    Fax:
      205-488-6220

    

    Either
      party may change its address to another single address by notice given as herein
      provided, except any change of address notice must be actually received in
      order
      to be effective.

     

    8.8  Benefits.
      All of
      the terms and provisions of this Agreement shall bind and inure to the benefit
      of the parties hereto and their respective successors and assigns. No Person
      other than Borrowers or Lender shall be entitled to rely upon this Agreement
      or
      be entitled to the benefits of this Agreement.

     

    8.9  Participation.
      Each
      Borrower acknowledges that Lender may, at its option, sell participation
      interests in the Loan to other participating lenders, which participations
      may
      be sold without Borrower’s consent, or Lender may (but shall not be obligated
      to) assign its interest in the Loan to other assignees (the “Assignee”) to be
      included as a pool of properties to be financed in a proposed Real Estate
      Mortgage Investment Conduit (REMIC), but any such assignment to a REMIC shall
      require Borrower’s consent, not to be unreasonably withheld, conditioned or
      delayed. Each Borrower agrees with each present and future participant in the
      Loan or Assignee of the Loan that if an Event of Default should occur, each
      present and future participant or Assignee shall have all of the rights and
      remedies of Lender with respect to any deposit due from Borrower. The execution
      by a participant of a participation agreement with Lender, and the execution
      by
      Borrower of this Agreement, regardless of the order of execution, shall evidence
      an agreement between Borrower and said participant in accordance with the terms
      of this Section. If the Loan is assigned to the Assignee, the Assignee will
      engage an underwriter (the “Underwriter”), who will be responsible for the due
      diligence, documentation, preparation and execution of certain documents
      required in connection with the offering of interests in the REMIC. Borrower
      agrees that if Lender assigns its interest in the Loan to the Assignee for
      inclusion in the REMIC, with Borrower’s consent as required herein, Borrower
      agrees to provide the Assignee with such information as may be reasonably
      required by the Underwriter in connection therewith or by an investor in any
      securities backed in whole or in part by the Loan or any rating agency rating
      such securities. Borrower irrevocably waives any and all right it may have
      under
      applicable law to prohibit such disclosure, including, but not limited to,
      any
      right of privacy, and consents to the disclosure of such information to the
      Underwriter, to potential investors in the REMIC, and to such rating
      agencies.

     

    
      
        
        

      

      
        43

        
          

        

      

      
        
        

      

    

    8.10  Supersedes
      Prior Agreements; Counterparts.
      This
      Agreement and the instruments referred to herein supersede and incorporate
      all
      representations, promises and statements, oral or written, made by Lender in
      connection with the Loan, specifically including, without limitation, the
      Original Loan Agreement. This Agreement may not be varied, altered, or amended
      except by a written instrument executed by an authorized officer of Lender.
      This
      Agreement may be executed in any number of counterparts, each of which, when
      executed and delivered, shall be an original, but such counterparts shall
      together constitute one and the same instrument.

     

    8.11  Loan
      Agreement Governs.
      The
      Loan is governed by the terms and provisions set forth in this Loan Agreement
      and the other Loan Documents and in the event of any irreconcilable conflict
      between the terms of the other Loan Documents and the terms of this Loan
      Agreement, the terms of this Loan Agreement shall control; provided, however,
      that in the event that there is any apparent conflict between any particular
      term or provision which appears in both this Loan Agreement and the other Loan
      Documents and it is possible and reasonable for the terms of both this Loan
      Agreement and the Loan Documents to be performed or complied with, then,
      notwithstanding the foregoing, both the terms of this Loan Agreement and the
      other Loan Documents shall be performed and complied with.

     

    8.12  CONTROLLING
      LAW.
      THE PARTIES HERETO AGREE THAT THE VALIDITY, INTERPRETATION, ENFORCEMENT AND
      EFFECT OF THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
      WITH,
      THE LAWS OF THE STATE OF WASHINGTON AND THE PARTIES HERETO SUBMIT (AND WAIVE
      ALL
      RIGHTS TO OBJECT) TO NON-EXCLUSIVE PERSONAL JURISDICTION IN THE STATE OF
      WASHINGTON, FOR THE ENFORCEMENT OF ANY AND ALL OBLIGATIONS UNDER THE LOAN
      DOCUMENTS, EXCEPT THAT IF ANY SUCH ACTION OR PROCEEDING ARISES UNDER THE
      CONSTITUTION, LAWS OR TREATIES OF THE UNITED STATES OF AMERICA, OR IF THERE
      IS A
      DIVERSITY OF CITIZENSHIP BETWEEN THE PARTIES THERETO, SO THAT IT IS TO BE
      BROUGHT IN A UNITED STATES DISTRICT COURT, IT SHALL BE BROUGHT IN THE UNITED
      STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF WASHINGTON OR ANY SUCCESSOR
      FEDERAL COURT HAVING ORIGINAL JURISDICTION.

     

    8.13  WAIVER
      OF JURY TRIAL.
      BORROWER AND LENDER HEREBY WAIVE ANY RIGHT THAT EITHER OR BOTH MAY HAVE TO
      A
      TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM, SETOFF, DEMAND, ACTION OR CAUSE OF
      ACTION (A) ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE LOAN,
      OR (B) IN ANY WAY CONNECTED WITH OR PERTAINING OR RELATED TO OR INCIDENTAL
      TO
      ANY DEALINGS OF LENDER AND/OR BORROWER WITH RESPECT TO THE LOAN DOCUMENTS OR
      IN
      CONNECTION WITH THIS AGREEMENT OR THE EXERCISE OF EITHER PARTY’S RIGHTS AND
      REMEDIES UNDER THIS AGREEMENT OR OTHERWISE OR THE CONDUCT OR THE RELATIONSHIP
      OF
      THE PARTIES HERETO, IN ALL OF THE FOREGOING CASES WHETHER NOW EXISTING OR
      HEREAFTER ARISING AND WHETHER 

     

    
      
        
        

      

      
        44

        
          

        

      

      
        
        

      

    

    SOUNDING
      IN CONTRACT, TORT OR OTHERWISE. BORROWER AGREES THAT LENDER MAY FILE A COPY
      OF
      THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY,
      AND
      BARGAINED AGREEMENT OF BORROWER IRREVOCABLY TO WAIVE ITS RIGHTS TO TRIAL BY
      JURY
      AS AN INDUCEMENT TO LENDER TO MAKE THE LOAN, AND THAT, TO THE EXTENT PERMITTED
      BY APPLICABLE LAW, ANY DISPUTE OR CONTROVERSY WHATSOEVER (WHETHER OR NOT
      MODIFIED HEREIN) BETWEEN BORROWER AND LENDER SHALL INSTEAD BE TRIED IN A COURT
      OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A
      JURY.

     

    8.14  Governing
      Law Regarding Remedies.Notwithstanding
      anything to the contrary in the Note, the Guaranty Agreement and this Agreement,
      the law governing the Mortgages shall be applicable to the rights of Lender
      to
      seek a deficiency judgment pursuant to the Loan Documents following foreclosure
      or other realization proceedings pursuant to the Mortgages and the right to
      pursue one or more remedies against one or more Borrowers under the
      Mortgages.

     

    8.15  Reasonable
      Discretion.
      As
      applied to this Agreement and the Loan Documents, Lender shall be deemed to
      have
      exercised reasonable discretion or shall be deemed to have given its reasonable
      consent if Lender's actions are consistent with the standard of care that Lender
      employs in connection with its exercise of rights and remedies with other
      borrowers and loans of similar structure, size, complexity and number of
      facilities.

     

    [SIGNATURES
      BEGIN ON NEXT PAGE]

     

    
      
        
        

      

      
        45

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      Borrowers and Lender have caused this Agreement to be properly executed by
      their
      respective duly authorized representatives as of the date first above
      written.

     

    PLEASE
      BE ADVISED THAT ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND
      CREDIT, OR FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE UNENFORCEABLE UNDER
      WASHINGTON LAW.

     

    

     

    

    CAPMARK
      BANK, a
      Utah
      industrial bank

    

    

    By: _/s/
      Malana C. Bryant______(Seal)

    Name: Malana
      C.
      Bryant__________

    Its: Authorized
      Signer

    
      
        
        

      

      
        46

        
          

        

      

      
        
        

      

    

    BORROWER:

     

    EMERIHRT
      HENDERSON LP,

    a
      Delaware limited partnership

    

    By: ESC
      G.P.
      II, Inc.,

    a
      Washington corporation

    its
      General Partner

    

    By:
/s/
      Eric
      Mendelsohn _____

    Eric
      Mendelsohn,

    Authorized
      Signatory

    
      
        
        

      

      
        47

        
          

        

      

      
        
        

      

    

    BORROWER:

     

    EMERIHRT
      MEDICAL CENTER LP,

    a
      Delaware limited partnership

    

    By: ESC
      G.P.
      II, Inc.,

    a
      Washington corporation

    its
      General Partner

    

    By:
_/s/
      Eric
      Mendelsohn _____

    Eric
      Mendelsohn,

    Authorized
      Signatory

    
      
        
        

      

      
        48

        
          

        

      

      
        
        

      

    

    BORROWER:

     

    

    EMERIHRT
      OAKWELL FARMS LP,

    a
      Delaware limited partnership

    

    By: ESC
      G.P.
      II, Inc.,

    a
      Washington corporation

    its
      General Partner

    

    By:
_/s/
      Eric
      Mendelsohn ____

    Eric
      Mendelsohn,

    Authorized
      Signatory

    
      
        
        

      

      
        49

        
          

        

      

      
        
        

      

    

    BORROWER:

     

    EMERIHRT
      STONEBRIDGE RANCH LP,

    a
      Delaware limited partnership

    

    By: ESC
      G.P.
      II, Inc.,

    a
      Washington corporation

    its
      General Partner

    

    By:
_/s/
      Eric
      Mendelsohn _

    Eric
      Mendelsohn,

    Authorized
      Signatory

    
      
        
        

      

      
        50

        
          

        

      

      
        
        

      

    

    

    BORROWER:

    

     

    EMERIHRT
      BLOOMSBURG LLC,

    a
      Delaware limited liability company

    

    By: Emeritus
      Corporation,

    a
      Washington corporation

    its
      Sole
      Member

    

    By:
_/s/
      Eric
      Mendelsohn ______

    Eric
      Mendelsohn,

    Director
      of Real Estate and Legal Affairs

    
      
        
        

      

      
        51

        
          

        

      

      
        
        

      

    

    BORROWER:

     

    

    EMERIHRT
      CREEKVIEW LLC,

    a
      Delaware limited liability company

    

    By: Emeritus
      Corporation,

    a
      Washington corporation

    its
      Sole
      Member

    

    By:
_/s/
      Eric
      Mendelsohn ____

    Eric
      Mendelsohn,

    Director
      of Real Estate and Legal Affairs

    
      
        
        

      

      
        52

        
          

        

      

      
        
        

      

    

    BORROWER:

     

    

    EMERIHRT
      DANVILLE LLC,

    a
      Delaware limited liability company

    

    By: Emeritus
      Corporation,

    a
      Washington corporation

    its
      Sole
      Member

    

    By:
_/s/
      Eric
      Mendelsohn __

    Eric
      Mendelsohn,

    Director
      of Real Estate and Legal Affairs

    
      
        
        

      

      
        53

        
          

        

      

      
        
        

      

    

    

    BORROWER:

    

     

    EMERIHRT
      GREENSBORO LLC,

    a
      Delaware limited liability company

    

    By: Emeritus
      Corporation,

    a
      Washington corporation

    its
      Sole
      Member

    

    By:_/s/
      Eric
      Mendelsohn ____

    Eric
      Mendelsohn,

    Director
      of Real Estate and Legal Affairs

    
      
        
        

      

      
        54

        
          

        

      

      
        
        

      

    

    BORROWER:

     

    

    EMERIHRT
      HARRISBURG LLC,

    a
      Delaware limited liability company

    

    By: Emeritus
      Corporation,

    a
      Washington corporation

    its
      Sole
      Member

    

    By:
/s/
      Eric
      Mendelsohn ____

    Eric
      Mendelsohn,

    Director
      of Real Estate and Legal Affairs

    
      
        
        

      

      
        55

        
          

        

      

      
        
        

      

    

    BORROWER:

     

    

     

    EMERIHRT
      HARRISONBURG LLC,

    a
      Delaware limited liability company

    

    By: Emeritus
      Corporation,

    a
      Washington corporation

    its
      Sole
      Member

    

    By:
      _/s/
      Eric
      Mendelsohn _____

    Eric
      Mendelsohn,

    Director
      of Real Estate and Legal Affairs

    
      
        
        

      

      
        56

        
          

        

      

      
        
        

      

    

    BORROWER:

     

    

     

    EMERIHRT
      RAVENNA LLC,

    a
      Delaware limited liability company

    

    By: Emeritus
      Corporation,

    a
      Washington corporation

    its
      Sole
      Member

    

    By:
/s/
      Eric
      Mendelsohn _____

    Eric
      Mendelsohn,

    Director
      of Real Estate and Legal Affairs

    
      
        
        

      

      
        57

        
          

        

      

      
        
        

      

    

    BORROWER:

     

    EMERIHRT
      ROANOKE LLC,

     

    a
      Delaware limited liability company

     

    

    By: Emeritus
      Corporation,

    a
      Washington corporation

    its
      Sole
      Member

    

    By:
/s/
      Eric
      Mendelsohn _____

    Eric
      Mendelsohn,

    Director
      of Real Estate and Legal Affairs

    

    

    
      
        
        

      

      
        58

        
          

        

      

      
        
        

      

    

    SCHEDULE
      A

    [List
      of
      Borrowers]

    

    

    EMERIHRT
      HENDERSON LP

     

    EMERIHRT
      MEDICAL CENTER LP

     

    EMERIHRT
      OAKWELL FARMS LP

     

    EMERIHRT
      STONEBRIDGE RANCH LP

     

    EMERIHRT
      BLOOMSBURG LLC

     

    EMERIHRT
      CREEKVIEW LLC

     

    EMERIHRT
      DANVILLE LLC

     

    EMERIHRT
      GREENSBORO LLC

     

    EMERIHRT
      HARRISBURG LLC

     

    EMERIHRT
      HARRISONBURG LLC

     

    EMERIHRT
      RAVENNA LLC

     

    EMERIHRT
      ROANOKE LLC

     

    
      
        
        

      

      
        59

        
          

        

      

      
        
        

      

    

    SCHEDULE
      B

    

    [LIST
      OF FACILITIES]

    

    
      	
              Facility

            	
              Address
                of Facility

            	
              Number
                of Units/Beds

            
	
              Kingsley
                Place at Oakwell Farms

            	
              3360
                Oakwell Court

              San
                Antonio, TX

            	
              34
                units/136 beds

            
	
              Kingsley
                Place at Henderson

            	
              1000
                Richardson Dr.

              Henderson,
                TX

            	
              21
                units/80 beds

            
	
              Kingsley
                Place at Stonebridge Ranch

            	
              1650
                Stonebridge Dr.

              McKinney,
                TX

            	
              136
                beds

            
	
              Kingsley
                Place at Medical Center

            	
              9000
                Floyd Curl Dr.

              San
                Antonio, TX

            	
              136
                units/24 beds

            
	
              Loyalton
                of Greensboro

            	
              3823
                Lawndale Dr.

              Greensboro,
                NC

            	
              70
                beds

            
	
              Loyalton
                of Ravenna

            	
              141
                Chestnut Hill Dr. 

              Ravenna,
                OH

            	
              60
                units

            
	
              Loyalton
                of Bloomsburg

            	
              420
                Shaffer Road

              Bloomsburg,
                PA

            	
              67
                units

            
	
              Loyalton
                of Creekview

            	
              1100
                Grandon Way

              Mechanicsburg,
                PA

            	
              120
                units

            
	
              Loyalton
                of Danville

            	
              432
                Hermitage Dr.

              Danville,
                VA

            	
              120
                units

            
	
              Loyalton
                of Harrisburg

            	
              3560
                N. Progressive Ave

              Harrisburg,
                PA

            	
              65
                units

            
	
              Loyalton
                of Harrisonburg

            	
              2101
                Deyerle Ave

              Harrisonburg,
                PA

            	
              114
                units

            
	
              Loyalton
                of Roanoke

            	
              3585
                Brambleton Ave

              Roanoke,
                VA

            	
              118
                units

            

    

    

    

    
      
        
        

      

      
        60

        
          

        

      

      
        
        

      

    

    

     

    EXHIBIT
      “A”

     

    

     

    LEGAL
      DESCRIPTION

     

    [Legal
      Descriptions of the 12 Mortgages are incorporated herein by
      reference]

     

    
      
        
        

      

      
        61

        
          

        

      

      
        
        

      

    

    EXHIBIT
      “B”

     

    

     

    BORROWER’S
      CHIEF EXECUTIVE OFFICE

     

    Emeritus
      Corporation

    3131
      Elliott Avenue, #500

    Seattle,
      WA 98121

    Attention: Eric
      Mendelsohn, Director of

    Real
      Estate and Business Legal Affairs

    

    

     

    
      
        
        

      

      
        62

        
          

        

      

      
        
        

      

    

    EXHIBIT
      “C”

     

    

     

    OWNERSHIP
      INTERESTS IN BORROWER

     

    Each
      of
      the Borrowers, its sole member or its general partner is 100% owned by Emeritus
      Corporation, a Washington corporation.

     

    
      
        
        

      

      
        63

        
          

        

      

      
        
        

      

    

    

     

    

     

    EXHIBIT
      “D”

     

    

     

    QUARTERLY
      FINANCIAL STATEMENT AND CENSUS DATA

     

    
      	
              Facility
                Name:

            	
              (7)
                

            
	
              Management
                Company:

            	
              (13)
                

            
	
              Report
                Date:

            	 

    

    

    
      	 	 	
              Quarter

              Ending

              (Date)

            	 	
              Quarter

              Ending

              (Date)

            	 	
              Quarter

              Ending

              (Date)

            	 	
              Quarter

              Ending

              (Date)

            	 	
              12
                Mths.

              Ending

              (Date)

            
	 	
              Census
                Data

            	 	 	 	 	 	 	 	 	 
	 	
              Total
                Number of Beds (Units)

            	 	 	 	 	 	 	 	 	 
	 	
              Number
                of Days in Period

            	 	 	 	 	 	 	 	 	 
	 	
              Total
                Resident Days Available

            	 	 	 	 	 	 	 	 	 
	 	
              Resident
                Utilization Days

            	 	 	 	 	 	 	 	 	 
	 	
              Medicaid

            	 	 	 	 	 	 	 	 	 
	 	
              Private

            	 	 	 	 	 	 	 	 	 
	 	
              Medicare

            	 	 	 	 	 	 	 	 	 
	 	
              Other
                Payor (Specify)

            	 	 	 	 	 	 	 	 	 
	 	
              Total
                Utilization Days

            	 	 	 	 	 	 	 	 	 
	 	
              Average
                Occupancy

            	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	
              Debt
                Service Coverage Analysis

            	 	 	 	 	 	 	 	 	 
	
              (C)

            	
              Net
                Routine Patient (Resident) Revenue

            	 	 	 	 	 	 	 	 	 
	 	
              Other
                Revenues

            	 	 	 	 	 	 	 	 	 
	 	
              Total
                Revenues

            	 	 	 	 	 	 	 	 	 
	 	
              Total
                Expenses

            	 	 	 	 	 	 	 	 	 
	 	
              Pre-Tax
                Income

            	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	
              Add
                Back

            	 	 	 	 	 	 	 	 	 
	 	
              Depreciation
                and Amortization

            	 	 	 	 	 	 	 	 	 
	 	
              Interest
                on CAPMARK loan (or Facility Lease Expense)

            	 	 	 	 	 	 	 	 	 
	 	
              Extraordinary
                Items

            	 	 	 	 	 	 	 	 	 
	
              (A)

            	
              Net
                Operating Income after Actual Management Fees

            	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	
              (B)

            	
              Principal
                and Interest payments due for the period

            	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	
              (A)
                (B)

            	
              Debt
                Service Coverage after Actual Mgmt. Fees

            	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	
              (A)

            	
              Net
                Operating Income after Actual Management Fees

            	 	 	 	 	 	 	 	 	 
	
              +

            	
              Add
                Back

            	 	 	 	 	 	 	 	 	 
	 	
              Actual
                Management Fees

            	 	 	 	 	 	 	 	 	 
	
              -

            	
              Less

            	 	 	 	 	 	 	 	 	 
	
              (C)
                * 5%

            	
              Assumed
                Management Fees (1)

            	 	 	 	 	 	 	 	 	 
	
              (D)

            	
              Net
                Operating Income after Assumed Management Fees

            	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	
              (D)
                (B)

            	
              Debt
                Service Coverage after Assumed Mgmt. Fees

            	 	 	 	 	 	 	 	 	 

    

     

    I
      certify
      the above to be true and correct. Dated this _____ day of
      _______________.

     

    
      	
              By:

            	 
	
              Name:

            	 
	
              Title:

            	 

    

     

    (1)
      Percentage used as defined in definitions section of Loan
      Agreement.

     

    
      
        
        

      

      
        64

        
          

        

      

      
        
        

      

    

    

    
      
        
        

      

      
        65

        
          

        

      

      
        
        

        
        

      

    

    EXHIBIT
      “E”

    

    COMPLIANCE
      CERTIFICATE

    

    Capmark
      Bank

    2801
      Highway 280 South, Suite 305

    Birmingham,
      AL 35223

    

    
      	 	
              Re:

            	
              Loan
                Agreement dated _____________, 2007 (together with amendments, if
                any, the
                “Loan Agreement”), by and between Capmark Bank, as Lender, and the
                Borrowers listed on Schedule A

            

    

     

    The
      undersigned officer of the above-named Borrower, does hereby certify that for
      the quarterly financial period ending __________________:

     

    1. No
      Default or Event of Default has occurred or exists except
      _____________.

     

    2. [ANNUAL
      COMPLIANCE CERTIFICATE ONLY]
      The
      capital expenditures per [bed]
      unit
      are:

     

    
      	 	
              Required:

            	
              $300
                per unit.

            

    

    
      	 	
              Actual:
                

            	
              $______
                per unit.

            

    

     

    Evidence
      of such capital expenditures is attached hereto.

     

    3. The
      outstanding principal balance of all Indebtedness (other than the Loan) of
      Borrower is $___________, consisting of the following:

     

    [Describe
      each debt and the balance thereof.]

     

    4. If
      Borrower is a partnership, the outstanding principal balance of all indebtedness
      of the Borrower to its partners as of the date hereof is
      $____________.

     

    5. All
      representations and warranties made by Borrower in the Loan Agreement and in
      other Loan Documents are true and correct in all material respects as though
      given on the date hereof, except ________________________.

     

    6. All
      information provided herein is true and correct.

     

    7. Capitalized
      terms not defined herein shall have the meanings given to such terms in the
      Loan
      Agreement.

     

    Dated
      this ______ day of _____________________, _______. 

     

    By:      

    Name:      

    Title:      

    
      
        
        

      

      
        66

        
          

        

      

      
        
        

      

    

    SCHEDULE
      4.12

    

    

    

    HRT
      Immediate Repairs

    LandAmerica
      Assessment Corporation (LAC) prepared Property Condition Assessments on all
      12
      properties in January 2007. All properties were found to be in good condition
      with a total of $114,000 in Immediate Repairs for all properties. The repairs
      were concentrated in 6 facilities as summarized below.

     

    
      	
              Facility

            	
              Description
                of Repair

            	
              Cost

            
	
              Loyalton
                of Creekview

            	
              All
                on-going and planned roof repairs budgeted for the next 6
                months

            	
              $6,000

            
	
              Loyalton
                of Greensboro

            	
              Asphalt
                pavement repair; verify recall sprinkler heads not in use; update
                wireless
                nurse call system

            	
              $14,000

            
	
              Loyalton
                of Harrisburg

            	
              Repair
                concrete sidewalks

            	
              $6,000

            
	
              Loyalton
                of Ravenna

            	
              Reseal
                asphalt pavement and restriping of parking lot

            	
              $3,000

            
	
              Loyalton
                of Roanoke

            	
              Licensed
                plumbing inspection to determine cause of premature copper piping
                deterioration

            	
              $5,000

            
	
              Kingsley
                Place at Medical Center

            	
              Replacement
                of common area carpet

            	
              $80,000

            
	
              Total

            	 	
              $114,000

            

    

    

    

    
      
        
        

      

      
        67

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